Colorado will test ways to lower the cost of Medicaid under a new law signed by Gov. John Hickenlooper Tuesday.

Health-care providers for Medicaid beneficiaries will draft and submit proposals that outline alternatives to the standard fee-for-service payment model, according to a release from the Republican caucus of the Colorado state House.  sponsored the legislation.

The Colorado Department of Health Care Policy and Financing will then select strategies to pilot for two years to five years. Programs will be chosen based on their plans for streamlining the administrative and contract-management processes between Medicaid providers and the state. The plans will be selected by July 1, 2013, according to the bill.

Alternatives include global payments (flat fees paid to providers for maintaing healthy populations) and aligned payment incentives (which pay providers based on outcome-related metrics). The strategies will be evaluated on their ability to improve outcomes and save money.

"Entitlement spending is out of control," state Rep. Cheri Gerou, the bill's sponsor, said in a statement. "This pilot program brings ideas from the public and private sector together to seek a solution that works best for Colorado. That’s good public policy."