10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

OR

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

For the transition period from             to             

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.)

3350 Riverwood Parkway, Suite 1400, Atlanta, GA 30339-3314

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (770) 951-6450

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨

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

The number of shares outstanding of the registrant’s Common Stock, as of May 2, 2012, was 30,433,403.

INDEX

		Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) – March 31, 2012 and December 31, 2011		3
	Consolidated Statements of Comprehensive Income (Unaudited) – Three Months Ended March 31, 2012 and 2011		4
	Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2012 and 2011		5
	Notes to Consolidated Financial Statements (Unaudited)		6-36
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		37-52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		52
Item 4.	Controls and Procedures		53
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		53
Item 1A.	Risk Factors		53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		53
Item 3.	Defaults Upon Senior Securities		53
Item 4.	Mine Safety Disclosures		53
Item 5.	Other Information		53
Item 6.	Exhibits		54-55
SIGNATURES			56
EXHIBIT INDEX			57-58

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Gentiva Health Services, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

	March 31, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	72,762		$	164,912
Accounts receivable, less allowance for doubtful accounts of $12,829 and $11,562 at March 31, 2012 and December 31, 2011, respectively		312,768			290,589
Deferred tax assets, net		17,472			26,451
Prepaid expenses and other current assets		48,726			38,379
Total current assets		451,728			520,331
Note receivable from CareCentrix		25,000			25,000
Fixed assets, net		45,682			46,246
Intangible assets, net		211,802			214,874
Goodwill		641,669			641,669
Other assets		85,492			82,208
Total assets	$	1,461,373		$	1,530,328
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	9,193		$	14,903
Accounts payable		15,943			12,613
Payroll and related taxes		32,679			42,027
Deferred revenue		39,797			34,114
Medicare liabilities		24,553			23,066
Obligations under insurance programs		56,598			54,976
Accrued nursing home costs		26,047			24,223
Other accrued expenses		53,080			89,270
Total current liabilities		257,890			295,192
Long-term debt		928,932			973,222
Deferred tax liabilities, net		30,050			32,498
Other liabilities		34,776			26,885
Equity:
Gentiva shareholders’ equity:
Common stock, $0.10 par value; authorized 100,000,000 shares; issued 31,557,654 and 31,435,264 shares at March 31, 2012 and December 31, 2011, respectively		3,158			3,144
Additional paid-in capital		390,125			387,803
Retained (deficit)		(173,291	)		(178,131	)
Treasury stock, 655,802 shares at both March 31, 2012 and December 31, 2011		(12,878	)		(12,878	)
Total Gentiva shareholders’ equity		207,114			199,938
Noncontrolling interests		2,611			2,593
Total equity		209,725			202,531
Total liabilities and equity	$	1,461,373		$	1,530,328

See notes to consolidated financial statements.

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Gentiva Health Services, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

	For the Three Months Ended
	March 31, 2012			March 31, 2011
Net revenues	$	435,652		$	451,109
Cost of services sold		232,861			230,756
Gross profit		202,791			220,353
Selling, general and administrative expenses		(173,707	)		(172,733	)
Interest income		661			665
Interest expense and other		(22,163	)		(27,548	)
Income from continuing operations before income taxes and equity in net earnings of CareCentrix		7,582			20,737
Income tax expense		(2,529	)		(8,119	)
Equity in net earnings of CareCentrix		—			554
Income from continuing operations		5,053			13,172
Discontinued operations, net of tax		—			447
Net income		5,053			13,619
Less: Net income attributable to noncontrolling interests		(213	)		(167	)
Net income attributable to Gentiva shareholders	$	4,840		$	13,452
Comprehensive income	$	5,053		$	13,141
Basic earnings per common share:
Income from continuing operations attributable to Gentiva shareholders	$	0.16		$	0.43
Discontinued operations, net of tax		—			0.02
Net income attributable to Gentiva shareholders	$	0.16		$	0.45
Weighted average shares outstanding		30,724			30,127
Diluted earnings per common share:
Income from continuing operations attributable to Gentiva shareholders	$	0.16		$	0.42
Discontinued operations, net of tax		—			0.02
Net income attributable to Gentiva shareholders	$	0.16		$	0.44
Weighted average shares outstanding		30,959			30,789
Amounts attributable to Gentiva shareholders:
Income from continuing operations	$	5,053		$	13,172
Discontinued operations, net of tax		—			447
Less: Net income attributable to noncontrolling interests		(213	)		(167	)
Net income	$	4,840		$	13,452

See notes to consolidated financial statements.

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Gentiva Health Services, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	For the Three Months Ended
	March 31, 2012			March 31, 2011
OPERATING ACTIVITIES:
Net income	$	5,053		$	13,619
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		7,430			7,614
Amortization and write-off of debt issuance costs		3,686			6,418
Provision for doubtful accounts		2,262			2,581
Equity-based compensation expense		1,631			1,641
Windfall tax benefits associated with equity-based compensation		—			(194	)
Equity in net earnings of CareCentrix		—			(554	)
Deferred income tax benefit		6,531			2,754
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Accounts receivable		(24,441	)		(20,449	)
Prepaid expenses and other current assets		(10,347	)		2,489
Accounts payable		3,330			2,240
Payroll and related taxes		(9,348	)		21,248
Deferred revenue		5,683			4,787
Medicare liabilities		1,487			(1,859	)
Obligations under insurance programs		1,622			(4,775	)
Accrued nursing home costs		1,824			(3,203	)
Other accrued expenses		(36,191	)		(31,712	)
Other, net		5,083			76
Net cash (used in) provided by operating activities		(34,705	)		2,721
INVESTING ACTIVITIES:
Purchase of fixed assets		(3,793	)		(3,317	)
Net cash used in investing activities		(3,793	)		(3,317	)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock		705			4,652
Windfall tax benefits associated with equity-based compensation		—			194
Repayment of long-term debt		(50,000	)		(3,438	)
Debt issuance costs		(4,125	)		(13,457	)
Repayment of capital lease obligations		(37	)		(76	)
Other		(195	)		(239	)
Net cash used in financing activities		(53,652	)		(12,364	)
Net change in cash and cash equivalents		(92,150	)		(12,960	)
Cash and cash equivalents at beginning of period		164,912			104,752
Cash and cash equivalents at end of period	$	72,762		$	91,792
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	27,776		$	32,318
Income taxes paid	$	247		$	613

See notes to consolidated financial statements.

5

Gentiva Health Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Background and Basis of Presentation

Gentiva Health Services, Inc. (“Gentiva” or the “Company”) provides home health services and hospice care throughout most of the United States. The Company’s continuing operations involve servicing its patients and customers through (i) its Home Health segment and (ii) its Hospice segment.

Effective October 14, 2011, the Company sold its homemaker services agency business in Illinois (“IDOA”) pursuant to an asset purchase agreement. The financial results of this business are presented as discontinued operations in the Company’s consolidated financial statements for the three months ended March 31, 2011. See Note 4 for additional information.

Effective September 10, 2011, the Company completed the sale of its Rehab Without Walls^® business. The financial results of the Rehab Without Walls^® business are presented as discontinued operations in the Company’s consolidated financial statements for the three months ended March 31, 2011. See Note 4 for additional information.

The accompanying interim consolidated financial statements are unaudited, and have been prepared by the Company using accounting principles consistent with those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments necessary for a fair statement of financial position, results of operations and cash flows for each period presented. Certain information and disclosures normally included in the consolidated statements of financial position, comprehensive income and cash flows prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. 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.

The Company’s consolidated financial statements include the accounts and operations of the Company and its subsidiaries in which the Company owns more than a 50 percent interest. Noncontrolling interests, which relate to the minority ownership held by third party investors in certain of the Company’s hospice programs, are reported below net income under the heading “Net income attributable to noncontrolling interests” in the Company’s consolidated statements of comprehensive income and presented as a component of equity in the Company’s consolidated balance sheets. All balances and transactions between the consolidated entities have been eliminated.

Note 2. Recent Accounting Pronouncements

On September 15, 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, Intangibles—Goodwill and Other (Topic 350), which provides final guidance on goodwill impairment that gives companies the option to perform a qualitative assessment that may allow them to skip the annual two-step quantitative test and reduce costs. ASU 2011-08 gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step quantitative test. Otherwise, a company can skip the two-step quantitative test. The ASU is effective for the year beginning January 1, 2012 for the Company. The adoption of ASU 2011-08 did not have a material impact on the Company’s consolidated financial statements.

In July 2011, the FASB issued ASU 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities, which requires health care organizations that do not assess the collectibility of a receivable before recognizing revenue to present their provision for bad debt related to patient service revenue as a deduction from revenue on the face of the statement of comprehensive income. Enhanced disclosure about policies for recognizing revenue, assessing bad debts and qualitative and quantitative information about changes in the allowance for doubtful accounts also are required. The guidance is effective for the first quarter of 2012 for the Company. The adoption of ASU 2011-07 did not have a material impact on the Company’s consolidated financial statements as the Company currently evaluates the collectibility of a receivable before recognizing revenue.

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In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in shareholders’ equity. ASU 2011-05 requires that all items of net income, items of other comprehensive income and total comprehensive income be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is required for the quarter ending on or after March 31, 2012 and must be applied retrospectively. The Company adopted the updated presentation required by ASU 2011-05 as further amended by ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, for the Company’s March 31, 2012 consolidated financial statements and retrospectively applied the updated presentation to the March 31, 2011 consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 primarily clarifies existing concepts in accounting principles generally accepted in the United States of America. However, ASU 2011-04 requires new disclosures for Level 3 fair value measurements including quantitative information about significant unobservable inputs, the valuation process in place for all Level 3 measurements, and a narrative description of the sensitivity of recurring Level 3 fair value measurements to changes in the unobservable inputs used. In addition, ASU 2011-04 requires disclosure of transfers between Level 1 and Level 2 of the fair value hierarchy, the hierarchy classification for assets and liabilities whose fair value is disclosed only in the footnotes, and, if applicable, the reason nonfinancial assets measured at fair value are being used in a manner that differs from their highest and best use. ASU 2011-04 is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on the Company’s consolidated financial statements.

Note 3. Accounting Policies

Cash and Cash Equivalents

The Company considers all investments with a maturity date three months or less from their date of acquisition to be cash equivalents, including money market funds invested in U.S. Treasury securities, short-term treasury bills and commercial paper. Cash and cash equivalents also included amounts on deposit with several major financial institutions in excess of the maximum amount insured by the Federal Deposit Insurance Corporation. Management believes that these major financial institutions are viable entities.

The Company had operating funds of approximately $5.4 million and $5.0 million at March 31, 2012 and December 31, 2011, respectively, which relate exclusively to a non-profit hospice operation managed in Florida.

Investments

At March 31, 2012 and December 31, 2011, the Company had no remaining ownership interest in CareCentrix Holdings Inc. See Note 7 for additional information.

At March 31, 2012 and December 31, 2011, the Company had assets of $29.2 million and $26.3 million, respectively, held in a Rabbi Trust for the benefit of participants of the Company’s non-qualified defined contribution retirement plan. The corresponding amounts payable to the plan participants are equivalent to the underlying value of the assets held in the Rabbi Trust. Assets held in a Rabbi Trust and amounts payable to plan participants are classified in other assets and other liabilities, respectively, in the Company’s consolidated balance sheets.

Debt Issuance Costs

The Company amortizes deferred debt issuance costs over the term of its credit agreement and senior notes. As of March 31, 2012 and December 31, 2011, the Company had unamortized debt issuance costs of $54.1 million and $53.7 million, respectively, recorded in other assets in the Company’s consolidated balance sheets. During the first quarter of 2012, the Company incurred incremental debt issuance costs of approximately $5.3 million in connection with an amendment to the Company’s Term Loan A, Term Loan B and revolving credit facilities. Approximately $4.1 million of these costs have been capitalized and are being amortized over the remaining life of the debt using an effective interest rate methodology. In addition, the Company wrote off prepaid debt issuance costs of approximately $0.5 million, which is reflected in interest expense in the Company’s consolidated statement of comprehensive income, associated with the reduction in the revolving credit facility.

7

During the first quarter of 2011, the Company (i) incurred incremental debt issuance costs of approximately $10.9 million and (ii) recorded a write-off of deferred debt issuance costs of approximately $3.5 million in connection with the refinancing of the Company’s Term Loan A and Term Loan B under the Company’s senior secured credit agreement. See Note 11 for additional information.

Fixed Assets

Fixed assets, including costs of Company developed software, are stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the life of the lease or the life of the improvement. Repairs and maintenance costs are expensed as incurred. As of March 31, 2012 and December 31, 2011, fixed assets, net were $45.7 million and $46.2 million, respectively.

Goodwill and Other Indefinite-Lived Intangible Assets

The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and between annual tests if current events or circumstances require an interim impairment assessment. The Company allocates goodwill to its various operating units. The Company compares the fair value of each operating unit to its carrying amount to determine if there is potential goodwill impairment. If the fair value of an operating unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the operating unit is less than the carrying value of its goodwill. To determine the fair value of the Company’s operating units, the Company uses a present value (discounted cash flow) technique corroborated by market multiples when available, or other valuation methodologies, as appropriate.

If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.

During 2011, the Company determined a triggering event had occurred and performed an interim impairment test of its identifiable intangible assets and goodwill. The Company recorded a non-cash charge to reduce the carrying value of certain identifiable intangible assets, as well as goodwill, to their estimated fair values. See Note 9 for additional information.

The Company also completed its annual impairment test of goodwill and indefinite-lived intangible assets for the Company’s operating units as of December 31, 2011, which indicated that there was no additional impairment.

Obligations Under Self Insurance Programs

As of March 31, 2012 and December 31, 2011, the Company’s obligations under insurance programs were $56.6 million and $55.0 million, respectively. The increase is primarily attributable to the increase in and timing of payments.

Workers’ compensation and professional and general liability expenses associated with continuing operations were $4.7 million for the first quarter of 2012, as compared to $4.1 million for the corresponding period of 2011. The Company’s workers’ compensation and professional and general liability costs relating to discontinued operations were approximately $0.2 million for the first quarter of 2011.

Employee health and welfare expenses associated with continuing operations were $23.6 million for the first quarter of 2012, as compared to $20.1 million for the corresponding period of 2011, primarily related to an increased cost of claims. The Company’s employee health and welfare expenses relating to discontinued operations were approximately $0.2 million for the first quarter of 2011.

Nursing Home Costs

For patients receiving nursing home care under a state Medicaid program who elect hospice care under Medicare or Medicaid, the Company contracts with nursing homes for the nursing homes to provide patients’ room and board services. The state must pay the Company, in addition to the applicable Medicare or Medicaid hospice daily or hourly rate, an amount equal to at least 95 percent of the Medicaid daily nursing home rate for room and board furnished to the patient by the nursing home. Under the Company’s standard nursing home contracts, the Company pays the nursing home for these room and board services at the Medicaid daily nursing home rate. Nursing home costs are partially offset by nursing home net revenue, and the net amount is included in cost of services sold in the Company’s consolidated statements of comprehensive income.

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Note 4. Acquisitions and Dispositions

Dispositions

Homemaker Services Agency and Rehab Without Walls^® Dispositions

Effective October 14, 2011, the Company completed the sale of its IDOA business to Premier Home Health Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $2.4 million, consisting of (i) cash proceeds of approximately $2.0 million and (ii) an escrow fund of approximately $0.4 million, to be received by the Company subject to certain post closing conditions. During the first quarter of 2012, the Company reduced the escrow fund receivable to approximately $0.3 million as a result of certain post closing conditions.

Effective September 10, 2011, the Company completed the sale of its Rehab Without Walls^® business to Southern Home Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $9.8 million. The consideration consisted of (i) cash proceeds of approximately $9.2 million and (ii) an escrow fund of approximately $0.6 million that will be received by the Company subject to certain post closing conditions.

Net revenues and operating results for the first quarter of 2011 for the homemaker services agency business in Illinois, the Rehab Without Walls^® business as well as a $0.3 million change in settlement of the Company’s post closing liabilities in connection with the 2010 sale of its HME and IV businesses were as follows (in thousands):

	First Quarter 2011
Net revenues	$	7,706
Income before income taxes	$	741
Income tax expense		294
Discontinued operations, net of tax	$	447

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Note 5. Fair Value of Financial Instruments

The Company’s financial instruments are measured and recorded at fair value on a recurring basis, except for the note receivable from CareCentrix and long-term debt. The fair values for the note receivable from CareCentrix and non-financial assets, such as fixed assets, intangible assets and goodwill, are measured periodically and adjustments recorded only if an impairment charge is required. The carrying amount of the Company’s accounts receivable, accounts payable and certain other current liabilities approximates fair value due to their short maturities.

Fair value is defined under authoritative guidance as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The three levels of inputs are as follows:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial Instruments Recorded at Fair Value

The Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis was as follows (in thousands):

	March 31, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	34,027	$	—	$	—	$	34,027	$	54,006	$	—	$	—	$	54,006
Rabbi Trust:
Mutual funds		22,972		—		—		22,972		25,626		—		—		25,626
Money market funds		6,201		—		—		6,201		697		—		—		697
Total assets	$	63,200	$	—	$	—	$	63,200	$	80,329	$	—	$	—	$	80,329
Liabilities:
Payables to plan participants	$	29,173	$	—	$	—	$	29,173	$	26,323	$	—	$	—	$	26,323

Assets held in the Rabbi Trust are held for the benefit of participants of the Company’s non-qualified defined contribution retirement plan. The value of assets held in the Rabbi Trust is based on quoted market prices of securities and investments, including money market accounts and mutual funds, maintained within the Rabbi Trust. The corresponding amounts payable to plan participants are equivalent to the underlying value of assets held in the Rabbi Trust. Assets held in the Rabbi Trust and amounts payable to plan participants are classified in other assets and other liabilities, respectively, in the Company’s consolidated balance sheets. Money market funds held in the Company’s account represent cash equivalents and were classified in cash and cash equivalents in the Company’s consolidated balance sheets at March 31, 2012 and December 31, 2011.

10

Other Financial Instruments

The carrying amount and estimated fair value of the Company’s other financial instruments were as follows (in thousands):

	March 31, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Note receivable from CareCentrix	$	25,000	$	27,500	$	25,000	$	26,600
Liabilities:
Long-term debt, including current portion	$	938,125	$	889,823	$	988,125	$	863,313

The estimated fair value of the note receivable from CareCentrix was determined from Level 3 inputs based on an income approach using the discounted cash flow method. The fair value represents the net present value of (i) the after tax cash flows relating to the note’s annual income stream plus (ii) the return of the invested principal using a maturity date of March 19, 2017, after considering assumptions relating to risk factors and economic conditions. See Note 7 for additional information.

