Chemed at BofA Securities Conference: Strategic Insights on VITAS and Roto-Rooter

On Tuesday, 13 May 2025, Chemed Corp (NYSE:CHE) participated in the BofA Securities 2025 Healthcare Conference, providing a strategic overview of its operations. The company addressed concerns over Medicare cap limitations on VITAS, while also highlighting growth opportunities and challenges for both VITAS and Roto-Rooter. Chemed remains confident in managing these challenges and is exploring strategic acquisitions to bolster its market position.

Key Takeaways

• Chemed is actively managing the Medicare cap, mitigating financial risk for VITAS.
• VITAS is focusing on expansion in Florida and other states through acquisitions.
• Roto-Rooter is reducing reliance on Google for residential leads and growing its commercial sector.
• Chemed is well-positioned financially, with a strong capital strategy for acquisitions and share buybacks.
• The company is exploring changes to the Medicare cap with new administration discussions.

Financial Results

• The Medicare cap, in place since 1983, continues to be a focus for Chemed, with proactive management ensuring it does not pose a financial disaster.
• VITAS’s operations in California have successfully managed a Medicare cap of $6 million to $9 million.
• Florida’s reimbursement rate increased by 200 basis points above the national average, which Chemed is managing strategically.
• Roto-Rooter has secured a one-year steel supply, mitigating immediate tariff impacts.

Operational Updates

VITAS

• VITAS has been monitoring the Medicare cap since 2012 and has successfully expanded its net clinical capacity for 11 quarters.
• The average length of stay has increased due to staffing considerations.
• VITAS aims for 51% of admissions from hospitals to maintain growth.
• Recent acquisitions, such as Covenant, are culturally and strategically successful.
• VITAS is expanding in Florida and has filed to enter North Carolina, with interest in 12 other states.

Roto-Rooter

• Roto-Rooter is focusing on growing its commercial business and reducing reliance on Google for residential leads.
• A new app, launched in January, is gaining traction with 15,000 downloads per month.

Future Outlook

VITAS

• Expects 8% to 10% ADC growth for the foreseeable future.
• Continues to explore acquisition opportunities in Florida and other states.
• Engaged in discussions about potential changes to the Medicare cap with the new administration.

Roto-Rooter

• Focus on expanding its commercial business.
• Aims to grow its residential business independently of Google.

Q&A Highlights

• Discussions on potential changes to the Medicare cap program.
• Analysis of the pandemic’s impact on VITAS operations.
• Insights into the strategic acquisition of Covenant.
• Updates on Roto-Rooter’s business strategies in commercial and residential sectors.
• Company strategies to handle potential tariffs were addressed.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - BofA Securities 2025 Healthcare Conference:

Joanna Gajuk, Analyst, BofA: For joining the BOA Healthcare Conference and for sticking around. It’s been a long day for me and I assume for you too. So thanks so much. So now this session, I’m pleased to present, or have a discussion with Kemet. I guess before I do that, my name is Joanna Gajuk.

I cover health care facilities and managed care at BofA. So, KEMET, one of the largest, hospice providers, but also, owning some other business. We we will talk about that. And today with us, we have entire team, Kevin McNamara, who’s the CEO, Nick Westfall, who’s the CEO of the VITAS business, and Mike, Witzman, who’s the CFO. So I guess we’re gonna go right into q and a.

Right? And, well, since this is a health conference, so I wanna start with with VITAS. Right? Because that business continues to really grow nicely. But, you know, this year seems like Medicare cop is somewhat, you know, limited limiting that growth because I guess you’re slowing down the census a little bit, still growing pretty nicely.

Right? So there’s some worry, right, that, this COP can become a major issue. I guess peep some people have, you know, longer memory and maybe they they’ve seen things, you know, play out not really nicely for some companies, you know, decades ago. So maybe we should address that. So can you talk about, you know, what’s what’s different now versus back then?

And what gives you confidence, you know, that this is not gonna gonna blow up in your face?

