Interest arbitrator awards Ontario doctors 6.95% catch-up and 3.0% normative increase for 2024–2025 in light of inflation and the repeal of public sector wage cap legislation

The Facts:

After a history of challenging negotiations over physician compensation, the Ontario Medical Association (OMA) and the Province of Ontario agreed to settle the issue of doctors’ fee increases for the period from April 1, 2024 to March 31, 2025 through interest arbitration.

The OMA represents approximately 35,000 practicing physicians across Ontario, covering a wide range of specialities and types of doctors. The province implements physician compensation through the OHIP Fee Schedule, which outlines the fees and conditions for the payment of insured physician services in Ontario. Historically, the OMA and the province had negotiated physician compensation through a series of Physician Services Agreements (PSAs).

On November 3, 2012, despite tense negotiations following the province’s unilateral cuts to the OHIP Fee Schedule that year, the parties eventually reached a PSA. However, negotiations for a three-year successor PSA in 2014 proved challenging, as the province again imposed unilateral limits on doctors’ fees. This prompted the OMA to file a challenge under the Canadian Charter of Rights and Freedoms (reported in Lancaster’s Labour Law News, March 10, 2016, eAlert No. 391).

The Arguments:

The Decision:

An interest arbitration board chaired by Arbitrator William Kaplan awarded a 9.95% increase for the first year of the 2024–2028 PSA, with 6.95% of this increase allocated as catch-up to address both inflation and the impact of the now-repealed Bill 124 on the outcome of previous negotiations, and the remaining 3% designated as a normative compensation increase.

Noting the significant gap between the parties’ proposals by pointing out that the OMA’s request for a 22.9% increase in the first year was “unprecedented,” while the province’s proposed 3% increase was “completely unrealistic,” Kaplan identified the main issues before the board as the determination of the overall price increase for the first year of the 2024–2028 PSA, and whether a case for catch-up had been established. To that end, he stated that “[I]n determining compensation, … it would not be appropriate for [the board] to impose [its] own notions of fairness or social justice on the adjudication of this dispute.” Rather, he set out the board’s mandate, as outlined in the parties’ BAF, as “awarding compensation increases that achieve fair and reasonable compensation for Ontario’s physicians in a high-quality patient-centred sustainable publicly funded health care system.”

Before determining the appropriate increase, Kaplan offered several general observations on Ontario’s current healthcare system, beginning with a finding that, based on the evidence before the board, there was a recruitment and retention issue resulting in a physician shortage in the province, with an estimated 1.35 million to 2.3 million people lacking a family doctor. Although accepting that increasing compensation would not immediately result in additional doctors as the supply was “finite,” Kaplan nevertheless held that compensation was an important part of addressing the problem. As well, Kaplan rejected the province’s argument that doctors were strictly independent contractors, noting that although they had significant independence in their role and had many of the hallmarks of independent contractors, they did not not have “the one that is most important for all other independent contractors: setting price.” Moreover, although observing that the board was “not indifferent to the [government’s] submission about total compensation,” Kaplan emphasized that the board’s mandate was to set prices, opining that “while it might be the case that incomes have risen above price, there is no inference to be drawn from the evidence that this is based on improper physician billing practices, rather than resulting from the services physicians are providing to patients.” He also accepted that the administrative burden on physicians had increased, but determined that this burden should be addressed through targeted funding increases, rather than become part of increased compensation for physicians.

Turning to address whether a catch-up amount should be awarded, Kaplan observed that the 2021–2024 PSA was negotiated prior to rising inflation becoming a crucial consideration. Noting that the “need for settlements and awards to address this period of high inflation has been widely recognized,” Kaplan held that “if the OMA’s redress/catch-up claims were completely ignored as requested by the Ministry, [the result] would be neither fair nor reasonable, particularly when compared to other health care workers in general and other public sector and broader public sector employees.” Accordingly, Kaplan expressed the view that the province’s proposed 3% fee increase “does not even come close to adjusting for the redress/catch-up compensation eventually received by other health care groups over the period of the 2021–24 PSA,” noting that these increases were not only driven by the overruling of Bill 124 but also the “corrosive and continuing effect of inflation (with its baked-in price increases).” He also concluded that the impact of inflation on physician’s overhead must be taken into account, and that there was a “classic and compelling case for a normative increase plus redress/catch-up on account of unprecedented inflation in the previous PSA.”

Kaplan also held that a catch-up amount was justified on account of Bill 124, finding that the legislation had directly impacted bargaining leading up to the 2021–2024 PSA. Observing that “but for Bill 124, the parties would have bargained a normative 2021–23 PSA,” he stated:

On balance, the evidence convincingly establishes that while Bill 124 did not expressly apply to physician expenditures, it dictated the result in the first two years of the previous PSA with Year 3 representing a sui generis agreed-upon approach to reflect factors unique to the government’s physician spend and the delivery of physician services. Once Bill 124 was declared unconstitutional, and an even playing field restored, there was remediation across the [Ontario public service] and broader public sector where Bill 124 had applied. In [the board’s] view, and in the same way that it would have been completely inappropriate for Ontario doctors to have received increases well beyond other health care workers when Bill 124 was in effect – a point that was made perfectly clear in the bargaining that led to their negotiated agreement – it would be equally inappropriate and unjustifiable for them not to be treated generally the same when Bill 124 was successfully challenged and then repealed. Achieving some symmetry is required by replication.

