Maryland Gov. Robert L. Ehrlich Jr. (R) appointed a former Reagan administration financial manager to take over the state's $6 billion health department at a time when Maryland faces pivotal decisions about how it will fund medical care for its neediest residents.

S. Anthony McCann, 61, most recently oversaw financing for several Smithsonian Institution construction projects, but his resume includes an array of federal positions that placed him at the center of key health care budget decisions.

McCann, a lifelong resident of Silver Spring, said the federal experience would come in handy at a time when state health officials' biggest concern is how to meet rapidly rising Medicaid demands.

In becoming secretary of Maryland's Department of Health and Mental Hygiene, McCann would face "the greatest challenges any secretary has faced in a generation," said House Speaker Michael E. Busch (D-Anne Arundel). "Medicaid costs are rising by 10 percent a year. It's mandated by the federal government that the state of Maryland match that increase. And we do not have the resources to do that."

In an interview yesterday, McCann agreed that Medicaid spending "is a very great problem. And I wouldn't tell you I have a solution in my back pocket."

But he said he looks forward to the challenge. He said there is some irony in the fact that as the chief financial officer for the U.S. Department of Health and Human Services in 1988, he was responsible for a plan to pass billions of dollars in health care costs to the states.

At the time, he told the Associated Press that if the states were unable to figure out how to shoulder the burden through staff cuts, they would have to trim benefits. "The states have the choice," he said at the time.

Hearing those words yesterday, he laughed. "I guess the chickens have come home to roost. Experiencing directly the impact of the passing on of costs is something I'm going to have to get used to."

Pending Senate confirmation, McCann will replace Nelson Sabatini, who is retiring as health secretary at the end of September.

McCann will start the $155,000-a-year job at a crucial moment in the state's budget process. Already, health department budget officials are grappling with an array of tough choices as they try to meet Ehrlich's mandate that they try to pare 12 percent from the department's budget.

An internal budget document obtained yesterday by The Washington Post shows some of the possible cuts being discussed. Among them are $2.5 million from breast and cervical cancer diagnosis and treatment programs; $1.1 million from state programs that provide family planning, tobacco use prevention and other services; and $400,000 from a program that reimburses hospitals for the cost of collecting evidence in sexual assault cases, which could leave victims footing the bill.

Health department officials and Maryland Budget Secretary Chip DiPaula Jr. played down the significance of the document. DiPaula noted that he has not yet received the department's formal budget request and does not expect to get it before next week.

"Obviously, what you have is preliminary," DiPaula said.

The Ehrlich administration is in the midst of a "strategic budgeting" exercise, under which departments have been asked to present budgets using 88 percent of funds spent this year. But some cuts will be restored as a result of a give-and-take with the governor's office, DiPaula said.

The draft budget document gives some insight into the deliberations. Next to each cut is a brief but blunt analysis of the potential impact. Cutting breast and cervical cancer treatment money, it says, would leave "an estimated 1,200 uninsured, low-income clients [facing] financial barriers to care . . . and [they] may die as a result."

DiPaula suggested some of the cuts listed in the document obtained by The Post had been discussed in previous years and were not likely to be embraced by the governor, and he cited the breast and cervical cancer funding as an example of one program the governor "would never consider" reducing.

Some of the proposed cuts "have been on every consideration list since the beginning of time and have never been accepted," DiPaula said. "It's quite conceivable that some of those programs could have more funding than this year."

Senate President Thomas V. Mike Miller Jr. (D-Calvert) said the General Assembly would oppose drastic cuts to services for the poor. He said he will urge the new secretary to focus on cuts to the bureaucracy. "Even leaving positions unfilled," he said, "would be better than adversely affecting the health of well-being of our citizens. These are life-and-death choices."

Vincent DeMarco, president of the advocacy group Maryland Citizens Health Initiative, said he would ask McCann to pledge to deliver quality, affordable health care to all Marylanders. "There are things that can be done that can achieve that, but you can't even start without a commitment to the goal," he said.

McCann agreed that DeMarco has a commendable goal but said it is too early for him to know whether it is possible to achieve.