Nick Westfall, CEO of VITAS, Chemed: Sounds good. So yeah. So for referential point, and a few people have asked this question today, you’re we’re really talking Vista Care and Odyssey about twenty years ago inside of the space, coincidentally about the same time in which Chemed bought in the full ownership of VITAS. Not to state the obvious, a lot has changed in that twenty year period. And as we think about it on a overall basis, you know, Medicare cap is something that’s been in since the benefit was enacted in 1983 and it’s one in which we’re constantly looking at, reviewing, and have been since, you know, I can speak to it only directly since, 02/2012 when I took over operations.

That’s when we look at, you know, daily, weekly, and monthly on a site by site basis. And so it’s not new. But from twenty years ago until today for the overall industry and and the same translates to VITAS, what really proud of for the team is we’ve made a lot of investments around not only our analytical capabilities that help the forecasting, but really understand the benefit and the trajectory associated with it. And what that allows us to do when we couple it with building out our go to market strategy around what’s the value proposition of the hospice benefit, what does it mean to different referrals versus, what does it mean from a disease state standpoint, is for us to go into a market and really identify opportunities in say in a market where we’re forecasting a Medicare cap cushion over the next twelve months that is a few percentage points lower or inside of a realm of what we want, we’re able to say, let’s do things where we are gonna dial up the time in which our team spends with hospital based pre admit segments and or disease specific components. And that allows us to balance spending time responding to all referral sources, but getting more referrals from traditional partners that may have shorter disease trajectories, and that helps generate Medicare cap cushion in those markets on a go forward basis.

So it’s not new at all to us organizationally. We’re just talking about it a little bit more, trying to proactively answer as we were in the middle of last year understanding the success we’ve had for two and a half years of sequential volume growth that growing at a 15% clip on a same store basis from an ADC standpoint in certain markets wasn’t the sustainable range, and it goes into why we’re very comfortable in the eight to 10% ADC growth forecast for this year as well as for the foreseeable future. But helping people understand, well, why can’t why can’t it be fifteen percent? One aspect of that is the balance of Medicare cap, which has existed since, you know, 1983 and one in which we have a a real good handle on.

Kevin McNamara, CEO, Chemed: Let me let me just add. Again, it’s a capsule commentary, but think of it this way. For the last, you know, I can’t remember how many years. We’ve had Medicare cap in California, and that’s driven by the fact that the reimbursement is so much higher than the national average, 70% higher than for Mississippi. K?

But the cap is the same for Mississippi and California. We build that into our strategy. We get, you know, we try and do the best we can. It is because of the nature of California that is our biggest referral source. Almost every market is some healthcare system that has its own hospice that we just get their spillover referrals.

Not something we control. But we live with it. We make a lot of money. It’s still very good profit margin. But there’s Medicare cap in the range of over the last several years, six million to $9,000,000 So what’s changed?

Well, I’ll focus mostly on, we don’t really like to talk about programs, but let’s state the obvious Florida. Florida the whole state of Florida is one program. Very unusual. It’s good. We like it that way.

And it’s we’re dominant. It’s a it’s more than half our business. It’s great. During the pandemic, when twenty percent of our health care staff, you know, retired, disappeared, VITAS was in the position where they just didn’t have the staff to deal with a lot of short stay patients. And it’s, you know, it wasn’t a, it was a conscious decision, but we just said, well, we’ll do the best we can.

What doing the best we can at the time meant that we looked at the historical breakdown of hospital admissions. Hospital admissions equals short stay and community access, doctor’s offices, nursing homes, took a look at the breakdown. Historically, we ran 51, 50 two percent, hospital admissions. Well, we just didn’t have the ability to service that many short stay patients. We still took short stay patients.

If that number fell to about 44%, forty four %, forty five %, and it was still very, very substantial. The net effect is that our average length of stay would go up, okay, in let’s say that market. We knew that. We figured, well, what do we do now that we have full staff? Change our sales perspective.

That is make more hospital contacts. See if we can drive our hospital admissions up to the same range that is 50% or higher. And actually VITAS has already accomplished that. I mean, we’re doing that. But we have a legacy of the period where we weren’t able to do that.

And we had this cohort of longer length stay patients, okay, that are, you know, that largely were in our system are still in our system. Okay? We knew that. We’re planning on that. Not really an issue.

