NEW YORK—A sharp increase in medical malpractice rates for physicians in New York has triggered an effort by Gov. Eliot Spitzer to rein in malpractice costs for all medical risks in the state.

Gov. Spitzer's move to create a multi-interest task force to study reforms in various areas, including risk management, comes on the heels of the New York Insurance Department's approval of a 14% increase in physician medical malpractice rates.

Physician and hospital groups welcomed the task force, but a physicians' representative said the rate hike would exacerbate the state's doctor shortage.

A critic of medical malpractice insurers nationwide, however, said New York is the one state market where a rate hike is warranted.

Gov. Spitzer last week appointed New York Insurance Superintendent Eric R. Dinallo to head the task force, which has been charged with recommending short- and long-term reform options for controlling the causes of high medical liability costs. The task force, which is due to report by the end of the year, has been asked to consider risk management, legal and regulatory reforms.

The group will include the state's health commissioner; representatives of hospitals, physicians, insurers, health plans and consumers; and trial attorneys and state legislators.

In a statement, the insurance department said the rate hike stems from several factors: the state's past failure to address the underlying causes of rising medical liability costs, years of inadequate rates and the swelling deficit in the state's medical malpractice insurance assigned risk plan.

Even the latest approved rate hike--as has been the case since 2002--is less than what insurers wanted, the department noted. The state's two largest med mal insurers, Medical Liability Mutual Insurance Co. and Physicians Reciprocal Insurers, sought rate hikes of 16.6% and 30.6%, respectively, the department said.

Contributing to the medical malpractice market's financial woes are losses it faces through the state's assigned risk plan in which all med mal insurers in the state participate. The plan had a $525 million deficit as of March 31.

A significant portion of the deficit has been caused by inadequate reimbursement for an excess coverage program that is fully state-financed, according to observers.

Under the decades-old program, physicians who voluntarily provide hospital attending services and purchase at least $1.3 million per occurrence limits must be provided $1 million of excess coverage at no cost.

State budget actions also contributed to the current financial problems, the department said. Between 1992 and 1997, the state used $691 million of surplus reserves from the state's now-shuttered Medical Malpractice Insurance Assn. to help fund New York's budget. The MMIA had been the state's med mal insurer of last resort until 2001, when the assigned risk plan was implemented.

MLMIC took over the association's book of business in 2000, and the state transferred $373.4 million of loss reserves to the insurer. The insurer has broken even on that business, said Edward Amsler, a vp with MLMIC in New York.

But, "Had MMIA's reserves been preserved...New York's medical malpractice insurers would be in a much stronger financial position today, and the problem confronting New York would be far less serious," the department stated.

A department spokesman said that the entire market, rather than just MLMIC, could have benefited if the reserve had not been depleted, because a larger reserve might have led to a different transaction.

Med mal market critic Jay Angoff, a former Missouri insurance commissioner and now an attorney with Roger G. Brown & Associates of Jefferson City, Mo., called the rate hike "modest," considering the excess coverage that New York physicians "get for free."

"The rates in New York have always been artificially low," said Mr. Angoff, who in recent years accused med mal insurers in the rest of the country of price-gouging physicians.

The excess coverage should be among factors examined by the task force, Mr. Angoff said.

A physicians group says the state should reconsider the role of the civil justice system in the medical liability arena, among other things.

The Medical Society of the State of New York would like the state to create a special court to hear medical malpractice claims, said Gerard L. Conway, the society's Albany, N.Y.-based executive vp for governmental affairs.