Chemed Corporation (CHE): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at Chemed Corporation, and honestly, it's a tale of two very different battles playing out under one roof: the highly regulated, payer-dominated world of VITAS Healthcare and the fragmented, local grind of Roto-Rooter. As a long-time analyst, what jumps out immediately is the constant tug-of-war you see in the Five Forces-specifically, how Medicare's central control over reimbursement, like that 4.2% rate adjustment in Q2 2025, dictates VITAS's top-line power, while Roto-Rooter fights local price wars that squeeze margins down to that 22.7% Q3 2025 Adjusted EBITDA. We need to see if high supplier power from specialized labor and regulatory barriers against new entrants are enough to offset this intense rivalry and customer leverage, so dig into the full breakdown below to map out the real near-term risks.

Chemed Corporation (CHE) - Porter's Five Forces: Bargaining power of suppliers

When you look at Chemed Corporation (CHE), you are really looking at two distinct supplier landscapes: one for the highly specialized, labor-intensive hospice care provided by VITAS, and another for the equipment and services needed by Roto-Rooter.

For VITAS, the bargaining power of suppliers is heavily skewed toward labor suppliers-the licensed healthcare professionals. The national shortage of these professionals means they hold significant leverage, which directly pressures Chemed's cost of services. While Chemed reversed severe attrition with a hiring and retention program, that momentum came at a clear cost; for instance, higher staffing increased the average cost of sales for VITAS by an estimated $4.4 million in the fourth quarter of 2022 alone. This pressure continues into 2025, as the hospice industry struggles with wage hikes and competition from facilities offering larger compensation packages. To be fair, the FY 2025 Medicare payment rate update for hospices meeting quality reporting requirements was finalized at an aggregate increase of 2.9 percent, which many providers argue does not keep pace with inflationary labor expenses. Still, VITAS's Q3 2025 net revenue was $407.7 million, and its average revenue per patient day was $205.08, showing revenue growth is being fought for against rising labor inputs.

The leverage held by skilled labor extends to Roto-Rooter as well. The reliance on certified plumbers for specialized repair work gives that labor pool leverage, especially when combined with broader industry trends. The US plumbing industry revenue is estimated to reach $169.8 billion in 2025, and the level of competition within it is described as high and increasing. This competitive environment for services often translates to higher wage demands for skilled tradespeople.

Here's a quick look at how input cost pressures are reflected in the segment margins as of late 2025:

On the non-labor supply side, the power dynamic shifts. For VITAS, the bargaining power of its medical supply vendors is generally low. This is because medical supplies are often standardized, and the supplier base for items like basic consumables is fragmented. You don't see a single supplier dominating the market for gauze or standard IV bags, which helps keep input costs manageable relative to the overall cost structure.

Similarly, Roto-Rooter benefits from a broad supplier base for equipment and parts. The global plumbing components market size is projected at USD 67,561.37 Million in 2025, and the US segment of the broader plumbing industry is estimated at $169.8 billion in 2025. This scale and abundance of suppliers for pipes, fittings, and equipment definitely keeps input costs for physical goods relatively low for Roto-Rooter, especially when compared to the cost of specialized human capital.

The key takeaways regarding supplier power are:

• Labor suppliers (nurses) exert high bargaining power on VITAS.
• Skilled trade labor suppliers exert moderate to high power on Roto-Rooter.
• Medical/Plumbing parts suppliers exert low bargaining power due to fragmentation.

Finance: draft a sensitivity analysis on a 5 percent increase in average licensed nurse wages by Friday.

Chemed Corporation (CHE) - Porter's Five Forces: Bargaining power of customers

You're analyzing Chemed Corporation, and the customer power is split distinctly between its two main divisions. For VITAS Healthcare, the power dynamic is almost entirely dictated by a single, massive buyer: the U.S. government.

VITAS's revenue is heavily concentrated in government payers, primarily Medicare, which grants the payer extreme pricing power over the provider. This control is evident in the rate setting. For instance, the geographically weighted average Medicare reimbursement rate increase for VITAS in the second quarter of 2025 was approximately 4.2%, while the third quarter saw a similar increase of about 4.1%. These increases are centrally controlled by the Centers for Medicare & Medicaid Services (CMS), which finalized the FY 2025 hospice payment update percentage at 2.9% nationally, though Florida saw a 5.2% increase in its consolidated program reimbursement rate. The financial risk this concentration creates is quantified by the Medicare Cap limitation projections.

This regulatory environment means that for VITAS, the bargaining power of the customer-the government-is exceptionally high because there is no viable alternative payer for the majority of its patient base. If onboarding takes 14+ days, churn risk rises, but here, the risk is regulatory cap pressure.

