UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

þ		For the fiscal year ended December 31, 2008

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from                      to                     

CHEMED CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		31-0791746
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
2600 Chemed Center, 255 East Fifth Street, Cincinnati, Ohio (Address of principal executive offices)		45202-4726 (Zip Code)

(513) 762-6900
(Registrant’s Telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of each exchange on which registered
Capital Stock — Par Value $1 Per Share		New York Stock Exchange

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ      No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o      No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ      No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, if definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes Yes o      No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o      No þ

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the average bid and asked price of said stock on the New York Stock Exchange — Composite Transaction Listing on June 30, 2008 ($36.72 per share), was $817,562,942.

At February 16, 2009, 22,530,217 shares of Chemed Capital Stock (par value $1 per share) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document		Where Incorporated
2008 Annual Report to Stockholders (specified portions)		Parts I, II, and IV
Proxy Statement for Annual Meeting to be held May 18, 2009		Part III

 

 

CHEMED CORPORATION
2008 FORM 10-K ANNUAL REPORT

Table of Contents

PART I
Item 1. Business			1
Item 1A. Risk Factors			15
Item 1B. Unresolved Staff Comments			26
Item 2. Properties			26
Item 3. Legal Proceedings			26
Item 4. Submission of Matters to a Vote of Security Holders			27
Executive Officers of the Registrant			27
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			28
Item 6. Selected Financial Data			32
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			32
Item 8. Financial Statements and Supplementary Data			32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			32
Item 9A. Controls and Procedures			32
Item 9B. Other Information			33
PART III
Item 10. Directors, Executive Officers and Corporate Governance			33
Item 11. Executive Compensation			33
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			34
Item 13. Certain Relationships and Related Transactions and Director Independence			34
Item 14. Principle Accountant Fees and Services			34
PART IV
Item 15. Exhibits and Financial Statement Schedules			35
EX-12
EX-13
EX-21
EX-23
EX-24
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3

Item 1. Business

General

     The Company was incorporated in Delaware in 1970 as a subsidiary of W. R. Grace & Co. and succeeded to the business of W. R. Grace & Co.’s Specialty Products Group as of April 30, 1971 and remained a subsidiary of W. R. Grace & Co. until March 10, 1982. As used herein, “Company” refers to Chemed Corporation, and its subsidiaries and “Grace” refers to W. R. Grace & Co. and its subsidiaries.

     On March 10, 1982, the Company transferred to Dearborn Chemical Company, a wholly owned subsidiary of the Company, the business and assets of the Company’s Dearborn Group, including the stock of certain subsidiaries within the Dearborn Group, plus $185 million in cash, and Dearborn Chemical Company assumed the Dearborn Group’s liabilities. Thereafter, on March 10, 1982 the Company transferred all of the stock of Dearborn Chemical Company to Grace in exchange for 33,481,604 shares of the capital stock of the Company owned by Grace with the result that Grace no longer has any ownership interest in the Company.

     On December 31, 1986, the Company completed the sale of substantially all of the business and assets of Vestal Laboratories, Inc., a wholly owned subsidiary. The Company received cash payments aggregating approximately $67.4 million over the four-year period following the closing, the substantial portion of which was received on December 31, 1986.

     On April 2, 1991, the Company completed the sale of DuBois Chemicals, Inc. (“DuBois”), a wholly owned subsidiary, to the Diversey Corporation (“Diversey”), then a subsidiary of The Molson Companies Ltd. Under terms of the sale, Diversey agreed to pay the Company net cash payments aggregating $223.4 million, including deferred payments aggregating $32.4 million.

     On December 21, 1992, the Company acquired The Veratex Corporation and related businesses (“Veratex Group”) from Omnicare, Inc. The purchase price was $62.1 million in cash paid at closing, plus a post-closing payment of $1.5 million (paid in April 1993) based on the net assets of Veratex.

     Effective January 1, 1994, the Company acquired all the capital stock of Patient Care, Inc. (“Patient Care”), for cash payments aggregating $20.6 million, plus 35,000 shares of the Company’s Capital Stock. An additional cash payment of $1.0 million was made on March 31, 1996 and another payment of $1.0 million was made on March 31, 1997.

     In July 1995, the Company’s Omnia Group (formerly Veratex Group) completed the sale of the business and assets of its Veratex Retail division to Henry Schein, Inc. (“HSI”) for $10 million in cash plus a $4.1 million note for which payment was received in December 1995.

     Effective September 17, 1996 the Company completed a merger of a subsidiary of the Company, Chemed Acquisition Corp., and Roto-Rooter, Inc. pursuant to a Tender Offer commenced on August 8, 1996 to acquire any and all of the outstanding shares of Common Stock of Roto-Rooter, Inc. for $41.00 per share in cash.

     On September 24, 1997 the Company completed the sale of its wholly owned business comprising the Omnia Group to Banta Corporation for $50 million in cash and $2.3 million in deferred payments.

     Effective September 30,1997, the Company completed a merger between its 81-percent-owned subsidiary, National Sanitary Supply Company, and a wholly owned subsidiary of Unisource Worldwide, Inc. for $21.00 per share, with total payments of $138.3 million.

     Effective October 11, 2002, the Company sold its Patient Care subsidiary (“Patient Care”) to an investor group that included Schroder Ventures Life Sciences Group, Oak Investment Partners, Prospect Partners and Salix

Ventures. The cash proceeds to the Company totaled $57.5 million, of which $5.0 million was placed in escrow pending settlement of Patient Care’s receivables with third-party payers. Of this amount, $2.5 million was distributed as of October 2003, $1.7 million was distributed as of November 2004 and the remainder was distributed as of October 2006. In addition, the Company received a senior subordinated note receivable (“Note”) for $12.5 million and a common stock purchase warrant (“Warrant”) for 2% of the outstanding stock of the purchasing company. The Note was due October 11, 2007, and bore interest at the annual rate of 7.5% through September 30, 2004, 8.5% from October 1,2004, through September 30, 2005, and 9.5% thereafter. This sale was the subject of litigation which settled in October 2006. We agreed to forgive $1.2 million of post-closing balance sheet valuation adjustments and convert the remainder into debt secured by a $2.2 million promissory note with the same terms as the $12.5 million Note. As part of the settlement, we also recorded a pretax impairment charge of $1.4 million related to the Warrant. In December 2007 we amended the terms of both notes. We agreed to waive the prepayment penalties if Patient Care paid $5 million of principal on or before December 31, 2007 and the remainder on or before March 31, 2008, which it paid.

     Effective February 24, 2004, the Company completed a merger of its wholly owned indirect subsidiary, Marlin Merger Corp., and Vitas Healthcare Corporation. Under the terms of the merger agreement, Vitas stockholders received cash of $30.00 per share. The transaction, including the refinancing of existing Vitas debt and other payments made in connection with the merger, totaled approximately $415 million in cash. In order to complete the merger the Company sold four million shares of its Capital Stock in a private placement at a price of $25.00 per share, issued $110 million principal amount of floating rate senior secured notes due 2010 (“Floating Rate Notes”), issued $150 million principal amount of 8.75% Senior Notes due 2011 (“Fixed Rate Notes”), and entered into new $135 million senior secured credit facilities. These obligations were refinanced in 2005, 2006 and 2007.

     On December 22, 2004, the Board of Directors authorized the discontinuance of the operations of the Company’s Service America segment, through an asset sale to the employees of Service America. The acquiring corporation purchased a substantial majority of Service America’s assets in exchange for assuming substantially all of Service America’s liabilities in May 2005. Included in the assets acquired was a receivable from the Company for approximately $4.7 million. The Company paid $1 million of the receivable upon closing and the remainder was paid over the following year in 11 equal monthly installments.

     During 2008 the Company conducted its business operations in two segments: Vitas Group (“Vitas”) and the Roto-Rooter Group (“Roto-Rooter”).

Forward Looking Statements

     This Annual Report contains or incorporates by reference certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company intends such statements to be subject to the safe harbors created by that legislation. Such statements involve risks and uncertainties that could cause actual results of operations to differ materially from these forward looking statements.

Financial Information about Industry Segments

     The required segment and geographic data for the Company’s continuing operations (as described below) for three years ended December 31, 2006, 2007 and 2008 are shown in Note 4 of the Notes to Consolidated Financial Statements on pages 17-19 of the 2008 Annual Report to Stockholders and are incorporated herein by reference.

Description of Business by Segment

     The information called for by this item is included within Note 4 of the Notes to Consolidated Financial Statements appearing on pages 17-19 of the 2008 Annual Report to Stockholders is incorporated herein by reference.

Product and Market Development

     Each segment of the Company’s business engages in a continuing program for the development and marketing of new services and products. While new products and services and new market development are important factors for the growth of each active segment of the Company’s business, the Company does not expect that any new products and services or marketing effort, including those in the development stage, will require the investment of a material amount of the Company’s assets.

Raw Materials

     The principal raw materials needed for the Company’s manufacturing operations are purchased from United States sources. Product sales from goods manufactured by Roto-Rooter represent less than 3% of Chemed’s total service revenues and sales. No segment of the Company experienced any material raw material shortages during 2008, although such shortages may occur in the future. Products manufactured and sold by the Company’s Roto-Rooter segment generally may be reformulated to avoid the adverse impact of specific raw material shortage.

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. The Company considers the Roto-Rooter® marks to be a valuable asset and a significant factor in the marketing of Roto-Rooter’s franchises, products and services and the products and services provided by its franchises.

     “Vitas” and “Innovative Hospice Care” are trademarks and servicemarks of Vitas Healthcare Corporation. The Company and its subsidiaries also own certain trade secrets including training manuals, cost information, customer information and software source codes.

Competition

Roto-Rooter

     All aspects of the sewer, drain, and pipe cleaning and plumbing repair businesses are highly competitive. Competition is, however, fragmented in most markets with local and regional firms providing the primary competition. The principal methods of competition are advertising, range of services provided, name recognition, speed and quality of customer service, service guarantees, and pricing.

     No individual customer or market group is critical to the total sales of this segment.

Vitas

     Hospice care in the United States is competitive. Because programs for hospice services are generally uniform, Vitas competes primarily on the basis of its ability to deliver quality, responsive services. Vitas is the nation’s largest provider of hospice services in a market dominated by small, non-profit, community-based hospices. Approximately 50% of all hospices are not-for-profit. Because the hospice care market is highly fragmented, Vitas competes with a large number of organizations.

     Vitas also competes with a number of national and regional hospice providers, including Odyssey Healthcare, Inc., hospitals, nursing homes, home health agencies and other health care providers. Many providers offer home care to patients who are terminally ill, and some actively market palliative care and hospice-like programs. In addition, various health care companies have diversified into the hospice market. Some of these health care companies have greater financial resources than Vitas.

     Relatively few barriers to entry exist in the majority of markets served by Vitas. Accordingly, other companies that are not currently providing hospice care may enter these markets and expand the variety of services they offer to include hospice.

Research and Development

     The Company engages in a continuous program directed toward the development of new services, products and processes, the improvement of existing services, products and processes, and the development of new and different uses of existing products. The research and development expenditures from continuing operations have not been nor are they expected to be material.

Government Regulations

Roto-Rooter

     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. The rules and regulations of the FTC require that Roto-Rooter provide all the prospective franchises with specific information regarding the franchise program and Roto-Rooter in the form of a detailed franchise offering circular. In addition, a number of states require Roto-Rooter to register its franchise offering prior to offering or selling franchises in the state. Various state laws also provide for certain rights in favor of franchisees, including (i) limitations on the franchisor’s ability to terminate a franchise except for good cause, (ii) restrictions on the franchisor’s ability to deny renewal of a franchise, (iii) circumstances under which the franchisor may be required to purchase certain inventory of franchisees when a franchise is terminated or not renewed in violation of such laws, and (iv) provisions relating to arbitration. Roto-Rooter’s ability to engage in the plumbing repair business is also subject to certain limitations and restrictions imposed by state and local licensing laws and regulations.

Vitas

     General. The health care industry and Vitas’ hospice programs are subject to extensive federal and state regulation. 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 survey by governmental authorities or private accrediting entities to assure compliance with state licensing, certification and accreditation requirements, as the case may be.

     Medicare Conditions of Participation. Federal regulations require that a hospice program satisfy certain conditions of participation to be certified and receive Medicare payment for the services it provides. Failure to comply with the conditions of participation may result in sanctions, up to and including decertification from the Medicare program. See “Surveys and Audits” below.

The Medicare conditions of participation for hospice programs include the following:

     Governing Body. Each hospice must have a governing body that assumes full responsibility for the policies and the overall operation of the hospice and for ensuring that all services are provided in a manner consistent with accepted standards of practice. The governing body must designate one individual who is responsible for the day-to-day management of the hospice.

     Medical Director. Each hospice must have a medical director who is a physician and who assumes responsibility for overseeing the medical component of the hospice’s patient care program.

     Direct Provision of Core Services. Medicare limits those services for which the hospice may use individual independent contractors or contract agencies to provide care to patients. Specifically, substantially all nursing, social work, and counseling services must be provided directly by hospice employees meeting specific educational and professional standards. During periods of peak patient loads or under extraordinary circumstances, the hospice may be permitted to use contract workers, but the hospice must agree in writing to maintain professional, financial and administrative responsibility for the services provided by those individuals or entities.

     Professional Management of Non-Core Services. A hospice may arrange to have non-core services such as therapy services, home health aide services, medical supplies or drugs provided by a non-employee or outside entity. If the hospice elects to use an independent contractor to provide non-core services, however, the hospice must retain professional management responsibility for the arranged services and ensure that the services are furnished in a safe and effective manner by qualified personnel, and in accordance with the patient’s plan of care.

