PORTLAND – A social service agency says its decision to lay off at least 40 of its more than 1,200 employees was prompted by actions by the state.

Sweetser, a health care organization based in Saco, said slightly more than half the layoffs were triggered by a cutoff of Department of Health and Human Services referrals to group homes for children.

Sweetser has closed its homes for troubled children in York, Sanford, Kennebunk, Saco, Gorham and Belfast, spokeswoman Celeste Viger said. It also will close its case management program for adult mental retardation and an outpatient treatment program for substance abuse.

On Sweetser’s Belfast campus, the Community Residence for Children is the only department that might be affected, Viger said.

“We’re not pulling out of Belfast by any means whatsoever. We’ll continue to operate services for adults and families and we’ll continue to operate our special education school,” Viger said.

The Belfast Community Residence for Children can accommodate five children and nine staff members, Viger said. She declined to say how many students and children would be affected by the layoffs.

Sweetser does not intend to sell the Community Residence for Children, Viger said.

In announcing the layoffs, Sweetser cited a Medicaid “billing disaster” and its impact on the agency’s cash flow as a factor in the cuts.

The billing system “has been the Hurricane Katrina of the community mental health system in Maine, with no relief in sight,” said Carlton Pendleton, the agency’s president and CEO.

While Sweetser said it is owed about $5 million for unpaid Medicaid bills, DHHS Commissioner Brenda Harvey said the figure is closer to $1.6 million.

Harvey acknowledged there have been problems with the computer system for Medicaid billings that the state put in place more than two years ago.

The backlog of unpaid claims has been reduced from more than 550,000, with the state now listing about 75,000 claims that have not been paid to providers, she said. About 17 percent of such claims are now more than 11 months old.

“Yes, there have been problems” with the Medicaid billing system, Harvey said, “but it isn’t as if we haven’t been trying to pay our bills.”

Sweetser’s layoffs began last week and will be completed this week, according to Viger, who said Sweetser will decide within the next 60 days “whether an additional reduction in force is necessary.” She said this is the fourth time in four years that Sweetser has trimmed its work force.

Sweetser laid off about 40 employees in 2004, about 50 in 2005 and about 60 in 2006, according to Viger, with the latest round boosting the total to almost 200 over four years. She said that all of the layoffs since 2005 are attributable in part to the state’s Medicaid billing problems.

BDN reporter Anne Ravana contributed to this report.