Still very unlikely to result in as much discussion about Medicare cap as we’ve had this year and today, particularly. It’s something that we deal within the normal course. An additional factor, though is the rate increase. Keep in mind that the Medicare cap total goes up based on the national average. Our programs, each locale gets a different reimbursement.

You know, for the state of Florida, when we finally got their final number, you know, in the late summer, early fall, we saw that the good news was that it was much higher for Florida than we anticipated. In fact, it was a couple 200 basis points higher than the, national average, which meant that that our our reimbursement for the same amount of service as we projected was gonna be, you know, 22% higher. Obviously, good news. But it meant that our carefully planned, you know, plan to dovetail into dealing with the Medicare cap and the government plan year was thrown a little bit out of kilter. But again, it just, I’m just describing a a little bit change in our our planning.

Okay? We’re still not projecting Medicare cap in Florida. You know, I’m just saying that the Medicare cap cushion, doesn’t do you any good to have a bigger cushion rather than those lower cushion when you get to the end of the year. You wanna use wanna have as little cushion as possible. It just it just changed our calculus a little bit.

And we just again, we over disclose on it. And I think one of the reasons that people today ask us about it, and Joanna’s asking about it, is when we released our earnings, we just again, we’re fully transparent. We just said, yeah. We’re we’ve got less cat cushion than we were initially anticipated. Nothing to see here.

You know? But we still have done a lot of discussion about it because it’s an often it’s a it’s a program it’s a policy that doesn’t make a lot of sense. You can’t use logic to understand some of the driving factors of it. You just accept it. You take you take the total amount of your qualifying admissions per program in a year.

You multiply by that a number between 35,000 and $36,000 It goes up every year based on the rate of increase. And you take that number, you multiply it. If that number for a program, you know, equals $21,000,000, that’s fine. You take a look at the end of the plan year of what your total bills were. If it if the total bills were 22,000,000.

No one’s done anything wrong. No one has the wrong they just you just send a million dollars back three years later to the federal government. And, you know, it’s something that’s a cost of doing business. It’s day in, day out what VITAS does. It’s we’ve had to make some some more changes really by the combination of the pandemic and the greater than expected increase in Florida.

But nothing’s changed in the underlying nature of our service offering. But Dick’s already made this point. But keep in mind, the reason you might say, it seems like you’re shooting yourself in the foot. Why are you talking about so much? Well, the answer is when people say, hey.

You you were running at a 15%, sixteen % ADC growth average. Has something happened to the business? And the answer is yes. We’ve intentionally said that was unsustainable as we have less cushion. We’re going back to our his our historic perception of the market, which is have 51% of your admissions come from hospitals, and you’ll go back to what we’re projecting our historical very solid growth rate at VITAS.

But nothing is nothing untoward has has happened to the business.

Nick Westfall, CEO of VITAS, Chemed: Maybe just two last things to wrap a bill on it. First one is if you go back the last five to eight years, we forecast out what our twelve month liability is and we’ve come in, almost spot on every single one of those years, We haven’t made any modifications, dollars 9,500,000.0 liability. As in many of those Northern California locations that are just a cost of doing business at the end of the day. The second one as compared to say twenty years ago, and I can solely speak specifically at VITAS is, right, when we think about going back to that go to market strategy, right, we have time allocation, we have analytics of where referrals come from, what our market share opportunity looks like. And if you even get to things like we just became the first accredited hospice organization with the American Heart Association for cardiac program, we deploy that very intentionally across every market.

But, you know, we have disease specific value added propositions and we’ll lean more heavily into certain ones of those, like say sepsis in cap specific markets because it resonates and has a better bigger value proposition to hospital based referral systems. So we’ve become much more intentional around where we’re providing emphasis and can modify those things on a market by market basis.

Mike Witzman, CFO, Chemed: Joe, know one thing just from a financial perspective to keep in mind, as long as we’re managing the Medicare cap appropriately, it is not a financial disaster. The $9,500,000 that we have in Northern California, those are still some of our most profitable, highest margin businesses. So it’s just a matter of managing it so it doesn’t get out of control, and Nick and Fitas have done a great job doing that.

Kevin McNamara, CEO, Chemed: If we ignored it, it’d be potentially a big issue, but we’re far from ignoring it.

