-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L7hlCaHH4AyK9WAGUFIdYtyEc6VRit02S2lJRm7kgRzHwvwYTL9dP9YfX5QyJJgY kBGkoGJuOHZDLgTfndbm4A== 0000950144-02-011985.txt : 20021118 0000950144-02-011985.hdr.sgml : 20021118 20021115170727 ACCESSION NUMBER: 0000950144-02-011985 CONFORMED SUBMISSION TYPE: 10-Q CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020929 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENTIVA HEALTH SERVICES INC CENTRAL INDEX KEY: 0001096142 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 364335801 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15669 BUSINESS ADDRESS: STREET 1: 3 HUNTINGTON QUADRANGLE 2S CITY: MELVILLE STATE: NY ZIP: 11747-8943 BUSINESS PHONE: 6315017000 MAIL ADDRESS: STREET 1: 3 HUNTINGTON QUADRANGLE 2S CITY: MELVILLE STATE: NY ZIP: 11747-8943 FORMER COMPANY: FORMER CONFORMED NAME: OLSTEN HEALTH SERVICES HOLDING CORP DATE OF NAME CHANGE: 19991001 10-Q 1 electronicthcopy.htm GENTIVA'S 3RD QUARTER 10-Q Gentivas 3rd Quarter Form 10-Q

THIS DOCUMENT IS A COPY OF THE

QUARTERLY REPORT ON FORM 10-Q FILED ON

NOVEMBER 14, 2002 PURSUANT TO A RULE 201

TEMPORARY HARDSHIP EXEMPTION

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 29, 2002

Commission File No. 1-15669

Gentiva Health Services, Inc.
(Exact name of Registrant as specified in its charter)

DELAWARE	36-4335801
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3 Huntington Quadrangle 2S, Melville, NY 11747-8943
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (631) 501-7000

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 X No __

The number of shares outstanding of the Registrant's Common Stock,
as of November 8, 2002 was 26,377,549.

INDEX

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) - September 29, 2002 and December 30, 2001	3
	Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended September 29, 2002 and September 30, 2001	4
	Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 29, 2002 and September 30, 2001	5
	Notes to Consolidated Financial Statements (Unaudited)	6-22
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22-36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	38-40
Item 2.	Changes in Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Submission of Matters to a Vote of Security Holders	40
Item 5.	Other Information	40-41
Item 6.	Exhibits and Reports on Form 8-K	42-43
SIGNATURES		44
CERTIFICATIONS		45-48

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Gentiva Health Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)

			September 29, 2002	December 30, 2001
ASSETS
Current assets:
	Cash and cash equivalents		$ 98,187	$ 71,980
	Restricted cash		-	35,164
	Receivables, less allowance for doubtful accounts of
	$13,003 and $10,831 in 2002 and 2001, respectively		134,782	140,295
	Prepaid expenses and other current assets		12,739	46,767
	Assets held for sale		-	306,537

		Total current assets	245,708	600,743

Fixed assets, net			13,011	17,045
Goodwill, net			-	217,327
Other assets			13,851	14,764

		Total assets	$ 272,570	$ 849,879

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$ 14,325	$ 10,022
	Accrued expenses		85,018	73,730
	Payroll and related taxes		8,893	12,756
	Insurance costs		36,950	29,613
	Liabilities held for sale		-	56,673

		Total current liabilities	145,186	182,794

Other liabilities			19,724	45,378

Shareholders' equity:
	Common stock, $.10 par value, authorized 100,000,000		2,638	2,564
	shares; issued and outstanding 26,377,549 and
	25,638,794 shares, respectively
	Additional paid-in capital		262,956	722,725
	Accumulated deficit		(157,934)	(103,582)

		Total shareholders' equity	107,660	621,707

		Total liabilities and shareholders' equity	$ 272,570	$ 849,879


See notes to consolidated financial statements.

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Gentiva Health Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)


		Three Months Ended		Nine Months Ended

		September 29, 2002	September 30, 2001	September 29, 2002	September 30, 2001

Net revenues		$ 188,443	$ 175,496	$ 576,865	$ 540,818
Cost of services sold		124,898	116,080	392,976	356,105

	Gross profit	63,545	59,416	183,889	184,713
Selling, general and administrative expenses		(59,204)	(64,558)	(225,055)	(199,129)
Interest income (expense), net		162	341	741	(200)

	Income (loss) before income taxes from continuing operations	4,503	(4,801)	(40,425)	(14,616)
Income tax expense		1,765	320	16,429	847

	Income (loss) from continuing operations	2,738	(5,121)	(56,854)	(15,463)
Discontinued operations, net of tax		(563)	11,367	191,578	30,139

	Income before cumulative effect of accounting change	2,175	6,246	134,724	14,676
Cumulative effect of accounting change, net of tax		1,392	-	(189,076)	-

	Net income (loss) (Note 6)	$ 3,567	$ 6,246	$ (54,352)	$ 14,676


Basic earnings per share:
	Income (loss) from continuing operations	$ 0.10	$ (0.22)	$ (2.18)	$ (0.69)
	Discontinued operations, net of tax	(0.02)	0.48	7.34	1.34
	Cumulative effect of accounting change, net of tax	0.06	-	(7.24)	-

	Net income (loss) (Note 6)	$ 0.14	$ 0.26	$ (2.08)	$ 0.65

	Weighted average shares outstanding	26,365	23,616	26,117	22,442

Diluted earnings per share:
	Income (loss) from continuing operations	$ 0.10	$ (0.22)	$ (2.18)	$ (0.69)
	Discontinued operations, net of tax	(0.02)	0.48	7.34	1.34
	Cumulative effect of accounting change, net of tax	0.05	-	(7.24)	-

	Net income (loss) (Note 6)	$ 0.13	$ 0.26	$ (2.08)	$ 0.65


	Weighted average shares outstanding	27,483	23,616	26,117	22,442


See notes to consolidated financial statements.

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Gentiva Health Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)


		Nine Months Ended

		September 29, 2002		September 30, 2001

OPERATING ACTIVITIES:
Net income (loss)		$	(54,352)	$ 14,676
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
	Income from discontinued operations	(191,578)		(30,139)
	Cumulative effect of accounting change	189,076		-
	Depreciation and amortization	5,465		14,199
	Provision for doubtful accounts	4,715		4,429
	Stock option tender offer	21,388		-
	Deferred income taxes	15,156		-
Changes in assets and liabilities, net of acquisitions/divestitures
	Accounts receivable	798		32,483
	Prepaid expenses and other current assets	4,260		3,980
	Current liabilities	13,883		(15,319)
Change in net assets held for sale		3,300		43,434
Other, net		(3,339)		(211)

Net cash provided by operating activities		8,772		67,532

INVESTING ACTIVITIES:
Purchase of fixed assets - continuing operations		(2,382)		(1,901)
Purchase of fixed assets - discontinued operations		(2,121)		(4,499)
Proceeds from sale of business		206,564		475
Deposits from restricted cash		35,164		-

Net cash provided by (used in) investing activities		237,225		(5,925)


FINANCING ACTIVITIES:
Proceeds from issuance of common stock		6,902		11,027
Debt issuance costs		(1,321)		-
Cash distribution to shareholders		(203,983)		-
Payments for stock option tender		(21,388)		-
Advance from Medicare program		-		20,878
Decrease in book overdrafts		-		(10,379)

Net cash (used in) provided by financing activities		(219,790)		21,526


Net change in cash and cash equivalents		26,207		83,133
Cash and cash equivalents at beginning of period		71,980		435

Cash and cash equivalents at end of period		$ 98,187		$ 83,568



SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
In connection with the sale of the Company's Specialty Pharmaceutical Services business on June 13, 2002, the Company
received 5,060,976 shares of common stock of Accredo Health, Incorporated, which were subsequently distributed
to the shareholders.

See notes to consolidated financial statements.

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Gentiva Health Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

1. Accounting Policies

The accompanying interim consolidated financial statements are unaudited, but have been prepared by Gentiva Health Services, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of management, include all adjustments necessary for a fair presentation of results of operations, financial position and cash flows for each period presented. Results for interim periods are not necessarily indicative of results for a full year. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

New Accounting Standards

In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS 144") which superseded SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS 144 further refined SFAS 121's requirement that companies recognize an impairment loss if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows and measure an impairment loss as the difference between the carrying amount and fair value of the asset. In addition, SFAS 144 provides guidance on accounting and disclosure issues surrounding long-lived assets to be disposed of by sale. SFAS 144 also extends the presentation of discontinued operations to include more disposal transactions. SFAS 144 is effective for all fiscal quarters of all fiscal years beginning after December 15, 2001 (December 31, 2001 for the Company). The Company's adoption of SFAS 144 did not result in any impairment loss being recorded.

In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statements No. 13, and Technical Correction" ("SFAS 145"). SFAS 145 rescinded SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt" ("SFAS 4"), SFAS No. 44 "Accounting for Intangible Assets of Motor Carriers" ("SFAS 44") and SFAS No. 64 "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements" ("SFAS 64") and amended SFAS No. 13 "Accounting for Leases" ("SFAS 13"). This statement updates, clarifies and simplifies existing accounting pronouncements. As a result of rescinding SFAS 4 and SFAS 64, the criteria in the Accounting Principles Board ("APB") Opinion No. 30 "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" will be used to determine whether gains and losses from extinguishment of debt receive extraordinary item treatment. SFAS 44 was no longer necessary because the transitions under the Motor Carrier Act of 1980 were completed. SFAS 13 was amended to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions and makes technical corrections to existing pronouncements. The provisions

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of SFAS 145 are effective for fiscal years beginning after May 15, 2002, with earlier application encouraged. The Company has elected to adopt SFAS 145, effective April 1, 2002. During the first nine months of fiscal 2002, the impact of this adoption resulted in the Company recognizing a write off of approximately $1.5 million of deferred debt issuance costs associated with the terminated credit facility which is reflected in selling, general and administrative expenses in the accompanying consolidated statements of operations.

In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), which addresses the recognition, measurement, and reporting of costs associated with exit or disposal activities, and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit An Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). The principal difference between SFAS 146 and EITF 94-3 relates to the requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity, including those related to employee termination benefits and obligations under operating leases and other contracts, be recognized when the liability is incurred, and not necessarily the date of an entity's commitment to an exit plan, as under EITF 94-3. SFAS 146 also establishes that the initial measurement of a liability recognized under SFAS 146 be based on fair value. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company expects to adopt SFAS 146, effective December 30, 2002. For exit or disposal activities initiated prior to December 30, 2002, the Company plans to follow the accounting guidelines outlined in EITF 94-3.

2. Background and Basis of Presentation

On June 13, 2002, the Company consummated the sale of substantially all of the assets of the Company's Specialty Pharmaceutical Services ("SPS") business to Accredo Health, Incorporated ("Accredo") (the "SPS Sale") pursuant to an asset purchase agreement (the "Asset Purchase Agreement") dated January 2, 2002. See Note 4 for further information. On June 13, 2002, the Company's Board of Directors declared a dividend, payable to shareholders of record on June 13, 2002, of all the common stock consideration and substantially all the cash consideration received from Accredo. The cash consideration received by the Company before the closing net book value adjustment was $207.5 million; however, the amount distributed to the Company's shareholders was reduced by $3.5 million to $204 million as a holdback for income taxes the Company expects to incur on the proceeds received in excess of $460 million as detailed in the Company's proxy statement, dated May 10, 2002.

The operating results of the SPS business through the closing date of the sale to Accredo, including corporate expenses directly attributable to SPS operations, as well as the gain on the sale, net of transaction costs and related income taxes, are reflected as discontinued operations in the accompanying consolidated statements of operations. Continuing operations includes the results of the Home Health Services business, including corporate expenses that did not directly relate to SPS, as well as restructuring and special charges. Results of all prior periods have been reclassified to conform to this presentation.

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In addition, under the Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), the SPS business had been reported as a segment of the Company. Subsequent to the sale of the SPS business, the Company operates its remaining Home Health Services business as a single reporting unit.

3. Earnings (loss) per Share

Basic and diluted earnings (loss) per share for each period presented has been computed by dividing the net income (loss) by the weighted average number of shares outstanding for each respective period. In accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), the common shares used in reporting the diluted per share amount for continuing operations is to be used for discontinued operations and cumulative effect of accounting change, although the impact may be antidilutive on some periods presented. The computations of the basic and diluted per share amounts for the Company's continuing operations were as follows:

(In thousands, except per share amounts)	Three Months Ended		Nine Months Ended

	September 29, 2002	September 30, 2001	September 29, 2002	September 30, 2001

Income (loss) from continuing operations	$ 2,738	$ (5,121)	$ (56,854)	$ (15,463)



Basic weighted average
common shares outstanding	26,365	23,616	26,117	22,442

Dilutive effect of stock options	1,118	-	-	-

Diluted weighted average
common shares outstanding	27,483	23,616	26,117	22,442




Income (loss) from continuing
operations per common share
Basic	$ 0.10	$ (0.22)	$ (2.18)	$ (0.69)
Diluted	$ 0.10	$ (0.22)	$ (2.18)	$ (0.69)

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4. Disposition of Specialty Pharmaceutical Services Business

On June 13, 2002, the Company consummated the sale of its SPS business to Accredo. The SPS Sale was effected pursuant to the Asset Purchase Agreement between Gentiva, Accredo and certain of Gentiva's subsidiaries named therein.

The assets of the SPS business acquired by Accredo in the SPS Sale were assets used by Gentiva in the business of:

distribution of drugs and other biological and pharmaceutical products and professional support services for individuals with chronic diseases;
administration of antibiotics, chemotherapy, nutrients and other medications for patients with acute or episodic disease states;
distribution services for pharmaceutical, biotechnology and medical service firms; and
clinical support services for pharmaceutical and biotechnology firms.

The SPS business generated approximately 50 percent of the Company's total net revenues, including intersegment revenues, for fiscal 2001.

Pursuant to the terms of the Asset Purchase Agreement, Accredo acquired the SPS business in consideration for:

The payment to the Company of a cash amount equal to $207.5 million; and
5,060,976 shares of Accredo common stock.

Based on the closing price of the Accredo common stock on June 13, 2002 ($51.89 per share), the value of the stock consideration was $262.6 million. During the third quarter of fiscal 2002, the Company, in accordance with the terms of the Asset Purchase Agreement, recorded an adjustment of approximately ($0.9) million to the aggregate proceeds from the sale based on the difference between the estimated and actual closing net book value of the SPS assets as reflected in the final closing balance sheet. This adjustment, net of taxes, is reflected in discontinued operations, in the accompanying consolidated statement of operations.

In connection with the SPS Sale, the Company's Board of Directors declared a dividend, payable to shareholders of record on June 13, 2002, of all the common stock consideration and substantially all the cash consideration received from Accredo. The cash consideration received by the Company before the closing net book value adjustment was $207.5 million; however, the amount distributed to the Company's shareholders was reduced by $3.5 million to $204 million as a holdback for income taxes the Company expects to incur on the proceeds received in excess of $460 million as detailed in the Company's proxy statement, dated May 10, 2002. The special dividend, which was

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delivered to the distribution agent on June 13, 2002 for payment to the Company's shareholders of record on that date, resulted in shareholders of record on the record date receiving $7.76 in cash and .19253 shares of Accredo common stock for each share of Gentiva common stock held. Cash was paid in lieu of fractional shares.

SPS revenues and operating results for the periods presented were as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 29, 2002			September 30, 2001		September 29, 2002	September 30, 2001

Net revenues	$		-	$	152,766	$ 323,319	$ 480,066

Operating results of discontinued SPS business:
Income before income taxes	$		-	$	11,472	$ 11,238	$ 30,418
Income tax expense	-			(105)		(1,313)	(279)

Net income	-			11,367		9,925	30,139

Gain (loss) on disposal of SPS business, including
transaction costs of $16.2 million for the
nine month period	(936)			-		205,355	-
Income tax benefit (expense)	373			-		(23,702)	-

Gain (loss) on disposal, net of tax	(563)			-		181,653	-

Discontinued operations, net of tax	$	(563)		$	11,367	$ 191,578	$ 30,139

The net assets of the SPS business included in the accompanying consolidated balance sheet as of December 30, 2001 consisted of the following (in thousands):


Accounts receivable, net	$ 239,447
Inventory	46,544
Fixed assets, net	13,404
Other assets	7,142

Total assets	306,537


Accounts payable	(47,704)
Payroll and accrued expenses	(6,875)
Other liabilities	(2,094)

Total liabilities	(56,673)


Net assets of discontinued operations	$ 249,864

5. Restructuring and Special Charges

During the first nine months of fiscal 2002, the Company recorded restructuring and special charges aggregating $46.1 million. Charges during the period are summarized and further described below (in thousands):

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		Nine Months Ended
		September 29, 2002

Restructuring charges:
Business realignment activities		$ 6,813

Special charges:
Option tender offer		21,388
Settlement costs		7,731
Insurance costs		6,300
Asset writedowns and other		3,824

	Total special charges	39,243

Total restructuring and special charges		$ 46,056

Restructuring Charges

Business Realignment Activities

The Company recorded charges of $6.8 million during the second quarter ended June 30, 2002, in connection with a restructuring plan. This plan included the closing and consolidation of seven field locations and the realignment and consolidation of certain corporate and administrative support functions due primarily to the sale of the Company's SPS business. These charges included employee severance of $0.9 million relating to the termination of 115 employees in field locations and certain corporate and administrative departments, and future lease payments and other associated costs of $5.9 million resulting principally from the consolidation of office space at the Company's corporate headquarters and a change in estimated future lease obligations and other costs in excess of sublease rentals relating to a lease for a subsidiary of the Company's former parent company which the Company agreed to assume in connection with its split-off in March 2000. The Company expects the restructuring plan to be fully implemented by the end of the fourth quarter of fiscal 2002. These charges are reflected in selling, general and administrative expenses in the accompanying consolidated statement of operations. During the three months ended September 29, 2002, the Company paid $2.8 million in restructuring costs, leaving approximately $4.0 million of these restructuring charges unpaid, representing severance costs of $0.4 million and lease and other associated costs of $3.6 million. These unpaid restructuring charges are reflected in accrued expenses in the accompanying consolidated balance sheet as of September 29, 2002.

Special Charges - Fiscal 2002

Option Tender Offer

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charge of $21.4 million during the second quarter of fiscal 2002, which is reflected in selling, general and administrative expenses in the accompanying consolidated statement of operations for the nine months ended September 29, 2002.

Settlement Costs

The Company recorded a $7.7 million charge in the second quarter of fiscal 2002 to reflect settlement costs relating to the Fredrickson v. Olsten Health Services Corp. and Olsten Corporation lawsuit as well as estimated settlement costs related to government inquiries regarding cost reporting procedures concerning contracted nursing and home health aide costs (see Note 10). These costs are reflected in selling, general and administrative costs in the accompanying consolidated statement of operations for the nine months ended September 29, 2002.

Insurance Costs

The Company recorded a special charge of $6.3 million in the second quarter of fiscal 2002 related primarily to a refinement in the estimation process used to determine the Company's actuarially computed workers compensation and professional liability insurance reserves. This special charge is reflected in cost of services sold in the accompanying consolidated statement of operations for the nine months ended September 29, 2002.

Asset Writedowns and Other

The Company recorded charges of $3.8 million in the second quarter of fiscal 2002, consisting primarily of a writedown of inventory and other assets associated with home medical equipment used in the Company's nursing operations, and a write off of deferred debt issuance costs associated with the terminated credit facility. The charges are reflected in selling, general and administrative expenses in the accompanying consolidated statement of operations for the nine months ended September 29, 2002.

Special Charges - Fiscal 2001

Settlement Costs

The Company recorded special charges of approximately $3.0 million in the second quarter of fiscal 2001 in connection with the settlement of the Gile v. Olsten Corporation, et al, and the State of Indiana v. Quantum Health Resources, Inc. and Olsten Health Services, Inc. lawsuits and for various other legal costs. These special charges are reflected in selling, general and administrative expenses in the accompanying consolidated statement of operations for the nine months ended September 30, 2001.

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6. Goodwill and Other Intangible Assets and Income Tax Revision

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), which broadens the criteria for recording intangible assets separate from goodwill. SFAS 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles are not amortized into results of operations, but instead are reviewed for impairment and an impairment charge is recorded in the periods in which the recorded carrying value of goodwill and certain intangibles is more than its estimated fair value. The Company adopted SFAS 142 as of the beginning of fiscal 2002 (December 31, 2001). The provisions of SFAS 142 require that a transitional impairment test be performed as of the beginning of the year the statement is adopted. The provisions of SFAS 142 also require that a goodwill impairment test be performed annually or on the occasion of other events that indicate a potential impairment. The new criteria for recording intangible assets separate from goodwill did not require any reclassification in the Company's consolidated financial statements.

At December 30, 2001, the Company had goodwill of $220.5 million, of which $217.3 million related to the Home Health Services business and $3.2 million related to the SPS business. The SPS goodwill of $3.2 million was acquired by Accredo as a component of the net assets of the SPS business. The Company's transitional impairment test indicated that there was an impairment of goodwill relating to the Home Health Services business upon adoption of SFAS 142 as further described below.

The impairment test is a two step process that begins with the estimation of the fair value of each reporting unit. The first step screens for potential impairment and the second step measures the amount of the impairment. The estimate of fair value of the Home Health Services business, as of December 31, 2001, considered publicly available information as well as financial projections and estimates, prepared by outside advisors, and was determined by subtracting the agreed-upon purchase price for the SPS business from the market capitalization of the Company. As part of the first step to assess potential impairment, management compared the estimate of fair value for the Home Health Services business to the book value of the business unit's net assets. Since the book value of Home Health Services' net assets was greater than its estimated fair value, management proceeded to the second step to measure the impairment. The second step compared the implied fair value of goodwill with its carrying value. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit's goodwill is greater than its implied fair value, an impairment loss would be recognized in the amount of the excess.

Based on the results of the transitional impairment tests, the Company determined that an impairment loss relating to goodwill had occurred and recorded a non-cash charge of $217.3 million as cumulative effect of accounting change in the accompanying consolidated statement of operations for

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the nine months ended September 29, 2002. The Company recorded a deferred tax benefit of approximately $66 million resulting from this non-cash charge and increased its tax valuation allowance by the same amount. The deferred tax benefit was recorded by eliminating a deferred tax liability of approximately $27 million and recording a deferred tax asset of approximately $39 million.

