Analyst Encouraged by ON Gov's Decision To Sustain Fees
Research Report

Leede Jones Gable analyst Dr. Dougals Loe reported in an April 1 research note that CareRx Corp. (CHHHF:OTCMKTS;CRRX:TSE), a company that provides pharmaceutical services to long-term care facilities in Ontario, will continue to receive funding for professional fees at the same levels as before for at least one more year.

Loe stated that this news might seem unimportant without additional context, but it actually will help to stabilize the company's operations in Ontario's long-term care pharmacy sector. There were concerns that the professional fee funding might be reduced in the near future, but this announcement puts those concerns to rest for now.

In the report, Loe noted that the Ontario government's decision to delay and potentially disregard the proposed cuts to professional fees is good news for investment in CareRx. The original plan, as outlined in the Ontario Government's Drug Benefit Act, was to reduce the professional fees from CA$1,500 per bed served annually to CA$1,400 after one year, then to CA$1,300, and eventually settle at $1,200 per bed annually in the third year after implementation.

If the original fee reduction plan had been implemented according to the initial timeline, Loe commented that it would have been fully in place by now. However, due to factors related to disease outbreaks that negatively affected eldercare services in the province, the plan was delayed.

"Had the schedule been enacted as proposed, the degree of which could have driven the LTC Rx industry specifically into negative EBITDA territory," Loe wrote. 

With this, Loe reported no change in his F2024/2025 forecast as "we already assumed that the ON government would reflect rationally on its intention to reduce LTC Rx funding."

The Ontario government's actions last year regarding funding for nursing care suggested to Loe that they might take a similar approach to long-term care pharmacy (LTC Rx) services. 

He commented, "We were encouraged, for example, to see the ON Ministry of Health confer funding increases to the province’s nursing care industry last year."

With this, Loe gave CareRx a Buy rating and a CA$4.25 target price, showing a potential return of 107%

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