Chemed Corporation (‘Chemed’) provides hospice and palliative care services along with plumbing, drain cleaning, excavation, water restoration and other related services to its customers.
Chemed purchases, operates, and divests subsidiaries engaged in diverse business activities for the purpose of maximizing shareholder value. The company’s day-to-day operating businesses are managed on a decentralized basis. There are few integrated business functions between the operating units and Chemed, su...
Chemed Corporation (‘Chemed’) provides hospice and palliative care services along with plumbing, drain cleaning, excavation, water restoration and other related services to its customers.
Chemed purchases, operates, and divests subsidiaries engaged in diverse business activities for the purpose of maximizing shareholder value. The company’s day-to-day operating businesses are managed on a decentralized basis. There are few integrated business functions between the operating units and Chemed, such as sales, marketing, or purchasing.
Segments
During 2024, Chemed conducted its business operations in two segments: the VITAS segment (‘VITAS’) and the Roto-Rooter segment (‘Roto-Rooter’).
VITAS
VITAS provides hospice and palliative care services to its patients through a network of physicians, registered nurses, home health aides, social workers, clergy, and volunteers.
VITAS focuses on hospice care that helps make terminally ill patients' final days as comfortable as possible. Through its team of doctors, nurses, home health aides, social workers, clergy, and volunteers, VITAS provides direct medical services to patients, as well as spiritual and emotional counseling to both patients and their families.
Service revenue for VITAS is reported at the amount that reflects the ultimate consideration the company expects to receive in exchange for providing patient care. These amounts are due from third-party payors, primarily commercial health insurers and government programs (Medicare and Medicaid), and include variable consideration for revenue adjustments due to settlements of audits and reviews, as well as certain hospice-specific revenue capitations.
Hospice services are provided on a daily basis, and the type of service provided is determined based on a physician’s determination of each patient’s specific needs on that given day. Reimbursement rates for hospice services are on a per diem basis regardless of the type of service provided or the payor. Reimbursement rates from government programs are established by the appropriate governmental agency and are standard across all hospice providers. Reimbursement rates from health insurers are negotiated with each payor and are generally structured to closely mirror the Medicare reimbursement model. The types of hospice services provided and the associated reimbursement model for each are as follows:
Routine Home Care occurs when a patient receives hospice care in their home, including a nursing home setting. The routine home care rate is paid for each day that a patient is in a hospice program and is not receiving one of the other categories of hospice care. For Medicare patients, the routine home care rate reflects a two-tiered rate, with a higher rate for the first 60 days of a hospice patient’s care and a lower rate for days 61 and after. In addition, there is a Service Intensity Add-on payment that covers direct home care visits conducted by a registered nurse or social worker in the last seven days of a hospice patient’s life, reimbursed up to 4 hours per day in 15-minute increments at the continuous home care rate.
General Inpatient Care occurs when a patient requires services in a controlled setting for a short period of time for pain control or symptom management that cannot be managed in other settings. General inpatient care services must be provided in a Medicare or Medicaid certified hospital or long-term care facility, or at a freestanding inpatient hospice facility with the required registered nurse staffing.
Continuous Home Care is provided to patients while at home, including a nursing home setting, during periods of crisis when intensive monitoring and care, primarily nursing care, is required in order to achieve palliation or management of acute medical symptoms. Continuous home care requires a minimum of 8 hours of care within a 24-hour day, which begins at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed nurse practitioner.
Respite Care permits a hospice patient to receive services on an inpatient basis for a short period of time in order to provide relief for the patient’s family or other caregivers from the demands of caring for the patient.
Each level of care represents a separate promise under the contract of care and is provided independently for each patient contingent upon the patient’s specific medical needs as determined by a physician. The company has concluded that each level of care is capable of being distinct and is distinct in the context of the contract. VITAS recognizes revenue based on the service output. Revenue is recognized on a daily or hourly basis for each patient in accordance with the reimbursement model for each type of service. VITAS’ performance obligations relate to contracts with an expected duration of less than one year. Care is provided to patients regardless of their ability to pay. Patients who meet the company’s criteria for charity care are provided care without charge.
Medicare Cap: The company is also subject to a Medicare annual per-beneficiary cap (‘Medicare cap’). For VITAS’ patients in the nursing home setting in which Medicaid pays the nursing home room and board, VITAS serves as a pass-through between Medicaid and the nursing home. The company is responsible for paying the nursing home for that patient’s room and board. Medicaid reimburses the company for 95% of the amount it has paid.
Roto-Rooter
Roto-Rooter provides plumbing, drain cleaning, excavation, water restoration, and other related services to residential and commercial customers. Through its network of company-owned branches, Independent Contractors, and franchisees, Roto-Rooter offers plumbing, drain cleaning services, and water restoration to over 90% of the U.S. population.
Short-term Core Services are plumbing, drain, and sewer cleaning, as well as excavation services. These services are provided to both commercial and residential customers. The duration of services provided in this category ranges from a few hours to a few days.
Water Restoration Services involve the remediation of water and humidity after a flood. These services are provided to both commercial and residential customers. The duration of services provided in this category generally ranges from 3 to 5 days.
