ABOUT A year and a half ago, the Virginia state government and the state's hospitals were on relatively cordial terms. The issue then, as now, was the staggering cost of medical care for the poor. The state agreed that the hospitals needed help to cope with mounting financial losses. That led to an agreement, pushed through the general assembly at the urging of then-governor Gerald Baliles, which relaxed regulations on obtaining new equipment and offering new medical services, and a $15 million trust fund was created. This could be tapped by the hospitals that were providing uncompensated care, in part to the 800,000 Virginians who had no public or private health insurance. It is now clear, however, that the hospitals no longer view the state as a part of the solution but rather as a part of the problem.

The Virginia Hospital Association says that its members lose an amount equal to the entire value of that trust fund every 15 weeks because of the costs associated with another population -- those Virginians who are fortunate enough to have Medicaid. The state's private, acute-care hospitals say they receive just 71 cents for every dollar they spend on such patients, and the Hospital Association has filed a lawsuit against the state, arguing that the Medicaid reimbursements should be substantially higher.

For its part, the state had rested its early hopes on a simple argument: that the hospitals had no standing to file suit against the state in federal court for higher reimbursements. The state has now lost that round, based on a 5-to-4 U.S. Supreme Court decision last week favoring the right of health care providers to launch such lawsuits. The court's ruling has an impact that reaches far beyond Virginia. Another 12 states face similar lawsuits, and several others are nervous over the prospects. A total of 37 states joined in a friend-of-the-court brief in the Virginia case, arguing that these lawsuits could expose them to "liability easily running into the hundreds of millions of dollars." The Bush administration also sided with the states, arguing that similar litigation "would vastly increase" the costs of the Medicaid program to state and the federal government.

All this has added more fuel to the debate over the worsening problems faced by the nation's health care systems, and brings into sharper focus the question of whether individual states have the financial wherewithal to cope with this problem. In Virginia, for example, state officials say that their share of Medicaid spending has already doubled since 1985. How much more can it, and other states, afford to pay? How much more can the hospitals afford to lose?