     Plan of Care. The patient’s attending physician, the medical director or the designated hospice physician, and interdisciplinary team must establish an individualized written plan of care prior to providing care to any hospice patient. The plan must assess the patient’s needs and identify services to be provided to meet those needs and must be reviewed and updated at specified intervals.

     Continuation of Care. A hospice may not discontinue or reduce care provided to a Medicare beneficiary if the individual becomes unable to pay for that care.

     Informed Consent. The hospice must obtain the informed consent of the hospice patient, or the patient’s legal representative, that specifies the type of care services that may be provided as hospice care.

     Training. A hospice must provide ongoing training for its employees.

     Quality Assurance. A hospice must conduct ongoing and comprehensive self-assessments of the quality and appropriateness of care it provides and that its contractors provide under arrangements to hospice patients.

     Interdisciplinary Team. A hospice must designate an interdisciplinary team to provide or supervise hospice care services. The interdisciplinary team develops and updates plans of care, and establishes policies governing the day-to-day provision of hospice services. The team must include at least a physician, registered nurse, social worker and spiritual or other counselor. A registered nurse must be designated to coordinate the plan of care.

     Volunteers. Hospice programs are required to recruit and train volunteers to provide patient care services or administrative services. Volunteer services must be provided in an amount equal to at least five percent of the total patient care hours provided by all paid hospice employees and contract staff.

     Licensure. Each hospice and all hospice personnel must be licensed, certified or registered in accordance with applicable federal, state and local laws and regulations.

     Central Clinical Records. Hospice programs must maintain clinical records for each hospice patient that are organized in such a way that they may be easily retrieved. The clinical records must be complete and accurate and protected against loss, destruction, and unauthorized use.

     Surveys and Audits. Hospice programs are subject to periodic survey by federal and state regulatory authorities and private accrediting entities to ensure compliance with applicable licensing and certification requirements and accreditation standards. Regulators conduct periodic surveys of hospice programs and provide reports containing statements of deficiencies for alleged failure to comply with various regulatory requirements. Survey reports and statements of deficiencies are common in the healthcare industry. In most cases, the hospice program and regulatory authorities will agree upon any steps to be taken to bring the hospice into compliance with applicable regulatory requirements. In some cases, however, a state or federal regulatory authority may take a number of adverse actions against a hospice program, including the imposition of fines, temporary suspension of admission of new patients to the hospice’s service or, in extreme circumstances, decertification from participation in the Medicare or Medicaid programs or revocation of the hospice’s license.

     From time to time Vitas receives survey reports containing statements of deficiencies. Vitas reviews such reports and takes appropriate corrective action. Vitas believes that its hospices are in material compliance with applicable licensure and certification requirements. If a Vitas hospice were found to be out of compliance and actions were taken against a Vitas hospice, they could materially adversely affect the hospice’s ability to continue to operate, to provide certain services and to participate in the Medicare and Medicaid programs, which could materially adversely affect Vitas.

     Billing Audits/ Claims Reviews. The Medicare program and its fiscal intermediaries and other payors periodically conduct pre-payment or post-payment reviews and other reviews and audits of health care claims, including hospice claims. There is pressure from state and federal governments and other payors to scrutinize health care claims to determine their validity and appropriateness. In order to conduct these reviews, the payor requests documentation from Vitas and then reviews that documentation to determine compliance with applicable rules and regulations, including the eligibility of patients to receive hospice benefits, the appropriateness of the care provided to those patients and the documentation of that care. During the past several years, Vitas’ claims have been subject to review and audit.

     Certificate of Need Laws and Other Restrictions. Some states, including Florida, have certificate of need or similar health planning laws that apply to hospice care providers. These states may require some form of state agency review or approval prior to opening a new hospice program, to adding or expanding hospice services, to undertaking significant capital expenditures or under other specified circumstances. Approval under these certificate of need laws is generally conditioned on the showing of a demonstrable need for services in the community. Vitas may seek to develop, acquire or expand hospice programs in states having certificate of need laws. To the extent that state agencies require Vitas to obtain a certificate of need or other similar approvals to expand services at existing hospice programs or to make acquisitions or develop hospice programs in new or existing geographic markets, Vitas’ plans could be adversely affected by a failure to obtain such certificate or approval. In addition, competitors may seek administratively or judicially to challenge such an approval or proposed approval by the state agency. Such a challenge, whether or not ultimately successful, could adversely affect Vitas.

     Limitations on For-Profit Ownership. A few states have laws that restrict the development and expansion of for-profit hospice programs. For example, in New York, a hospice generally cannot be owned by a corporation that has another corporation as a stockholder. These types of restrictions could affect Vitas’ ability to expand into New York, or in other jurisdictions with similar restrictions.

     Limits on the Acquisition or Conversion of Non-Profit Health Care Organizations. An increasing number of states have enacted laws that restrict the ability of for-profit entities to acquire or otherwise assume the operations of a non-profit health care provider. Some states may require government review, public hearings, and/or government approval of transactions in which a for-profit entity proposes to purchase certain non-profit healthcare organizations. Heightened scrutiny of these transactions may significantly increase the costs associated with future acquisitions of non-profit hospice programs in some states, otherwise increase the difficulty in completing those acquisitions or prevent them entirely. Vitas cannot assure that it will not encounter regulatory or governmental obstacles in connection with any proposed acquisition of non-profit hospice programs in the future.

     Professional Licensure and Participation Agreements. Many hospice employees are subject to federal and state laws and regulations governing the ethics and practice of their profession, including physicians, physical, speech and occupational therapists, social workers, home health aides, pharmacists and nurses. In addition, those professionals who are eligible to participate in the Medicare, Medicaid or other federal health care programs as individuals must not have been excluded from participation in those programs at any time.

     State Licensure of Hospice. Each of Vitas’ hospices must be licensed in the state in which it operates. State licensure rules and regulations require that Vitas’ hospices maintain certain standards and meet certain requirements, which may vary from state to state. Vitas believes that its hospices are in material compliance with applicable licensure requirements. If a Vitas hospice were found to be out of compliance and actions were taken against a Vitas hospice, they could materially adversely affect the hospice’s ability to continue to operate, to provide certain services and to participate in the Medicare and Medicaid programs, which could materially adversely affect Vitas.

     Overview of Government Payments—General. Over 90% of Vitas’ revenue consisted of payments from the Medicare and Medicaid programs. Such payments are made primarily on a “per diem” basis. Under the per diem reimbursement methodology, Vitas is essentially at risk for the cost of eligible services provided to hospice patients. Profitability is therefore largely dependent upon Vitas’ ability to manage the costs of providing hospice services to patients. Increases in operating costs, such as labor and supply costs that are subject to inflation and other increases, without a compensating increase in Medicare and Medicaid rates, could have a material adverse effect on Vitas’ business in the future. The Medicare and Medicaid programs are increasing pressure to control health care costs and to decrease or limit increases in reimbursement rates for health care services. As with most government programs, the Medicare and Medicaid programs are subject to statutory and regulatory changes, possible retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions, all of which may adversely affect the level of program payments and could have a material adverse effect on Vitas’ business. Vitas’ levels of revenues and profitability are subject to the effect of legislative and regulatory changes, including possible reductions in coverage or payment rates, or changes in methods of payment, by the Medicare and Medicaid programs.

Overview of Government Payments — Medicare

     Medicare Eligibility Criteria. To receive Medicare payment for hospice services, the hospice medical director and, if the patient has one, the patient’s attending physician, must certify that the patient has a life expectancy of six months or less if the illness runs its normal course. This determination is made based on the physician’s clinical judgement. Due to the uncertainty of such prognoses, however, it is likely and expected that some percentage of hospice patients will not die within six months of entering a hospice program. The Medicare program (among other third-party payers) recognizes that terminal illnesses often do not follow an entirely predictable course, and therefore the hospice benefit remains available to beneficiaries so long as the hospice physician or the patient’s attending physician continues to certify that the patient’s life expectancy remains six months or less. Specifically, the Medicare hospice benefit provides for two initial 90-day benefit periods followed by an unlimited number of 60-day periods. In order to qualify for hospice care, a Medicare beneficiary must elect hospice care and waive any right to other Medicare benefits related to his or her terminal illness. A Medicare beneficiary may revoke his or her election of the Medicare hospice benefit at any time and resume receiving regular

Medicare benefits. The patient may elect the hospice benefit again at a later date so long as he or she remains eligible. Increased regulatory scrutiny of compliance with the Medicare six-month eligibility rule has impacted the hospice industry. The Medicare program, however, has reaffirmed that Medicare hospice beneficiaries are not limited to six months of coverage and that there is no limit on how long a Medicare beneficiary can continue to receive hospice benefits and services, provided that the beneficiary continues to meet the eligibility criteria under the Medicare hospice program.

     Levels of Care. Medicare pays for hospice services on a prospective payment system basis under which Vitas receives an established payment rate for each day that it provides hospice services to a Medicare beneficiary. These rates are subject to annual adjustments for inflation and vary based upon the geographic location where the services are provided. The rate Vitas receives depends on which of the following four levels of care is being provided to the beneficiary:

Routine Home Care. 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. The routine home care rate does not vary based upon the volume or intensity of services provided by the hospice program.

General Inpatient Care. The general inpatient care rate is paid when a patient requires inpatient services for a short period for pain control or symptom management which 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. Continuous home care, which Vitas refers to as “Intensive Comfort Care”, is provided to patients while at home, 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 and ends at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed practical nurse. While the published Medicare continuous home care rates are daily rates, Medicare actually pays for continuous home care services on an hourly basis. This hourly rate is calculated by dividing the daily rate by 24.

Respite Care. 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. A hospice can receive payment for respite care for a given patient for up to five consecutive days at a time, after which respite care is reimbursed at the routine home care rate.

     Medicare Payment for Physician Services. Payment for direct patient care physician services delivered by hospice physicians is billed separately by the hospice to the Medicare intermediary and paid at the lesser of the actual charge or the Medicare allowable charge for these services. This payment is in addition to the daily rates Vitas receives for hospice care. Payment for hospice physicians’ administrative and general supervisory activities is included in the daily rates discussed above. Payments for attending physician professional services (other than services furnished by hospice physicians) are not paid to the hospice, but rather are paid directly to the attending physician by the Medicare intermediary. For fiscal 2008, 1.8% of Vitas’ net revenue was attributable to physician services.

     Medicare Limits on Hospice Care Payments. Medicare payments for hospice services are subject to two additional limits or “caps”. Each of Vitas’ hospice programs is separately subject to both of these “caps”. Both of these “caps” are determined on an annual basis for the period running from November 1 through October 31 of each year.

     First, under a Medicare rule known as the “80-20” rule applicable to the Medicare inpatient services, if the number of inpatient care days furnished by a hospice to Medicare beneficiaries exceeds 20% of the total days of

hospice care furnished by such hospice to Medicare beneficiaries, Medicare payments to the hospice for inpatient care days exceeding the cap are reduced to the routine home care rate. Vitas has never exceeded the inpatient cap.

     Second, Medicare payments to a hospice are also subject to a separate cap based on overall average payments per admission. Any payments exceeding this overall hospice cap must be refunded by the hospice. This cap was set at $22,386.15 per admission for the twelve-month period ended on October 31, 2008, and is adjusted annually to account for inflation. Vitas’ hospices may be subject to future payment reductions or recoupments as the result of this cap. As of December 31, 2008 we recorded no cap liability for 2008. We recorded a cap liability of $235,000 for one program for the 2009 measurement period.

     Medicare Managed Care Programs. The Medicare program has entered into contracts with managed care companies to provide managed care benefits to Medicare beneficiaries who elect to participate in managed care programs. These managed care programs are commonly referred to as Medicare HMOs, Medicare + Choice or Medicare risk products. Vitas provides hospice care to Medicare beneficiaries who participate in these managed care programs, and Vitas is paid for services provided to these beneficiaries in the same way and at the same rates as those of other Medicare beneficiaries who are not in a Medicare managed care program. Under current Medicare policy, Medicare pays the hospice directly for services provided to these managed care program participants and then reduces the standard per-member, per-month payment that the managed care program otherwise receives.

Overview of Government Payments — Medicaid

     Medicaid Coverage and Reimbursements. State Medicaid programs are another source of Vitas’ net patient revenue. Medicaid is a state-administered program financed by state funds and matching federal funds to provide medical assistance to the indigent and certain other eligible persons. In 1986, hospice services became an optional state Medicaid benefit. For those states that elect to provide a hospice benefit, the Medicaid program is required to pay the hospice at rates at least equal to the rates provided under Medicare and calculated using the same methodology. States maintain flexibility to establish their own hospice election procedures and to limit the number and duration of benefit periods for which they will pay for hospice services. Reimbursement from state Medicaid programs in 2008 accounted for 5% of Vitas’ revenues.

     Nursing Home Residents. For Vitas’ patients who receive nursing home care under a state Medicaid program and who elect hospice care under Medicare or Medicaid, Vitas contracts with nursing homes for the nursing homes’ provision of room and board services. In addition to the applicable Medicare or Medicaid hospice daily or hourly rate, the state generally must pay Vitas an amount equal to at least 95% of the Medicaid daily nursing home rate for room and board services furnished to the patient by the nursing home. Under Vitas’ standard nursing home contracts, Vitas pays the nursing home for these room and board services at the Medicaid daily nursing home rate.

