Until recently, when President Bush proposed new legislation aimed at reforming the nation's patchwork of medical malpractice laws, many experts believed that the crisis of the mid-1980s, which had been characterized by a spate of lawsuits against doctors and skyrocketing insurance premiums, had largely abated.

As evidence, they pointed to two telltale indicators: the rate of successful malpractice claims against doctors has slowed since 1985, and the size of jury awards is growing at a slower pace, according to insurance industry analysts. As a result, many companies, among them the giant malpractice underwriter St. Paul Fire & Marine Insurance Co. of Minnesota, which operates in 42 states, have reduced the premiums they charge doctors. The firm lowered the premiums it charges physician-policyholders by an average of 16 percent in 1989 and by an additional 6 percent last year.

Privately, Bush administration officials agree that the malpractice crisis appears to be on the wane. They credit growing conservatism by judges and juries in setting malpractice awards as well as limits on damage awards passed by many states, including Virginia and Maryland. Many of these caps were imposed in response to publicity about multi-million dollar malpractice awards and a resulting exodus of doctors, particularly obstetricians.

What the Bush proposal does, according to one administration official who requested anonymity, is to "push the process further and faster" and help combat the troubling vestiges of a lingering problem: doctors' fears of lawsuits resulting in the increasingly expensive practice of "defensive" medicine -- chiefly the overuse of unnecessary, expensive and sometimes risky tests and procedures.

Fearful of a repetition of skyrocketing malpractice premiums that occurred first in the mid-1970s and again in the mid-1980s, physicians have continued to lobby state and federal officials for changes in the court system. They warn that the moderating trend of the past five years may be obliterated by a new wave of litigation and premium price hikes.

And while the rate of claims and the cost of insurance premiums are generally lower than a few years ago, they remain significantly higher than in the 1970s.

In 1989, according to the American Medical Association, 7.4 malpractice claims were paid per 100 physicians. While that's about 30 percent lower than the rate in 1985 -- the peak year of the crisis -- it's more than double the pre-1981 figure. Although nationwide expenditures for malpractice premiums have stabilized at $5.6 billion since 1988, that figure is more than triple the amount spent in 1982, according to the AMA.

"There is no crisis in the sense that claims are going out of sight or insurance is unavailable today, but there's a pervasive feeling that the system doesn't do a good job," says Randall R. Bovbjerg, senior research associate at the Urban Institute, a Washington think tank. "Everybody who goes through the system hates it. Doctors hate it because they find it personally insulting and aggravating. Most of the people {who are injured} don't even get into the system . . . and the compensation for those who do is very poor."

The centerpiece of the administration's proposal is a series of financial incentives designed to persuade states to pass laws making it harder to bring malpractice suits to court and limiting the size of jury awards, partly through the imposition of a $250,000 cap on non-economic damages for "pain and suffering." Under the Bush plan, states that fail to pass such laws would lose a portion of their federal Medicaid and Medicare funds; the withheld money would go into a pool of incentive payments to those states that comply. States would also be required to set up "alternative dispute resolution mechanisms," such as the pre-trial panels appointed by Maryland's Health Claims Arbitration Office, which is charged with resolving claims outside of court and screening out frivolous lawsuits. In Maryland, both parties can bring malpractice suits to court only if one side disagrees with the panel's findings.

Doctors' and hospitals' organizations, while cheered by the president's support of new legislation to overhaul the malpractice system, object that withholding federal funds would unfairly penalize physicians and hospitals in states that fail to pass the reforms. The AMA has endorsed a bill introduced earlier this year by Sen. Orrin G. Hatch (R-Utah) that would mandate similar legal reforms by pre-empting state law.

Sen. Pete V. Domenici, a New Mexico Republican, has introduced a proposal that would bypass the courts entirely; Domenici's plan would require plaintiffs to bring their malpractice claims to arbitration panels established by the states.

These proposals are expected to face fierce opposition from the Association of Trial Lawyers of America and some congressional Democrats. Opponents say they make it harder for malpractice victims to receive fair compensation.

Last year, according to Jury Verdict Research Inc., an Ohio firm used in malpractice research and by insurance companies, the average jury verdict in a malpractice case was $1.2 million. However, most malpractice cases are settled out of court before trial. The average malpractice claim paid by St. Paul in 1990 was $36,400; that reflects settlements and reductions in jury awards by judges.

