THE Federal Government has been forced to reverse a decision to retrospectively cut $107 million from Victorian hospitals amid growing concerns about an electoral backlash from Prime Minister Julia Gillard's home state.

The Commonwealth had come under pressure after using a technical adjustment to Victoria's population estimate to justify the cuts, worth $107 this financial year and $475 million over four years.

But in a surprise about-face, Health Minister Tanya Plibersek will announce on Thursday the Commonwealth will not impose the $107 million cut, which was inflicted halfway through the current financial year after hospitals had finalised their budgets.

In a swipe at the Baillieu government, the money will be immediately be paid directly to hospital administrators, rather than into state coffers. Health Minister Tanya Plibersek said the Baillieu government had shown it could not be trusted manage its health and hospital budget.