TORONTO - Ontario hospitals will get a 1.5 per cent funding increase in this year's budget, below the minimum they were hoping for as they struggle to stay out of the red to maintain services for patients.

Critics say those funding levels will undoubtedly lead to a reduction in services, putting lives at risk as hospitals are forced to close beds, shut emergency rooms and cut staff to save money.

"The evidence is that hospitals cannot continue to sustain the underfunding of their global budgets," said Dora Jeffries of the Ontario Health Coalition.

"Deficits will continue and more services will be threatened."

The 1.5 per cent increase means there will be a gap between hospital funding and inflation for a third year in a row, said the coalition, which has reported a three per cent inflation rate for Ontario hospitals.

Even though hospitals can't run deficits by law more than a third of the province's 159 hospitals were in the red last spring, amounting to a $154-million shortfall.

The Ontario Hospital Association has said previously that even with a two per cent increase they would have been forced to find a one per cent operational efficiency. That's on top of dealing with the deficits they already have.

"We're disappointed with the announcement of 1.5 as base funding because every 0.5 per cent is about $80 million," said OHA president Tom Closson. "So half a per cent is a significant sum of money."

But Closson said he was encouraged by a promise to look at the hospitals' working capital deficits. The OHA is also hopeful about the possibility of more funding for other programs that fall outside base funding.

"We want to sit down and work with them and figure out how that money can best be spent to make sure we can keep the system stable in the short term," Closson said.

Activists have pointed to the death of an 18-year-old girl in the Niagara area as an example of a tragedy that could have been avoided if two emergency rooms in her community had stayed open.

NDP Leader Andrea Horwath said the message to patients in Thursday's budget was a clear "tough luck."

"We need a responsible plan for health reform that protects the front-line services that people rely on," she said.

"The increase in hospital funding won't even keep pace with inflation much less the actual increases in costs, and the government has no plan to relieve the pressure that hospitals will face."

The Liberals are also promising to lower generic drug prices but didn't release any details about how or when that plan will be rolled out, or what savings it will generate.

The drug plan will also increase support for pharmacies in rural and under-serviced communities and support the expansion of clinical services provided by pharmacists.

Overall health spending will be capped at three per cent growth each year according to the budget, even as the Liberals hold the growth in other program spending to an average of 1.9 per cent beyond 2012-13.

Finance Minister Dwight Duncan said the level of base hospital funding "speaks to the challenge in front of all governments across Canada in the coming years about health care."

"That is why we're taking steps today on generic drugs and some other things to begin the process of sustaining the public health-care system that Ontarians value so much."

Health sector expenses are projected to increase by $6 billion from 2009-10 to 2012-2013, and includes $100 million in funding in 2010-11 to reduce wait times and $8.5 million to create up to 14 regional centres to manage local diabetes programs.

That means health care expenses of $46.1-billion in 2010-11.

Health-care spending accounts for about 46 cents of every dollar the government spends on services, an amount that's expected to grow as the province's population ages.

If left unchecked, the Liberals say health-care spending could grow to 70 cents of every dollar spent on services in 12 years.