In determining the estimated fair value of long-term debt, Level 2 inputs based on the use of bid and ask prices were considered. Due to the infrequent number of transactions that occur related to the long-term debt, the Company does not believe an active market exists for purposes of this disclosure.

Cash Flow Hedge

The Company may utilize derivative financial instruments to manage interest rate risk. Derivatives are held only for the purpose of hedging such risk, not for speculative purposes. The Company’s derivative instruments consisted of (i) a one year interest cap with a notional value of $220.0 million and (ii) until March 9, 2011, two year forward starting interest rate swaps with notional value of $300.0 million, each agreement designated as a cash flow hedge of the variability of cash flows associated with a portion of the Company’s variable rate term loans. During the first quarter of 2011, the Company terminated the two year forward starting interest rate swaps in connection with the refinancing of the Company’s Term Loan A and Term Loan B facilities under its senior secured credit agreement. The Company paid approximately $0.3 million to terminate the interest rate swaps, which is reflected in interest expense and other in the Company’s consolidated statement of comprehensive income in 2011. The Company’s interest rate cap expired in November 2011. The Company held no derivative instruments as of March 31, 2012 or December 31, 2011.

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Note 6. Net Revenues and Accounts Receivable

Net Revenues

Net revenues in the Home Health and Hospice segments were derived from all major payer classes and were as follows (in millions):

	First Quarter
	2012		2011		Percentage Variance
Medicare:
Home Health	$	190.6	$	201.6		(5.5	%)
Hospice		182.0		181.0		0.6	%
Total Medicare		372.6		382.6		(2.6	%)
Medicaid and Local Government		19.5		21.0		(7.0	%)
Commercial Insurance and Other:
Paid at episodic rates		20.0		18.7		6.7	%
Other		23.6		28.8		(18.1	%)
Total Commercial Insurance and Other		43.6		47.5		(8.4	%)
Total net revenues	$	435.7	$	451.1		(3.4	%)

For the first quarter of 2012 and 2011, the Company recorded hospice Medicare cap expenses of $2.1 million and $0.6 million, respectively, which is reflected in net revenues in the Company’s consolidated statements of comprehensive income. The Medicare payment cap, which is calculated for each provider by the Medicare fiscal intermediary at the end of the hospice cap period, is determined by multiplying the number of first time patient admissions during the cap period by the Medicare cap amount, subject to certain adjustments. Medicare revenue paid to a provider during the twelve month cap period that ends annually on October 31 cannot exceed the aggregate Medicare payment cap calculated for the related twelve month period. As of March 31, 2012 and December 31, 2011, the Company had Medicare cap liabilities of $17.7 million and $15.6 million, respectively, which were reflected in Medicare liabilities in the Company’s consolidated balance sheets.

Accounts Receivable

Net revenues in the Home Health and Hospice segments were derived from all major payer classes. Accounts receivable attributable to major payer sources of reimbursement were as follows (in thousands):

	March 31, 2012			December 31, 2011
Medicare	$	226,098		$	217,028
Medicaid and Local Government		56,876			46,553
Commercial Insurance and Other		42,623			38,570
Gross Accounts Receivable		325,597			302,151
Less: Allowance for doubtful accounts		(12,829	)		(11,562	)
Net Accounts Receivable	$	312,768		$	290,589

The Commercial Insurance and Other payer group included self-pay accounts receivable relating to patient co-payments of $2.3 million and $2.1 million as of March 31, 2012 and December 31, 2011, respectively.

The Company’s only financing receivable is the note receivable from CareCentrix, Inc. The Company measures impairment based on the present value of expected cash flows after considering assumptions relating to risk factors and economic conditions. On an ongoing basis, the Company assesses the credit quality based on the Company’s review of CareCentrix, Inc.’s financial position and receipt of interest payments when due. Based on the Company’s analysis, as of March 31, 2012 and December 31, 2011, the Company had no allowances for credit losses.

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Note 7. Note Receivable from and Investment in CareCentrix

The Company holds a $25 million subordinated promissory note from CareCentrix, Inc. In connection with the sale of the Company’s ownership interest in CareCentrix Holdings, the maturity date of the note was extended to the earlier of March 19, 2017, which is five and one-half years from the closing of the transaction, or a sale of CareCentrix Holdings. The note bears interest at a fixed rate of 10 percent, which is payable quarterly; provided that CareCentrix remains in compliance with its senior debt covenants. Interest on the CareCentrix promissory note, which is included in interest income in the Company’s consolidated statements of comprehensive income, amounted to $0.6 million for both the first quarter of 2012 and 2011.

During 2011, the Company sold its equity investment in CareCentrix Holdings.

The Company recognized $0.6 million of equity in the net earnings of CareCentrix for the first quarter of 2011.

Note 8. Cost Savings Initiatives and Other Restructuring Costs, Acquisition and Integration Activities and Legal Settlements

During the first quarter of 2012 and 2011, the Company recorded net charges relating to cost savings initiatives and other restructuring costs, acquisition and integration activities and legal settlements of $5.4 million and $3.8 million, respectively, which were recorded in selling, general and administrative expenses in the Company’s consolidated statements of comprehensive income.

Cost Savings Initiatives and Other Restructuring Costs

During 2011, the Company undertook a comprehensive review of its branch structure, support infrastructure and other significant expenditures in order to reduce its ongoing operating costs given the challenging rate environment the Company is facing. As a result of this effort, the Company closed or divested 34 home health branches and 9 hospice branches during the fourth quarter of 2011 and 4 home health branches in the first quarter of 2012 and completed significant reductions in staffing levels in regional, area and corporate support functions. In connection with these activities, the Company recorded charges of $0.8 million in the first quarter of 2012, related to severance costs, facility lease and other costs. During the first quarter 2011, the Company recorded charges of $1.3 million in connection with restructuring activities, including severance costs in connection with the termination of personnel and facility leases and other costs.

Acquisition and Integration Activities

During the first quarter of 2012, the Company recorded a credit of $0.4 million related to acquisition and integration activities. During the first quarter of 2011, the Company recorded charges of $2.5 million, in connection with acquisition and integration activities, primarily related to the Odyssey transaction. These costs consisted of legal, accounting and other professional fees and expenses, costs of obtaining required regulatory approvals, write-off of prepaid fees in connection with the termination of the Company’s 2006 credit agreement and severance costs.

Legal Settlements

For the first quarter of 2012, the Company recorded legal settlements of $5.0 million related to certain of the wage and hour litigation. During the first quarter of 2012, the Company paid approximately $26 million related to settlement of the continuous care investigation. See Note 14 for additional information.

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The costs incurred and cash expenditures associated with these activities during 2012 and 2011 were as follows (in thousands):

	Cost Savings Initiatives and Other Restructuring			Acquisition  & Integration			Legal Settlements			Total
Ending balance at December 31, 2010	$	2,893		$	3,984		$	12,500		$	19,377
Charge in first quarter 2011		1,259			2,506			—			3,765
Cash expenditures		(1,490	)		(2,346	)		—			(3,836	)
Ending balance at March 31, 2011	$	2,662		$	4,144		$	12,500		$	19,306
Ending balance at December 31, 2011	$	8,671		$	3,708		$	26,000		$	38,379
Charge in first quarter 2012		842			(409	)		4,958			5,391
Cash expenditures		(3,527	)		(755	)		(25,958	)		(30,240	)
Non-cash expenditures		19			(216	)		—			(197	)
Ending balance at March 31, 2012	$	6,005		$	2,328		$	5,000		$	13,333

The balance of unpaid charges relating to cost savings initiatives and other restructuring costs, acquisition and integration activities and legal settlements approximated $13.3 million at March 31, 2012 and $38.4 million at December 31, 2011, which were included in other accrued expenses in the Company’s consolidated balance sheets.

Note 9. Identifiable Intangible Assets and Goodwill

The gross carrying amount and accumulated amortization and impairment losses of each category of identifiable intangible assets as of March 31, 2012 and December 31, 2011 were as follows (in thousands):

	March 31, 2012									December 31, 2011
	Home Health			Hospice			Total			Home Health			Hospice			Total			Useful Life
Amortized intangible assets:
Covenants not to compete	$	1,473		$	15,675		$	17,148		$	1,473		$	15,675		$	17,148			2-5 Years
Less: accumulated amortization		(1,417	)		(10,756	)		(12,173	)		(1,411	)		(9,144	)		(10,555	)
Net covenants not to compete		56			4,919			4,975			62			6,531			6,593
Customer relationships		27,196			910			28,106			27,196			910			28,106			5-10 Years
Less: accumulated amortization		(15,891	)		(321	)		(16,212	)		(15,304	)		(299	)		(15,603	)
accumulated impairment losses		(27	)		—			(27	)		(27	)		—			(27	)
Net customer relationships		11,278			589			11,867			11,865			611			12,476
Tradenames		18,215			16,730			34,945			18,215			16,730			34,945			5-10 Years
Less: accumulated amortization		(10,946	)		(2,767	)		(13,713	)		(10,522	)		(2,346	)		(12,868	)
accumulated impairment losses		(411	)		—			(411	)		(411	)		—			(411	)
Net tradenames		6,858			13,963			20,821			7,282			14,384			21,666
Subtotal		18,192			19,471			37,663			19,209			21,526			40,735
Indefinite-lived intangible assets:
Medicare licenses and certificates of need		220,285			98,526			318,811			220,285			98,526			318,811			Indefinite
Less: accumulated impairment losses		(144,672	)		—			(144,672	)		(144,672	)		—			(144,672	)
Net medicare licenses and certificates of need		75,613			98,526			174,139			75,613			98,526			174,139
Total identifiable intangible assets	$	93,805		$	117,997		$	211,802		$	94,822		$	120,052		$	214,874

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The Company recorded amortization expense of approximately $3.1 million and $3.3 million for the first quarter of 2012 and 2011, respectively. The estimated amortization expense for the remainder of 2012 is $7.7 million and for each of the next five succeeding years approximates $7.4 million for 2013, $5.7 million for 2014, $5.6 million for 2015, $3.4 million for 2016, and $2.9 million for 2017.

The gross carrying amount of goodwill as of March 31, 2012 and December 31, 2011 and activity during the first three months of 2012 were as follows (in thousands):

	Home Health			Hospice			Total
Balance at December 31, 2010	$	264,679		$	820,387		$	1,075,454
Goodwill adjustment		2,379			11,261			13,640
Accumulated impairment losses		(263,370	)		(193,667	)		(457,037	)
Balance at December 31, 2011	$	3,688		$	637,981		$	641,669
Goodwill acquired during 2012		—			—			—
Balance at March 31, 2012	$	3,688		$	637,981		$	641,669

During 2011, the Company reclassified deferred tax assets of $13.6 million associated with the classification of deductible intangible assets and goodwill related to a 2006 acquisition. The impact of this reclassification was an increase in goodwill in the Home Health and Hospice divisions of $2.4 million and $11.2 million, respectively, and a decrease in non-current deferred tax assets of $13.6 million.

Note 10. Earnings Per Share

Basic and diluted earnings per share for each period presented have been computed by dividing income from continuing operations, discontinued operations, net of tax and net income attributable to Gentiva shareholders by the weighted average number of shares outstanding for each respective period. The computations of the basic and diluted per share amounts were as follows (in thousands, except per share amounts):

	For the Three Months Ended
	March 31, 2012		March 31, 2011
Net income attributable to Gentiva shareholders	$	4,840	$	13,452
Basic weighted average common shares outstanding		30,724		30,127
Shares issuable upon the assumed exercise of stock options and under stock plans for employees and directors using the treasury stock method		235		662
Diluted weighted average common shares outstanding		30,959		30,789
Basic earnings per common share
Net income attributable to Gentiva shareholders	$	0.16	$	0.45
Diluted earnings per common share:
Net income attributable to Gentiva shareholders	$	0.16	$	0.44

For the first three months of 2012, approximately 3.7 million stock options and 0.3 million restricted stock awards were excluded from the computations of diluted earnings per share, as their inclusion would be anti-dilutive. For the first three months of 2011, approximately 1.3 million stock options were excluded from the computations of diluted earnings per share, as their inclusion would be anti-dilutive.

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Note 11. Long-Term Debt

Credit Arrangements

At March 31, 2012, the Company’s credit arrangements included a senior secured credit agreement providing (i) a $200 million Term Loan A facility, (ii) a $550 million Term Loan B facility and (iii) a $110 million revolving credit facility (collectively, the “Credit Agreement”) and $325 million aggregate principal amount of 11.5% Senior Notes due 2018 (the “Senior Notes”). The Credit Agreement’s revolving credit facility also includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swing line loans.

As of March 31, 2012 and December 31, 2011, the Company’s long-term debt consisted of the following (in thousands):

	March 31, 2012			December 31, 2011
Credit Agreement:
Term Loan A, maturing August 17, 2015	$	146,693		$	158,653
Term Loan B, maturing August 17, 2016		466,432			504,472
11.5% Senior Notes due 2018		325,000			325,000
Total debt		938,125			988,125
Less: current portion of long-term debt		(9,193	)		(14,903	)
Total long-term debt	$	928,932		$	973,222

In response to uncertainties around Medicare reimbursement rates and to ensure compliance under its Credit Agreement as of December 31, 2011, on November 28, 2011, the Company entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”). In addition, on March 6, 2012, the Company entered into Amendment No. 3 to the Credit Agreement (“Amendment No. 3”) in order to provide increased flexibility in the Company’s debt covenants over the remaining term of the Credit Agreement and to provide reasonable assurance with respect to the Company’s ability to remain in compliance with its debt covenants beyond January 1, 2012, including the maximum consolidated leverage ratio and the minimum interest coverage ratio, which are discussed below under “Debt Covenants.” Among other things, Amendment No. 3 also reduced the revolving credit facility from $125 million to $110 million.

As of March 31, 2012, advances under the revolving credit facility may be made, and letters of credit may be issued, up to the $110 million borrowing capacity of the facility at any time prior to the facility expiration date of August 17, 2015. In connection with the reduction in the revolving credit facility, the Company wrote-off prepaid debt issuance costs of approximately $0.5 million, which is reflected in interest expense and other in the Company’s consolidated statement of comprehensive income and capitalized costs associated with the revolving credit facility of approximately $0.8 million. Outstanding letters of credit were $41.8 million at both March 31, 2012 and December 31, 2011. The letters of credit were issued to guarantee payments under the Company’s workers’ compensation program and for certain other commitments. As of March 31, 2012, the Company’s unused and available borrowing capacity under the Credit Agreement was $68.2 million.

As of March 31, 2012, the mandatory aggregate principal payments of long-term debt are $2.9 million in 2012, $25.0 million in both 2013 and 2014, $93.8 million in 2015 and $466.4 million in 2016, all under the Credit Agreement, and $325.0 million thereafter under the Senior Notes. The weighted average cash interest rate on outstanding borrowings was 8.2 percent per annum at March 31, 2012 and 6.9 percent per annum at December 31, 2011.

The Term Loan A facility is subject to mandatory principal payments of $25 million per year, payable in equal quarterly installments, with the remaining balance of the original $200 million loan payable on August 17, 2015. Pursuant to Amendment No. 3, the Company made a payment of $12.0 million on its Term Loan A facility. There are no required payments on the Company’s Term Loan A facility until the end of the fourth quarter of 2012, at which time a principal payment of $2.9 million is required and $6.3 million per quarter thereafter. The Term Loan B facility is subject to mandatory principal payments of $13.8 million per year, payable in equal quarterly installments, with the remaining balance of the original $550 million loan payable on August 17, 2016. Pursuant to Amendment No. 3, the Company made a payment of $38.0 million on its Term Loan B facility. There are no required payments on the Company’s Term Loan B facility until August 17, 2016, at which time a payment of the outstanding balance of $466.4 million is required.

On March 9, 2011, the Company entered into a First Refinancing Amendment to the Credit Agreement (“Amendment No. 1”), which provided for, among other things, (i) refinancing of the outstanding indebtedness under the Company’s senior secured Term Loan A and Term Loan B facilities, (ii) elimination of the requirement to hedge a certain portion of the Company’s variable rate debt, (iii) a reduction in the minimum Base Rate from 2.75 percent to 2.25 percent, (iv) a reduction

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in the minimum Eurodollar Rate from 1.75 percent to 1.25 percent, (v) reductions in Term Loan B Applicable Rates to 3.50 percent for Eurodollar Rate Loans and 2.50 percent for Base Rate Loans as compared to 5.00 percent and 4.00 percent, respectively, under the previous arrangement and (vi) reductions in the Applicable Rate for Term Loan A as reflected in the table below.

	Amended Applicable Rate						Previous Applicable Rate
Consolidated Leverage Ratio	Eurodollar  Rate Term A Facility			Base Rate Term  A Facility			Eurodollar  Rate Term A Facility			Base Rate Term  A Facility
³ 3.0:1		3.25	%		2.25	%		5.00	%		4.00	%
³ 2.0:1 and < 3.0:1		3.00	%		2.00	%		4.50	%		3.50	%
< 2.0:1		2.75	%		1.75	%		4.00	%		3.00	%

In addition, Amendment No. 1 provided for a reduction in the Company’s minimum consolidated interest coverage ratio to a ratio of 2.25 to 1.00 from the previous ratio of 2.75 to 1.00. As discussed below under “Debt Covenants,” Amendment No. 3 provided for a further reduction in the minimum consolidated interest coverage ratio.

The interest rate per annum on borrowings under the Credit Agreement is based on, at the option of the Company, (i) the Eurodollar Rate or (ii) the Base Rate, plus an Applicable Rate. The Base Rate represents the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50 percent and (z) the Eurodollar Rate plus 1.00 percent. In connection with determining the interest rates on the Term Loan A and Term Loan B facilities, in no event shall the Eurodollar Rate be less than 1.25 percent and the Base Rate be less than 2.25 percent. The Company may select interest periods of one, two, three or six months for Eurodollar Rate loans. Interest is payable at the end of the selected interest period. From August 17, 2010 through March 9, 2011, the interest rate on borrowings under the Credit Agreement was 6.75 percent per annum. From March 9, 2011 through March 5, 2012, the interest rate on Term Loan A borrowings was 4.50 percent and on Term Loan B borrowings was 4.75 percent. Giving effect to Amendment No. 3, subsequent to March 5, 2012, the interest rate on Term Loan A borrowings is 6.25 percent and on Term Loan B borrowings is 6.50 percent. The Company must also pay a fee of 0.50 percent per annum on unused commitments under the revolving credit facility.

