"Unfortunately, in the medical arena, the liability system fails on both accounts," the report says. "The system does not direct appropriate compensation to victims of negligence nor does it effectively deter negligent behavior."

According to the report, only a small portion of negligent injuries actually lead to a malpractice claim. The reasons for this are not clear, the report said, but some theories are that the injuries are relatively minor, attorneys working on a contingency fee basis only accept clients likely to receive large awards, and that some people do not want to damage a long-standing relationship with their doctors.

Of the cases that do go to trial, the report said, plaintiffs lose 60 percent to 80 percent of the time.

"The relatively low success rate is consistent with the assertion that many malpractice claims are without merit," the report says.

However, the report adds, even when health care providers win, they must still incur large costs to defend themselves.

But when plaintiffs do prevail, the report says, they are winning larger awards. The typical award jumped 176 percent from 1994 to 2002, the report says, with the median award now topping $1 million.

Moreover, the average out-of-court settlement is now $299,000, the report says.

As for malpractice insurance, the report says the market has been deteriorating.

For much of the 1990s, according to the report, medical malpractice insurance was highly profitable. However, several trends have caused a downturn.

These include, the report says, the escalating size of malpractice claims, increased reinsurance costs and deteriorating investment returns.

As a result, premium capacity has dropped 15 percent and traditional insurers are leaving the market.

As for health care quality, the report says there is no evidence that the current system helps improve quality.

According to the report, the data indicate a significant discrepancy between actual negligence and tort system assessment of negligence.

This discordance between claims and negligence makes it difficult, if not impossible, for health care providers to recognize and thus avoid negligent behavior, the report states.

Indeed, the report adds, the system may actually impede improvements in health care delivery. For one thing, physicians practice defensive medicine, thus subjecting patients to additional tests and treatments that may increase the risk of injury.

Second, the report says, medical liability may make doctors averse to recommending riskier treatments that might be more medically appropriate.

The report notes that the House of Representatives has passed H.R. 5, a malpractice reform bill that would cap non-economic damages at $250,000; cap punitive damages at $250,000 or two times compensatory damages, whichever is greater; place limits on contingency fee arrangements; and mandate fair share apportionment of liability.

If the legislation is enacted, the report says, the nation could save between $99 billion and $178 billion within three years of full implementation, although it adds that an exact estimate is difficult.

While H.R. 5 passed the House in March on a 229-196 vote, the issue remains bottled up in the Senate, where attempts to reach a bipartisan compromise have not yet succeeded.