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What happens in the confrontation between California Medicaid bureaucrats and the federal government may have a fallout on nursing homes across the country. If California prevails, the elderly residents of long-term care institutions and their families will be the losers.

At issue are requirements in 1987 federal regulations toughening standards for nursng homes participating in Medicaid, the federal-state program for the poor. Major themes in the new rules are the strengthening of patient rights and linking better care with better reimbursement.

California has refused to inspect for the new regulations in homes where its Medicaid residents live, 72,000 people. The federal government threatened to cut off Medicaid to the state - amounting to some $2 billion a year for nursing home care there - and is sending its own staff to inspect the facilities. Last week, California sued the federal government for trying to enforce the regulations.

California's charge has long been heard not only in connection with Medicaid but in other social arenas where federal revenues are involved or where the state evades its responsibility to one or another needy class of people.

The big, bad federal government, California cries, is forcing the state to do more without paying for it. State officials are particularly fond of this refrain. It gets them off the hook of taking care of a need, it eliminates the need to campaign for revenue or laws to let the state do the job, and it makes them look rather heroic in the eyes of some for taking on the troublemakers in Washington.

Unquestionably, federal support for a variety of social service programs has declined in the 1980s.

The California confrontation may eventually put pressure on Congress and the administration to re-examine the Medicaid budget or even to reconsider the program in terms of the 21st century.

Unfortunately, making the point California's way turns old people into pawns. Moreover, the message society gets is that the new requirements are inane.

Improving the quality of care in nursing homes with better-trained staff is not inane. Doing away with automatic restraints on frail residents, chemicals or straps that tie them in wheelchairs is not inane.

Making a "federal case" of patient rights is not inane. Because better care usually equates with more well-trained staff members, the standards naturally will cost more. But they're not irrelevant.