VITAS’ Acquisition Pipeline Likely Growing

VITAS Healthcare, a subsidiary of Chemed Corp. (NYSE: CHE), is gearing up for potential acquisitions.

The company recently completed its $85 million acquisition of Covenant Health and Community Services’ hospice operations and one assisted living facility location. This was VITAS’ first deal in several years, largely due to record-high valuations in the space, Chairman and CEO Nick Westfall told Hospice News in 2020.

Going forward, VITAS is targeting its home state of Florida and other Certificate of Need (CON) states for potential deals, Michael Witzeman, vice president, CFO and controller at Chemed said during the Bank of America Securities Health Care Conference.


“We certainly think that there’s a pipeline growing, and we have the resources on our balance sheet with cash and no debt to be able to really be a player in any of these,” Witzeman said. “We would like to be in states that have CON restrictions much more than an unrestricted state, but we certainly have the interesting inability when things come available to be able to jump on them.”

The Covenant deal was structured as an asset purchase, which allows the buyer to assume liability for assets included in the transaction. It also brings VITAS into the Alabama market and expands its geographic footprint in Florida. The transaction also marks VITAS’ entry into the assisted living space.

Covenant Health and Community Services Inc., d/b/a/ Covenant Care, provides hospice across six cities in the panhandle and northwest region of Florida and in three markets across southeast Alabama. The company has provided hospice, palliative care, home health and personal care for more than 36 years. The nonprofit provider operates a 32-bed assisted living facility in Pensacola, Florida.


VITAS indicated during a Q1 earnings call that it would bring 680 Covenant patients into their care, though Westfall said during the conference that the number may be higher. The company’s new Covenant assets will also serve as a springboard for future growth.

“That’s just live eligible patients transferring over. We think there’s ample opportunity to not only grow earlier access, particularly in the new markets, but even in the overlapping markets,” Westfall said. “There’s a combination, where we will also invest additional clinical resources to help enable our growth-oriented model associated with it.”

The hospice and palliative care provider offers care across 15 states and in the District of Columbia. The company began providing care in 1978 and now employs 10,763 care professionals.

VITAS’ net revenue reached $354 million in Q1, up 14% from the prior year’s period. A contributing factor to patient volume swells has been added clinical capacity, according to Westfall. The Covenant deal is expected to generate an additional, estimated $50 million in revenue, according to Witzeman.

For acquisition targets, the company is eying organizations that have been straining under financial headwinds and staffing pressures that could lead them to sell. VITAS executives believe their company has the resources to turn those operations around.

“Covenant, as well as other providers in our space, don’t always have that investment in those full-time dedicated admission nurses, and will rely on their case nurses to perform that response, who also have a caseload of active patients …” Westfall said. “We purposely separate that out so that we can help ensure a timely, immediate response to those referral sources. That’s led to outsized admission performance, days-of-care growth, and everything else that comes along with it.”

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