After weeks of intervention by first lady Hillary Rodham Clinton, the federal Health Care Finance Administration has decided not to pursue the reimbursement of roughly $1 billion in overpayments it made for the care of the indigent at New York hospitals, a source close to Clinton confirmed tonight.

Clinton had spoken to administration officials on the subject in recent weeks, in response to concerns raised by hospitals that returning the funds for Medicare patients would affect health care delivery. Clinton is running an exploratory campaign for the U.S. Senate seat from New York that will become vacant next year, and health care issues have emerged as the centerpiece of her burgeoning effort.

Whether the move by HCFA came solely in response to Clinton's intervention or also in response to lobbying by New York hospitals is unclear. But the move occurred just after Clinton criticized the payment recovery dispute during a speech she delivered Thursday to the HealthCare Association of New York.

Speaking to the organization's conference in the resort town of Bolton Landing on Lake George in the Adirondack region, Clinton called for the dispute between hospitals and HCFA to be "resolved as soon as it can be in a way that does not penalize hospitals for providing health care to the indigent."

HCFA has made nearly $1 billion in what it characterized as overpayments to 130 hospitals across New York state because of a discrepancy between the way HCFA calculates Medicare payments and the way the hospitals do, said Jeanne H. Cross, the hospital association's vice president for communications.

During campaign appearances at Lake George and also before a nurses group in Lake Placid the same day, Clinton took another stand in opposition to her husband's administration when she criticized the Balanced Budget Amendment of 1997. Both she and hospital executives have called for the restoration of cuts in Medicare payments to hospitals.

"Those cuts went too far," Clinton said in Lake George. "They have caused too much pain and are cutting into too much muscle and bone."

Peter Sullivan, executive vice president of the Nassau/Suffolk Hospital Council, said after Clinton's speech that he wants her "to persuade her husband to back off on those cuts. . . . I want him to put more restorations on the table." The hospital association said New York health care providers have lost $5 billion as a result of the balanced budget amendment cuts.

Clinton's speeches on health care reform this week were her most comprehensive on the subject since she announced her possible Senate campaign in July. She has recommitted herself to the health care reform agenda she pursued with abysmal results in the early 1990s, when she pushed for a wholesale overhaul of the health care industry, with universal health insurance coverage a primary goal. She maintains that universal coverage remains her goal but acknowledges that the broad and immediate change she once sought must give way to a more incremental approach.

Referring to that reform debacle of 1993 and 1994, she said, "Given the results of that effort, there are probably many who might not understand why I would keep talking about health care. But the answer is simple. This is something I've been talking about and working on my entire life. . . . I am proud that we did try to help millions of people that don't have insurance in this country. We were right to be concerned, but we clearly need a different approach."