One of every seven elderly people in nursing homes or other institutions suffers physical or sexual abuse each year, and those who cause the abuse are seldom prosecuted, according to a report released yesterday by Rep. Claude Pepper (D-Fla.), chairman of the House Select Committee on Aging.

Pepper's estimate of more than 400,000 abused elderly was based on interviews with state nursing home commissions, elderly ombudsmen and enforcement officials. Altogether, about 3 million elderly are in nursing homes or institutions.

In testimony before the committee, Illinois Attorney General Neil Hartigan said state regulators and nursing home owners are not prosecuted for abuse of the elderly.

"There's never been a federal prosecution of a state official who doesn't have decent inspections or who doesn't enforce the law," Hartigan said. "There should be a national rating of states so that the public will know which officials are taking a back seat on enforcing the laws on abuse."

Actor Kirk Douglas, who plays an abused nursing home resident in a forthcoming movie, testified that his research found a "hideous, hidden horror" in abuse of the elderly.

"Who stands up for those whose wounds go untreated to the point where maggots, rats and roaches feed upon the body of the living human?" he asked. He quoted a Washington Post article noting that District nursing homes are given advance notice of inspections and that "the only way that patients can contribute to good enforcement in nursing homes is by dying spectacularly."

Several witnesses gave gruesome testimony of such deaths. Joseph Valley Jr., of Houston, testified that his father died of gangrenous bed sores after a 38-day stay in a nursing home. "The nursing home killed my daddy," he said in a voice choked with emotion. "Not with a gun or a knife, but they murdered him."

Hartigan brought grisly photographs of Margaret Ashcraft, who died in 1983 of bedsores that were untreated at an Illinois nursing home. "Only after threat of lawsuit . . . did the state Public Health Agency rescind its offer to settle the case for only a $1,000 fine," he said, noting that the case resulted in the state's first revocation of a nursing home license.

Violations of residents' rights, such as abuse, are now not considered sufficiently serious to shut down a facility under federal rules. A rule was proposed in 1980 to elevate abuse to a higher category in federal inspections, but it was withdrawn the day after it was signed, as part of the Reagan administration's attempt to deregulate the nursing home industry.

At yesterday's hearing, witnesses told Congress it should:

*Amend the Medicaid law to allow recipients to sue institutions that violate their rights.

*Pass a law requiring employes in elderly care homes to report cases of abuse.

*Stop nursing homes from discriminating against Medicaid patients by refusing to admit them or evicting them when their private funds are exhausted.

Several witnesses focused on low pay, lack of training and nurse's aides' stress.

A former aide testified that she had no medical training but was required to perform many medical procedures, including turning a cancer patient who screamed in pain at each touch. "What we didn't know was that, thanks to her bone cancer, with every turn we were literally breaking bones all over her body. Why didn't we know?"