A controversial health insurance plan nearing adoption at George Washington University Medical Center and Children's Hospital would pay for subscribers to receive treatment at the two hospitals only from the hospitals' full-time staff, not from the patients' private physicians.

The Aetna Insurance Co. plan--now in effect at two Chicago hospitals, and tentatively scheduled to be sold this fall in the Washington area--has strained relationships between the hospitals and local doctors and has pointed up the problems faced by a host of new insurance plans designed to reduce health care costs.

Called "Aetna Choice," the proposed plan from the nation's second-largest health insurer is a form of a "preferred provider organization" (PPO) plan, an emerging type of health insurance that restricts patients to a single doctor of their choice for primary care. PPO plans generally are less expensive than conventional health insurance plans.

The Aetna plan would allow patients to receive care from their own doctors outside the hospitals, but would not allow those same private physicians to handle hospital care. Hospital care would be performed only by the staff of the hospital selected by Aetna in each market to handle the Choice patients.

Aetna signed letters of agreement recently with George Washington for adult hospital care and Children's for pediatric care, setting off a storm of criticism from private doctors who believe they will not be allowed to care fully for their patients.

"Patients will get worse medical care if the doctor who's been taking care of them for years cannot take care of them when they need it most," said Dr. James Ramey, president of a group of 300 private doctors who practice and teach at George Washington University Medical Center as associate professors of medicine.

Both the D.C. Medical Society and the American Medical Association recently passed resolutions that indirectly condemn the Choice plan. The plan is not named directly because of a 1932 U.S. Supreme Court case forbidding doctors from restraining the activities of other health groups.

The private doctors affiliated with George Washington have retained a lawyer specializing in antitrust matters.

"It's caused a great deal of tension and animosity," said Dr. Raymond Scalettar, a Washington internist who is a member of the AMA's Council on Medical Service, which met with Aetna officials in Chicago last month on the issue. Scalettar said that participants at that meeting were told that only the full-time faculty on the George Washington hospital staff would participate in the plan.

But Dr. John Harper, medical director at Aetna's headquarters in Hartford, Conn., said this is incorrect and that no final decision on implementation of the plan has been made. "We hear sometimes what we want to hear," he said in explaining the confusion.

Critics of the plan compare it to the British system of medicine, in which there are two types of doctors, those practicing outside and inside of hospitals. Harper disagreed, but noted, "Across the country, the majority of people being treated in hospitals are seen by another doctor anyway." He conceded, however, that Washington, with its abundance of specialized doctors also providing primary care, has more doctors who do not relinquish control of their patients to hospital-based specialists.

The Aetna plan has been sold in Chicago for the last nine months, Harper said. There are two hospitals involved--Loyola University Hospital and Evanston Hospital--and 3,000 members.

Dr. Robert Parrott, director of Children's Hospital, said his facility hasn't faced much criticism because most of the children sent to the facility are seeing specialists based in the hospital.

The hospital agreed to join the plan because "we're interested in marketing," Parrott said. "We want to have patients. . . .It's protecting your territory. If the concept catches on and 7 percent of the area is in it, that's 7 percent of your patients going to another hospital ."

Irene Haske, director of public relations for George Washington, said, "It has been decided that George Washington administration doesn't want to talk about the Aetna Choice plan right now."

Dr. Dennis O'Leary, president of the D.C. Medical Society and dean of clinical affairs for George Washington, said the dispute does not arise from any residual ill will between "town and gown"--the private physicians outside the hospital and the academic doctors within it.

"Although town and gown relationships were strained in the early 1970s, certainly in the last five to seven years it's been almost a model relationship," O'Leary said. "The tempers that are flaring are not from an ongoing atmosphere of acrimony."

O'Leary, who dropped out of the hospital's year-long negotiations with Aetna when he assumed the medical society's presidency, said, "No matter how you cut it, the continuity of care is broken" under the Aetna plan.

As the controversy simmers, several doctors said they are considering telling their patients not to buy the insurance. "I personally feel it's not in their best interest," said Dr. Louis Biben, an internist and former president of the D.C. Medical Society. "There's no way a stranger can suddenly take over. This situation has created a tremendous amount of ill will towards George Washington Medical Center."

Aetna officials say they hope to calm the furor as soon as their contracts with the two local hospitals are completed. The insurer already has won agreements from four Washington companies, GEICO, the Association of American Railroads, the National Education Association and Parking Management Inc., to offer the plan to their employes, and hopes to be part of the federal government's open enrollment season this fall, said Aetna's Harper.