As it considers potential acquisitions, VITAS Healthcare is focused on large assets in certificate of need (CON) states.

VITAS is a subsidiary of Chemed Corp. (NYSE: CHE). The company this year made its return to the M&A market after a hiatus of several years. In April, VITAS acquired Covenant Health and Community Services’ hospice operations as well as one assisted living facility in an $85 million deal.

With that transaction under its belt, more are likely on the way, according to Mike Witzeman, vice president and CFO for Chemed.

“We are fairly optimistic on a pipeline of potential Covenant-size deals, but there are a few hurdles from an internal perspective that we would certainly want to keep in mind. First is we like CON states or states where there are restrictions on barriers of entry,” Witzeman said during a presentation at the UBS Healthcare Conference. “The second would then be locations that, generally speaking, have some size to them. That’s important, obviously, from a patient flow perspective, but also from a staffing perspective.”

The third major consideration is the price tag. The Covenant deal was sealed at a multiple of 6x to 8x EBITDA, and VITAS would “love to do more details at that level,” Witzeman indicated.

The Covenant transaction brought VITAS into the Alabama market and expanded its geographic footprint in Florida and marked the company’s entry into the assisted living space.

Covenant Health contributed close to $11 million to VITAS’ $391.4 million third quarter revenue, which is up 17.3% year over year. In addition to the acquisition, the company in Q3 saw a 15.5% increase in average daily census (ADC) reaching 21,785. Admissions also rose 6.3% to 16,775.

Admissions and ADC growth is spurred by increased clinical capacity, according to VITAS Chairman and CEO Nick Westfall. After implementing a temporary bonus program coupled with a community awareness initiative, VITAS has been successfully reinforcing its clinical ranks, meaning it can take on more patients. To date, the company has seen nine sequential quarters of census growth.

“Coming out of the pandemic and doing some things that really celebrated our culture and elevated that culture, we have been able to attract and retain more clinicians in our markets — some from our competitors, some that want to get out of a hospital setting and go into hospice,” Westfall said in the UBS presentation. “The demand [for hospice care] has always been there. The combination of those two things is what gives us the excitement around the growth trajectory, the predictability, and frankly, what we’re defining as our new normal expectation going forward from a volume standpoint.”