The House of Representatives has passed a bill to limit awards in medical malpractice suits to $250,000 in "non-economic" damages.
George Bush attacked junk lawsuits
The issue has been a top priority for doctors, many of whom say they are being driven out of business by the high cost of medical malpractice insurance - which in some states reaches hundreds of thousands of dollars per year.
Earlier in the year, doctors in several states went on strike to protest against the high fees, and the American Medical Association says 18 states are in "crisis" over malpractice insurance.
President George W Bush has endorsed their cause, seeing it as a key part of his bold plan to transform the US health care system.
Our nation is facing a health care crisis driven by uncontrolled litigation
House Judiciary Committee Chairman Jim Sensenbrenner
He argues that the high cost of "junk lawsuits" forces doctors to practice defensive medicine, ordering more tests and expensive procedures than are absolutely necessary.
Mr Bush also wants to gain the support of doctors for his more controversial changes in Medicare - the government health plan for the elderly.
His plan would add an extra drug benefit which would be more generous if people joined a managed care plan which limited their choice of doctor.
Many lawyers, however, argue that bill would limit the ability of patients to recover damages from poor decisions by doctors.
The bill passed the House of Representatives on a straight party vote but is going to face a tougher test in the narrowly divided Senate, where the two of America's strongest lobby groups, doctors and lawyers, are facing up for a head-to-head fight.
Republicans hope that reform of medical malpractice will give momentum to their broader struggle for "tort reform" which is aimed at making it harder for consumers to sue companies for "class action" damages.
But Democrats say that it will discourage lawyers from taking difficult cases, and do nothing to curb insurance costs.
"If this bill were current law, no experienced trial lawyer would take the case of Jessica Santillan, the Mexican girl who died
after receiving the wrong organs at Duke University Hospital," said Democratic Representative Alcee Hastings.
Republicans say that doctors are abandoning risky specialities, such as obstetrics, for fear of being sued.
"Our nation is facing a health care crisis driven by uncontrolled litigation," said House Judiciary Committee Chairman Jim Sensenbrenner.
"Doctors are being forced to abandon patients and practices. Women are being particularly hard hit as are low-income and rural neighbourhoods."
Under the proposal, although patients would be limited in how much they could claim for "pain and suffering", there would still me no limit on
economic damages, such as lost wages or medical costs.
Proponents claim that states like California, which already limit malpractice suits, have much lower insurance costs.
But others say that insurance company medical premiums would only come down slowly, and that insurance companies have raised prices because of the falling stock market, not the high cost of jury awards.