     Adjustments to Medicare and Medicaid Payment Rates. Payment rates under the Medicare and Medicaid programs are adjusted annually based upon the Hospital Market Basket Index; however, the adjustments have historically been less than actual inflation. On October 1, 2005 the base rates increased by 3.4%. On October 1, 2006 the base rates increased by 3.4%. On October 1, 2007, the base rates increased by 3.3%. On October 1, 2008 the base rates increased by 2.5%. These base rates are further modified by the Hospice Wage Index to reflect local differences in wages according to the revised wage index. It is possible that there will be further modifications to the rate structure under which the Medicare or Medicaid programs pay for hospice care services. Any future reductions in the rate of increase in Medicare and Medicaid payments may have an adverse impact on Vitas’ net patient service revenue and profitability.

Other Healthcare Regulations

     Federal and State Anti-Kickback Laws and Safe Harbor Provisions. The federal Anti-Kickback Law makes it a felony to knowingly and willingly offer, pay, solicit or receive any form of remuneration in exchange for referring, recommending, arranging, purchasing, leasing or ordering items or services covered by a federal health care program including Medicare or Medicaid. The Anti-Kickback Law applies regardless of whether the remuneration is provided directly or indirectly, in cash or in kind. Although the Anti-Kickback statute does not prohibit all financial transactions or relationships that providers of healthcare items or services may have with each other, interpretations of the law have been very broad. Under current law, courts and federal regulatory authorities have stated that this law is violated if even one purpose (as opposed to the sole or primary purpose) of the arrangement is to induce referrals.

     Violations of the Anti-Kickback Law carry potentially severe penalties including imprisonment of up to five years, criminal fines of up to $25,000 per act, civil money penalties of up to $50,000 per act, and additional damages of up to three times the amounts claimed or remuneration offered or paid. Federal law also authorizes exclusion from the Medicare and Medicaid programs for violations of the Anti-Kickback Law.

     The Anti-Kickback Law contains several statutory exceptions to the broad prohibition. In addition, Congress authorized the Office of Inspector General (“OIG”) to publish numerous “safe harbors” that exempt some practices from enforcement action under the Anti-Kickback Law and related laws. These statutory exceptions and regulatory safe harbors protect various bona fide employment relationships, contracts for the rental of space or equipment, personal service arrangements, and management contracts, among other things, provided that certain conditions set forth in the statute or regulations are satisfied. The safe harbor regulations, however, do not comprehensively describe all lawful relationships between healthcare providers and referral sources, and the failure of an arrangement to satisfy all of the requirements of a particular safe harbor does not mean that the arrangement is unlawful. Failure to comply with the safe harbor provisions, however, may mean that the arrangement will be subject to scrutiny.

     Many states, including states where Vitas does business, have adopted similar prohibitions against payments that are intended to induce referrals of patients, regardless of the source of payment. Some of these state laws lack explicit “safe harbors” that may be available under federal law. Sanctions under these state anti-kickback laws may include civil money penalties, license suspension or revocation, exclusion from the Medicare or Medicaid programs, and criminal fines or imprisonment. Little precedent exists regarding the interpretation or enforcement of these statutes.

     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. In addition, Vitas has contracts with other suppliers, including pharmacies, ambulance services and medical equipment companies. Some of these individuals or entities may refer, or be in a position to refer, patients to Vitas, and Vitas may refer, or be in a position to refer, patients to these individuals or entities. These arrangements may not qualify for a safe harbor. Vitas from time to time seeks guidance from regulatory counsel as to the changing and evolving interpretations and the potential applicability of these anti-kickback laws to its programs, and in response thereto, takes such actions as it deems appropriate. The Company generally believes that Vitas’ contracts and arrangements with providers, practitioners and suppliers do not violate applicable anti-kickback laws. However, the Company cannot assure that such laws will ultimately be interpreted in a manner consistent with Vitas’ practices.

     HIPAA Anti-Fraud Provisions. HIPAA includes several revisions to existing health care fraud laws by permitting the imposition of civil monetary penalties in cases involving violations of the anti-kickback statute or contracting with excluded providers. In addition, HIPAA created new statutes making it a federal felony to engage in fraud, theft, embezzlement, or the making of false statements with respect to healthcare benefit programs, which include private, as well as government programs. In addition, federal enforcement officials have the ability to

exclude from the Medicare and Medicaid programs any investors, officers and managing employees associated with business entities that have committed healthcare fraud, even if the investor, officer or employee had no actual knowledge of the fraud.

     OIG Fraud Alerts, Advisory Opinions and Other Program Guidance. In 1976, Congress established the OIG to, among other things, identify and eliminate fraud, abuse and waste in HHS programs. To identify and resolve such problems, the OIG conducts audits, investigations and inspections across the country and issues public pronouncements identifying practices that may be subject to heightened scrutiny. In the last several years, there have been a number of hospice related audits and reviews conducted. These reviews and recommendations have included:

	•		Better ensuring that Medicare hospice eligibility determinations are made in accordance with the Medicare regulations; and
	•		Revising the annual cap on hospice benefits to better reflect the cost of care provided.

     From time to time, various federal and state agencies, such as HHS and the OIG, issue a variety of pronouncements, including fraud alerts, the OIG’s Annual Work Plan and other reports, identifying practices that may be subject to heightened governmental scrutiny. The Company cannot predict what, if any, changes may be implemented in coverage, reimbursement, or enforcement policies as a result of these OIG reviews and recommendations.

     On April 7, 2005 the Company announced the Office of Inspector General (“OIG”) for the Department of Health and Human Services served Vitas with civil subpoenas relating to Vitas’ alleged failure to appropriately bill Medicare and Medicaid for hospice services. As part of this investigation, the OIG selected medical records for 320 past and current patients from Vitas’ three largest programs for review. It also sought policies and procedures dating back to 1998 covering admissions, certifications, recertifications, and discharges. During the third quarter of 2005 and again in May 2006, the OIG requested additional information of the Company. The court dismissed a related qui tam complaint filed in U.S. District Court for the Southern District of Florida with prejudice in July 2007. The plaintiffs appealed this dismissal, which the Court of Appeals affirmed. The government continues to investigate the complaint’s allegations.

     Federal False Claims Acts. The federal law includes several criminal and civil false claims provisions, which provide that knowingly submitting claims for items or services that were not provided as represented may result in the imposition of multiple damages, administrative civil money penalties, criminal fines, imprisonment, and/or exclusion from participation in federally funded healthcare programs, including Medicare and Medicaid. In addition, the OIG may impose extensive and costly corporate integrity requirements upon a healthcare provider that is the subject of a false claims judgement or settlement. These requirements may include the creation of a formal compliance program, the appointment of a government monitor, and the imposition of annual reporting requirements and audits conducted by an independent review organization to monitor compliance with the terms of the agreement and relevant laws and regulations.

     The Civil False Claims Act prohibits the known filing of a false claim or the known use of false statements to obtain payments. Penalties for violations include fines ranging from $5,500 to $11,000, plus treble damages, for each claim filed. Provisions in the Civil False Claims Act also permit individuals to bring actions against individuals or businesses in the name of the government as so called “qui tam” relators. If a qui tam relator’s claim is successful, he or she is entitled to share the government’s recovery.

     Both direct enforcement activity by the government and qui tam actions have increased significantly in recent years and have increased the risk that a healthcare company may have to defend a false claims action, pay fines or be excluded from the Medicare and/or Medicaid programs as a result of an investigation arising out of this

type of an action. Because of the complexity of the government regulations applicable to the healthcare industry, the Company cannot assure that Vitas will not be the subject of other actions under the False Claims Act.

     State False Claims Laws. At least 10 states and the District of Columbia, including states in which Vitas currently operates, have adopted state false claims laws that mirror to some degree the federal false claims laws. While these statutes vary in scope and effect, the penalties for violating these false claims laws include administrative, civil and/or criminal fines and penalties, imprisonment, and the imposition of multiple damages.

     The Stark Law and State Physician Self-Referral Laws. Section 1877 of the Social Security Act, commonly known as the “Stark Law”, prohibits physicians from referring Medicare or Medicaid patients for “designated health services” to entities in which they hold an ownership or investment interest or with whom they have a compensation arrangement, subject to a number of statutory and regulatory exceptions. Penalties for violating the Stark Law are severe and include:

	•		Denial of payment;
	•		Civil monetary penalties of $15,000 per referral or $1,000,000 for “circumvention schemes;”
	•		Assessments equal to 200% of the dollar value of each such service provided; and
	•		Exclusion from the Medicare and Medicaid programs.

     Hospice care itself is not specifically listed as a designated health service; however, certain services that Vitas provides, or in the future may provide, are among the services identified as designated health services for purposes of the self-referral laws. The Company cannot assure that future regulatory changes will not result in hospice services becoming subject to the Stark Law’s ownership, investment or compensation prohibitions in the future.

     Many states where Vitas operates have laws similar to the Stark Law, but with broader effect because they apply regardless of the source of payment for care. Penalties similar to those listed above as well as the loss of state licensure may be imposed in the event of a violation of these state self-referral laws. Little precedent exists regarding the interpretation or enforcement of these statutes.

     Civil Monetary Penalties. The Civil Monetary Penalties Statute provides that civil penalties ranging between $10,000 and $50,000 per claim or act may be imposed on any person or entity that knowingly submits improperly filed claims for federal health benefits or that offers or makes payment to induce a beneficiary or provider to reduce or limit the use of health care services or to use a particular provider or supplier. Civil monetary penalties may be imposed for violations of the anti-kickback statute and for the failure to return known overpayments, among other things.

     Prohibition on Employing or Contracting with Excluded Providers. The Social Security Act and federal regulations state that individuals or entities that have been convicted of a criminal offense related to the delivery of an item or service under Medicare or Medicaid programs or that have been convicted, under state and federal law, of a criminal offense relating to neglect or abuse of residents in connection with the delivery of a healthcare item or service cannot participate in any federal health care programs, including Medicare and Medicaid. Additionally, individuals and entities convicted of fraud, that have had their licenses revoked or suspended, or that have failed to provide services of adequate quality also may be excluded from the Medicare and Medicaid programs. Federal regulations prohibit Medicare providers, including hospice programs, from submitting claims for items or services or their related costs if an excluded provider furnished those items or services. The OIG maintains a list of excluded persons and entities. Nonetheless, it is possible that Vitas might unknowingly bill for services provided by an excluded person or entity with whom it contracts. The penalty for contracting with an excluded provider may range

from civil monetary penalties of $50,000 and damages of up to three times the amount of payment that was inappropriately received.

     Corporate Practice of Medicine and Fee Splitting. Most states have laws that restrict or prohibit anyone other than a licensed physician, including business entities such as corporations, from employing physicians and/or prohibit payments or fee-splitting arrangements between physicians and corporations or unlicensed individuals. Penalties for violations of corporate practice of medicine and fee-splitting laws vary from state to state, but may include civil or criminal penalties, the restructuring or termination of the business arrangements between the physician and unlicensed individual or business entity, or even the loss of the physician’s license to practice medicine. These laws vary widely from state to state both in scope and origin (e.g. statute, regulation, Attorney General opinion, court ruling, agency policy) and in most instances have been subject to only limited interpretation by the courts or regulatory bodies.

     Vitas employs or contracts with physicians to provide medical direction and patient care services to its patients. Vitas has made efforts in those states where certain contracting or fee arrangements are restricted or prohibited to structure those arrangements in compliance with the applicable laws and regulations. Despite these efforts, however, the Company cannot assure that agency officials charged with enforcing these laws will not interpret Vitas’ contracts with employed or independent contractor physicians as violating the relevant laws or regulations. Future determinations or interpretations by individual states with corporate practice of medicine or fee splitting restrictions may force Vitas to restructure its arrangements with physicians in those locations.

     Health Information Practices. There currently are numerous legislative and regulatory initiatives at both the state and federal levels that address patient privacy concerns. In particular, federal regulations issued under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) require Vitas to protect the privacy and security of patients’ individual health information. HIPAA does not automatically preempt applicable state laws and regulations concerning Vitas’ use, disclosure and maintenance of patient health information, which means that Vitas is subject to a complex regulatory scheme that, in many instances, requires Vitas to comply with both federal and state laws and regulations.

     In August 2000, HHS published final regulations establishing health care transaction standards, and code sets for the electronic transmission of health care information in connection with certain transactions, such as billing or health plan eligibility (the “Transactions Standard”). The official deadline for compliance with the Transactions Standards for covered entities such as Vitas was October 16, 2003. The Centers for Medicare and Medicaid Services (“CMS”) is the division of HHS that is responsible for interpreting and enforcing the Transactions Standard. Failure to comply with the Transactions Standard may subject covered entities, including Vitas, to civil monetary penalties and possibly to criminal penalties. Vitas believes that it has made significant and appropriate good faith efforts to comply with the Transactions Standard and to develop an appropriate contingency plan as encouraged by CMS. It is unclear, however, how CMS will regulate providers in general or Vitas in particular with respect to compliance with the Transactions Standard. Consequently, it also is unclear whether Vitas would be found to be in material compliance with the Transactions Standard if CMS were to review Vitas’ electronic claims submissions and assess Vitas’ electronic transactions, or whether Vitas would be required to expend substantial sums on acquiring and implementing new information systems, or would otherwise be affected in a manner that would negatively impact its profitability.

     Additional Federal and State Regulation. Federal and state governments also regulate various aspects of the hospice industry. In particular, Vitas’ operations are subject to federal and state health regulatory laws covering professional services, the dispensing of drugs and certain types of hospice activities. Some of Vitas’ employees are subject to state laws and regulations governing the ethics and professional practice of medicine, respiratory therapy, pharmacy and nursing.

     Compliance with Health Regulatory Laws. Vitas maintains an internal regulatory compliance review program and from time to time retains regulatory counsel for guidance on compliance matters. The Company

cannot assure, however, that Vitas’ practices, if reviewed, would be found to be in compliance with applicable health regulatory laws, as such laws ultimately may be interpreted, or that any non-compliance with such laws would not have a material adverse effect on Vitas.

