Ottawa and the provinces have failed to reach a deal on health-care funding, despite a $11.5-billion pledge by the federal government to boost targeted spending on home care and mental health.

The federal government has now taken that offer off the table, Finance Minister Bill Morneau said Monday, and the Canada Health Transfer (CHT) spending increase will revert to 3 per cent a year as of April 1, 2017.

Morneau had told the provinces he was willing to grow that key federal transfer by 3.5 per cent each year over the next five years — at a value of roughly $20 billion — but the provinces balked.

"We came to the provinces with a significant offer of funds ... We're disappointed we weren't successful," Morneau told reporters.

Jane Philpott, Canada's health minister, said the federal government's money could have made a real difference in the lives of many Canadians.

"I woke up this morning feeling very hopeful, thinking about half a million kids that are waiting for care for mental health services and hoping to be able to give them good news today," she said.

"We're disappointed that the provinces and territories did not feel like they could accept this offer and that they couldn't find ways to use these resources immediately, to be able to get care out to Canadians."

Finance Minister Bill Morneau and Health Minister Jane Philpott listen to a question during a news conference following the Finance Ministers meeting in Ottawa, Monday, Dec. 19, 2016. (Adrian Wyld/Canadian Press)

Ontario Finance Minister Charles Sousa said while the provinces rejected the federal funding plan, it was Morneau who was responsible for ending the meeting early.

"There was an urgency to close the meeting off. We're here, we desire an agreement, we need to come to a conclusion. Why have anybody attend if there's nothing to negotiate or discuss?" Sousa said, adding Ottawa wasn't willing to listen to evidence that its proposed funding plan would imperil the country's health-care system.

He said the proposed $11.5-billion funding boost is the equivalent of just three months of health spending.

P.E.I. Premier Wade MacLauchlan said the federal government refused to accept a counter-offer of growing the health escalator by 5.2 per cent a year, and had a "take it or leave it" approach to negotiations.

Now, the provinces will leave with no more money for health care than when they arrived in Ottawa on Sunday for the renewed health accord talks.

Federal Health Minister Jane Philpott expresses disappointment at the failure of health accord negotiations 0:42

Liberals sticking with Harper's escalator

The provinces and territories have enjoyed six per cent year-over-year growth in transfers from the federal government since the last health accord was reached with former prime minister Paul Martin in 2004.

Former finance minister Jim Flaherty unilaterally changed funding increases to either match the rate of GDP growth or three per cent a year — whichever is greater. (The funding change will take effect next year.)

Provincial and territorial health ministers have presented a united front against Ottawa's insistence that the annualized increase is a "reasonable escalator," saying that rate is too low to keep pace with a rapidly aging population.

"This was an historic offer," Philpott said, adding the 3.5 per cent figure is higher than GDP growth, inflation, and provincial health spending over the past five years.

"I think there is widespread agreement that the systems themselves need some transformation, and we're going to continue to look for ways to do that," she said.

Philpott has said that Ottawa wants to extract greater efficiencies from provinces that have seen substantial funding increases for health care over the past 12 years with few meaningful improvements to health outcomes and wait times.

The federal government's last offer to the provinces included $6 billion for home care, with $1 billion of that money set aside for home-care infrastructure, and a further $5 billion towards spending on mental health services over the next decade.

The government was also offering an additional $544 million over five years in funding for unspecified provincial and territorial prescription drug initiatives, and "health innovation."

Ontario Finance Minister Charles Sousa explains why he thinks the health accord negotiations failed 1:55

'We have work to do,' P.E.I. premier says

MacLauchlan said the provinces have been asking for a first ministers' meeting on health care spending with Prime Minister Justin Trudeau, but have repeatedly been rebuffed.

That sort of roundtable is now more important than ever before, MacLauchlan said, and the premiers would like to convene such a meeting early in the new year.

Surrounded by Yukon Premier Sandy Silver, left, Northwest Territories Premier Bob McLeod, second from right, and provincial health and finance ministers, P.E.I. Premier Wade MacLauchlan speaks about health funding following a meeting with their federal counterparts in Ottawa, Monday, Dec. 19, 2016. (Adrian Wyld/Canadian Press)

He said failing to agree to such a meeting would fly in the face of Trudeau's campaign promise to engage in "collaborative federalism."

"We do not believe that, as of the end of the day today, that we're at an impasse, we have work to do," he said.

In an interview with Rosemary Barton on CBC's Power & Politics after the meeting, New Brunswick appeared to break ranks.

Finance Minister Cathy Rogers said New Brunswick would be interested in a "bilateral" health agreement with the federal government.

'We were conditionally satisfied' with feds' offer provinces rejected, said Cathy Rogers. 5:58

Federal and provincial finance ministers kicked off meetings in Ottawa with a working dinner Sunday and were joined by health ministers this morning.

Threats of walk out over 'ridiculous' offer

Quebec Health Minister Gaétan Barrette earlier threatened to walk out of the meetings if the federal government didn't put more money on the table.

"This is not a negotiation process; this is an ultimatum," Barrette said before the day-long talks between federal and provincial finance and health ministers got underway.

"We cannot resolve that over a one-day period ... and we will walk away if the proposal doesn't change."

On the way in to Monday's meeting, Philpott talked about the federal government's desire to target funding for home care and mental health.

Manitoba Health Minister Kelvin Goertzen, centre-left, Quebec Health Minister Gaetan Barrette, centre right, and other provincial health ministers angrily rejected an earlier proposal by the federal government, saying the offer was ridiculous. (Adrian Wyld/Canadian Press)

She said there are 500,000 Canadians who are not able to go to work because they are mentally ill, while more than 15 per cent of patients in hospital beds are occupied by people who could actually be at home or in the community.

"The kind of money we're putting on the table today for the provinces and territories means that we will able to close that gap entirely [in those specific areas]. This is a historical, transformative offer," she said. "We know the Canada Health Transfer is the biggest it's ever been."

Barrette said it was "completely ridiculous" for Philpott to call the deal "transformative."

"If Minister Philpott is calling this is a transformative proposal, she's right. She'll be transforming the system and for the worse."