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A team of doctors performs a knee replacement surgery at Sunnybrook Health Sciences Centre in Toronto on Nov. 4, 2013.KEVIN VAN PAASSEN/The Globe and Mail

Ontario's cash-strapped Liberal government has opted to take a hard line against doctors, unilaterally cutting all the fees it pays to physicians by 2.65 per cent after contract negotiations collapsed.

The Ontario Medical Association (OMA), which represents 28,000 doctors, announced Thursday that it had rejected the government's final offer of a three-year deal that would have seen the total amount the province doles out to physicians increase by 1.25 per cent each year, from just under $11.38-billion this year to $11.72-billion in 2016-2017.

The doctors' group warned those hikes were too modest to cover the number of checkups, surgeries and other patient services physicians will need to deliver over the next three years in a province where the population is both growing and aging.

The OMA said the province had threatened to claw back doctors' paycheques through a process called reconciliation if overall billings exceeded the threshold the government set for its total payout to doctors.

In 2012, the government of then-premier Dalton McGuinty managed to extract a 5-per-cent cut from doctors, but the total savings were not as significant as expected because doctors saw more patients and billed for more procedures than the government had anticipated.

"It is not responsible for the government to ignore its obligation to appropriately fund the health-care system," said Ved Tandan, the OMA president. "And it is not right that patients will have less access to the health care they need and deserve because of fiscal challenges resulting to a large degree from what was created by the government's own doing."

Health Minister Eric Hoskins, himself a doctor, was quick to dismiss the OMA's contention that the proposed limit on the pot of money for physicians would harm patients. He said Ontario's doctors are already handsomely paid, with salaries that have risen 61 per cent since 2003 to an average of $354,000 before overhead costs such as staff wages and office leases.

"The OMA argument is that pay raises should come before patients," Dr. Hoskins said. "Please be assured, we are talking only about physician compensation in this agreement, not patients services or quality of care."

Ontario's doctors have been without a contract since March 31, 2014. The parties began talking a year ago, a process that was slowed down by the campaign that brought a re-elected majority Liberal government to power in June. Despite the efforts of facilitator David Naylor, the former president of the University of Toronto, and conciliator Warren Winkler, the former chief justice of Ontario, the two sides could not agree.

In a conciliation report filed Dec. 11 and released by the government Thursday, Mr. Winkler urged the OMA to reconsider its rejection of the government's offer. "The process had an umpire and he took our side," Dr. Hoskins said.

Dr. Tandan said the OMA did carefully reconsider the offer, summoning 150 physician leaders to a meeting five days before Christmas to look over the government's position in detail. Those doctors ultimately recommended the OMA board reject the offer, which it voted to do Thursday, after Dr. Tandan offered a two-year freeze on all physician fees that he said the Health Minister turned down.

Now that talks have fallen apart, the government is imposing a suite of 10 changes to how physicians in Ontario are paid, effective Feb. 1.

On top of the 2.65-per-cent cut to all Ontario Health Insurance Plan fees, the government is eliminating funding for doctors to take continuing medical education courses; reducing the fee for walk-in clinic visits by $1.70 to bring it in line with the fee paid for visits to a patients' regular family doctor; eliminating a premium for doctors to accept new patients who are healthy; and limiting the number of family doctors in well-serviced areas who can join family health teams where doctors are paid by the number of patients they enroll in their practices, not on a fee-for-service basis.

Dr. Tandan said doctors have no plans to slow down their work or take other labour actions that would affect patient care. While doctors are not legally barred from striking, they have contractual and other obligations that mean before taking any work action they must do the following: consider the impact of the work action on patients and the public; mitigate the effects of those actions; and provide care in certain circumstances.

Payments to doctors account for 25 per cent of Ontario's health-care budget and 10 per cent of the province's budget overall.

Editor's Note: The original newspaper version of this article and an earlier digital version incorrectly reported that Ontario doctors are barred from striking. This digital version has been corrected.