Correction appended.





As state officials wrestle with a projected budget hole on top of $640 million in health cuts, they are counting on a federal lifeline.

and his top health officials said Friday they are now confident that a little-discussed state request of $2.5 billion over five years will in large part be fulfilled.

Their optimism stems from a trip to Washington D.C. last week.

Federal officials there were so positive about Oregon's reforms that talks now focus on when and how much money would be forthcoming, rather than if, said Bruce Goldberg, director of the Oregon Health Authority.

"They were fruitful conversations," Kitzhaber said.

Instead of a simple pitch for new cash, Oregon is framing its request as a down payment on savings health care reforms will achieve. Oregon could cut its use of federal funding by $20 billion over the next 10 years under the reforms, state health officials say.

Kitzhaber led the push for a 2011 health care "transformation" law that will change how the Medicaid-funded Oregon Health Plan cares for about 600,000 Oregonians. The state would integrate mental and physical health care, and encourage hospitals, doctors and other health providers to coordinate care to cut costly emergency-room visits.

The Legislature will take up a more detailed version of the reform law next month. Passage will be crucial to securing federal funds, according to Kitzhaber.

If approved, the new federal funds could be a well-timed lifesaver -- and won't need Congressional approval.

State officials recently acknowledged that in the short term, Kitzhaber's reforms won't make up for health budget cuts of $240 million, which in turn result in losing about $400 million federal matching funds.

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said the reforms could lead to as little as $58 million in state funds saved in the current budget. That means the state could still be looking at a substantial shortfall in health care, potentially leading to further cuts, including in Medicaid reimbursements to hospitals and doctors.

If the federal funds do materialize, it would eliminate the health care problem, but still leave the state looking to fill a budget hole of as much as $200 million, said Rep.

, R-Central Point, who co-chairs the Joint Committee on Ways and Means.

Kitzhaber said the federal funds would likely help prevent further reimbursement cuts, but wouldn't backfill any budget hole.

"The budget is the budget," he said. "That doesn't change."

Goldberg's agency is working closely with federal officials to figure out what existing state spending can qualify for federal matching funds under a program that already provided funding for reforms in California and Massachusetts.

He said once the Legislature approves the details, the state hopes to win federal approval of its reforms by April, which federal officials indicated would be an optimistic timeline. The new federal funds would follow that approval, he said.

The state hopes to have health care organizations of providers, hospitals and others up and running by July to help cut overall health costs.

"The longer we wait, the less time we have to make the kinds of changes we need," Goldberg said.

The article reflects a correction published Jan. 26, 2012.

The Oregon health care transformation law, House Bill 3650, was approved in 2011. A front page article Saturday gave an incorrect year.