A federal judge has issued an order related to hospital costs that pleases budget-conscious members of the General Assembly while distributing hospital administrators around the state.

U.S. District Judge Robert R. Merhige has upheld the constitutionality of a 2-year-old state plan that limits the number of days for which the state will reimburse hospitals and other medical facilities that take part in the Medicaid program. The judge ruled that in limiting reimbursement to hospitals for the cost of caring for Medicaid recipients to 14-days in cases of "medical necessity" - the state had chosen a reasonable method of pursuing its objective of "insuring the fiscal solvency of the Medicaid program."

The sate imposed the limitation in January, 1975. Before that, it reimbursed medical facilities for as much care as Medicaid patients needed. Last year, the Virginia Hospital Association, The Faifax Hospital and other institutions filed suit, contending the limitation denied benefits to certain patients "solely because of their diagnosis, type of illness or condition," and that it interfered with hospital administration. The institutions, along with a group of patients, asked for $30 million dollars in damages, and an end to the state plan.

In his order, Judge Merhige said cutting off reimbursement to the hospitals on a certain date "may seem to violate any notion of good medical sense." But he said federal law allowed states to place such limits on reimbursement.

The key issue in the case for all parties was money.

Stephen H. Lipson, associate executive director of the Hospital Association, was disappointed by the ruling, saying the 129 members of his group could not now look to a renewal of state aid past 21 days. Lipson said association members and other facilities had had to increase their rates to "the guy who pays his own bills . . . who is not on Medicaid, Medicare or Blue Cross," to make up for the money that had been lost. That does not mean, he added, that the extra costs placed on hospitals because of the state plan will not combine with other costs to lead to another rate increase.

Virginia Health Commissioner Dr. James B. Kenley concurred, saying the order itself would have "extremely little effect" on rates. Kenley said Merhige's ruling has its biggest impact on the state treasury.

"We spend a million dollars a day on Medicaid," he said, adding that while he personally is for "meeting the needs of the people," the state's fiscal situation dictates a limitation on reimbursements.

Kenley said he'd like to extend the number of days for which the state will make reimbursements after the fiscal situation improves, but that hospitals must make a stronger effort toward "timely discharges" of Medicaid patients.

Kenley says this year's General Assembly killed a plan that would have spent about $4 million dollars more in state reimbursements for Medicaid-related hospital stays.

There was no indication whether the hospitals would appeal Judge. Merhige's order.