Raleigh, N.C. — Department of Health and Human Services Secretary Al Delia has fired Craigan L. Gray, the head of the state's troubled Medicaid program. 

"I was dismissed because the Medicaid program had a budget shortfall," Gray said during a brief phone interview Tuesday. He was about to go into a meeting to wrap up work as director of the Division of Medical Assistance. 

Gray was appointed April 27, 2009 and his last day is today. He holds both law and medical degrees and earned $270,000 per year.

His replacement will be Michael Watson, who is currently DHHS chief deputy secretary. According to a news release, that position will be elevated to serve on the Secretary’s executive leadership team. Watson's salary will remain $160,000.

“After nearly six months in this role, my first priority for strengthening our management team is to elevate the state Medicaid office to play a more prominent role in the Department’s decision-making process,” Delia said in a news release. “Medicaid is not a stand-alone division. It touches not only multiple DHHS divisions but also plays a huge part in shaping the state budget. We need better communications and stronger oversight of this $12 billion program. I believe these changes will accomplish that.”

The state's Medicaid program will cost about $13 billion in state and federal funds this year. Cost overruns have been a near-annual event in the health insurance program for the poor and disabled. However, tensions over the shortfalls became more intense as Republicans took over the legislature in 2011 and the state's fiscal woes worsened.

The gap in the current year's budget is expected to be at least $205 million. Lawmakers passed a patch for the shortfall earlier this year. The Associate Press has reported that current year gap may be $75 million more than that and a document obtained by WRAL shows that the total Medicaid budget shortfall for the year might total as much as $414.7 million. 

Lawmakers knowledgeable about Gray's firing said it was this growing shortfall that prompted his firing. Chrissy Pearson, a spokeswoman for the Department of Health and Human Services, pointed to Delia's statement and added that Gray's departure was part of a larger overhaul of the department. 

"He was replaced because the secretary reorganized management of that division and wanted to bring in someone with a different perspective and experience," Pearson said. "As you can see, this was much bigger than simply saying goodbye to a single employee."

But in a second interview, Gray insisted he was fired because of the shortfall.

Gray said that he would "leave well" and didn't express any hard feelings. However, he noted that lawmakers set the Medicaid budget and did not heed warnings from staff members. He described administration officials as "tangential" to the process that created last year's budget.

Word of Gray's dismissal had begun filtering to lawmakers involved with health policy Tuesday.

"Medicaid is the biggest problem we have," said Sen. Stan Bingham, R-Davidson. Bingham said he did not know the specific reasons for Gray's firing but said communication between the agency and lawmakers had been difficult. 

"We have asked for answers and had difficulty getting them," Bingham said. That's been particularly true, he said, of establishing the reasons for cost overruns in the program. 

"Change is going to be inevitable because we cannot continue to go the route we're going," Bingham said.

Rep. Nelson Dollar, R-Wake, said the Medicaid director's job was one of the hardest positions in state government. That said, Dollar said that Gray had not worked well with lawmakers. 

"I am disappointed in him, frankly," Dollar said. "We simply did not get the dialog or the relationship we wanted...He did not embrace the approach we were looking for."

Since taking office, Dollar said, Republican lawmakers have wanted to "streamline" and make changes that would save money in the Medicaid program. 

Dollar said he hoped the next Medicaid director would be someone looking to make those changes as well as someone who would be more inclined to work with lawmakers. 

Gray said that he was limited in his communications with lawmakers by department policy. Although he could respond when invited to speak before legislative committees, other communications were sent through the Department of Health and Human Services central staff.