After a year of study, Governor Pataki’s Working Group on Healthcare has delivered its prescription for New York’s ailing hospital system: Lose some weight.

The report, which went to the governor last week, points out that New Yorkers spend $18.2 billion a year on hospital care – far more per capita than any other state – and are not notably healthier than other Americans as a result. California, which has 15 million more residents, spends just $17.8 billion on acute care.

Hospital officials have tried to explain this phenomenon by pointing out that New York is a Mecca of health care, attracting patients not just from other states, but from other continents. The state also copes with more than its share of AIDS and other expensive public health problems, and generally has a higher cost of living than the rest of the country. The report’s authors argue, however, that these factors are not enough to explain away all of the excess billions.

“It’s time to face reality,” the report says. “We need to get better results for what we spend. We need to trim the fat from New York’s healthcare system and reinvest the savings to modernize and improve the system.”

The panel calls for politicians to stop bailing out financially weak hospitals, and instead to encourage them to downsize or close. It suggests designating some hospitals as regional “centers of excellence,” which would continue delivering high-end care, while pushing others to strip down to the basics, such as emergency rooms and maternity wards. It also calls for overhauling the Medicaid payment system, so that hospitals would no longer lose money on delivering babies and treating asthma while turning a profit on organ transplants.

The report does not, however, propose subjecting the hospital system to a Darwinian competition for survival. Instead, it recommends that state government use its financial and regulatory might to reward efficiency and soften the blow for the institutions that fail.

“The defining characteristic of the acute care system, which we examine in this report, is change – inevitable, large-scale, rapid change,” the chairman of the working group, Stephen Berger, wrote in a cover letter to the governor. “We must embrace change and master it. If we do not, then the current skyrocketing annual growth of the Medicaid program, multiplied by the demographics of the aging baby boomer generation, will bring fiscal devastation to New York State and its local governments, and leave us with a healthcare system unsuited to our purposes, consuming ever greater amounts of our resources without producing demonstrable beneficial effects in the health status of New Yorkers.”

The panel’s members speak with considerable authority. Mr. Berger, currently the president of Odyssey Investment Partners, was the commissioner in charge of Medicaid under Governor Carey in the 1970s. The other members of the governor’s working group are the president of the Partnership for New York City, Kathryn Wylde; a former U.S. representative from the Bronx, Herman Badillo; a Harlem entrepreneur and former state housing commissioner, Joseph Holland; an internationally known economist, Jeffrey Sachs, and the executive of Broome County, Jeffrey Kraham.

Mr. Pataki appointed the working group last year to recommend ways of controlling the spiraling cost of New York’s $42 billion Medicaid program, which is expected to grow another 9.5% in 2005. The panel previously issued recommendations to save money on the long-term care provided by nursing homes and home health agencies, and on the mushrooming expense of prescription drugs.

The latest report arrives just in time to frame the coming debate over the Health Care Reform Act, a law that distributes billions of dollars in subsidies to hospitals and is due to expire at the end of June. Mr. Pataki will undoubtedly incorporate many of the working group’s recommendations into his budget proposal this January.

Convincing the Legislature to go along, however, will not be easy. The hospital industry and its major labor union, SEIU Local 1199, are two of the most potent interest groups at the state Capitol. A joint lobbying campaign by the union and the Greater New York Hospital Association set a record last year when it spent $11.1 million on a successful effort to persuade lawmakers to raise taxes rather than cut Medicaid.

This year, the Legislature again rejected all of Mr. Pataki’s proposals for containing the costs of Medicaid. Instead, lawmakers approved an industry proposal to borrow $250 million, at taxpayer expense, to help hospitals up grade their computer systems and otherwise improve efficiency.

Without going into great detail, the governor’s working group provides legislators with lots of ideas to pursue. The report speaks of ending the “medical arms race,” in which hospitals compete for patients and revenue by making redundant investment in high-technology equipment. It calls for using the techniques of “disease management” to improve treatment of chronic conditions, such as asthma, at a lower cost. It calls for reorganizing subsidies for charity care to make sure that more money, not less, flows to the hospitals dealing with the greatest number of indigent patients.

The report endorses the idea of investing heavily in information technology, seeing a huge potential to improve care and save money at the same time. It argues, however, that the state should subsidize this effort primarily with low-interest loans rather than direct subsidies.

Unfortunately, grappling with complex, expensive decisions isn’t exactly Albany’s strong suit these days. This year, for example, lawmakers failed to compromise on a new formula for distributing school aid despite a deadline imposed by the state’s highest court. And of course they haven’t approved a budget before the April 1 start of the fiscal year since 1984.

In the view of Ms. Wylde, however, lawmakers cannot afford to continue with the status quo.

“To do nothing means, by default, the quality of our health-care system is going to deteriorate,” she told The New York Sun. “The institutions that are serving the most needy populations, with some of the greatest health problems, will simply fall off the cliff, leaving the state with an even larger group of folks who are not receiving adequate health care.”

As Ms. Wylde notes, lawmakers are also under pressure to come up with billions of dollars in new money for public schools, to satisfy a court order, and billions more for the Metropolitan Transportation Authority, to avert fare hikes. Even without those new expenses, the state faces a budget deficit of as much as $6 billion for 2005-06.

Health care is “the third big area where New York State is hitting a wall,” she said. “We have to revisit business as usual. There’s just no place to borrow from anymore to maintain these systems.”