The financially strapped District government backed off from another of the Barry administration's budget-cutting proposals yesterday and got mixed messages from the courts and federal government on whether it could move on others.

The city announced it is scrapping its plan to reduce payments for health services for the poor and will instead move promptly to collect Medicaid overpayments that local hospitals owe the city.

Mayor Barry's plan to cut Medicaid spending by $2.5 million had been vigorously opposed by the D.C. Hospital Association, the Medical Association of the District of Columbia and several civic groups. Under the proposal, the city would have reduced Medicaid payments for clinic and emergency room visits.

James Buford, director of the Department of Human Services, said that the department had found that the city had made an estimated $3 million in overpayments to District hospitals, which, if collected, would provide more money than the Medicaid cuts would.

Steve Lipson, executive director of the hospital association, said that payments are made to hospitals based on estimates of their costs in treating Medicaid patients and have traditionally been too high.

Buford also announced that city will also not eliminate its $1.76 million Medical Charities Program, as had been proposed. Under the program, the city pays hospitals $76 a day for each poor patient not covered by Medicaid that they treat.

In other budget developments, the federal government told the city it could offer voluntary early retirements to qualified city employes. But a federal judge said yesterday that the District would have to move more slowly in closing shelters for the homeless as part of its belt-tightening moves.

City officials said yesterday that the U.S. Office of Personnel Management will allow it to offer so-called "early out" retirements to about 3,500 of the city's 28,000 employes who are covered by the federal civil service retirement system.

Based on past experience, about 425 of those employes could be expected to opt for early retirement, saving about $1.5 million in annual salary costs.

Barry said the early retirements could reduce the number of layoffs he would have to make in his effort to cut the city payroll. Barry has ordered or proposed 1,003 layoffs by Dec. 31, in addition to reductions he hopes to achieve through attrition and by eliminating unfilled jobs.

But Robert Storey of the D.C. Personnel Office said that the 425 figure may be optimistic. "Right now, it's damned hard to find another job [to supplement retirement income] so we may not reach that level this time."

Storey said the early retirements -- which will be available between June 1 and Dec. 31 -- will not require the District to contribute additional money to the pension system. Both the city and the affected employes contribute to the pension fund during active service.

The normal retirement system permits retirement only for those age 55 or older. Early retirement will be available to employes who are at least 50 years old with 20 years of service, including federal employment, or those who have completed at least 25 years of service at any age.

Early retirees receive monthly pension payments reduced 2 percent for each year they are under 55. However, they qualify for cost-of-living increases that would offset the reduction. A version of "early out" also has been proposed for the police department, which is under a separate city-administered pension program.

Meanwhile, a U.S. District Court judge said yesterday that the city could not stop funding three centers for homeless men until it holds hearings on the action, which could take at least five weeks.

Judge Thomas A. Flannery said that although it will cost the District government $20,000 a week to maintain the shelters, the city must let the public comment before it deprives the men of "the most basic necessities of life: a free shower, meal and a place to sleep."

Flannery noted, however, that if the District government meets that requirement, it could then stop funding the shelters.

"Whatever the humanitarian or emotional considerations, the government assumes no obligation to house and feed indigent people," Flannery wrote in a 11-page decision.

For more than two years, the city has funded shelters for homeless men at Pierce School, at 611 I St. NE, and at Blair School, at 14th and G streets NE, each of which shelters about 115 men a night. The city has also contracted with the Gospel Mission, at 810 Fifth St. NW, to shelter about 60 men a night.

In other action in the federal court yesterday, Judge Aubrey E. Robinson Jr. told the city government not to dismantle the Upshur Street Clinic in Northwest Washington until a court hearing next Wednesday. The clinic, which serves low-income residents, was closed Tuesday in another budget-cutting move.