Even as hospitals close their doors in cities across the nation, victims of a changing health care system, the city owned Cambridge Hospital is looking to expand.

But concerns of neighborhood residents and cautious city councillors will have to be answered before the hospital can go ahead with a proposed $40 million reconstruction.

Hospital officials testified at a public hearing Monday night that the current facility cannot accommodate the diversity of programs its staff wants to offer or fit the most technologically advanced equipment.

The crowded waiting rooms and emergency room and the lack of private rooms are disrespectful of the hospital's patients and not conducive to good communication between doctors and their patients, officials said.

"There are health care requirements in the city that are not being met because we simply lack the facilities in the hospital. We've run out of room," said Richard deFilippi, the chair of the hospital's governing board.

Most people present at the meeting agreed that the hospital, which is located near the border between Cambridge and Somerville, needs more space to carry out its mission.

City and hospital officials and neighborhood groups have discussed the options in meeting the hospital's demand for space for more than two years, said City Manager Robert W. Healy.

But Cambridge and Somerville residents are still concerned about the effects of the hospital's expansion.

The current proposal for the hospital site would cost $40 million, make the building four stories tall and provide it with about 200 parking spaces, according to speakers advocating the expansion.

Although this represents a cut from the hospital's original request for six stories and 300 parking spaces-a project which would have cost about $57 million according to city manager Robert W. Healy-people are still worried about the costs and financial risks of the project.

While half of that money would come from the hospital's savings, which amount to $50 million, the other half would be debt issued in the form of city bonds as part of the city's 1994 fiscal year budget.

"The tax-payers are being asked to underwrite the risks," said John R. Pitkin, the president of the Mid-Cambridge neighborhood association and co-chair of the Cambridge Hospital Advisory Committee. Pitkin said some Cantabrigians hoped this would mean they would have to contribute less to the hospital through their taxes in the future.

Others fear that changes in health care policy to be proposed by the Clinton administration would leave no place for the hospital, which relies on government subsidized medical care programs for much of its income.

"A large part of our compensation comes from Medicaid. Every day these things are changing," said Councillor Alice K. Wolf. "We want to make sure that in this changing environment we are able to continue our commitment."

Neighbors of the hospital are also concerned about the physical consequences of the hospital's expansion. One man who lives across the street from the hospital said that there isn't enough room for the hospital to grow.