Virginia Health Commissioner Dr. James Kenley said this week that $12 million in medical care services to the poor and disabled would hava to be cut from Medicaid programs if the state loses a lawsuit that seeks to restore unlimited hospitalization cover age for Medicaid recipients.

"We're having extreme difficulties with cash flow," Dr. Kenley said. "If anything happens to increase expenditures, then we're in trouble and it's a very likely possibility we'll have to make additional cuts."

Dr. Edwin M. Brown, deputy state health commissioner and former director of the state Medicated program, said additional expenditures would require adjustments in the "optional services" provided by Medicaid, such as intermediate nursing home care benefits and subsidized prescription drugs.

Two years ago, state officials slashed Medicaid's hopsitalization coverge and discontinued full payment for prescriptions and over-the-counter drugs. The state limited hospitation benefits to 14 days maximum with a possible seven day extenson for emergency cases. Medicated no longer pays for the over-the-counter drugs and require the recipient' to pay 50 cents on each prescription.

Brown said one adjustment that would have to be considered would be to increase the recipient's fee on prescriptions.

A lawsuit, filed by the Virginia Hospital Association and several hospital and Medicaid recipients, seeks to have the unlimited hospitalizaton benefits restored. That lawsuit was heard Tuesday in Federal District Court in Richmond before U.S. District Court Judge Robert Merhige who took the matter under advisement.

Of the cutbacks, made two years ago and totaling $25 million, only the hospitalization category was challenged in court.

Last week, meanwhile, public hearings on the cutbacks were held in Alexandria and five other locations around the state and attended by about 450 people. At the Alexandria hearing, medicaid recipients complained that they had suffered most from the ban on over-the-counter drugs and the 50-cent prescription fee.

The hearings were held after Merhige ruled that Medicaid recipients had not been properly notified of the reduction in hospitalization benefits and had not been advised of their right to seek a hearing before the limitations were imposed.

Besides the fee on prescription drugs and the limitation on hospitalization coverage, other subsidized medical benefits affected were: "An end to free eyeglasses. Now the recipient must pay $2 on each pair of eyeglasses and 50 cents on each authorized repair of glasses.

Discontinuation of coverage of dental work not authorized by the state. Medicaid now covers only diagnostic, preventive and corrective procedures, and does not provide benefits for such dental services as root canal work, braces and false teeth and bridgework. Dental coverage is limited to recipients under 21 years of age.

"Curtailment of free medical equipment, supplies and appliances for home use such as crutches, walkers, wheelchairs, kidney machines, etc.

After the six hearings, the hearing officers last Friday gave their reports to the Governor's Advisory Committee on Medicare and Medicaid. That afternoon, the committee unanimously voted that the two-year-old cutbacks be made final and Gov. Mills Godwin quickly approved the recommendation.

At the Alexandria hearing, attended by 63 mostly elderly Medicaid recipients, the ban on benefits for over-the-counter drugs and the 50-cent fee on prescriptions also drew the majority of complaints.

James E. Washington of Alexandria said he is forced to take a less-effective drug for his severe back aches because Medicaid would not pay for the one prescribed.

"When you visit your doctor, he might prescribe a certain drug for you," Washington said, "But when you go to the druggist, he has to call the doctor and tell him Medicaid doesn't pay for it. The doctor told me, "I don't think it's gonna be very effective."

"A year ago, I broke my leg," Catherine Dunley, also of Alexandria, explained. "And I couldn't get crutches or a wheelchair. I have asthma, my daughter had asthma, and they won't pay for these kind of things. Children need vitamins and things but they (Medicaid) don't pay for them. It's quite serious. And when you go to the drugstore, you don't know what the cost is until you get to the counter so you don't know if you can afford it."

Herbert Semmel, an attorney with the Center for Law and Social Policy in Washington and the attorney representing Medicaid recipients in the lawsuit, charged that the cutbacks reflect the state's failure to take effective action to control waste and overspending. Semmel said that Medicaid payments to hospitals increased by more than one-third during the past two years even though the limitation on hospital coverage was in effect.

Payments to nursing homes the past two years have increased by more than 50 per cent, he added.

"The truth of the matter is that if the Department of Health had the will," Semmel continued, "it could restore all the cuts in Medicaid benefits it made two years ago, prevent all the suffering and still come within its budgetary authorization."

He suggested that the state could reduce unnecessary surgeries, and a prior utilization review to prevent unnecessary hospitalization. The utilization review program for hospitals in Washington reported a savings of $2.5 million under the Medicaid and Medicare programs during a six-month period, Semmel said. He said similar screening procedures also could prevent inflated and fraudulent claims for payment.

But Kenley maintained that "we got system to check that now." He said the state has been cautious in placing mandatory restrictions on its medical assistance programs because of the hardships this would impose on recipients and physicians involved.

"If we set up a maze of do's and don'ts in our programs, start requiring them to do a lot of things not normally required," Kenley explained, "then the doctors drop out of the program."

He said that the cutbacks imposed two years ago have had "very minimal impact on the patient."

One of our problems is a surplus of hospital beds in Virginia," he continued, "and there's not always the pressure for early discharge. Medicaid patients in the past have tended to stay there for long periods of time."