Environmental Matters

     Roto-Rooter’s operations are subject to various federal, state, and local laws and regulations regarding environmental matters and other aspects of the operation of a sewer and drain cleaning, HVAC and plumbing services business. For certain other activities, such as septic tank and grease trap pumping, Roto-Rooter is subject to state and local environmental health and sanitation regulations.

     At December 31, 2008, the Company’s accrual for its estimated liability for potential environmental cleanup and related costs arising from the sale of DuBois Chemicals Inc. (“DuBois”) amounted to $1.7 million. Of this balance, $900,000 is included in other liabilities and $800,000 is included in other current liabilities. The Company is contingently liable for additional DuBois-related environmental cleanup and related costs up to a maximum of $14.9 million. On the basis of a continuing evaluation of the Company’s potential liability, and in consultation with the Company’s environmental attorney, management believes that it is not probable this additional liability will be paid. Accordingly, no provision for this contingent liability has been recorded. Although it is not presently possible to reliably project the timing of payments related to the Company’s potential liability for environmental costs, management believes that any adjustments to its recorded liability will not materially adversely affect its financial position or results of operations.

     The Company, to the best of its knowledge, is currently in compliance in all material respects with the environmental laws and regulations affecting its operations. Such environmental laws, regulations and enforcement proceedings have not required the Company to make material increases in or modifications to its capital expenditures and they have not had a material adverse effect on sales or net income. Capital expenditures for the purpose of complying with environmental laws and regulations during 2009 and 2010 with respect to continuing operations are not expected to be material in amount; there can be no assurance, however, that presently unforeseen legislative enforcement actions will not require additional expenditures.

Seasonality

     Advertising costs for Roto-Rooter inordinately impact the Company’s fourth-quarter results. Roto-Rooter recognizes telephone directory costs immediately upon distribution of a directory by its publisher into the community. Since a large number of directories are distributed in the fourth quarter, this direct expense accounting policy results in fourth-quarter earnings including a disproportionately large share of Roto-Rooter’s full-year telephone directory advertising expense. In the fourth quarter 2008, Roto-Rooter expensed $7.4 million of total advertising costs that represented 31% of its aggregate advertising costs for the full-year 2008.

Employees

     On December 31, 2008, Chemed Corporation had a total of 11,884 employees.

Available Information

     The Company’s Internet address is www.chemed.com . The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are electronically available through the SEC (http://www.sec.gov) or the Company’s website as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC.

     Annual reports, press releases, Board Committee charters, Code of Ethics, Corporate governance guidelines and other printed materials may be obtained from the website or from Chemed Investor Relations without charge by writing to 2600 Chemed Center, 255 East Fifth Street, Cincinnati, Ohio 45202 or by calling 800-2CHEMED or 513-762-6429.

Item 1A. Risk Factors

     You should carefully consider the risks described below. They are not the only ones facing the Company. Other risks and uncertainties not currently known to us or that we deem to be immaterial may also materially and adversely affect our business, financial condition, or results of operations.

GENERAL

     We have incurred debt to finance the operations of the Company. We reduced our outstanding debt by $15 million in 2008.

     The Company has debt service obligations that may restrict our operating flexibility. We cannot assure you that our cash flow from operations will be sufficient to service our debt, which may require us to borrow additional funds, or restructure or otherwise refinance our debt. In addition, the Company has the ability to expand its debt and borrowing capacity subject to various restrictions and covenants defined by its creditors. The interest rate the Company pays will fluctuate from time to time based upon a number of factors including current LIBOR rates and Company operating performance. Significant changes in these factors could result in a material change in the Company’s interest expense.

     Our indebtedness could have important consequences for our business. Among other things, our indebtedness may:

	•		Limit our ability to obtain additional financing;
	•		Limit our flexibility in planning for, or reacting to, changes in the markets in which we compete;
	•		Place us at a competitive disadvantage relative to our competitors with less indebtedness;
	•		Increase our exposure to interest rate increases due to variable interest rates on certain borrowings;
	•		Limit our ability to complete future acquisitions;
	•		Limit our ability to make capital expenditures;
	•		Render us more vulnerable to general adverse economic and industry conditions; and
	•		Require us to dedicate a substantial portion of our cash flow to service and repay our debt.

     Servicing our indebtedness will require a significant amount of cash, and our ability to generate cash depends on many factors beyond our control.

     Our ability to repay or to refinance our indebtedness and to pay interest on our indebtedness will depend on our operating performance, which may be affected by factors beyond our control. These factors could include operating difficulties, increased operating costs, our competitors’ actions and regulatory developments. Our ability to meet our debt service and other obligations may depend in significant part on the extent to which we successfully

implement our business strategy. We cannot assure you that we will be able to implement our strategy fully or that the anticipated results of our strategy will be realized. Current credit market conditions may make it difficult for us to obtain new financing or refinance our current debt on terms and conditions acceptable to us.

     If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional equity capital or restructure our debt. We cannot assure you that our cash flows and capital resources will be sufficient to make scheduled payments of principal and interest on our indebtedness in the future or that alternative measures would successfully meet our debt service obligations.

     As certain of our obligations under our credit facilities and certain other borrowings could bear interest at floating rates, an increase in interest rates could further increase our debt service costs and adversely affect our cash flows.

     We have debt that is convertible into shares based on the Company’s stock price. This could significantly dilute the ownership percentage of current stockholders.

The agreements and instruments governing our outstanding debt contain restrictions and limitations that could significantly impact our ability to operate our business and adversely affect the price of our Capital Stock.

     The operating and financial restrictions and covenants in our instruments of indebtedness restrict our ability to:

	•		Incur additional debt;
	•		Pay dividends, make redemptions and purchases of Capital Stock and make other restricted payments;
	•		Issue and sell capital stock of subsidiaries;
	•		Sell assets;
	•		Engage in transactions with affiliates;
	•		Restrict distributions from subsidiaries;
	•		Incur liens;
	•		Engage in business other than permitted businesses;
	•		Engage in sale/leaseback transactions;
	•		Engage in mergers or consolidations;
	•		Make capital expenditures;
	•		Make guarantees;
	•		Make investments and acquisitions;

	•		Enter into operating leases;
	•		Hedge interest rates; and
	•		Prepay other debt.

     Moreover, if we are unable to meet the terms of the financial covenants or if we breach any of these covenants, a default could result under one or more of these agreements. A default, if not waived by our lenders, could accelerate repayment of our outstanding indebtedness. If acceleration occurs, we may not be able to repay our debt and it is unlikely that we would be able to borrow sufficient additional funds to refinance such debt on acceptable terms. In the event of any default under our credit facilities, the lenders thereunder could elect to declare all outstanding borrowings, together with accrued and unpaid interest and other fees, to be due and payable, and to require us to apply all of our available cash to repay these borrowings, any of which would be an event of default.

We depend on our management team and the loss of their service could have a material adverse effect on our business, financial condition and results of operations.

     Our success depends to a large extent upon the continued services of our executive management team. The loss of key personnel could have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, we cannot assure you that we will be able to attract or retain other skilled personnel in the future.

Environmental compliance costs and liabilities could increase our expenses and adversely affect our financial condition.

     Our operations are subject to numerous environmental, health and safety laws and regulations that prohibit or restrict the discharge of pollutants into the environment and regulate employee exposure to hazardous substance in the workplace. Failure to comply with these laws could subject us to material costs and liabilities, including civil and criminal fines, costs to cleanup contamination we cause and, in some circumstances, costs to cleanup contamination we discover on our own property but did not cause.

     Because we use and generate hazardous materials in some of our operations, we are potentially subject to material liabilities relating to the cleanup of contamination and personal injury claims. In addition, we have retained certain environmental liabilities in connection with the sale of former businesses. We are currently funding the cleanup of historical contamination at one of our former properties and contributing to the cleanup of third-party sites as a result of our sale of our former subsidiary DuBois Chemicals Inc. Although we have established a reserve for these liabilities, actual cleanup costs may exceed our current estimates due to factors beyond our control, such as the discovery of additional contamination or the enforcement of more stringent cleanup requirements. New laws and regulations or their stricter enforcement, the discovery of presently unknown conditions or the receipt of additional claims for indemnification could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition and results of operations.

We are subject to certain anti-takeover statutes that might make it more difficult to effect a change in control of the Company.

     We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 could have the effect of delaying or preventing a change of control that could be advantageous to stockholders.

An adverse ruling against us in certain litigation could have an adverse effect on our financial condition and results of operations.

     We are involved in litigation incidental to the conduct of our business currently and from time to time. The damages claimed against us in some of these cases are substantial.

     See the “Legal Proceedings” sections of this 10-K for discussion of particular matters.

     We cannot assure you that we will prevail in pending cases. Regardless of the outcome, such litigation is costly to manage, investigate and defend, and the related defense costs, diversion of management’s time and related publicity may adversely affect the conduct of our business and the results of our operations.

ROTO-ROOTER

We face intense competition from numerous, fragmented competitors. If we do not compete effectively, our business may suffer.

     We face intense competition from numerous competitors, many of whom have less leverage than we do. The sewer, drain and pipe cleaning, and plumbing repair businesses are highly fragmented, with the bulk of the industries consisting of local and regional competitors. We compete primarily on the basis of advertising, range of services provided, name recognition, speed and quality of customer service, service guarantees and pricing. Our competitors may succeed in developing new or enhanced products and services more successful than ours and in marketing and selling existing and new products and services better than we do. In addition, new competitors may emerge. We cannot make any assurances that we will continue to be able to compete successfully with any of these companies.

Our operations are subject to numerous laws and regulations, exposing us to potential claims and compliance costs that could adversely affect our business.

     We are subject to federal, state and local laws and regulations relating to franchising, insurance and other aspects of our business. These are discussed in greater detail under “Government Regulations” in the Description of Business section hereof. If we fail to comply with existing or future laws and regulations, we may be subject to governmental or judicial fines and sanctions. Our 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. The rules and regulations of the FTC require us to provide all of our prospective franchisees with specific information regarding us and our franchise program in the form of a detailed franchise offering circular. In addition, a number of states require us to register our franchise offering prior to offering or selling franchises in such states. Various state laws also provide for certain rights in favor of franchisees, including (i) limitations on the franchisor’s ability to terminate a franchise except for good cause, (ii) restrictions on the franchisor’s ability to deny renewal of a franchise, (iii) circumstances under which the franchisor may be required to purchase certain inventory of franchisees when a franchise is terminated or not renewed in violation of such laws and (iv) provisions relating to arbitration. The ability to engage in the plumbing repair business is also subject to certain limitations and restrictions imposed by the state and local licensing laws and regulations. We cannot predict what legislation or regulations affecting our business will be enacted in the future, how existing or future laws or regulations will be enforced, administered and interpreted, or the amount of future expenditures that may be required to comply with these laws or regulations. Compliance costs associated with governmental regulations could have a material adverse effect on our business, financial condition and results of operations.

VITAS

Vitas is highly dependent on payments from Medicare and Medicaid. If there are changes in the rate or methods governing these payments, Vitas’ net patient service revenue and profits could materially decline.

     In excess of 90% of Vitas’ net patient service revenue consists of payments from the Medicare and Medicaid programs. Such payments are made primarily on a “per diem” basis, subject to annual reimbursement caps. Because Vitas receives a per diem fee to provide eligible services to all patients, Vitas’ profitability is largely dependent upon its ability to manage the costs of providing hospice services to patients. Increases in operating costs, such as labor and supply costs that are subject to inflation, without a compensating increase in Medicare and Medicaid rates, could have a material adverse effect on Vitas’ business in the future. Medicare and Medicaid currently adjust the various hospice payment rates annually based on the increase or decrease of the hospital wage index basket, regionally adjusted. However, the increases may be less than actual inflation. Vitas’ profitability could be negatively impacted if this adjustment were eliminated or reduced, or if Vitas’ costs of providing hospice services increased more than the annual adjustment. In addition, cost pressures resulting from shorter patient lengths of stay and the use of more expensive forms of palliative care, including drugs and drug delivery systems, could negatively impact Vitas’ profitability. Many payors are increasing pressure to control health care costs. In addition, both public and private payors are increasing pressure to decrease, or limit increases in, reimbursement rates for health care services. Vitas’ levels of revenue and profitability will be subject to the effect of possible reductions in coverage or payment rates by third-party payors, including payment rates from Medicare and Medicaid.

     Each state that maintains a Medicaid program has the option to provide reimbursement for hospice services at reimbursement rates generally required to be at least as much as Medicare rates. All states in which Vitas operates cover Medicaid hospice services; however, we cannot assure you that the states in which Vitas is presently operating or states into which Vitas could expand operations will continue to cover Medicaid hospice services. In addition, the Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions, all of which may adversely affect the level of program payments and could have a material adverse effect on Vitas’ business. We cannot assure that Medicare and/or Medicaid payments to hospices will not decrease. Reductions in amounts paid by government programs for services or changes in methods or regulations governing payments could cause Vitas’ net patient service revenue and profits to materially decline.

Approximately one-third of Vitas’ hospice patients reside in nursing homes. Changes in the laws and regulations regarding payments for hospice services and “room and board” provided to Vitas’ hospice patients residing in nursing homes could reduce its net patient service revenue and profitability.

