A legislative committee today recommended abolishing Maryland's Health Claims Arbitration Office, contending that the agency designed to curtail costly medical malpractice suits has instead, only frustrated the people it was supposed to serve.

The office, created by the legislature in 1976 after doctors complained of a "malpractice crisis," is supposed to receive all medical damage claims and appoint three member panels to hear them. Court suits alleging malpractice cannot be filed until this administrative process is completed, and legislators argued here today that the system moves so slowly that it results only in higher costs and longer delays for citizens who believe they have been mistreated by doctors.

"The health claims panel simply hasn't done what we wanted it to do in 1976," said Senate Judicial Proceedings Committee Chairman J. Joseph Curran Jr. (D-Baltimore), who ordered the study of the office. "It's under-staffed, it's underfunded, and since it wasn't doing its job, the committee said let's just be done with it and go back to the old system."

In testifying before the Legislative Policy Committee, which coordinates the General Assembly's work between its annual three-month sessions, Curran said that there had been a total of 630 cases filed with the Health Claims office since 1976, but that only 75 of them had been arbitrated by the three-member panels, which are composed of a lawyer, a doctor and a layman chosen from lists maintained by the health office.

"The big problem is cut and dried," said Sen. John J. Bishop (R-Baltimore County), who sponsored the committee's motion to abolish the office. "It's costing plaintiffs twice as much and making them wait twice as long, and they are the people we are supposed to be serving."

Bishop's argument was disputed by some other legislators and by Walter Tabler, the director of the malpractice office. They argued that the office had not enough time to prove itself because of legal disputes that kept it from beginning work until October 1978 -- more than two years after it was established.

Tabler said that the office "was now making up the slack" from the backlog of cases caused in part by the delayed opening. "We're now doing or exceeding what was intended," he said. "It would be a terrible mistake to abolish the office at this stage."

Tabler said that the office had allowed more citizens to press malpractice claims because it relieved them of the immediate burden of filing suit, and that the criticism of the administrative system had been spawned "by a small, vocal, very persuasive minority" of plaintiff's lawyers who preferred court juries to arbitration panels because juries often awarded far higher damages to their clients.

"Some of the defendant's lawyers [those who defend doctors] have so many cases that they can't accommodate the plaintiffs' lawyers as quickly as they would like," Tabler said. "But our office is not behind."

The committee's study of the office was prompted by a series in The Washington Post last spring detailing what was called "Maryland's malpractice mess" and the work of the state's powerful medical association in helping to dramatically alter malpractice laws and insurance.

At yesterday's policy committee hearing, another Senate committee reported that it had taken action on another topic of the stories -- the ties between the state's doctor-run malpractice insurance company and the medical society.

Sen. Harry McGuirk (D-Baltimore) said that his Economic Affairs Committee had sent a letter to the 6,500-member Medical and Chirurgical Faculty of the State of Maryland, arguing that the society should sever its ties to its insurance brokerage subsidiary, which has collected nearly $500,000 in commissions from the insurance company the doctors helped to create.

The medical society, known as Med Chi, persuaded the legislature to allow the doctor-owned Medical Mutual malpractice insurance company to open five years ago by arguing that a "crisis" in malpractice insurance has been created when the largest malpractice insurer in the state stopped writing policies.

Although the medical society was supposed to remain independent of Medical Mutual, a majority of the company's directors ended up having connections to the society. Then, Medical Mutual decided to pay commissions to brokers to sell its policies, and the medical society set up its brokerage business and began earning huge commissions from Medical Mutual.

After holding a hearing on the insurance company's practices, the Economic Affairs Committee found that there was "a potential conflict of interest" in Med Chi society's brokerage firm since the society holds a great influence over doctors through discipline boards and other organizations and "a doctor could infer" that if he did not buy Medical Mutual insurance through the medical society firm, "Med Chi at some later date could cause him problems."

The committee's letter says that if Med Chi does not want to sever its economic ties to the brokerage firm, it should "consider removing itself from . . . organizations that influence physicians." The society has not yet responded to the letter, McGuirk said.

The letter, said one legislative official, "is like a threat clothed in velvet. The idea is that if the medical society doesn't do something, the committee will introduce a bill to do it."

The executive director of Med Chi, John Sargent, said today that the society "has the matter under study" but has not yet decided on a response.