ALBANY, Jan. 26— Gov. Eliot Spitzer said on Friday that he would seek billions of dollars in Medicaid and health care cost savings when he unveils his first executive budget on Wednesday.

But while he repeatedly used the word “reform” in a speech here, hospital groups heard the word “cut.” That dissonance will probably set the stage for what could be a fierce battle in the Legislature over the governor’s plan.

“For too long, we have financed the health care system we have, not the health care system we need, so we’re left pumping billions of dollars into a broken system,” Mr. Spitzer said. “What went wrong is that health care decision making became co-opted by every interest other than the patient’s interest.”

Among the governor’s proposals were eliminating the annual inflation adjustments on Medicaid payments to hospitals and nursing homes and substantially changing the way the state subsidizes health care providers and graduate medical programs.

“New York spends more on hospitals and nursing-home care than any state in the nation,” he said. “This spending is unsustainable and unwise.”

He said his administration would seek to save $200 million annually by taking steps to reduce Medicaid prescription drug costs and overhaul the Department of Health. He said he would also follow up on his campaign pledge to provide coverage for the state’s 400,000 uninsured children.

The proposals sent shudders through some corners of the health care world.

“These are many of the same budget cuts that Governor Pataki proposed, and they were rejected because, frankly, they aren’t reforms,” said Daniel Sisto, the president of the Healthcare Association of New York State.

“By his tone today, he intends to make it a serious fight,” he said. “The Legislature knows that these cuts, now two decades old, do not constitute reform. I’m working on the assumption we can persuade them to reject them.”

But many were pleased by what they heard, from fiscal conservatives who have called for an end to Albany’s spending growth to health care advocacy groups.

“We think he is taking a very bold step and putting New York in the lead in the nation in terms of providing health care coverage for children,” said Donna Lawrence, executive director of the Children’s Defense Fund New York.

Edmund J. McMahon, the director of the Empire Center for Public Policy, an affiliate of the policy group the Manhattan Institute, said, “I think he set exactly the right tone. The patient-first premise is exactly where we need to be, and I think it’s a very positive step.”

Mr. Spitzer said the state was paying far more on graduate medical education than other states — $77,000 per medical resident compared with $21,000 in California.

“We discovered that many of those dollars are going to pay for phantom residents and doctors who don’t even exist,” he said.

Mr. Sisto said he objected to what he called the “prosecutorial rhetoric” in the governor’s speech and his description of past deals.

“We should be having a policy debate about the future, not lamenting the past,” he said.

Mr. Spitzer specifically criticized a 2002 deal involving Gov. George E. Pataki and 1199 S.E.I.U. United Healthcare Workers East that was used in part to provide raises for health care workers. “As a result of this deal, well over $3 billion alone was pumped into the health care delivery system with little or no accountability,” he said. A spokeswoman for the union did not return calls seeking comment.

Kenneth E. Raske, the president of the Greater New York Hospital Association, said, “Cuts to me do not spell reform, particularly when the hospital sector is not at all driving the increases in Medicaid.”

Assemblyman Richard N. Gottfried, a Manhattan Democrat who is chairman of the Assembly’s Health Committee, said getting the proposals through the Legislature would “depend on a lot of the details.”

“Some of the Medicaid cuts will create problems, but I think the policy directions are terrific,” he said. “There is certainly an enormous amount here that I will fight very hard to enact.”

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