     For Vitas’ hospice patients receiving nursing home care under certain state Medicaid programs who elect hospice care under Medicare and Medicaid, the state generally must pay Vitas, in addition to the applicable Medicare or Medicaid hospice per diem rate, an amount equal to at least 95% of the Medicaid per diem nursing home rate for “room and board” furnished to the patient by the nursing home. Vitas contracts with various nursing homes for the nursing homes’ provision of certain “room and board” services that the nursing homes would otherwise provide Medicaid nursing home patients. Vitas bills and collects from the applicable state Medicaid program an amount equal to approximately 95% of the amount that would otherwise have been paid directly to the nursing home under the state’s Medicaid plan. Under Vitas’ standard nursing home contracts, it pays the nursing home for these “room and board” services at approximately 100% of the Medicaid per diem nursing home rate.

     The reduction or elimination of Medicare and Medicaid payments for hospice patients residing in nursing homes would reduce Vitas’ net patient service revenue and profitability. In addition, changes in the way nursing homes are reimbursed for “room and board” services provided to hospice patients residing in nursing homes could effect Vitas’ ability to serve patients in nursing homes.

If Vitas is unable to maintain relationships with existing patient referral sources or to establish new referral sources, Vitas’ growth and profitability could be adversely affected.

     Vitas’ success is heavily dependent on referrals from physicians, long-term care facilities, hospitals and other institutional health care providers, managed care companies, insurance companies and other patient referral sources in the communities that its hospice locations serve, as well as on its ability to maintain good relations with these referral sources. Vitas’ referral sources may refer their patients to other hospice care providers or not to a hospice provider at all. Vitas’ growth and profitability depend significantly on its ability to establish and maintain close working relationships with these patient referral sources and to increase awareness and acceptance of hospice care by its referral sources and their patients. We cannot assure you that Vitas will be able to maintain its existing relationships or that it will be able to develop and maintain new relationships in existing or new markets. Vitas’ loss of existing relationships or its failure to develop new relationships could adversely affect its ability to expand or maintain its operations and operate profitably. Moreover, we cannot assure you that awareness or acceptance of hospice care will increase or remain at current levels.

Vitas operates in an industry that is subject to extensive government regulation and claims reviews, and changes in law and regulatory interpretations could reduce its net patient service revenue and profitability and adversely affect its financial condition and results of operations.

     The healthcare industry is subject to extensive federal, state and local laws, rules and regulations relating to, among others:

	•		Payment for services;
	•		Conduct of operations, including fraud and abuse, anti-kickback prohibitions, self-referral prohibitions and false claims;
	•		Privacy and security of medical records;
	•		Employment practices; and
	•		Various state approval requirements, such as facility and professional licensure, certificate of need, compliance surveys and other certification or recertification requirements.

     Changes in these laws, rules and regulations or in interpretations thereof could reduce Vitas’ net patient service revenue and profitability. Vitas’ ability to comply with such regulations is a key factor in determining the success of its business. See the “Government Regulations” section of this 10-K for a greater description of these matters.

     Fraud and Abuse Laws. Vitas contracts with a significant number of health care providers and practitioners, including physicians, hospitals and nursing homes and arranges for these entities to provide services to Vitas’ patients. Some of these health care providers and practitioners may refer, or be in a position to refer, patients to Vitas (or Vitas may refer patients to them). These arrangements may not qualify for a safe harbor. Vitas from time to time seeks guidance from regulatory counsel as to the changing and evolving interpretations and the potential applicability of the Anti-Kickback Law to its programs, and in response thereto, takes such actions as it deems appropriate. Vitas generally believes that its contracts and arrangements with providers, practitioners and suppliers should not be found to violate the Anti-Kickback Law. However, we cannot assure you that such laws will ultimately be interpreted in a manner consistent with Vitas’ practices.

     Several health care reform proposals have included an expansion of the Anti-Kickback Law to include referrals of any patients regardless of payor source, which is similar to the scope of certain laws that have been enacted at the state level. In addition, a number of states in which Vitas operates have laws, which vary from state

to state, prohibiting certain direct or indirect remuneration or fee-splitting arrangements between health care providers, regardless of payor source, for the referral of patients to a particular provider.

     The federal Ethics in Patient Referral Act, Section 1877 of the Social Security Act (commonly known as the “Stark Law”) prohibits physicians from referring Medicare or Medicaid patients for “designated health services” to entities in which they hold an ownership or investment interest or with whom they have a compensation arrangement, subject to certain statutory or regulatory exceptions. We cannot assure you that future statutory or regulatory changes will not result in hospice services being subject to the Stark Law’s ownership, investment, compensation or referral prohibitions. Several states in which Vitas operates have similar laws which likewise are subject to change. Any such changes could adversely affect the business, financial condition and operating results of Vitas.

     Further, under separate statutes, submission of claims for items or services that are “not provided as claimed” may lead to civil money penalties, criminal fines and imprisonment and/or exclusion from participation in Medicare, Medicaid and other federally funded state health care programs. These false claims statutes include the federal False Claims Act, which allows any person to bring suit on behalf of the federal government, known as a qui tam action, alleging false or fraudulent Medicare or Medicaid claims or other violations of the statute and to share in any amounts paid by the entity to the government in fines or settlement. See the discussion of the governmental investigation pending against Vitas under Other Healthcare Regulations, above.

     Certificate of Need Laws. Many states, including Florida, have certificate of need laws or other similar health planning laws that apply to hospice care providers. These states may require some form of state agency review or approval prior to opening a new hospice program, to adding or expanding hospice services, to undertaking significant capital expenditures or under other specified circumstances. Approval under these certificate of need laws is generally conditioned on the showing of a demonstrable need for services in the community. Vitas may seek to develop, acquire or expand hospice programs in states having certificate of need laws. To the extent that state agencies require Vitas to obtain a certificate of need or other similar approvals to expand services at existing hospice programs or to make acquisitions or develop hospice programs in new or existing geographical markets, Vitas’ plans could be adversely affected by a failure to obtain a certificate or approval. In addition, competitors may seek administratively or judicially to challenge such an approval or proposed approval by the state agency. Such a challenge, whether or not ultimately successful, could adversely affect Vitas.

     Other Federal and State Regulations. The federal government and all states regulate various aspects of the hospice industry and Vitas’ business. In particular, Vitas’ operations are subject to federal and state health regulatory laws, including those covering professional services, the dispensing of drugs and certain types of hospice activities. Certain of Vitas’ employees are subject to state laws and regulations governing professional practice. Vitas’ operations are subject to periodic survey by governmental authorities and private accrediting entities to assure compliance with applicable state licensing, and Medicare and Medicaid certification and accreditation standards, as the case may be. From time to time in the ordinary course of business, Vitas receives survey reports noting deficiencies for alleged failure to comply with applicable requirements. Vitas reviews such reports and takes appropriate corrective action. The failure to effect such action could result in one of Vitas’ hospice programs being terminated from the Medicare hospice program. Any termination of one or more of Vitas’ hospice locations from the Medicare hospice program could adversely affect Vitas’ net patient service revenue and profitability and adversely affect its financial condition and results of operations. The failure to obtain, renew or maintain any of the required regulatory approvals, certifications or licenses could materially adversely affect Vitas’ business and could prevent the programs involved from offering products and services to patients. In addition, laws and regulations often are adopted to regulate new products, services and industries. We cannot assure you that either the states or the federal government will not impose additional regulations on Vitas’ activities, which might materially adversely affect Vitas.

     Claims Review. The Medicare and Medicaid programs and their fiscal intermediaries and other payors periodically conduct pre-payment or post-payment reviews and other reviews and audits of health care claims,

including hospice claims. As a result of such reviews or audits, Vitas could be required to return any amounts found to be overpaid, or amounts found to be overpaid could be recouped through reductions in future payments. There is pressure from state and federal governments and other payors to scrutinize health care claims to determine their validity and appropriateness. During the past several years, Vitas’ claims have been subject to review and audit. We cannot assure you that reviews and/or similar audits of Vitas’ claims will not result in material recoupments, denials or other actions that could have a material adverse effect on Vitas’ business, financial condition and results of operations. See the discussion of OIG investigation pending against Vitas under Other Health Care Regulations, above.

     Regulation and Provision of Continuous Home Care. Vitas provides continuous home care to patients requiring such care. Continuous home care is provided to patients while at home, 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 and ends at midnight. The care must be predominantly nursing care provided by either a registered nurse or licensed practical nurse.

     Continuous home care can be challenging for a hospice to provide for a number of reasons, including the need to have available sufficient skilled and trained staff to furnish such care, the need to manage the staffing and provision of such care, and a shortage of nurses that can make it particularly difficult to attract and retain nurses that are required to furnish a majority of such care. Medicare reimbursement for continuous home care has been calculated by multiplying the applicable continuous home care hourly rate by the number of hours of care provided. If the care was provided for less than one hour, Medicare regulations allowed for rounding to the next hour increment. Effective January 1, 2007, Medicare requires reporting in 15-minute increments of care provided, with no rounding.

     Medicare reimbursement for continuous home care is subject to a number of requirements posing further challenges for a hospice providing such care. For example, if a patient requires skilled interventions for palliation or symptom management that can be accomplished in less than 8 aggregate hours within the 24-hour period, if the majority of care can be accomplished by someone other than a registered nurse or a licensed practical nurse (e.g., if a majority of care is furnished by a home health aide or homemaker), or if for any reason less than 8 hours of direct care are provided (such as when a patient dies before 8 AM even if 7 or more hours of care has been provided), the care rendered cannot be reimbursed by Medicare at the continuous home care rate (although the care instead may be eligible for Medicare reimbursement at the reduced routine home care day rate). As a result of such requirements, Vitas may incur the costs of providing services intended to be continuous home care services yet be unable to bill or be reimbursed for such services at the continuous home care rate. We cannot assure you that challenges in providing continuous home care will not cause Vitas’ net patient service revenue and profits to materially decline or that reviews and/or similar audits of Vitas’ claims will not result in material recoupments, denials or other actions that could have a material adverse effect on Vitas’ business, financial condition and results of operations.

     Compliance. Vitas maintains an internal regulatory compliance review program and from time to time retains regulatory counsel for guidance on compliance matters. We cannot assure you, however, that Vitas’ practices, if reviewed, would be found to be in compliance with applicable health regulatory laws, as such laws ultimately may be interpreted, or that any non-compliance with such laws would not have a material adverse effect on Vitas.

Federal and state legislative and regulatory initiatives relating to patient privacy could require Vitas to expend substantial sums on acquiring, implementing and supporting new information systems, which could negatively impact its profitability.

     There are currently numerous legislative and regulatory initiatives at both the state and federal levels that address patient privacy concerns. In particular, regulations issued under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) require Vitas to protect the privacy and security of patients’ individual

health information. We cannot predict the total financial or other impact of the regulations on Vitas’ operations. In addition, although Vitas’ management believes it is in compliance with the requirement of patient privacy regulations, we cannot assure you that Vitas will not be found to have violated state and federal laws, rules or guidelines surrounding patient privacy. Compliance with current and future HIPAA requirements or any other federal or state privacy initiatives could require Vitas to make substantial investments, which could negatively impact its profitability and cash flows.

Vitas’ growth strategies may not be successful, which could adversely affect its business.

     A significant element of Vitas’ growth strategy is expected to include expansion of its business in new and existing markets. This aspect of Vitas’ growth strategy may not be successful, which could adversely impact its growth and profitability. We cannot assure you that Vitas will be able to:

	•		Identify markets that meet its selection criteria for new hospice locations;
	•		Hire and retain qualified management teams to operate each of its new hospice locations;
	•		Manage a large and geographically diverse group of hospice locations;
	•		Become Medicare and Medicaid certified in new markets;
	•		Generate sufficient hospice admissions in new markets to operate profitably in these new markets;
	•		Compete effectively with existing hospices in new markets; or
	•		Obtain state licensure and/or a certificate of need from appropriate state agencies in new markets.

     In addition to growing existing locations and developing new hospice locations, Vitas’ growth is expected to include expansion through acquisition of other hospices. We cannot assure you that Vitas’ acquisition strategy will be successful. The success of Vitas’ acquisition strategy depends upon a number of factors, including:

	•		Its ability to identify suitable acquisition candidates;
	•		Its ability to negotiate favorable acquisition terms, including purchase price, which may be adversely affected due to increased competition with other buyers;
	•		The availability of financing on favorable terms, or at all;
	•		Its ability to integrate effectively the systems and operations of acquired hospices;
	•		Its ability to retain key personnel of acquired hospices; and
	•		Its ability to obtain required regulatory approvals.

     Acquisitions involve a number of other risks, including diversion of management’s attention from other business concerns and assuming known or unknown liabilities of acquired hospices, including liabilities for failure to comply with health care laws and regulations. Integrating acquired hospices may place significant strains on Vitas’ current operating and financial systems and controls. Vitas may not successfully overcome these risks or any other problems encountered in connection with its acquisition strategy.

     In addition, since 1990, Vitas has acquired hospice programs, some of which involved acquisitions of hospice programs from not-for-profit entities. Vitas believes that acquisitions of not-for-profit programs are generally more complex than acquisitions from for-profit entities and that a substantial number of acquisition opportunities are likely to involve acquisitions from not-for-profit entities. Such acquisitions are subject to provisions of the Internal Revenue Code and, in certain states, state attorney general powers, which have been interpreted to require that the consideration paid for the assets purchased be at fair market value and, where applicable, that any fees paid for services be reasonable. In many states there is no mechanism for state attorney general pre-clearance of transactions to assure that applicable standards have been met. Entities that acquired not-for-profit hospices could face potential liability if the acquisition transaction is not structured to comply with Internal Revenue Code and state law requirements, and in some cases the transaction could be enjoined or subject to rescission. The acquisition of not-for-profit businesses, including the fairness of the purchase price paid, has received increasing regulatory scrutiny by state attorneys general and other regulatory authorities. Although Vitas believes that reasonable actions have been taken to date to establish the fair market value of assets purchased in prior acquisitions of hospice operations from not-for-profit entities and the reasonableness of fees paid for services, we cannot assure you that such transactions or any future similar transactions will not be challenged or that, if challenged, the results of such challenge would not have a material adverse effect on Vitas’ business.