The Company’s Credit Agreement, in effect prior to Amendment No. 1, included a requirement that the Company enter into and maintain interest rate swap contracts covering a notional value of not less than 50 percent of the Company’s aggregate consolidated outstanding indebtedness (other than total revolving credit outstanding) including the Senior Notes for a period of not less than three years. On November 15, 2010, the Company entered into derivative instruments consisting of (i) a one year interest rate cap with a notional value of $220.0 million and (ii) two year forward starting interest rate swaps with notional value of $300.0 million. Under the interest rate cap, the Company would pay a fixed rate of 1.75 percent per annum plus an applicable rate (an aggregate of 6.75 percent per annum for the period beginning November 15, 2010 through December 30, 2011) on the $220 million rather than a variable rate plus an applicable rate should the variable rate plus applicable rate exceed 6.75 percent. In connection with Amendment No. 1, the Company terminated the two year forward starting interest rate swaps and paid a termination fee of approximately $0.3 million, which is reflected in interest expense and other in the Company’s consolidated statement of comprehensive income for the three months ended March 31, 2011.

The Company may voluntarily repay outstanding loans under the revolving credit facility or Term Loan A at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans. For the period from March 9, 2011 to September 9, 2011, the Company was subject to a prepayment premium equal to 1.0 percent of the aggregate principal amount of Term Loan B. Prepayment and commitment reductions will be required in connection with (i) certain asset sales, (ii) certain extraordinary receipts such as certain insurance proceeds, (iii) cash proceeds from the issuance of debt, (iv) 50 percent of the proceeds from the issuance of equity with step-downs based on leverage, with certain exceptions, and (v) 75 percent of “Excess Cash Flow” (as defined in the Credit Agreement) with two step-downs based on the Company’s leverage ratio.

In connection with the refinancing pursuant to Amendment No. 1, the Company paid a two percent prepayment penalty on its Term Loan B facility of approximately $10.9 million which was recorded as deferred debt issuance costs. In accordance with applicable guidance, due to changes in some of the participating lenders, the Company recorded a write-off of a portion of its deferred debt issuance costs of approximately $3.5 million, which is reflected in interest expense and other in the Company’s consolidated statement of comprehensive income for the three months ended March 31, 2011.

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Debt Covenants

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s and its subsidiaries’ ability to incur additional indebtedness or issue certain preferred stock, create liens on assets, enter into sale and leaseback transactions, engage in mergers or consolidations with other companies, sell assets, pay dividends, repurchase capital stock, make investments, loans and advances, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements, repay certain indebtedness, change the nature of the Company’s business, change accounting policies and practices, grant negative pledges and incur capital expenditures. In addition, after giving effect to Amendment No. 3, the Credit Agreement requires the Company to maintain no more than a maximum consolidated leverage ratio as shown in the second table below and no less than a minimum cash interest coverage ratio of 2.00 to 1.00 through June 30, 2013, 1.75 to 1.00 from September 30, 2013 through June 30, 2014 and 2.00 to 1.00 thereafter and also contains certain customary affirmative covenants and events of default. The previously required ratio was 2.25 to 1.00 for all periods.

On November 28, 2011, the Company entered into Amendment No. 2 (“Amendment No. 2”) to the Credit Agreement, which provided for modification to the definition of “Consolidated EBITDA” contained in the Credit Agreement to allow for the add-back of costs associated with the Company’s cost realignment activities and operating losses associated with branches closed or sold during the fourth quarter of 2011 and to reset the maximum consolidated leverage ratio for the fourth quarter of 2011 to 4.75 to 1.00. As of March 31, 2012, the Company was in compliance with all covenants in the Credit Agreement.

The maximum consolidated leverage ratio under Amendment No. 2 was as follows:

For the period	Maximum Consolidated Leverage Ratio
August 17, 2010 to September 30, 2011		£4.75:1
October 1, 2011 to September 30, 2012		£4.50:1
October 1, 2012 to September 30, 2013		£3.75:1
Thereafter		£3.00:1

On March 6, 2012, the Company entered into Amendment No. 3 to the Credit Agreement, which provided, among other things, for (i) an increase by 175 basis points per annum of the interest rates applicable to each of outstanding Term Loan A loans and Term Loan B loans, (ii) an increase in the Company’s permitted maximum consolidated leverage ratio as set forth in the table below, (iii) an amendment to the consolidated interest coverage ratio (and corresponding definitions) to provide that consolidated interest charges included in such calculation are such charges paid in cash (as compared with the previous covenant that included non-cash interest charges), along with a decrease in the Company’s permitted minimum consolidated cash interest coverage ratio to (a) 2.00 to 1.00 through June 30, 2013, (b) 1.75 to 1.00 from September 30, 2013 through June 30, 2014 and (c) 2.00 to 1.00 thereafter, (iv) amendments to the definition of “Consolidated EBITDA,” which include the ability to add-back certain costs associated with the Company’s cost realignment and operating losses associated with certain facilities and branches closed or sold by the Company during the fourth quarter of 2011 and during 2012 and an increase in the add-back for litigation settlement costs, (v) an addition of a mechanism for the Company to make discounted prepayments of Term Loan A loans and Term Loan B loans pursuant to Dutch auction procedures and (vi) a reduction of the revolving credit facility from $125 million to $110 million. As a condition to effectiveness of Amendment No. 3, the Company paid $50 million of the outstanding term loans under the Credit Agreement, applied ratably between the Term Loan A facility and the Term Loan B facility. The Company also paid certain fees in connection with Amendment No. 3, including a consent fee to each lender approving Amendment No. 3 in an amount equal to 0.50% of its respective term loans and revolving credit commitments. In connection with Amendment No. 3, the Company incurred costs of approximately $5.3 million. Approximately $4.1 million of these costs (including the $0.8 million associated with the revolving credit facility) have been capitalized and are being amortized over the remaining life of the debt using an effective interest rate.

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The increase in Gentiva’s permitted maximum consolidated leverage ratio under Amendment No. 3 is set forth in the following table:

Four Fiscal Quarters Ending	Maximum Consolidated Leverage Ratio
March 31, 2012 to September 30, 2014	£6.25:1
Each fiscal quarter thereafter	£5.75:1

The previously required ratio was (i) 4.50 to 1.00 through September 30, 2012, (ii) 3.75 to 1.00 from December 31, 2012 through September 30, 2013 and (iii) 3.00 to 1.00 thereafter.

As of March 31, 2012, the Company’s consolidated leverage ratio was 4.4x and the Company’s interest coverage ratio was 3.0x.

Guaranty Agreement and Security Agreement

Gentiva and substantially all of its subsidiaries (the “Guarantor Subsidiaries”) entered into a guaranty agreement pursuant to which the Guarantor Subsidiaries have agreed, jointly and severally, fully and unconditionally to guarantee all of the Company’s obligations under the Credit Agreement. Additionally, Gentiva and its Guarantor Subsidiaries entered into a security agreement pursuant to which a first-priority security interest was granted in substantially all of the Company’s and its Guarantor Subsidiaries’ present and future real, personal and intangible assets, including the pledge of 100 percent of all outstanding capital stock of substantially all of the Company’s domestic subsidiaries to secure full payment of all of the Company’s obligations for the ratable benefit of the lenders.

Senior Notes

The Senior Notes are unsecured, senior subordinated obligations of the Company. The Senior Notes are guaranteed by all of Gentiva’s subsidiaries that are guarantors under the Credit Agreement. Interest on the Senior Notes accrues at a rate of 11.5 percent per annum and is payable semi-annually in arrears on March 1 and September 1. Gentiva will make each interest payment to the holders of record on the immediately preceding February 15 and August 15.

The Senior Notes mature on September 1, 2018 and are generally free to be transferred. Gentiva may redeem the Senior Notes, in whole or in part, at any time prior to the first interest payment of 2014, at a price equal to 100 percent of the principal amount of the Senior Notes redeemed plus an applicable make-whole premium based on the present value of the remaining payments discounted at the treasury rate plus 50 basis points plus accrued and unpaid interest, if any, to the date of redemption. In addition, prior to September 1, 2013, Gentiva may redeem up to 35 percent of the aggregate principal amount of the Senior Notes with the net cash proceeds of a qualified equity offering at a redemption price equal to 111.5 percent of the aggregate principal amount, provided that (i) at least 65 percent of the aggregate principal amount of Senior Notes originally issued remain outstanding after the occurrence of such redemption and (ii) such redemption occurs within 180 days after the closing of a qualified equity offering.

On or after September 1, 2014, Gentiva may redeem all or part of the Senior Notes at redemption prices set forth below plus accrued and unpaid interest and Additional Interest, if any, as defined in the indenture relating to the Senior Notes during the twelve month period beginning on September 1 of the years indicated below:

Year	Percentage
2014		105.750	%
2015		102.875	%
2016 and thereafter		100.000	%

Other

The Company has equipment capitalized under capital lease obligations. At March 31, 2012 and December 31, 2011, the Company had no long-term capital lease obligations. The current portion of obligations under capital leases was $0.1 million at both March 31, 2012 and December 31, 2011, and was recorded in other accrued expenses on the Company’s consolidated balance sheets.

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Note 12. Equity

Changes in equity for the three months ended March 31, 2012 and 2011 were as follows (in thousands, except share amounts):

	Gentiva Shareholders
										Accumulated
					Additional		Retained			Other
	Common Stock				Paid-in		Earnings			Comprehensive			Treasury			Noncontrolling
	Shares		Amount		Capital		(Deficit)			Income (Loss)			Stock			Interests			Total
Balance at December 31, 2010		30,799,091	$	3,080	$	372,106	$	272,394		$	478		$	(12,484	)	$	2,658		$	638,232
Comprehensive income:
Net income		—		—		—		13,452			—			—			167			13,619
Changes in fair value of interest rate swaps		—		—		—		—			(768	)		—			—			(768	)
Realized loss on interest rate swaps		—		—		—		—			290			—			—			290
Total comprehensive income		—		—		—		13,452			(478	)		—			167			13,141
Income tax benefits associated with the exercise of non-qualified stock options		—		—		258		—			—			—			—			258
Equity-based compensation expense		—		—		1,629		—			—			—			—			1,629
Net issuance of stock upon exercise of stock options and under stock plans for employees and directors		354,137		35		4,629		—			—			—			—			4,664
Distribution to partnership interests		—		—		—		—			—			—			(302	)		(302	)
Balance at March 31, 2011		31,153,228	$	3,115	$	378,622	$	285,846		$	—		$	(12,484	)	$	2,523		$	657,622
Balance at December 31, 2011		31,435,264	$	3,144	$	387,803	$	(178,131	)	$	—		$	(12,878	)	$	2,593		$	202,531
Comprehensive income:
Net income		—		—		—		4,840			—			—			213			5,053
Total comprehensive income		—		—		—		4,840			—			—			213			5,053
Equity-based compensation expense		—		—		1,631		—			—			—			—			1,631
Net issuance of stock upon exercise of stock options and under stock plans for employees and directors		122,390		14		691		—			—			—			—			705
Distribution to partnership interests		—		—		—		—			—			—			(195	)		(195	)
Balance at March 31, 2012		31,557,654	$	3,158	$	390,125	$	(173,291	)	$	—		$	(12,878	)	$	2,611		$	209,725

Comprehensive income amounted to $5.1 million for the first three months of 2012, and $13.1 million for the first three months of 2011. The amounts in comprehensive income for the three months ended March 31, 2011 are reflected net of tax of approximately $0.4 million.

The Company has an authorized stock repurchase program under which the Company can repurchase and retire up to 1,500,000 shares of its outstanding common stock. The repurchases can occur periodically in the open market or through privately negotiated transactions based on market conditions and other factors. During the three months ended March 31, 2012 and 2011, the Company did not repurchase shares of its outstanding common stock. As of March 31, 2012, the Company had remaining authorization to repurchase an aggregate of 180,568 shares of its outstanding common stock. In addition, the Company’s Board of Directors has also authorized the repurchase of additional shares of the Company’s outstanding common stock with an aggregate purchase price up to $5.0 million, which shares are in addition to the remaining 180,568 shares. During the period from April 1, 2012 through May 1, 2012, the Company repurchased 605,077 shares of its common stock at an average cost of $8.20 per share and a total cost of approximately $5.0 million.

The Company’s Credit Agreement provides for repurchases of the Company’s common stock not to exceed $5.0 million per year, and not to exceed $20.0 million per year if the consolidated leverage ratio is less than or equal to 3.5:1 immediately after giving effect on a pro forma basis to the repurchase. The indenture governing the Company’s Senior Notes also contains limitations on the Company’s repurchases of its common stock.

Note 13. Equity-Based Compensation Plans

The Company provides several equity-based compensation plans under which the Company’s officers, employees and non-employee directors may participate, including (i) the 2004 Equity Incentive Plan (amended and restated) (“2004 Plan”), (ii) the Stock & Deferred Compensation Plan for Non-Employee Directors (“DSU Plan”) and (iii) the Employee Stock Purchase Plan (“ESPP”). Collectively, these equity-based compensation plans permit the grants of (i) incentive stock options, (ii) non-qualified stock options, (iii) stock appreciation rights, (iv) restricted stock, (v) performance units, (vi) stock units and (vii) cash, as well as allow employees to purchase shares of the Company’s common stock under the ESPP at a pre-determined discount.

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For both the first quarter of 2012 and 2011, the Company recorded equity-based compensation expense, as calculated on a straight-line basis over the vesting periods of the related equity instruments, of $1.6 million, which was reflected as selling, general and administrative expense in the consolidated statements of comprehensive income.

Stock Options

The weighted average fair values of the Company’s stock options granted during the first three months of 2012 and 2011 calculated using the Black-Scholes option pricing model and other assumptions, were as follows.

	Three Months Ended
	March 31, 2012		March 31, 2011
Weighted average fair value of options granted	$	8.33	$	11.30
Risk-free interest rate		0.77% -0.95%		2.15%
Expected volatility		64%		44%
Contractual life		7 years		7 years
Expected life		3.4 - 5.4 years		4.5 - 6.5 years
Expected dividend yield		0%		0%

Stock option grants in 2011 and 2012 vest over a three-year period based on a vesting schedule that provides for one-third vesting after each year. Stock option grants in 2006 through 2010 fully vest over a four year period based on a vesting schedule that provides for one-half vesting after year two and an additional one-fourth vesting after each of years three and four. The Company’s expected volatility assumptions are based on the historical volatility of the Company’s stock price over a period corresponding to the expected term of the stock option. Forfeitures are estimated utilizing the Company’s historical forfeiture experience. The expected life of the Company’s stock options is based on the Company’s historical experience of the exercise patterns associated with its stock options.

A summary of Gentiva stock option activity as of March 31, 2012 and changes during the three months then ended is presented below:

							Weighted-
				Weighted-			Average
				Average			Remaining		Aggregate
	Number of			Exercise			Contractual		Intrinsic
	Options			Price			Life (Years)		Value
Balance as of December 31, 2011		4,228,907		$	15.59
Granted		26,000			8.33
Exercised		—			—
Cancelled		(144,308	)		(16.92	)
Balance as of March 31, 2012		4,110,599		$	15.50			6.5	$	4,299,454
Exercisable options		2,262,157		$	19.57			4.7	$	125,039

There were no options exercised during the three months ended March 31, 2012. The total intrinsic value of options exercised during the three months ended March 31, 2011 was $1.7 million. As of March 31, 2012, the Company had $4.4 million of unrecognized compensation expense related to nonvested stock options. This compensation expense is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of options that vested during the first three months of 2012 was $3.4 million.

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Performance Share Units

The Company may grant performance share units under its 2004 Plan. Performance share units result in the issuance of common stock at the end of a three-year period and may range between zero and 150 percent of the performance share units granted at target in 2010 and between zero and 200 percent of the performance share units granted at target in 2011, based on the achievement of defined thresholds of the performance criteria over a three-year period (in the case of performance share units granted in 2010) and at the end of a one-year period (in the case of performance share units granted in 2011).

A summary of Gentiva performance share unit activity as of March 31, 2012 is presented below:

				Weighted-
	Number of			Average
	Performance			Exercise
	Share Units			Price
Balance as of December 31, 2011		114,564		$	26.40
Granted		—			—
Exercised		—			—
Earned, but not released		(93,683	)		26.38
Cancelled		(600	)		26.58
Balance as of March 31, 2012		20,281		$	26.08

These performance share units carry performance criteria measured on annual diluted earnings per share targets and fully vest at the end of a three-year period provided the performance criteria are met. Forfeitures are estimated utilizing the Company’s historical forfeiture experience.

As of March 31, 2012 and 2011, the Company had $1.6 million and $2.8 million, respectively, of total unrecognized compensation cost related to performance share units. This compensation expense is expected to be recognized over a weighted-average period of 1.7 years and 2.5 years, respectively.

Restricted Stock

A summary of Gentiva restricted stock activity as of March 31, 2012 is presented below:

				Weighted-
	Number of			Average			Aggregate
	Restricted			Exercise			Intrinsic
	Shares			Price			Value
Balance as of December 31, 2011		377,750		$	25.30
Granted		—			—
Exercised		—			—
Cancelled		(1,100	)		(26.58	)
Balance as of March 31, 2012		376,650		$	25.29		$	3,291,921

The restricted stock fully vests at the end of a three-year or five-year period, depending on the individual grants. Forfeitures are estimated utilizing the Company’s historical forfeiture experience.

As of March 31, 2012, the aggregate intrinsic value of the restricted stock awards was $3.3 million. The Company had $6.3 million and $8.2 million of total unrecognized compensation cost related to restricted stock as of March 31, 2012 and 2011, respectively. This compensation expense is expected to be recognized over a weighted-average period of 3.0 years and 3.8 years, respectively.

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Directors Deferred Stock Units

Under the Company’s DSU Plan, each non-employee director receives an annual deferred stock unit award credited quarterly and paid in shares of the Company’s common stock following termination of the director’s service on the Board of Directors. The total number of shares of common stock reserved for issuance under this plan is 300,000, of which 7 shares were available for future grants as of March 31, 2012. During the first three months of 2012, the Company granted 1,888 stock units under the DSU Plan at a grant date weighted-average fair value of $7.90 per stock unit. Because there were insufficient deferred stock units available under the DSU Plan for the full quarterly equity grant to each non-employee director, the Company also made a cash payment of approximately $28,100 to each non-employee director during the first three months of 2012. Under the DSU Plan, 201,746 stock units were outstanding as of March 31, 2012.

