The American Medical Association unveiled yesterday what it termed a "radical proposal" designed to curb rising malpractice insurance costs by taking malpractice cases out of the courts and turning them over to new state agencies with broad regulatory authority.

AMA officials said they believe the proposed system would quickly dispose of frivolous malpractice claims and speed the resolution of those cases with merit. While AMA spokesmen called the plan "patient-oriented," they acknowledged it would strictly limit the monetary damages a plaintiff could recover from doctors -- including placing a limit of $700,000 on damages for pain and suffering.

The association contends that the threat of malpractice suits has driven up costs for everyone by forcing many doctors to practice defensive medicine: ordering more tests than necessary and referring sometimes routine cases to specialists.

AMA officials said they hope one or more states will adopt the proposal as a pilot project for the rest of the country.

But legal and consumer organizations, which have long clashed with doctors on the malpractice issue, immediately attacked the proposal.

Trial Lawyers Association President Eugene I. Pavalon branded the idea of doing away with jury trials "patently unconstitutional." Dr. Sidney Wolfe, director of Public Citizen Health Research Group, called the proposal "reckless and dangerous for patients."

"It will greatly reduce the amount of money that someone or the family of someone who has been killed or injured could recover," said Wolfe. "It's unimaginable how this would be a benefit to any patient at all."

Under the AMA proposal, a decision on a malpractice case by the newly created medical agency could be appealed to court only on procedural grounds.

The state agency would be headed by a board appointed by the governor. Unlike most current state medical boards, the proposed agency board would have physician members but it would not be dominated by physicians.

A patient with a claim would submit it to the agency, which would make a preliminary investigation and decide whether or not the claim had merit. If so, the patient could gain the services of an agency lawyer -- at no cost -- to pursue the claim before an expert hearing examiner, who would have to render a decision within 90 days. If the claim was found to be frivolous, the patient would have to hire his own lawyer.

Hearing examiner decisions could be appealed to the agency's full medical board.

The language of the proposal would make it substantially more difficult to prove medical malpractice. Instead of having to show that he met the generally accepted standards of care in a medical procedure, a doctor would only have to demonstrate that he acted as a "prudent and competent practitioner."

"What we want to do is stop holding physicians responsible for legitimate errors of judgment," said Dr. James Todd, AMA vice president.

In addition to investigating and resolving claims, the AMA said the agency would take over and strengthen physician discipline. It said better reporting of possible incidents of malpractice -- through agency awareness of all claims filed against physicians and a requirement that insurers report all payouts on a doctor's behalf -- would result in stronger discipline. Some states already have similar reporting requirements.

Todd, outlining the proposal at a news conference, said the AMA does not believe it is appropriate to try to establish fixed standards for determining physician incompetence, or to specifically mandate license revocation for doctors involved in criminal activity or drug use.

"I think you need to have some trust in the agency that they will not allow impaired physicians to operate," said Todd. When reporters noted that many state disciplinary boards are unable to prevent that from happening now, Todd said the new agency system would have "a whole new mandate," and access to more information about doctors than some state boards now have.

Said Gene Kimmelman, legislative director of the Consumer Federation of America: "It's good to see the AMA responding to the need for doctor discipline, but that has nothing to do with malpractice. They are really two separate issues."

The cost of the agency, Todd said, could be covered at least in part by increasing physician licensing fees, levying fees on insurance companies and perhaps requiring successful plaintiffs to pay a "user fee" for agency services.