Switching gears to Roto-Rooter, the customer power is fragmented but still present, especially for residential services. Roto-Rooter's residential customers have low switching costs; if a local plumber offers a better price for a routine service, the customer can easily call elsewhere. Still, service is often emergency-driven, which temporarily shifts power back to the provider who can respond fastest. Roto-Rooter's national brand recognition slightly mitigates the customer's ability to easily price shop for urgent needs, as the brand implies reliability. Roto-Rooter is currently the nation's leading provider of plumbing, drain cleaning services and water restoration, providing services to over 90% of the U.S. population.

We see the residential segment's performance reflecting this dynamic:

• Residential revenue in Q2 2025 was $156.4 million, up 0.9% YoY.
• Residential revenue in Q3 2025 was $150.9 million, up 3.4% YoY.
• Roto-Rooter's overall Q3 2025 revenue was $217.2 million.

Finance: draft 13-week cash view by Friday.

Chemed Corporation (CHE) - Porter's Five Forces: Competitive rivalry

The competitive rivalry Chemed Corporation faces is shaped by the distinct, yet equally challenging, dynamics within its hospice and plumbing service segments.

High fragmentation in both the hospice (VITAS) and plumbing (Roto-Rooter) markets creates intense local rivalry. The U.S. Plumbers industry is estimated to contain 132,000 businesses in 2025, which has grown at a compound annual growth rate (CAGR) of 2.1% between 2020 and 2025.

VITAS holds an estimated 7% to 8% market share in the U.S. hospice market, competing against large, consolidating rivals. The hospice sector saw robust mergers and acquisitions activity in the first quarter of 2025.

Roto-Rooter's Q3 2025 Adjusted EBITDA margin of 22.7% faces pressure from high SG&A costs, which totaled $60.7 million in that quarter, an increase of 6.3% compared to the third quarter of 2024. This margin represents a 351-basis point decline from the third quarter of 2024.

Low capital expenditure requirements for both segments allow many smaller, regional competitors to persist. Chemed Corp's Capital Expenditures amounted to -$59.2 million USD as of September 30, 2025, with a 10-year CAGR of -3%.

The rivalry intensity is further detailed by segment operational metrics:

Key competitive positioning data points include:

• VITAS Average Daily Census (ADC) was 22,327 in Q3 2025.
• VITAS Admissions in Q3 2025 totaled 17,714.
• Roto-Rooter residential revenue increased 3.4% in Q3 2025.
• Roto-Rooter drain cleaning revenue declined 2.6% in Q3 2025.

Chemed Corporation (CHE) - Porter's Five Forces: Threat of substitutes

When you look at Chemed Corporation, you're really looking at two distinct businesses: VITAS Healthcare and Roto-Rooter. The threat of substitutes for each operates on completely different economic and social drivers, so we need to look at the numbers for each segment separately.

VITAS Healthcare: Substitution by Curative or Extended Palliative Care

For VITAS, the primary substitute is the patient or family choosing aggressive curative care or opting for extended palliative care outside of a formal hospice setting. The market data suggests that once the decision for end-of-life care is made, the hospice model is dominant. The U.S. hospice market was estimated at $29.92 billion in 2024 and is projected to reach $31.21 billion in 2025. Furthermore, the entire sector is projected to grow at a 4.61% CAGR from 2025 to 2030. This growth implies that the trend is moving toward, not away from, formal hospice enrollment, limiting the pull of curative alternatives.

The structure of hospice care itself shows a strong commitment to the palliative model once entered. In 2024, the Routine Homecare (RHC) segment accounted for the largest revenue share at 92.98%. This high percentage reflects that the vast majority of hospice patients are receiving the core, comfort-focused service, which is the antithesis of aggressive curative treatment. VITAS's own Q3 2025 Net Patient Revenue hit $407.7 million, supported by an Average Daily Census (ADC) of 22,327 patients. These figures show a high volume of committed patients, suggesting that the substitute threat is contained to the initial decision point rather than a mid-course correction by a large number of patients.

Here's a quick look at the scale:

Roto-Rooter: Substitution by Local Plumbers and Handymen

Roto-Rooter competes in the massive U.S. plumbing services market, which was valued at an estimated $169.8 billion in 2025. The threat here comes from the sheer number of competitors; there are approximately 132,000 plumbing businesses in the United States. These independent operators and handymen often present a lower-cost alternative, especially for non-emergency or smaller jobs, by avoiding the overhead associated with a national brand like Roto-Rooter.

