Maryland Gov. William Donald Schaefer reversed himself yesterday and pledged to continue state funding of kidney dialysis treatments.

Schaefer said he also will continue a program, which he planned to eliminate on April 1, that helps the working poor and the elderly on fixed incomes pay for medical prescriptions.

The governor's reversal was his second on a budget-cutting measure in recent days. A week ago, under pressure from legislative leaders and state employees, he abandoned plans to lay off 1,800 government workers to help cover a revenue shortfall most recently estimated at $423 million.

Schaefer had earlier acted to halt the prescription program and the 19-year-old kidney dialysis program, the only one in the country that is state-subsidized, to save $6 million he said was needed to help balance the budget for the current fiscal year.

But new rules allowing for an increase in federal matching funds for dialysis treatments will enable both programs to continue at current levels through June 30, according to Schaefer and Nelson Sabatini, deputy director of the Department of Health and Mental Hygiene.

To reap the additional funds, Sabatini said state legislative leaders have agreed to approve legislation authorizing his department to rewrite the regulations to conform to new federal guidelines.

Under the procedures, already in effect in 16 states, the state first raises the amounts that doctors, pharmacists and laboratories can charge. Because the federal government pays the state for half, the state gets more.

But before reimbursing the provider, the state deducts a fee for itself. Therefore, the state gets more. The provider gets the same as before.

Sabatini said the proposed legislation authorizing the revised financing procedures also will seek to save money through a "realistic income test" for patients, all of whom automatically are covered now, regardless of their income.

Schaefer's earlier recommendation, adopted last month by the state Board of Public Works, would have cut benefits to 4,200 Maryland residents with kidney disease. Medicare pays 80 percent, while the state dialysis program pays the rest.

The cuts, which would have saved the state $3 million during the next six months, had been criticized by the chairman of the Maryland Commission on Kidney Disease and by patients who had written to protest.

At his news conference yesterday, Schaefer remembered a dialysis patient who confronted him at the Christmas open house at the Governor's Mansion. "The man looked me directly in the eye and said, 'You know, governor, you may be the one who caused me to die,' " Schaefer said the man told him.

Schaefer said he intended the cuts "for only one reason: in order to get money to balance the budget."