President Barack Obama wooed the American Medical Association on Monday with talk of curbing malpractice lawsuits and canceling a proposed 21 percent cut in Medicare payments as he ramped up an effort to win support for a major overhaul of the nation's health system. But he pointedly refused to endorse the group's top goal -- caps on legal damage awards -- and he steadfastly defended creation of a new government-sponsored health insurance program that many physicians oppose. 'The public option is not your enemy; it is your friend,' Obama told the doctors. Obama's good-news, bad-news message to the physicians marked what White House senior adviser David Axelrod described as a higher level of engagement by the president on his top domestic priority. For months, Obama remained on the sidelines of the health-care debate because 'he felt it was important to not be too prescriptive,' Axelrod said in an interview. 'Now we're into a different phase where decisions are being made very quickly, so it's time to weigh in to a greater degree.' The Obama strategy, articulated in the speech here and a series of private meetings, is to present each major stakeholder with an enticement in return for a bit of sacrifice. To insurers, Obama offered a concession and a warning. In a shift from his position as a candidate, he now is willing to support a requirement that every American have health insurance, which could translate into more than 40 million new customers for the industry. 'Insurance companies have expressed support for the idea of covering the uninsured -- and I welcome their willingness to engage constructively in the reform debate. I'm glad they're at the table,' Obama said. 'But what I refuse to do is simply create a system where insurance companies suddenly have a whole bunch more customers on Uncle Sam's dime but still fail to meet their responsibilities.' Some interest groups have begun to balk as the president has staked out his position in greater detail. Over the weekend, Obama spelled out $300 billion in cuts to Medicare and Medicaid aimed primarily at the revenues of hospitals and drug makers. The American Hospital Association released a statement saying it was 'deeply disappointed and concerned' by the announcement. 'Hospitals have long supported expanding health care coverage to all Americans but feel this must happen while maintaining adequate financing for hospitals that serve large numbers of poor and uninsured patients,' the group said. Lobbyists for leading drug companies were also unenthusiastic, saying privately that Obama cannot expect to pay for his ambitious expansion of health coverage by squeezing the private sector. 'The message is everybody has got to put something on the table,' said Sen. Ron Wyden, D-Ore., who has participated in several White House health meetings. In Chicago, Obama brought the doctors to their feet with a hint he is willing to provide some level of malpractice relief, perhaps the top legislative priority of the physicians' lobby. 'Now, I recognize that it will be hard to make some of these changes if doctors feel like they're constantly looking over their shoulders for fear of lawsuits,' he said. 'I understand some doctors may feel the need to order more tests and treatments to avoid being legally vulnerable. That's a real issue.' But he drew a smattering of boos when he warned he would not give them what they most desire. 'I want to be honest with you,' he added. 'I'm not advocating caps on malpractice awards, which I personally believe can be unfair to people who've been wrongfully harmed.' Incoming AMA president James Rohack said physicians must receive some type of legal protection if they are going to be expected to reduce extraneous tests and treatments, as Obama urged. 'Unless we have protection in the courtroom for not ordering a test, we're going to order those additional tests,' he told reporters after the speech. Like malpractice reform, the notion of setting up a new, government-run insurance plan has become a flashpoint for many AMA members. Before Obama arrived, AMA leaders said the organization would oppose mandatory participation in a new government-run insurance program or one that sets payment rates in the same fashion as Medicare. 'Let me also address an illegitimate concern that's being put forward by those who are claiming that a public option is somehow a Trojan horse for a single-payer system,' he said. 'When you hear the naysayers claim that I'm trying to bring about government-run health care, know this: They're not telling the truth.' With 250,000 members nationwide, the AMA is the nation's largest physician group. It gave more than $1.8 million to federal candidates in the last election cycle, according to data analyzed by the Center for Responsive Politics. Staff Writer Kari Lydersen contributed to this report. 