PEORIA, Arizona (Reuters) - A pacemaker and defibrillator fitted to carpenter Douglas Gravagna's failing heart makes even rising from the couch of his Phoenix-valley home a battle.

But it is not congestive heart failure that is killing him, he says. It is a decision by Arizona Governor Jan Brewer to stop funding for some organ transplants as the state struggles to reduce a yawning budget deficit.

"She's signing death warrants -- that's what she's doing. This is death for me," says Gravagna, 44, a heavy-set man who takes 14 medications to stay alive.

Gravagna is among 98 people denied state Medicaid funding for potentially life-saving transplants and at the forefront of a harrowing battle over the state's public finances.

The measure enacted last October by Brewer trimmed spending on Medicaid, the federal-state health insurance program, to help close a projected 2012 budget deficit of $1.15 billion.

It eliminated coverage for transplants including lung, heart, liver and bone marrow after weighing the success and survival rates for certain transplant procedures.

Two patients on the Medicaid waiting list have since died, although it is unclear if transplants would have saved them.

In a statewide speech, the Republican governor singled out the Arizona Health Care Cost Containment System, as the Medicaid program is called in the desert state, as the greatest drain on state coffers.

"At the deficit's core is the explosive growth in Medicaid spending which, over the last four years, has soared by almost 65 percent and now consumes 29 percent of our state budget," she said.

"If we are to regain control of state spending, we must reform Medicaid and free Arizona from the fiscal manipulation of the federal government," Brewer said.

CUTTING RATES TO PROVIDERS

Medicaid, which covers about 60 million Americans -- poor adults and children, people who are elderly or have disabilities -- is one of the top expenses for states.

It makes up about 16 percent of state budgets, said Judith Solomon at the Center on Budget and Policy Priorities. It pays for more than 40 percent of all births in the United States and is the primary bill-payer for nearly two-thirds of the country's nursing home residents, according to the Kaiser Family Foundation.

In Texas the proposed budget would cut rates to Medicaid providers, including doctors, dentists, hospitals and nursing homes, by 10 percent, making it more difficult for patients to find healthcare providers who accept Medicaid.

Other states, among them Nevada, Illinois, Mississippi, Nebraska, Colorado and South Dakota, have also proposed provider rate cuts.

Proposed cuts range from limiting prescription and doctor visits in California to eliminating adult vision and dental services in Georgia, the center says.

Brewer has proposed dropping about 250,000 Arizonans -- mostly childless adults -- from the program.

Most states are not proposing to trim Medicaid rolls because the new federal health reform law requires that they maintain current Medicaid coverage.

But the U.S. Health and Human Services Department has said Arizona can drop coverage because the state is providing it through a temporary waiver, and the new law does not require extending that.

'OTHER PLACES TO MAKE CUTS'

Taking an ax to transplant funding is backed by many Republicans in Arizona, some of who sympathize with Brewer.

"It's a very difficult unenviable position to be in for her," said Kathy Boatman, a conservative Tea Party activist in the Phoenix valley. "It's not fun, it's unpleasant, but when expenses have outpaced income, that's what you have to do."

But opponents, including state Democrats, the families of desperately sick patients like Gravagna and some doctors say savings can be made without putting lives on the line.

"There are other places to make cuts. We've cut taxes on the very rich, we have corporate tax loopholes," said Bruce Madison, a doctor who spoke at a rally to restore transplant funding in Phoenix on Saturday.

Madison received a life-saving heart transplant six years ago.

State Representative Anna Tovar, a Democrat and former kindergarten teacher, received two transplants to combat a rare form of leukemia. She says Arizona stands to lose more than $3 million a year in federal matching funds for Medicaid to save $1.4 million a year by restricting transplants.

"When you look at the big scheme of things, saving $1.4 million for 96 lives is not money well spent," said Tovar, who has introduced four bills seeking to restore Medicaid funding for transplants.

As he grows sicker after being denied a liver transplant last year, Francisco Felix, 32, says any savings from denying him the operation are in some measure a false economy.

"If I got a transplant, I could get back to work ... pay my taxes, and help Arizona to get back on its feet," he said at the rally.

(Additional reporting by Corrie MacLaggan; Editing by Xavier Briand)

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