SALEM — Medicaid payments to hospitals and health care providers will be cut starting July 1 under a plan released Wednesday by Oregon lawmakers.

SALEM — Medicaid payments to hospitals and health care providers will be cut starting July 1 under a plan released Wednesday by Oregon lawmakers.

The state's Medicaid program, known as the Oregon Health Plan, covers about 585,000 Oregonians. Under lawmakers' plan, payments to providers will be cut by 11.5 percent, instead of 19 percent as proposed in the governor's 2011-2013 budget.

Hospitals will pay a 1.69 percent tax increase on Medicaid services under the plan. That money — an additional $260 million over two years — will be extra revenue that can be matched by federal funds, for a total of $660 million.

The money will then be used to pay back hospitals for the tax, and provide additional money for them and health care providers throughout the state.

Sen. Alan Bates, an Ashland Democrat who was part of the bipartisan group that worked on the plan, said it would help with the program's difficult budget outlook.

The proposed budget called for a $324 million cut in provider payments to help offset the Oregon Health Authority's $697 million budget shortfall, said Patty Wentz, an agency spokeswoman.

Hospitals will serve as a conduit for federal funds and allow for the decrease in proposed cuts.

"They'll put the money up, but they'll get every penny back," said Republican Rep. Tim Freeman of Roseburg, who was also a part of the work group.