"Any limit on the right to have a jury of peers, as opposed to a medical panel . . . or administrative system, is unfair and will result in poorer health care," says Michael Maher, president of the trial lawyers association. "Caps are unfair and unnecessary and tend to punish the most severely injured people, whose quality of life is destroyed by negligence."

If any of these proposals sees action during this session of Congress, it will probably be in the context of a larger health care reform package backed by the Senate leadership, Democrats and Republicans agree. Rx for Rising Costs?

Legislative changes of the kind proposed by Bush and Senate Republicans have met with mixed success at the state level. Screening panels and other forms of alternative dispute resolution have had an "almost insignificant impact" on doctors' insurance premiums, says Paul C. Weiler, a Harvard Law School professor and malpractice expert.

States with caps on the size of malpractice awards have experienced smaller increases in doctors' malpractice premiums than those without such limits, researchers say.

While this may be good news for doctors, Weiler says it is bad news for the most seriously injured malpractice victims -- those few for whom juries would be inclined to award large sums.

"The problem with the cap is it says the only people who are going to pay the price for controlling malpractice insurance premiums are the people who are the most catastrophically injured," he says. "It's a totally regressive form of tort reform."

Two months ago, when Bush introduced his malpractice proposal, he said that the goal was "stemming the rising costs of health care." But many health economists say that malpractice reform is unlikely to achieve this. The nation's expenditure on malpractice insurance amounts to barely 1 percent of the $600 billion annual health care bill, according to a recent report prepared for the American Law Institute, a nonprofit organization based in Philadelphia that studies legal issues. Even assuming that an additional $15 billion is spent on "defensive medicine" in the form of unnecessary tests and procedures, as the AMA estimates, malpractice costs account for only about 3 percent of the nation's total health care bill.

"The notion that you're going to solve health care costs through reforming the malpractice system is an illusion," says Peter D. Jacobson, a senior behavioral scientist at the Rand Corp., a California think tank.

The administration's proposed $250,000 cap on such non-economic damages as "pain and suffering" will affect only a small number of awards, since very few plaintiffs are awarded such high amounts, according to Jacobson, who has studied the effect of a similar cap passed by California in 1975. "The predominant cost of a malpractice award for a severely injured patient is the medical expense, and that's only going up," says Jacobson.

Officials at the AMA, which represents nearly 300,000 of the nation's doctors, say that costs are secondary to the increasingly tense relationships between doctors and patients. "Whether or not medical malpractice is a big contributor to health costs is less important than the effect it has on the health care system in terms of trust relationships with physicians and the equity of the thing," says AMA executive vice president James S. Todd. "At the moment, no one is getting a fair shake under our current system."

But not everyone sees the reaction of doctors as a problem. "I think it's good that doctors fear if they make too big a mistake it's going to hurt them," says J. Robert Hunter, a former federal insurance administrator who is president of the Alexandria-based National Insurance Consumer Organization, a public interest group founded by Ralph Nader.

Hunter says he opposes caps on awards. "I don't see why doctors should be treated any differently from anyone else who hurts me," he says. "Instead of taking away the rights of victims, I'd like to be tougher on doctors and hospitals and get them to clean up their acts." The Exodus of Obstetricians

No medical specialty has been more affected by the malpractice problem than obstetrics. A 1990 survey by the American College of Obstetricians and Gynecologists (ACOG), found that 12 percent -- or 2,000 -- of the group's more than 19,000 members have stopped practicing obstetrics because of the fear of malpractice suits and the high premiums charged by insurance companies.

Nationwide, obstetricians pay the highest malpractice insurance rates of any medical specialty even though their premiums, which more than tripled between 1982 and 1987, have leveled off, the AMA reports.

The average obstetrician-gynecologist spends approximately $37,000 a year on malpractice premiums, about 9 percent of an annual gross income of $426,300, according to the AMA. Yet some doctors say the cost of the insurance, while high, is not the aspect of malpractice that drives them to leave obstetrics. That cost, they say, can usually be passed on to their patients or to health insurance companies in the form of higher fees.