Employee Stock Purchase Plan

The Company provides an ESPP under which the offering period is three months and the purchase price of shares is equal to 85 percent of the fair market value of the Company’s common stock on the last day of the three-month offering period. All employees of the Company are eligible to purchase stock under the ESPP regardless of their actual or scheduled hours of service. During the first three months of 2012, the Company issued 126,728 shares of common stock under its ESPP. Under the Company’s ESPP, compensation expense is equal to the 15 percent discount from the fair market value of the Company’s common stock on the date of purchase.

Note 14. Legal Matters

Litigation

In addition to the matters referenced in this Note 14, 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. Management does not expect that these other legal actions will have a material adverse effect on the business, financial condition, results of operations, liquidity or capital resources of the Company.

On May 10, 2010, a collective and class action complaint entitled Lisa Rindfleisch et al. v. Gentiva Health Services, Inc. was filed in the United States District Court for the Eastern District of New York against the Company in which five former employees allege wage and hour law violations. The former employees claim they were paid pursuant to “an unlawful hybrid” compensation plan that paid them on both a per visit and an hourly basis, thereby voiding their exempt status and entitling them to overtime pay. The plaintiffs have alleged continuing violations of federal and state law and seek damages under the Fair Labor Standards Act (“FLSA”), as well as under the New York Labor Law and North Carolina Wage and Hour Act (“NCWHA”). On October 8, 2010, the Court granted the Company’s motion to transfer the venue of the lawsuit to the United States District Court for the Northern District of Georgia. On April 13, 2011, the Court granted plaintiffs’ motion for conditional certification of the FLSA claims as a collective action. On May 26, 2011, the Court bifurcated the FLSA portion of the suit into a liability phase, in which discovery is scheduled to close on August 28, 2012, and a damages phase, to be scheduled pending outcome of the liability phase. Following a motion for partial summary judgment by the Company regarding the New York state law claims, plaintiffs agreed voluntarily to dismiss those claims in a filing on December 12, 2011. Plaintiffs continue to seek class certification of allegedly similar employees and seek attorneys’ fees, back wages and liquidated damages going back three years under the FLSA and two years under the North Carolina statute. Plaintiffs filed a motion for certification of a North Carolina state law class for NCWHA claims on January 20, 2012. The Company filed a motion for partial summary judgment on plaintiffs’ claims under the NCWHA on March 22, 2012. Plaintiffs also filed a motion for partial summary judgment with regard to the Company’s liability for plaintiffs’ FLSA claims on April 3, 2012. Briefing in each of these motions is pending.

Based on the information the Company has at this time in the Rindfleisch lawsuit, the Company is unable to assess the probable outcome or potential liability, if any, arising from this proceeding on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for this lawsuit at this time. The Company intends to defend itself vigorously in this lawsuit.

On June 11, 2010, a collective and class action complaint entitled Catherine Wilkie, individually and on behalf of all others similarly situated v. Gentiva Health Services, Inc. was filed in the United States District Court for the Eastern District of California against the Company in which a former employee alleges wage and hour violations under the FLSA and California law. The complaint alleges that the Company paid some of its employees on both a per visit and hourly basis, thereby voiding their exempt status and entitling them to overtime pay. The complaint further alleges that California employees were subject to violations of state laws requiring meal and rest breaks, accurate wage statements and timely payment of wages. The plaintiff seeks class certification, attorneys’ fees, back wages, penalties and damages going back three years on the FLSA claim and four years on the state wage and hour claims. The parties held mediation discussions on August 3, 2011 and March 7, 2012. The parties are in the process of finalizing the terms of a monetary settlement whereby the Company would pay the total sum of $5 million to settle all claims in the lawsuit, including the plaintiff’s attorney’s fees and costs.

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On December 29, 2011, Odyssey HealthCare, Inc. was served with a complaint captioned United States of America and the State of Illinois ex rel. Laurie Geschrey and Laurie Janus v. Generations Healthcare, LLC, Odyssey HealthCare, Inc. Narayan Ponakala and Catherine Ponakala, which was filed on April 19, 2010 as a qui tam action in the United States District Court for the Northern District of Illinois, Eastern Division, Case No. 10 C 2413, under the provisions of the Federal False Claims Act, the Illinois Whistleblower Reward and Protection Act and the Illinois Whistleblower Act. The plaintiffs, two former employees of Generations Healthcare, LLC, a hospice company whose assets were acquired by Odyssey on December 31, 2009, are the relators and allege that defendants committed fraud against the United States and the State of Illinois by, among other things, recruiting and certifying patients as being eligible for hospice care when they were known not to be eligible and falsifying patients’ medical records in support of the claims for reimbursement. Relators further allege that Odyssey was aware of Generations Healthcare’s alleged fraudulent business practices. Both the United States and the State of Illinois declined to intervene in the action, and the complaint was unsealed on December 1, 2011. Relators seek statutory damages, which are three times the amount of any actual damages suffered by the United States and the State of Illinois, the maximum statutory civil penalty due under the statutes plus all costs and attorneys fees. Additionally, relators seek back pay plus interest and other damages because of defendants’ alleged retaliation against relators.

Odyssey filed a motion to dismiss the complaint against it with a supporting memorandum of law on March 23, 2012. Plaintiffs filed a brief in opposition to Odyssey’s motion on April 4, 2012, and Odyssey filed a reply brief on April 18, 2012. Odyssey is also pursuing indemnification from Generations Healthcare and its owners, who are defendants in this action. Given the preliminary stage of this action, the Company is unable to assess the probable outcome or potential liability, if any, arising from this action on the business, financial condition, results of operations, liquidity or capital resources of the Company or Odyssey. Odyssey intends to defend itself vigorously in the action.

Odyssey Merger Litigation

Three putative class action lawsuits were filed in connection with the Company’s acquisition (“Merger”) of Odyssey HealthCare, Inc. (“Odyssey”). The first, entitled Pompano Beach Police & Firefighters’ Retirement System v. Odyssey HealthCare, Inc. et al., was filed on May 27, 2010 in the County Court, Dallas County, Texas. The second, entitled Eric Hemminger et al. v. Richard Burnham et al., was filed on June 9, 2010 in the District Court, Dallas, Texas. The third, entitled John O. Hansen v. Odyssey HealthCare, Inc. et al., was filed on July 2, 2010 in the United States District Court for the Northern District of Texas. All three lawsuits named the Company, GTO Acquisition Corp., Odyssey and the members of Odyssey’s board of directors as defendants. All three lawsuits were brought by purported stockholders of Odyssey, both individually and on behalf of a putative class of stockholders, alleging that Odyssey’s board of directors breached its fiduciary duties in connection with the Merger by failing to maximize shareholder value and that the Company and Odyssey aided and abetted the alleged breaches. On October 8, 2010, the District Court consolidated the Hemminger and Pompano Beach actions and transferred the Hemminger action to County Court No. 5 in Dallas County, Texas. On October 12, 2010, Gentiva entered a general denial with respect to the material allegations in both the Pompano Beach and Hemminger complaints. On December 16, 2010, defendants in the actions executed a Memorandum of Understanding (“MOU”) with plaintiffs Pompano Beach Police & Firefighters’ Retirement System, Eric Hemminger and John O. Hansen reflecting an agreement in principle to settle each of the actions for additional disclosures which were included in Odyssey’s Definitive Proxy Statement on Schedule 14A, filed on July 9, 2010. Defendants also agreed not to contest an application for attorneys’ fees to be made by plaintiffs, which application shall not exceed $675,000. On February 17, 2012, the court preliminarily approved a settlement of the Pompano Beach, Hemminger and Hansen actions. The settlement remains subject to final court approval. A final settlement approval hearing has been set for May 18, 2012.

Federal Securities Class Action Litigation

Between November 2, 2010 and October 25, 2011, five shareholder class actions were filed against Gentiva and certain of its current and former officers and directors in the United States District Court for the Eastern District of New York. Each of these actions asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with the Company’s participation in the Medicare Home Health Prospective Payment System (“HH PPS”). Following consolidation of the actions, and the appointment of Los Angeles City Employees’ Retirement System as lead plaintiff and Kaplan Fox & Kilsheimer LLP as lead counsel, on April 16, 2012, a consolidated shareholder class action complaint, captioned In re Gentiva Securities Litigation, Civil Action No. 10-CV-5064, was filed in the United States District Court for the Eastern District of New York. The complaint, which names Gentiva and certain current and former officers and directors as defendants, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Sections 11 and 15 of the Securities Act of 1933, in connection with the Company’s participation in the HH PPS. The complaint alleges,

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among other things, that the Company’s public disclosures misrepresented and failed to disclose that the Company improperly increased the number of in-home therapy visits to patients for the purposes of triggering higher reimbursement rates under the HH PPS, which caused an artificial inflation in the price of Gentiva’s common stock during the period between July 31, 2008 and October 4, 2011.

The defendants have not yet responded to the complaint. Given the preliminary stage of the action, the Company is unable to assess the probable outcome or potential liability, if any, arising from the action on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for the action at this time. The defendants intend to defend themselves vigorously in the action.

Shareholder Derivative Litigation

On January 4, 2011 and October 31, 2011, two actions were filed against Gentiva’s current directors in Superior Court of DeKalb County in the State of Georgia, alleging, among other things, that Gentiva’s board of directors breached its fiduciary duties to the Company. The actions were consolidated and, on February 9, 2012, plaintiffs filed a consolidated complaint (the “Georgia State Court Action”). The Georgia State Court Action, which names Gentiva’s current directors as defendants, alleges, among other things, that Gentiva’s board of directors had actual or constructive knowledge that the Company’s public disclosures misrepresented and failed to disclose that the Company improperly increased the number of in-home therapy visits to patients for the purpose of triggering higher reimbursement rates under HH PPS, which caused an artificial inflation in the price of Gentiva’s common stock. On March 26, 2012, defendants filed a motion to dismiss the Georgia State Court Action.

On October 7 and October 13, 2011, two actions were filed against Gentiva’s current directors and one former officer in the United States District Court for the Northern District of Georgia, alleging, among other things, that Gentiva’s board of directors breached its fiduciary duties to the Company. The actions also asserted a claim under Section 14(a) of the Securities Exchange Act of 1934. The actions were consolidated and, on March 5, 2012, plaintiffs filed a consolidated complaint (the “Georgia Federal Court Action”). The Georgia Federal Court Action, which names Gentiva’s current directors and one former officer as defendants, alleges, among other things, that Gentiva’s board of directors had actual or constructive knowledge that the Company’s public disclosures misrepresented and failed to disclose that the Company improperly increased the number of in-home therapy visits to patients for the purpose of triggering higher reimbursement rates under HH PPS, which caused an artificial inflation in the price of Gentiva’s common stock. The complaint further alleges that the Company’s Proxy Statement for its 2010 Annual Meeting of Shareholders was materially false and misleading. On April 16, 2012, defendants filed a motion to dismiss the Georgia Federal Court Action.

Given the preliminary stage of the actions, the Company is unable to assess the probable outcome or potential liability, if any, arising from these actions on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for these actions at this time. The defendants intend to defend themselves vigorously in these actions.

Government Matters

PRRB Appeal

In connection with the audit of the Company’s 1997 cost reports, the Medicare fiscal intermediary made certain audit adjustments related to the methodology used by the Company to allocate a portion of its residual overhead costs. The Company filed cost reports for years subsequent to 1997 using the fiscal intermediary’s methodology. The Company believed the methodology it used to allocate such overhead costs was accurate and consistent with past practice accepted by the fiscal intermediary; as such, the Company filed appeals with the Provider Reimbursement Review Board (“PRRB”) concerning this issue with respect to cost reports for the years 1997, 1998 and 1999. The Company’s consolidated financial statements for the years 1997, 1998 and 1999 had reflected use of the methodology mandated by the fiscal intermediary. In June 2003, the Company and its Medicare fiscal intermediary signed an Administrative Resolution relating to the issues covered by the appeals pending before the PRRB. Under the terms of the Administrative Resolution, the fiscal intermediary agreed to reopen and adjust the Company’s cost reports for the years 1997, 1998 and 1999 using a modified version of the methodology used by the Company prior to 1997. This modified methodology will also be applied to cost reports for the year 2000, which are currently under audit. The Administrative Resolution required that the process to (i) reopen all 1997 cost reports, (ii) determine the adjustments to allowable costs through the issuance of Notices of Program Reimbursement and (iii) make appropriate payments to the Company, be completed in early 2004. Cost reports relating to years subsequent to 1997 were to be reopened after the process for the 1997 cost reports was completed.

The fiscal intermediary completed the reopening of all 1997, 1998 and 1999 cost reports and determined that the adjustment to allowable costs aggregated $15.9 million which the Company has received and recorded as adjustments to net revenues in the fiscal years 2004 through 2006. The Company is unable to predict when the Centers for Medicare & Medicaid Services (“CMS”) will finalize all items relating to the 2000 cost reports.

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Senate Finance Committee Report

In a letter dated May 12, 2010, the United States Senate Finance Committee requested information from the Company regarding its Medicare utilization rates for therapy visits. The letter was sent to all publicly traded home healthcare companies mentioned in a Wall Street Journal article that explored the relationship between the CMS’ home health policies and the utilization rates of some health agencies. The Company responded to this request as well as to supplemental requests for information. On October 3, 2011, the Senate Finance Committee released its report, which generally criticized certain of the home health therapy practices of publicly traded home healthcare companies, including the Company. The Company maintains its belief that it has provided and is providing the highest quality of care and has received and continues to receive payment within the standards set forth by the reimbursement system established by CMS. The Company is unable to assess the probable outcome or potential liability, if any, arising from this matter on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for this matter at this time.

Subpoena

On July 13, 2010, the SEC informed the Company that the SEC had commenced an investigation relating to the Company’s participation in the Medicare Home Health Prospective Payment System, and, on July 16, 2010, the Company received a subpoena from the SEC requesting certain documents in connection with its investigation. Similar to the Senate Finance Committee request, the SEC subpoena, among other things, focused on issues related to the number of and reimbursement received for therapy visits before and after changes in the Medicare reimbursement system, relationships with physicians, compliance efforts including compliance with fraud and abuse laws, and certain documents sent to the Senate Finance Committee. The Company is unable to assess the probable outcome or potential liability, if any, arising from this matter on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for this matter at this time.

Investigations Involving Odyssey

On February 14, 2008, Odyssey received a letter from the Medicaid Fraud Control Unit of the Texas Attorney General’s office notifying Odyssey that the Texas Attorney General was conducting an investigation concerning Medicaid hospice services provided by Odyssey, including its practices with respect to patient admission and retention, and requesting medical records of approximately 50 patients served by its programs in the State of Texas. Based on the limited information that Odyssey has at this time, the Company cannot predict the outcome of this investigation, the Texas Attorney General’s views of the issues being investigated or any actions that the Texas Attorney General may take.

On May 5, 2008, Odyssey received a letter from the U.S. Department of Justice (“DOJ”) notifying Odyssey that the DOJ was conducting an investigation of VistaCare, Inc. (“VistaCare”) and requesting that Odyssey provide certain information and documents related to the DOJ’s investigation of claims submitted by VistaCare to Medicare, Medicaid and the U.S. government health insurance plan for active military members, their families and retirees, formerly the Civilian Health and Medical Program of the Uniformed Services (“TRICARE”), from January 1, 2003 through March 6, 2008, the date Odyssey completed the acquisition of VistaCare. Odyssey has been informed by the DOJ and the Medicaid Fraud Control Unit of the Texas Attorney General’s Office that they are reviewing allegations that VistaCare may have billed the federal Medicare, Medicaid and TRICARE programs for hospice services that were not reasonably or medically necessary or performed as claimed. The basis of the investigation is a qui tam lawsuit filed in the United States District Court for the Northern District of Texas by a former employee of VistaCare. The lawsuit was unsealed on October 5, 2009 and served on Odyssey on January 28, 2010. In connection with the unsealing of the complaint, the DOJ filed a notice with the court declining to intervene in the qui tam action at such time. The Texas Attorney General also filed a notice of non-intervention with the court. These actions should not be viewed as a final assessment by the DOJ or the Texas Attorney General of the merits of this qui tam action. Odyssey continues to cooperate with the DOJ and the Texas Attorney General in their investigation. The relator has continued to pursue the qui tam lawsuit that is in the motion to dismiss phase. Based on the information that Odyssey has at this time, the Company cannot predict the outcome of the qui tam lawsuit, the governments’ continuing investigation, the DOJ’s or Texas Attorney General’s views of the issues being investigated, other than the DOJ’s and Texas Attorney General’s notice declining to intervene in the qui tam action, or any actions that the DOJ or Texas Attorney General may take.

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On October 28, 2011, the Assistant United States Attorney for the Northern District of Texas notified Odyssey and the Company of the existence of a second qui tam lawsuit against VistaCare, doing business as VistaCare Hospice, Odyssey Healthcare, Inc., and Gentiva Healthcare Services, that had initially been filed on October 29, 2010, in the Northern District of Alabama, but transferred to the Northern District of Texas due to the similarity of allegations with the first qui tam lawsuit. A non-intervention order and unsealing of the second complaint was entered by the District Court for the Northern District of Texas on October 27, 2011. The Company believes this action should not be viewed as a final assessment by the DOJ of the merits of this qui tam action. On February 28, 2012, the court ordered a stay in this qui tam action until the court rules on the pending motion to dismiss in the first qui tam action. Based on the limited information that Odyssey has at this time, the Company cannot predict the outcome of this second qui tam lawsuit, the government’s continuing investigation, the DOJ’s views of the issues being investigated, other than the DOJ’s non-intervention in the qui tam action, or any actions that the DOJ may take.

On January 5, 2009, Odyssey received a letter from the Georgia State Health Care Fraud Control Unit notifying Odyssey that the Georgia State Health Care Fraud Unit was conducting an investigation concerning Medicaid hospice services provided by VistaCare from 2003 through 2007 and requesting certain documents. Odyssey is cooperating with the Georgia State Health Care Fraud Control Unit and has complied with the document request. Based on the limited information that Odyssey has at this time, the Company cannot predict the outcome of the investigation, the Georgia State Health Care Fraud Control Unit’s views of the issues being investigated or any actions that the Georgia State Health Care Fraud Control Unit may take.

