ALBANY – Gov. Eliot Spitzer pledged to cut Medicaid costs Friday, vowing in a major policy speech to be the defender of patients, not the powerful institutional interests that he blamed for persuading elected leaders to perpetuate a broken, unaffordable health care system.

In the speech, titled “Patients First”, Spitzer promised to bring 400,000 children from families without medical insurance into the Child Health Plus insurance program by raising family income thresholds. To pay to cover those children and more adults, the state will redirect its traditional emphasis of giving funds to the big health care lobbying powers, he said. Spitzer’s message drew raves from consumer groups and government reform advocates. But representatives of hospitals, nursing homes and health care workers unions were offended by some of the new governor’s remarks.

Coming five days before his first budget address, the speech foreshadows a variety of cuts to health care and a freeze on the rates the state pays hospitals and nursing homes, but not home care.

By ending waste, such as overfunding graduate medical education, overpaying for prescription drugs and spending on empty hospital beds, the state should save hundreds of millions of dollars, he said.

“What went wrong is that health care decision-making became co-opted by every interest other than the patient’s,” Spitzer told about 100 people at the Rockefeller Institute of Government, most of them from the health care industry.

He promised to shift state funds from the “institution-centered health care system of our past” to “a more effective patient-centered system for our future.”

“This paradigm shift will save taxpayers billions of dollars in efficiencies,” he said.

The shift and its savings will help the Spitzer administration’s new health commissioner, Dr. Richard F. Daines, deal with the closing of hospitals while advancing new programs to combat obesity, improve exercise practices and help prevent illnesses.

Some in attendance, particularly advocates of restructuring Medicaid, said the speech showed the the governor is using his voter mandate to tackle an obvious problem. Spitzer noted New York is spending twice the national average on Medicaid per capita, a total of $45 billion a year, and not getting enough return on the investment.

“His critique of the institutional bias in the state’s health care policies was brilliant and right on the mark,” said the conservative Manhattan Institute’s Empire Center Director E.J. McMahon, who applauded the speech from the back row of the meeting room.

Up in the front row, Health care Association of New York President Daniel Sisto and other influential lobbyists were less enthusiastic. Some industry officials said Senate and Assembly leaders are already preparing to fight cuts on their behalf.

“The Legislature has seen these same proposals before,” said Sisto. He did not disagree with Spitzer’s contention that the health care system is broken, but he chafed at Spitzer’s indictment of hospitals and their allies, painting them as “villains.”

“The prosecutorial tone today, I think, is unfair in that it created the sense that the hospitals and nursing homes are the instigators,” he said. “It was sort of unnecessary.”

Assembly Health Care Committee Chairman Richard Gottfried, D-Manhattan, said the speech was the best on the topic he’s heard from six governors, although he envisions he’ll dislike a budget that cuts Medicaid funding for hospitals and nursing homes.

United Hospital Fund President James Tallon, who led Spitzer’s health transition team, said the message was not supposed to be a declaration of war on the industry, although some industry representatives took it that way.

“It’s a tough and challenging message about change,” Tallon said. “It’s hard to change a complicated system.”

James M. Odato can be reached at 454-5083 or by e-mail at jodato@timesunion.com.

****FACT BOX:****

Budget addressGov. Eliot Spitzer will deliver his 2007-08 budget address at 11 a.m. Wednesday. Unlike past years when the event was held in The Egg to a large audience that included commissioners and legislators, this year’s presentation will be in a meeting room at Empire State Plaza and given exclusively to the press. Live webcast: The event can be viewed at http://www.ny.gov/ governor/budgetwebcast. The budget will also be available at that Web address at about the same time. Copies: The public may obtain copies of the budget documents in print or on CD from noon to 5 p.m. in Room 139 of the Capitol.

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