More damaging, they say, is that the psychological stress of worrying about a potential lawsuit -- or enduring a trial -- saps their willingness to do their jobs.

The evidence that the malpractice crises of the 1970s and 1980s spurred a large-scale exodus of obstetricians is based almost entirely on doctors' responses to surveys, according to Bovbjerg of the Urban Institute. Furthermore, the questions are often framed with the malpractice crisis in mind.

Other burdensome aspects of obstetrics, such as the interruption of office hours and the unpredictability of family life, may also have contributed to physicians' decisions to quit. "It's a tough life," Bovbjerg says. "You have to get up in the middle of the night."

While it's hard to tease out the various factors influencing doctors' decisions, some patterns are discernible. Florida, where malpractice insurance premiums consistently rank among the highest in the nation, has the largest proportion of obstetrician-gynecologists who say they have quit obstetrics because of concerns about malpractice, according to ACOG's 1990 survey.

By contrast, California, which has enjoyed slower increases in ob-gyn malpractice premiums than the national average, reports a declining proportion of specialists leaving obstetrics since 1985, according to ACOG.

The explanation, California physicians say, lies in a sweeping reform package passed in 1975 that took effect in 1985, the year it was upheld as constitutional by the state supreme court. In addition to placing a cap on non-economic damages, California's Medical Injury Compensation Reform Act permits defendants to pay malpractice awards in installments over a period of years, places limits on the contingency fees plaintiffs' lawyers can collect and reduces the award a malpractice victim can receive if he or she is receiving compensation from another source, such as health insurance.

The refusal of doctors to deliver babies is being felt most acutely in rural areas, health experts say, and disproportionately affects poor women. An Institute of Medicine committee found that the number of family physicians or obstetricians who will deliver babies in rural areas declined by about 20 percent between 1984 and 1989.

Despite a general decrease in insurance rates, family physicians typically face a 100 percent increase in malpractice premiums if they deliver babies, according to the American Academy of Family Physicians, in Kansas City, Mo. The result, says Elizabeth M. Gallup, the academy's general counsel, is reflected in the rural 23-county area of southern Missouri known as the "boot hills," where no doctors will deliver babies for Medicaid patients. Gallup says that means that poor, pregnant women must travel up to 200 miles to have their babies delivered by a doctor.

Michael Thomas Drouin, a gynecologist in rural Lewiston, Me., says he stopped practicing obstetrics in 1985 because of skyrocketing malpractice premiums. Between 1975 and 1985, Drouin's malpractice premiums increased 20-fold from $2,300 to $46,000. Drouin, who charged patients $620 for prenatal care and delivery, said he could not pass the increased costs on to his patients. The average Lewiston resident earns about $12,000 annually, and many of Drouin's patients were on Medicaid, the state-federal program for the poor.

"Much as I loved obstetrics and the miracle of birth," he says, "it made no sense to continue working harder and harder and getting nowhere." By discontinuing his obstetrics practice, Drouin says, he was able to reduce his malpractice premiums by half. Nagging Issue of Negligence

Consumer advocates contend that injured patients take too little -- not too much -- advantage of the legal system. They point to a massive study by Harvard researchers of New York hospitals published earlier this year in the New England Journal of Medicine. That study found that only about one in eight patients injured by medical negligence files a malpractice claim and only one in 16 receives compensation from a court or through a settlement.

The same study found the majority of lawsuits were brought by patients whose records showed no evidence of negligence, additional confirmation of the medical community's view that there is often little relationship between true negligence and malpractice suits.

While that may be true of lawsuits filed, it is not necessarily reflective of the suits that reap large awards. "The legal system does remarkably well in distinguishing valid from invalid claims" when it comes to granting awards or reaching settlements, according to Weiler, a co-author of the New York study.

Sometimes, a lawsuit is the only way for a malpractice victim to recoup the substantial financial losses incurred as a result, legal experts say. This is especially true for patients whose injury lasts at least six months, the point at which sick leave and short-term disability policies generally have been exhausted, the Harvard study noted.

No one knows for sure why malpractice claims have been declining since 1985, but one possibility is the growth of "risk prevention" programs developed by hospitals, medical specialty societies and physician-owned insurance companies.