During the third quarter of fiscal 2002, the Company recorded a tax benefit of $1.4 million, relating to tax deductible goodwill. The tax benefit is reflected in cumulative effect of accounting change in the accompanying consolidated statement of operations. In addition, during the third quarter of 2002, the Company revised its intraperiod tax allocation associated with the adoption of SFAS 142 and the subsequent write-off of goodwill. In this connection, the Company revised its first quarter and six month results to increase the loss from continuing operations for an adjustment to the provision for income taxes of $26.9 million and to decrease the cumulative effect of accounting change by a corresponding amount. This adjustment reflected the establishment of a valuation allowance against certain deferred tax assets by a charge to the provision for income taxes in continuing operations and a decrease to the cumulative effect of accounting change relating to income tax benefits associated with the simultaneous write-off of the impaired goodwill.

These revisions had no impact on reported net loss or cash flows for either the three months ended March 31, 2002 or the six months ended June 30, 2002. The financial statement amounts reported in the Company's consolidated statement of operations impacted by these tax revisions on the Company's first quarter and six months operating results are shown below (in thousands, except per share amounts):

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		Three Months ended				Six Months ended
		March 31, 2002				June 30, 2002
		As Reported			As Adjusted	As Reported	As Adjusted

Income tax (expense) benefit		$	(75)	(a)	$ (26,934)	$ 12,195	$ (14,664)

Income (loss) from continuing operations		$	945	(a)	$ (25,914)	$ (32,733)	$ (59,592)
	Discontinued operations, net of tax	7,188			7,188	192,141	192,141
	Cumulative effect of accounting change, net of tax	(217,327)			(190,468)	(217,327)	(190,468)

Net loss		$	(209,194)		$ (209,194)	$ (57,919)	$ (57,919)

Basic loss per share:
	Income (loss) from continuing operations	$	0.03		$ (1.00)	$ (1.26)	$ (2.29)
	Discontinued operations, net of tax	0.28			0.28	7.39	7.39
	Cumulative effect of accounting change, net of tax	(8.41)			(7.37)	(8.36)	(7.33)

	Net loss	$	(8.10)		$ (8.10)	$ (2.23)	$ (2.23)


Diluted loss per share:
	Income (loss) from continuing operations	$	0.03		$ (1.00)	$ (1.26)	$ (2.29)
	Discontinued operations, net of tax	0.27			0.28	7.39	7.39
	Cumulative effect of accounting change, net of tax	(8.02)			(7.37)	(8.36)	(7.33)

	Net loss	$	(7.72)		$ (8.10)	$ (2.23)	$ (2.23)


	Average shares outstanding - diluted	27,096			25,842	25,993	25,993


(a)	As a result of the Company consummating the sale of its Specialty Pharmaceutical Services ("SPS") business (the "SPS Sale")
	to Accredo Health, Incorporated ("Accredo") on June 13, 2002, the Company reclassified the operations of the SPS business into
	discontinued operations for the six month period ended June 30, 2002. This reclassification for discontinued operations has
	also been reflected in the as reported column for the three months ended March 31, 2002.

The table below presents a reconciliation of reported net income to adjusted net income as if the SFAS 142 was adopted as of January 1, 2001 (in thousands, except per share amounts).

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	Three Months Ended		Nine Months Ended
	September 30, 2001		September 30, 2001

		Earnings Per Share		Earnings Per Share
	Net Income	Basic and Diluted	Net Income	Basic and Diluted

Reported net income	$ 6,246	$ 0.26	$ 14,676	$ 0.65
Add back: Goodwill amortization	2,494	0.11	7,551	0.34

Adjusted net income	$ 8,740	$ 0.37	$ 22,227	$ 0.99

7. Current Liabilities

In early 2001, the Center for Medicare and Medicaid Services ("CMS"), formerly known as the Health Care Financing Administration, issued cash advances to certain Medicare providers in connection with the transition from the Interim Payment System to the Prospective Payment System (PPS) for Medicare reimbursement. In the first quarter of fiscal 2001, the Company received such an advance, net of payments for estimated settlements relating to cost report filings, of approximately $20.9 million, which is reflected in accrued expenses in the accompanying consolidated balance sheets as of September 29, 2002 and December 30, 2001. In October 2002, the Company repaid the cash advance of $20.9 million related to the October 2000 implementation of the PPS. Concurrently, the Company received a payment of $15.9 million connected to a preliminary settlement from the Medicare program relating to prior year cost reports.

8. Revolving Credit Facility and Restricted Cash

In connection with the sale of the SPS business, the Company terminated its existing credit facility, and entered into a new credit facility on June 13, 2002. The new credit facility provides the Company with up to $55 million in borrowings, including up to $40 million which is available for letters of credit. The Company may borrow up to a maximum of eighty percent of the net amount of eligible accounts receivable, as defined, less any reserves required by the lender. Borrowing availability under the new credit facility is reduced by $10 million until such quarter in 2003 in which the trailing twelve month earnings before interest, taxes, depreciation and amortization ("EBITDA"), excluding certain restructuring costs and special charges, as defined, exceeds $15 million. At the Company's option, the interest rate on borrowings under the credit facility is based on the London Interbank Offered Rates (LIBOR) plus 3.5 percent or the lender's prime rate plus 1.25 percent. In addition, the Company must pay a fee equal to 2.5 percent per annum of the aggregate face amount of outstanding letters of credit. Beginning in 2003, the applicable margin for the LIBOR borrowing, prime rate borrowing and letter of credit fees decrease by 0.25 percent to 3.25 percent, 1.0 percent, and 2.25 percent, respectively, provided that the Company's trailing twelve month EBITDA, excluding certain restructuring costs and special charges, as defined, is in excess of $20 million. The higher margins and fees are subject to reinstatement in the event that EBITDA falls below $20 million. The Company is subject to an unused

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line fee equal to 0.50 percent per annum of the average daily difference between $55 million and the total outstanding borrowings and letters of credit. For 2003, the unused credit line fee decreases to 0.375 percent provided the minimum EBITDA target described above is achieved, but is subject to reinstatement to the higher fee in the event that EBITDA falls below $20 million. Total outstanding letters of credit were approximately $27.6 million as of September 29, 2002. The letters of credit, which expire one year from date of issuance, were issued to guarantee payments under the Company's workers compensation program and for certain other commitments. There were no borrowings outstanding under the credit facility as of September 29, 2002.

The new credit facility, which expires in 2006, includes certain covenants requiring the Company to maintain a minimum tangible net worth, minimum EBITDA, a minimum fixed charge coverage, and a minimum cash balance related to the Medicare advance. Other covenants in the credit facility include limitation on mergers, consolidations, acquisitions, indebtedness, liens, distributions, capital expenditures and dispositions of assets and other limitations with respect to the Company's operations. The credit facility further provides that if the agreement is terminated for any reason, the Company must pay an early termination fee equal to 1.0 percent if terminated during year one, 0.5 percent if terminated in year two and 0.25 percent if terminated in year three, of $55 million (or $45 million during the time when borrowing availability is reduced by $10 million due to EBITDA requirements). Loans under the credit facility will be collateralized by all of the Company's tangible and intangible personal property, other than equipment. As of September 29, 2002, the Company was in compliance with these covenants.

In connection with the Frederickson v. Olsten Health Services Corp. and Olsten Corporation case, a supersedeas bond in the amount of $35.2 million was posted to satisfy the judgment plus interest. Under terms of the bond, cash equal to the amount of the bond was held in a segregated account and was reported as restricted cash in the accompanying consolidated balance sheet as of December 30, 2001. This matter has been settled and the supersedeas bond has been released. The restricted cash of $35.2 million was released to the Company in September 2002.

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9. Shareholders' Equity

Changes in shareholders' equity for the nine months ended September 29, 2002 were as follows (in thousands):

			Common Stock	Additional Paid-in Capital	Accumulated Deficit	Total

Balance at December 30, 2001			$ 2,564	$ 722,725	$ (103,582)	$ 621,707

	Comprehensive loss:
		Net loss			(54,352)	(54,352)

	Dividends paid ($17.75 per share)			(466,597)		(466,597)
	Issuance of stock upon exercise of
	stock options and under stock plans
	for employees and directors		74	6,828	-	6,902

Balance at September 29, 2002			$ 2,638	$ 262,956	$ (157,934)	$ 107,660

Comprehensive income amounted to $3.6 million and $6.6 million for the third quarter of fiscal 2002 and 2001, respectively, and a comprehensive loss of $54.4 million and comprehensive income of $14.8 million were recorded for the nine months ended September 29, 2002 and September 30, 2001, respectively.

10. Legal Matters

Litigation

In addition to the matters referenced below, the Company is party to certain legal actions arising in the ordinary course of business including legal actions arising out of services rendered by its various operations, personal injury and employment disputes.

Fredrickson v. Olsten Health Services Corp. and Olsten Corporation, Case No. 01C.A.116, Court of Appeals, Seventh Appellate District, Mahoning County, Ohio. In November, 2000, the jury in this age-discrimination lawsuit returned a verdict in favor of the plaintiff against Olsten consisting of $675,000 in compensatory damages, $30 million in punitive damages and an undetermined amount of attorneys' fees. The jury found that, although Olsten had lawfully terminated the plaintiff's employment, its failure to transfer or rehire the plaintiff rendered Olsten liable to the plaintiff. Following post-trial motion practice by both parties, the trial court, in May 2001, denied all post-trial motions, and entered judgment for the plaintiff for the full amount of compensatory and punitive damages, and awarded the plaintiff reduced attorney's fees of $247,938. In June 2001, defendants timely filed a Notice of Appeal with the Court of Appeals, and the Company posted a supersedeas bond for the full amount of the judgment, plus interest. This matter has been settled, and settlement costs were recorded as part of special charges during the second quarter of fiscal 2002 (see Note 5). The supersedeas bond has been released and the restricted cash of $35.2 million was released to the Company in September 2002.

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Cooper v. Gentiva CareCentrix, Inc., t/a/d/b/a Gentiva Health Services, U.S. District Court (W.D. Penn), Civil Action No. 01-0508. On January 2, 2002, this Amended Complaint was served on the Company alleging that the defendant submitted false claims to the government for payment in violation of the Federal False Claims Act, 31 U.S.C. 3729 et seq., and that the defendant had wrongfully terminated plaintiff. Plaintiff claims that infusion pumps delivered to patients did not supply the full amount of medication, allegedly resulting in substandard care. Based on a review of the court's docket sheet, plaintiff filed a complaint under seal in March 2001. In October 2001, the United States Government filed a Notice with the court declining to intervene in this matter, and on October 24, 2001, the court ordered that the seal be lifted. The Company filed its responsive pleading on February 25, 2002 and discovery has now commenced. The Company has denied the allegations of wrongdoing in the complaint and intends to defend itself vigorously in this matter. Given the preliminary stage of the proceedings, the Company is unable to assess the probable outcome or potential liability, if any, arising from this matter; therefore, a range of damages, if any, cannot be determined.

United States of America ex rel. Lee Einer v. Olsten Corporation, No. CIV-S-99-0860 DFL/DAD, U.S. District Court for the Eastern District of California. On November 1, 2001, the Company received notice of the entry of an Order dated October 25, 2001, unsealing the referenced complaint. As recited in the Order unsealing the complaint, the United States gave notice to the District Court that the United States was declining to intervene in the action. The Company believes that it was this complaint that gave rise to a document subpoena served on the Company in December 1999 from the Department of Health and Human Services, Office of Inspector General, and Office of Investigations. The Company acknowledged service of the complaint on November 29, 2001 and timely filed responsive pleadings to the Complaint. On October 30, 2002 the relator dismissed the action with prejudice and the government consented to the dismissal, without prejudice to its rights.

In 1999, Kimberly Home HealthCare, Inc. ("Kimberly"), one of the Company's subsidiaries, initiated three arbitration proceedings against hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which Kimberly had management services agreements to provide services to the hospitals' home health agencies. The basis for each of the arbitrations is that Columbia/HCA sold the home health agencies without assigning the management services agreements and, as a result, Columbia/HCA has breached the management services agreements. In response to the arbitrations, Columbia/HCA has asserted that the arbitrations be consolidated and stayed, in part based upon its alleged claims against Kimberly for breach of contract, and requested indemnity and possibly return of management fees. Columbia/HCA has not yet formally presented these claims in the arbitrations or other legal proceedings and has not yet quantified the claims. Still pending before the arbitrators is Columbia/HCA's request to consolidate the proceedings, which Kimberly has opposed. The proceedings are currently in abeyance pending ruling on Columbia/HCA's motion to consolidate. The Company is the claimant in this matter and the defendant has not formally asserted any counterclaims against the Company in the arbitration, nor has the defendant made any formal demand on the Company. The Company is unable to assess the liability or losses, if any, attributable to the threatened counterclaims.

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Furthermore, in connection with the Company's split-off from Olsten Corporation ("Split-Off") on March 15, 2000, the Company agreed to assume, to the extent permitted by law, the liabilities, if any, arising out of (and to indemnify Olsten for) the above proceedings and other liabilities arising out of the Home Health Services business, including any such liabilities arising after the Split-Off in connection with the government investigation described below.

In addition, the Company and Accredo have agreed to indemnify each other for breaches of representations and warranties of such party or the non-fulfillment of any covenant or agreement of such party in connection with the sale of the SPS business. In addition, the Company has agreed to indemnify Accredo for the retained liabilities and for tax liabilities and Accredo has agreed to indemnify the Company for assumed liabilities and the operation of the SPS business after the closing of the acquisition. The representations and warranties generally survive for the period of two years after the closing of the acquisition, except that:

representations and warranties related to health care compliance survive for three years after the closing of the acquisition;
representations and warranties related to title of the assets and sufficiency of assets and employees survive for the applicable statute of limitations period; and
representations and warranties related to tax matters survive until thirty days after the expiration of the applicable tax statute of limitations period, including any extensions of the applicable period, subject to certain exceptions.

Accredo and the Company may recover indemnification for a breach of a representation or warranty only to the extent a party's claim exceeds $5 million in the aggregate, subject to certain conditions and only up to a maximum amount of $100 million.

These indemnification rights are the exclusive remedy on and after the closing date of the acquisition, except for the right to seek specific performance of any of the agreements in the Asset Purchase Agreement, in any case where a party is guilty of fraud in connection with the acquisition, and with respect to tax liabilities and obligations.

Government Investigation

In early February 2000, the Company received a document subpoena from the Department of Health and Human Services, Office of Inspector General, and Office of Investigations. The subpoena relates to its agencies' cost reporting procedures concerning contracted nursing and home health aide costs. To the Company's knowledge, the government has not filed a complaint against the Company. The settlement of this matter was consummated on September 30, 2002 (see Note 5).

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11. Stock Plans

Prior to the closing of the sale of the SPS business, the Company commenced a cash tender offer for all of the outstanding options to purchase its common stock, subject to a maximum aggregate option purchase price to be paid of $25 million.

On June 20, 2002, the Company's cash tender offer expired, resulting in 1,253,141 options tendered and accepted by the Company for a cash payment of $21.4 million. As of such date, 463,829 vested options remained outstanding and subject to adjustment. The 463,829 options were adjusted in accordance with the Company's option plans to give effect to the distribution of the proceeds of the sale of the SPS business at a conversion ratio of 3.369 Gentiva options for every one Gentiva option outstanding immediately prior to the adjustment. This resulted in 1,562,646 options outstanding at a weighted average exercise price of approximately $2.63 after giving effect to the option adjustment.

In addition, for the first nine months of fiscal 2002, the Company granted 1,135,000 new options under its existing option plans to officers, directors and employees at an average exercise price of $7.52 per share.

At September 29, 2002, there were 2,563,664 options outstanding at a weighted average exercise price of $4.74 per share.

12. Income Taxes

Deferred tax assets and deferred tax liabilities were as follows (in thousands):


		September 29, 2002	December 30, 2001

Deferred tax assets
	Reserves and allowances	$ 23,701	$ 48,663
	Net operating loss (Federal and state)	-	36,230
	Intangible assets	36,726	-
	Other	594	3,347
	Less: valuation allowance	(59,403)	(57,330)

Total deferred tax asset		1,618	30,910

Deferred tax liabilities
	Capitalized software	(688)	(2,035)
	Intangible assets	-	(26,859)
	Depreciation	(930)	(2,016)

Total deferred tax liability		(1,618)	(30,910)

Net deferred tax asset (liability)		$ -	$ -

At December 30, 2001, the Company had a federal net operating loss carryforward of $89.7 million generated subsequent to its Split-Off from Olsten Corporation on March 15, 2000. The net operating loss carryforwards were fully used in the second quarter of fiscal 2002 to offset, in part, the gain from the sale of the SPS business.

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Federal and state income tax expense was recorded for the three months ended September 29, 2002 relating to income from continuing operations. A federal and state income tax benefit was recorded for the nine months ended September 29, 2002, relating to the loss from continuing operations, offset by a $26.9 million tax provision associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets", as discussed further in Note 6. Because of the uncertainty of the ultimate realization of net deferred tax assets, a valuation allowance is maintained relating to deferred tax assets that are not otherwise used to offset deferred tax liabilities. The benefits associated with approximately $12 million of deferred tax assets, when ultimately realized, will be credited to stockholders' equity.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words "believes", "anticipates", "intends", "expects" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company's current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following:

general economic and business conditions;
demographic changes;
changes in, or failure to comply with, existing governmental regulations;
legislative proposals for health care reform;
changes in Medicare and Medicaid reimbursement levels;
effects of competition in the markets the Company operates in;
liability and other claims asserted against the Company;
ability to attract and retain qualified personnel;
availability and terms of capital;
loss of significant contracts or reduction in revenues associated with major payor sources;
ability of customers to pay for services;
a material shift in utilization within capitated agreements; and
changes in estimates and judgments associated with critical accounting policies as further described herein.

Forward-looking statements are found throughout Management's Discussion and Analysis of Financial Condition and Results of Operations. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. The Company is not

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obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this report or unforeseen events. The Company provides a detailed discussion of risk factors in various filings with the Securities and Exchange Commission, including its 2001 Annual Report on Form 10-K, as amended, and you are encouraged to review these filings.

General

The Company's results of operations are impacted by various regulations and other matters that are implemented from time to time in its industry, some of which are described in the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended December 30, 2001 and in other filings with the Securities and Exchange Commission.

Significant Developments

On June 13, 2002, the Company consummated the sale of substantially all of the assets of the Company's SPS business to Accredo pursuant to an asset purchase agreement (the "Asset Purchase Agreement") dated January 2, 2002, for a purchase price of $470.1 million subject to a post closing reconciliation based on the net book value of the SPS assets as reflected on the final closing balance sheet. During the third quarter of fiscal 2002, the Company recorded an adjustment of approximately ($0.9) million to the aggregate proceeds from the sale based on the difference between the estimated and actual closing net book value of SPS assets as reflected in the final closing balance sheet. In accordance with the Asset Purchase Agreement, the Company received cash proceeds of $207.5 million before the closing net book value adjustment and 5,060,976 shares of Accredo common stock. Based on the closing price of the Accredo common stock on June 13, 2002 ($51.89 per share), the value of the stock consideration was $262.6 million.

On June 13, 2002, the Company's Board of Directors declared a dividend, payable to shareholders of record on June 13, 2002, of all the common stock consideration and substantially all the cash consideration received from Accredo. The cash consideration received by the Company was $207.5 million before the closing net book value adjustment; however, the amount distributed to the Company's shareholders was reduced by $3.5 million to $204 million as a holdback for income taxes the Company is expected to incur on the estimated proceeds received in excess of $460 million as detailed in the Company's proxy statement, dated May 10, 2002.

The operating results of the SPS business, through the closing date of the sale to Accredo, including corporate expenses directly attributable to SPS operations, as well as the gain on the sale, net of transaction costs and related income taxes, are reflected as discontinued operations in the accompanying consolidated statements of operations. Continuing operations includes the results of the Home Health Services business, including corporate expenses that did not directly relate to SPS, as well as restructuring and special charges. Results of all prior periods have been reclassified to conform to this presentation.

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Results of Operations

Revenue

Net revenues increased by $13 million, or 7.4 percent to $188 million for the quarter ended September 29, 2002 as compared to the quarter ended September 30, 2001. For the nine months ended September 29, 2002, net revenues increased $36 million, or 6.7 percent to $577 million compared to $541 million for the corresponding period in 2001.

These increases were driven by a combination of increased rates to Commercial and Governmental payors, increased volume in nursing patient admissions and an increase in the number of Preferred Provider Organization enrollees served by the Company's CareCentrix unit.

For the quarter ended September 29, 2002, as compared to the quarter ended September 30, 2001, net revenues from Medicare increased by $4.0 million or 11.2 percent to $39.5 million, Commercial and Other payors net revenues increased by $9 million or 9.1 percent to $107 million, and Local Government payors net revenues remained flat at $41.9 million.

For the nine months ended September 29, 2002, as compared to the nine months ended September 30, 2001, net revenues from Medicare grew by $9.1 million or 8.1 percent to $122.2 million, Commercial and Other payors net revenues increased $28.3 million or 9.4 percent to $329.3 million, and Local Government payors net revenues decreased by $1.4 million or 1.1 percent to $125.3 million.

Gross Profit

Gross profit was approximately $64 million for the quarter ended September 29, 2002 and $59 million for the quarter ended September 30, 2001. As a percentage of net revenue, gross profit margins decreased from 33.9 percent for the quarter ended September 30, 2001 to 33.7 percent for the quarter ended September 29, 2002. The change in gross profit percentage can be attributed to costs associated with the training of full-time caregivers and increased insurance and labor costs related to caregiver associates.

Gross profit margins decreased from 34.2 percent for the nine months ended September 30, 2001 to 31.9 percent for the nine months ended September 29, 2002. The decrease in margin was primarily related to a $6.3 million special charge relating principally to a refinement in the estimation process used to determine the Company's actuarially computed workers compensation and professional liability insurance reserves (see Note 5). This special charge had a negative impact on gross profit margins of 1.1 percent. In addition to the special charge, the Company also recorded a revenue adjustment of $2.5 million, which had a 0.3 percent negative impact on margins, related to a change in the estimated amount of the repayment to Medicare for partial episode payments ("PEPS") from the

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inception of the Prospective Payment System of reimbursement ("PPS") in October 2000 through June 30, 2002. The remaining 0.9 percent decrease in gross margin percentage was attributable to various other factors including revenue adjustments related to estimated third party settlements, increased insurance costs, training costs associated with orientation of additional full-time caregivers and changes in business mix due to growth in the CareCentrix business, which generates a lower gross margin but also requires lower administrative costs to service the business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $5 million or 8.3 percent to $59 million for the quarter ended September 29, 2002, as compared to $64 million for the quarter ended September 30, 2001, primarily related to reductions in amortization expense ($2.5 million) due to the implementation of SFAS No. 142 (Goodwill and Other Intangible Assets) in the first quarter of fiscal 2002, reductions in corporate administration expenses of approximately $2 million due to various consolidation and realignment efforts in various corporate departments following the sale of the SPS business in June 2002, and miscellaneous reductions in field administration costs.

