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At first, New York's health-care industry celebrated.

In the weeks before releasing his annual budget, Gov. Pataki revealed that he would end a much-disliked tax on hospitals, nursing homes and other health-care providers a year earlier than expected, on March 31.

But with release of the budget Wednesday, the mood quickly changed into a call to arms.

The governor hit the industry with a proposal to cut Medicaid by $266 million.

Medicaid, the health-care program for the poor, is supported 25 percent by the state, 25 percent by the counties and 50 percent by the federal government. Any state reduction is compounded by reductions in the local and federal shares -- about $850 million altogether.

"Clearly, we think this is unwise and unnecessary. The cuts will have a disproportionate impact in a city like Buffalo, with its large population of Medicaid patients and teaching hospitals dependent on support from the program," said Daniel Sisto, president of the Healthcare Association of New York, which represents 220 hospitals.

"These hospitals already are absorbing massive cuts in Medicare funding," he added. "You're looking at a fragile hospital system."

Sisto estimated that when everything is added up -- the Medicaid cuts vs. the early elimination of the tax -- hospitals statewide will lose $356 million.

Pataki defended the cuts.

In his budget, he said that the Medicaid program, which also covers nursing-home care for the elderly, costs too much and that New York still will commit more funding to Medicaid than any other state in the nation.

The governor also proposed using three-fourths of the state's share of the recent tobacco settlement over the next five years to reduce New York's huge debt. Under the settlement, the state and counties will receive $25 billion over the next 25 years.

Pataki proposed using the remaining settlement money over the first five years of the settlement for health initiatives related to the Health Care Reform Act, the law that governs hospital charges. That law, which also sets the structure for funding graduate medical education and medical coverage of the uninsured, expires this year.

Consumer groups and anti-smoking advocates criticized the decision, saying some money should be earmarked for programs to reduce smoking.

"Debt reduction is an appropriate way to spend the money, but we can afford to take a small portion of the settlement -- say $50 million -- and fund a good tobacco-control program in this state," said K. Michael Cummings, director of Roswell Park Cancer Institute's Smoking Control Program.

Other proposals in the governor's budget include:

Transfer of the Research Institute on Addictions, which is located in Buffalo, from the state Office of Alcohol and Substance Abuse Services to the University at Buffalo.

Provide $5 million to create a biotechnology research center involving UB and Roswell Park.

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