CareRx Corporation (TSX:CRRX) told investors that the Ontario Ministry of Health has announced that it will again postpone previously scheduled changes to long-term care pharmacy funding.
The Toronto-based provider of pharmacy services to senior living communities said the changes were originally scheduled to come into effect on April 1, 2021, and have been postponed for a second time until April 1, 2023.
Under amendments to the Ontario Drug Benefit Act that came into effect on January 1, 2020, CareRx explained that the reimbursement model for long-term care pharmacies in Ontario was changed from a fee-for-service model to a fee-per-bed capitation model under which pharmacies receive a fixed professional fee for all pharmacy services provided to residents in long-term care homes.
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The fee for 2020, which was prescribed at $1,500 per bed per year, was scheduled to decline to $1,400 per bed per year on April 1, 2021. The step-down in capitation was previously postponed until April 1, 2022.
"We applaud the Ontario Ministry of Health for once again making the decision to postpone its planned fee changes as long-term care homes and their staff continue to manage through the still significant challenges created by the coronavirus (COVID-19) pandemic," CareRx president and CEO David Murphy said in a statement.
"At CareRx, we pride ourselves on the critical role we play together with our long-term care partners in delivering positive health outcomes while helping to improve direct resident care nursing time and reducing the overall cost of healthcare," he added.
The company said the latest postponement will ensure that it can maintain its service offering to its home partners and their residents to continue to support them “during this especially challenging time”.
“We again thank the Ontario Government, and especially Ministers Elliott and Calandra, for their continued dialogue and commitment to protecting the wellbeing of seniors in long-term care,” Murphy concluded.
CareRx has a large network of pharmacy fulfillment centers strategically located across Canada. This allows it to deliver medicines in a timely and cost-effective manner.
Leede Jones Gable maintains positive outlook
In an update to clients, Leede Jones Gable analysts noted that the delayed recalibration of long-term care pharmacy funding in Ontario mitigates the risk to its fiscal 2022 forecasts.
Thus, the analysts wrote that they are maintaining a positive view on earnings before interest, taxes, depreciation and amortization (EBITDA) growth trajectory for the “nation-leading” pharmacy services provider in a key eldercare services niche.
“We would have been surprised if the Ontario government held firm on its previously-announced schedule for downwardly revising its reimbursement levels to the long-term care pharmacy sector and as in F2021, it has again predictably decided to delay implementation of its bed-based funding model until no earlier than FQ223,” the analysts said.
“Funding levels have long been a challenge for CareRx and its peers, and the firm has encountered at least four seismic recalibrations of its revenue model in recent years in both Ontario and Alberta,” they added.
Leede Jones Gable analysts cited the Ontario government’s compression of dispensation fees on long-term care pharmacy operators in 2015 as well as the Alberta government’s similar dynamic compressed dispensation fees in 2018, which “in both cases, CareRx was able to respond through cost-containment initiatives and through achieving administrative cost synergies that acquisitive growth affords”.
The analysts have a ‘Buy’ rating and an $8.50 per share target price on CareRx’s stock.
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Contact the author at stephen.gunnion@proactiveinvestors.com