For the nine months ended September 29, 2002, selling, general and administrative expenses increased $26 million, or 13.0 percent to $225 million compared to $199 million for the corresponding period in 2001. These increases were driven by restructuring and special charges of $46.1 million during the second quarter ended June 30, 2002, of which approximately $40 million was reflected in selling, general and administrative expenses in the accompanying consolidated statement of operations for the nine months ended September 29, 2002, as compared to $3 million of special charges which were reflected in the consolidated statement of operations for the nine months ended September 30, 2001. These net increases were offset by reductions in amortization expense ($7.5 million) due to the implementation of SFAS No. 142 and reductions in field administration expenses ($3.5 million) as a result of improvements in processes and technology.

Restructuring and special charges for the nine months ended September 29, 2002 are summarized and further described below (in thousands):

		Nine Months Ended
		September 29, 2002

Restructuring charges:
Business realignment activities		$ 6,813

Special charges:
Option tender offer		21,388
Settlement costs		7,731
Insurance costs		6,300
Asset writedowns and other		3,824

	Total special charges	39,243

Total restructuring and special charges		$ 46,056

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Restructuring Charges

Business Realignment Activities

The Company recorded charges of $6.8 million during the second quarter ended June 30, 2002 in connection with a restructuring plan. This plan included the closing and consolidation of seven field locations and the realignment and consolidation of certain corporate and administrative support functions due primarily to the sale of the Company's SPS business. These charges included employee severance of $0.9 million relating to the termination of 115 employees in field locations and certain corporate and administrative departments, and future lease payments and other associated costs of $5.9 million resulting principally from the consolidation of office space at the Company's corporate headquarters and a change in estimated future lease obligations and other costs in excess of sublease rentals relating to a lease for a subsidiary of the Company's former parent company which the Company agreed to assume in connection with its Split-Off in March 2000. The Company expects the restructuring plan to be fully implemented by the end of the fourth quarter of fiscal 2002. These charges are reflected in selling, general and administrative expenses in the accompanying consolidated statement of operations. During the three months ended September 29, 2002, the Company paid $2.8 million in restructuring costs, leaving approximately $4.0 million of these restructuring charges unpaid, representing severance costs of $0.4 million and lease and other associated costs of $3.6 million. These unpaid restructuring charges are reflected in accrued expenses in the accompanying consolidated balance sheet as of September 29, 2002.

Special Charges - Fiscal 2002

Option Tender Offer

During the second quarter ended June 30, 2002, the Company effected a cash tender offer for all outstanding options to purchase its common stock for an aggregate option purchase price not to exceed $25 million. In connection with this tender offer, the Company recorded a charge of $21.4 million during the second quarter of fiscal 2002, which is reflected in selling, general and administrative expenses in the accompanying consolidated statement of operations for the nine months ended September 29, 2002.

Settlement Costs

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Insurance Costs

Asset Writedowns and Other

Special Charges - Fiscal 2001

Settlement Costs

Interest Income (Expense), Net

Net interest income was approximately $0.2 million for the quarter ended September 29, 2002 and $0.3 million for the quarter ended September 30, 2001. Net interest income for the third quarter of fiscal 2002 and fiscal 2001 represented interest income of approximately $0.5 million and $0.8 million, respectively, offset by fees relating to the revolving credit facility and outstanding letters of credit and for the third quarter of fiscal 2001, interest on the 10 percent convertible preferred trust securities.

Net interest income was approximately $0.7 million for the nine months ended September 29, 2002 and net interest expense was approximately $0.2 million for the corresponding period in 2001. Net interest income for the first nine months of fiscal 2002 and fiscal 2001 represented interest income of approximately $2.0 million and $2.2 million, respectively, offset by fees relating to the revolving credit facility and outstanding letters of credit and, for the fiscal 2001 period, interest on the 10 percent convertible preferred trust securities.

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Income Taxes

Federal and state income tax expense was recorded for the three months ended September 29, 2002 relating to income from continuing operations. A federal and state income tax benefit was recorded for the nine months ended September 29, 2002, relating to the loss from continuing operations, offset by a $26.9 million tax provision associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets", as discussed further in Note 6. Because of the uncertainty of the ultimate realization of net deferred tax assets, a valuation allowance is maintained relating to deferred tax assets that are not otherwise used to offset deferred tax liabilities. The Company had net operating tax loss carryforwards (NOLs) of $89.7 million as of December 30, 2001. The NOLs were fully used in the second quarter of fiscal 2002 to offset, in part, the gain from the sale of the SPS business.

For the quarter ended September 29, 2002, the Company recorded a tax benefit of $1.4 million, relating to tax amortization of goodwill. The tax benefit is reflected in cumulative effect of accounting change in the accompanying consolidated statement of operations.

Liquidity and Capital Resources

The Company's principal source of liquidity is the collection of its accounts receivable. For healthcare services, the Company grants credit without collateral to its patients, most of whom are insured under third party commercial or governmental payor arrangements.

Days Sales Outstanding ("DSO") was 68 days at December 30, 2001. DSO was reduced by 3 days to 65 days at September 29, 2002, as a result of continued improved cash collections. DSO at September 29, 2002 increased 2 days from 63 days at June 30, 2002 due to seasonally lower net revenues associated with the CareCentrix unit.

Working capital at September 29, 2002, was $101 million, a decrease of $317 million as compared to $418 million at December 30, 2001, primarily due to:

a $250 million decrease resulting from the sale of the net assets of the SPS business;
a $34 million decrease in prepaid and other assets relating to an increase in the valuation allowance for deferred tax assets as further described in Notes 6 and 12; and
a $19 million increase in current liabilities, excluding liabilities held for sale, primarily driven by accrued expenses ($11 million), accounts payable ($4 million), and insurance costs ($7 million), offset by a decrease in payroll and related taxes ($3 million), associated with the sale of the SPS business, restructuring activities and special charges.

The Company is party to a contract with CIGNA Health Corporation ("Cigna"), pursuant to which the Company provides or contracts with third party providers to provide home nursing services, acute and chronic infusion therapies and durable medical equipment to patients insured by Cigna. For the nine months ended September 29, 2002, Cigna accounted for 38 percent of the Company's total net revenues. The Company has renewed the contract with Cigna for the seventh consecutive year, with the current contract expiring on December 31, 2003, with an option to renew. If Cigna chose to terminate or not renew the contract, or to significantly modify its use of the Company's services, there could be a material adverse effect on the Company's cash flow.

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The Company participates in the Medicare, Medicaid and other federal and state healthcare programs. For the nine months ended September 29, 2002, the Company's participation in the Medicare program accounted for 21 percent, and the Company's participation in the Medicaid and other federal and state healthcare programs accounted for 22 percent, of the Company's net revenues. On October 1, 2002, the reduction in home health payment limits mandated under the Balanced Budget Act of 1997 became effective. The Center for Medicare and Medicaid Services estimates that the reduction in payment limits will reduce payments under the Medicare program to home health agencies for open episodes of care on or after October 1, 2002 by approximately 7 percent. Simultaneous with this reduction, market basket rate increases of 2.1 percent adjusted for certain wage indices were also implemented, resulting in an overall reduction in reimbursement rates of approximately 4.9 percent. This reduction had a negative impact of approximately $0.3 million on net revenues for the three months and nine months ended September 29, 2002. The House of Representatives has passed a proposal and the Senate may consider proposals that would eliminate this reduction in Medicare reimbursement. The outcome of these proposals is uncertain at this time.

There are certain standards and regulations that the Company must adhere to in order to continue to participate in these programs, including compliance with the Company's corporate integrity agreement. As part of these standards and regulations, the Company is subject to periodic audits, examinations and investigations conducted by, or at the direction of, governmental investigatory and oversight agencies. Periodic and random audits conducted or directed by these agencies could result in a delay or adjustment to the amount of reimbursements received under these programs. Violation of the applicable federal and state health care regulations can result in the Company's exclusion from participating in these programs and can subject the Company to substantial civil and/or criminal penalties. The Company believes it is currently in full compliance with these standards and regulations.

In connection with the sale of the SPS business, the Company terminated its then-existing credit facility, and entered into a new credit facility on June 13, 2002. The new credit facility provides the Company with up to $55 million in borrowings, including up to $40 million which is available for letters of credit. The Company may borrow up to a maximum of eighty percent of the net amount of eligible accounts receivable, as defined, less any reserves required by the lender. Borrowing availability under the new credit facility is reduced by $10 million until such quarter in 2003 in which the trailing twelve month EBITDA, excluding certain restructuring costs and special charges, as defined, exceeds $15 million. At the Company's option, the interest rate on borrowings under the credit facility is based on the London Interbank Offered Rates (LIBOR) plus 3.5 percent or the lender's prime rate plus 1.25 percent. In addition, the Company must pay a fee equal to 2.5 percent per annum of the aggregate face amount of outstanding letters of credit. Beginning in 2003, the

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applicable margin for the LIBOR borrowing, prime rate borrowing and letter of credit fees decrease by 0.25 percent to 3.25 percent, 1.0 percent, and 2.25 percent, respectively, provided that the Company's trailing twelve month EBITDA, excluding certain restructuring costs and special charges, as defined, is in excess of $20 million. The higher margins and fees are subject to reinstatement in the event that EBITDA falls below $20 million. The Company is subject to an unused line fee equal to 0.50 percent per annum of the average daily difference between $55 million and the total outstanding borrowings and letters of credit. For 2003, the unused credit line fee decreases to 0.375 percent provided the minimum EBITDA target described above is achieved, but is subject to reinstatement to the higher fee in the event that EBITDA falls below $20 million.

Total outstanding letters of credit were approximately $27.6 million as of September 29, 2002. The letters of credit, which expire one year from date of issuance, were issued to guarantee payments under the Company's workers compensation program and for certain other commitments. There were no borrowings outstanding under the credit facility as of September 29, 2002. As of September 29, 2002 the Company had borrowing capacity under the credit facility, after adjusting for outstanding letters of credit, of approximately $17 million.

The new credit facility, which expires in 2006, includes certain covenants requiring the Company to maintain a minimum tangible net worth, minimum EBITDA, minimum fixed charge coverage and a minimum cash balance related to the Medicare advance. Other covenants in the credit facility include limitation on mergers, consolidations, acquisitions, indebtedness, liens, distributions, capital expenditures and dispositions of assets and other limitations with respect to the Company's operations. The credit facility further provides that if the agreement is terminated for any reason, the Company must pay an early termination fee equal to 1.0 percent if terminated during year one, 0.5 percent if terminated in year two and 0.25 percent if terminated in year three, of $55 million (or $45 million during the time when borrowing availability is reduced by $10 million due to EBITDA requirements). Loans under the credit facility are collateralized by all of the Company's tangible and intangible personal property, other than equipment.

The new credit facility includes provisions, which, if not complied with, could require early payment by the Company. These include customary default events, such as failure to comply with financial covenants, insolvency events, non-payment of scheduled payments, acceleration of other financial obligations and change in control provisions. In addition, these provisions include an account obligor whose accounts are more than 25 percent of all accounts of the Company over the previous 12-month period canceling or failing to renew its contract with the Company and ceasing to recognize the Company as an approved provider of health care services, or the Company revoking the lending agent's control over its governmental lockbox accounts. The Company does not have any trigger events in the new credit facility that are tied to changes in its credit rating or stock price. As of September 29, 2002, the Company was in compliance with these covenants.

The Company has no off-balance sheet arrangements and has not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

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Capital Expenditures

The Company's capital expenditures for the three months and nine months ended September 29, 2002 were $1.5 million and $4.5 million, respectively, as compared to $3.6 million and $6.4 million for the same periods in 2001. The Company intends to make investments and other expenditures to, among other things, upgrade its computer technology and system infrastructure and comply with regulatory changes in the industry. In this regard, management expects that capital expenditures will range between $2 million and $3 million during the remainder of fiscal 2002. The Company may also make certain other investments to expand its business, including acquisitions. Management expects that the Company's capital expenditure needs for the remainder of fiscal 2002 will be met through operating cash flow and available cash reserves.

Cash Resources and Obligations

The Company had cash and cash equivalents of $98.2 million as of September 29, 2002. In connection with the Frederickson v. Olsten Health Services Corp. and Olsten Corporation case, a supersedeas bond in the amount of $35.2 million was posted to satisfy the judgment plus interest. Under terms of the bond, cash equal to the amount of the bond was held in a segregated account and was reported as restricted cash in the accompanying consolidated balance sheet as of December 30, 2001. This matter has been settled and settlement costs were recorded as part of special charges during the second quarter of fiscal 2002. The supersedeas bond has been released and the restricted cash of $35.2 million was released to the Company in September 2002.

The Company is obligated to make certain cash payments during the remainder of fiscal 2002. In early 2001, the Center for Medicare and Medicaid Services ("CMS"), formerly known as the Health Care Financing Administration, issued cash advances to certain Medicare providers in connection with the transition from the Interim Payment System to the Prospective Payment System (PPS) for Medicare reimbursement. In the first quarter of fiscal 2001, the Company received such an advance, net of payments for estimated settlements relating to cost report filings, of approximately $20.9 million, which is reflected in accrued expenses in the accompanying consolidated balance sheets as of September 29, 2002 and December 30, 2001. In October 2002, the Company repaid the cash advance of $20.9 million related to the October 2000 implementation of the PPS. Concurrently, the Company received a payment of $15.9 million connected to a preliminary settlement from the Medicare program relating to prior year cost reports.

The Company is also obligated to make cash payments during the remainder of fiscal 2002 for settlement costs and certain other restructuring and special charges, and other cash outflows in the ordinary course of business. Management expects that these cash outflows will be offset by cash flow generated from operations during the period and available cash balances.

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Based on current projections and assuming there will be no significant cash requirements for additional strategic initiatives during the remainder of fiscal 2002, the Company expects to have a cash balance of approximately $90 million at the end of fiscal 2002. Management expects that the Company's working capital needs for the remainder of fiscal 2002 will be met through operating cash flow. If cash flows from operations or availability under the credit facility fall below expectations, the Company may be forced to delay planned capital expenditures, reduce operating expenses, seek additional financing or consider alternatives designed to enhance liquidity.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions and select accounting policies that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates of the Company relate to revenue recognition, the collectibility of accounts receivable, the cost of claims incurred but not reported, obligations under workers compensation and professional liability insurance programs, Medicare settlement and government investigation issues.

A description of the accounting policies and a discussion of the significant estimates and judgments associated with such policies are described below.

Revenue Recognition

Under fee-for-service agreements with patients and commercial and certain government payors, net revenues are recorded based on net realizable amounts to be received in the period in which the services and products are provided or delivered. Under capitated arrangements with managed care customers, net revenues are recognized based on a predetermined monthly contractual rate for each member of the managed care plan regardless of the services provided. Under the Prospective Payment System for Medicare reimbursement, net revenues are recorded based on a reimbursement rate which varies based on the severity of the patient's condition, service needs and certain other factors; revenue is recognized ratably over the estimated period in which services are provided and revenue is subject to adjustment if there are significant changes in the patient's condition during the treatment period or if the patient is discharged but readmitted to another agency within the same sixty day episodic period.

Revenue adjustments result from differences between estimated and actual reimbursement amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Revenue adjustments are deducted from gross accounts receivable. These revenue adjustments are based on significant assumptions and judgments which are determined by Company management based on historical trends.

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The process for recognizing revenue under capitated contracts and the majority of fee-for-service arrangements is generally straight-forward. The process for estimating revenue to be recognized under the Medicare program is based on certain assumptions and judgments, including the average length of time of each treatment as compared to a standard sixty day episode, the appropriateness of the clinical assessment of each patient at the time of certification and the level of adjustments to the fixed reimbursement rate relating to patients who receive a limited number of visits, have significant changes in condition or are subject to certain other factors during the episode.

For the nine months ended September 29, 2002, the percentage of net revenues attributable to major sources of reimbursement were as follows: 21 percent related to Medicare reimbursement; 22 percent related to reimbursement by Medicaid, state reimbursed programs and other state/county funding programs; 54 percent related to insurance and managed care payors; and 3 percent related to private pay and other reimbursement sources. In addition, for the same period, Cigna Healthcare accounted for approximately 38 percent of the Company's total net revenues. Of the total revenue generated from Cigna Healthcare, approximately 40 percent was recognized under a capitated arrangement. The Company has renewed the contract with Cigna Healthcare for a seventh consecutive year, with the current contract expiring on December 31, 2003, with an option to renew. Fee-for-service contracts with other commercial payors are traditionally one year in term and renewable automatically on an annual basis, unless terminated by either party.

Collectibility of Accounts Receivable

The process for estimating the ultimate collection of receivables, particularly with respect to fee-for-service arrangements, involves significant assumptions and judgments. In this regard, the Company has implemented a standardized approach to estimate and review the collectibility of its receivables based on accounts receivable aging trends. Historical collection and payor reimbursement experience is an integral part of the estimation process related to determining the allowance for doubtful accounts. In addition, the Company assesses the current state of its billing functions in order to identify any known collection or reimbursement issues to determine the impact, if any, on its reserve estimates, which involve judgment. The Company believes that the collectibility of its receivables is directly linked to the quality of its billing processes, most notably those related to obtaining the correct information to bill accurately for the services that are provided. Revisions in reserve estimates are recorded as an adjustment to the provision for doubtful accounts which is reflected in selling, general and administrative expenses. The Company believes that its collection and reserve processes, along with the monitoring of its billing processes, help to reduce the risk associated with material revisions to reserve estimates resulting from adverse changes in collection, reimbursement experience and billing functions.

Cost of Claims Incurred But Not Reported

Under capitated arrangements with managed care customers, the Company estimates the cost of claims incurred but not reported based on applying actuarial assumptions, historical patterns of utilization to authorized levels of service, current enrollment statistics and other information. In addition, under

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fee-for-service arrangements with certain managed care customers, the Company also estimates the cost of claims incurred but not reported and the estimated revenue relating thereto in situations in which the Company is responsible for care management and patient services are performed by a non-affiliated provider.

The estimate of cost of claims incurred but not reported involves significant assumptions and judgments which relate to and may vary depending on the services authorized at each of our care management centers, historical patterns of service utilization and payment trends. These assumptions and judgments are evaluated on a quarterly basis and changes in estimated liabilities for costs incurred but not reported are determined based on such evaluation.

Obligations Under Workers Compensation and Professional Liability Insurance Programs

The Company may be subject to workers compensation claims and lawsuits alleging negligence or other similar legal claims. The Company maintains various insurance programs to cover this risk but is substantially self-insured for most of these claims. The Company recognizes its obligations associated with these programs in the period the claim is incurred. The cost of both reported claims and claims incurred but not reported, up to specified deductible limits, have generally been estimated based on historical data, industry statistics, current enrollment statistics and other information. Such estimates and the resulting reserves are reviewed and updated periodically.

For the nine months ended September 29, 2002, the Company recorded a special charge of $6.3 million relating primarily to a refinement in the estimation process used to determine the Company's actuarially computed workers compensation and professional liability reserves. In this regard, management believes it now has sufficient data to allow the Company to more heavily rely on home health specific historical claims experience in determining the Company's estimates of workers compensation and professional liability reserves. Previously the Company utilized insurance industry actuarial information in developing reserve estimates.

The Company maintains insurance coverage on individual claims. The Company is responsible for the cost of individual workers compensation claims and individual professional liability claims up to $500,000 per incident through March 15, 2002 and $1,000,000 per incident thereafter. The Company also maintains excess liability coverage relating to professional liability and casualty claims which provides insurance coverage for individual claims of up to $25,000,000 in excess of the deductible amount. The Company believes that present insurance coverage and reserves are sufficient to cover currently estimated exposures but there can be no assurance that the Company will not incur liabilities in excess of recorded reserves or in excess of its insurance limits.

Settlement Issues

Prior to October 1, 2000, reimbursement of Medicare home care nursing services was based on reasonable, allowable costs incurred in providing services to eligible beneficiaries subject to both per visit and per beneficiary limits in accordance with the Interim Payment System established through the

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Balanced Budget Act of 1997. These costs are reported in annual cost reports, which are filed with the Center for Medicare and Medicaid Services (CMS), and are subject to audit by the fiscal intermediary engaged by CMS. The fiscal intermediary has not completed its audit of the fiscal 2000 cost reports and the review of cost limits relating to certain of the Company's Medicare providers. Furthermore, settled cost reports relating to certain years prior to fiscal 2000 could be subject to reopening of the audit process by the fiscal intermediary. Although management believes that established reserves are sufficient, it is possible that adjustments resulting from such audits by the fiscal intermediary could result in adjustments to the consolidated financial statements that exceed established reserves.

The Company has filed appeals with the Provider Reimbursement Review Board for the years 1997, 1998 and 1999 concerning audit adjustments made by its Medicare fiscal intermediary. These audit adjustments relate to the methodology used by the Company in allocating a portion of its residual overhead cost on the Medicare cost reports. The Company believes its methodology used to allocate such overhead cost was accurate and consistent with past practice accepted by the fiscal intermediary; however, the Company has recorded the impact of the audit adjustments in its consolidated financial statements and has not recorded any anticipated recovery from the appeals. The Company is unable to predict the outcome of these appeals.

These accounting policies have been described in the Company's 2001 Annual Report on Form 10-K, as amended, with the following accounting policy adopted effective December 31, 2001.

Goodwill and Other Intangible Assets ("SFAS 142")

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The impairment test is a two step process that begins with the estimation of the fair value of each reporting unit. The first step screens for potential impairment and the second step measures the amount of the impairment. The estimate of fair value of the Home Health Services business, as of December 31, 2001, considered publicly available information as well as financial projections and estimates prepared by outside advisors and was determined by subtracting the agreed-upon purchase price for the SPS business from the market capitalization of the Company. As part of the first step to assess potential impairment, management compared the estimate of fair value for the Home Health Services business to the book value of the business unit's net assets. Since the book value of Home Health Services' net assets was greater than its estimated fair value, management proceeded to the second step to measure the impairment. The second step compared the implied fair value of goodwill with its carrying value. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit's goodwill is greater than its implied fair value, an impairment loss would be recognized in the amount of the excess.

