Austerity measures designed to eliminate Ontario's massive $15.2-billion deficit in five years will spark major cuts in the province's hospitals, public-health care advocates warned Monday.

The Ontario Health Coalition said last week's provincial budget is putting health care in peril by freezing base funding to hospitals, which excludes money for such things as cutting wait times.

The government plans to limit health-care spending increases to 2.1 per cent annually over the next three years — lower than the 2.5 per cent recommended by economist Don Drummond in his government-commissioned austerity report.

It's a big change from the past eight years, which saw health spending increase by an average 6.1 per cent annually.

The zero increase amounts to a funding cut, because hospital costs rise with inflation and population growth, the coalition said.

"We're extremely concerned that this provincial budget will launch another round of health-care restructuring, starting with major cuts to hospitals," said Natalie Mehra, the group's executive director.

She said current backlogs will worsen, patients will face longer waits in emergency departments, and there will be more cancelled surgeries and hallway medicine.

Health Minister Deb Matthews said that won't happen, but acknowledged that the government had to make tough choices to re-balance the books.

"I'm asking everyone who works in health care to ask two questions," she said.

"The first question is, what's the best thing for the patients? The second thing is, what's the best thing for the taxpayers? So we need to get better patient care and we need to get better value for money."

To that end, the governing Liberals have also switched to a new formula to fund hospitals.

They're reducing lump-sum payments to 91 of the province's 152 public hospitals and will reimburse them instead for the types and volume of treatments they deliver. The same goes for nursing homes and community-care access centres.

About 55 smaller hospitals are excluded from the so-called "patient-based" funding model, which started this month and will be rolled out over three years.

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Ontario Health Minister Deb Matthews says the health-care system needs to get better value for money and better care for patients. (Pawel Dwulit/Canadian Press)

The idea is to make hospitals more efficient and ratchet down costs through specialization. But many smaller and rural hospitals won't be able to compete, Mehra said. That will force them to drop services and make patients travel further for care.

"The idea of a fairly comprehensive, local community hospital would become a thing of the past," she said.

Matthews said funding to those small and rural hospitals will be protected because the new funding model won't apply to them.

"We know that they fulfil unique functions in those communities and we value the services that they provide in their communities," she said. "So it wouldn't have been fair to put them in the same category as the large hospitals."

But the New Democrats say the exemption won't do much to save smaller hospitals, because they'll still have to compete with bigger hospitals to recruit and retain staff. If they don't, they won't be able to offer as many services.

Small hospitals won't be able to compete, critic says

A small northern hospital that performs a few hip replacements won't be able to compete with a highly specialized facility in the south that does a thousand surgeries a day, said NDP health critic France Gelinas.

"All of a sudden, that money is sucked out of their hospital to go where it's cheaper, better, faster," she said.

"You put it in a situation where they won't be able to recruit (surgeons and staff), they won't be able to retain, and they self-implode."

The Ontario Hospital Association played down the base-funding freeze, saying many hospitals were already planning for a zero or one per cent increase.

To rein in expenses, labour negotiations with both union and non-union employees need to take into consideration the "financial circumstance" of the province, said Mark Rochon, the association's interim president and CEO.

"It's not just a revenue issue, it's a cost issue," he said.

Mehra was also critical of the budget's provisions for long-term care and home care, saying neither will be adequately funded to stop privatization of services and ensure patients have access to them.

The budget promises to increase overall funding for nursing homes by 2.8 per cent in the coming year, which includes a one per cent increase in direct-care costs for residents of long-term care homes.

Funding for home care and community services is slated to increase by an average of four per cent annually for the next three years, reaching $546 million in 2014-15.