Over the next five years, the state will keep the federal savings it makes by reforming its existing Medicaid program. The savings, slated to total more than $17 billion by the end of the 2014-2015 financial year, were identified by a group established in 2011 by New York Governor Andrew Cuomo.

New York state spending on Medicaid is among the highest in the country. The system of medical insurance for people on low incomes will cost around $58 billion in the coming year. In 2010, New York spent $8,910 per patient compared to a national average of $5,563, according to data from the Kaiser Family Foundation non-profit group that focuses on health care policy.

The federal government pays about half of that, meaning the issue has traction outside New York.

Cuomo hailed the agreement even though the waiver was $2 billion less that the state had originally requested.

"This waiver amendment allows us to invest these savings in keeping Brooklyn's hospitals open, providing new community based primary care clinics in neighborhoods that need them and preserving health care services across our state," Cuomo said.

New York City's new mayor, Bill de Blasio, who campaigned against hospital closures in the city, called the waiver 'a major milestone that will help break the vicious cycle of heedless hospital closures.'

In an era of tighter budgets, the federal government is keen to cut the amount it reimburses states. Federal spending of health care totaled about $772 billion in 2013, or a fifth of the federal budget, according to the Center on Budget and Policy Priorities. Medicaid accounts for nearly $500 billion of that.

Last year, the federal government cut $1.2 billion from the Medicaid money it gives to the state after the Center for Medicaid Services (CMS), the federal agency that administers the system, found over billing at centers for people with developmental illnesses in the state.

Fiscal conservatives see New York's Medicaid system as expensive, wasteful and unaccountable.

A congressional report last year said over billing for the developmental centers reached $15 billion during the last 20 years. CMS opened an audit of those billing rates last year but has yet to issue a final report and has not said whether it will seek reimbursement.

"Today's formal agreement with New York represents a significant commitment to improve care delivery in Medicaid that will result in better health outcomes for New Yorkers, improved efficiency, and lower health care costs for the program," said CMS spokeswoman Emma Sandoe.