On February 23, 2010, Odyssey received a subpoena from the Department of Health and Human Services, Office of Inspector General (“OIG”), requesting various documents and certain patient records of one of Odyssey’s hospice programs relating to services performed from January 1, 2006 through December 31, 2009. Odyssey is cooperating with the OIG and has completed its subpoena production. Based on the limited information that Odyssey has at this time, the Company cannot predict the outcome of the investigation, the OIG’s views of the issues being investigated or any actions that the OIG may take.

The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made at this time with regard to the above investigations involving Odyssey. Based on the limited information that Odyssey has at this time regarding such investigations, the Company is unable to predict the impact, if any, that such investigations may have on Odyssey’s and the Company’s business, financial condition, results of operations, liquidity or capital resources.

On February 2, 2009, Odyssey received a subpoena from the OIG requesting certain documents related to Odyssey’s provision of continuous care services from January 1, 2004 through January 22, 2009. On September 9, 2009 and June 24, 2011, Odyssey received two additional subpoenas from the OIG requesting medical records for certain patients who had been provided continuous care services by Odyssey during the same time period. On February 15, 2012, Odyssey entered into a settlement agreement (“Settlement Agreement”) with the United States, acting through the DOJ and on behalf of the OIG, regarding Odyssey’s provision of continuous care services prior to the Company’s acquisition of Odyssey in August 2010. Pursuant to the Settlement Agreement, Odyssey paid the United States $25 million on February 22, 2012. Additionally, Odyssey entered into a five-year Corporate Integrity Agreement (the “CIA”) with the OIG. Under the CIA, among other things, Odyssey must maintain a compliance officer and compliance committee, provide special training and education to its employees, undertake annual internal and external audits and submit annual reports on compliance with the CIA requirements to the OIG.

Note  15. Income Taxes

The Company recorded an income tax provision of $2.5 million for the first quarter of 2012. The Company’s effective income tax rate for the first quarter of 2012 was 33.4 percent. The rate for the first quarter is lower than what is expected for the year as a result of an issue being effectively settled with the IRS and a reversal of related reserves in the first quarter. The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 33.4 percent for the first three months of 2012 is primarily due to state income taxes (approximately 4.9 percent), and other items (approximately 1.1 percent) offset by a change in tax reserves (approximately 7.6 percent).

The Company recorded an income tax provision of $8.1 million for the first quarter of 2011. The Company’s effective rate for the first quarter of 2011 was 39.2 percent. The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 39.2 percent for the first three months of 2011 is primarily due to state income taxes (approximately 4.7 percent), offset by other items (approximately 0.5 percent).

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Note 16. Business Segment Information

The Company’s operations involve servicing its patients and customers through its Home Health segment and its Hospice segment.

Home Health

The Home Health segment is comprised of direct home nursing and therapy services operations, including specialty programs and its consulting business. The Company conducts direct home nursing and therapy services operations through licensed and Medicare-certified agencies, located in 39 states, from which the Company provides various combinations of skilled nursing and therapy services and paraprofessional nursing services to adult and elder patients. The Company’s direct home nursing and therapy services operations also deliver services to its customers through focused specialty programs that include:

• Gentiva Orthopedics, which provides individualized home orthopedic rehabilitation services to patients recovering from joint replacement or other major orthopedic surgery;

• Gentiva Safe Strides^®, which provides therapies for patients with balance issues who are prone to injury or immobility as a result of falling;

• Gentiva Cardiopulmonary, which helps patients and their physicians manage heart and lung health in a home-based environment;

• Gentiva Neurorehabilitation, which helps patients who have experienced a neurological injury or condition by removing the obstacles to healing in the patient’s home; and

• Gentiva Senior Health, which addresses the needs of patients with age-related diseases and issues to effectively and safely stay in their homes.

In addition, the Company provides consulting services to home health agencies which include operational support, billing and collection activities, and on-site agency support and consulting. For 2011, the Company’s Rehab Without Walls^® and homemaker services business in Illinois are reflected as discontinued operations in accordance with applicable accounting guidance. See Note 4 for additional information.

Hospice

The Hospice segment serves terminally ill patients and their families through Medicare-certified providers operating in 29 states. Comprehensive management of the healthcare services and products needed by hospice patients and their families are provided through the use of an interdisciplinary team. Depending on a patient’s needs, each hospice patient is assigned an interdisciplinary team comprised of a physician, nurse(s), home health aide(s), medical social worker(s), chaplain, dietary counselor and bereavement coordinator, as well as other care professionals. The Hospice segment also delivers services to its customers through focused specialty programs that include:

• Dementia Specialty Program, which provides an individualized disease management program addressing the physical needs specific to Alzheimer’s and dementia patients and support mechanisms for their caregivers;

• Cancer Specialty Program, which provides advanced pain and symptom management for patients coping with the effects of cancer;

• Cardiac Specialty Program, which helps patients and their physicians aggressively manage symptoms associated with heart disease, focusing on quality of life and pain control; and

• Pulmonary Specialty Program, which addresses the needs of patients who have experienced a respiratory crisis by increasing quality of life and promoting comfort by specialized symptom management.

Corporate Expenses

Corporate expenses consist of costs relating to executive management and corporate and administrative support functions that are not directly attributable to a specific segment, including equity-based compensation expense. Corporate and administrative support functions represent primarily information services, accounting and finance, tax compliance, risk management, procurement, marketing, clinical administration, training, legal and human resource benefits and administration.

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Other Information

The Company’s senior management evaluates performance and allocates resources based on operating contributions of the reportable segments, which exclude corporate expenses, depreciation, amortization and net interest costs, but include revenues and all other costs (including special items) directly attributable to the specific segment. Segment assets represent net accounts receivable, identifiable intangible assets, goodwill, and certain other assets associated with segment activities. All other assets are assigned to corporate assets for the benefit of all segments for the purposes of segment disclosure.

Segment net revenues by major payer source were as follows (in millions):

	First Quarter
	2012						2011
	Home						Home
	Health		Hospice		Total		Health		Hospice		Total
Medicare	$	190.6	$	182.0	$	372.6	$	201.6	$	181.0	$	382.6
Medicaid and Local Government		11.9		7.6		19.5		13.2		7.8		21.0
Commercial Insurance and Other:
Paid at episodic rates		20.0		—		20.0		18.7		—		18.7
Other		17.5		6.1		23.6		22.5		6.3		28.8
Total net revenues	$	240.0	$	195.7	$	435.7	$	256.0	$	195.1	$	451.1

Segment information about the Company’s operations is as follows (in thousands):

	Home Health			Hospice			Total
For the three months ended March 31, 2012
Net revenues	$	239,964		$	195,688		$	435,652
Operating contribution	$	25,876	(1)	$	32,482	(1)	$	58,358
Corporate expenses								(21,844	)(1)
Depreciation and amortization								(7,430	)
Interest expense and other, net of interest income								(21,502	)(2)
Income from continuing operations before income taxes							$	7,582
Segment assets	$	246,294		$	919,629		$	1,165,923
Corporate assets								295,450
Total assets							$	1,461,373
For the three months ended March 31, 2011
Net revenues	$	256,039		$	195,070		$	451,109
Operating contribution	$	41,882	(1)	$	36,137	(1)	$	78,019
Corporate expenses								(22,805	)(1)
Depreciation and amortization								(7,594	)
Interest expense and other, net of interest income								(26,883	)(2)
Income from continuing operations before income taxes and equity in earnings of CareCentrix							$	20,737
Segment assets	$	662,295		$	1,065,074		$	1,727,369
Corporate assets								398,794
Total assets							$	2,126,163

(1) For the three months ended March 31, 2012 and 2011, the Company recorded charges relating to cost savings initiatives and other restructuring costs, acquisition and integration costs and legal settlements of $5.4 million and $3.8 million, respectively. See Note 8 for additional information.

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The charges were reflected as follows for segment reporting purposes (dollars in millions):

	First Quarter
	2012			2011
Home Health	$	5.8		$	0.3
Hospice		(0.2	)		0.7
Corporate expenses		(0.2	)		2.8
Total	$	5.4		$	3.8

(2) For the first quarter of 2012 interest expense and other, net included charges of $0.5 million relating to the write-off of deferred debt issuance costs associated with the revolving credit facility. In addition, interest expense and other, net for the first quarter of 2011 included fees of $3.8 million associated with terminating the Company’s interest rate swaps in connection with the refinancing of the Company’s Term Loan A and Term Loan B under the Company’s senior secured credit agreement. See Note 11 for additional information.

Note 17. Supplemental Guarantor and Non-Guarantor Financial Information

Gentiva’s guarantor subsidiaries are guarantors to the Company’s debt securities which are registered under the Securities Act of 1933, as amended. The condensed consolidating financial statements presented below are provided pursuant to Rule 3-10 of Regulation S-X. Separate financial statements of each subsidiary guaranteeing Gentiva’s debt securities are not presented because the guarantor subsidiaries are jointly and severally, fully and unconditionally liable under the guarantees, and 100 percent owned by the Company. There are no restrictions on the ability to obtain funds from these subsidiaries by dividends or other means.

The following condensed consolidating financial statements include the balance sheets as of March 31, 2012 and December 31, 2011, statements of comprehensive income for the three months ended March 31, 2012 and 2011 and statements of cash flows for the three months ended March 31, 2012 and 2011 of (i) Gentiva Health Services, Inc. (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) its guarantor subsidiaries, (iii) its non-guarantor subsidiaries, and (iv) the eliminations necessary to arrive at the information for the Company on a consolidated basis.

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Condensed Consolidating Balance Sheet

March 31, 2012

(In thousands)

	Gentiva Health		Guarantor		Non-Guarantor					Consolidated
	Services, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	31,128	$	—	$	41,634	$	—		$	72,762
Receivables, net		—		305,683		26,430		(19,345	)		312,768
Deferred tax assets, net		—		15,085		2,387		—			17,472
Prepaid expenses and other current assets		—		40,709		8,374		(357	)		48,726
Total current assets		31,128		361,477		78,825		(19,702	)		451,728
Note receivable from CareCentrix		—		25,000		—		—			25,000
Fixed assets, net		—		45,367		315		—			45,682
Intangible assets, net		—		211,702		100		—			211,802
Goodwill		—		635,605		6,064		—			641,669
Investment in subsidiaries		1,114,111		27,297		—		(1,141,408	)		—
Other assets		—		85,485		7		—			85,492
Total assets	$	1,145,239	$	1,391,933	$	85,311	$	(1,161,110	)	$	1,461,373
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	9,193	$	—	$	—	$	—		$	9,193
Accounts payable		—		34,494		794		(19,345	)		15,943
Other current liabilities		—		178,522		54,589		(357	)		232,754
Total current liabilities		9,193		213,016		55,383		(19,702	)		257,890
Long-term debt		928,932		—		—		—			928,932
Deferred tax liabilities, net		—		30,050		—		—			30,050
Other liabilities				34,756		20					34,776
Total Gentiva shareholders’ equity		207,114		1,114,111		27,297		(1,141,408	)		207,114
Noncontrolling interests		—		—		2,611		—			2,611
Total equity		207,114		1,114,111		29,908		(1,141,408	)		209,725
Total liabilities and equity	$	1,145,239	$	1,391,933	$	85,311	$	(1,161,110	)	$	1,461,373

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Condensed Consolidating Balance Sheet

December 31, 2011

(In thousands)

	Gentiva Health		Guarantor		Non-Guarantor					Consolidated
	Services, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	124,101	$	—	$	40,811	$	—		$	164,912
Receivables, net		—		283,552		18,168		(11,131	)		290,589
Deferred tax assets, net		—		24,560		1,891		—			26,451
Prepaid expenses and other current assets		—		32,619		6,904		(1,144	)		38,379
Total current assets		124,101		340,731		67,774		(12,275	)		520,331
Note receivable from CareCentrix		—		25,000		—		—			25,000
Fixed assets, net		—		45,917		329		—			46,246
Intangible assets, net		—		214,774		100		—			214,874
Goodwill		—		635,605		6,064		—			641,669
Investment in subsidiaries		1,063,962		25,173		—		(1,089,135	)		—
Other assets		—		82,200		8		—			82,208
Total assets	$	1,188,063	$	1,369,400	$	74,275	$	(1,101,410	)	$	1,530,328
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	14,903	$	—	$	—	$	—		$	14,903
Accounts payable		—		22,913		831		(11,131	)		12,613
Other current liabilities		—		223,165		45,655		(1,144	)		267,676
Total current liabilities		14,903		246,078		46,486		(12,275	)		295,192
Long-term debt		973,222		—		—		—			973,222
Deferred tax liabilities, net		—		32,498		—		—			32,498
Other liabilities				26,862		23					26,885
Total Gentiva shareholders’ equity		199,938		1,063,962		25,173		(1,089,135	)		199,938
Noncontrolling interests		—		—		2,593		—			2,593
Total equity		199,938		1,063,962		27,766		(1,089,135	)		202,531
Total liabilities and equity	$	1,188,063	$	1,369,400	$	74,275	$	(1,101,410	)	$	1,530,328

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Condensed Consolidating Statement of Comprehensive Income

For the Three Months Ended March 31, 2012

(In thousands)

	Gentiva Health			Guarantor			Non-Guarantor						Consolidated
	Services, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Net revenues	$	—		$	424,353		$	14,312		$	(3,013	)	$	435,652
Cost of services sold		—			229,527			6,347			(3,013	)		232,861
Gross profit		—			194,826			7,965			—			202,791
Selling, general and administrative expenses		—			(169,549	)		(4,158	)		—			(173,707	)
Interest (expense) income and other, net		(21,543	)		—			41			—			(21,502	)
Equity in earnings of subsidiaries		17,561			2,059			—			(19,620	)		—
(Loss) income from continuing operations before income taxes		(3,982	)		27,336			3,848			(19,620	)		7,582
Income tax benefit (expense)		8,822			(9,775	)		(1,576	)		—			(2,529	)
Net income		4,840			17,561			2,272			(19,620	)		5,053
Noncontrolling interests		—			—			(213	)		—			(213	)
Net income attributable to Gentiva shareholders	$	4,840		$	17,561		$	2,059		$	(19,620	)	$	4,840
Comprehensive income	$	4,840		$	17,561		$	2,272		$	(19,620	)	$	5,053

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Condensed Consolidating Statement of Comprehensive Income

For the Three Months March 31, 2011

(In thousands)

	Gentiva Health			Guarantor			Non-Guarantor						Consolidated
	Services, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Net revenues	$	—		$	440,782		$	13,338		$	(3,011	)	$	451,109
Cost of services sold		—			227,269			6,498			(3,011	)		230,756
Gross profit		—			213,513			6,840			—			220,353
Selling, general and administrative expenses		—			(169,125	)		(3,608	)		—			(172,733	)
Interest (expense) and other, net		(26,889	)		—			6			—			(26,883	)
Equity in earnings of subsidiaries		29,612			2,043			—			(31,655	)		—
Income from continuing operations before income taxes and equity in net earnings of CareCentrix		2,723			46,431			3,238			(31,655	)		20,737
Income tax benefit (expense)		10,729			(17,701	)		(1,147	)		—			(8,119	)
Equity in net earnings of CareCentrix		—			554			—			—			554
Income from continuing operations		13,452			29,284			2,091			(31,655	)		13,172
Discontinued operations, net of tax		—			328			119			—			447
Net income		13,452			29,612			2,210			(31,655	)		13,619
Noncontrolling interests		—			—			(167	)		—			(167	)
Net income attributable to Gentiva shareholders	$	13,452		$	29,612		$	2,043		$	(31,655	)	$	13,452
Comprehensive income	$	12,974		$	29,612		$	2,210		$	(31,655	)	$	13,141

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Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2012

(In thousands)

	Gentiva Health			Guarantor			Non-Guarantor					Consolidated
	Services, Inc.			Subsidiaries			Subsidiaries			Eliminations		Total
OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(5,497	)	$	(30,212	)	$	1,004		$	—	$	(34,705	)
INVESTING ACTIVITIES:
Purchase of fixed assets		—			(3,787	)		(6	)		—		(3,793	)
Net cash used in investing activities		—			(3,787	)		(6	)		—		(3,793	)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock		705			—			—			—		705
Repayment of long-term debt		(50,000	)		—			—			—		(50,000	)
Debt issuance costs		(4,125	)		—			—			—		(4,125	)
Repayment of capital lease obligations		(37	)		—			—			—		(37	)
Other		—			(20	)		(175	)		—		(195	)
Net payuments related to intercompany financing		(34,019	)		34,019			—			—		—
Net cash (used in) provided by financing activities		(87,476	)		33,999			(175	)		—		(53,652	)
Net change in cash and cash equivalents		(92,973	)		—			823					(92,150	)
Cash and cash equivalents at beginning of period		124,101			—			40,811			—		164,912
Cash and cash equivalents at end of period	$	31,128		$	—		$	41,634		$	—	$	72,762

35

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2011

(In thousands)

	Gentiva Health			Guarantor			Non-Guarantor					Consolidated
	Services, Inc.			Subsidiaries			Subsidiaries			Eliminations		Total
OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(8,295	)	$	10,853		$	163		$	—	$	2,721
INVESTING ACTIVITIES:
Purchase of fixed assets		—			(3,211	)		(106	)		—		(3,317	)
Net cash used in investing activities		—			(3,211	)		(106	)		—		(3,317	)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock		4,652			—			—			—		4,652
Windfall tax benefits associated with equity-based compensation		194			—			—			—		194
Repayment of long-term debt		(3,438	)		—			—			—		(3,438	)
Debt issuance costs		(13,457	)		—			—			—		(13,457	)
Repayment of capital lease obligations		(76	)		—			—			—		(76	)
Other		—			64			(303	)		—		(239	)
Net payments related to intercompany financing		7,706			(7,706	)		—			—		—
Net cash used in financing activities		(4,419	)		(7,642	)		(303	)		—		(12,364	)
Net change in cash and cash equivalents		(12,714	)		—			(246	)		—		(12,960	)
Cash and cash equivalents at beginning of period		63,816			—			40,936			—		104,752
Cash and cash equivalents at end of period	$	51,102		$	—		$	40,690		$	—	$	91,792

Note 18. Subsequent Event

Sale of Louisiana Branches

In January 2012, the Company entered into an asset purchase agreement to sell eight home health and two hospice branches in Louisiana for total consideration of $5.0 million. That agreement was terminated and on March 26, 2012, the Company entered into an asset purchase agreement with a different purchaser to sell eight home health and four hospice branches in Louisiana for total consideration of approximately $6.5 million.