Based on the results of the transitional impairment tests, the Company determined that an impairment loss relating to goodwill had occurred and recorded a non-cash charge of $189.1 million, net of tax, as cumulative effect of accounting change in the accompanying consolidated statement of operations for the nine months ended September 29, 2002. This charge included a tax benefit of $1.4 million relating to tax deductible goodwill, which was recorded in the third quarter of fiscal 2002. The Company recorded a deferred tax benefit of approximately $66 million resulting from this non-cash charge and increased its tax valuation allowance by the same amount. The deferred tax benefit was recorded by eliminating a deferred tax liability of approximately $27 million and recording a deferred tax asset of approximately $39 million. (See Note 6).

The table below presents a reconciliation of reported net income to adjusted net income as if the SFAS 142 was adopted as of January 1, 2001 (in thousands, except per share amounts).

	Three Months Ended		Nine Months Ended
	September 30, 2001		September 30, 2001

		Earnings Per Share		Earnings Per Share
	Net Income	Basic and Diluted	Net Income	Basic and Diluted

Reported net income	$ 6,246	$ 0.26	$ 14,676	$ 0.65
Add back: Goodwill amortization	2,494	0.11	7,551	0.34

Adjusted net income	$ 8,740	$ 0.37	$ 22,227	$ 0.99

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Generally, the fair market value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. The Company had no interest rate exposure on fixed rate debt as of September 29, 2002.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

The Company's Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) for the Company. The Company's disclosure controls and procedures include its "internal controls", as that term is used in Section 302 of the Sarbanes-Oxley Act of 2002 and described in the Securities and Exchange Commission's Release No. 34-46427 (August 29, 2002). The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days before the filing date of this quarterly report, have concluded that the Company's disclosure controls and procedures are adequate and effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in its periodic Securities and Exchange Commission filings.

Changes in internal controls.

There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of the evaluation. As a result, no corrective actions were taken.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

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complaint. As recited in the Order unsealing the complaint, the United States gave notice to the District Court that the United States was declining to intervene in the action. The Company believes that it was this complaint that gave rise to a document subpoena served on the Company in December 1999 from the Department of Health and Human Services, Office of Inspector General, and Office of Investigations. The Company acknowledged service of the complaint on November 29, 2001 and timely filed responsive pleadings to the complaint. On October 30, 2002 the relator dismissed the action with prejudice and the government consented to the dismissal, without prejudice to its rights.

Furthermore, in connection with the Split-Off, the Company agreed to assume, to the extent permitted by law, the liabilities, if any, arising out of (and to indemnify Olsten for) the above proceedings and other liabilities arising out of the Home Health Services business, including any such liabilities arising after the Split-Off in connection with the government investigation described below.

representations and warranties related to health care compliance survive for three years after the closing of the acquisition;

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representations and warranties related to title of the assets and sufficiency of assets and employees survive for the applicable statute of limitations period; and
representations and warranties related to tax matters survive until thirty days after the expiration of the applicable tax statute of limitations period, including any extensions of the applicable period, subject to certain exceptions.

These indemnification rights are the exclusive remedy from and after the closing of the acquisition, except for the right to seek specific performance of any of the agreements in the Asset Purchase Agreement, in any case where a party is guilty of fraud in connection with the acquisition, and with respect to tax liabilities and obligations.

Government Investigation

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None

Item 5. Other Information

In connection with a July 19, 1999 settlement with various government agencies, Olsten executed a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services which will remain in effect until August 18, 2004. The July 1999 corporate integrity agreement applies to the Company's businesses that bill the federal government health programs directly for services, such as its Home Health Services business (but excluding the SPS business). This corporate integrity agreement focuses on issues and training related to cost report preparation, contracting, medical necessity and billing of claims.

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Under the corporate integrity agreement, the Company is required, for example, to maintain a corporate compliance officer to develop and implement compliance programs, to retain an independent review organization to perform annual reviews and to maintain a compliance program and reporting systems, as well as provide certain training to employees.

The Company's compliance program is required to be implemented for all newly established or acquired business units if their type of business is covered by the corporate integrity agreement. Reports under the integrity agreement are to be filed annually with the Department of Health and Human Services, Office of Inspector General. After the corporate integrity agreement expires, the Company is to file a final annual report with the government. The Company is in compliance with the corporate integrity agreement and has timely filed all required reports. If the Company fails to comply with the terms of its corporate integrity agreement, the Company will be subject to penalties.

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Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibit Number

Description

3.1

Restated Certificate of Incorporation of Company. (1)

3.2

Certificate of Correction to Certificate of Incorporation, filed with the Delaware Secretary of State on July 1, 2002. (2)

3.3

Restated By-Laws of Company. (2)

4.1

Specimen of common stock. (4)

4.2

Form of Certificate of Designation of Series A Junior Participating Preferred Stock. (1)

4.3

Form of Certificate of Designation of Series A Cumulative Non-Voting Redeemable Preferred Stock. (3)

10.1
National Home Care Provider Agreement between CIGNA Health Corporation and Gentiva CareCentrix, Inc., dated January 1, 1996, as amended.*

21
List of Subsidiaries. *

(1)

Incorporated herein by reference to Amendment No. 2 to the Registration Statement on Form S-4, dated January 20, 2000 (File No. 333-88663).

(2)

Incorporated herein by reference to Form 10-Q of the Registrant for the period ended June 30, 2002.

(3)

Incorporated herein by reference to Amendment No. 3 to the Registration Statement on Form S-4, dated February 4, 2000 (File No. 333-88663).

(4)

Incorporated herein by reference to Amendment No. 4 to the Registration Statement on Form S-4, dated February 9, 2000 (File No. 333-88663).

*

Filed herewith

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(b) Reports on Form 8-K

On August 7, 2002, the Company filed a report on Form 8-K in connection with the Statements filed by the Chief Executive Officer and the Chief Financial Officer in accordance with Securities and Exchange Commission Order No. 4-460.

On August 12, 2002, the Company filed a report on Form 8-K/A in connection with the Statements filed by the Chief Executive Officer and the Chief Financial Officer in accordance with Securities and Exchange Commission Order No. 4-460.

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SIGNATURES

Pursuant to the requirements 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.

Date: November 13, 2002

/S/ Ronald A. Malone
Ronald A. Malone
Chief Executive Officer

Date: November 13, 2002

/S/ John R. Potapchuk
John R. Potapchuk
Chief Financial Officer

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CERTIFICATIONS

I, Ronald A. Malone, certify that:

I have reviewed this quarterly report on Form 10-Q of Gentiva Health Services, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

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The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002
	/S/ Ronald A. Malone Ronald A. Malone Chief Executive Officer

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CERTIFICATIONS

I, John R. Potapchuk, certify that:

I have reviewed this quarterly report on Form 10-Q of Gentiva Health Services, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

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The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002
	/S/ John R. Potapchuk John R. Potapchuk Chief Financial Officer

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EX-21 2 exhibita.htm LIST OF SUBSIDIARIES Exhibit 21

Exhibit 21

Subsidiaries of Gentiva Health Services, Inc.

Subsidiary *	Jurisdiction of Incorporation

CCI-ASDS, Inc.	Massachusetts
Chronic Health Management of California	California
Commonwealth Home Care, Inc.	Massachusetts
Gentiva CareCentrix, Inc.	Delaware
Gentiva CareCentrix (Area One) Corp.	Delaware
Gentiva CareCentrix (Area Two) Corp.	Delaware
Gentiva CareCentrix (Area Three) Corp.	Delaware
Gentiva Certified Healthcare Corp.	Delaware
Gentiva Health Services Holding Corp.	Delaware
Gentiva Health Services (USA), Inc.	Delaware
Gentiva Health Services of New York, Inc.	New York
The IV Clinic, Inc.	Texas
The IV Clinic II, Inc.	Texas
The IV Clinic III, Inc.	Texas
Kimberly Home Health Care, Inc.	Missouri
New York Healthcare Services, Inc.	New York
OHS Service Corp.	Texas
Partnersfirst Management, Inc.	Florida
QC-Medi-New York, Inc.	New York
Quality Care-USA, Inc.	New York
Quality Managed Care, Inc.	Delaware
Quantum Care Network, Inc.	Massachusetts
Quantum Disease Management, Inc.	Indiana
Quantum Health Resources, Inc.	Delaware
QHR Southwest Business Trust	Pennsylvania
QHR Southwest Holdings Corp.	California
Skilled Nursing Services, Inc.	Michigan

* All subsidiaries do business under the name "Gentiva Health Services" and/or "Gentiva" except for Gentiva Health Services (USA), Inc., which does business under the name "Gentiva Rehab Without Walls."

EX-99 3 exhibitb.htm SECTION 906 CERTIFICATION Exhibit 99

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Gentiva Health Services, Inc. (the "Company") on Form 10-Q for the period ending September 29, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald A. Malone, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2002

/S/ Ronald A. Malone
Ronald A. Malone
Chief Executive Officer

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CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Gentiva Health Services, Inc. (the "Company") on Form 10-Q for the period ending September 29, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Potapchuk, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2002

/S/ John R. Potapchuk
John R. Potapchuk
Chief Financial Officer

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EX-10 4 exhibitc.txt EX-10 CIGNA CONTRACTS OLSTEN HEALTH SERVICES NATIONAL PRICING AREA DESIGNATION

