A little-noticed provision in last fall's budget bill requires virtually all hospitals in the nation -- as well as many nursing homes and hospices -- to inform all adult patients of their rights under state laws to make a "living will."

In a living will, a person specifies in advance the conditions under which he or she wants medical treatment provided or withdrawn in case of an extreme illness that may leave them incapacitated and unable to render instructions.

The provision, which technically applies to all institutions participating in the Medicare and Medicaid programs and takes effect next December, grew out of the highly publicized case of Nancy Cruzan, whose family succeeded Dec. 14 in getting court permission to remove a feeding tube. She is expected to starve to death before the end of the year, although she remains alive, and in critical condition.

She had been in a vegetative state since an automobile accident in 1983. The family had been thwarted in earlier attempts to have the tube removed. At the center of court battles had been the question of what her wishes would be.

Ironically, although Cruzan's case triggered the provision, she was unconscious when she was admitted to the hospital and could not have been informed of her rights to do a living will under the provision.

The new provision will apply to all patients in covered institutions not only to their Medicare and Medicaid patients.

It requires the medical institution to inform patients not only of their right to make living wills but of their rights under state laws to grant "power of attorney" to someone else to make such a decision.

When Rep. Sander M. Levin (D-Mich.) was speaking for the legislation, he told the House that 47 states have laws permitting living wills and/or "durable power of attorney" laws, but that people often do not know about them. As a result when a crisis arises, often there are no instructions and the decision to withhold or continue treatment can become a legal football.