However, Roto-Rooter's Q3 2025 residential revenue was $150.9 million, which is a very small slice of the total market, suggesting that while the number of competitors is high, the market is fragmented enough that brand recognition and scale still matter. Furthermore, Roto-Rooter's revenue from independent contractors-its own form of outsourcing/substitution-declined by 4.7% in Q3 2025 compared to the prior year. This small decline in contractor revenue, set against the backdrop of the overall market's resilience, suggests that the low-cost substitutes may not be effectively stealing market share from the established brand at this time, though the price pressure definitely exists.

The threat is quantified by the competitive density:

• Total U.S. Plumbing Businesses (2025): ~132,000.
• U.S. Plumbing Market Size (2025): $169.8 billion.
• Roto-Rooter Q3 2025 Residential Revenue: $150.9 million.
• Roto-Rooter Contractor Revenue Decline (Q3 2025 vs. Prior Year): 4.7%.

Non-Discretionary Nature Limits Substitution

The fundamental nature of both services acts as a strong barrier against substitution from non-essential spending cuts. You can delay a new car, but you cannot delay end-of-life care or an emergency sewer backup. For VITAS, the demand is driven by demographic inevitability; the aging population means the need for hospice care is structurally increasing, regardless of minor economic fluctuations.

For Roto-Rooter, the demand is driven by necessity, particularly for emergency repairs. While homeowners pay an average of $90 per hour for plumbing services, these costs are typically incurred when a system fails, making the service non-discretionary. The plumbing industry's revenue has grown at a 3.2% CAGR over the past five years to reach the $169.8 billion estimate for 2025, showing resilience even through periods of economic uncertainty. This inherent non-discretionary quality means that while customers might choose a cheaper plumber, they are unlikely to substitute the service entirely with a DIY fix for major issues.

The recession-resistant nature is evident in the following:

• Hospice market growth is tied to the aging population, a long-term demographic certainty.
• Plumbing services are essential for maintaining critical infrastructure in homes and businesses.
• The plumbing industry saw revenue expand at a 3.2% CAGR over the five years leading up to 2025.

Chemed Corporation (CHE) - Porter\'s Five Forces: Threat of new entrants

You're assessing the barriers to entry for Chemed Corporation, and you see two very different pictures depending on whether you look at hospice or plumbing services. The threat of new entrants is significantly moderated by regulatory structures in healthcare and by the established scale and brand equity in services.

For the VITAS segment, high regulatory hurdles act as a major deterrent. New entrants face significant limitations, particularly from Certificate of Need (CON) laws in many states. To be fair, Chemed Corporation itself sees the value in this structure, noting that it likes CON states for expansion, as evidenced by VITAS receiving a CON to begin operating in Pinellas County, Florida, on June 20, 2025.

Roto-Rooter, on the other hand, faces a different dynamic. The entry barriers for small, single-truck plumbing operations are relatively low, meaning local competition can pop up easily. Still, these small players lack the national footprint and brand recognition that Chemed Corporation has built over decades.

Chemed Corporation's sheer scale and national brand power create a soft barrier to entry, especially for Roto-Rooter. Consider the financial heft available to support market presence; as of September 30, 2025, Chemed Corporation had $129.8 million in cash and cash equivalents. This scale allows for greater advertising spend to maintain brand dominance, a cost new entrants must match to gain traction.

The complexity of managing deep regulatory risks definitely deters smaller, less capitalized entrants. For instance, the estimated total Medicare Cap billing limitations for Chemed Corporation's VITAS subsidiary in calendar 2025 is $28.2 million. This figure is comprised of $19 million related to the Florida combined program and $9.2 million for all other VITAS programs. Managing this level of financial exposure, which was exacerbated by an estimated $25 million negative impact from the Florida rate differential in the 2025 government fiscal year, requires sophisticated compliance infrastructure that a startup simply won't possess.

Here's a quick look at the scale difference between Chemed Corporation's two primary operations as of Q3 2025:

The regulatory environment for VITAS specifically creates high capital and compliance barriers:

• CON laws restrict new facility licensing in key markets.
• Projected 2025 Medicare Cap limitation is $28.2 million total.
• Florida rate differential created a $25 million Cap calculation impact.
• VITAS secured a Florida CON in Pinellas County in June 2025.
• Six provider numbers had a trailing 12-month Cap billing limitation totaling $19.6 million as of Q1 2025.

For Roto-Rooter, the barrier is less about regulation and more about market saturation and brand recognition. While small competitors can start with minimal capital, they struggle against the established brand presence and the ability of Chemed Corporation to deploy capital across a vast network of company-owned branches and franchisees.