OLSTEN HEALTH SERVICES NETWORK PRICING AREA DESIGNATION

TABLE OF CONTENTS

PROGRAM ATTACHMENTS A. HMO PROGRAM ATTACHMENT Exhibit A.1 Capitation Rates Exhibit A.2 Tocolytic Rates Exhibit A.3 FFS Reimbursement Schedule - Home Medical Equipment Exhibit A.4 Home Medical Equipment Capitation Rates Exhibit A.5 Utilization Management Standards Exhibit A.6 HMO Program Requirements B. PPO PROGRAM ATTACHMENT Exhibit B.1 FFS Reimbursement Schedule - Home Health Exhibit B.2 FFS Reimbursement Schedule - Home Infusion Exhibit B.3 FFS Reimbursement Schedule - Home Medical Equipment Exhibit B.4 FFS Reimbursement Schedule - Tocolytics Exhibit B.5 PPO Program Requirements C. INDEMNITY PROGRAM ATTACHMENT Exhibit C.1 FFS Reimbursement Schedule - Home Health Exhibit C.2 FFS Reimbursement Schedule - Home Infusion Exhibit C.3 FFS Reimbursement Schedule - Home Medical Equipment Exhibit C.4 FFS Reimbursement Schedule - Tocolytics Exhibit C.5 Indemnity Program Requirements D. MEDICARE RISK PROGRAM ATTACHMENT Exhibit D.1 Capitation Rates Exhibit D.2 Tocolytic Rates Exhibit D.3 FFS Reimbursement Schedule - Home Medical Equipment Exhibit D.4 Home Medical Equipment Capitation Rates Exhibit D.5 Medicare Risk Program Requirements E. MEDICAID RISK PROGRAM ATTACHMENT Exhibit E.1 Capitation Rates Exhibit E.2 Tocolytic Rates Exhibit E.3 FFS Reimbursement Schedule - Home Medical Equipment Exhibit E.4 Home Medical Equipment Capitation Rates Exhibit E.5 Medicaid Risk Program Requirements -2- EXHIBITS I. Participating CIGNA Subsidiaries and Affiliates II. Participating Olsten Subsidiaries and Affiliates III. Information Required For Complete Order IV. Exclusions From Home Care Services V. Home Infusion Therapy Drugs and Medications VI. Credentialing/Recredentialing Requirements VII. Required Encounter Data Elements VIII. Subcontractor Payment IX. Performance Guarantees X. National Home Health Exclusivity: Exclusions -3- NATIONAL HOME CARE PROVIDER AGREEMENT PARTIES THIS AGREEMENT is by and between CIGNA Health Corporation, for and on behalf of its wholly-owned subsidiaries and affiliates listed on Exhibit I (individually and collectively, "CIGNA"), and Kimberly Home Health Care, Inc., D/B/A Olsten Kimberly QualityCare, for and on behalf of its wholly-owned subsidiaries and affiliates listed on Exhibit II (individually and collectively, "Provider"), and is entered into as of January 1, 1996 (the "Effective Date"). PURPOSE CIGNA contracts directly or indirectly with Payors, employers, individual insurers, sponsors and others, to provide, insure, arrange for or administer the provision of health care services; CIGNA contracts with physicians, hospitals and other health care practitioners and entities, to provide, arrange for or administer, at predetermined rates, the delivery of such health care services; CIGNA and Provider desire to enter into this Agreement relating to certain health care services for individuals; In consideration of the mutual promises herein, the parties agree as follows: I. DEFINITIONS Defined terms are set forth herein and in the Program Attachments. COINSURANCE means a payment that a Participant is required to make to a Participating Provider for Covered Home Care Services under a Service Agreement, which is calculated as a percentage of the contracted reimbursement rate of such services, or, if reimbursement is on a basis other than a fee-for-service amount (i.e. capitation), as a percentage of the fee schedule set forth in the PPO Program Attachment to this Agreement or some other fee schedule agreed upon by the parties during implementation of this Agreement. COMPLETE ORDER means all information and physician orders, to the extent applicable, reasonably required by Provider and/or any applicable Subcontractor in order to provide or arrange for Covered Home Care Services. Provider shall have received a Complete Order if Provider has received the information delineated in Exhibit III which is applicable and Provider and any applicable Subcontractor has received a physician order, to the extent applicable. -4- COPAYMENT OR DEDUCTIBLE means a payment that a Participant is required to make to a Participating Provider under a Service Agreement, which is calculated as a fixed dollar payment. COVERED HOME CARE SERVICES means those Home Care Services which are Covered Services and which are not among the list of excluded services delineated in Exhibit IV. COVERED SERVICES means those health care services which are Medically Necessary provided to a Participant in accordance with a Service Agreement. EMERGENCY means an illness or accident in which the onset of symptoms is both sudden and so severe as to require immediate medical or surgical treatment. This includes accidental injuries or medical emergencies of a life-threatening nature or when serious impairment of bodily functions would result if treatment were not rendered immediately. EXPERIMENTAL means medical, surgical or other healthcare procedures and treatments which are experimental or investigational as determined by a CIGNA Medical Director in accordance with consensus derived from peer review medical and scientific literature and the practice of the national medical community, including 1) any procedures or treatments which are not recognized as conforming to accepted medical practice; 2) any procedures or treatments in which the scientific assessment of the techniques or its application for a particular condition has not been completed or its effectiveness has not been established; and 3) any procedure or treatments for which the required approval of the applicable governmental agency has not been granted at the time the services are rendered. HOME CARE SERVICES means Home Health Services, Home Infusion Therapy Services, Home Medical Equipment. and Tocolytic Services, as defined below, currently normally and appropriately provided, in a home setting (except that Home Infusion Therapy Services include those services also currently normally and appropriately provided in an ambulatory setting, and Home Medical Equipment includes medical equipment irrespective of setting but exclusive of equipment to be used primarily in an inpatient facility setting, except in preparation for hospital discharge, or equipment to be used primarily in an outpatient facility setting, except in preparation for the transition of care to the home setting, or which would normally be provided by any such facility), subject to the conditions and limitations of this Agreement: HOME HEALTH SERVICES means those services, supplies, drugs/medications (limited to topical agents for wound care) and equipment ordered by a physician for a Participant who is home bound due to a disabling condition and who requires skilled care or ordered by a physician for a Participant for whom such services, supplies, drugs/medications and equipment are appropriately provided in a home setting, including but not limited to: skilled nursing services rendered by a registered professional nurse, licensed practical nurse or licensed vocational nurse; home health aide services; physical, occupational, speech and respiratory therapy; dietary and nutri- -5- tional services; medical social services; family caregiver training and education; consumable medical supplies and durable medical equipment administered or used in the course of rendering skilled or unskilled services; and prescribed drugs and medications (limited to topical agents for wound care). HOME INFUSION THERAPY SERVICES means intravenously administered, subcutaneously or self-injected drugs and medications prescribed by a physician for a Participant (including all services and supplies necessary for such administrations), which are administered in an ambulatory setting where the close supervision of a physician in person is not required, including but not limited to those drugs and medications listed on Exhibit V. Home Infusion Therapy Services do not include those medications which are provided under a Participant's prescription drug benefit program such as oral, rectal, ophthalmic, subdermal, sublingual and topical agents, self-injected medications which are covered under a Participant's prescription drug benefit program (such as anti-diabetic agents and certain subcutaneous mediations) and medications not generally considered home infusion therapy (such as skeletal muscle relaxants, anti-psychotics, anti-convulsants, diagnostic agents, vaccines and hormones (except growth hormone)). Home Infusion Therapy Services include blood products, such as anti-hemphil factors, whole blood and platelets, only to the extent such products are appropriately provided in a home or Provider infusion site setting. HOME MEDICAL EQUIPMENT means medical equipment ordered or prescribed by a physician for a Participant (including all services, training, supplies, maintenance and repairs necessary for use of such equipment) including but not limited to: durable medical equipment, respiratory therapy equipment, and oxygen. TOCOLYTIC SERVICES means those services, supplies, drug/medications and equipment ordered by a physician for a Participant who is deemed to be at high risk for preterm labor. Such services may include but are not limited to home uterine monitoring, whether the Participant is on oral or infused tocolytic medications or on no medication at all, skilled nursing services rendered by a registered professional nurse, family caregiver training and education; consumable medical supplies and durable medical equipment administered or used in the course of rendering services, and prescribed drugs and medications. MEDICALLY NECESSARY means services or supplies which, under the provisions of this Agreement, are determined, under utilization Management, to be (i) appropriate and necessary for the symptoms, diagnosis or treatment of the medical condition; (ii) provided for diagnosis or direct care and treatment of the medical condition; (iii) within standards of good medical practice within the organized medical community; and (iv) not primarily for the convenience of the Participant, the Participant's physician, another provider or CIGNA. Covered Services must be Medically Necessary. -6- NETWORK MANAGER means that individual or individuals designated by Provider as Provider's central point of contact. PARTICIPANT means any individual, or eligible dependent of such individual, whether referred to as "Insured," "Subscriber," "Member," "Participant," "Enrollee," "Dependent" or otherwise, who is eligible for Covered Services pursuant to a Service Agreement. PARTICIPATING PROVIDER means a hospital, a physician or any other health care practitioner or entity that has a direct or indirect contractual arrangement with CIGNA to provide Covered Services (including Provider's Subcontractors). PAYOR means CIGNA or such other entity which, pursuant to a Service Agreement, funds, administers, offers or insures Covered Services and which has agreed to act as Payor in accordance with a Service Agreement. PROGRAM means the Health Maintenance Organization (HMO), Preferred Provider Organization (PPO) Indemnity or other types of health care or administrative services which are provided by or arranged by CIGNA or CIGNA Affiliates and which are specifically described in applicable Program Attachments and Program Requirements. PROGRAM REQUIREMENTS means the rules and procedures that establish conditions to be followed by Participating Providers with respect to Programs, and which are attached to applicable Program Attachments. QUALITY MANAGEMENT means the processes established and operated by CIGNA or its designee relating to the quality of Covered Services. ROUTINE means conditions which cannot otherwise be classified as STAT or Urgent. SERVICE AGREEMENT means those agreements among CIGNA and an employer, insurer, labor union, trust or other organization or entity, or an individual, that specifies services to be provided to or for the benefit of, or arranged for or reimbursed to or for the benefit of Participants, the terms and conditions under which those services are to be provided or reimbursed, and is consistent with applicable Program Requirements. SERVICE AREA means all respective geographic areas in which CIGNA provides or arranges for its HMO, PPO, Medicare Risk and Medicaid Risk Programs. STAT means Emergency conditions. SUBCONTRACTOR means a duly licensed and qualified provider of Covered Home Care Services: (a) contractually engaged by Provider to fulfill some of Provider's obligations under this Agreement; (b) who or which has satisfied applicable credentialing criteria as set forth in -7- Exhibit VI; (c) who or which both CIGNA and Provider have agreed may render Covered Home Care Services pursuant to this Agreement; and (d) who or which has agreed with Provider to be subject to the requirements of this Agreement to the extent applicable. URGENT means conditions requiring prompt response time as determined by the Participant's physician. UTILIZATION MANAGEMENT means the processes to review usage of Covered Services provided or to be provided to Participants which identify and promote the efficient and effective use of Covered Services in accordance with Program Requirements. II. PARTIES' OBLIGATIONS A. SERVICES 1. Provider, Provider's Subcontractors and CIGNA shall act in accordance with the terms of this Agreement, including its Program Attachments and applicable Program Requirements. The compensation set forth in this Agreement shall be payment in full for all Covered Home Care Services provided to Participants pursuant to this Agreement. 2. Except with respect to the Indemnity, PPO, Medicare or Medicaid Programs in instances where Provider has not received a referral, Provider will be responsible for the coordinated delivery of all Covered Home Care Services to CIGNA Participants in the Service Area, whether these services are rendered directly by Provider or by Provider's Subcontractors. To enable Provider to fulfill such responsibilities, CIGNA shall communicate referrals for Covered Home Care Services to the Network Manager. Further, CIGNA shall deliver to Provider a listing of Participating Providers and Participants and regularly update such listings in accordance with the procedures set forth in section II.A.10. below. 3. Provider and its Subcontractors shall render Covered Home Care Services with the same standard of care, skill and diligence customarily used by similar providers in the community in which such services are rendered. Provider and its Subcontractors shall render Covered Home Care Services in the same manner, in accordance with the same standards, and with the same availability, as offered to other patients. Provider and its Subcontractors shall not differentiate or discriminate in the treatment of any Participant because of race, color, national origin, ancestry, religion, sex, marital status, sexual orientation, age, health status, handicap or source of payment. 4. Provider, Subcontractors and CIGNA shall be bound by and comply with the provisions of applicable state and federal laws and regulations, credentialing and recreden- -8- tialing requirements of the National Committee for Quality Assurance ("NCQA") or of another appropriate accrediting body designated by CIGNA, and applicable Program Requirements. 5. Provider shall maintain and ensure (with respect to its respective personnel), and shall require Subcontractors to maintain and ensure (with respect to its respective personnel), that all personnel which render Covered Home Care Services maintain all licenses, accreditations and certifications required in order to perform Covered Home Care Services hereunder and any other obligations set forth herein. Evidence of applicable licensure, accreditation or certification shall be submitted to CIGNA upon request. Upon request by CIGNA, Provider shall submit a photocopy or comprehensive letter validating the following information, if applicable, concerning any of Provider's employees, Subcontractors, or Subcontractor's employees involved in rendering services to Participants hereunder: (a) nursing license or appropriate professional certification or licensure; (b) valid state driver's license; (c) proof of automobile insurance coverage; (d) employment history; (e) CPR certification. Provider will ensure (with respect to its respective personnel), and shall require Subcontractors to ensure (with respect to its respective personnel), that the skill level of the personnel utilized to render Covered Home Care Services under this Agreement is appropriate for the particular Covered Home Care Service rendered. 6. Provider and its Subcontractors shall comply with the requirements of, and shall participate in, CIGNA's Quality Management and Utilization Management programs. Such participation shall include, but not be limited to, participation in CIGNA's Quality Management and Utilization Management meetings as required. 7. Except with respect to the Indemnity, PPO, Medicare or Medicaid Programs in instances where Provider has not received a referral, Provider will provide, arrange through its Subcontractors to provide, or, if rendered by another provider, be financially responsible for all Covered Home Care Services required by Participants in each Service Area. Prior to the start date with respect to each Service Area: (a) Provider shall obtain CIGNA's approval of Provider's list of participating home care providers (which may include both Provider affiliates and Subcontractors) who will render Covered Home Care Services under this Agreement; (b) Provider shall satisfy CIGNA that it has established a home care services network adequate in size, composition and distribution to accommodate the Covered Home Care Services required by Participants; (c) the parties shall agree upon a plan to ensure appropriate and sensitive transitioning -9- of Participants already receiving Covered Home Care Services such that there is no disruption of care which would be detrimental to such Participants; and (d) the parties shall be satisfied that adequate management systems are in place. CIGNA's financial obligations for payment of Covered Home Care Services rendered hereunder shall not commence with respect to a Service Area until the agreed upon start date for such Service Area. Provider shall not eliminate or change Subcontractors or a Provider location without sixty (60) days' prior written notice to CIGNA, except to the extent Provider is required to do so for cause and, in any such case, Provider shall notify CIGNA of such change as soon as practicable. 8. Provider shall maintain binding agreements with each of its Subcontractors requiring Subcontractors to comply with all of the terms and conditions of this Agreement to the extent applicable. The form of Provider's standard Subcontractor agreement and any material subsequent amendments thereto must be approved in advance by CIGNA. Each of such agreements shall include, among other things, the following: a. A Participant hold harmless provision satisfactory to CIGNA, consistent with applicable law and which provides, among other things, that in no event, including but not limited to nonpayment by Provider, Provider's insolvency or breach of Provider's agreement with the Subcontractor, shall Subcontractors bill, charge, collect a deposit from, seek compensation, remuneration or reimbursement from or have any recourse against Participant, Payor (if Payor has made payments in accordance with this Agreement) or parties other than Provider for Covered Home Care Services provided pursuant to this Agreement; b. a provision obligating Subcontractors to notify CIGNA immediately of any significant payment defaults by Provider relating to services rendered hereunder provided that such notification shall only be required after Provider has failed to cure such default within the applicable 15 day cure period; c. with respect to Covered Home Care Services reimbursed on a capitated basis, a provision obligating Subcontractors to continue to render Covered Home Care Services for the period of time for which Provider has received Capitation Payments hereunder notwithstanding Provider's failure to pay Subcontractor; d. with respect to all Covered Home Care Services, a provision obligating Subcontractors, in the event of Provider's significant payment default as described in Section II.A.8.b above and at CIGNA's option, to continue rendering Covered Home Care Services hereunder so long as payments due Subcontractors for Covered Home Care Services rendered after notification to CIGNA of such payment default and CIGNA's exercise of such option are made directly to Subcontractors by Payor and until a date specified by CIGNA but no later than -10- 120 days after CIGNA's exercise of such option. Subcontractors shall agree that any such payments during such time period shall be made, at CIGNA's election, either in accordance with the reimbursement terms set forth in Subcontractors' agreements with Provider or in accordance with the reimbursement rates set forth in the PPO Program Attachment to this Agreement; e. with respect to Covered Home Care Services referred to Provider, a provision obligating Subcontractors to submit requests for payment to Provider and not to CIGNA and f. any other provisions required by applicable law or regulation or, with respect to the Medicare or Medicaid Risk Program, by HCFA. To the extent required by applicable laws, regulations or the applicable governmental authority, including but not limited to HCFA, or in the event of Provider's significant payment default to Subcontractor(s), upon request, Provider shall make available to CIGNA and to any applicable regulatory authority making such request a copy of each of its provider agreements with Subcontractors. 9. Provider agrees that each Provider location and each Subcontractor will be credentialed and recredentialed in accordance with the procedures set forth in Exhibit VI of this Agreement. 10. CIGNA shall establish a system of Participant identification, and communicate to Participants and Participating Providers appropriate sections of this Agreement, including sections related to coordination with the Network Manager. Prior to the start date at each Service Area, CIGNA shall deliver to Provider a complete listing of all Participants by Program for which Covered Home Care Services are to be available and will subsequently provide weekly updates of Participant additions and deletions in standard CIGNA format. CIGNA shall also deliver to Provider prior to the start date at a Service Area a listing of all current Participating Providers by Program and will subsequently provide weekly updates of Participating Provider additions and deletions in standard CIGNA format. Provider will establish or delete the Participating Provider status of such Providers within five (5) business days of notification. 11. Provider shall maintain qualified and experienced personnel, including a registered pharmacist and IV specialty nurse or certified registered nurse on call on a 24-hour per day, seven day per week basis to respond to emergencies and questions (including, but not limited to, consultations on IV therapies and instructions regarding the use of Home Medical Equipment) as they pertain to Covered Home Care Services provided to Participants by Provider or Subcontractor pursuant to this Agreement. -11- 12. Provider shall deliver Covered Home Care Services to Participants within twenty-four (24) hours of receiving a Routine Complete Order or at the time such services are requested delivered, whichever is later, within four (4) hours for Urgent Complete Orders or at the time such services are requested delivered, whichever is later, and within two (2) hours for STAT Complete Orders. In those instances where the Covered Home Care Service referred to Provider is to be rendered by a Subcontractor, Provider shall immediately notify the Subcontractor of the referral and, to the extent applicable, the Subcontractor shall immediately attempt to make contact with the referring physician and immediately return phone calls from the referring physician in order to confirm the physician order. 13. Provider shall provide or arrange for the following services with respect to Participants receiving Covered Home Care Services: (a) training and education; (b) family orientation; (c) family/caregiver training, if required; (d) instructional literature; and (e) oxygen patient assessments, if required. These services shall not be to the exclusion of any other services set out in this Agreement or any other services customarily incident to the rendering of Covered Home Care Services. 14. Provider shall provide or arrange for Home Medical Equipment in good working order and condition and ensure that Home Medical Equipment has been properly cleaned and disinfected between uses. Provider shall provide or arrange for at Provider's expense all necessary on-site maintenance and/or repair for Home Medical Equipment (including provision of all necessary puts, mechanisms and devices) in order to maintain the Home Medical Equipment in good condition and working order. Provider shall provide or arrange for twenty-four (24) hour per day, seven (7) day per week maintenance and repair service, provided however, that Provider may elect to pick up the Home Medical Equipment needing maintenance and/or repair and replace it with Home Medical Equipment in operable condition, rather than repair the Home Medical Equipment immediately. 15. Provider shall maintain or arrange for the maintenance of an accurate inventory of solutions, medications, drugs, Home Medical Equipment and ancillary supplies for each Participant and shall make these inventory records available to CIGNA upon request. -12- 16. Provider shall ensure that its facilities and employees, and require that the facilities and employees of its Subcontractors, maintain a neat, clean and professional appearance at all times. 17. Provider will dedicate on a full-time basis (and part-time, as required) the services of appropriate personnel to coordinated the implementation of this Agreement on both local and national levels, and to manage the day-to-day work relationship with CIGNA. Provider will meet with designated CIGNA personnel upon request to review Provider performance, Participant utilization and quality improvement initiatives. 18. Provider will educate CIGNA case managers and CIGNA discharge planners on the capabilities of home care providers. Provider will identify potential home care candidates as early as possible in the hospital stay and prepare for the discharge. CIGNA and Provider acknowledge that none of the activities of their respective personnel described in this section will substitute for the discharge planning obligations imposed on Participating Hospitals by Medicare and/or Medicaid. 19. Provider will meet with CIGNA on at least a quarterly basis to assist CIGNA in staying abreast of innovations in home care services (including drug protocols) and to assure that these services are being appropriately applied to Participants. 20. Provider will dedicate personnel to travel to any Service Area location or to CIGNA Health Corporation's home office on twenty-four hours' notice to resolve CIGNA's repeated dissatisfaction with Provider. Said personnel will include at least one officer of Olsten Kimberly QualityCare. 21. Provider will provide a home care coordinator who shall be a registered nurse in each CIGNA healthplan location in which there are a combined minimum of 75,000 Participants in the HMO, Medicare and Medicaid Programs and, in those healthplan locations in which there are less than 75,000 such Participants, in each region where there are a combined minimum of 75,000 such Participants. Such regions will be defined and mutually agreed upon by both parties during the implementation process. Costs for such staffing are included in the rates set forth in the exhibits to the Attachments to this Agreement. B. REPORTING/DATA ACCESS 1. Provider's compensation for the reports, studies, information exchanges and data access delineated in this section II.B and associated exhibits is fully incorporated in the rates and/or fee schedules defined in each Program Attachment and associated exhibits attached hereto. Provider shall receive no additional compensation for the reports, -13- studies, information exchanges and data access delineated in this section II.B and associated exhibits. 2. Provider agrees to collect data for each data element listed in Exhibit VII. 3. Provider agrees to provide CIGNA with reports in a form, a format and in frequencies mutually determined by the parties during the implementation process. Said reports shall be consolidated reports, incorporating all data from Provider and its Subcontractors. 4. Provider agrees to provide CIGNA, on a quarterly basis, a listing of Home Medical Equipment currently in use by Participants in each Program, including the number of months Participants have had the Home Medical Equipment. 5. Provider will conduct quality assurance studies (including both clinically-based studies and process improvement initiatives) on Participants on a quarterly basis, and report to CIGNA the results of such studies each quarter. CIGNA may conduct home care service satisfaction surveys on Participants, Participating Providers and CIGNA personnel and will supply Provider with the results of any such satisfaction surveys. The format of the quality assurance surveys shall be mutually developed by the parties. The format of the home care service satisfaction surveys, will be developed by CIGNA with input from Provider. 6. Provider agrees to furnish ad hoc reports to CIGNA upon reasonable request by CIGNA to an individual designated by Provider. Provider agrees to provide most simple ad hoc reports requested within 2 to 5 working days. 7. Provider agrees to allow CIGNA electronic access to utilization data on Participants as needed and as technologically feasible. Provider shall work in good faith to assure that such access is technologically feasible and shall make any reasonable capital expenditures necessary to enhance its systems in order to enable such access by April 1, 1997. 8. Provider agrees to share with CIGNA all on-line data and all information relating to Participants, including but not limited to, intake, patient status, utilization, outcomes, clinical records, billing and cost information, subject to any applicable confidentiality obligations and as technologically feasible. Provider agrees to work in good faith to assure that such access is technologically feasible and shall make any reasonable capital expenditures necessary to enhance its system in order to enable such access by April 1, 1997. -14- 9. Provider agrees to provide on-line access to Gold Standard forms and HEAT system screens describing information about Participants and caregivers as required by CIGNA, subject to the obligation to maintain the confidentiality of such forms and screens as set forth in Section II.D.5. of this Agreement. 10. The parties acknowledge and agree that all of the data, information, studies and reports relating to Participants and referenced in this Section II.B.2. or elsewhere in this Agreement: a. shall be jointly owned by CIGNA and Provider; b. with respect to such data, information, studies and reports which identify the other party, Participants or parties with whom CIGNA has Service Agreements by name, shall not be used, disclosed or sold by either party (unless such identity shall have been deleted) except as otherwise agreed. This provision shall not apply: (i) to the extent the use or disclosure of such data, information, studies, or reports is required to fulfill obligations hereunder, obligations to Participants and parties with whom CIGNA has Service Agreements or any other obligation imposed by law; or (ii) with respect to usage of such data, information, studies and reports for internal measurement purposes. This provision shall survive the termination of this Agreement and shall not prohibit disclosures by either party to its subsidiaries or affiliates. Upon request by CIGNA and free of charge, Provider will provide CIGNA with copies of all materials sold by Provider to third parties containing such data, information, studies and reports. 11. Provider agrees that all electronic data which Provider is required to maintain and/or permit access to under this Agreement shall include the century (MMDDCCYY) and that, by December 31, 1999, all system logic used by Provider with regard to all of such data shall be century compliant (i.e. 19xx can roll correctly to 20xx). C. COMPENSATION AND BILLING 1. CIGNA will compensate Provider for Covered Home Care Services rendered to Participants in accordance with this Agreement. Specific compensation arrangements and rates for each Program are delineated in the applicable Program Attachments and in the exhibits associated with such Program Attachments. Provider will look solely to CIGNA, and not to the parties with whom CIGNA has Service Agreements, for com- -15- pensation for such Covered Home Care Services, excluding any Copayments, Deductibles or Coinsurance due from Participants. CIGNA represents that payments made hereunder shall be made by CIGNA either for or on behalf of full service health maintenance organizations or a licensed insurance company or relate to services which are referenced in reports filed by full service health maintenance organizations with applicable regulatory authorities. 2. Provider shall comply with the limitations on billing Participants as set forth in the Agreement and applicable Program Attachments. 3. Provider may bill an individual directly for any services provided following the date the individual ceases to be a Participant. CIGNA has no obligation under this Agreement to pay for services rendered to individuals who no longer are Participants. This provision shall not be construed to relieve CIGNA of its obligation to notify Provider when an individual ceases to be a Participant as set forth in Section II.A.10. of this Agreement. 4. Provider will be responsible for all compensation to its Subcontractors for Covered Home Care Services provided to Participants under this Program. Subcontractors shall be reimbursed for Covered Home Care Services rendered in accordance with the requirements set forth in Exhibit VIII. CIGNA will not accept billing from, or directly reimburse, any Subcontractor or any other home care agency for Covered Home Care Services rendered to Participants under this Agreement. CIGNA will only accept billing for Covered Home Care Services from either of Provider's two centralized Provider billing locations unless otherwise agreed by CIGNA. 5. Provider shall grant CIGNA reasonable access during regular business hours to all records maintained respecting payments received by Provider and, to the extent required by any applicable laws, regulations or the applicable governmental authority, including but not limited to HCFA, by Subcontractors for the rendering of Covered Home Care Services during the term of this Agreement. CIGNA shall have the right to conduct periodic audits of such records to determine if amounts have been properly paid to Provider under this Agreement. CIGNA shall present Provider with the results of any such audits, and any amounts determined to be due and owing as a result of such audits shall be promptly paid, or, at the option of the party to whom such amounts are owed, offset against amounts due and owing by such party hereunder. This provision shall survive the termination of the Agreement. 6. CIGNA shall notify Provider of any applicable limitations on coverage for Covered Home Care services to Participants under specific Programs. -16- 7. With respect to the PPO and Indemnity Programs, the parties agree to work in good faith toward the implementation of regional fee-for-service rates with respect to Home Health Services in lieu of the composite rate structure set forth in the PPO and Indemnity Program Attachments. Any such regional fee-for-service rates must be revenue neutral and shall only be effective upon amendment to this Agreement. This provision shall not be construed to require CIGNA to incur significant expenditures in order to enable CIGNA to administer such regional fee-for-service rates. 8. Provider agrees that the reimbursement rates set forth in the PPO Program Attachment shall also apply with respect to any Home Care Services referred to Provider which are not Covered Home Care Services and which are rendered by Provider or its Subcontractors to Participants and that Provider shall accept such rates as payment in full from such Participants. D. RECORDS 1. CIGNA, Provider and Subcontractors agree that clinical records of Participants and any other records containing individually identifiable information relating to Participants shall be regarded as confidential, and each shall comply with all applicable federal and state laws and regulations regarding such records. This provision shall survive the termination of this Agreement. 2. Provider and Subcontractors shall maintain and furnish such records and documents as may be required by applicable laws, regulations and Program Requirements. CIGNA, Provider and Subcontractors shall cooperate with each other to facilitate the information and record exchanges necessary for CIGNA's or Provider's conduct of Quality Management, Utilization Management, peer review, or other programs required for CIGNA's or Provider's operations related to performance under this Agreement. 3. Provider and Subcontractors shall provide CIGNA, its designee and duly authorized third parties, including, but not limited to, applicable governmental regulatory agencies, with reasonable access during regular business hours to specified clinical, medical and other records relating to Covered Home Care Services rendered to Participants under this Agreement, subject to applicable confidentiality obligations. Such access shall be provided within the time frames specified by the governmental regulatory authority requesting such access or, if such access is requested by CIGNA only, upon reasonable notice by CIGNA. This provision shall survive the termination of this Agreement. 4. CIGNA shall be responsible for obtaining Participant's consent to the release of medical record information by Provider or its Subcontractors for the purposes stated in this section. -17- 5. The parties acknowledge that, as a result of this Agreement, each may have access to certain trade secrets and other confidential and proprietary information of the other. Each party shall hold such trade secrets and other confidential and proprietary information, including the terms and conditions of this Agreement, in confidence and shall not disclose such information, either by publication or otherwise, to any person or use such information without the prior written consent of the other party except as may be required by law and except as may be required to fulfill the rights and obligations set forth in this Agreement. This provision shall survive the termination of this Agreement. E. PARTICIPANT GRIEVANCE Provider and Subcontractors shall cooperate with CIGNA in the implementation of its Participant grievance procedure and shall assist CIGNA in taking appropriate corrective action. CIGNA shall make the final determination under such grievance procedure. CIGNA shall provide Provider with a copy of its Participant grievance procedure and shall notify Provider of any material changes to such procedure. F. INSURANCE AND LIABILITY 1. Throughout the term of this Agreement, Provider shall maintain at its expense general and professional liability coverage of at least $2,000,000 per claim/$5,000,000 aggregate and shall require its Subcontractors to maintain general and professional liability coverage of at least $1,000,000 per claim/$3,000,000 aggregate. Provider shall give CIGNA certificates of insurance evidencing such coverage upon request. Provider shall give CIGNA thirty (30) days' prior written notice of cancellation, modification or termination of its insurance. Provider shall require its Subcontractors to give Provider thirty (30) days' prior written notice of cancellation, modification or termination of such insurance, and Provider shall notify CIGNA of any such cancellation, modification or termination upon receipt of notification from its Subcontractor. Provider shall give CIGNA prompt written notice of any material claims or claims for which NCQA guidelines recommend disclosure against Provider's or Subcontractor's liability coverage. 2. In connection with any complaint or investigation with or by any licensing or regulatory authority, peer review organization, hospital committee, or other committee, organization or body which by law regulates the Provider's or Subcontractor's quality of medical care which complaint or investigation directly or indirectly evaluates or focuses on the quality of care provided by Provider or Subcontractors at locations providing or contemplated to provide services hereunder: -18- a. prior to April 1, 1996, Olsten shall notify CIGNA of any such complaint or investigation which is material and which occurred within the 2 year period preceding the Effective Date and shall provide an explanation of the status or resolution of such investigation or complaint; and b. during the term of this Agreement, Provider shall notify CIGNA immediately upon becoming aware of the initiation of any such complaint or investigation which is material. G. INDEMNIFICATION 1. Each party agrees to indemnify, defend and hold harmless the other, its agents and employees from and against any and all liabilities, causes of action, penalties, losses and expenses of any nature, including but not limited to court costs and reasonable attorney fees, including but not limited to bodily injury, death, personal injury, property damage or other damages, arising out of its negligence or willful misconduct in connection with its performance under this agreement, except to the extent that the liability results from the negligence or willful misconduct of the other party, its agents or its employees. 2. Notice. The party seeking indemnification ("Indemnitee") shall promptly, and within 15 days after notice to it (notice to Indemnitee with respect to third-party claims being the filing of any legal action, receipt of any claim in writing, or similar form of actual notice) of any claim as to which it asserts a right to indemnification, notify the party or parties from whom indemnification is sought ("Indemnitor") of such claim. Indemnitee shall set forth in such notice the section of this Agreement under which the indemnification is claimed, factual support and information regarding the claim, and the amount of such claim. The failure of Indemnitee to give such notice under this Section shall not relieve Indemnitor from any liability that it may have pursuant to this Agreement except to the extent the failure to give such notice within such time shall have been prejudicial to it, and in no event shall the failure to give such notice relieve Indemnitor from any liability it may have other than pursuant to this Agreement. 3. Third-Party Claims. If any claim for indemnification by Indemnitee arises out of a claim for monetary damages by a person other than Indemnitee, Indemnitor may, by written notice to Indemnitee, undertake to conduct any proceedings or negotiations in connection therewith or necessary to defend Indemnitee and take all other steps or proceedings to settle or defeat any such claims or to employ counsel to contest any such claims; provided, however, that Indemnitor shall reasonably consider the advice of Indemnitee as to the defense of such claims, and Indemnitee shall have the right to participate, at its own expense, in such defense, but control of such litigation and set- -19- tlement shall remain exclusively with Indemnitor. Indemnitee shall provide all reasonable cooperation in connection with any such defense by Indemnitor. Counsel and auditor fees, filing fees, and court fees in all proceedings, contests, or lawsuits with respect to any such claim or asserted liability shall be borne by Indemnitor. To the extent that Indemnitor undertakes the defense of such claim by written notice to Indemnitee and diligently pursues such defense at its expense, Indemnitee shall be entitled to indemnification hereunder only to the extent that such defense is unsuccessful as determined by a final judgment of a court of competent jurisdiction or to the extent Indemnitor acknowledges liability and/or agrees to make payment to the third party pursuant to a settlement agreement between the Indemnitor and the third party relating to such claim. H. INSPECTIONS Upon reasonable notice and at reasonable hours, CIGNA or its agents may inspect Provider's or any Subcontractor's premises and operations to ensure that they are adequate to meet Participants' needs. I. PERFORMANCE GUARANTEES Provider shall perform its obligations under this Agreement in accordance with the standards set forth in Exhibit IX. In the event that Provider fails to achieve a performance standard set forth in Exhibit IX, the amounts due Provider as set forth in the Program Attachments of this Agreement shall be reduced in accordance with the formula set forth in Exhibit IX. J. REPRESENTATIONS CIGNA makes no representations or guarantees concerning the number of Participants it can or will refer to Provider under this Agreement. Notwithstanding the foregoing, subject to the exclusions and limitations set forth in Exhibit X and, with respect to the HMO, Medicare Risk, Medicaid Risk and PPO Programs only, CIGNA agrees that, during the term of this Agreement, it shall not contract with any third party for the provision of the Covered Home Care Services which are the subject of this Agreement in those Service Areas for which Provider shall have commenced rendering Covered Home Care Services under this Agreement and for which all transitioning care has been completed. This provision shall not prohibit or restrict CIGNA from contracting with others with regard to services which Provider does not provide or arrange for or services, which are not included within the scope of this Agreement. CIGNA shall cause its affiliate Intracorp to refer to Provider all CIGNA Indemnity Program Participants referred to or identified by Intracorp to utilize Covered Home -20- Care Services when the utilization review/case management contract applicable to the Participant is between CIGNA and the party with which CIGNA has the Service Agreement. K. BEST RATE GUARANTEE Provider warrants that the rates, terms and benefits granted by Provider as set forth in this Agreement, viewing the package of services hereunder as a whole, are equivalent to, or better than, the rates, terms, benefits being offered by Provider to any company in any area which is contained within or overlaps a CIGNA Service Area which purchases services similar to those provided under this Agreement, viewing the package of such services as a whole. If Provider, during the term of this Agreement, enters into agreements with any other company which provides greater benefits or more favorable terms or rates with respect to like obligations of Provider and like rights of CIGNA, viewing the package of services provided hereunder as a whole, Provider shall notify CIGNA immediately upon consummation of such agreement and at least 30 days prior to the effective date of such agreement. This Agreement shall thereupon be deemed automatically amended to provide the same advantages to CIGNA. This provision shall be enforceable to the extent permitted by applicable law. L. STATE SPECIFIC PROVIDER AGREEMENT REQUIREMENTS The parties agree to amend this Agreement and Provider shall amend its contracts with its Subcontractors to the extent necessary to articulate any provider contract requirements absent from this Agreement or Provider's agreements with its Subcontractors and required by applicable law, regulation or the applicable regulatory authority, including but not limited to, HCFA. III. MISCELLANEOUS OBLIGATIONS A. INDEPENDENT CONTRACTOR RELATIONSHIP 1. This Agreement is not intended to create nor shall be construed to create any relationship between CIGNA and Provider other than that of independent persons or entities contracting for the purpose of effecting provisions of this Agreement. Neither party nor any of their representatives shall be construed to be the agent, employer, employee or representative of the other. 2. Nothing in this Agreement, including Provider's and Subcontractor's participation in the Quality Management and Utilization Management process, shall be construed to interfere with or in any way affect Provider's or Subcontractor's obligation to exercise independent medical judgement in rendering health care services to Participants, and -21- CIGNA agrees to adhere to its obligations to Participants under its Service Agreements. B. TERM OF AGREEMENT This Agreement shall begin on January 1, 1996 and shall continue through December 31, 1998 and then from year to year thereafter, unless terminated as set forth below. C. TERMINATION 1. For Cause. Provider or CIGNA may terminate this Agreement at any time for cause. Cause for termination includes, but is not limited to, the following: a. Significant failure of CIGNA to make required compensation payments to Provider. Only Provider may terminate pursuant to this subsection. b. Failure of either party to comply with applicable laws or regulations. c. Habitual neglect or continued failure by either party to perform its duties under this Agreement. d. Material breach of this Agreement by either party. e. Failure by Provider to maintain licenses required to perform its duties under this Agreement. f. Failure of CIGNA to maintain licenses or certifications required to operate in conformity with this Agreement, g. Failure of Provider to maintain required liability coverage protection. h. Material adverse change in financial condition or insolvency of either party. i. Any material misrepresentation or falsification of any information supplied by Provider for consideration by CIGNA in Provider's becoming a Participating Provider. Any occurrence under paragraphs (e) through (i) above shall be grounds for immediate termination. Termination for any other reason set forth above shall be upon thirty (30) days' prior written notice by the terminating party, provided that the non-terminating party will have the opportunity to cure the breach or occurrence within the thirty-day period. -22- 2. Without Cause. Commencing eight (8) months after the Effective Date, this Agreement may be terminated at any time without cause or prejudice upon one hundred and twenty (120) days' prior written notice by either party. 3. Termination of Subcontractors. Upon reasonable request by CIGNA, Provider shall prohibit a Subcontractor or Provider location from continuing to provide services to Participants under this Agreement. Provider shall take such action within 30 days of the receipt of CIGNA's request, unless CIGNA requests immediate action. 4. Termination for Nonpayment of Subcontractors by Provider. Provider shall promptly notify CIGNA in the event that Provider is in significant default of its obligations to any Subcontractor with respect to services rendered hereunder. If Provider fails to cure such default within 15 days of receipt of notice of the default from the respective Subcontractor, CIGNA may elect to terminate this Agreement effective on a date determined by CIGNA which date shall be no earlier than 30 days but not later than 120 days after CIGNA's notification to Provider of its election to terminate pursuant to this provision. During the time between CIGNA's election to terminate and CIGNA's designated effective date of termination, CIGNA may elect to direct any and all payments due Provider for services rendered hereunder by Subcontractors directly to Subcontractors. Such payments shall be made, at CIGNA's election, either in accordance with the reimbursement arrangements set forth in Provider's provider agreements with its Subcontractors or in accordance with the reimbursement rates set forth in the PPO Program Attachment to this Agreement. CIGNA's payment obligations to Provider hereunder shall be reduced to the extent of such payments. 5. Termination of Individual Program Attachments. Program Attachments may be terminated individually by amendment as provided in Section III.H. of this Agreement. Termination of any individual Program Attachment will not have the effect of terminating the entire Agreement and all remaining Sections and Program Attachments of the Agreement will remain in full force. 6. Termination Due To Material Issues Arising During Implementation. If, during the implementation of this Agreement but prior to the start date at any Service Area, a material issue or issues arise between the parties relating to the parties' obligations under this Agreement which issue(s) the parties are unable to resolve, either party may terminate this Agreement upon 60 days, prior written notice to the other party, provided that this Agreement shall not terminate if the parties resolve such material issue(s) within such 60 days. The parties agree to use best efforts to resolve any such material issue within such 60-day period. -23- D. RIGHTS AND OBLIGATIONS UPON TERMINATION Upon termination of this Agreement for any reason, the rights of each party hereunder shall terminate, except as otherwise provided in the Agreement including any Program Attachment. Any such termination, however, shall not release Provider or its Subcontractors or CIGNA from obligations under this Agreement prior to the effective date of termination. E. ASSIGNMENT AND DELEGATION OF DUTIES Neither CIGNA nor Provider may assign duties, rights or interests under this Agreement unless the other party shall so approve by written consent, provided, however, that any reference to CIGNA or Provider herein shall include any successor in interest and that CIGNA or Provider may assign its duties, rights and interests under this Agreement in whole or in part to its wholly owned subsidiaries or affiliates under common control or may delegate any and all of its duties in the ordinary course of business, but in any such case the respective party to this Agreement shall remain bound by its obligations and liabilities hereunder. F. USE OF NAME Provider and Subcontractors agree that Provider's and Subcontractors' name, office telephone number, address, specialty, and professional certification may be included in literature distributed to existing or potential a) Participants; b) Participating Providers; c) Payors; d) parties with Service Agreements; and e) brokers, provided that such literature does not utilize Provider's name in a form materially different from the form approved by Provider and that such literature does not materially misrepresent the nature and scope of the services rendered by Provider hereunder. With respect to such literature, CIGNA agrees to direct its sales offices to utilize the approved form of Provider's name and to describe the services rendered by Olsten hereunder in a manner consistent with an approved description of such services. Provider's or Subcontractors' use of CIGNA's name or CIGNA Affiliate's name, or any other use of Provider's or Subcontractors' name by CIGNA shall require written approval, which approval shall not be unreasonably withheld. G. INTERPRETATION The validity, enforceability and interpretation of this Agreement shall be governed by any applicable federal law and by the applicable laws of the State of Connecticut. -24- H. AMENDMENT 1. CIGNA may amend this Agreement and Program Attachments by providing prior written notice to Provider. Failure of Provider to object in writing to any such proposed amendment within sixty (60) days following receipt of notice shall constitute Provider's acceptance thereof. Notification to CIGNA of rejection of any proposed amendment means that this Agreement shall remain in force without the proposed amendment. 2. In the event that a change in state or federal law or regulation should materially adversely affect either party, the affected party shall notify the other, and both parties agree to negotiate in good faith to amend the Agreement accordingly, while at the same time trying to preserve the economic expectations of the parties to the greatest extent possible under these new circumstances. If the parties cannot agree to amend the Agreement, the affected party may terminate this Agreement pursuant to the Without Cause termination provision set forth in Section III.C.2. The provisions of this paragraph shall not in any way limit the parties' rights under other termination provisions of this Agreement. 3. Except as provided above, amendments to this Agreement shall be agreed to in advance in writing by CIGNA and Provider. I. PROGRAM ATTACHMENTS AND EXHIBITS The Program Attachments and Exhibits hereto are a part of this Agreement and their terms shall supersede those of other parts of this Agreement in the event of a conflict. J. ENTIRE CONTRACT This Agreement together with all Program Attachments contains all the terms and conditions agreed upon by the parties, and supersedes all other agreements, expressed or implied regarding the subject matter. K. NOTICE Any notice required hereunder shall be in writing and shall be sent by United States certified or registered mail, postage prepaid, to the following individuals at the following addresses: John Perlstein, CIGNA Health Corporation, 900 Cottage Grove Road, Bloomfield, CT 06002; and Robert Fusco, President, Kimberly Home Health Care, Inc., 175 Broad Hollow Road, Melville, NY 11747. A copy of any such notice to Provider shall be sent to: Kimberly Home Health Care, Inc., 175 Broad Hollow Road, Melville, NY 11747, Attention: Law Department. -25- A copy of any such notice to CIGNA will be sent to: CIGNA Health Corporation, 900 Cottage Grove Road, Bloomfield, CT 06002, Attention: Legal Division, W-26. L. ENFORCEABILITY AND WAIVER The invalidity and nonenforceability of any term or provision of this Agreement shall in no way affect the validity or enforceability of any other term or provision. The waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach thereof. M. REGULATORY APPROVAL In the event that CIGNA or Provider has not been licensed or has not received any applicable regulatory approval for use or implementation of this Agreement prior to the execution of this Agreement, this Agreement shall be deemed to be a binding letter of intent with respect to the state(s) in which such licensure or approval has not been received. In such event, the Agreement shall become effective in such state(s) on the date that such regulatory approval or licensure is obtained. If CIGNA or Provider is unable to obtain such licensure or approval in any such state(s) after due diligence or if the respective party subject to such licensure or approval reasonably determines that obtaining such licensure or approval shall be unduly burdensome, CIGNA or Provider, as the case may be, shall notify the other party and both parties shall use best efforts to work to modify this Agreement to the extent necessary to comply with applicable regulatory requirements while at the same time preserving the economic expectations of the parties to the extent possible. N. DISPUTE RESOLUTION 1. The parties agree to meet and confer in good faith to resolve any problems or disputes that may arise under this Agreement. The parties agree to fully utilize, and to comply with, the procedures delineated in applicable Program Requirements in attempting to resolve categories of disputes specified in such Program Requirements. 2. If the dispute is not resolved through the aforementioned processes and to the extent permitted by law, the matter in controversy shall be submitted to the National Health Lawyers' Association Alternative Dispute Resolution Service in New York, New York. Both parties expressly covenant and agree to be bound by the decision of that dispute resolution entity as final determination of the matter in dispute. Each party shall assume its own costs, but shall share the cost of the resolution entity equally. Judgment upon the award rendered by the resolution entity may be entered in any court having jurisdiction. -26- O. THIRD PARTY BENEFICIARIES This Agreement is not intended to and shall not confer any rights to any person or entity not a party to this Agreement except that the Participant hold harmless provisions in the Attachments to this Agreement are intended for the benefit of Participants. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -27- In WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date below. CIGNA HEALTH CORPORATION DATE: By: ---------------------------------- W. Allen Schaffer, MD President - ------------------------------ CIGNA Health Corporation 900 Cottage Grove Road Bloomfield, CT 06002 KIMBERLY HOME HEALTH CARE, INC. DATE: By: ---------------------------------- Robert Fusco President - ------------------------------ Kimberly Home Health Care, Inc. D/B/A Olsten Kimberly QualityCare 175 Broad Hollow Road Melville, NY 11747 ------------------------------------- Federal Tax Identification Number -28- NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT I. PARTICIPATING CIGNA SUBSIDIARIES AND AFFILIATES Connecticut General Life Insurance Company CIGNA HealthCare of Arizona, Inc. Arizona Health Plan, Inc. CIGNA HealthCare of California, Inc. CIGNA HealthCare of Colorado, Inc. CIGNA HealthCare of Connecticut, Inc. CIGNA HealthCare of Delaware, Inc. CIGNA HealthCare of Illinois, Inc. CIGNA HealthCare of Florida, Inc. CIGNA HealthCare of Georgia, Inc. CIGNA HealthCare of Kansas/Missouri, Inc. CIGNA HealthCare of Louisiana, Inc. CIGNA HealthCare of North Louisiana, Inc. CIGNA HealthCare MidAtlantic, Inc. CIGNA HealthCare of Massachusetts, Inc. CIGNA HealthCare of St. Louis, Inc. CIGNA HealthCare of Northern New Jersey, Inc. CIGNA HealthCare of New Jersey, Inc. Lovelace Health System, Inc. CIGNA HealthCare of New York, Inc. CIGNA HealthCare of North Carolina, Inc. CIGNA HealthCare of Ohio, Inc. CIGNA HealthCare of Oklahoma, Inc. CIGNA HealthCare of Pennsylvania, Inc. CIGNA HealthCare of Tennessee, Inc. CIGNA HealthCare of Texas, Inc. CIGNA HealthCare of Utah, Inc. CIGNA HealthCare of Virginia, Inc. -29- NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT II. PARTICIPATING OLSTEN SUBSIDIARIES AND AFFILIATES Kimberly Home Health Care, Inc. Olsten Certified Healthcare Corp. Olsten Flying Nurses Corp. Olsten Services of New York, Inc. Olsten Home Healthcare, Inc. New York Healthcare Services, Inc. QC Medi - New York, Inc. Quality Care - USA, Inc. -30- NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT III. INFORMATION REQUIRED FOR COMPLETE ORDER Requested start of care ("SOC")/Actual SOC date (actual if current client) Last Name, First Name, MI, Phone # Address where service is to be rendered Facility, Facility Discharge Date Facility Name, Phone # Date of Birth/Age, Sex, SS#, Marital Status Ordering Physician, Phone # Home Care Personnel (specify. type) Home Medical Equipment Infusion Product All pertinent diagnoses and/or surgical procedures with onset and/or exacerbation dates Allergies (Infusion Therapy) Specific Orders/Treatment: (note: Subcontractor must contact physician and/or physician's agent directly to obtain/validate all orders) Has client taken ordered drug(s) before.? Y, N, comment Venous/other access established? Y, N, if Yes, date placed, type ordered, gauge if applicable (1st Dose) Anaphylaxis Order - Y, not applicable (1st Dose) Anaphylaxis medications/dosage/route (1st Dose) Primary Plan, ID# -31- NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT IV. EXCLUSIONS FROM HOME CARE SERVICES Home Care Services do not include: 1. the prenatal risk assessment, counseling and education services provided by Tokos, Inc. or others to Participants. 2. those Home Care Services where the provision of such Home Care Services in the home setting (or ambulatory setting, with respect to Home Infusion Therapy) would be unsafe for the Participant or Provider personnel. 3. assistance in the activities of daily living including but not limited to eating, bathing, dressing or other custodial or self-care activities, homemaker services, and services primarily for rest, domiciliary or convalescent care. 4. care required to be rendered in a skilled nursing facility or other medical facility except in preparation for the transition of care into the home setting. This exclusion shall not be interpreted to exclude care required to be rendered in a residential facility where the residential facility is the permanent home of the Participant. 5. care covered under a Participant's mental health benefit program 6. hospice care to the extent such care requires a hospice license or certification to deliver or the Participant is admitted to a hospice facility and the service is covered as part of a hospice program. This exclusion shall not be interpreted to exclude those services which are normally provided in a home care setting by an entity not required to be licensed or certified as a hospice and which happen to be rendered to a Participant who is terminally ill, which services include but are not limited to, medical social work services. 7. Experimental services. -32- NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT V. HOME INFUSION THERAPY DRUGS AND MEDICATIONS

