PORTLAND -- Oregon's Medicaid system is about to be retooled and the entire nation will be watching.

State legislators passed a plan to improve Medicaid earlier this year, but needed federal money to make it happen. This week, Governor John Kitzhaber traveled to Washington D.C. and returned with a big deal.

It fundamentally changes our delivery model from one that deals with acute care after the fact, to prevention and wellness, and the community-based management of chronic illnesses, Kitzhaber said at a Portland news conference Friday.

The tentative agreement with the U.S. Department of Health and Human Services provides Oregon with $1.9 billion over the next five years to transform the Medicaid system. The Governor's office estimates the plan will save the state $11 billion by the end of the decade.

What we've been given here is the opportunity to transform the system, said Kitzhaber.

The transformation centers around the creation of what are called Coordinated Care Organizations or CCO's, which are teams of health care workers from specific geographic areas. Instead of competing against each other, doctors, nurses and other health care providers will team up to work together.

Health care systems must understand that our job now--our success now--is an empty hospital bed rather than a hospital bed that is occupied, said CEO George Brown of Legacy Health, who will head the CCO handing Medicaid patients in Multnomah, Clackamas and Washington counties.

There is a catch to the 1.9 billion dollar deal: Oregon must lower Medicaid costs by at least two percent within two years of the program's implementation.

We have to demonstrate that we can actually bend that cost curve down and the only thing standing between us and success is ourselves, said Kitzhaber.

If you are one of 600,000 depending on Medicaid, the big changes won't take place right away. There will be a transition period, and then the first Coordinated Care Organizations are expected to be up and running by the end of summer.

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