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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,” “assumes,” “trends” 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;

• impact on the Company of healthcare reform legislation and its implementation through governmental regulations;

• legislative proposals for healthcare reform;

• changes in Medicare, Medicaid and commercial payer reimbursement levels;

• the outcome of any inquiries into the Company’s operations and business practices by governmental authorities;

• effects of competition in the markets in which the Company operates;

• liability and other claims asserted against the Company;

• ability to attract and retain qualified personnel;

• ability to access capital markets;

• availability and terms of capital;

• loss of significant contracts or reduction in revenues associated with major payer sources;

• ability of customers to pay for services;

• business disruption due to natural disasters, pandemic outbreaks, or terrorist acts;

• ability to successfully integrate the operations of acquisitions the Company may make and achieve expected synergies and operational efficiencies within expected time-frames;

• ability to maintain compliance with financial covenants under the Company’s credit agreement;

• effect on liquidity of the Company’s debt service requirements; and

• changes in estimates and judgments associated with critical accounting policies and estimates.

Forward-looking statements are found throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission (“SEC”), the Company does not have any intention or obligation to publicly release any revisions to forward-looking statements to reflect unforeseen or other events after the date of this report. The Company has provided a detailed discussion of risk factors in its Annual Report on Form 10-K for the year ended December 31, 2011 and in various other filings with the SEC. The reader is encouraged to review these risk factors and filings.

General

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of Gentiva’s results of operations and financial position. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this report.

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 for the year ended December 31, 2011 and in other filings with the SEC.

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Overview

Gentiva Health Services, Inc. (“Gentiva” or the “Company”) is a leading provider of home health services and hospice services serving patients through approximately 420 locations in 41 states.

The Company provides a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; hospice services; social work; nutrition; disease management education; help with daily living activities; and other therapies and services. Gentiva’s revenues are generated from federal and state government programs, commercial insurance and individual consumers.

The federal and state government programs under which the Company generates a majority of its net revenues are subject to legislative and other risk factors that can make it difficult to determine future reimbursement rates for Gentiva’s services to its patients. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (“Affordable Care Act”), which represents a $39.5 billion reduction in Medicare home health spending over an extended period. The law phases in the reductions over seven years, including rebasing of Medicare reimbursement rates over a four year period beginning in 2014, with reductions resulting from rebasing not to exceed 3.5 percent in any one year. The Affordable Care Act is currently under review by the United States Supreme Court. The Company anticipates that many of the provisions of the Affordable Care Act may be subject to further clarification and modification through the rule-making process.

The commercial insurance industry is continually seeking ways to control the cost of services to patients that it covers. One of the ways it seeks to control costs is to require greater efficiencies from its providers, including home healthcare companies. Various states have addressed budget pressures by considering or implementing reductions in various healthcare programs, including reductions in rates or changes in patient eligibility requirements. The Company has also decided to reduce participation in certain Medicaid and other state and county programs.

The Company believes that several marketplace factors can contribute to its future growth. First, the Company is a leader in a highly fragmented home healthcare and hospice industry populated by more than 20,000 Medicare certified providers of varying size and resources. Second, the cost of a home healthcare visit to a patient can be significantly lower than the cost of an average day in a hospital or skilled nursing institution and third, the demand for home care is expected to grow, primarily due to an aging U.S. population. The Company expects to capitalize on these factors through a determined set of strategic priorities, as follows: growing revenues from services provided to the geriatric population, with a particular emphasis on expanding the penetration of the Company’s innovative specialty programs; being the leader in growth in the local markets the Company serves; focusing on clinical associate recruitment, retention and productivity; evaluating and closing opportunistic acquisitions; seeking further operating leverage through more efficient utilization of existing resources; implementing and leveraging technology to support the Company’s various initiatives; strengthening the Company’s balance sheet to support future growth; and educating our legislative and policymaking leaders on the value of the home health and hospice benefits to our nation’s seniors. The Company anticipates executing these strategies by continuing to expand its sales presence, making operational improvements and deploying new technologies, providing employees with leadership training and instituting retention initiatives, ensuring strong ethics and corporate governance, and focusing on shareholder value.

Management intends the discussion of the Company’s financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect the Company’s financial statements.

The Company’s operations involve servicing its patients and customers through its Home Health segment and its Hospice segment. This presentation aligns financial reporting with the manner in which the Company manages its business operations with a focus on the strategic allocation of resources and separate branding strategies between the business segments. Discontinued operations represent services and products provided to patients through the Company’s Rehab Without Walls^® business, the Company’s homemaker agency business in Illinois and the Company’s HME and IV business. See Note 4 to the Company’s consolidated financial statements for additional information.

38

Home Health

The Home Health segment is comprised of direct home nursing and therapy services operations, including specialty programs and its consulting business. The Company conducts direct home nursing and therapy services operations through licensed and Medicare-certified agencies, located in 39 states, from which the Company provides various combinations of skilled nursing and therapy services and paraprofessional nursing services to adult and elder patients. The Company’s direct home nursing and therapy services operations also deliver services to its customers through focused specialty programs that include:

• Gentiva Orthopedics, which provides individualized home orthopedic rehabilitation services to patients recovering from joint replacement or other major orthopedic surgery;

• Gentiva Safe Strides^®, which provides therapies for patients with balance issues who are prone to injury or immobility as a result of falling;

• Gentiva Cardiopulmonary, which helps patients and their physicians manage heart and lung health in a home-based environment;

• Gentiva Neurorehabilitation, which helps patients who have experienced a neurological injury or condition by removing the obstacles to healing in the patient’s home; and

• Gentiva Senior Health, which addresses the needs of patients with age-related diseases and issues to effectively and safely stay in their homes.

Hospice

The Hospice segment serves terminally ill patients and their families through Medicare-certified providers operating in 29 states. Comprehensive management of the healthcare services and products needed by hospice patients and their families are provided through the use of an interdisciplinary team. Depending on a patient’s needs, each hospice patient is assigned an interdisciplinary team comprised of a physician, nurse(s), home health aide(s), medical social worker(s), chaplain, dietary counselor and bereavement coordinator, as well as other care professionals. The Hospice segment also delivers services to its customers through focused specialty programs that include:

• Dementia Specialty Program, which provides an individualized disease management program addressing the physical needs specific to Alzheimer’s and dementia patients and support mechanisms for their caregivers;

• Cancer Specialty Program, which provides advanced pain and symptom management for patients coping with the effects of cancer;

• Cardiac Specialty Program, which helps patients and their physicians aggressively manage symptoms associated with heart disease, focusing on quality of life and pain control; and

• Pulmonary Specialty Program, which addresses the needs of patients who have experienced a respiratory crisis by increasing quality of life and promoting comfort by specialized symptom management.

Dispositions

Home Health and Hospice Branch Dispositions

In the fourth quarter of 2011, the Company entered into asset purchase agreements to sell the assets of certain home health branches in Utah, Michigan and Nevada, as well as a hospice branch in Texas. In addition, the Company entered into an option agreement to sell the assets of the Company’s home health branch in Brooklyn, New York pending approval by the Public Health Council and New York State Agencies.

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Homemaker Services Agency Disposition

Effective October 14, 2011, the Company completed the sale of its IDOA business to Premier Home Health Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $2.4 million, consisting of (i) cash proceeds of approximately $2.0 million and (ii) an escrow fund of approximately $0.4 million, to be received by the Company subject to certain post closing conditions. During the first quarter of 2012, the Company reduced the escrow fund receivable by approximately $0.1 million as a result of certain of the post closing conditions.

Rehab Without Walls^® Disposition

Effective September 10, 2011, the Company completed the sale of its Rehab Without Walls^® business to Southern Home Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $9.8 million. The consideration consisted of (i) cash proceeds of approximately $9.2 million and (ii) an escrow fund of approximately $0.6 million that will be received by the Company subject to certain post closing obligations.

Results of Operations

Net Revenues

A summary of the Company’s net revenues by segment follows (in millions):

	First Quarter
					Percentage
	2012		2011		Variance
Home Health	$	240.0	$	256.0		(6.3)	%
Hospice		195.7		195.1		0.3	%
Total net revenues	$	435.7	$	451.1		(3.4)	%

Net revenues by major payer source are as follows (in millions):

	First Quarter
	2012						2011
	Home						Home
	Health		Hospice		Total		Health		Hospice		Total
Medicare	$	190.6	$	182.0	$	372.6	$	201.6	$	181.0	$	382.6
Medicaid and Local Government		11.9		7.6		19.5		13.2		7.8		21.0
Commercial Insurance and Other:
Paid at episodic rates		20.0		—		20.0		18.7		—		18.7
Other		17.5		6.1		23.6		22.5		6.3		28.8
Total net revenues	$	240.0	$	195.7	$	435.7	$	256.0	$	195.1	$	451.1

For the first quarter of 2012, as compared to the first quarter of 2011, net revenues decreased by $15.4 million, or 3.4 percent, to $435.7 million from $451.1 million.

Home Health

Home Health segment revenues are derived from all three payer groups: Medicare, Medicaid and Local Government and Commercial Insurance and Other. First quarter 2012 net revenues were $240.0 million, down $16.0 million or 6.3 percent, from $256.0 million in the prior year period. The decrease is primarily attributable to closed or divested branches, the net decrease in Medicare reimbursement rates and additional decreases in the Medicaid and Local Government and Commercial Insurance and Other payer sources as the Company continues its strategy to reduce or eliminate certain lower gross margin business.

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The following table reflects the net revenues for the first three months of 2011 relating to businesses closed or divested in 2011 and in the first three months of 2012 (in millions):

Medicare	$	(11.7	)
Medicaid and Local Government		(0.4	)
Commercial Insurance and Other:
Paid at episodic rates		(1.2	)
Other		(2.3	)
Total net revenues	$	(15.6	)

The Company’s episodic revenues decreased 4.4 percent for the first quarter of 2012. A summary of the Company’s combined Medicare and non-Medicare Prospective Payment System (“PPS”) business paid at episodic rates follows (dollars in millions):

	First Quarter
					Percentage
	2012		2011		Variance
Home Health
Medicare	$	190.6	$	201.6		(5.5	)%
Non-Medicare PPS		20.0		18.7		6.7	%
Total	$	210.6	$	220.3		(4.4	)%

Key Company statistics related to episodic revenues were as follows:

	First Quarter
					Percentage
	2012		2011		Variance
Episodes		73,400		72,800		0.8	%
Revenue per episode	$	2,875	$	3,025		(5.0	%)

Episode volume for the first quarter of 2012 increased slightly as compared to the first quarter of 2011. Admissions increased slightly by 0.9 percent, from 50,900 admissions in the first quarter of 2011 to 51,400 admissions in the first quarter of 2012. There were approximately 1.4 episodes for each admission during both the first quarter of 2012 and 2011.

In the first quarter of 2012, Medicare and non-Medicare PPS revenues as a percent of total Home Health revenues were 88 percent as compared to 86 percent for the corresponding period in 2011. In the first quarter of 2012, revenues from specialty programs as a percent of total Medicare and non-Medicare PPS Home Health revenues were 47 percent as compared to 46 percent for the first quarter of 2011.

Revenues from Medicaid and Local Government payer sources were $11.9 million in the first quarter of 2012, as compared to $13.2 million in the first quarter of 2011. Revenues from Commercial Insurance and Other payer sources, excluding non-Medicare PPS revenues, were $17.5 million in the first quarter of 2012 as compared to $22.5 million in the first quarter of 2011.

Net revenues from the Company’s Rehab Without Walls^® unit were $5.4 million in the first three months of 2011. Net revenues from the Company’s homemaker services agency business in Illinois were $2.3 million in the first three months of 2011. These amounts are included within discontinued operations in the Company’s consolidated statements of comprehensive income.

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Hospice

Hospice revenues are derived from all three payer groups: Medicare, Medicaid and Local Government and Commercial Insurance and Other. First quarter of 2012 net revenues were $195.7 million as compared to $195.1 million in the corresponding period of 2011.

The following table reflects the net revenues for the first three months of 2011 relating to businesses divested or closed in 2011 (in millions):

Medicare	$	(3.9	)
Medicaid and Local Government		(0.4	)
Commercial Insurance and Other		(0.2	)
Total net revenues	$	(4.5	)

Key Company statistics relating to Hospice were as follows:

	First Quarter
	2012		2011		Percentage Variance
Average Daily Census		13,800		13,900		(0.7	)%
Revenue per patient day	$	156	$	156		0.0	%

For the first quarter of 2012 and 2011, Average Daily Census (“ADC”) approximated 13,800 and 13,900 patients, respectively. The average length of stay of patients at discharge was 93 days and 92 days, respectively, for the first quarter of 2012 and the first quarter of 2011.

Medicare revenues were $182.0 million in the first quarter of 2012 as compared to $181.0 million in the corresponding period of 2011. Medicaid revenues were $7.6 million for the first quarter of 2012 as compared to $7.8 million for the corresponding period of 2011. Commercial Insurance and Other revenues in the first quarter of 2012 were $6.1 million as compared to $6.3 million in the corresponding period of 2011.

Gross Profit

The following table reflects gross profit by business segment for 2012 and 2011 (dollars in millions):

	First Quarter
	2012			2011			Variance
Gross Profit:
Home Health	$	117.3		$	134.7		$	(17.4	)
Hospice		85.5			85.6			(0.1	)
Total	$	202.8		$	220.3		$	(17.5	)
As a percent of revenue:
Home Health		48.9	%		52.6	%		(3.7	%)
Hospice		43.7	%		43.9	%		(0.2	%)
Total		46.5	%		48.8	%		(2.3	%)

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Gross profit decreased by $17.5 million or 8.0 percent for the first quarter of 2012 as compared to the first quarter of 2011. As a percentage of revenues, gross profit of 46.5 percent in the first quarter of 2012 represented a 2.3 percentage point decrease as compared to the first quarter of 2011.

The overall decrease in gross profit margin within the Home Health segment resulted from (i) the net decrease in Medicare reimbursement rates for 2012, (ii) closed or divested branches, (iii) malpractice case reserves that were favorably settled in the first three months of 2011, offset by (iv) growth in the Company’s specialty programs, and (v) the elimination or reduction of certain low margin Medicaid and local government business and commercial business.

Hospice gross profit as a percentage of revenues decreased 0.2 percent for the first quarter of 2012 as compared to the first quarter of 2011.

Gross profit was impacted by depreciation expense of $0.2 million in both the first quarter of 2012 and 2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 0.6 percent or $1.0 million to $173.7 million for the quarter ended March 31, 2012, as compared to $172.7 million for the quarter ended March 31, 2011. If charges, as noted below, relating to cost savings initiatives and other restructuring costs, acquisition and integration costs and legal settlements of $5.4 million in the first quarter of 2012 and $3.8 million in the first quarter of 2011 were excluded, the decrease in selling, general and administrative expenses would have been approximately 0.4 percent or $0.6 million for the quarter ended March 31, 2012 as compared to the quarter ended March 31, 2011.

The increase of $1.0 million for the first quarter of 2012 as compared to the corresponding period of 2011 was primarily attributable to (i) Hospice field operating, selling and administrative cost ($4.3 million), (ii) increases in legal settlement costs ($5.0 million), and (iii) increases in corporate administrative expenses ($2.0 million). These increases in costs were partially offset by (i) decreases in Home Health field operating, selling and administrative cost ($6.4 million), (ii) decreases in acquisition and integration cost ($3.0 million), (iii) decreases in cost savings initiatives and other restructuring costs ($0.4 million), (iv) decrease in provision for doubtful accounts ($0.3 million) and (v) a decrease in amortization ($0.2 million). During the first quarter of 2012, selling, general and administrative expenses were negatively impacted by the costs associated with Amendment No. 3 to the Company’s credit facilities of approximately $1.2 million. During the first quarter of 2011, selling, general and administrative expenses were positively impacted by an adjustment to 2010 incentive compensation reserves of approximately $0.9 million.

Depreciation and amortization expense included in selling, general and administrative expenses was $7.2 million in the first quarter of 2012, as compared to $7.4 million for the corresponding period of 2011.

Interest Income and Interest Expense and Other

For the first quarter of 2012 and 2011, net interest expense and other was approximately $21.5 million and $26.9 million, respectively, consisting primarily of interest expense of $22.2 million and $27.5 million, respectively, associated with the term loan borrowings, fees associated with the Company’s credit agreement and outstanding letters of credit and amortization of debt issuance costs, partially offset by interest income of $0.7 million and $0.6 million in the first quarter of 2012 and 2011, respectively, earned on investments and existing cash balances. The decrease in interest expense and other between 2012 and 2011 related primarily to Amendment No. 1, which reduced the interest rates under the Company’s credit facility. During the first quarter of 2012 and 2011, the Company also wrote off deferred debt issuance costs and fees of $0.5 million and $3.8 million, respectively.

Income Tax Expense

The Company recorded an income tax provision of $2.5 million for the first quarter of 2012. The Company’s effective income tax rate for the first quarter of 2012 was 33.4 percent. The rate for the first quarter is lower than what is expected for the year as a result of an issue being effectively settled with the IRS and a reversal of related reserves in the first quarter. The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 33.4 percent for the first three months of 2012 is primarily due to state income taxes (approximately 4.9 percent) and other items (approximately 1.1 percent) offset by a change in tax reserves (approximately 7.6 percent).

The Company recorded an income tax provision of $8.1 million for the first quarter of 2011. The Company’s effective rate for the first quarter of 2011 was 39.2 percent. The difference between the federal statutory income tax rate of 35 percent and the Company’s effective rate of 39.2 percent for the first three months of 2011 is primarily due to state income taxes (approximately 4.7 percent), offset by other items (approximately 0.5 percent).

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Discontinued Operations, Net of Tax

For the first quarter of 2011, discontinued operations, net of tax reflected income of $0.4 million, or $0.02 per diluted share associated with the Company’s homemaker services agency business in Illinois, the Company’s Rehab Without Walls^® business and a change in settlement of the Company’s post closing liabilities in connection with the sale of its HME and IV businesses.

Net Income Attributable to Gentiva Shareholders

For the first quarter of 2012, net income attributable to Gentiva shareholders was $4.8 million, or $0.16 per diluted share, compared with net income of $13.5 million, or $0.44 per diluted share, for the corresponding period of 2011.