These programs generally survey the kinds of medical practices that lead to successful malpractice suits and then educate doctors about avoiding similar problems. At the Utah Medical Insurance Association in Salt Lake City, a physician-owned company that insures 2,000 doctors, obstetricians must follow five delivery-related practices, including use of fetal heart monitors and abstention from forceps deliveries. Failure to follow these practices has been implicated in the bulk of successful obstetrical malpractice claims, according to John B. Stanchfield, medical director of the association.

If a malpractice claim against a policyholder indicates he or she violated one of these guidelines, "We can say, 'Look, you're not a good risk. We're not going to insure you anymore,' " Stanchfield says.

Although doctor-owned insurance companies have taken the lead among insurers in malpractice prevention, "the preponderance of {doctor-owned} companies take an educational rather than a directive approach," according to Adam P. Wilczek, vice president of risk prevention at Medical Inter-Insurance Exchange of New Jersey, a physician-owned insurance company in Lawrenceville. Many offer seminars in avoiding malpractice and conduct peer evaluations of members' practices. Wilczek's company conducts a 20-hour seminar in "patient relations skills" as part of its effort to teach members how to avoid malpractice suits.

In 1985, 3.2 percent of the doctors insured by physician-owned companies were subjected to penalties ranging from termination of their coverage to restrictions on their practice for substandard care, according to a 1989 study by Tufts University researchers. While the percentage may seem small, the authors note that doctor-owned insurance companies have denied coverage to substandard physicians at about eight times the rate at which state medical disciplinary boards deprive doctors of the right to practice on grounds of negligence. "Seeds of the Next Crisis"

Another explanation for the easing of the crisis is simple economic fluctuation. Some observers, including academic researchers and physicians' groups, share consumer advocate Hunter's view that to some extent the malpractice insurance crisis of the 1980s "had more to do with the insurance industry cycle than with the crisis in the legal system."

In what has become a 10-year "boom and bust" cycle, Hunter says, insurance companies tend to underprice their policies to attract investment capital during the years when interest rates are favorable for investment, then hike prices to cover their costs when their investments flag.

"We would disagree with that assessment," says Sean Mooney, senior vice president and economist for the Insurance Information Institute in New York, a group that represents commercial malpractice insurance companies. He says that the roots of the malpractice crises of the 1970s and 1980s lay in the increasing size of jury awards and the number of claims filed, rather than insurance industry business practices.

"The lousy investment argument doesn't work because insurance companies are very conservative investors," he says. "Most of it is things you'd advise your grandmother to invest in . . ."

Mooney attributes the cooling of the crisis to changed attitudes by judges presiding over malpractice cases. In the mid-1980s, "the judiciary became much more aware of the overall societal implications {of large awards} and began moving back toward a fault system -- to compensate when someone had done something wrong, not just to compensate them," he says.

But some experts predict that the 1990s may see a recurrence of the malpractice crisis. Insufficient revenue from current low-priced premiums, combined with the insurance industry's growing financial troubles, they say, may force underwriters to raise their rates substantially.

"There's always been a stem in the tide before the boat gets turned upside down again," says the American Academy of Family Physicians' Gallup. "It's become a softer market, and there are lot more liability insurers out there. We fear that some of them may not have enough money stored away to pay for all the claims, and they may go belly up and leave physicians without any coverage at all."

Aside from financial troubles in the insurance industry, the 1990s could see a substantial increase in the numbers of lawsuits filed and the size of damages awarded, some say. Recently, major underwriters, including St. Paul, reported a slight increase in the frequency of claims in 1990, potentially a sign of a new surge in patient-initiated lawsuits. And Weiler says that the Harvard study found "a huge untapped pool of potential malpractice claims waiting to be brought. As lawyers tap into that pool, there's a lot of room for more malpractice litigation."

Mooney agrees, but for a different reason: too many lawyers. The proliferation of sophisticated advertising by attorneys is likely to produce more malpractice cases, he predicts.

"The risk of another crisis is very little changed from our past cyclical experience," says Brad Cohn, past president of the Physicians Insurers Association of America, a consortium of 40 doctor-owned insurance companies. "You can see the seeds of the next crisis already being sown."

Sarah Glazer is a Washington writer.