Vitas’ loss of key management personnel or its inability to hire and retain skilled employees could adversely affect its business, financial condition and results of operations.

     Vitas’ future success significantly depends upon the continued service of its senior management personnel. The loss of one or more of Vitas’ key senior management personnel or its inability to hire and retain new skilled employees could negatively impact Vitas’ ability to maintain or increase patient referrals, a key aspect of its growth strategy, and could adversely affect its future operating results.

     Competition for skilled employees is intense, and the process of locating and recruiting skilled employees with the combination of qualifications and attributes required to care effectively for terminally ill patients and their families can be difficult and lengthy. We cannot assure you that Vitas will be successful in attracting, retaining or training highly skilled nursing, management, community education, operations, admissions and other personnel. Vitas’ business could be disrupted and its growth and profitability negatively impacted if it is unable to attract and retain skilled employees.

A nationwide shortage of qualified nurses could adversely affect Vitas’ profitability, growth and ability to continue to provide quality, responsive hospice services to its patients as nursing wages and benefits increase.

     The substantial majority of Vitas’ workforce is nurses. Vitas depends on qualified nurses to provide quality, responsive hospice services to its patients. The current nationwide shortage of qualified nurses impacts some of the markets in which Vitas provides hospice services. In response to this shortage, Vitas has adjusted its wages and benefits to recruit and retain nurses and to engage contract nurses. Vitas’ inability to attract and retain qualified nurses could adversely affect its ability to provide quality, responsive hospice services to its patients and its ability to increase or maintain patient census in those markets. Increases in the wages and benefits required to attract and retain qualified nurses or an increase in reliance on contract nurses could negatively impact profitability.

Vitas may not be able to compete successfully against other hospice providers, and competitive pressures may limit its ability to maintain or increase its market position and adversely affect its profitability, financial condition and results of operations.

     Hospice care in the United States is highly competitive. In many areas in which Vitas’ hospices are located, they compete with a large number of organizations, including:

	•		Community-based hospice providers;
	•		National and regional companies;

	•		Hospital-based hospice and palliative care programs;
	•		Physician groups;
	•		Nursing homes;
	•		Home health agencies;
	•		Infusion therapy companies; and
	•		Nursing agencies.

     Various health care companies have diversified into the hospice market. Other companies, including hospitals and health care organizations that are not currently providing hospice care, may enter the markets Vitas serves and expand the variety of services offered to include hospice care. We cannot assure you that Vitas will not encounter increased competition in the future that could limit its ability to maintain or increase its market position, including competition from parties in a position to impact referrals to Vitas. Such increased competition could have a material adverse effect on Vitas’ business, financial condition and results of operations.

Changes in rates or methods of payment for Vitas’ services could adversely affect its revenues and profits.

     Managed care organizations have grown substantially in terms of the percentage of the population they cover and their control over an increasing portion of the health care economy. Managed care organizations have continued to consolidate to enhance their ability to influence the delivery of health care services and to exert pressure to control health care costs. Vitas has a number of contractual arrangements with managed care organizations and other similar parties.

     Vitas provides hospice care to many Medicare beneficiaries who receive their non-hospice health care services from health maintenance organizations (“HMOs”) under Medicare risk contracts. Under such contracts between HMOs and the federal Department of Health and Human Services, the Medicare payments for hospice services are excluded from the per-member, per-month payment from Medicare to HMOs and instead are paid directly by Medicare to the hospices. As a result, Vitas’ payments for Medicare beneficiaries enrolled in Medicare risk HMOs are processed in the same way with the same rates as other Medicare beneficiaries. We cannot assure, however, that payment for hospice services will continue to be excluded from HMO payment under Medicare risk contracts and similar Medicare managed care plans or that if not excluded, managed care organization or other large third-party payors would not use their power to influence and exert pressure on health care providers to reduce costs in a manner that could have a material adverse effect on Vitas’ business, financial condition and results of operations.

Liability claims may have an adverse effect on Vitas, and its insurance coverage may be inadequate.

     Participants in the hospice industry are subject to lawsuits alleging negligence, product liability or other similar legal theories, many of which involve large claims and significant defense costs. From time to time, Vitas is subject to such and other types of lawsuits. See the description below under Legal Proceedings. The ultimate liability for claims, if any, could have a material adverse effect on its financial condition or operating results. Although Vitas currently maintains liability insurance intended to cover the claims, we cannot assure you that the coverage limits of such insurance policies will be adequate or that all such claims will be covered by the insurance. In addition, Vitas’ insurance policies must be renewed annually and may be subject to cancellation during the policy period. While Vitas has been able to obtain liability insurance in the past, such insurance varies in cost, is difficult to obtain and may not be available in the future on terms acceptable to Vitas, if at all.

     A successful claim in excess of the insurance coverage could have a material adverse effect on Vitas. Claims, regardless of their merit or eventual outcome, also may have a material adverse effect on Vitas’ business and reputation due to the costs of litigation, diversion of management’s time and related publicity.

     Vitas procures professional liability coverage on a claims-made basis. The insurance contracts specify that coverage is available only during the term of each insurance contract. Vitas’ management intends to renew or replace the existing claims-made policy annually but such coverage is difficult to obtain, may be subject to cancellation and may be written by carriers that are unable, or unwilling to pay claims. During fiscal 2001, Vitas was notified that one of its prior carriers was ordered into rehabilitation, and in early fiscal 2002, into liquidation, creating the possibility that certain prior year claims could be underinsured or uninsured. Certain claims have been asserted where the coverage would be the responsibility of this prior carrier and/or other carriers that may not have the financial wherewithal to satisfy the claims. Additionally, some risks and liabilities, including claims for punitive damages, are not covered by insurance.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     The Company’s corporate offices and the headquarters for the Roto-Rooter Group are located in Cincinnati, Ohio. Roto-Rooter has manufacturing and distribution center facilities in West Des Moines, Iowa and has 75 office and service facilities in 27 states. Vitas, headquartered in Miami, operates 45 programs from 94 leased facilities in 15 states and the District of Columbia.

     All “owned” property is held in fee and is subject to the security interests of the holders of our debt instruments. The leased properties have lease terms ranging from one year to nine years. Management does not foresee any difficulty in renewing or replacing the remainder of its current leases. The Company considers all of its major operating properties to be maintained in good operating condition and to be generally adequate for present and anticipated needs.

Item 3. Legal Proceedings

     Like other large California employers, Vitas faces allegations of purported class-wide wage and hour violations. Vitas Healthcare Corporation was party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in April of 2004 by Ann Marie Costa, Ana Jimenez, Mariea Ruteaya and Gracetta Wilson (“Costa”). It alleged failure to pay overtime wages for hours worked “off the clock” on administrative tasks, including voicemail retrieval, time entry, travel to and from work, and pager response. It also alleged Vitas failed to provide meal and break periods to a purported class of California nurses, home health aides and licensed clinical social workers. The case also sought payment of penalties, interest, and plaintiffs’ attorney fees. The Company contested these allegations. Plaintiffs moved for class certification, and Vitas opposed this motion. We reached an agreement with the Plaintiff class in order to avoid the uncertainty of litigation and the diversion of resources and personnel resulting from it. On June 26, 2006, the court granted final approval of this settlement ($19.9 million).

     Vitas is party to a class action lawsuit filed in the Superior Court of California, Los Angeles County, in September 2006 by Bernadette Santos, Keith Knoche and Joyce White (“Santos”). This case, filed by the Costa case plaintiffs’ counsel, makes similar allegations of failure to pay overtime and failure to provide meal and rest periods to a purported class of California admissions nurses, chaplains and sales representatives. The case likewise seeks payment of penalties, interest and plaintiffs’ attorney fees. Vitas contests these allegations. The lawsuit is in its early stage and we are unable to estimate our potential liability, if any, with respect to these allegations.

     Regardless of outcome, such litigation can adversely affect the Company through defense costs, diversion of management’s time, and related publicity. In the normal course of business, we are a party to various claims and legal proceedings. We record a reserve for these matters when an adverse outcome is probable and the amount of the potential liability is reasonably estimable.

     See also the OIG investigation pending against Vitas under Other Health Care Regulations, above.

Item 4. Submission of Matters to a Vote of Security Holders.

     None.

Executive Officers of the Company

Name		Age				Office		First Elected
Kevin J. McNamara			55			President and Chief Executive Officer		August 2, 1994 (1)
Timothy S. O’Toole			53			Executive Vice President		May 18, 1992 (2)
Spencer S. Lee			53			Executive Vice President		May 15, 2000 (3)
David P. Williams			48			Executive Vice President and Chief Financial Officer		March 5, 2004 (4)
Arthur V. Tucker, Jr.			59			Vice President and Controller		February 1, 1989 (5)

     Each executive officer holds office until the annual election at the next annual organizational meeting of the Board of Directors of the Company which is scheduled to be held on May 18, 2009.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     The Company’s Capital Stock (par value $1 per share) is traded on the New York Stock Exchange under the symbol CHE. The range of the high and low sale prices on the New York Stock Exchange and dividends paid per share for each quarter of 2007 and 2008 are set forth below.

		Closing								Dividends Paid
		High				Low				Per Share
2007
First Quarter		$	49.65			$	35.75			$	.06
Second Quarter			68.77				49.00				.06
Third Quarter			70.53				52.93				.06
Fourth Quarter			64.87				52.92				.06
2008
First Quarter		$	55.88			$	41.65			$	.06
Second Quarter			44.00				32.75				.06
Third Quarter			47.00				36.51				.06
Fourth Quarter			45.09				32.04				.06

     Future dividends are necessarily dependent upon the Company’s earnings and financial condition, compliance with certain debt covenants and other factors not presently determinable.

     As of February 16, 2009, there were approximately 2,744 stockholders of record of the Company’s Capital Stock. This number only includes stockholders of record and does not include stockholders with shares beneficially held in nominee name or within clearinghouse positions of brokers, banks or other institutions.

     During 2008, the number of shares of Capital Stock repurchased by the Company, the weighted average price paid for each share, the cumulative shares repurchased under each program and the dollar amounts remaining under each program were as follows:

Company Purchase of Shares of Capital Stock

						Weighted				Cumulative				Dollar
						Average				Shares				Amount
		Total Number				Price Paid				Repurchased				Remaining
		Of Shares				Per				Under				Under
		Repurchased				Share				The Program				The Program
April 2007 Program
January 1 through January 31, 2008			—			$	—				1,293,250			$	65,004,906
February 1 through February 29, 2008			300,000			$	49.19				1,593,250			$	50,247,480
March 1 through March 31, 2008			—			$	—				1,593,250			$	50,247,480
First Quarter Total — April 2007 Program			300,000			$	49.19
April 1 through April 30, 2008			—			$	—				1,593,250			$	50,247,480
May 1 through May 31, 2008			382,629			$	34.66				1,975,879			$	93,047,996
June 1 through June 30, 2008			447,068			$	36.15				2,422,947			$	76,887,912
Second Quarter Total — April 2007 Program			829,697			$	35.46
July 1 through July 31, 2008			260,000			$	36.75				2,682,947			$	67,331,638
August 1 through August 30, 2008			300,000			$	44.64				2,982,947			$	53,940,328
September 1 through September 30, 2008			—			$	—				2,982,947			$	53,940,328
Third Quarter Total — April 2007 Program			560,000			$	40.98
October 1 through October 31, 2008			—			$	—				2,982,947			$	53,940,328
November 1 through November 30, 2008			—			$	—				2,982,947			$	53,940,328
December 1 through December 31, 2008			—			$	—				2,982,947			$	53,940,328
Fourth Quarter Total — April 2007 Program			—			$	—

On April 26, 2007, our Board of Directors authorized a $150 million share repurchase plan with no expiration date.

On May 20, 2008, our Board of Directors authorized an additional $56 million under the April 2007 Program.

     As of December 31, 2008, the number of stock options outstanding under the Company’s equity compensation plans, the weighted average exercise price of outstanding options, and the number of securities remaining available for issuance were as follows:

EQUITY COMPENSATION PLAN INFORMATION

Number of securities

remaining available

Number of

Weighted-average

for future issuance

securities

exercise price of

under equity

to be issued upon

outstanding

compensation plans

exercise of

options,

[excluding

outstanding warrants

warrants and

securities reflected

and rights

rights

in column (a)]

Plan Category

(a)

(b)

(c)

Equity Compensation plans approved by stockholders

2,140,371

$

41.27

1,565,546

Equity Compensation plans not approved by stockholders (1)

34,788

23.82

—

TOTAL

2,175,159

$

40.99

1,565,546

Comparative Stock Performance

     The graph below compares the yearly percentage change in the Company’s cumulative total stockholder return on Capital Stock (as measured by dividing (i) the sum of (A) the cumulative amount of dividends for the period December 31, 2003, to December 31, 2008, assuming dividend reinvestment, and (B) the difference between the Company’s share price at December 31, 2003 and December 31, 2008; by (ii) the share price at December 31, 2003) with the cumulative total return, assuming reinvestment of dividends, of the (1) S&P 500 Stock Index and (2) Dow Jones Industrial Diversified Index.

