The federal government could save $1.5 trillion over 10 years if all 50 states adopted Oregon's ambitious health-care initiative, Gov. John Kitzhaber said.

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PORTLAND — The Obama administration is buying into an ambitious health-care initiative in Oregon, announcing an agreement to chip in $1.9 billion over five years to help get the program off the ground.

Oregon hopes to prove states can save billions on Medicaid without sacrificing the quality of health care. Gov. John Kitzhaber’s plan would invest in preventive care to keep patients healthy so they don’t need expensive hospitalizations.

“If this works, I think other states are going to be looking at this as a way to manage that patient population,” said Kitzhaber, a Democrat and former emergency-room physician who has worked for decades on changing the health-care system.

The federal government could save $1.5 trillion over 10 years if all 50 states adopted Oregon’s approach, the governor has said.

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Medicaid, which provides health coverage for low-income Americans, is jointly funded by the state and federal governments. Federal officials have not agreed to grant Oregon a waiver from standard Medicaid regulations, which is needed for the program to be implemented and the money to be spent.

The financial commitment from the U.S. Department of Health and Human Services (HHS), while tentative, is a clear public endorsement of the concept and an indication the administration believes the initiative holds promise.

The state anticipates savings of $11 billion to state and federal budgets in the next decade by reducing duplicated treatments and avoidable hospitalizations.

Finding ways to deliver health care for less money is a critical challenge as baby boomers age and President Obama’s health-care overhaul extends coverage to millions more Americans, many of whom will join Medicaid in 2014. Under Obama’s Affordable Care Act, the federal government will pay most of the costs for new patients.

In a statement, HHS Secretary Kathleen Sebelius said Oregon’s plan “mirrors our plan at the national level under the Affordable Care Act.”

More than a year ago, Washington Gov. Chris Gregoire asked HHS to authorize and help fund a plan similar to Oregon’s to modernize the state’s Medicaid program, but that plan is in limbo, although negotiations continue, said Medicaid spokesman Jim Stevenson.

The goal, Gregoire told Sebelius, is to reduce overall growth in state health-care spending to 4 percent annually by 2014 while maintaining or improving patient health outcomes.

Gregoire’s proposal asked HHS, among other things, for the authority and money to change rules and payment systems to promote prevention, combine funding sources, build in incentives for patients and create new provider payment rules.

Specifically, it asked for authority to pay providers differently — such as one payment for an episode of care; to enforce a restricted-drug list, to restrict patients’ choice of providers and to pay more to providers whose patients have better outcomes.

The Oregon plan would create “coordinated-care organizations” to manage all mental, physical and dental care for 600,000 low-income patients on the Oregon Health Plan, the state’s Medicaid program. The program would focus particularly on the sickest patients with the highest costs, especially people with chronic conditions such as diabetes and asthma or with mental-health problems.

The point, proponents say, is to provide money for services that keep people healthy but don’t receive much funding — such as paying caseworkers to make sure patients go to medical appointments and take their medications.

The changes initially would apply only to Medicaid patients, but Kitzhaber wants to extend the program eventually to government workers and the public.

State and federal officials are negotiating final details and hope to finish in time to make the first payment, $620 million, July 1.

Seattle Times health reporter Carol M. Ostrom contributed to this report.

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