Roto-Rooter owns the rights to certain territories and contracts with independent third parties to operate the territory under Roto-Rooter’s registered trademarks (‘Independent Contractors’). Such contracts are for a specified term but can be canceled by either party without penalty with 90 days’ advance notice. Under the terms of these arrangements, Roto-Rooter provides certain back-office support and advertising, along with a limited license to use Roto-Rooter’s registered trademarks.
Independent Contractors pay Roto-Rooter a standard fee calculated as a percentage of their cash collection from weekly sales. The primary value for the Independent Contractors under these arrangements is the right to use Roto-Rooter’s registered trademarks. Roto-Rooter recognizes revenue from Independent Contractors over time (weekly) as the Independent Contractor’s labor sales are completed and payment from customers is received. Payment from Independent Contractors is also received on a weekly basis. The use of Roto-Rooter’s registered trademarks and advertising provides immediate value to the Independent Contractor as a result of Roto-Rooter’s nationally recognized brand. Therefore, over-time recognition provides the most faithful depiction of the transfer of services as the customer simultaneously receives and consumes the benefits provided.
Roto-Rooter has licensed the rights to operate under Roto-Rooter’s registered trademarks in other territories to franchisees. The contract is for a 10-year term but can be canceled by Roto-Rooter for cause with 60 days’ advance notice without penalty. The franchisee may cancel the contract for any reason with 60 days’ advance notice without penalty. Under the terms of the contract, Roto-Rooter provides national advertising and consultation on various aspects of operating a Roto-Rooter business, along with the right to use Roto-Rooter’s registered trademarks. The franchisee is responsible for all day-to-day management of the business, including staffing decisions, pricing of services provided, and local advertising spend and placement. All performance obligations of Roto-Rooter cease at the termination of the arrangement.
Patents, Service Marks, and Licenses
The Roto-Rooter trademarks and service marks have been used and advertised since 1935 by Roto-Rooter Corporation, a wholly owned indirect subsidiary of the company. The Roto-Rooter marks are among the most highly recognized trademarks and service marks in the United States.
‘VITAS’ and ‘Innovative Hospice Care’ are trademarks and service marks of VITAS Healthcare Corporation.
Seasonality
Roto-Rooter’s revenue and operating results are impacted by significant weather patterns across the United States. A significant portion of the company’s VITAS business is operated in the state of Florida. The vast majority of its patients are Medicare recipients. Medicare patients relocating to Florida during the winter months generally result in higher admissions and revenue for its Florida programs during that period.
Customer Concentration
Roto-Rooter’s business has a large and diverse customer base. Over 90% of VITAS’ revenue is from the United States government through the Medicare program.
Government Regulations
Roto-Rooter’s franchising activities are subject to various federal and state franchising laws and regulations, including the rules and regulations of the Federal Trade Commission (the ‘FTC’) regarding the offering or sale of franchises.
VITAS’ hospices are licensed as required under state law as either hospices or home health agencies, or both, depending on the regulatory requirements of each particular state. In addition, VITAS’ hospices are required to meet certain conditions of participation to be eligible to receive payments as hospices under Medicare and Medicaid programs. All of VITAS’ hospices, other than those currently in development, are certified for participation as hospices in the Medicare program and are also eligible to receive payments as hospices from the Medicaid program in each of the states in which VITAS operates. VITAS’ hospices are subject to periodic surveys by governmental authorities or private accrediting entities to assure compliance with state licensing, certification, and accreditation requirements.
VITAS is required under the Medicare conditions of participation and some state licensing laws to contract with numerous healthcare providers and practitioners, including physicians, hospitals, and nursing homes, and to arrange for these individuals or entities to provide services to VITAS’ patients.
VITAS is one of a group of hospice providers selected by the OIG’s Office of Audit Services (‘OAS’) for inclusion in an audit of the provision of elevated level-of-care hospice services to a sample of patients.
On October 30, 2017, the company entered into a settlement agreement to resolve civil litigation under the False Claims Act brought by the United States Department of Justice (‘DOJ’) on behalf of the OIG and various relators concerning VITAS, filed in the U.S. District Court of the Western District of Missouri. The company denied any violation of law and agreed to settlement without admission of wrongdoing.
VITAS and certain of its subsidiaries entered into a corporate integrity agreement (‘CIA’) on October 30, 2017.
Federal regulations issued under the Health Insurance Portability and Accountability Act of 1996 (‘HIPAA’) and the Health Information Technology for Electronic and Clinical Health Act (‘HITECH’) require VITAS to protect the privacy and security of patients’ individual health information and report any breaches.
Acquisitions
On March 11, 2024, Roto-Rooter completed the acquisition of one franchise in New Jersey.
On March 27, 2024, Roto-Rooter completed the acquisition of one franchise in Texas.
On August 20, 2024, Roto-Rooter completed the acquisition of one franchise in Kentucky.
On April 17, 2024, VITAS completed the purchase of all hospice operations and an assisted living facility from Covenant Health and Community Services, Inc d/b/a Covenant Care (‘Covenant’).
History
Chemed Corporation was incorporated in Delaware in 1970.