Chemed Corporation
Cumulative Total Stockholder Return for
Five-Year Period Ending December 31, 2008

	December 31...			2003					2004					2005					2006					2007					2008
	Chemed Corporation				100.00					146.85					218.69					163.66					248.37					177.78
	S&P 500				100.00					110.85					116.28					134.50					141.79					88.67
	Dow Jones Industrial Diversified				100.00					119.18					116.07					127.13					135.70					69.14

Item 6. Selected Financial Data

     The information called for by this Item for the five years ended December 31, 2008 is set forth on page 36 of the 2008 Annual Report to Stockholders and is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The information called for by this Item is set forth on pages 37 through 50 of the 2008 Annual Report to Stockholders and is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     The Company’s primary market risk exposure relates to interest rate risk exposure through its variable interest term note and line of credit. At December 31, 2008 the Company had $22.7 million of variable rate debt outstanding. For each $10 million dollars borrowed under these credit facilities, an increase or decrease of 100 basis points (1% point), increases or decreases the Company’s annual interest expense by $100,000.

     The Company continually evaluates this interest rate exposure and periodically weighs the cost versus the benefit of fixing the variable interest rates through a variety of hedging techniques.

     The market value of the Company’s long-term debt at December 31, 2008 is approximately $147.2 million versus a carrying value of $209.8 million.

Item 8. Financial Statements and Supplementary Data

     The consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 27, 2009, appearing on pages 1 through 33 of the 2008 Annual Report to Stockholders, along with the Supplementary Data (Unaudited Summary of Quarterly Results) appearing on pages 34-35, are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     The Company’s management, under the supervision of and with the participation of the Company’s President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, the Company’s President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective and are reasonably designed to ensure that all material information relating to the Company required to be included in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

     Refer to Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm on pages 1 and 2 of the Company’s 2008 Annual Report to Stockholders, which are incorporated herein by reference.

Changes in Internal Control Over Financial Reporting

     There have not been any changes in the Company’s internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the Company’s fiscal quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

     Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

     The directors of the Company are:

Edward L. Hutton
Kevin J. McNamara
Joel F. Gemunder
Patrick P. Grace
Thomas C. Hutton
Walter L. Krebs
Sandra E. Laney
Andrea R. Lindell
Timothy S. O’Toole
Donald E. Saunders
George J. Walsh III
Frank E. Wood

The additional information required under this Item is set forth in the Company’s 2009 Proxy Statement and in Part I hereof under the caption “Executive Officers of the Registrant” and is incorporated herein by reference.

     The Company has adopted a Code of Ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer, directors and employees. A copy of this Code of Ethics is incorporated with this report as Exhibit 14 and it is also posted on the Company’s Web site, www.chemed.com.

Item 11. Executive Compensation

     Information required under this Item is set forth in the Company’s 2009 Proxy Statement, which is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     Information required under this Item is set forth in the Company’s 2009 Proxy Statement, which is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions and Director Independence.

     Information required under this Item is set forth in the Company’s 2009 Proxy Statement, which is incorporated herein by reference.

     A description of related party transactions is shown in Note 20 of the Notes to Consolidated Financial Statements on page 28 of the 2008 Annual Report to Stockholders and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Audit Fees

     PricewaterhouseCoopers LLP billed the Company $1,500,000 for 2007 and $1,560,000 for 2008. These fees were for professional services rendered for the integrated audit of the Company’s annual financial statements and of its internal control over financial reporting, review of the financial statements included in the Company’s Forms 10-Q and review of documents filed with the SEC.

Audit-Related Fees

     PricewaterhouseCoopers LLP billed the Company $341,000 and $90,000 for 2007 and 2008, respectively, for audit-related services. In 2007, $38,000 was related to the adoption of FIN 48, $218,000 was related to a proposed offering of debt, and $85,000 was related to the audit of one of Vitas’ Florida subsidiaries. In 2008, $90,000 was related to the audit of one of Vitas’ Florida subsidiaries.

Tax Fees

     No such services were rendered in 2007 or 2008.

All Other Fees

     No other services were rendered in 2007 or 2008.

     The Audit Committee has adopted a policy which requires the Committee’s pre-approval of audit and non-audit services performed by the independent auditor to assure that the provision of such services does not impair the auditor’s independence. The Audit Committee pre-approved all of the audit and non-audit services rendered by PricewaterhouseCoopers LLP as listed above.

PART IV

Item 15 Exhibits and Financial Statement Schedule

Exhibits
3.1		Certificate of Incorporation of Chemed Corporation.*
3.2		Certificate of Amendment to Certificate of Incorporation.*
3.3		By-Laws of Chemed Corporation.*
10.1		Agreement and Plan of Merger among Diversey U.S. Holdings, Inc., D.C. Acquisition Inc., Chemed Corporation and DuBois Chemicals, Inc., dated as of February 25, 1991.*
10.2		Agreement and Plan of Merger among National Sanitary Supply Company, Unisource Worldwide, Inc. and TFBD, Inc. dated as of August 11, 1997.*
10.3		Stock Purchase Agreement dated as of May 8, 2002 by and between PCI Holding Corp. and Chemed Corporation.*
10.4		Amendment No. 1 to Stock Purchase Agreement dated as of October 11, 2002 by and among PCI Holding Corp., PCI-A Holding Corp. and Chemed Corporation.*
10.5		Common Stock Purchase Warrant dated as of October 11, 2002 by and between PCI Holding Corp. and Chemed Corporation.*
10.6		1999 Stock Incentive Plan.*,**
10.7		1999 Long-Term Employee Incentive Plan as amended through May 20, 2002.*,**
10.8		2002 Stock Incentive Plan.*,**
10.9		2002 Executive Long-Term Incentive Plan, as amended May 18, 2004.*,**
10.10		2004 Stock Incentive Plan.*,**
10.11		2006 Stock Incentive Plan, as amended August 11, 2006.*,**
10.12		Repurchase Agreement dated May 8, 2007 by and among Chemed Corporation, J.P. Morgan Securities Inc. and Citigroup Global Markets, Inc.*
10.13		Convertible Senior Note Indenture dated May 14, 2007 for 1.875% Convertible Senior Notes due 2014 by and among Chemed Corporation, the Subsidiary Guarantors and LaSalle Bank NA, as Trustee.*
10.14		Employment Agreement with David P. Williams dated December 1, 2006.*,**

Exhibits
10.15		Employment Agreement with Timothy S. O’Toole dated May 6, 2007.*,**
10.16		Employment Agreement with Kevin J. McNamara dated May 3, 2008.*,**
10.17		Registration Rights Agreement, dated May 14, 2007 by and among Chemed Corporation, J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc.*
10.18		Confirmation of Convertible Note Hedge, dated May 8, 2007 between Chemed Corporation and J.P. Morgan Chase Bank, NA.*
10.19		Confirmation of Convertible Note Hedge, dated May 8, 2007 between Chemed Corporation and Citibank, NA.*
10.20		Form of Convertible Note Warrant Transaction, dated May 8, 2007 between Chemed Corporation and Citibank NA.*
10.21		Form of Convertible Note Warrant Transaction, dated May 8, 2007 between Chemed Corporation and J.P. Morgan Chase Bank, NA.*
10.22		Excess Benefits Plan, as restated and amended, effective June 1, 2001.*,**
10.23		Amendment No. 1 to Excess Benefits Plan, effective July 1, 2001.*,**
10.24		Amendment No. 2 to Excess Benefits Plan, effective November 7, 2003.*,**
10.25		Non-Employee Directors’ Deferred Compensation Plan.*,**
10.26		Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 1999.*,**
10.27		First Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective September 6, 2000.*,**
10.28		Second Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 2001.*,**
10.29		Third Amendment to Chemed/Roto-Rooter Savings & Retirement Plan, effective December 12, 2001.*,**
10.30		Directors Emeriti Plan.*,**
10.31		Split Dollar Agreement with Edward L. Hutton.*,**
10.32		Change in Control Severance Plan.*,**
10.33		Senior Executive Severance Policy.*,**
10.34		Roto-Rooter Deferred Compensation Plan No. 1, as amended January 1, 1998.*,**

Exhibits
10.35		Roto-Rooter Deferred Compensation Plan No. 2.*,**
10.36		Agreement and Plan of Merger, dated as of December 18, 2003, among Roto-Rooter, Inc., Marlin Merger Corp. and Vitas Healthcare Corporation.*
10.37		Credit Agreement, dated as of May 2, 2007, among Chemed Corporation, the lenders from time to time parties thereto and J.P. Morgan Chase Bank, NA, as Administrative Agent.*
10.38		Amended and Restated Credit Agreement, dated as of February 24, 2005, among Chemed Corporation, the lenders from time to time parties thereto and J.P. Morgan Chase Bank, NA, as Administrative Agent.*
10.39		Amendment No. 1 to Amended and Restated Credit Agreement, dated March 31, 2006 among Chemed Corporation, the lenders from time to time parties thereto, and J.P. Morgan Chase Bank NA, as Administrative Agent.*
10.40		Form of Restricted Stock Award.*,**
10.41		Form of Stock Option Grant.*,**
10.42		Assets Purchase Agreement of April 1, 2005 between Service America Network, Inc. and Service America Enterprise, Inc.*
12		Computation of Ratio to Earnings to Fixed Charges.
13		2008 Annual Report to Stockholders.
14		Policies on Business Ethics of Chemed Corporation.*
21		Subsidiaries of Chemed Corporation.
23		Consent of Independent Registered Public Accounting Firm.
24		Powers of Attorney.
31.1		Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.
31.2		Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.
31.3		Certification by Arthur V. Tucker, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.
32.1		Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3		Certification by Arthur V. Tucker, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Financial Statement Schedule

     See Index to Financial Statements and Financial Statement Schedule on page S-1.

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

February 27, 2009		CHEMED CORPORATION
				By		/s/ Kevin J. McNamara
				Kevin J. McNamara
				President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title		Date
/s/ Kevin J. McNamara		President and Chief
Kevin J. McNamara		Executive Officer and a Director (Principal
		Executive Officer)
/s/ David P. Williams		Executive Vice President and Chief
David P. Williams		Financial Officer (Principal Financial Officer)
/s/ Arthur V. Tucker, Jr.		Vice President and		February 27, 2009
Arthur V. Tucker, Jr.		Controller (Principal Accounting
		Officer)
Edward L. Hutton*		Sandra E. Laney*
Joel F. Gemunder*		Timothy S. O’Toole*
Patrick P. Grace*		Donald E. Saunders*           - -Directors
Thomas C. Hutton*		George J. Walsh III*
Walter L. Krebs*		Frank E. Wood*
Andrea R. Lindell*

February 27, 2009   Date		/s/ Naomi C. Dallob   Naomi C. Dallob
		(Attorney-in-Fact)

CHEMED CORPORATION AND SUBSIDIARY COMPANIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
2006, 2007 AND 2008

		Page(s)
Chemed Corporation Consolidated Financial Statements and Financial Statement Schedule
Report of Independent Registered Public Accounting Firm			2	*
Consolidated Statement of Income			3	*
Consolidated Balance Sheet			4	*
Consolidated Statement of Cash Flows			5	*
Consolidated Statement of Changes in Stockholders’ Equity			6-7	*
Notes to Consolidated Financial Statements			8-33	*
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule			S-2
Schedule II – Valuation and Qualifying Accounts			S-3

     The consolidated financial statements of Chemed Corporation listed above, appearing in the 2008 Annual Report to Stockholders, are incorporated herein by reference. The Financial Statement Schedule should be read in conjunction with the consolidated financial statements listed above. Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto as listed above.

Report of Independent Registered Public Accounting
Firm on Financial Statement Schedule

To the Board of Directors of Chemed Corporation

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 27, 2009 appearing in the 2008 Annual Report to Stockholders of Chemed Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cincinnati, Ohio
February 27, 2009

SCHEDULE II

CHEMED CORPORATION AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
DR/(CR)

						ADDITIONS
						(CHARGED)								APPLICABLE
						CREDITED				(CHARGED)				TO
		BALANCE AT				TO COSTS				CREDITED				COMPANIES								BALANCE
		BEGINNING				AND				TO OTHER				ACQUIRED				DEDUCTIONS				AT END
DESCRIPTION		OF PERIOD				EXPENSES				ACCOUNTS				IN PERIOD				(a)				OF PERIOD
Allowances for doubtful accounts (b)
For the year 2008		$	(9,746	)		$	(9,870	)		$	13			$	—			$	9,283			$	(10,320	)
For the year 2007		$	(10,180	)		$	(8,375	)		$	490			$	—			$	8,319			$	(9,746	)
For the year 2006		$	(8,311	)		$	(8,169	)		$	170			$	—			$	6,130			$	(10,180	)
Allowances for doubtful accounts — notes receivable (c)
For the year 2008		$	(529	)		$	51			$	(13	)		$	—			$	9			$	(482	)
For the year 2007		$	(170	)		$	2			$	(366	)		$	—			$	5			$	(529	)
For the year 2006		$	—			$	—			$	(170	)		$	—			$	—			$	(170	)

INDEX TO EXHIBITS

				Page Number
				or
				Incorporation by Reference
Exhibit				File No. and		Previous
Number				Filing Date		Exhibit No.
3.1		Certificate of Incorporation of Chemed Corporation		Form S-3 Reg. No. 33-44177 11/26/91			4.1
3.2		Certificate of Amendment to Certificate of Incorporation		Form 8-K 5/16/06			3.1
3.3		By-Laws of Chemed Corporation as amended November 5, 2004		Form 8-K 11/5/04			1
10.1		Agreement and Plan of Merger among Diversey U.S. Holdings, Inc., D.C. Acquisition Inc., Chemed Corporation and DuBois Chemicals, Inc., dated as of February 25, 1991		Form 8-K 3/11/91			1
10.2		Agreement and Plan of Merger among National Sanitary Supply Company, Unisource Worldwide, Inc. and TFBD, Inc.		Form 8-K 10/13/97			1
10.3		Stock Purchase Agreement dated as of May 8, 2002 by and between PCI Holding Corp. and Chemed Corporation		Form 8-K 10/11/02			2.1
10.4		Amendment No. 1 to Stock Purchase Agreement dated as of October 11, 2002 by and among PCI Holding Corp., PCI-A Holding Corp. and Chemed Corporation		Form 8-K 10/11/02			2.2
10.5		Common Stock Purchase Warrant dated as of October 11, 2002 by and between PCI Holding Corp. and Chemed Corporation		Form 8-K 10/11/02			2.4
10.6		1999 Stock Incentive Plan		Form 10-K 3/29/00, **			10.11

