D.C. Village, the city's only public nursing home for the elderly has been declared ineligible for $5 million a year in Medicaid reimbursements because of understaffing, building defects and other conditions that do not meet federal standards.

The Department of Health, Education and Welfare also had threatened to terminate $500,000 in Medicare funds to the home unless the deficiencies were corrected by Monday. No action has been taken on that program, D.C. Department of Human Resources officials said yesterday.

DHR will appeal the Medicaid ruling on the basis of improvements made at D.C. Village since HEW noted the deficiencies in a survey last August, according to DHR health and hospitals administrator William J. Washington. Washington said Medicaid payments will continue during the appeals procedure.

Medicaid, the federal health care assistance program for the indigent, covers about 440 D.C. Village residents.

Medicare, the national health insurance for people over 65, pays partially for 54 other patients.

One major step taken ny DHR was the closing of admissions to the 700 bed facility last fall to bring its staff-to-patient ratios into compliance with federal rules.

The regulations allow for 400 patients with the present staff, Washington said. DHR officials estimated that some 1,600 city residents need nursing home care that is not available.

Washington has said DHR cannot hire more workers for D.C. Village because of limited funds, a national nursing shortage and the ceiling on District government employees.

DHR officials are considering new strategems to meet federal requirements such as reclassifying some patients as non-Medicaid patients as a way of lowering the patient staff ratio.

Washington said DHR inspectors have found improvements in the housekeeping, maintenance and severe roof leaks that HEW criticized. A DHR report is "on its way" to the regional office in Philadelphia where decisions concerning the District are made, he said.

If HEW finds the report satisfactory for continued Medicare funding, the improvements would also be grounds for reinstating the Medicaid payments, Washington said.