Maryland's new law requiring that medical malpractice suits go through administrative arbitration before they can be heard in court has been declared unconstitutional by a Baltimore city judge.

State officials said they will appeal the decision, which crippled the malpractice law in Baltimore and left its authority over the rest of the state in doubt.

Enacted in 1976, the medical malpractice arbitration panel was the General Assembly's answer to the growing number and increasing costs of medical malpractice cases. The program was designed to resolve as many suits as possible through arbitration with resort to the courts only when all else failed.

In his 24-page decision, Baltimore Judge Martin B. Greenfield ruled that the three-member panel was granted powers that only the courts should have and therefore the law creating it violated both state and federal doctrines of separation of powers.

Under the law, if either side disagreed with the decision it could be appealed to a regular court and heard by either a judge or a jury.

But Judge Greenfield pointed out in his decision that the additional burden of going through an arbitration panel was lenghty and costly - adding some $3,500 in lawyer's and witness fees if the claimant wished to appeal - and "these impediments deny a claimant reasonable access to the courts and the attendant constitutional right to trial by jury."

Greenfield also noted in his opinion that the panel was not being used. Only one claim has been filed since 1976; there is no director for the program, and the panel itself is yet to be established. Greenfield said he assumed that attorneys and their clients were wary of the panels' legal jurisdiction.

At issue is the rising cost of medical care when malpractice insurance premiums rise to such proportions that physicians pass the costs down to their patients.

Two years ago, a national crisis affected Maryland physicians when St. Paul's Fire and Marine Insurance Co., which insured 85 per cent of the state's physicians, declared it would no longer write medical liability coverage in Maryland.

The Medical and Chirurgical Faculty of Maryland unsuccessfully sought another private firm to provide the coverage, and then formed its own Medical Mutual Liability Insurance Society, a firm paid for by a levy on physicians.

The arbitration panel would have further lightened the physicians' burden and presumably kept down medical fees.

But a Baltimore couple, James and Sheila Johnson, challenged the panel's authority rather than go through its lengthy procedure in their suit that claims that their 15-year-old daughter Teresa died because of medical malpractice.

Because of Greenfield's decision, the Johnson may now file their suit in a Baltimore court.

A joint legislative committee on medical malpractice will meet this summer to study the problems brought out by Judge Greenfield, according to state Sen. Harry McGuirk (D-Baltimore City), is chairman of the committee.

"We thought we had taken care of the constitutional problem in the arbitration panel," said McGuirk, sponsor of the bill that led to the creation of a panel. "I still think it's a good idea, but I'm not surprised that it was contested in court."

Deputy State Attorney General George Nilson said that he will try to bring his appeal of Greenfield's decision directly to the state Court of Appeals, avoiding the intermediary Court of Special Appeals. "It's important enough and everyone knows it will end up there anyway."