The Company uses adjusted income from continuing operations, a non-GAAP financial measure, as a supplemental measure of Company performance. The Company defines adjusted income from continuing operations attributable to Gentiva shareholders as income from continuing operations attributable to Gentiva shareholders, excluding charges relating primarily to cost savings initiatives and other restructuring costs, acquisition and integration activities and legal settlements, including tax reserves on those legal settlements. The Company considers adjusted income from continuing operations to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of the Company’s business on a consistent basis across reporting periods, as it eliminates the effect of items that are not indicative of the Company’s core operating performance. Management uses adjusted income from continuing operations attributable to Gentiva shareholders to evaluate overall performance and compare current operating results with other companies in the healthcare industry and should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with accounting principles generally accepted in the United States. Since adjusted income from continuing operations attributable to Gentiva shareholders is not a measure of financial performance under accounting principles generally accepted in the United States and is susceptible to varying calculations, it may not be comparable to similarly titled measures in other companies.

After adjusting for certain one-time items which include cost savings initiatives and other restructuring costs, acquisition and integration costs and legal settlements, and tax reserves as noted in the tables below, adjusted income from continuing operations attributable to Gentiva shareholders was $7.4 million, or $0.24 per diluted share, as compared to $15.3 million, or $0.49 per diluted share, for the corresponding period of 2011.

A reconciliation of adjusted income from continuing operations attributable to Gentiva shareholders to income from continuing operations, the most directly comparable GAAP financial measure, follows (in thousands, except per share amounts):

	For the Three Months Ended
	March 31, 2012								March 31, 2011
						Per									Per
	Gross		Net of Tax			Diluted Share			Gross			Net of Tax			Diluted Share
Adjusted income from continuing operations attributable to Gentiva shareholders			$	7,445		$	0.24					$	15,264		$	0.49
Cost savings initiatives and other restructuring, legal settlement and acquisition and integration costs		5,391		(3,181	)		(0.10	)		(3,765	)		(2,259	)		(0.07	)
Tax reserves on OIG legal settlement		576		576			0.02			—			—			—
Income from continuing operations attributable to Gentiva shareholders				4,840			0.16						13,005			0.42
Add back: Net income attributable to noncontrolling interests				213			—						167			—
Income from continuing operations			$	5,053		$	0.16					$	13,172		$	0.42

Liquidity and Capital Resources

Liquidity

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 governmental payer or third party commercial arrangements. Additional liquidity is provided from existing cash balances and the Company’s credit arrangements, principally through its revolving credit facility, and could be provided in the future through the issuance of up to $300 million of debt or equity securities under a universal shelf registration statement filed with the SEC in October 2010.

The Company’s credit agreement provides for $875.0 million in senior secured credit facilities for the Company, comprising term loan facilities aggregating $750.0 million and a revolving credit facility of $110 million, which was reduced from $125 million as a result of an amendment to the Company’s credit agreement entered into on March 6, 2012. The Company also realized $325.0 million in gross proceeds from the issuance and sale by the Company of senior unsecured notes. See Note 11 to the Company’s consolidated financial statements for additional information.

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During the first three months of 2012, net cash used in operating activities was $34.7 million. In addition, the Company had proceeds under the Company’s Employee Stock Purchase Plan (“ESPP”) of $0.7 million. During the quarter ended March 31, 2012, the Company used $4.1 million for debt issuance costs, $50.0 million for the repayment of debt and $3.8 million for capital expenditures.

Net cash (used in) provided by operating activities decreased by $37.4 million, from $2.7 million for the first three months of 2011 to ($34.7) million in the first three months of 2012. The decrease was primarily due to changes in accounts receivable ($4.0 million), changes in current liabilities ($18.3 million), prepaid expenses and other current assets ($12.8 million), net cash provided by operations prior to changes in assets and liabilities ($7.3 million), offset by other, net ($5.0 million).

Adjustments to add back non-cash items affecting net income are summarized as follows (in thousands):

	For the Three Months Ended
	March 31, 2012		March 31, 2011			Variance
OPERATING ACTIVITIES:
Net income	$	5,053	$	13,619		$	(8,566	)
Adjustments to add back non-cash items affecting net income:
Depreciation and amortization		7,430		7,614			(184	)
Amortization of debt issuance costs		3,686		6,418			(2,732	)
Provision for doubtful accounts		2,262		2,581			(319	)
Equity-based compensation expense		1,631		1,641			(10	)
Windfall tax benefits associated with equity-based compensation		—		(194	)		194
Equity in net earnings of CareCentrix		—		(554	)		554
Deferred income tax expense (benefit)		6,531		2,754			3,777
Total cash provided by operations prior to changes in assets and liabilities	$	26,593	$	33,879		$	(7,286	)

The $7.3 million difference in “Total cash provided by operations prior to changes in assets and liabilities” between the 2012 and 2011 periods is primarily related to decreased operating results as a result of divested and sold branches combined with lower reimbursement rates and adjustments for components of income that do not have an impact on cash, such as depreciation and amortization, equity-based compensation expense and deferred income taxes.

A summary of the changes in current liabilities, excluding the current portion of long-term debt, impacting cash flow from operating activities follows (in thousands):

	For the Three Months Ended
	March 31, 2012			March 31, 2011			Variance
OPERATING ACTIVITIES:
Changes in current liabilities:
Accounts payable	$	3,330		$	2,240		$	1,090
Payroll and related taxes		(9,348	)		21,248			(30,596	)
Deferred revenue		5,683			4,787			896
Medicare liabilities		1,487			(1,859	)		3,346
Obligations under insurance programs		1,622			(4,775	)		6,397
Accrued nursing home costs		1,824			(3,203	)		5,027
Other accrued expenses		(36,191	)		(31,712	)		(4,479	)
Total changes in current liabilities	$	(31,593	)	$	(13,274	)	$	(18,319	)

The primary drivers for the $18.3 million difference resulting from changes in current liabilities that impacted cash flow from operating activities include:

• Accounts payable, which had a positive impact of $1.1 million, between the 2012 and 2011 reporting periods, primarily related to timing of payments.

• Payroll and related taxes, which had a negative impact of $30.6 million between the 2012 and 2011 reporting periods, primarily due to timing of the Company’s payroll processing.

• Deferred revenue, which had a positive impact of $0.9 million between the 2012 and 2011 reporting periods.

• Medicare liabilities, which had a positive impact of $3.3 million between the 2012 and 2011 reporting periods.

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• Obligations under insurance programs, which had a positive impact on the change in operating cash flow of $6.4 million between the 2012 and 2011 reporting periods, primarily related to timing of payments under the Company’s insurance programs in 2011.

• Accrued nursing home costs, which had a positive impact on the change in operating cash flow of $5.0 million between the 2012 and 2011 reporting periods, due primarily to the timing of payments.

• Other accrued expenses, which had a negative impact on the change in operating cash flow of $4.4 million between the 2012 reporting period, were impacted by payments associated with settlement of the Odyssey continuous care investigation, payments associated with the Company’s cost savings initiatives and other restructuring costs, acquisition and integration activities and timing of accrued interest payments under the Company’s credit facilities. The 2011 reporting period was impacted by timing of accrued interest payments under the Company’s credit facilities, payments under the Company’s incentive compensation program and payments of accrued costs associated with the Odyssey acquisition.

Working capital at March 31, 2012 was approximately $194 million, a decrease of $31 million, as compared to approximately $225 million at December 31, 2011, primarily due to:

• a $92 million decrease in cash and cash equivalents;

• an $8 million decrease in deferred tax assets;

• a $22 million increase in accounts receivable;

• a $10 million increase in prepaid expenses and other current assets; and

• a $37 million decrease in current liabilities, consisting of decreases in other accrued expenses ($36 million), payroll and related taxes ($9 million), current portion of long-term debt ($6 million), partially offset by, increases in deferred revenue ($6 million), accounts payable ($3 million), nursing home costs ($2 million), obligations under insurance programs ($2 million), and Medicare liabilities ($1 million). The changes in current liabilities are described above in the discussion on net cash provided by operating activities.

Days Sales Outstanding (“DSO”) relating to continuing operations as of March 31, 2012 were 61 days, an increase of 6 days from December 31, 2011, primarily driven by an increase in hospice accounts receivable associated with a vendor billing system upgrade, a significant increase in Additional Documentation Requests (“ADRs”) from CMS and processing delays with the Company’s Medicare intermediaries.

At the commencement of an episode of care under the Medicare and non-Medicare PPS for Home Health, the Company records accounts receivable and deferred revenue based on an expected reimbursement amount. Accounts receivable is adjusted upon the receipt of cash and deferred revenue is amortized into revenue over the average patient treatment period. For informational purposes, if net accounts receivable and deferred revenue were combined for purposes of determining an alternative DSO calculation, which measures open net accounts receivable divided by average daily recognized revenues, the alternative DSO would have been 53 days at March 31, 2012 and 48 days at December 31, 2011.

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Accounts receivable attributable to major payer sources of reimbursement at March 31, 2012 and December 31, 2011 were as follows (in thousands):

	March 31, 2012
	Total		0- 90 days		91- 180 days		181 - 365 days		Over 1 year
Medicare	$	226,098	$	194,956	$	26,848	$	3,733	$	561
Medicaid and Local Government		56,876		34,345		10,259		12,271		1
Commercial Insurance and Other		40,285		29,938		6,897		2,670		780
Self - Pay		2,338		880		500		783		175
Gross Accounts Receivable	$	325,597	$	260,119	$	44,504	$	19,457	$	1,517
	December 31, 2011
	Total		0- 90 days		91- 180 days		181 - 365 days		Over 1 year
Medicare	$	217,028	$	191,366	$	20,638	$	4,363	$	661
Medicaid and Local Government		46,553		32,576		10,515		3,418		44
Commercial Insurance and Other		36,454		27,230		5,814		2,484		926
Self - Pay		2,116		699		699		563		155
Gross Accounts Receivable	$	302,151	$	251,871	$	37,666	$	10,828	$	1,786

The Company participates in Medicare, Medicaid and other federal and state healthcare programs. Revenue mix by major payer classifications by segment was as follows:

	First Quarter Ended
	2012									2011
	Home									Home
	Health			Hospice			Total			Health			Hospice			Total
Medicare		80	%		93	%		86	%		79	%		93	%		85	%
Medicaid and Local Government		5			4			4			5			4			5
Commercial Insurance and Other:
Paid at episodic rates		8			—			5			7			—			4
Other		7			3			5			9			3			6
Total net revenues		100	%		100	%		100	%		100	%		100	%		100	%

CMS has implemented various payment updates to the base rates for Medicare home health including (i) annual market basket updates, (ii) beginning in 2008, annual reductions in rates to reduce aggregate case mix increases that CMS believes are unrelated to patients’ health status (“case mix creep adjustment”), (iii) adjustments to rates associated with changes to the home health outlier policy, (iv) wage index and other changes and (v) increases for defined rural areas of the country. During the first quarter of 2012 and 2011, approximately 23 percent and 22 percent, respectively, of the Company’s episodic revenue was generated in designated rural areas.

On October 31, 2011, CMS issued the final rule to update and revise Medicare home health payments for calendar year 2012. This is comprised of a net market basket update of 1.40 percent, which includes the 1 percent reduction mandated by the Affordable Care Act, offset by a case mix creep adjustment of 3.79 percent in 2012. The net effect of these changes decreases the base rate for an episode of service by 2.39 percent to $2,139. The final rule also shifts case mix points from high case mix and high therapy episodes to low case mix and non-therapy episodes. The shift from high therapy episodes and the removal of two hypertension codes have negatively impacted the Company’s net revenue per episode in the first quarter of 2012 in addition to the base rate decrease. In addition, the final rule states that the Medicare home health rates for calendar year 2013 will include an additional negative 1.32 percent change in case-mix adjustment.

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A summary of the components of Gentiva’s annual Medicare home health reimbursement adjustments follows:

	Net Market			Case Mix			Outlier						Net			Base
	Basket			Creep			Payment			Rural			Reimbursement			Episodic
Calendar Year	Update			Adjustment			Adjustment			Add-on / Other			Change			Rate
2012		1.40	%		(3.79	%)		—			—			(2.39	%)	$	2,139
2011		1.10	%		(3.79	%)		(2.50	%)		0.30	%		(4.89	%)	$	2,192
2010		2.00	%		(2.75	%)		2.50	%		0.50	%		2.25	%	$	2,313
2009		2.90	%		(2.75	%)		—			—			0.15	%	$	2,272
2008		3.00	%		(2.75	%)		—			—			0.25	%	$	2,270

Actual episodic rates will vary from the base episodic rates noted in the table above due to (i) the determination of case mix which reflects the clinical condition, functional abilities and service needs of each individual patient, (ii) wage indices applicable to the geographic region where the services are performed and (iii) the impact of the rural add-on provision.

As a condition for Medicare payment, the Affordable Care Act mandates that prior to certifying a patient’s eligibility for the home health benefit, the certifying physician must document that the physician or an allowed non-physician practitioner, had a face-to-face encounter with the patient. The encounter must occur within 90 days prior to the start of care or 30 days after the start of care. In addition, the Affordable Care Act requires that a hospice physician or nurse practitioner have a face-to-face encounter with hospice patients during the 30-day period prior to the 180th day recertification and each subsequent recertification, and that the certifying hospice physician attest that such a visit took place. The face-to-face requirements for home health and hospice providers became effective January 1, 2011. However, CMS delayed full enforcement of the requirements until April 1, 2011. In addition, in July 2011, CMS proposed comparable face-to-face encounters for people receiving Medicaid home health services.

The Affordable Care Act also imposed additional therapy assessment requirements. A professional qualified therapist assessment must take place at least once every 30 days during a therapy patient’s course of treatment. For those qualified patients needing 13 or more or 19 or more therapy visits, a qualified therapist must perform the therapy service required, re-assess the patient, and measure and document the effectiveness of the 13th visit and the 19th visit for all therapy disciplines caring for the patient. The new therapy assessment requirements were effective April 1, 2011.

In July 2011, CMS released a final rule, effective October 1, 2011, that provided for a 2.5 percent increase for Medicare hospice rates, consisting of a 3.0 percent market basket increase, offset by a 0.5 percent due to updated wage index data and a budget neutrality adjustment factor.

Overall payments made by Medicare for hospice services are subject to cap amounts calculated by Medicare. Total Medicare payments for hospice services are compared to the aggregate cap amount for the hospice cap period. In May 2011, CMS announced the cap amount for the 2011 cap year of $24,528 per beneficiary, which was from November 1, 2010 through October 31, 2011. The Medicare cap amount for the 2012 cap year has not yet been announced.

There are certain standards and regulations that the Company must adhere to in order to continue to participate in Medicare, Medicaid and other federal and state healthcare programs. 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 in or adjustment to the amount of reimbursements received under these programs. Violation of the applicable federal and state health care regulations can result in our exclusion from participating in these programs and can subject the Company to substantial civil and/or criminal penalties. The Company believes that it is currently in compliance with these standards and regulations.

Credit Arrangements

As of March 31, 2012, the Company’s credit arrangements include a senior secured credit agreement providing (i) a $200 million Term Loan A facility, (ii) a $550 million Term Loan B facility and (iii) a $110 million revolving credit facility (which was reduced from $125 million on March 6, 2012) (collectively, the “Credit Agreement”) and $325 million aggregate principal amount of 11.5% Senior Notes due 2018 (the “Senior Notes”). The Credit Agreement’s revolving credit facility also includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swing line loans.

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In response to uncertainties around Medicare reimbursement rates and to ensure compliance under its Credit Agreement as of December 31, 2011, on November 28, 2011, the Company entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”). In addition, on March 6, 2012, the Company entered into Amendment No. 3 to the Credit Agreement (“Amendment No. 3”) in order to provide increased flexibility in the Company’s debt covenants over the remaining term of the Credit Agreement and to provide reasonable assurance with respect to the Company’s ability to remain in compliance with its debt covenants beyond January 1, 2012, including the maximum consolidated leverage ratio and the minimum interest coverage ratio, which are discussed below under “Debt Covenants.” Among other things, Amendment No. 3 also reduced the revolving credit facility from $125 million to $110 million.

As of March 31, 2012, advances under the revolving credit facility may be made, and letters of credit may be issued, up to the $110 million borrowing capacity of the facility at any time prior to the facility expiration date of August 17, 2015. In connection with the reduction in the revolving credit facility, the Company wrote-off prepaid issuance costs of approximately $0.5 million, which is reflected in interest expense and other in the Company’s consolidated statement of comprehensive income and capitalized costs associated with the revolving credit facility of approximately $0.8 million. Outstanding letters of credit were $41.8 million at both March 31, 2012 and December 31, 2011. The letters of credit were issued to guarantee payments under the Company’s workers’ compensation program and for certain other commitments. As of March 31, 2012, the Company’s unused and available borrowing capacity under the Credit Agreement was $68.2 million.

As of March 31, 2012, the mandatory aggregate principal payments of long-term debt are $2.9 million in 2012, $25.0 million in both 2013 and 2014, $93.8 million in 2015, $466.4 million in 2016, all under the Credit Agreement, and $325.0 million thereafter under the Senior Notes. The weighted average cash interest rate on outstanding borrowings was 8.2 percent per annum at March 31, 2012 and 6.9 percent per annum at December 31, 2011.

The Term Loan A facility is subject to mandatory principal payments of $25 million per year, payable in equal quarterly installments, with the remaining balance of the original $200 million loan payable on August 17, 2015. Pursuant to Amendment No. 3, the Company made a payment of $12.0 million on its Term Loan A facility. There are no required payments on the Company’s Term Loan A facility until the end of the fourth quarter of 2012, at which time a principal payment of $2.9 million is required and $6.3 million per quarter thereafter. The Term Loan B facility is subject to mandatory principal payments of $13.8 million per year, payable in equal quarterly installments, with the remaining balance of the original $550 million loan payable on August 17, 2016. Pursuant to Amendment No. 3, the Company made a payment of $38.0 million on its Term Loan B facility. There are no required payments on the Company’s Term Loan B facility until August 17, 2016, at which time a payment of the outstanding balance of $466.4 million is required.

On March 9, 2011, the Company entered into a First Refinancing Amendment to the Credit Agreement (“Amendment No. 1”), which provided for, among other things, (i) refinancing of the outstanding indebtedness under the Company’s senior secured Term Loan A and Term Loan B facilities, (ii) elimination of the requirement to hedge a certain portion of the Company’s variable rate debt, (iii) a reduction in the minimum Base Rate from 2.75 percent to 2.25 percent, (iv) a reduction in the minimum Eurodollar Rate from 1.75 percent to 1.25 percent, (v) reductions in Term Loan B Applicable Rates to 3.50 percent for Eurodollar Rate Loans and 2.50 percent for Base Rate Loans as compared to 5.00 percent and 4.00 percent, respectively, under the previous arrangement and (vi) reductions in the Applicable Rate for Term Loan A as reflected in the table below.

