The Department of Health and Hospitals selected five private companies Monday to run $2.2 billion of Louisiana's Medicaid program through managed care networks to be rolled out over the next year.

About 875,000 low-income residents who get medical treatment through Medicaid, mostly children, will be steered into the "coordinated care networks," which will be a largely insurance-based model when fully phased in by mid-2012.

Two types of coordinated care networks will be created, and all five companies slated to receive the three-year contracts will serve Medicaid recipients in all areas of the state.

"We picked the five best. We picked five plans that have significant experience in the Medicaid market in changing the behavior of recipients and enrollees that lead to improved health outcomes," said Health and Hospitals Secretary Bruce Greenstein.

Monday's announcement was a key step to starting the managed care model, since Jindal unveiled the privatization plan more than two years ago. Several layers of federal and state approvals are still required before the changes can begin first in the New Orleans area Jan. 1.

Currently, the state reimburses doctors, hospitals and other providers in the Medicaid program directly, giving a flat fee for each service rendered, under the combined state-federal program that serves the poor, elderly and disabled.

Under one coordinated care option, the networks will be run by companies that contract with the state and negotiate payments with health providers. The state will pay the network operator a monthly fee for each enrollee. Companies selected are Louisiana Healthcare Connections Inc., Amerihealth Mercy of Louisiana Inc. and AmeriGROUP Louisiana Inc.

Under the second option, the state will continue to reimburse doctors, hospitals and providers in Medicaid directly, giving a fee for each service rendered. But private companies will coordinate patient care and share in savings generated by cutting costs or by improving patient's preventive care. Those networks will be run by UnitedHealthcare of Louisiana Inc. and Community Health Solutions of America Inc.

The networks will handle the care for about two-thirds of the 1.2 million Medicaid recipients in Louisiana. Medicaid recipients steered into the managed care networks will be able to choose their own network, or they can be automatically enrolled into one.

The Medicaid privatization plans have run into concerns from health providers and lawmakers.

Health providers have worried that the managed care companies will be slower to pay claims or cause administrative headaches. Some lawmakers question whether the new system could lead to more claims being rejected as the private companies seek to control costs and increase profits.

Greenstein said the new program will better coordinate care for Medicaid recipients, improve health outcomes by catching and treating chronic diseases earlier, and help rein in rising costs due to Medicaid fraud and overuse of expensive emergency room care.

"For far too long Louisiana has been stalled in 49th place (in health outcomes)," Greenstein said. "We know we can do better."

About one-third of the state's $6.7 billion Medicaid program will be run through the managed care model, according to DHH officials. Those to be shifted into the coordinated care networks include children under age 19, their parents, pregnant women and adults with disabilities who don't get Medicare money.

Medicaid recipients who won't be covered by the networks include nursing home residents, disabled and elderly residents who receive home- and community-based care, those enrolled in specialty service programs and recipients who receive both Medicaid and Medicare services.

The state's Medicaid pharmacy program won't be incorporated into the networks for now.

At least 85 percent of the networks' spending will have to go to direct patient care under their agreements with the state.

Many other states use a similar managed care model. DHH officials said they researched Medicaid managed care in two dozen states around the country, including Tennessee, Arizona, Missouri, Michigan, Texas, New York, South Carolina, Florida and Kentucky.

Twelve companies submitted proposals to the state for running the networks. Five DHH evaluation teams reviewed the proposals to choose which companies should get contracts.

"The entities named today had the most capacity and the most experience in other states," said Rodney Wise, state Medicaid medical director. He also said each company already had agreements with doctors, hospitals, specialists and other providers.

For example, Louisiana Healthcare Connections is a Baton Rouge-based joint arrangement between nationally-known firm Centene Corp. and health care providers in the state that include 19 nonprofit federally qualified health centers.