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* Ancillary drugs are covered under Home Infusion Therapy only in conjunction with a primary therapy unless otherwise stated. -36- The above list of drugs and medications is an illustrative list of drugs and medications and is not intended to be all inclusive. -37- NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT VI. CREDENTIALING/RECREDENTIALING REQUIREMENTS 8. Provider shall be responsible for credentialing and recredentialing of all Provider locations and all Subcontractors. 9. Provider's credentialing/recredentialing criteria shall, at a minimum, satisfy NCQA standards or the standards of another appropriate accrediting body designated by CIGNA, and the standards established by CIGNA. CIGNA reserves the right to disapprove, terminate or suspend the participation of any of Provider's locations or Subcontractors if they do not meet CIGNA's requirements. 10. Provider shall review and externally verify the credentials of every Provider location and every Subcontractor at least once every two years, or more frequently if required by NCQA or other applicable accrediting body. 11. Provider shall provide CIGNA with a summary of the credentials of each Provider location and each Subcontractor in a format acceptable to CIGNA and such other information as may reasonably be requested by CIGNA from time to time. 12. Provider shall require Subcontractors to represent and warrant that the information contained in their applications for participation is true and accurate and to agree to notify Provider promptly of any material change in the information on such application. Provider shall, in turn, immediately notify CIGNA of all of such changes. 13. CIGNA may audit Provider's credentialing/recredentialing activities, including Provider's credentialing/recredentialing files. If CIGNA determines that Provider cannot meet its credentialing obligations set forth herein, CIGNA may elect to assume responsibility for such activities. If CIGNA elects to assume responsibility for such activities, the parties agree to renegotiate the rates set forth in this Agreement to the extent necessary, and Provider shall cooperate and provide to CIGNA any information necessary to perform such activities. -38- NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT VII. REQUIRED ENCOUNTER DATA ELEMENTS Provider (including Provider's Subcontractors) shall provide CIGNA with the following standard data elements for each service encounter with respect to Covered Home Care Services rendered under this Agreement: a. Patient name b. CIGNA Patient ID No. c. Healthplan Identifier d. Group Number e. Date of Service f. Primary and Secondary ICD-9 Codes g. CPT-4, and HCPCS Codes h. Charge to CIGNA i. Usual Charge j. Service Provided k. Service Description l. Drug supplied including NDC m. Usual Drug Charge n. Equipment Provided o. Equipment Description p. Usual Equipment Charge q. Referring Physician Name r. Referring Physician License No. s. Referring Facility t. Place of Service u. CIGNA Program (e.g. Indemnity, PPO) v. Revenue codes w. any other data element agreed upon by the parties during implementation or during the term of the Agreement. -39- NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT VIII. SUBCONTRACTOR PAYMENT -40- Provider shall pay Subcontractors for Covered Home Care Services rendered hereunder in accordance with this Exhibit and the terms of the Agreement. 14. Provider shall pay Subcontractors for Covered Home Care Services rendered hereunder in accordance with the payment administration standards agreed upon during implementation and any other standards set forth in applicable laws and regulations. Provider agrees to reimburse Subcontractors for Covered Home Care Services within thirty (30) days of receipt of a properly completed request for payment for Covered Home Care Services and receipt of payment from CIGNA. CIGNA may withhold all or a portion of Provider's Capitation Payments if Provider repeatedly fails to reimburse Subcontractors on a timely basis. Provider's obligations with regard to payment for Covered Home Care Services rendered hereunder shall survive the termination of this Agreement with respect to any Covered Home Care Services rendered by Subcontractors during the term of this Agreement and with respect to any Covered Home Care Services Provider is obligated by this Agreement to provide or arrange for after termination of this Agreement. 15. With reasonable notice, Provider agrees to allow CIGNA representatives to conduct on-site reviews of Provider's payment administration facilities. Such reviews shall be for the sole purpose of evaluating Provider's performance of its payment responsibilities under this Agreement, including, but not limited to, ascertaining the quality and timeliness of Provider's payment processing. Provider agrees to correct any deficiencies detected during such reviews within sixty (60) days of CIGNA's submission of a written report detailing such deficiencies. 16. Provider shall be responsible for the production of all applicable tax reporting documents (e.g., 1099s) for Subcontractors. Such documents shall be produced in a format and within the timeframes set forth in applicable state and federal laws and/or regulations. 17. CIGNA shall produce explanations of benefits for both Provider and Participants. Provider shall produce explanations of benefits for Subcontractors. Such explanations of benefits shall be in a format and contain data elements acceptable to CIGNA. 18. Providers shall develop and deliver training programs for Subcontractors which outline Provider's billing and reimbursement processes. Under no circumstances shall Subcontractors submit bills to CIGNA for Covered Home Care Services referred to Provider. Provider shall make best efforts to ensure that Subcontractors avoid submitting such requests for payment. 19. CIGNA or Payor shall have final decision making authority with regard to all Participant benefit determinations made hereunder. MCR 13 [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] MCR 14 NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT IX. PERFORMANCE GUARANTEES * Confidential Treatment Requested