Nick Westfall, CEO of VITAS, Chemed: Our only debate over the last ten years was whether we should be not as you know, because everyone else in the industry just says cost of doing business. We’re gonna stop talking about it. When we have a liability, it’s just a it’s just a, you know, hit to EBITDA, and we chose to stick with the course of being being transparent.

Joanna Gajuk, Analyst, BofA: So I guess staying on the Medicare cap, any indication for any changes? I know MedPAC stopped recommending the change. You know, they had this 20% cut to cap and whatever, but, you know, that didn’t happen, and it was taken So now, like, is there something to be said about, you know, you guys kinda, you know, asking for the change and you’re trying to lobby something there?

Nick Westfall, CEO of VITAS, Chemed: Yeah. So, you know, we’ve constantly have conversations with MedPAC on a a regular basis, both ourselves and through the national association that I’m on the board of. Might be coincidental, might be not. We met with them and helped to educate about when you start thinking about as what Kevin was alluding to. Medicare cap was put in in 1983 to help the government get comfortable with what the cost would be because they believed the benefit was going to be so greatly desired and successful like it has been.

And so now when you look at it and say a patient that accesses the benefit earlier in their disease trajectory, meaning they’re on hospice for longer, actually accelerates the total cost of care savings to the Medicare trust fund, you don’t really want to have policies in place that limit that. And Medicare cap is one of those policies that limit it that’s a forty seven year old approach. And so as the new administration settles in, and I believe based on all commentary they understand hospice and understand the benefit to it, Maybe we’ll have an opportunity to discuss, should that policy continue, are there other alternatives to try to advocate for the industry to have fiduciary responsibility for the overall Medicare trust fund and still provide really high quality care out in patients home throughout the country. And I think I think we will. I don’t know when it will happen, though.

Kevin McNamara, CEO, Chemed: And there’s halfway steps that would be very beneficial to make it make more sense. That is yes. We could say abolish it, You know? And here’s some dollar trade offs or something like that. Or we could just say, look.

There there were changes made as recently as 2019 that that, you know, meant that the, you know, the the increase, you know, does not does not track with the reimbursement increase.

Nick Westfall, CEO of VITAS, Chemed: It decoupled the local increase compared to the national average.

Kevin McNamara, CEO, Chemed: Right. And, you know, to the extent that we can just have that type of, you know

Nick Westfall, CEO of VITAS, Chemed: Realignment.

Kevin McNamara, CEO, Chemed: Realignment and, you know, small issues that would make it make more sense. Okay? And, you know, that’s really what we’re shooting for. It’s not you know, again, it’s there’s some people who would say that it, you know, has positives and negatives, you know, for you know, we think that their the Medicare cap stops some bad actors. Okay?

From for instance, if you get away with if you control the referral sources, you wouldn’t want any short stay patients. Okay? Medicare cap stops that type of bad actor. Okay? Our view is just saying, say, look, give an example in California.

We don’t you know, our largest referral source is a health largely, depending on the program, a health care system that has its own hospice. We we get the patients that somehow they don’t want for whatever reason. If if they have a Medicare cap, they keep the short stay patient. A problem patient, they refer us to us. We take them.

Okay? You know, let’s say we could be the best hospice in California and have a Medicare cap. The health care system may or may not have one, and they’re they’re just you know, they’re they’re not operating necessarily in the best interest of the patient, arguably, by based on their referrals. But, anyway, it’s nothing we’re holding our breath for. We don’t need a change.

We’ll deal with it.

Nick Westfall, CEO of VITAS, Chemed: Yeah.

Kevin McNamara, CEO, Chemed: And it’s just there’s some good that comes from it as well.

Nick Westfall, CEO of VITAS, Chemed: And and being an independent provider has forced us to mature all of our offerings to have a sustainable not only business but a mission being a mission focused provider that is so critical for all of our team members, right? We’re at about 11 quarters of growing net clinical capacity with 10 quarters of ADC growth. Those two things are not coincidental, right? You have to have the ability to retain and grow your workforce. And one of the primary drivers has nothing to do with Medicare gap.

