Prime Minister Justin Trudeau’s campaign vow to improve federal-provincial relations has suffered a major blow as Ottawa failed to reach a new 10-year deal on health funding.

A last-minute boost to the federal offer failed to secure a deal at what Finance Minister Bill Morneau had described as a one-day opportunity to reach a new long-term health accord that could be included in his 2017 budget.

What happens next is not entirely clear. The provinces are calling for the issue to be discussed further among premiers and the Prime Minister, but Mr. Morneau is non-committal. He said the immediate implication is that a health-care transfer formula imposed by the previous Conservative government will remain in place.

Federal Health Minister Jane Philpott expressed her disappointment that provinces rejected a deal she said would have expanded publicly funded home care and mental-health services.

“We’re going to have to go back to the drawing board,” she said. Dr. Philpott described the offer as an opportunity to address the fact that mental-health services are generally not covered when delivered outside of a hospital. The minister said she hoped new federal funding would persuade provincial governments to cover new services such as psychotherapy delivered by social workers and occupational therapists.

“We had an opportunity to do that and we were very hopeful that the provinces and territories would be pleased to accept this offer,” she said.

But the message from the provinces is that the package offered by Ottawa would ultimately reduce the federal contribution to overall health spending from the current 23 per cent. Provinces have been calling on Ottawa to increase its share to 25 per cent.

British Columbia Finance Minister Mike de Jong said the Liberal government’s handling of the discussions was similar to the approach taken under the previous Conservative government, which Mr. Trudeau sharply criticized during the 2015 election campaign.

“I think potentially it’s a real point of departure for the relationship between Prime Minister Trudeau and the federal government and the provinces but I, and we, haven’t given up,” he said. “Some of the language that we heard today is certainly reminiscent of the unilateralism that we heard on this issue from the previous federal government.”

Mr. de Jong described the federal offer as a concerted effort to diminish the federal role in health spending. “This just didn’t pass the smell test,” he said.

In another news conference after Mr. Morneau and Ms. Philpott’s, PEI Premier Wade MacLauchlan and other provincial and territorial ministers said they were united in opposing the federal offer. However late Monday, New Brunswick Finance Minister Cathy Rogers said she was “conditionally” supportive of the federal offer and would be pursuing a bilateral deal.

“It was an offer that had a lot of merit,” she said in an interview. “It’s kind of unfortunate that the talks ended.”

Mr. Morneau hosted provincial and territorial finance ministers at a dinner Sunday evening and the group met again Monday morning. Health ministers from across the country were invited to attend the final round of meetings Monday afternoon.

The $37.2-billion Canada Health Transfer to the provinces and territories has been increasing by 6 per cent a year since 2005. A new formula is set to kick in on April 1 that would reduce the escalator to 3 per cent or the growth of nominal GDP based on a rolling average of the past three years, whichever is highest. Nominal GDP is the combination of real GDP and inflation. Mr. Morneau’s November fiscal update projected nominal GDP will average 4 per cent between 2017 and 2021.

Ottawa’s initial offer to the provinces and territories, made Friday, would have changed the escalator to a fixed rate of 3.5 per cent and included additional payments over 10 years worth $8-billion, with $5-billion going to home care and $3-billion for mental health. Provinces said they did not want federal money to be outside of the escalator because it risks leaving provinces on the hook to maintain that spending when the timeline runs out. They called for an escalator of 5.2 per cent.

Dr. Philpott responded with a new offer Monday afternoon that kept the 3.5-per-cent escalator for five years, with the rate for the following five years to be determined later. Ottawa also promised $11.5-billion over 10 years for home care and mental health, including $1-billion for home-care infrastructure, $5-billion for home care and $5-billion for mental health. The money would not have been spread out evenly, with more coming in the final five years than in the first five years. The Liberal Party platform had promised $3-billion over four years for home care and suggested that would be in addition to new funding for a health accord. Mr. Morneau declined to say Monday what will happen to that campaign promise.

“We now have some thinking to do,” he said, declining to speculate on what steps Ottawa may consider next.

Health-care advocacy groups expressed their disappointment Monday evening at the failure to reach a deal.

“The Groundhog Day-type discussions where political leaders bat around percentages and figures at meetings in hotels have to stop,” said Canadian Medical Association president Granger Avery in a statement. “Our system needs better and most important, our citizens deserve better.”

Canadian Nurses Association president Barb Shellian issued a statement praising the federal offer of new money for home care.

“While we are disappointed in today’s meeting outcome, these are complex negotiations and we remain hopeful that a new Health Accord can be reached,” she said.

The Finance and Health Ministers from the Ontario government, which has been among the closest allies of the Trudeau Liberals, joined in the public criticism of Ottawa’s approach to the discussions.

“We did not close the meeting off. We did not walk away,” said Ontario Finance Minister Charles Sousa. “The proposal being put forward is inadequate … They’re sacrificing health care in support of other priorities.”

OTTAWA — The Globe and Mail
Published Monday, Dec. 19, 2016 12:51PM EST
Last updated Monday, Dec. 19, 2016 10:23PM EST