Three years ago, faced with the prospect of losing hundreds of millions of dollars in federal Medicaid funding, Massachusetts made a deal with Washington. No longer would those funds go directly to two "safety net" hospitals with little transparency or accountability. The money - along with anticipated reductions in uncompensated care - would, instead, be redirected toward helping the low-income uninsured buy health insurance.

This shift in priorities and financing, enabled by a Medicaid demonstration "waiver," was a key part of the compromise that brought the feds, the state and a diverse coalition of interests together on health reform. Of course, few could object to an approach that put the needs of patients before providers and that was designed to extend coverage to the uninsured without new taxes or new government spending.

The basic principle of the Massachusetts health reform was simple: As the share of funding going to subsidize coverage for low-income individuals increased, more hospital services would be paid through health plans. Uncompensated care costs and hospital supplemental Medicaid payments would decline, and the need for direct subsidies would disappear.

Yet two years into the implementation of the landmark reform, special interests are already undermining the plan. Despite the enrollment of 175,000 members in the new Commonwealth Care subsidized insurance program and a similarly healthy decline in hospital uncompensated care visits, Massachusetts politicians have continued to make special, direct Medicaid payments to the two hospitals, Cambridge Health Alliance (CHA) and Boston Medical Center (BMC).

Why? "The number of visits by needy, low-income populations has not declined," CHA argues. But guess what? They were paid for those visits - a detail the hospital conveniently omits. The only issue is whether hospitals should be paid twice for treating patients. Certainly, that wasn't part of the deal.

With Massachusetts' waiver up again for renewal in Washington, now is not the time for the state to forget the past or the deal it made with federal officials as to how Medicaid dollars would flow.

CHA and BMC are, indeed, important institutions. That's why both hospitals were given a one-year grace period for direct payments to continue. That's also why under the reform law they were granted additional special considerations, including substantial rate increases and market exclusivity for three years to enroll the newly insured in their health plans. In fact, the insurance subsidiaries of CHA and BMC have largely been the direct beneficiaries of the reform's shift in funding; their combined enrollment in the Commonwealth Care program tops 142,000 members, accounting for roughly $650 million in annual revenues.

But the preferential treatment didn't end there. The reform changed how most other hospitals were to be reimbursed for residual uncompensated care to the remaining uninsured, but not other multi-million dollar supplemental payments to CHA, BMC and a few different hospitals.

Still, some Bay State politicians believe these two institutions are too important to stay true to the reform's intent.

Instead of changing their business strategy to adapt to earning more of their income from treating insured patients, CHA and BMC opted to pursue a political strategy to preserve as much of their old, direct subsidies as possible. In the 2006 legislation that enacted the reform -separate from the state's agreement with Washington - Massachusetts politicians at the last minute earmarked the same old direct subsidies under a new name to both hospitals.

This three-year political deal was a promise with a heavy price tag - $200 million the first year, declining by $20 million each year thereafter. In spite of the reform's intent, Bay State politicians - through a now-infamous "hold harmless" provision - sought to continue direct Medicaid payments with the sole intent of protecting the profits of their political friends.

By continuing to pay out more than it should in direct subsidies to hospitals, Massachusetts is now in a $150 million budget bind that recently became the justification for new, unnecessary taxes on businesses. And in negotiations with federal officials over its waiver renewal, the state is asking for more federal money to help solve a budget problem it created entirely on its own.

President Bush, take note: An unnecessary state bailout of politically connected hospitals should not be rewarded with an unnecessary federal bailout of a state. If Massachusetts chooses to pile up new taxes, the federal government should not support it by matching new state spending.

Rather than looking to federal or state taxpayers for more money, Beacon Hill needs to make it clear to special interests that health reform actually means reform - not business as usual.

Nevertheless, in defense of continuing its direct payments, BMC uses a non sequitur to argue that eliminating them - as the reform intended - would mean the end of other services, such as its "food pantry."

Now, no one questions the importance of serving hungry people on the streets of Boston. But that's not what the Massachusetts health reform was about or what Medicaid dollars are for. BMC's implication is that the city of Boston, the Commonwealth of Massachusetts, and the federal government will let people go hungry unless federal taxpayers are coerced to fork over more cash to its institution. Sure, BMC has made a considerable investment expanding its facilities in recent years. But what's next, defending the payments as a means of mitigating the housing crisis?

If Massachusetts politicians want to continue CHA's and BMC's special, direct subsidies with state and local dollars, that's their choice. But they should have to justify it to their constituents. Federal taxpayers should not be required to deliver on the Bay State's political promises

Gregory D'Angelo is a policy analyst at the Heritage Foundation's Center for Health Policy Studies.