				Page Number
				or
				Incorporation by Reference
Exhibit				File No. and		Previous
Number				Filing Date		Exhibit No.
10.7		1999 Long Term Employee Incentive Plan as amended through May 20, 2002		Form 10-K 3/28/03, **			10.16
10.8		2002 Stock Incentive Plan		Form 10-K 3/28/03, **			10.17
10.9		2002 Executive Long-Term Incentive Plan, as amended May 18, 2004		Form 10-Q 8/19/04, **			10.16
10.10		2004 Stock Incentive Plan		Proxy Statement 3/25/04, **			A
10.11		2006 Stock Incentive Plan, as amended August 11, 2006		Form 10-Q 8/14/06, **			10.1
10.12		Repurchase Agreement dated May 8, 2007 by and among Chemed Corporation, J.P. Morgan Securities Inc. and Citigroup Global Markets, Inc.		Form 8-K 5/17/07			1.1
10.13		Convertible Senior Note Indenture dated May 14, 2007 for 1.875% Convertible Senior Notes due 2014 by and among Chemed Corporation, the Subsidiary Guarantors and LaSalle Bank NA, as Trustee.		Form 8-KA 5/22/07			4.1
10.14		Employment Agreement with David P. Williams dated December 1, 2006.		Form 8-K 12/1/06, **			10.01
10.15		Employment Agreement with Timothy S. O’Toole dated May 6, 2007.		Form 8-K 5/7/07, **			10.02
10.16		Employment Agreement with Kevin J. McNamara dated May 3, 2008.		Form 8-K 5/6/08, **			10.01
10.17		Registration Rights Agreement, dated May 14, 2007 by and among Chemed Corporation, J.P. Morgan Securities, Inc. and Citigroup Global Markets Inc.		Form 8-K 5/17/07			10.5

				Page Number
				or
				Incorporation by Reference
Exhibit				File No. and		Previous
Number				Filing Date		Exhibit No.
10.18		Confirmation of Convertible Note Hedge, dated May 8, 2007 between Chemed Corporation and J.P. Morgan Chase Bank, NA.		Form 8-K 5/17/07			10.1
10.19		Confirmation of Convertible Note Hedge, dated May 8, 2007 between Chemed Corporation and Citibank, NA.		Form 8-K 5/17/07			10.2
10.20		Form of Convertible Note Warrant Transaction, dated May 8, 2007 between Chemed Corporation and Citibank, NA.		Form 8-K 5/17/07			10.4
10.21		Form of Convertible Note Warrant Transaction, dated May 8, 2007 between Chemed Corporation and J.P. Morgan Chase Bank, NA.		Form 8-K 5/17/07			10.5
10.22		Excess Benefits Plan, as restated and amended, effective June 1, 2001		Form 10-K 3/12/04, **			10.24
10.23		Amendment No. 1 to Excess Benefits Plan, effective July 1, 2002		Form 10-K 3/12/04, **			10.25
10.24		Amendment No. 2 to Excess Benefits Plan, effective November 7, 2003		Form 10-K 3/12/04, **			10.26
10.25		Non-Employee Directors’ Deferred Compensation Plan		Form 10-K 3/24/88, **			10.10
10.26		Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 1999		Form 10-K 3/25/99, **			10.25
10.27		First Amendment to Chemed/Roto-Rooter Savings & Retirement Plan effective September 6, 2000		Form 10-K 3/28/02, **			10.22
10.28		Second Amendment to Chemed/Roto-Rooter Savings & Retirement Plan effective January 1, 2001		Form 10-K 3/28/02, **			10.23
10.29		Third Amendment to Chemed/Roto-Rooter Savings & Retirement Plan effective December 12, 2001		Form 10-K 3/28/02, **			10.24

				Page Number
				or
				Incorporation by Reference
Exhibit				File No. and		Previous
Number				Filing Date		Exhibit No.
10.30		Directors Emeriti Plan		Form 10-Q 5/12/88, **			10.11
10.31		Split Dollar Agreement with Edward L. Hutton		Form 10-K 3/28/96, **			10.16
10.32		Change in Control Severance Plan		Form 8-K 12/1/06, **			10.02
10.33		Senior Executive Severance Policy		Form 8-K 12/1/06, **			10.03
10.34		Roto-Rooter Deferred Compensation Plan No. 1, as amended January 1, 1998		Form 10-K 3/28/01, **			10.37
10.35		Roto-Rooter Deferred Compensation Plan No. 2		Form 10-K 3/28/01, **			10.38
10.36		Agreement and Plan of Merger, dated as of December 18, 2003, among Roto-Rooter, Inc., Marlin Merger Corp. and Vitas Healthcare Corporation		Form 8-K 12/19/03			99.2
10.37		Credit Agreement, dated as of May 2, 2007, among Chemed Corporation, the lenders from time to time parties thereto and J. P. Morgan Chase Bank, NA, as Administrative Agent.		Form 8-K 5/07/07			10.01
10.38		Amended and Restated Credit Agreement dated as of February 24, 2005 among Chemed Corporation, the lenders from time to time, parties thereto and JP Morgan Chase Bank NA, as Administrative Agent.		Form 10-K 3/28/05			10.46
10.39		Amendment No. 1 to Amended and Restated Credit Agreement, dated March 31, 2006 among Chemed Corporation, the lenders from Time to time parties thereto, and JP Morgan Chase Bank NA, as Administrative Agent.		Form 10-Q 4/4/06			10.1
10.40		Form of Restricted Stock Award		Form 10-K 3/28/05, **			10.50
10.41		Form of Stock Option Grant		Form 10-K 3/28/05, **			10.51

				Page Number
				or
				Incorporation by Reference
Exhibit				File No. and		Previous
Number				Filing Date		Exhibit No.
10.42		Assets Purchase Agreement of April 1, 2005 between Service America Network, Inc. and Service America Enterprise, Inc.		Form 8-K 4/7/05			10.1
12		Computation of Ratio of Earnings to Fixed Charges		*
13		2008 Annual Report to Stockholders		*
14		Policies on Business Ethics of Chemed Corporation		Form 10-K 3/12/04			14
21		Subsidiaries of Chemed Corporation		*
23		Consent of Independent Registered Public Accounting Firm		*
24		Powers of Attorney		*
31.1		Certification by Kevin J. McNamara pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.		*
31.2		Certification by David P. Williams pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.		*
31.3		Certification by Arthur V. Tucker, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act of 1934.		*
32.1		Certification by Kevin J. McNamara pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		*
32.2		Certification by David P. Williams pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		*
32.3		Certification by Arthur V. Tucker, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		*

EXHIBIT 12

CHEMED CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)

		2004				2005				2006				2007				2008
Pretax income/ (loss) from continuing operations before equity in earnings/ (loss) of affiliate		$	36,936			$	54,656			$	90,284			$	101,838			$	122,345
Additions:
Fixed charges			28,597				30,738				24,055				31,675				8,637
Amortization of capitalized interest			1				2				2				4				5
Deductions:
Capitalized interest			(72	)			(380	)			(751	)			(951	)			(659	)
Adjusted income/ (loss)		$	65,462			$	85,016			$	113,590			$	132,566			$	130,328
Fixed Charges:
Interest expense		$	21,167			$	21,264			$	17,468			$	11,244			$	5,985
Capitalized interest			72				380				751				951				659
Interest component of rental expense			4,028				5,123				5,406				5,682				6,201
Loss/(Gain) on extinguishment of debt (a), (b), (c), (d), (e)			3,330				3,971				430				13,798				(4,208	)
Fixed charges		$	28,597			$	30,738			$	24,055			$	31,675			$	8,637
Ratio of earnings to fixed charges (f)			2.3	x			2.8	x			4.7	x			4.2	x			15.1	x

Exhibit 13

Chemed Corporation and Subsidiary Companies

Financial Review

Contents

Report of Independent Registered Public Accounting Firm			2
Consolidated Statement of Income			3
Consolidated Balance Sheet			4
Consolidated Statement of Cash Flows			5
Consolidated Statement of Changes in Stockholders’ Equity			6
Notes to Consolidated Financial Statements			8
Unaudited Summary of Quarterly Results			34
Selected Financial Data			36
Management’s Discussion and Analysis of Financial Conditions and Results of Operations			37
Officers’ and Directors’ Listing and Corporate Information		IBC

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

          The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          The Company’s management, including the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Vice President and Controller, has conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2008, based on the framework established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2008, based on criteria in Internal Control—Integrated Framework issued by COSO.

          PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, as stated in their report which appears on page 2.

Chemed Corporation and Subsidiary Companies

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Chemed Corporation

In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of income, cash flows and changes in stockholders’ equity present fairly, in all material respects, the financial position of Chemed Corporation and its subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cincinnati, Ohio
February 27, 2009

2

Chemed Corporation and Subsidiary Companies

CONSOLIDATED STATEMENT OF INCOME

Chemed Corporation and Subsidiary Companies
(in thousands, except per share data)

For the Years Ended December 31,		2008				2007				2006
Continuing Operations
Service revenues and sales		$	1,148,941			$	1,100,058			$	1,018,587
Cost of services provided and goods sold (excluding depreciation)			810,547				767,066				730,123
Selling, general and administrative expenses			175,333				184,060				161,183
Depreciation			21,581				20,118				16,775
Amortization			5,924				5,270				5,255
Other operating expenses—net (Note 6)			2,699				789				272
Total costs and expenses			1,016,084				977,303				913,608
Income from operations			132,857				122,755				104,979
Interest expense			(5,985	)			(11,244	)			(17,468	)
Gain/(loss) on extinguishment of debt (Note 2)			4,208				(13,798	)			(430	)
Loss from impairment of investment (Note 8)			—				—				(1,445	)
Other income/(expense)—net (Note 10)			(8,735	)			4,125				4,648
Income before income taxes			122,345				101,838				90,284
Income taxes (Note 11)			(50,240	)			(39,063	)			(32,562	)
Income from continuing operations			72,105				62,775				57,722
Discontinued Operations, Net of Income Taxes (Note 8)			(1,088	)			1,201				(7,071	)
Net Income		$	71,017			$	63,976			$	50,651
Earnings Per Share (Note 15)
Income from continuing operations		$	3.13			$	2.56			$	2.21
Net Income		$	3.08			$	2.61			$	1.94
Diluted Earnings Per Share (Note 15)
Income from continuing operations		$	3.08			$	2.50			$	2.16
Net Income		$	3.04			$	2.55			$	1.90
Average Number of Shares Outstanding (Note 15)
Earnings per share			23,058				24,520				26,118
Diluted earnings per share			23,374				25,077				26,669

The Notes to Consolidated Financial Statements are integral parts of this statement.

Chemed Corporation and Subsidiary Companies

CONSOLIDATED BALANCE SHEET

Chemed Corporation and Subsidiary Companies
(in thousands, except shares and per share data)

December 31,		2008				2007
Assets
Current assets
Cash and cash equivalents (Note 9)		$	3,628			$	4,988
Accounts receivable less allowances of $10,320 (2007 - $9,746)			98,076				101,170
Inventories			7,569				6,596
Current deferred income taxes (Note 11)			15,392				14,212
Prepaid expenses and other current assets			11,596				10,496
Total current assets			136,261				137,462
Investments of deferred compensation plans held in trust (Notes 14 and 16)			22,628				29,417
Note receivable (Notes 8 and 16)			—				9,701
Properties and equipment, at cost, less accumulated depreciation (Note 12)			76,962				74,513
Identifiable intangible assets less accumulated amortization of $21,271 (2007 - $17,245) (Note 5)			61,303				65,177
Goodwill (Note 5)			448,721				438,689
Other assets			15,049				15,411
Total Assets		$	760,924			$	770,370
Liabilities
Current liabilities
Accounts payable		$	52,810			$	46,168
Current portion of long-term debt (Note 2)			10,169				10,162
Income taxes (Note 11)			2,156				4,221
Accrued insurance			35,994				36,337
Accrued compensation			40,741				40,072
Other current liabilities			12,180				13,929
Total current liabilities			154,050				150,889
Deferred income taxes (Note 11)			7,597				5,802
Long-term debt (Note 2)			199,656				214,669
Deferred compensation liabilities (Note 14)			22,417				29,149
Other liabilities			5,612				5,512
Commitments and contingencies (Notes 13, 18 and 19)
Total Liabilities			389,332				406,021
Stockholders’ Equity
Capital stock — authorized 80,000,000 shares $1 par; issued 29,514,877 shares (2007 - 29,260,791 shares)			29,515				29,261
Paid-in capital			282,206				267,312
Retained earnings			343,810				278,336
Treasury stock — 7,100,475 shares (2007 - 5,299,056 shares), at cost			(285,977	)			(213,041	)
Deferred compensation payable in Company stock (Note 14)			2,038				2,481
Total Stockholders’ Equity			371,592				364,349
Total Liabilities and Stockholders’ Equity		$	760,924			$	770,370