A Maryland plan to solve the problem of medical malpractice insurance by funneling malpractice cases through state-run arbitration got the go-ahead yesterday from the Maryland Court of Appeals.

The 1976 law creating the system had been declared unconstitutional in June 1977 by a Baltimore city judge, whose ruling stopped implementation of the arbitration plan. Yesterday's high court decision reversed that ruling.

It was designed by the legislature to reduce the cost of medical malpractice claims, and thus decrease the soaring cost of liability insurance for doctors. Legislators acted one year after Maryland became the victim of a national malpractice crisis when the state's major insurer of physicians declared it would no longer write medical liability coverage in Maryland.

The arbitration system, which now can begin functioning, requires that medical malpractice claims go through a nonjudicial arbitration panel before they can be heard in court.

"We have all the machinery set up, and we're ready to receive claims," Ronald Schreiber, director of the office that will run the system, said Wednesday.

Under the law, patients or their survivors making malpractice claims must first go through a hearing before a three-member administrative panel, composed of one lawyer, one layman and one health care provider.

If the claimant or the doctor disagrees with the panel's decision, it could be appealed to a regular court and heard by either a judge or jury.

In 1977, Balitmore Judge Martin B. Greefeld said that the additional burden of going through arbitration before reaching the court was lengthy and costly. "These impediments deny a claimant reasonable access to the court and the attendant constitutional right to trial by jury," Greenfeld ruled.

The lawyer for those challenging the statute had argued that the system creates an extra layer of expense and time-consuming procedure for those who believe they have been wronged by a doctor and are seeking a remedy. He argued that it would create special hardship for indigent claimants and could discourage many from filing a claim, or appealing a ruling they believe is unjust.

The Court of Appeals rejected this reasoning, stating that the law "cannot be invalidated simply because it makes access to the courts more expensive."

The judges also reversed Greenfeld in his ruling that the arbitration panel was granted powers that only the courts should have, and therefore violated state and federal doctrines of separation of power.

To that, the judges stated simply that the arbitration panel "is not an administrative agency in the traditional sense." They ruled that because the decision of the panel is not binding and can be appealed, the panel exercises "no portion of the judicial power of this state in the constitutional sense."

The constitutionality of the system was challenged by James and Sheila Johnson, of Baltimore, who charged in a suit that their 15-year-old daughter , Teresa, died because of medical malpractice.

Their lawyer, Marvin Ellin, of Baltimore, said he will attempt to take the case to the U.S. Supreme Court. After learning of the ruling Wednesday, he maintained that certain provisions of the law "are destructive and prejudicial" to patients filing malpractice claims because of "the barriers" it places between the patients and the courts.

The legislation creating the arbitration system was spurred by a medical malpractice insurance crisis that hit Maryland in 1974 when St. Paul Fire and Marine Insurance Co., the state's major insurer of doctors, declared it would no longer write coverage for Maryland doctors.

The state's medical society, the Medical and Chirurgical Faculty of Maryland then formed its own insurance company, a firm paid for by a levy on physicians under state law.

However, the Court of Appeals noted in its ruling, the malpractice insurance market in Maryland remained in a "precarious" state.

The legislature's announced purpose in enacting the arbitration law, the court noted, was to "reduce the cost of medical malpractice claims, thus reducing the cost of libability insurance and stabilizing the market."

Several other states, in attempting to deal with the malpractice insurance problem, have createdsimilar arbitration systems, according to Deputy Attorney General George A. Nilson.

In some of those states the laws have been challenged and declared unconstitutional, while in others they have survived court tests, Nilson said.