Health, Education and Welfare Secretary Joseph A. Califano Jr. told the American Medical Association today that the nation's health-care system is a "very costly . . . virtually noncompetitive . . . obese" business that needs "profound reform."

But the AMA replied that it is the Carter administration, bit on talk but "short on substance," that needs the overhaul.

To Califano's charges that the health industry ignores the poor and concentrates on "lucrative" suburbs, AMA Executive Vice President Dr. James H. Sammons replied that Americans are getting more health care in better facilities than citizens of any other country.

Improvements are needed, Sammons conceded. But cost control and not health is this administration's top priority, he maintained, and the administration meanwhile has "more fluff than substance" - "a lot of head but little beer" - in health and other areas.

The head-on confrontation between liberal health bureaucrat and conservative doctor was like few the conservative AMA has never permitted. It was certainly like nothing heard by the AMA in eight years of Republican administrations.

Califano, then Sammons, address the opening session of the AMA's [WORD ILLEGIBLE] member House of Delegates, a representative body elected by [WORD ILLEGIBLE] societies all over the country.

Califano called on the [WORD ILLEGIBLE] doctors to cooperate in reforming health care lest all reform leadership come from others.

But the administration is also in the process of taking some concrete steps. Califano Saturday announced an expanded program against Medicare and Medicaid fraud.

Monday in Los Angeles, it was learned, HEW Under Secretary Hale Champion is expected to announce President Carter's support for wide expansion of "health maintenance organizations, or HMOs.

Champion is scheduled to unveil a new program of federal aid to help establish more of these medical plans that give total care for a flat monthly sum rather than charging for each service, test or hospitalization.

Champion is expected to say that these centers - like the West Coast's huge Kaiser plans and the Washington-area Group Health Association - because they have no financial intest. He is expected to say they now have proved they can save money centive to over-hospitalize or over-should be supported as a proven system rather than experiments.

Califani opened his AMA address with a tribute to the country's "extraordinary" and "dedicated" doctors who have encouraged up to set our sights high."

Then he got down to this bill of particulars:

Not only is health care a lucrative business for doctors, "but the giants of corporate America" have "moved in to obtain their share," with drug and equipment makers finding "patent monopoly, pots of goul."

Health resources are not distributed "economically or equitably," with inner cities and rural areas and especially the children in those areas lacking attention.

Doctors moving to suburbs have forced city dwellers to patronize hospital out-patient departments at 2 to 3 times the cost of similar HMO care.

"We have not made much progress" in using non-physicians like nurses and doctors' assistants to give care.

The health system emphasizes acute care rather than prevention, "needlessly consuming resources."

Present health insurance is "an expensive and inequitable crazy quilt," with 18 million persons completely uncovered, 19 million having only nearly half those under 65 lacking enough insurance to cover "crushing" major bills.

Runaway costs, expected to double by 1980 at the present rate, are "gobbling" so many tax dollars that they are imperiling both other government services and health care.

He warned the doctors that the administration's current proposal for a lid on hospital revenues - with a limit of about 9 per cent on annual increases - is "merely a stop gap solution."

"For the long run," he said, "we must" organize the system more effectively and "establish a fair and effective system of national health insurance."

Sammons countered that this was so much more promise of Washington bureaucracy, which he called a "cancerous, relentless, mindless blob . . . that seeps under the doors and as soon as you stop it in one direction it creeps in from another."

Doctors need to help control costs, he agreed, but "when cost becomes the overriding factor in medical decisions," he maintained, "first you get rationing of care to patients," next second-rate medical equipment, next a pinch of physician training "and finally you wake up one day to find you have a second-rate medical care system." He said all this has happened in Britain.

While the administration talks of improving health, he said, it has weakened the role of HEW's assistant secretary for health and diminished medical imput on HEW medical decisions. It has a Health Insurance Issues Advisory Committee, he said, but Califano, has "ludicrously" told it it cannot recommend any particular insurance plan.

He promised increased effort by doctors to police their own ranks and "show some restraint" on increasing costs. Meanwhile, he said, "let the administration be more specific and less vague about what it wants" and "we will continue to try to cooperate."