It’s the fact, hey, you allow us to go care for patients irrespective of their ability to pay. You want them to respond. You provide an open formulary. We’re able to provide care in the right way. That only helps us continue to retain and attract talent and be a wonderful partner to all the healthcare entities that are referring patients to us because they know we’ll be there for them in a timely fashion.

So nothing’s changed regarding our business model or the approach related to it.

Joanna Gajuk, Analyst, BofA: And I guess another recent development in in in VITAS is the acquisition of Covenant. So there was first one since I don’t know how many years. Right? So is it also an indication of, you know, maybe changing strategy a little bit as in, like, there’s more assets to be acquired and you guys are also more kinda open to it? So maybe what

Kevin McNamara, CEO, Chemed: cost open to.

Joanna Gajuk, Analyst, BofA: I know. But you’ve never really done anything. So I know.

Kevin McNamara, CEO, Chemed: It’s with from my perspective, kind of what was going on at confident more than what was going on with

Joanna Gajuk, Analyst, BofA: Mhmm. With

Kevin McNamara, CEO, Chemed: our attitude towards it. No. We I’ll tell you, we’ve we’ve always been super interested in any acquisition of any size in Florida for the county that we didn’t have a certificate of date. Okay? We always have been.

We’re not in, you know, other areas of the country that is that aren’t CON states. We’ve been very good not interested in really companies would have a lot of really small hospice programs. That didn’t have maybe weren’t in a. A locale that was likely to provide enough patients to ever grow into a large hospice program. So those are cut off the table.

But I think we always were interested in Florida. Covenant was a possibility. It was a great one that’s worked out great for us. There are other. You know, hospice companies in Florida.

That I have certificates of needs in in counties that we’re not in, we remain interested in those. But it’s interesting. You know, there’s different ways to get that, ability, and that is by applying for it and getting the CON from the state. DITAS, one of the best things you can say about Nick

Nick: and

Kevin McNamara, CEO, Chemed: the staff at DITAS is they’ve been, I think, incredibly successful in building out those other counties and getting those admins. Nick, why don’t you just talk about some of the recent developments that are got because I think it’s underappreciated by the market. They’re very significant for us.

Nick Westfall, CEO of VITAS, Chemed: So, you know, a few recent ones, we opened Pasco County in October of last year And we’ll be taking our first patient in Marion County on Thursday of this week, which if for those of you familiar with Florida, that’s where the villages is located. So we’re really excited about that opportunity and our ability. We have another application in for the St. Petersburg area in Florida and just to pivot as well to everything outside of Florida because we’re spending a lot of time in those opportunities as well. It’s public.

We filed for an application to enter North Carolina. We’ll see if we get awarded that. And there are 12 other states in particular. We are dialed in and engaged in various forms in the cycle of talking about acquisitioning and entering the market. And the one thing in which Covenant really represented to our industry, Covenant was a longstanding mission focused nonprofit provider where we had a light culture.

And so the acquisition and the integration and the support from the community has been phenomenal. The feedback from the team members, all of which who came over to us has been phenomenal. They’re surviving old foundations board, very positive as well. And so it helped represent to the industry that, look, we’re a similarly like minded mission focused provider, one of the largest in the country, but we can do things the right way. And so it’s opened up other opportunities for nonprofits in other states that maybe wouldn’t have thought about us that way.

So we’re very excited.

Mike Witzman, CFO, Chemed: Our overall philosophy hasn’t changed. We’ve always been interested acquisitions in the right location at the right valuation, which Covenant certainly became that. The other thing I I would say, no more practical basis, Nick and the VITAS team have started really reaching out to Covenant sized providers that we would be interested in talking to about an acquisition. I think our historical, what we did was more wait for people to call us. So we’re being a little more proactive, particularly based on how well covenant went for us.

Nick Westfall, CEO of VITAS, Chemed: And it’s all relationship based. Covenant works one from four years prior to that. It may sound smaller, but it was 12 different counties in Florida. It was the same setup and situation. So, you know, we like to think we’re a great option for many agencies and organizations out there.

And so we, you know, have been much more proactive in making sure they understand we’d like to be a phone call and dialogue about it. So I think there’s more to come. We have the capital on the balance sheet to do it. It’s just comparing that against all the other alternatives, whether it’s share buyback or anything else.