The above turnaround times commence to run as of the time of receipt by Provider of a Complete Order and are subject to the terms and conditions set forth in Section II.A.12. of the Agreement. To assess annual performance in each of the above categories, four consecutive quarterly audits will be conducted and averaged to determine whether the standard has been attained. CIGNA will compile these results and calculate the resulting payment (if any) that is due from Provider. NATIONAL HOME CARE PROVIDER AGREEMENT EXHIBIT X. NATIONAL HOME HEALTH EXCLUSIVITY: EXCLUSIONS CIGNA's agreement not to contract with any other third party for the provision of Covered Home Care Services with respect to its HMO, Medicare Risk, Medicaid Risk and PPO Programs, as more particularly set forth in Section II. J. of the Agreement, shall not apply with respect to the following: 1) Covered Home Health Services delivered or arranged for by Lovelace Health Systems, Inc.; 2) Covered Home Care Services delivered or arranged for by CIGNA HealthCare of Texas, Inc. in its Dallas, Texas service area; 3) Covered Home Care Services delivered under CIGNA's current and future capitation contracts with Participating Providers or delivered under CIGNA's current and future contracts with preferred provider organizations, where such contracts include Covered Home Care Services as just one of a number of different types of health care services to be delivered or arranged for thereunder. The parties understand and agree that CIGNA may elect at any time to have those services referenced in items 1 through 3 above provided or arranged for by Provider pursuant to the terms and conditions of this Agreement at the applicable rates in effect at the time of such election. HMO PROGRAM ATTACHMENT TO NATIONAL HOME CARE PROVIDER AGREEMENT PURPOSE The terms and provisions of this HMO Program Attachment and the Agreement are applicable to Covered Home Care Services rendered in accordance with a Service Agreement which is consistent with the HMO Program. The HMO Program includes CIGNA's commercial HMO and FlexCare products. IV DEFINITIONS CAPITATION PAYMENT means a periodic payment for Covered Home Care Services which is made to Provider, at the rates set forth in Exhibits A.1, A.2 and A.4, for each Participant who is a member of Provider's Patient Panel. MEDICAL DIRECTOR means a physician designated by CIGNA to manage Quality Management and Utilization management responsibilities, or that physician's designee. PATIENT PANEL means those Participants who have designated or have otherwise been assigned to Provider as the primary source for Covered Home Care Services pursuant to a Service Agreement for which Provider will receive a global Capitation Payment for Covered Home Care Services rendered. PRIMARY CARE PHYSICIAN means a physician duly licensed to practice medicine who is a Participating Provider with CIGNA to provide Covered Services in the fields of general medicine, internal medicine, family practice or pediatrics, and who has agreed to provide primary care physician services to Participants in accordance with HMO Program Requirements. V PARTIES' OBLIGATIONS A. Services 1. Provider shall provide, arrange for or, if rendered by another provider, be financially responsible for all Covered Home Care Services that are required by Participants in Provider's Patient Panel in accordance with the terms of this Agreement, this HMO Program Attachment and HMO Program Requirements. Provider shall accept the compensation set forth in Exhibits A.1, A.2 and A.3 or A.4, whichever is applicable, of this Program Attachment as payment in full for such services. 2. A CIGNA Participating Physician or CIGNA will notify Provider's Network Manager of each referral for Covered Home Care Services for Participants in its Patient Panel. Provider will provide or arrange for all Medically Necessary Covered Home Care Services for all such HMO 1 Participants, in accordance with the authorization and Utilization Management procedures set forth in Section II.D. below. Provider and CIGNA will jointly develop clinical pathways to establish a plan of treatment for more difficult Participant cases requiring Covered Home Care Services. Provider shall be financially responsible for all out-of-network claims for Covered Home Care Services rendered to Participants, whether the result of an affirmative opt-out decision or noncompliance by the Participant or physician in the selection of home care provider. B. Compensation and Billing HMO 2 1. By the 15th day of each month or within 5 days of receipt of the reports specified in Sections II.B.2. and II.B.3 of the Agreement, whichever is later, Provider shall receive a Capitation Payment for each Participant in Provider's Patient Panel in accordance with the rates set forth in Exhibit A.1. The Capitation Payment shall be compensation in full for all Covered Home Care Services provided to Participants in Provider's Patient Panel, except as set forth in section II.B.2. and II.B.3. below. Provider is required to deliver the reports delineated in Sections II.B.2. and II.B.3. of the Agreement by the tenth day of each calendar month, reflecting activity for the month preceding the prior month. The obligation to deliver such reports shall not apply until 2 months following the date that the format of the reports is agreed upon by the parties. CIGNA may elect to withhold all or a portion of Provider's Capitation Payment until such reports are received, except with respect to payments due in the first two months of this Attachment. 2. Each Service Area may elect to compensate Provider for those Tocolytic Services which are Covered Home Care Services either on a capitated or fee-for-service basis in accordance with the rates set forth in Exhibit A.2. 3. Home Medical Equipment which is a Covered Home Care Service shall at first be compensated in accordance with the fee-for-service rates set forth in Exhibit A.3. At any time during the term of this Agreement, CIGNA may elect to reimburse Provider for Home Medical Equipment in accordance with the Capitation Payment rates set forth in Exhibit A.4. Such rates shall be effective on the first day of the month following receipt of notification of such election by Provider from CIGNA. 4. Commencing on the Effective Date and for the first year of this Agreement, the Capitation Payment rates set forth in the Exhibits to this Attachment will be reduced by 2.5%. This amount represents the estimated amount needed to fund claims for Covered Home Care Services rendered to Participants by other providers for which Provider is obligated hereunder (the "Out-Of-Network Claims Fund"). CIGNA shall process and pay all of such claims on behalf of Provider from such fund in accordance with the Participant's Service Agreement. At the end of the first year of this Agreement and at the end of each year thereafter: a. the parties shall reconcile the Out-Of-Network Claims Fund for the preceding year with the actual amount paid by CIGNA to other providers during the preceding year for Covered Home Care Services rendered to Participants for which Provider is obligated hereunder (the "Out-Of-Network Claims Experience"). Any amount owing will be collected through an appropriate credit or charge to the following year's Capitation Payment rates based on the number of Participants as of January 1 and prorated over 12 months; and b. the parties shall reestablish the percentage amount by which the Capitation Payment rates for the following year are to be reduced to fund the Out-Of-Network Claims Fund. Such percentage amount shall be calculated based upon the preceding year's Out-of-Network Claim Experience. HMO 3 Upon termination of this Agreement, the parties shall reconcile the Out-Of-Network Claims Fund with the Out-Of-Network Claims Experience from the date of the last reconciliation through the date of termination and any amount determined to be due and owing shall be paid by the owing party within 120 days of the date of termination. CIGNA will provide Provider with quarterly statements delineating the Out-Of-Network Claims Fund and the Out-Of-Network Claims Experience, and, upon reasonable notice, Provider may conduct reasonable audits of CIGNA's records relating to such amounts paid. HMO 4 5. Any retroactive adjustment made to Provider's Capitation Payments shall be based on the same methodology as is used in CIGNA Service Agreements. CIGNA shall fully apprise Provider in writing of all such applicable methodologies. Any adjustment shall be made in subsequent Capitation Payments. CIGNA will be able to make retroactive adjustments to capitation fees paid based on eligibility adjustments up to 180 days after a Participant's eligibility has changed. In those instances where a Participant has been retroactively deleted and has received services from Provider after the effective date of a deletion but prior to CIGNA informing Provider of such deletion, Provider or Subcontractor may bill participant for such services rendered. 6. With respect to Participants added to or deleted from Provider's Patient Panel after the 1st day of the month, the following rules shall apply. a. if the Participant is added to Provider's Patient Panel on or before the 15th day of the month, a full month's Capitation Payment will be due for that Participant for that month. There will be no Capitation Payment due for Participants added after the 15th day of the month; and b. A full month's Capitation Payment will be due for the month of termination of a Participant if the Participant terminates after the 15th day of the month. If the Participant terminates on or before the 15th day of the month, no Capitation Payment will be due for the month of termination. 7. Provider agrees that the rates set forth in Exhibits A.1, A.2, A.3 and A.4 are all-inclusive for Covered Home Care Services and that no additional charges for any additional or ancillary items, supplies or services including, but not limited to, in-hospital assessments or pre-nursing assessments, travel time, nursing services, training services, equipment delivery, maintenance and repair, equipment service contracts, after-hours delivery or other charges will be billed to or reimbursed by CIGNA. 8. Provider guarantees that the Capitation Payment rates set forth in this Attachment are effective for three years from the Effective Date of this Agreement. Additionally, Provider guarantees that the Home Medical Equipment fee-for-service rates set forth in Exhibit A.3 are effective until such time as CIGNA elects to reimburse Provider for such services on a capitated basis in accordance with Exhibit A.4 or 3 years, whichever is earlier. Notwithstanding the foregoing, the parties agree to meet to discuss adjustment to the Capitation Payment rates should any of the following circumstances occur during the term of this Attachment: a. treatments, products, supplies or equipment which are excluded from Covered Home Care Services for HMO Program Participants as of the Effective Date on the basis that they are considered Experimental are no longer considered Experimental and become a Covered Home Care Service for such Participants. HMO 5 b. shifts in treatment sites for Covered Home Care Service therapies occurring after the Effective Date result in a material change to the services which are Covered Home Care Services for HMO Program Participants. c. material changes are made to HMO Program Participants' Service Agreements after the Effective Date such that there is a material change to those Home Care Services which are Covered Home Care Services for such Participants. d. a change in the number of HMO Program Participants serviced under the capitation arrangements described in item 3 of Exhibit X. to the Agreement occurring after the Effective Date of this Agreement results in a material change in HMO Program Participant volume under this Agreement which has a material financial impact on Provider. CIGNA agrees to notify Provider of any capitation arrangements described in item 3 of Exhibit X to the Agreement entered into after the Effective Date which will result in the elimination of Provider's entire HMO Program Patient Panel in a particular healthplan location or which will result in a material reduction in the number of HMO Program Participants in Provider's entire HMO Program Patient Panel. This notification obligation shall only apply to the extent that the department at CIGNA's home office primarily responsible for CIGNA's relationship with Provider has received notice of such capitation arrangements. Any such adjustment of Capitation Payment rates shall only be made to the extent required to address the change in costs directly resulting from the above changed circumstance. 9. Any amendment of Capitation Payment rates shall be in accordance with the Amendment provisions of this Agreement. 10. All capitation rates include the cost of routine lab specimen collection by a nurse and delivered to a laboratory specified by CIGNA provided that Provider and such laboratory can reach a reasonable accommodation with respect to the logistics of such collection and delivery and with respect to the provision of applicable laboratory supplies. C. Financial Reports 1. Provider represents and warrants that the information provided by Provider to CIGNA in its response to CIGNA's request for proposal is, to the best of its knowledge, true and accurate. 2. Provider shall provide CIGNA with the following financial reports on a timely basis: 1) Provider's annual audited financial reports, including, but not limited to, Provider's audited annual income statement and balance sheet; 2) quarterly financial reports including an income statement, balance sheet and any other reports identifying payments made to Subcontractors in the preceding quarter and the incurred but not reported claims as of the end of the preceding quarter in sufficient detail to determine if payments have been made in accordance HMO 6 with this Agreement and applicable law; and 3) any financial reports required by applicable regulatory authorities. 3. Provider shall notify CIGNA immediately of any of Provider's known significant payment defaults and shall provide CIGNA with copies of notifications of significant payment defaults received by Provider with respect to any of Provider's Subcontractors, provided that such notice shall not be required if Provider cures the default within 15 days of notification of the default. At the end of each quarter, Provider's chief financial officer or another individual acceptable to CIGNA shall provide CIGNA with a signed certification to the effect that there are no known payment defaults with respect to any of Provider's creditors. Provider agrees to provide CIGNA with copies of all auditors letters normally provided to Provider's lenders relating to Provider's compliance with the terms and conditions of its loan agreements with such lenders. D. Utilization Management 1. The CIGNA Participating Physician or CIGNA shall notify Provider's Network Manager of each referral for Covered Home Care Services to Participants in Provider's Patient Panel. 2. For Covered Home Care Services ordered by a physician, Provider and/or Subcontractor will work with that referring physician to assess the patient's appropriateness for Home Care Services. Any patients which Provider determines to be medically inappropriate for Covered Home Care Services will be reported to CIGNA for evaluation and final determination. Where CIGNA assesses Covered Home Care Services to be appropriate for the patient, Provider and Participating physician will develop a care plan, including definition of treatment goals and outcomes and the identification of the resources necessary for implementation. 3. Provider will provide or arrange for the Covered Home Care Services necessary to carry out the care plan, provided that neither Provider nor Subcontractors shall be obligated to provide services where the provision of services in the home setting (or ambulatory setting with respect to Home Infusion Therapy) would be unsafe to the Participant or Provider or Subcontractor personnel. Provider will monitor the services rendered under the care plan in accordance with Utilization Management criteria and procedures mutually agreed upon by both parties, including, but not limited to, the Milliman and Robertson Home Care and Case Management guidelines set forth in Exhibit A.5. HMO 7 E. Assignment and Identification of Participants 1. Provider shall comply with the requirements of and shall participate in CIGNA's procedures with respect to the assignment and identification of Participants as outlined in HMO Program Requirements. 2. CIGNA will deliver Participant identification information to Provider in accordance with section II.A.10 of the Agreement. F. Coordination of Benefits 1. CIGNA, and Provider shall cooperate to exchange information relating to coordination of benefits with regard to any Participant for whom Provider is providing or arranging services. 2. Certain claims for services rendered to Participants are claims for which another payor may be primarily responsible under coordination of benefit rules. Provider may bill such claims to the primary payor and shall comply with the primary payor's billing rules, including, but not limited to, any of the primary payor's limitations on billing Participants. 3. When Payor is other than primary under applicable coordination of benefits rules, Payor shall nor be obligated to pay any amounts in addition to the capitation amounts paid pursuant to this Agreement and Provider and its Subcontractors shall reimburse any CIGNA Copayments, Coinsurance or Deductibles collected from Participants upon request by CIGNA or the Participant. In the event that Provider or its Subcontractors fail to reimburse such amounts, CIGNA shall have the right to deduct any such amounts from any amounts payable under this Agreement. 4. When CIGNA or its designated Payor is primary under applicable coordination of benefits rules, Provider shall consider the compensation set forth in this Attachment as payment in full for Covered Home Care Services rendered to Participants and shall not seek additional reimbursement from any secondary payors. G. Reimbursement of Expenditures CIGNA, shall be entitled to recover from Provider any reasonable expenditure made, or recover any reasonable cost incurred, including, but not limited to, any reasonable administrative costs (except with respect to the administrative costs incurred in processing out-of-network claims as described in Section II.B.4. of this Attachment), in providing or arranging for any Covered Home Care Services for which Provider was obligated hereunder but did not so provide. An amount sufficient to compensate for such expenditures and costs may be deducted from any payments due to Provider under this Agreement. Except with HMO 8 respect to Emergency or Urgent situations or with respect to out-of-network claims which are the result of an affirmative opt out decision or non-compliance by the Participant or physician in the selection of home care provider, prior to incurring any such expenditures, CIGNA shall notify Provider and allow Provider a reasonable opportunity to cure its failure to provide the particular service. CIGNA shall provide Provider with written notice and full disclosure of costs incurred prior to any such deduction. This provision shall survive the termination of this Agreement. H. Limitations on Billing Participants 1. Provider hereby agrees that in no event, including, but not limited to non-payment by CIGNA, CIGNA's insolvency or breach of this Agreement, shall Provider bill, charge, collect a deposit from, seek compensation, remuneration or reimbursement from, or have any recourse against Participants or persons other than CIGNA for Covered Home Care Services. This provision shall not prohibit collection of any applicable Copayments, Deductibles or Coinsurance billed in accordance with the term of a Service Agreement. 2. Provider further agrees that this provision shall survive the termination of this Agreement regardless of the cause giving rise to such termination and shall be construed to be for the benefit of Participants and that this provision supersedes any oral or written agreement to the contrary now costing or hereafter entered into between Provider and the Participant or persons acting on the Participant's behalf. 3. Any modification, additions, or deletion to the provisions of this clause shall become effective on a date no earlier than fifteen (15) days after the applicable state regulatory agency has received written notice of such proposed changes. 4. When Provider has been notified in advance that a particular service is not Medically Necessary, Provider and its Subcontractors shall not charge Participants for such services unless, in advance of the provision of such services, the Participant is notified that the services are not covered and the Participant acknowledges in writing that he or she shall be responsible for payment of charges for such services. VI. RIGHTS AND OBLIGATIONS UPON TERMINATION A. UPON TERMINATION OF THIS AGREEMENT, PROVIDER AND SUBCONTRACTORS SHALL CONTINUE TO PROVIDE COVERED HOME CARE SERVICES FOR SPECIFIC CONDITIONS FOR WHICH A PARTICIPANT WAS UNDER PROVIDER'S OR SUBCONTRACTOR'S CARE AT THE TIME OF SUCH TERMINATION SO LONG AS PARTICIPANT RETAINS ELIGIBILITY UNDER A SERVICE AGREEMENT, UNTIL THE EARLIER OF COMPLETION HMO 9 OF SUCH SERVICES, CIGNA'S PROVISION FOR THE ASSUMPTION OF SUCH TREATMENT BY ANOTHER PROVIDER, OR THE EXPIRATION OF TWELVE (12) MONTHS. CIGNA, SHALL COMPENSATE PROVIDER FOR COVERED HOME CARE SERVICES PROVIDED TO ANY SUCH PARTICIPANTS AT THE FEE-FOR-SERVICE RATES SPECIFIED IN THE PPO PROGRAM ATTACHMENT TO THIS AGREEMENT. B. PROVIDER HAS NO OBLIGATION UNDER THIS AGREEMENT TO PROVIDE SERVICES TO INDIVIDUALS WHO CEASE TO BE PARTICIPANTS. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] HMO 10 HMO PROGRAM ATTACHMENT EXHIBIT A.1 CAPITATION RATES HMO 11 CIGNA HEALTHCARE EXHIBIT A(1) -- OLSTEN KIMBERLY QUALITYCARE HOME CAPITATION RATES -- NON-MEDICARE/NON-MEDICAID

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT A(1) -- OLSTEN KIMBERLY QUALITYCARE HOME CAPITATION RATES -- NON-MEDICARE/NON-MEDICAID

(1) Prices effective 1/1/96 through 12/31/98. (2) Above prices exclude Home Medical Equipment. * Confidential Treatment Requested HMO PROGRAM ATTACHMENT EXHIBIT A.2 TOCOLYTIC RATES CIGNA HEALTHCARE EXHIBIT A(4) -- OLSTEN KIMBERLY QUALITYCARE TOCOLYTIC RATES - NON-MEDICARE/NON-MEDICAID HMO CAPITATION RATE FOR HEALTHPLANS ELECTING CAPITATION: $0.11 PER MEMBER PER MONTH FEE FOR SERVICES (FFS) RATES FOR HEALTHPLANS ELECTING FFS:

* Confidential Treatment Requested HMO 11 CIGNA HEALTHCARE EXHIBIT A(3) -- OLSTEN KIMBERLY QUALITYCARE HMO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT -- NON-MEDICARE

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT A(3) -- OLSTEN KIMBERLY QUALITYCARE HMO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT -- NON-MEDICARE

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT A(3) -- OLSTEN KIMBERLY QUALITYCARE HMO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT -- NON-MEDICARE

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT A(3) -- OLSTEN KIMBERLY QUALITYCARE HMO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT -- NON-MEDICARE

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT A(3) -- OLSTEN KIMBERLY QUALITYCARE HMO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT -- NON-MEDICARE

(1) HME PROVIDED TO PATIENTS OTHER THAN LISTED ABOVE WILL BE BILLED AT A 30% DISCOUNT FROM PROVIDER'S USUAL AND CUSTOMARY CHARGE. (2) SPECIAL ORDER, CUSTOM WHEELCHAIRS WILL BE DISCONTINUED 20% FROM MANUFACTURERS' SUGGESTED RETAIL. * Confidential Treatment Requested HMO PROGRAM ATTACHMENT EXHIBIT A.4 HOME MEDICAL EQUIPMENT CAPITATION RATES