Kaplan determined that a catch-up amount of 6.95% was appropriate to address the significant inflation that occurred alongside the 2021–2024 PSA, and remedy the impact of Bill 124 on the outcomes of the parties’ previous negotiations.

With respect to the normative increase, Kaplan noted that the OMA’s proposal of a 5% general increase was “without precedent among the relevant comparators,” opting instead to award 3% for the first year of the 2024–2028 PSA, thus “replicating the amount awarded to other hospital health care unions for the year in question, not the enhanced amount sought by the OMA.”

Finally, with respect to the targeted investments, which remained open for negotiation between the parties with any unresolved matters to be referred to arbitration, he opined that such investments should prioritize ensuring timely and accessible healthcare, with efforts made to attach more patients to primary care doctors. Noting that the decline in the number of patients seen by doctors was “extremely concerning” and “not sustainable,” Kaplan urged that targeted investments incentivize improving the number of patients seen in a timely manner, while also addressing the distribution of physicians in underserviced communities and the administrative burden on doctors.

In the result, acknowledging that the award would “satisfy neither party,” Kaplan awarded a 9.95% compensation increase for the first year of the 2024–2028 PSA, with 6.95% of this increase allocated as catch-up to address “the unprecedented inflation that arose contemporaneously with the previous PSA compounded by Bill 124 bargaining distortions,” and the remaining 3% designated as normative compensation.

Comment:

In recent years, bargaining in Ontario’s healthcare sector has been shaped by rising inflation, the repeal of Bill 124, and ongoing systemic challenges in healthcare delivery. In this context, the instant award builds on the principles outlined in Arbitrator Kaplan’s award in Canadian Union of Public Employees and Service Employees International Union v. Participating Hospitals, 2023 CanLII 50888 (ON LA), reported in Lancaster’s Interest Arbitration/Essential Services, eAlert No. 3, October 27, 2023, which followed the judicial invalidation of Ontario’s Bill 124. In that award, Kaplan addressed inflation and the staffing crisis in the hospital sector, awarding hospital support staff wage increases of 4.75% and 3.5% for 2022 and 2023, as well as pay raises for RPNs, shift premiums, and other benefits. Also, in Ontario Nurses’ Association v. Participating Hospitals, 2023 CanLII 65431 (ON LA), reported in Lancaster’s Collective Bargaining, eAlert No. 146, February 7, 2024, and cited in the instant case, Arbitrator Kaplan awarded nurses, nurse practitioners, and other healthcare workers represented by the Ontario Nurses’ Association in Ontario’s public hospitals a 3.5% salary increase for the first year and a 3% increase for the second year of a two-year agreement. Additionally, a 4% wage grid increase was granted, along with other improvements to compensation. These adjustments were made to address the recruitment and retention challenges facing Ontario’s healthcare and hospital sectors, as well as the “interconvertible evidence” that inflation had significantly outpaced the wage rates for registered nurses.

The arbitrator in the instant case emphasized that the easing of inflation will not resolve the issue of addressing prior periods of high inflation. In this regard, he cited Arbitrator Eli Gedalof’s awards in University of Toronto Faculty Association v. University of Toronto, 2023 CanLII 85410 (ON LA), reported in Lancaster’s Interest Arbitration/Essential Services, eAlert No. 4, January 22, 2024, in which Gedalof pointed to rampant inflation as a significant consideration in awarding an 8% salary increase in the third and final year of a collective agreement (2022–23), to make up for the first two years, when salary increases were curbed by Bill 124; and in Canadian Union of Public Employees v. Extendicare, 2023 CanLII 44040 (ON LA), in which Gedalof stated that “reduced inflation moving forward does not address the wage losses that have already occurred, and any rate of inflation that continues to exceed wage increases … further erodes wage losses. As noted in the instant award, this passage was referenced in United Food and Commercial Workers, Local 175 v. OMNI Health Care, 2023 CanLII 59171 (ON LA), issued on July 5, 2023, in which a board of arbitration chaired by Arbitrator Larry Steinberg held that it was appropriate in the circumstances to award general wage increases to a unit of service workers and registered nurses employed in five long-term care homes that were in excess of those recently awarded to similarly situated employees in SEIU, Local 1 v. Participating Nursing Homes, 2022 CanLII 90597 (ON LA) in October 2022, noting that failure to account for the impact of inflation may result in “[t]he loss of real wages [being] gone forever.”

In the award at hand, the arbitrator held that the impact of inflation on physicians’ cost of living must not only be taken into account, but also the impact on their overhead costs, which are not borne by employees such as nurses. As well, although physicians were outside the scope of Bill 124, Kaplan found that Bill 124 had clearly influenced their negotiations, as evidenced by the 1% increases in the parties’ 2021–2024 PSA, which replicated the 1% cap imposed by the now-repealed legislation. Noting that, just as it would have been unwarranted for physicians in the province to have received compensation increases significantly higher than other healthcare workers while Bill 124 was in effect, it would have been equally unjustifiable for them to be treated differently now that the legislation had been invalidated, the arbitrator opined that “some degree of symmetry” was necessary to ensure a fair and consistent replication process.

Ontario Medical Association v. The Crown in Right of Ontario
Ontario
Interest Arbitration
William Kaplan, Chair
September 12, 2024
2024 CanLII 86115 (ON LA)

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