Health Minister Fred Horne announced that the settlement will be spread out over four years retroactive to March 2011, when the last deal expired. He said the new package keeps Alberta's 8,250 doctors the best paid in the country.
"We're 29 per cent above the national average," Horne said outside his legislature office.
"We're very proud of being the province that pays the best. We want to continue in that position."
The new contract includes a one-time lump-sum payment of 2.5 per cent for each physician based on 2011-12 billings.
Annual increases will be tied to the cost of living in each of the next three years.
Dr. Michael Giuffre, head of the Alberta Medical Association, called the deal extremely disappointing.
"If the news was good, I would be standing beside the minister and enjoying our joint success," Giuffre told physicians in a letter released late Friday afternoon to the media.
He said in earlier negotiations, Horne agreed that 2.5 per cent fee increases for this year and the year past were fair.
"Today this (raise) has been transformed to 0 per cent and 0 per cent," he wrote.
Also, he noted, the government is ending two programs to support community based physicians, saving $120 million, but with no guarantee the money will be made up in some other way.
"(Horne) has repeatedly refused to grant me any specific assurance that the funds will be returned to physician practices," wrote Giuffre.
Horne has also said he will work with doctors to adjust the fee schedule to make sure it is fair in light of changing technologies. Giuffre told doctors that means some fees will arbitrarily go down but none will go up.
The minister told reporters that he didn't want to impose a settlement, but saw little choice. After the old deal expired in 2011, the two sides agreed on two more deals in principle, only to see them fall through.
"It was a difficult decision (to impose the settlement), I don't mind saying. I had to weigh a lot of factors," said Horne.
He reiterated that three weeks ago he presented to Giuffre what he termed to the AMA, and in the media, as his best offer.
"I had laid out what was the very best the government could do," said Horne.
"The Alberta Medical Association was looking for something considerably more than that, and it was clear to me we weren't going to be able to bridge that gap."
Giuffre, in the letter, suggested he didn't realize that offer was take it or leave it.
"This (last offer from Horne) was essentially a set of preconditions upon which he wanted concurrence before moving forward to broader negotiations," wrote Giuffre.
"The AMA reviewed that proposal and responded. Subsequently, my understanding was that the parties would compare numbers and meet to discuss the results.
"However, at that meeting (on Thursday, a day before Horne's announcement) there was no negotiation.
"I was informed of the government's position and the minister said he would consider his options. This morning, he imposed the settlement."
Fees and related payments to doctors currently cost taxpayers about $3.5 billion a year, 22 per cent of the $16-billion health budget.
Giuffre said that along with the disagreement on pay, the two sides were far apart on how to implement new community-based care plans.
Premier Alison Redford has committed to building 140 family care clinics that would exist alongside 40 primary care networks to help patients get care at the community level and alleviate over-crowding in hospitals and emergency care wards.
The primary care networks are run by — and favoured by — physicians, while the family care clinics are to be staffed by a team of professionals, including doctors, nurses, pharmacists and dietitians.
"We have primary care reform through family care clinics occurring in the dark, away from the input of physicians and others," wrote Giuffre.
"This imposition affects thousands of physicians, thousands more physician-office employees and millions of patients."
Giuffre said the move comes while morale in the health system is already low due in part to documented cases of doctors being reprimanded or punished for speaking out on poor patient care.
Horne said he didn't believe Friday's announcement will hamper mutual planning on how to integrate family care clinics with primary care networks.
"I believe that the president of the AMA wants to keep working with us collaboratively as a government. I know they've talked a lot about the importance of primary health care," he said.
Giuffre suggested co-operation starts with the minister.
"It is exceedingly unfortunate the minister failed to choose a reasonable process," he wrote. "We must find better ways to make decisions when the stakes are so high."