HMO 12

(1) Prices effective 1/1/96 through 12/31/98. (2) Above prices have NO exclusions for home medical equipment. * Confidential Treatment Requested HMO PROGRAM ATTACHMENT EXHIBIT A.5 UTILIZATION MANAGEMENT STANDARDS Refer to Milliman and Robertson Health Care Management Guidelines, Volume 4, Home Care and Case Management, as revised or supplemented. HMO 13 HMO PROGRAM ATTACHMENT EXHIBIT A.6 HMO PROGRAM REQUIREMENTS This highlights the essential features of CIGNA's HMO Program Requirements for Provider. Provider must follow Program Requirements in order to receive payment for services rendered to Participants hereunder. Participants must also follow applicable Program Requirements in order to receive benefits. HMO 14 VII. PARTICIPANT IDENTIFICATION 1. Participants must present an HMO ID card to Provider or Subcontractor at the time of service. 2. The ID card itself does not guarantee eligibility. Provider or Subcontractor should verify Participant eligibility with CIGNA. VIII. COMPENSATION AND BILLING 1. Encounter data will contain all of the required data elements of a paid claim and will reflect services rendered to CIGNA Participants either by Provider directly or through Subcontractors. 2. For Covered Home Care Services rendered by Provider or Subcontractors to Participants out-of-network (i.e., Participant failed to obtain Participating Primary Care Physician authorization), Provider shall bill CIGNA electronically in a format acceptable to CIGNA. Such claims must be sent to the centralized billing location designated by CIGNA. 3. Provider's Subcontractors may not bill CIGNA directly for Covered Home Care Services referred to Provider under any circumstances. 4. Provider and Subcontractors shall not bill Participants for Covered Home Care Services rendered. For in-network Covered Home Care Services, Provider or Subcontractors will collect from or bill to Participant any applicable Copayments. For out-of-network Covered Home Care Services rendered by Provider or Subcontractors, Deductibles and Coinsurance should be billed to the Participant following the receipt of the Explanation of Benefits (EOB) letter from CIGNA. 5. Questions concerning the payment of individual claims should be directed to CIGNA. IX. REFERRALS/PRIOR AUTHORIZATION 1. Provider and Subcontractors must communicate and collaborate with the Participant's Primary Care Physician in the management of the Participant's care. X. DISPUTE RESOLUTION 1. Disputes arising with respect to the performance or the interpretation of this Agreement shall be submitted to the Healthplan Medical Director for review and resolution. If Provider is not satisfied with the resolution, Provider may submit the matter to the National Medical Director, CIGNA Health Corporation. The National Medical Director or his designee will review the matter and may seek written statements from the Healthplan Medical Director, Provider, Subcontractors, and others as appropriate. The decision of the National Medical Director will be binding on CIGNA and Provider if the resolution is accepted by Provider. HMO 15 2. If the parties are unable to resolve the dispute through the aforementioned process, the parties shall resolve the dispute in accordance with the dispute resolution procedures outlined in Section III.N. of the Agreement. HMO 16 PPO PROGRAM ATTACHMENT TO NATIONAL HOME CARE PROVIDER AGREEMENT PURPOSE The terms and provisions of this PPO Program Attachment and the Agreement are applicable to Covered Home Care Services rendered in accordance with a Service Agreement which is consistent with the PPO Program. The PPO Program includes CIGNA'S PPO and Gatekeeper PPO products. XI PARTIES' OBLIGATIONS A. Services Provider shall provide or arrange for all Covered Home Care Services that are ordered or prescribed by a physician for Participants and referred to Provider in accordance with the terms of this Agreement, this PPO Program Attachment and applicable PPO Program Requirements. B. Compensation and Billing 1. Provider's reimbursement for Covered Home Care Services shall be based upon the fees set forth in Exhibits B.(1)-(3), less applicable Copayments, Deductibles and Coinsurance. Provider guarantees that the rates set forth in Exhibits B.(1)-(3) are effective for a period of one year from the Effective Date. For the second year of this Agreement, such rates will be increased by the lesser of 50% of the annual national Consumer Price Index-Medical Component, or comparable successor measure, established as of October 1, 1996 or 4%. For the third year of this Agreement, the rates will be increased by the lesser of 50% of the annual national Consumer Price Index-Medical Component, or comparable successor measure, established as of October 1, 1997 or 4%. 2. Provider shall submit claims for Covered Home Care Services under this Program Attachment and receive payment for valid claims according to the following: a. Provider shall submit claims electronically, to the extent technologically feasible, for reimbursement for all Covered Home Care Services within ninety (90) days of the date those services are rendered or, if Payor is the secondary payor with regard to the claim, within ninety (90) days of the date Payor is determined to be secondary. Claims will be submitted in accordance with the rates set forth in the Exhibits attached hereto and in accordance with the requirements mutually agreed upon by the parties during implementation of this Agreement. PPO 1 Claims received after this ninety (90) day period may be denied for payment. Provider shall submit claims to the location described in PPO Program Requirements. Provider agrees to work in good faith to assure that claims can be submitted to CIGNA electronically and shall make any reasonable capital expenditures necessary to enhance its systems in order to enable such submission by April 1, 1997. b. If a claim meets the above-referenced mutually agreed upon requirements, any amount owing under this Agreement shall be paid within thirty (30) days after receipt, unless additional required information is requested within the thirty (30) day period, or unless the claim involves coordination of benefits, except as otherwise provided for in this Program Attachment. 3. CIGNA shall deduct any Copayments, Deductibles, or Coinsurance required by the Service Agreement from payment due to Provider. Deduction for the Copayment, Deductible, or Coinsurance shall be determined on the basis of rates set forth in this Attachment. 4. Provider's reimbursement as set forth herein shall be payment in full for Covered Home Care Services rendered by Provider and Subcontractors pursuant to this Agreement, except for Copayments, Deductibles and Coinsurance. 5. When Provider has been notified in advance that a particular service is not Medically Necessary, Provider and its Subcontractors shall not change the Participant for such service unless, in advance of the provision of such service, Provider or Subcontractor has notified the Participant that the service is not covered and the Participant acknowledges in writing that he or she shall be responsible for payment of charges for such services. 6. Provider will look solely to CIGNA and Subcontractors will look solely to Provider for compensation for Covered Home Care Services except for Copayments, Deductibles or Coinsurance. Provider agrees that whether or nor there is any unresolved dispute for payment, that under no circumstances will Provider or its Subcontractors directly or indirectly make any charges or claims, other than for Copayments, Deductibles or Coinsurance against any Participants or their representatives for Covered Home Care Services and that this provision survives termination of this Agreement for services rendered prior to such termination. Except for the collection of Copayments, Deductibles or Coinsurance, only those services that are not Covered Home Care Services may be billed directly to Participants, subject to limitations listed above. This paragraph is to be interpreted for the benefit of Participants and does not diminish the obligation of CIGNA to make payments to Provider according to the terms of this Agreement. 7. All rates include the cost of routine lab specimen collection by a nurse and delivered to a laboratory specified by CIGNA provided that Provider and such laboratory can reach a reasonable accommodation with respect to the logistics of such collection and delivery and with respect to the provision of applicable laboratory supplies. 8. For patients receiving two or more therapies on the same day, Provider will receive the highest applicable per diem for the first therapy. For most therapies, this per diem will include drugs as per the fee schedule. For each additional therapy except for parenteral, enteral and IV push/IM/SQ injections, Provider will receive $30 for each therapy, plus AWP less the applicable discount. Parenteral, enteral and IV push/IM/SQ injections will be paid in the usual manner. C. COORDINATION OF BENEFITS 1. Certain claims for services rendered to Participants are claims for which another payor may be primarily responsible under coordination of benefit rules. Provider shall bill such claims to the primary payor when information regarding such primary payor is available, or upon CIGNA's request and shall comply with the primary payor's billing rules, including, but not limited to, any of the primary payor's limitations on billing Participants. 2. When CIGNA or CIGNA's designated Payor is primary under applicable coordination of benefits rules, CIGNA shall pay benefits as set forth in this Agreement without regard to the obligations of any secondary payor. 3. When CIGNA or CIGNA's designated Payor is determined to be secondary to any other payor including Medicare, CIGNA will pay no greater amount than the difference between the amount payable to Provider by the primary payor and the amount for Covered Home Care Services owing under this Agreement. CIGNA shall not be liable for any amount unless CIGNA has received Provider's claim for such secondary payment within 90 days of the date when CIGNA is determined to be secondary. D. Utilization Management/Cost Containment PPO 2 1. Provider shall evaluate whether each Participant order or prescription it receives for Covered Home Care Services under this Program are Medically Necessary, utilizing Utilization Management guidelines mutually developed by the parties, including, but not limited to, the Milliman and Robertson Home Care and Case Management Guidelines set forth in Exhibit A.5 to the HMO Program Attachment. 2. Provider will notify CIGNA's Intracorp subsidiary of each referral it receives for Covered Home Care Services and will coordinate with Intracorp in the provision of case management and concurrent inpatient utilization review services to Participants under this Program. The parties will determine the specific roles and responsibilities of CIGNA, Provider and Intracorp with respect to Utilization Management during the implementation process. 3. CIGNA will review claims submitted for Covered Home Care Services by Provider and Subcontractors under this Program to assure that all billed services were Medically Necessary, based on utilization review criteria mutually developed by both parties. If an individual at Intracorp (or its successor function) identified by CIGNA certifies to Provider the Medical Necessity of a particular service in advance of the provision of such service, CIGNA shall not retrospectively deny payment for such service on the basis of Medical Necessity. 4. Where CIGNA determines billed services not to be Medically Necessary and denies payment, Provider may appeal the payment denial in accordance with the appeal procedures described in the Program Requirements to this Program Attachment. XII RIGHTS AND OBLIGATIONS UPON TERMINATION This Agreement provides for an alternative method of payment of Provider charges incurred by the Participant during the existence of this Agreement. It is not a contract for the provision of service to the Participant. Termination of this Agreement terminates the alternative method of payment with regard to services provided after the date of termination. Termination of this Agreement should in no way be construed as affecting any Provider's relationship with the patient other than removing this alternative payment system. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] PPO 3 PPO PROGRAM ATTACHMENT EXHIBIT B.1 FFS REIMBURSEMENT SCHEDULE -- HOME HEALTH

PPO 4 PPO PROGRAM ATTACHMENT EXHIBIT B.2 FFS REIMBURSEMENT SCHEDULE -- HOME INFUSION EXHIBIT B(2) -- OLSTEN KIMBERLY QUALITYCARE PPO FEE SCHEDULE -- HOME INFUSION

(1) Per Diems under column 1 include ALL costs-- including, but not limited to, cost of drugs, facility overhead, supplies, delivery, professional labor including compounding and monitoring, all nursing required, maintenance of specialized catheters, equipment/patient supplies, disposables, pumps, general and administrative expenses, etc. (2) Per Diems under column 2 are only for those specific therapies for which a per diem inclusive of drugs cannot be provided. For such therapies, the quoted per diems plus * will apply, with the only exception being Ceradase/Cerazyme which shall be paid at its applicable per diem plus AWP with no discount. (3) For patients receiving two or more therapies on the same day, Provider will receive the highest applicable per diem for the first therapy. For most therapies, this per diem will include drugs as per the fee schedule above. For each additional therapy except for parenteral, enteral and IV Push/IM/SQ injections, Provider will receive $30 for each therapy, plus AWP less the applicable discount for those drugs used in the additional therapies. Parenteral, enteral and IV Push/IM/SQ injections will be paid in their usual manner. (4) The per diems for Immunoglobulin do not include drugs. As a single therapy, Immunoglobulin will be paid at $ per diem plus *. (5) The per diems for Specialty-Dosed IV Therapies do not include drugs. As a single therapy, a Specialty-Dosed Therapy will be paid at *. (6) The per diems for Ceradase/Cerazyme do not include drugs. As a single therapy, Ceradase or Cerazyme will be paid at * with no discount. (7) The per diems for IV Push/IM/SQ Injections do not include drugs. IV Push/IM/SQ Injections will be paid at *. (8) The per diem rate shall only be charged for those days the Participant receives medication. (9) Prices effective 1/1/96 through 12/31/96. (10) For home infusion pharmaceuticals not listed on fee schedule *, will apply. * Confidential Treatment Requested PPO 5 PPO PROGRAM ATTACHMENT EXHIBIT B.3 FFS REIMBURSEMENT SCHEDULE -- HOME MEDICAL EQUIPMENT CIGNA HEALTHCARE EXHIBIT B(3) -- OLSTEN KIMBERLY QUALITYCARE PPO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT

* Confidential Treatment Requested PPO 6 CIGNA HEALTHCARE EXHIBIT B(3) -- OLSTEN KIMBERLY QUALITYCARE PPO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT B(3) -- OLSTEN KIMBERLY QUALITYCARE PPO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT B(3) -- OLSTEN KIMBERLY QUALITYCARE PPO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT B(3) -- OLSTEN KIMBERLY QUALITYCARE PPO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT

* Confidential Treatment Requested CIGNA HEALTHCARE EXHIBIT B(3) -- OLSTEN KIMBERLY QUALITYCARE PPO FEE SCHEDULE -- HOME MEDICAL EQUIPMENT

(1) HME PROVIDED TO PATIENTS OTHER THAN LISTED ABOVE WILL BE BILLED * DISCOUNT FROM PROVIDER'S USUAL AND CUSTOMARY CHARGE. (2) SPECIAL ORDER, CUSTOM WHEELCHAIRS WILL BE * FROM MANUFACTURERS' SUGGESTED RETAIL. * Confidential Treatment Requested PPO PROGRAM ATTACHMENT EXHIBIT B.4 FFS REIMBURSEMENT SCHEDULE -- TOCOLYTICS

* Confidential Treatment Requested (1) Per Diems include ALL costs -- including, but not limited to, all nursing required, telephonic monitoring, family caregiver training and education, durable medical equipment administered or used in the course of rendering services, medical supplies, disposables, pumps, drugs and medications, general and administrative expenses, etc. (2) Prices effective 1/1/96 through 12/31/98. PPO 7 PPO PROGRAM ATTACHMENT EXHIBIT B.5 PPO PROGRAM REQUIREMENTS This highlights the essential features of CIGNA's PPO Program Requirements for Provider. Provider must follow Program Requirements in order to receive payment for services rendered to Participants hereunder. Participants must also follow applicable Program Requirements in order to receive benefits. VIII PARTICIPANT IDENTIFICATION 1. Participants must present a PPO ID card to Provider or Subcontractor at the time of service. 2. The ID card itself does not guarantee eligibility. Provider or Subcontractor should verify Participant eligibility with CIGNA. XIV COMPENSATION AND BILLING 1. Claims must be clearly identified as "CIGNA PPO" and sent to the centralized billing location designated by CIGNA. 2. Provider's Subcontractors may not bill CIGNA directly for Covered Home Care Services referred to Provider under any circumstances. 3. Provider and Subcontractors must not bill Participants for Covered Home Care Services rendered. Provider or Subcontractor will collect from or bill to Participant any applicable Copayments. Deductibles and Coinsurance should be billed to the Participant following the receipt of the Explanation of Benefits (EOB) letter from CIGNA. 4. Questions concerning the payment of individual claims should be directed to CIGNA. XV DISPUTE RESOLUTION 1. CIGNA and Provider agree to meet and confer in good faith to resolve any problems or disputes that may arise under this PPO Program. 2. If the parties are unable to resolve the dispute through the aforementioned process, the dispute shall be resolved in accordance with the dispute resolution procedures set forth in Section III.N. of the Agreement. PPO 8 INDEMNITY PROGRAM ATTACHMENT TO NATIONAL HOME CARE PROVIDER AGREEMENT PURPOSE The terms and provisions of this Indemnity Program Attachment and the Agreement are applicable to Covered Home Care Services rendered in accordance with a CIGNA Service Agreement which is consistent with the Indemnity Program. XVI PARTIES' OBLIGATIONS A. Services Provider shall provide or arrange for all Covered Home Care Services that are ordered or prescribed by a physician for Participants and referred to Provider in accordance with the terms of this Agreement, this Indemnity Program Attachment and applicable Indemnity Program Requirements. B. Compensation and Billing 1. Provider's reimbursement for Covered Home Care Services shall be based upon the fees set forth in Exhibits C.(1)-(3), less applicable Copayments, Deductibles and Coinsurance. Provider guarantees that the rates set forth in Exhibits C.(1)-(3) are effective for a period of one year from the Effective Date. For the second year of this Agreement, such rates will be increased by the lesser of 50% of the annual national Consumer Price Index-Medical Component, or comparable successor measure, established as of October 1, 1996 or 4%. For the third year of this Agreement, the rates will be increased by the lesser of 50% of the annual national Consumer Price Index-Medical Component, or comparable successor measure, established as of October 1, 1997 or 4%. 2. Provider shall submit claims for Covered Home Care Services under this Program Attachment and receive payment for valid claims according to the following: a. Provider shall submit claims electronically to the extent technologically feasible for reimbursement for all Covered Home Care Services within ninety (90) days of the date those services are rendered or, if Payor is the secondary payor with regard to the claim, within ninety (90) days of the date Payor is determined to be secondary. Claims will be submitted in accordance with the rates set forth in the Exhibits attached hereto and in accordance with the requirements mutually agreed upon by the parties during implementation of this Agreement. Claims received after this ninety (90) day period may be denied for payment. Provider shall IND 1 submit claims to the location described in Indemnity Program Requirements. Provider agrees to work in good faith to assure that claims can be submitted electronically to CIGNA and shall make any reasonable capital expenditures necessary to enhance its systems in order to enable such submission by April 1, 1997. b. If a claim meets the above-referenced mutually agreed upon requirements, any amount owing under this Agreement shall be paid within thirty (30) days after receipt, unless additional required information is requested within the thirty (30) day period, or unless the claim involves coordination of benefits, except as otherwise provided for in this Program Attachment. 3. Payor shall deduct any Copayments, Deductibles, or Coinsurance required by the Service Agreement for payment due to Provider. Deduction for the Copayment, Deductible, or Coinsurance shall be determined on the basis of the rates set forth in this Attachment. 4. Provider's reimbursement as set forth herein shall be payment in full for Covered Home Care Services rendered by Provider and Subcontractors pursuant to this Agreement, except for Copayments, Deductibles and Coinsurance. 5. Provider will look solely to CIGNA and Subcontractors will look solely to Provider for compensation for Covered Home Care Services except for Copayments, Deductibles or Coinsurance. Provider agrees that whether or not there is any unresolved dispute for payment, that under no circumstances will Provider or its Subcontractors directly or indirectly make any charges or claims, other than for Copayments, Deductibles or Coinsurance against any Participants or their representatives for Covered Home Care Services and that this provision survives termination of this Agreement for services rendered prior to such termination. Except for the collection of Copayments, Deductibles or Coinsurance, only those services that are not Covered Home Care Services may be billed directly to Participants, subject to limitations listed above. This paragraph is to be interpreted for the benefit of Participants and does not diminish the obligation of CIGNA to make payments to Provider according to the terms of this Agreement. 6. When Provider has been notified in advance that a particular service is not Medically Necessary, Provider and its Subcontractors shall not charge the Participant for such service unless, in advance of the provision of such service, Provider or Subcontractor has notified the Participant that the service is not covered and the Participant acknowledges in writing that he or she shall be responsible for payment of charges for such services. 7. All rates include the cost of routine lab specimen collection by a nurse and delivery to a laboratory specified by CIGNA provided that Provider and such laboratory can reach a reasonable accommodation with respect to the logistics of such collection and delivery and with respect to the provision of applicable laboratory supplies. IND 2 8. For patients receiving two or more therapies on the same day, Provider will receive the highest applicable per diem for the first therapy. For most therapies, this per diem will include drugs as per the fee schedule. For each additional therapy except for parenteral, enteral and IV push/IM/SQ injections, Provider will receive for each therapy, plus AWP less the applicable discount. Parenteral, enteral and IV push/IM/SQ injec,tions will be paid in the usual manner. C. Coordination of Benefits 1. Certain claims for services rendered to Participants are claims for which another payor may be primarily responsible under coordination of benefit rules. Provider shall bill such claims to the primary payor when information regarding such primary payor is available, or upon CIGNA's request and shall comply with the primary payor's billing rules, including, but not limited to, any of the primary payor's limitations on billing Participants. 2. When CIGNA or CIGNA's designated Payor is primary under applicable coordination of benefits rules, CIGNA shall pay benefits as set forth in this Agreement without regard to the obligations of any secondary payor. 3. When CIGNA or CIGNA's designated Payor is determined to be secondary to any other payor including Medicare, CIGNA will pay no greater amount than the difference between the amount payable to Provider by the primary payor and the amount for Covered Home Care Services owing under this Agreement. CIGNA shall not be liable for any amount unless CIGNA has received Provider's claim for such secondary payment within 90 days of the date when CIGNA is determined to be secondary. D. Utilization Management/Cost Containment 1. Provider shall evaluate whether each Participant order or prescription it receives for Covered Home Care Services under this Program are Medically Necessary, utilizing Utilization Management guidelines mutually developed by the parties, including, but not limited to, the Milliman and Robertson Home Care and Case Management Guidelines set forth in Exhibit A.5 to the HMO Program Attachment. 2. Provider will notify CIGNA's Intracorp subsidiary of each referral it receives for Covered Home Care Services and, for those Participants whose Service Agreements contain Intracorp utilization management, will coordinate with Intracorp in the provision of case management and concurrent inpatient utilization review services to Participants under this Program. The parties shall determine the specific roles and responsibilities of CIGNA, Provider and Intracorp with respect to Utilization Management during the implementation process. 3. Where CIGNA determines billed services not to be Medically Necessary and denies payment, Provider may appeal the payment denial in accordance with the appeal procedures described in the Program Requirements to this Program Attachment. If an appropriate individual at IND 3 Intracorp (or its successor function) identified by CIGNA certifies to Provider the Medical Necessity of a particular service in advance of the provision of such service, CIGNA shall not retrospectively deny payment for such service on the basis of Medical Necessity. XVII RIGHTS AND OBLIGATIONS UPON TERMINATION This Agreement provides for an alternative method of payment of Provider charges incurred by the Participant during the existence of this Agreement. It is not a contract for the provision of service to the Participant. Termination of this Agreement terminates the alternative method of payment with regard to services provided after the date of termination. Termination of this Agreement should in no way be construed as affecting any Provider's relationship with the patient other than removing this alternative payment system. [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] IND 4 INDEMNITY PROGRAM ATTACHMENT EXHIBIT C.1 FFS REIMBURSEMENT SCHEDULE -- HOME HEALTH

(1) Visits are defined as two (2) hours or less in duration. (2) Hourly rate for visits exceeding two (2) hours in duration, starting with hour 3. (3) We do not reimburse for travel time, weekend, holiday or evening differentials. (4) Above prices have NO exclusions. (5) For home health services not on fee schedule, * Provider's usual and customary charge will apply. (6) Prices effective 1/1/96 through 12/31/96. * Confidential Treatment Requested IND 5 INDEMNITY PROGRAM ATTACHMENT EXHIBIT C.2 FFS REIMBURSEMENT SCHEDULE -- HOME INFUSION

(1) Per Diems under column 1 include ALL costs -- including, but not limited to, cost of drugs, facility overhead, supplies, delivery, professional labor including compounding and monitoring, all nursing required, maintenance of specialized catheters, equipment/patient supplies, disposables, pumps, general and administrative expenses, etc. (2) Per Diems under column 2 are only for those specific therapies for which a per diem inclusive of drugs cannot be provided. For such therapies, the quoted per diems plus * will apply, with the only exception being Ceradase/Cerazyme which shall be paid at its applicable per diem plus AWP with no discount. (3) For patients receiving two or more therapies on the same day, Provider will receive the highest applicable per diem for the first therapy. For most therapies, this per diem will include drugs as per the fee schedule above. For each additional therapy except for parenteral, enteral and IV Push/IM/SQ injections, Provider will receive * for each therapy, plus AWP less the applicable discount for those drugs used in the additional therapies. Parenteral, enteral and IV Push/IM/SQ injections will be pain in their usual manner. (4) The per diems for Immunoglobulin do not include drugs. As a single therapy, Immunoglobulin will be paid at *. (5) The per diems for Specialty-Dosed IV Therapies do not include drugs. As a single therapy, a Specialty-Dosed Therapy will be paid. (6) The per diems for Ceradase/Cerazyme do not include drugs. As a single therapy, Ceradase or Cerazyme will be paid at * per diem plus AWP with no discount. (7) The per diems for IV Push/IM/SQ Injections do not include drugs. IV Push/IM/SQ Injections will be paid* . (8) The per diem rate shall only be charged for those days the Participant receives medication. (9) Prices effective 1/1/96 through 12/31/96. (10) For home infusion pharmaceuticals not listed on fee schedule, * will apply. * Confidential Treatment Requested IND 6 INDEMNITY PROGRAM ATTACHMENT EXHIBIT C.3 FFS REIMBURSEMENT SCHEDULE -- HOME MEDICAL EQUIPMENT