The Washington Hospital Center has agreed to pay $693,000 to a Northwest Washington couple who charged in a suit that their severely retarded 9-year-old son's condition resulted from injuries he received when he was born at the hospital.

The settlement includes a provision requiring the hospital to pay for the lifetime care of the child whose condition is so severe that doctors say he should be under 24-hour therapeutic supervision.

The suit, which charged the hospital with medical malpractice, was filed three years ago in D. C. Superior Court by Lyman Reid Jr., and his wife Betty. They said they acted after their then-6-year-old son Hausen repeatedly was diagnosed by doctors as being mentally retarded and having extremely impaired sight, hearing, and speech.

Under the terms of the settlement approved yesterday by Judge Fred B. Ugast, the Reids agreed to drop their suit.

Included in the $693,000 settlement is $50,000 for each parent, $200,000 for their attorney, and an annual payment of $19,656 for the life of the child. Should their son die before he reaches age 20, the parents would receive $19,656 for each year short of 20 their son was at the time of his death.

If Hausen lives into his 60's, as his doctor has predicted, the family eventually could receive a total of $1.3 million from the hospital for his care and education.

The Reids, who have two other sons, said after the settlement yesterday that the entire family has suffered in its attempts to avoid sending Hausen, who also suffers from cerebral palsy, to a residential institution.

"We didn't have the training to properly care for our son's special needs," said Lyman Reid, 31, a U.S. Postal Service employe. "But we believed that if we kept him at home where he could be with his family -- normal people -- that perhaps he would show some improvement."

It's been like being in prison for nine years," said Betty Reid, 33, a clerk-typist at the U.S. Justice Department. "We couldn't do anything like a regular family. There were no trips out of town because my son becomes restless in the car. We couldn't go to a movie because he is hyperactive, and we couldn't sit down and watch television because he has such a short attention span."

In time, Lyman Reid said the strain of planning family activities around their handicapped child began to take its toll. A year ago, Betty Reid and her husband were legally separated, a direct result, they say, of the frustration of caring for their disabled son.

Hausen Josef Reid was born at 7:17 a.m. on March 19, 1970, by what his mother describes as a "crash" Cesarean section. Accroding to court records, the infant's heartbeat slowed down several times, indicating that the baby possibly was not receiving enough oxygen.

The most crucial period, according to records, was at 5:20 a.m. when the baby's heartbeats slowed to 84 per minute -- 110 is considered normal. At that point, the Cesarean should have been done to avoid damage to the infant, the suit contended.

Instead, the Washington Hospital Center "negligently permitted inexperienced physicians in training to care for a complicated labor and delivery . . .," the suit maintained.

The suit also contended that the hospital "negligently failed to perform an immediate Cesarian section despite the onset of severe fetal distress" and that it failed to advise the mother of the risks and alternatives to the treatment she was given.

"As a mother, it's going to be difficult for me to see my son placed in an institution," Betty Reid said. "But at this point, I believe that's in his best interest. I have to hold his hand every minute we're out of the house. He has no sense of danger. Last Sunday, he snatched away and ran into 14th Street. Fortunately, no cars were coming."

John F. Mahoney Jr., attorney for the hospital, said that the hospital's decision to settle "was not an admission of liability. . . . We recognized that an award by a jury would have been quite sizable.

"We feel the settlement was fair and equitable for both sides," he said.