Joanna Gajuk, Analyst, BofA: So just a few questions on rollover, the data business. Maybe the first one’s we’re asking of a company in terms of exposure to tariffs. So can you walk us through how you’re thinking about this? If there were to be tariffs on certain countries, what’s your exposure specifically to things coming from China?

Kevin McNamara, CEO, Chemed: Very low.

Joanna Gajuk, Analyst, BofA: But walk us through this since I think this is probably a better higher exposure than on the feeder side.

Mike Witzman, CFO, Chemed: Yes, sure. For Roto Rooter, obviously to the extent we have to buy plumbing supplies, there would be certainly higher costs, but for the most part we pass the cost along to customers directly through our billing. And so on that side, we wouldn’t have a big issue from a tariff perspective for Roto Rooter at all. I would expect almost minimal if no real impact for

Kevin McNamara, CEO, Chemed: Roto Rooter. For our base business, we carry very little inventory. Okay? If somebody if a if a customer says I need a new bathroom fixture, We don’t carry 10,000 bathroom fixtures. I mean, we say, okay, I will go to Home Depot.

I will purchase it. By the way, here’s here’s the bill for it. You know? So that passes through, but my doubt with regard to ones that we do have.

Mike Witzman, CFO, Chemed: Yeah. So what we do have is we build the machines essentially that are used to clean the drains and that requires we do buy steel, of course that would be significant potentially a significant tariff, but we saw kind of which way the wind was blowing. So we currently have approximately a year worth of supply on hand already for steel. So to the extent that we need to start buying steel again, wouldn’t be until 2026.

Joanna Gajuk, Analyst, BofA: And I guess another question on Votaro since we’re running out of time. I guess, we saw some nice improvement in this latest quarter in Q1 when the revenues actually grew very nicely sequentially and year over year, which was surprising, right? And sounds like you’re making some progress with the commercial business, right? And the residential is sort of there. So maybe any updates since the quarter, how things are going in residential or commercial for that matter?

Kevin McNamara, CEO, Chemed: Let me just say that the you know, I’ll try to switch short circuit. The on the commercial side, we have a very small percentage of market. We said, look. During the pandemic, we’ve allowed, you know, commercial to slip a little bit because it’s harder business to maintain and get a little bit lower margin. And we had more business than we could take on the residential side.

We went back to blocking and tackling. And we’re very confident that, you know, we the inroads we made are sustainable. It’s business that in many respects can be conducted and grown without being reliant on Google. Okay? So that’s why it’s it’s great.

You know, it’s we we love it. It we’re looking to continue to put a lot of effort in growing it. On the residential side, as far as efficiently, we like what we’re seeing. We have a we have sufficient workforce, the calls that we’re getting. You know, we have a higher a high, Very high one of our highest close rates at the dispatch side in taking the, job and.

With regard to when the service man goes to the customer’s home, we have one of the close rates, the highest close rates we’ve ever had as far as closing that business. The problem is that, we’re not getting the number of calls we’d like to get. Why is that? It’s largely maybe the overall demand’s a little bit lower. But overall, we’re looking at Google and Google placement and Google marketing, and there’s a lot of aspects.

I know we’re over the time. We can talk about it. But it’s basically, you know, we’re dealing with Google who’s tough to deal with, increasingly expensive. And, you know, the real the real push in companies like Roto Rooter is how do you grow the business and be, less dependent on Google? And I think I’ll just make one last comment, which is one this was a small part of it, but you’ve heard us talk about our our app started we started January 1 from a standing start.

And since that time, we’ve had, just about 15,000 people a month download that app, which means that if they want Roto Rooter, they push the button. We don’t pay a Google, fee. But more importantly, they don’t see 10 other pro you know, competing programs, businesses vying for the business. I mean, it it could be daunting. For instance, if you were to if you were to put in you put Roto Rooter Las Vegas plumbing in your phone, you’d probably get four other plumbing companies that appear before our listing.

I mean, it’s it’s tough to deal. Our our big approach is how do we grow the business, without a dependence on Google. Easier to do on the commercial side, but we’re making headway on the residential side. But I know we’re over the time.

Joanna Gajuk, Analyst, BofA: Thank you so much. Thanks, Joanne.

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