The District government has drafted a plan that would reduce by half the number of inpatients and the physical size of St. Elizabeths mental hospital by 1988. The Southeast Washington facility would be folded into a reorganized city mental health system employing about 1,000 fewer people than now work at the hospital.

Congress has authorized the transfer of the hospital from the federal government to the District by October 1987. Under the city's draft plan, the number of inpatients at St. Elizabeths would decline from about 1,600 currently to slightly more than 800 in 1988.

Hundreds of chronic mentally ill patients now at the hospital would be placed in small, privately operated group homes called community residential facilities, in nursing homes and in supervised living situations. A few would go home to their families.

City officials acknowledge that this transfer to a community setting will be difficult to accomplish, particularly with expected neighborhood opposition to the creation of large numbers of residential facilities for the mentally ill. But they say it will result in a more efficient system that better serves the needs of the mentally ill.

"The outplacement targets are ambitious," Virginia C. Fleming, director of the D.C. Mental Health System Reorganization Office, said yesterday. Fleming provided a summary of the proposal in response to inquiries about the plan, which is to be announced officially next week.

Some of the 3,348 employes of the hospital, who are now federal employes, would be absorbed into the new local mental health system, which would have about 2,300 full-time positions, under the city plan. Other employes would be given hiring preference by city contractors and at other city agencies. About 1,000 hospital employes are eligible for early retirement, according to city figures, and officials hope this will minimize any layoffs of current workers.

Mental health services would be consolidated on the east side of the 336-acre hospital campus in the far Southeast neighborhood of Congress Heights. The city has not determined what to do with the west side but might try to use it for housing or commercial development, according to David Rivers, director of the D.C. Department of Human Services.

After public comment and review of the draft proposal by the D.C. City Council and Congress, a final plan will be submitted to the council next October. The council will then have 60 days to accept or reject it.

Overall, the plan shifts mental health care for District residents away from an institutional setting and focuses on treatment at smaller mental health facilities available to people living in the community.

This move is in line with the large-scale, court-ordered deinstitutionalization of mental patients that has occurred during the past decade. Patient advocates have argued that many of the patients at St. Elizabeths do not need such a restrictive setting and should be living in the community.

Some public officials and social service advocates who deal with the homeless, on the other hand, recently have had second thoughts about massive deinstitutionalization and have said community resources have not been adequate to deal with the problems of the mentally ill coming out of the hospital.

The new plan is bound to be controversial on a number of fronts. Employes at the hospital already are concerned about their jobs. Community resistance is expected when the city begins locating potential sites for community residential facilities. And some hospital staff members, families and advocates for the mentally ill question whether appropriate mental health facilities can be developed in the community in the short time available.

Barbara Bick, a mother of a 37-year-old St. Elizabeths patient and the president of a group of family members and health professionals called Friends of St. Elizabeths, said she is concerned that the plan will result in "emptying out the hospital without adequate resources in the community" to deal with patients.

"The community residential facilities that I am being shown for my daughter now are just terrible," Bick said. "They are in poor neighborhoods in small houses," because that is where it is easiest and cheapest to buy, she said.

Norman Rosenberg, director of the Mental Health Law Project, which was instrumental in bringing about deinstitutionalization, said the city's overall plan "looks very good."

One part he found troublesome, however, was a proposal to put a transitional residential facility on the St. Elizabeths grounds, because he said that would not get the patients back into the community.

A unit for 150 mentally retarded psychiatric patients is to be developed at the hospital complex, as well as a 140-bed facility for patients who need nursing care but are unable to find an appropriate existing facility. The number of patients in the forensic unit, under evaluation or treatment because they were arrested for a crime, would stay at 370. The sharp reductions in bed capacity would be made mainly for adult patients receiving long-term psychiatric care.

The federal government, arguing that most St. Elizabeths patients are District residents, had been attempting for years to transfer the hospital to an unreceptive city government. Last fall, Congress approved legislation to implement the switch. The city must assume responsibility for managing the hospital in October 1987 and must have a comprehensive mental health system in place by 1991.

Presidential assailant John Hinckley, St. Elizabeths' most famous resident, will remain in the forensic unit, but the federal government will have to pay for his care after the transfer.