A coalition of 1,300 Arizona employers, including major corporations, is asking the state's voters to approve tough new regulation of health care costs and planning, setting off a startlingly bitter battle with the state's hospital industry.

On Nov. 6, Arizona voters will be faced with a choice between the corporate coalition's proposals and another, less restrictive health cost plan crafted by the legislature and supported by the hospital industry.

Both sides expect to spend large sums of money on the political fight, which has included charges by the Arizona Hospital Association that the corporations resorted to "legislative terrorism" in getting the cost-control initiatives on the ballot. The fight has also produced splits within the business community and fallings-out between conservative Republican corporate officials and conservative Republican state legislators.

Whichever side wins, the Arizona battle is a symbol of the escalation in corporate health care cost-control efforts, as companies move beyond what they can do themselves to help hold down costs into the arena of public policy and health care planning.

The Arizona Coalition for Cost Effective Quality Health Care was formed in 1982 at the urging of Gov. Bruce Babbitt by the state's four largest employers, Sperry Corp., Motorola Inc., the Garrett Corp. unit of Signal Cos. and Honeywell Inc. Honeywell has since dropped out.

The state's rising health care costs were in part a function of over-capacity at hospitals. Arizona's hospital bed occupancy rate is 54 percent, compared with a national rate of 71 percent.

Initially hopeful of prompting the hospital industry to adopt cost-control measures, the companies said that effort fell apart over the question of controlling price increases by hospitals. Later the firms lobbied for cost-control bills in the state legislature, but that effort failed as well.

The corporate coalition gathered 250,000 signatures to put its proposals on the ballot and is backed by labor and senior citizens groups.

The coalition's plan has two parts: a constitutional amendment allowing the state to regulate health care institutions, and a second initiative creating an independent agency to oversee health planning and budgeting. The agency, to be in place for 10 years, would set hospital prices for diagnostic procedures.

Arizonans to Protect Quality Health Service, a group organized by the hospital industry, supports proposals put on the ballot to counter the corporate initiatives.

Their alternatives include a constitutional amendment that allows the legislature to impose revenue limits on hospitals for five years. Another measure would provide for short-term regulation of rate increases and a freeze on new hospital beds while a legislative committee studies creating a market-based system of cost control.

Only if the legislative committee failed to act would the second measure become effective.

"We favor the legislative proposals because they will limit cost increases but you don't get a big bureaucracy with that," said Rick Manter, deputy campaign manager for the hospital-created coalition. The Arizona Hospital Association decided in August to reduce its role so that it would no longer be the primary funding organization for the group, said Joy Scott, director of communications for the group.

The hospitals argue that the corporation-backed initiatives would create a large and expensive bureaucracy, provide regulation to do what competition could do better, and diminish the quality of health care. Supporters of the initiatives say they hope competition ultimately will render regulation unnecessary but contend it is needed for the short run. They also argue that similar steps in other states have not diminished health care quality.

Honeywell dropped out of the corporate-backed coalition "because Honeywell, as a corporation, does not support the regulation of the hospital industry," said Barbara Van Fleet, manager of public relations.

Honeywell dropped out when negotiations broke down and the corporate group began to pursue the ballot initiatives, she said. Those who have remained with the coalition said Honeywell reacted to threats by hospitals to contract with other firms for equipment that Honeywell provides, but Van Fleet said that was not the case.

Early polls showed the corporation-backed initiative measures comfortably ahead, but the gap has been closing. The corporate group expects to spend better than $1 million, while the hospital-created group expects to spend between $1 million and $2 million.

One possibility is that voters, confused by the array of measures, might simply vote for all of them, only complicating matters further.