State officials and a group representing New Hampshire’s hospitals say they’ve settled a lawsuit over the state’s Medicaid Enhancement Tax – ending a year-long dispute that had threatened a key source of funding for the safety-net insurance program.

The tax is paid by hospitals, which get most of the money back in the form of Medicaid payments. That arrangement allows the state to unlock hundreds of millions of dollars in federal matching funds, which are used to help pay for New Hampshire’s Medicaid program.

Hospitals and the state have been at odds over the tax since last year, when then-Gov. Chris Sununu proposed cutting the hospitals’ share and directing more money into mental health and other areas.

When continued negotiations came up short, the New Hampshire Hospital Association, Dartmouth Health and Concord Hospital filed a lawsuit last month challenging the Medicaid Enhancement Tax.

The hospital association said at the time that its members stood to collectively lose about $70 million under the state’s proposal, threatening the viability of some hospitals.

Gov. Kelly Ayotte announced the state had reached an agreement to settle that lawsuit Friday. Her office said the deal would include payments that are “consistent” with what the hospitals had requested, while also saving the state money compared to previous proposals because of how it structures the hospital payments.

“This agreement is a win for our state, for rural healthcare access, and, most importantly, for patients,” Ayotte said in a statement.

Steve Ahnen, the hospital association’s president, also praised the deal in a statement released by the governor’s office.

“We are pleased that we were able to reach a settlement agreement with Governor Ayotte that will help strengthen the Medicaid program, support hospitals and other essential providers, and most importantly ensure continued care for the patients and communities who count on our hospitals to be there for them when they are needed most,” he said.