The American Medical Association has engaged in a "conspiracy" to illegally restrain competition among doctors by preventing them from advertising, a Federal Trade Commission administrative law judge ruled yesterday in a landmark decision.

If the ruling becomes law, it could have a significant impact on doctors' fees throughout the nation.

Judge Ernest G. Barnes said the AMA, the largest association of doctors in the country, entered into a "conspiracy to restrain competition among physicians" when it adopted and enforced a "code of ethics" that prevents member doctors from soliciting business, advertising and signing contractual agreements with health care delivery organizations and other nonphysicians.

The AMA code was drawn up in 1847 at the AMA's first meeting, and revised in 1957.

The long-awaited ruling, stemming from an FTC investigation that began in 1975, contends that these AMA policies have "caused substaintial injury to the public." The ruling becomes law automatically within 30 days unless an appeal is filed.

In a statement released in Chicago yesterday, the AMA said it would "challenge and immediately appeal" the ruling.

The AMA was particularly irked by a part of the FTC ruling that said that the AMA would be able to set new guidelines for member doctors who advertise only after it received approval from the FTC.

"We don't feel that lawyers, dentists, engineers, and other professionals, labor unions, business entities, charitable organizations, state and local government entities should have to ask the federal government if they can issue ethical guidelines to their members and what those guidelines should say," said Dr. Robert Hunter, chairman of the AMA board of trustees.

In his ruling, Judge Barnes said the AMA has placed "a formidable impediment to competition in the delivery of health care services by physicians in this country."

"That barrier," Barnes added, "has served to deprive consumers of the free flow of information about the availability of health care services, to deter the offering of innovative forms of health care and to stifle the rise of almost every type of health care delivery that could potentially pose a threat to the income of fee-for service physicians in private practice."

Barnes said the costs to the public "in terms of less expensive or even perhaps, improved forms of medical services, are great."

Specifically, Barnes noted, the AMA and two related societies named the the FIC complaint - the New Haven County Medical Association Inc., and the Connecticut State Medical Society - prevented or hindered their members from soliciting business, engaging in price competition or in other forms of competition.

The judge's decision made these points:

Prices for physician services have been "stabiliezd, fixed or otherwise interfered with."

Competition among doctors "has interfered with."

Competition among doctors has been "hindered, restrained, foreclosed and frustrated."

Consumers have been "deprived of information pertinent to the selection of a physician and of the benefits of competition."

Barnes also stated that AMA restrictions have "discouraged, restricted and in some instances eliminated new methods of health care."

The main body of evidence against the AMA, Barnes said, consists of the AMA's own Principles of Medical Ethics, official written interpretations of those principles, "and letter after letter from AMA officials explaining the principles and urging compliance with them."

The order requires the AMA to "cease and desist" from engaging in the practices described, to "revoke and rescind" any existing ethical guidelines restricting advertising solicitation or contractural relationships, to notify member physicians of the terms of the order, and to deny affiliation to any society "that engages in any practices that violate the terms of the order."

The order provides that two years after the order become final, the AMA may issue its own ethical guidelines on advertising and solicitation "with the permission and approval of the FTC."

In the two years, interim doctors will be virtually unrestricted in their advertising, except for existing laws covering all advertising, FTC officials said yesterday.

The Chicago-based AMA, which has 170,000 member physicians, yesterday said: "It has been clear throughout the entire proceeding that the AMA is clearly in favor of physician advertising and a free flow of public information about health care services."

"We are opposed to false, and misleading advertising and its adverse impact on the quality of health care available to patients," AMA Hunter said.