ALBANY – Controlling the mushrooming cost of New York’s $42 billion Medicaid program is expected to be a major theme of Governor Pataki’s 11th State of the State speech today.

Officials in the health care industry anticipate that Mr. Pataki, a Republican, will call for austerity in the face of a projected deficit of $6 billion, including broad cuts in the Medicaid health plan for the poor and disabled.

They expect the governor to propose trimming benefits and tightening eligibility requirements; reducing the fees paid to providers; and raising money for Medicaid through surcharges on hospital and nursing homes – ideas that the governor has proposed before with mixed success.

In a new twist, Mr. Pataki is expected to call for state government to absorb a greater share of the cost, which could save New York City and other county governments hundreds of millions of dollars. But the governor is trying to link that change to adoption of costcontrol measures, a trade-off that local officials oppose.

The governor’s address will be the opening salvo of what is likely to be a prolonged battle over the $103 billion state budget. Mr. Pataki and the Legislature must not only cope with soaring Medicaid costs but also satisfy a court order to increase funding for New York City schools and find a way to pay for overdue maintenance of the state’s mass transit and highway systems – all of which carry price tags in the billions.

Lawmakers are also under pressure to improve the way they conduct the state’s business. After an unusually gridlocked session last year – which included setting a new record in the 20-year streak of late budgets – and being tagged the most “dysfunctional” Legislature in the nation in a New York University study, leaders of the Assembly and Senate are promising to overhaul the budget process and make their procedural rules more democratic.

Mr. Pataki is expected to touch on all of these topics in his speech this afternoon, but his ability to make things happen at the Capitol is in doubt. His popularity and his relations with the Legislature are ebbing, and it is unclear that he will seek a fourth term in 2006, which would make him a lame duck. On the other hand, the Court of Appeals recently sided with the governor in a constitutional battle over budgetary powers, strengthening his hand in the upcoming negotiations with legislative leaders.

The Medicaid issue will test Mr. Pataki’s strength. Many lawmakers agree that the program is too costly, and imposes too much of a burden on both state and local finances. Others see a generous Medicaid program as providing vital care to vulnerable citizens, including poor children, the elderly, and the disabled. And the health-care industry, including groups representing hospitals and nursing homes and unions for health-care workers, is among the most formidable lobbying forces at the Capitol.

Another interest group with a stake in the debate is local government, which covers about 20% of the cost of Medicaid. The state pays about 30% and the federal government 50%.

At a news conference yesterday, organizations representing Mayor Bloomberg and other county officials called for the local share of Medicaid expenses to be capped at 2003 levels, which would shift $600 million in costs from them to the state. Much of the savings would go to New York City, which is spending $4.5 billion on Medicaid this year, up about 11% from the year before.

“We’re very hopeful the governor will be at least mentioning two important words in his State of the State speech tomorrow – ‘Medicaid reform,'” Nassau County Executive Thomas Suozzi said.

Mr. Suozzi – a Democrat who founded a “Fix Albany” political committee that targeted certain state lawmakers for defeat in November – is leading a delegation of local officials that has met privately with Mr. Pataki in recent weeks.

Yesterday, the group also won an unusual joint meeting with the Republican majority leader of the Senate, Joseph Bruno, and the Democratic speaker of the Assembly, Sheldon Silver.

The local officials acknowledged that none of the officials had embraced their proposal, but expressed their determination to see it enacted in some form this year. They said they were willing to support other changes in Medicaid – including new revenues and spending cuts – but did not want them linked to the cap on the local share.

“We are united upstate and downstate, Democrat and Republican, behind one concept: an unconditional Medicaid cap,” Suffolk County Executive Steve Levy said. “We do not want a cap that is tied to contingencies we know are illusory. We want a real cap.”

When asked about the issue yesterday, Mr. Pataki said he would discuss Medicaid reform in his speech but declined to say anything more.

An administration official, speaking on condition of anonymity, said budget relief for local government cannot happen without offsetting revenue and spending cuts.

“We agree that Medicaid is crushing the counties,” the aide said. “We agree the state should lend a hand. … But it’s just fundamentally unaffordable for us to take over $7 billion in local cost that’s growing between 10% and 15% a year.”

Representatives of the health-care industry said they don’t necessarily oppose shifting costs from the counties to the state, but are leery of any plan that cuts Medicaid spending.

“In this big mosaic of pieces that have to fit together in the budget, our principal concern is that the healthcare provider system not be damaged by cuts,” a senior vice president of the Greater New York Hospital Association, Patricia Wang, said. “If there are cuts proposed for whatever reason we’re going to have to be very, very concerned about that. The hospital and the long-term care system just cannot sustain them. They would be absolutely devastating to the provider system.”

“Hospitals have lost $2 billion in the last five years,” a spokesman for the Healthcare Association of New York State, Matthew Cox, said. “They’re not-for-profit organizations, so they’re not trying to make money. But they’re having trouble paying their bills and making ends meet and providing the care they want to provide now. Any cuts or taxes on hospitals and nursing homes would make a bad situation worse.”

Mayor Bloomberg supports both capping the local share of Medicaid expenses and cutting its costs, an aide to the mayor said yesterday.

“It is the Cadillac of Medicaid systems in the country,” the official said, speaking on condition of anonymity. “I don’t think anyone would disagree with that. …Meaningful, modest cost containment we think is warranted.”