PROVIDENCE –– Governor Carcieri last night announced a “historic agreement” with federal officials that could fundamentally transform Rhode Island’s health-care system for the elderly, poor and disabled.

The Carcieri administration has worked for months to negotiate the controversial five-year deal, which has significant short- and long-term implications for the state’s finances and 180,000 Rhode Island residents who receive Medicaid funding.

The Ocean State is the first in the nation to secure such a deal.

“This is a landmark agreement that addresses one of the nation’s most pressing public policy issues,” Governor Carcieri said in a statement. “Medicaid spending has increased drastically, and the current funding structure is forcing states to cut other critical programs, like education, highways and public safety or raise taxes significantly. This agreement will put us on a sustainable path for growth in Medicaid while also maintaining services for those most in need.”

Medicaid consumes roughly $1.8 billion in state and federal spending this year, or 25 percent of the total state budget.

Specifically, the agreement gives Carcieri unprecedented authority to change things such as nursing-home care, prescription-drug coverage and medical-related transportation programs which are now closely regulated by the federal government. In exchange, Rhode Island has agreed to limit Medicaid spending over five years to $12.075 billion, or about $325 million less than state negotiators had hoped.

The spending caps, which are divided into fixed annual allotments beginning Jan. 1, give Rhode Island government a strong incentive to limit health-care spending. Should the state run out of money in any given year, it could lead to waiting lists for some services, or even the elimination of others.

Vermont, which secured a similar deal with the federal government in recent years but with two spending caps, had dozens of elderly and disabled residents on waiting lists for care recently because of funding problems.

That’s because the Vermont system guarantees services — just as Rhode Island’s system would — only for those determined to be in “the highest need,” according to new criteria developed by the state.

In Rhode Island, some residents currently served in nursing homes, for example, do not meet that threshold, according to Department of Human Services Director Gary Alexander, who was among the state’s lead negotiators in several closed-door meetings with federal officials in Baltimore.

But yesterday’s announcement was short on detail and largely avoided public concerns raised in recent months. The governor plans to hold a news conference Monday to help explain the 123-page agreement.

“We look forward to getting out to the community to explain this tremendous opportunity for our state,” Alexander said in a statement. “For example, we can do much more to keep seniors and the disabled out of institutional care and in their own homes. This will give these beneficiaries the care they prefer while saving the taxpayers of Rhode Island millions.”

Carcieri previously said the plan could save the state $67 million this year alone, but his staff has backed off that figure recently. Alexander recently said current-year savings would be at least half of the goal.

The agreement, dubbed the “Rhode Island Global Compact Waiver,” includes an “escape clause” that allows Rhode Island to back out of the deal at any time, according to Carcieri’s spokeswoman Amy Kempe. The clause requires the state to send written notice and a “phase-out plan” to federal Medicaid officials six months before cancellation.

The agreement won’t become final until it clears the General Assembly, which has 30 days to approve or reject it. The administration noted that major Medicaid changes would still require public hearings and, in some cases, approval from the legislature.

U.S. Health and Human Services Secretary Michael O. Leavitt weighed in last night as well:

“This demonstration will allow Rhode Island increased flexibility to adjust its Medicaid program to better serve the health-care needs of the state’s beneficiaries,” he said in the statement. “In particular, this demonstration advances the Bush administration’s efforts to provide more long-term care services in home and community-based settings.”

speoples@projo.com