	Amended Applicable Rate						Previous Applicable Rate
Consolidated	Eurodollar Rate			Base Rate			Eurodollar Rate			Base Rate
Leverage Ratio	Term A Facility			Term A Facility			Term A Facility			Term A Facility
³ 3.0:1		3.25	%		2.25	%		5.00	%		4.00	%
³ 2.0:1 and < 3.0:1		3.00	%		2.00	%		4.50	%		3.50	%
< 2.0:1		2.75	%		1.75	%		4.00	%		3.00	%

The Company may select interest periods of one, two, three or six months for Eurodollar rate loans. Interest is payable at the end of the selected interest period. From August 17, 2010 through March 9, 2011, the interest rate on borrowings under the Credit Agreement was 6.75 percent per annum. From March 9, 2011 through March 5, 2012, the interest rate on Term Loan A borrowings was 4.50 percent and on Term Loan B borrowings was 4.75 percent. Giving effect to Amendment No. 3, subsequent to March 6, 2012, the interest rate on Term Loan A borrowings was 6.25 percent and on Term Loan B borrowings was 6.50 percent. The Company must also pay a fee of 0.50 percent per annum on unused commitments under the revolving credit facility.

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In addition, Amendment No. 1 provided for a reduction in the Company’s minimum consolidated interest coverage ratio to a ratio of 2.25 to 1.00 from the previous ratio of 2.75 to 1.00. As discussed below under “Debt Covenants,” Amendment No. 3 provided for a further reduction in the minimum consolidated interest coverage ratio.

The Company may voluntarily repay outstanding loans under the revolving credit facility or Term Loan A at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans. For the period from March 9, 2011 to September 9, 2011, the Company was subject to a prepayment premium equal to 1.0 percent of the aggregate principal amount of Term Loan B. Prepayment and commitment reductions will be required in connection with (i) certain asset sales, (ii) certain extraordinary receipts such as certain insurance proceeds, (iii) cash proceeds from the issuance of debt, (iv) 50 percent of the proceeds from the issuance of equity with step-downs based on leverage, with certain exceptions, and (v) 75 percent of “Excess Cash Flow” (as defined in the Credit Agreement) with two step-downs based on the Company’s leverage ratio.

Debt Covenants

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s and its subsidiaries’ ability to incur additional indebtedness or issue certain preferred stock, create liens on assets, enter into sale and leaseback transactions, engage in mergers or consolidations with other companies, sell assets, pay dividends, repurchase capital stock, make investments, loans and advances, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements, repay certain indebtedness, change the nature of the Company’s business, change accounting policies and practices, grant negative pledges and incur capital expenditures. In addition, after giving effect to Amendment No. 3, the Credit Agreement requires the Company to maintain no more than a maximum consolidated leverage ratio as shown in the second table below and no less than a minimum cash interest coverage ratio of 2.00 to 1.00 through June 30, 2013, 1.75 to 1.00 from September 30, 2013 through June 30, 2014 and 2.00 to 1.00 thereafter and also contains certain customary affirmative covenants and events of default. The previously required ratio was 2.25 to 1.00 for all periods.

On November 28, 2011, the Company entered into Amendment No. 2 to the Credit Agreement, which provided for modification to the definition of “Consolidated EBITDA” contained in the Credit Agreement to allow for the add-back of costs associated with the Company’s cost realignment activities and operating losses associated with branches closed or sold during the fourth quarter of 2011 and to reset the maximum consolidated leverage ratio for the fourth quarter of 2011 to 4.75 to 1.00. As of March 31, 2012, the Company was in compliance with all covenants in the Credit Agreement.

The maximum consolidated leverage ratio under Amendment No. 2 was as follows:

	Maximum Consolidated
For the period	Leverage Ratio
August 17, 2010 to September 30, 2011	£4.75:1
October 1, 2011 to September 30, 2012	£4.50:1
October 1, 2012 to September 30, 2013	£3.75:1
Thereafter	£3.00:1

On March 6, 2012, the Company entered into Amendment No. 3 to the Credit Agreement, which provided, among other things, for (i) an increase by 175 basis points per annum of the interest rates applicable to each of outstanding Term Loan A loans and Term Loan B loans, (ii) an increase in the Company’s permitted maximum consolidated leverage ratio as set forth in the table below, (iii) an amendment to the consolidated interest coverage ratio (and corresponding definitions) to provide that consolidated interest charges included in such calculation are such charges paid in cash (as compared with the previous covenant that included non-cash interest charges), along with a decrease in the Company’s permitted minimum consolidated cash interest coverage ratio to (a) 2.00 to 1.00 through June 30, 2013, (b) 1.75 to 1.00 from September 30, 2013 through June 30, 2014 and (c) 2.00 to 1.00 thereafter, (iv) amendments to the definition of “Consolidated EBITDA,” which include the ability to add-back certain costs associated with the Company’s cost realignment and operating losses associated with certain facilities and branches closed or sold by the Company during the fourth quarter of 2011 and during 2012 and an increase in the add-back for litigation settlement costs, (v) an addition of a mechanism for the Company to make discounted prepayments of Term Loan A loans and Term Loan B loans pursuant to Dutch auction procedures, and (vi) a reduction of the revolving credit facility from $125 million to $110 million. As a condition to effectiveness of Amendment No. 3, the Company paid $50 million of the outstanding term loans under the Credit Agreement, applied ratably between the Term Loan A facility and the Term Loan B facility. The Company also paid certain fees in connection with Amendment No. 3, including a consent fee to each lender approving Amendment No. 3 in an amount equal to 0.50% of its respective term loans and

50

revolving credit commitments. In connection with Amendment No. 3, the Company incurred costs of approximately $5.3 million. Approximately $4.1 million of these costs (including the $0.8 million associated with the revolving credit facility) have been capitalized and are being amortized over the remaining life of the debt using an effective interest rate.

The increase in Gentiva’s permitted maximum consolidated leverage ratio under Amendment No. 3 is set forth in the following table:

	Maximum Consolidated
Four Fiscal Quarters Ending	Leverage Ratio
March 31, 2012 to September 30, 2014	£6.25:1
Each fiscal quarter thereafter	£5.75:1

The previously required ratio was (i) 4.50 to 1.00 through September 30, 2012, (ii) 3.75 to 1.00 from December 31, 2012 through September 30, 2013 and (iii) 3.00 to 1.00 thereafter.

As of March 31, 2012, the Company’s consolidated leverage ratio was 4.4x and the Company’s interest coverage ratio was 3.0x.

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 these risks with insurance policies subject to substantial deductibles and retention amounts. The Company recognizes its obligations associated with these programs in the period the claim is incurred. The Company estimates the cost of both reported claims and claims incurred but not reported, up to specified deductible limits and retention amounts, based on its own specific historical claims experience and current enrollment statistics, industry statistics and other information. These estimates and the resulting reserves are reviewed and updated periodically.

The Company is responsible for the cost of individual workers’ compensation claims and individual professional liability claims up to $500 thousand per incident which occurred prior to March 15, 2002 and $1 million 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 million in excess of the underlying coverage limits. Payments under the Company’s workers’ compensation program are guaranteed by letters of credit.

Capital Expenditures

The Company’s capital expenditures for the three months ended March 31, 2012 were $3.8 million as compared to $3.3 million for the three months ended March 31, 2011. The Company intends to make investments and other expenditures to upgrade its computer technology and system infrastructure and comply with regulatory changes in the industry, among other things. In this regard, management expects that capital expenditures will range between $22 million and $24 million for 2012. Management expects that the Company’s capital expenditure needs will be met through operating cash flow and available cash reserves.

Cash Resources and Obligations

The Company had cash and cash equivalents of approximately $72.8 million as of March 31, 2012, including operating funds of approximately $5.4 million exclusively relating to a non-profit hospice operation managed in Florida.

The Company anticipates that repayments to Medicare for (i) payments received in excess of hospice cap limits, (ii) partial episode payments and (iii) prior year cost report settlements will be made periodically. These amounts are included in Medicare liabilities in the accompanying consolidated balance sheets.

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Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements

As of March 31, 2012, the Company had outstanding borrowings of $938.1 million under the term loans of the senior credit facilities and the senior unsecured notes. Debt repayments, future minimum rental commitments for all non-cancelable leases and purchase obligations at March 31, 2012 are as follows (in thousands):

	Payment due by period
			Less than						More than
Contractual Obligations	Total		1 year		1-3 years		4-5 years		5 years
Long-term debt obligations:
Term loan repayments	$	613,125	$	9,193	$	50,000	$	553,932	$	—
Notes repayment		325,000		—		—		—		325,000
Interest payments (1)		403,761		77,474		150,886		119,339		56,062
Capital lease obligations		129		121		8		—		—
Operating lease obligations		132,291		42,855		58,229		22,699		8,508
Total	$	1,474,306	$	129,643	$	259,123	$	695,970	$	389,570

(1) Long-term debt obligations include variable interest payments based on London Interbank Offered Rate (“LIBOR”) plus an applicable interest rate margin. At March 31, 2012, the weighted average cash interest rate on the Company’s term loan borrowings approximated 8.2 percent per annum.

Pursuant to Amendment No. 3, the Company made a payment of $12.0 million on its Term Loan A facility on March 6, 2012. There are no required payments on the Company’s Term Loan A facility until the end of the fourth quarter of 2012, at which time a principal payment of $2.9 million is required and $6.3 million per quarter thereafter. The Term Loan B facility is subject to mandatory principal payments of $13.8 million per year, payable in equal quarterly installments, with the remaining balance of the original $550 million loan payable on August 17, 2016. Pursuant to Amendment No. 3, the Company made a payment of $38.0 million on its Term Loan B facility on March 6, 2012. There are no required payments on the Company’s Term Loan B facility until August 17, 2016, at which time a payment of the outstanding balance of $466.4 million is required.

The Company had total letters of credit outstanding of approximately $41.8 million at both March 31, 2012 and December 31, 2011. 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. The Company has the option to renew these letters of credit or set aside cash funds in a segregated account to satisfy the Company’s obligations. The Company also had outstanding surety bonds of $0.2 million at both March 31, 2012 and December 31, 2011.

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

Management expects that the Company’s working capital needs for 2012 will be met through operating cash flow and existing cash resources. The Company may also consider other alternative uses of cash including, among other things, acquisitions, voluntary prepayments on the term loans, additional share repurchases and cash dividends. These uses of cash may require the approval of the Company’s Board of Directors and may require the approval of its lenders. If cash flows from operations, cash resources or availability under the Credit Agreement fall below expectations, the Company may be forced to delay planned capital expenditures, reduce operating expenses, seek additional financing, pursue the sale of certain assets or other investments or consider other alternatives designed to enhance liquidity.

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 is exposed to market risk from fluctuations in interest rates. The interest rate on the Company’s borrowings under the Credit Agreement can fluctuate based on both the interest rate option (i.e., base rate or Eurodollar rate plus applicable margins) and the interest period. As of March 31, 2012, the total amount of outstanding debt subject to interest rate fluctuations was $613.1 million. A hypothetical 100 basis point change in short-term interest rates as of that date would result in an increase or decrease in interest expense of $6.1 million per year, assuming a similar capital structure.

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Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (“Exchange Act”) Rule 13a-15(e)) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of such period to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal control over financial reporting

As required by the Exchange Act Rule 13a-15(d), the Company’s Chief Executive Officer and Chief Financial Officer evaluated the Company’s internal control over financial reporting to determine whether any change occurred during the quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during such quarter.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 14 Legal Matters to the consolidated financial statements included in this report for a description of certain legal matters and pending legal proceedings, which description is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6.    Exhibits

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of Company. (1)
3.2	Amended and Restated By-Laws of Company. (2)
4.1	Specimen of common stock. (3)
4.2	Form of Certificate of Designation of Series A Cumulative Non-Voting Redeemable Preferred Stock. (4)
4.3	Indenture, dated as of September 25, 2007, between the Company and The Bank of New York Mellon (formerly known as The Bank of New York), a New York banking corporation, as Trustee (5)
4.4	Indenture, dated August 17, 2010, by and among Gentiva, the Guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee. (6)
4.5	Form of 11.5% Senior Note (6)
10.1	Form of Notice and Agreement covering certain performance cash awards under Company’s 2004 Equity Incentive Plan (amended and restated as of March 16, 2011). (7)+
10.2	Third Amendment, dated as of March 6, 2012, to Senior Secured Credit Agreement, dated August 17, 2010, among Gentiva, the Lenders party thereto and Bank of America, N.A., as Administrative Agent. (8)
10.3	Reaffirmation Agreement, dated as of March 6, 2012, executed in connection with Third Amendment to Credit Agreement. (8)
10.4	Settlement Agreement, effective February 15, 2012, among the United States of America, Odyssey HealthCare, Inc. and three Relators.*
10.5	Corporate Integrity Agreement, effective February 15, 2012, between the Office of Inspector General of the Department of Health and Human Services and Odyssey HealthCare, Inc.*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.**
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.**
101.INS	XBRL Instance Document.**
101.SCH	XBRL Taxonomy Extension Schema Document.**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.**
101.DEF	XBRL Taxonomy Definition Linkbase Document.**
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.**

(1) Incorporated herein by reference to Form 8-K of Company dated and filed May 12, 2008.

(2) Incorporated herein by reference to Form 8-K of Company dated and filed November 7, 2011.

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

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

(5) Incorporated herein by reference to the Registration Statement of Company on Form S-3 dated September 25, 2007 (File No. 333-146297).

(6) Incorporated herein by reference to Form 8-K of Company dated and filed August 17, 2010.

(7) Incorporated herein by reference to Form 8-K of Company dated and filed March 27, 2012.

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(8) Incorporated herein by reference to Form 8-K of Company dated and filed March 6, 2012.

* Filed herewith

** Furnished herewith

+ Management contract or compensatory plan or arrangement

55

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.

	GENTIVA HEALTH SERVICES, INC. (Registrant)
Date: May 9, 2012	/s/ Tony Strange
	Tony Strange
	Chairman, Chief Executive Officer and President
Date: May 9, 2012	/s/ Eric R. Slusser
	Eric R. Slusser
	Executive Vice President, Chief Financial Officer and Treasurer

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EXHIBIT INDEX

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of Company. (1)
3.2	Amended and Restated By-Laws of Company. (2)
4.1	Specimen of common stock. (3)
4.2	Form of Certificate of Designation of Series A Cumulative Non-Voting Redeemable Preferred Stock. (4)
4.3	Indenture, dated as of September 25, 2007, between the Company and The Bank of New York Mellon (formerly known as The Bank of New York), a New York banking corporation, as Trustee (5)
4.4	Indenture, dated August 17, 2010, by and among Gentiva, the Guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee. (6)
4.5	Form of 11.5% Senior Note (6)
10.1	Form of Notice and Agreement covering certain performance cash awards under Company’s 2004 Equity Incentive Plan (amended and restated as of March 16, 2011). (7)+
10.2	Third Amendment, dated as of March 6, 2012, to Senior Secured Credit Agreement, dated August 17, 2010, among Gentiva, the Lenders party thereto and Bank of America, N.A., as Administrative Agent. (8)
10.3	Reaffirmation Agreement, dated as of March 6, 2012, executed in connection with Third Amendment to Credit Agreement. (8)
10.4	Settlement Agreement, effective February 15, 2012, among the United States of America, Odyssey HealthCare, Inc. and three Relators.*
10.5	Corporate Integrity Agreement, effective February 15, 2012, between the Office of Inspector General of the Department of Health and Human Services and Odyssey HealthCare, Inc.*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.**
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.**
101.INS	XBRL Instance Document.**
101.SCH	XBRL Taxonomy Extension Schema Document.**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.**
101.DEF	XBRL Taxonomy Definition Linkbase Document.**
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.**

(1) Incorporated herein by reference to Form 8-K of Company dated and filed May 12, 2008.

(2) Incorporated herein by reference to Form 8-K of Company dated and filed November 7, 2011.

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

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

(5) Incorporated herein by reference to the Registration Statement of Company on Form S-3 dated September 25, 2007 (File No. 333-146297).

(6) Incorporated herein by reference to Form 8-K of Company dated and filed August 17, 2010.

(7) Incorporated herein by reference to Form 8-K of Company dated and filed March 27, 2012.

57

(8) Incorporated herein by reference to Form 8-K of Company dated and filed March 6, 2012.

* Filed herewith

** Furnished herewith

+ Management contract or compensatory plan or arrangement

58

EX-10.4

Exhibit 10.4

SETTLEMENT AGREEMENT

This Settlement Agreement (Agreement) is entered into among the United States of America, acting through the United States Department of Justice and on behalf of the Office of Inspector General (OIG-HHS) of the Department of Health and Human Services (HHS) (collectively the “United States”), Odyssey Healthcare, Inc. (“Odyssey”), and Relators Debora Rouse, Jane Tuchalski, and Bryan Dingus (hereafter collectively referred to as “the Parties”), through their authorized representatives.

RECITALS

A. Odyssey is a corporation that, by and through its various subsidiaries’ hospice program locations, provides hospice services to patients in the United States. Odyssey is incorporated in the State of Delaware and maintains its headquarters in Atlanta, Georgia.

B. On May 2, 2008, Debora Rouse and Jane Tuchalski filed a qui tam action in the United States District Court for Eastern District of Wisconsin, captioned United States of American ex rel. Rouse. et al. v. Odyssey Healthcare, Inc., Case No. 08-C-0383 (Civil Action).

B. On March 5, 2009, Bryan Dingus filed a qui tam action in the United States District Court for the Eastern District of Wisconsin, captioned United States of America ex rel. Dingus vs. Odyssey Healthcare, Inc., Case No. 09-C-0254.

C Relators alleged that Odyssey submitted claims for continuous home care services that were unnecessary or that were not provided in accordance with requirements of the Medicare Program (Medicare), Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395kkk-l.

Settlement Agreement between the United States, Odyssey Healthcare, Debora Rouse, Jane Tuchalski, and Bryan Dingus Page 1 of 15

D. The United States contends that it has certain civil claims against Odyssey arising from the submission of claims to Medicare for continuous home care services that were unnecessary because the patients were not experiencing a crisis or that were not performed in accordance with Medicare requirements set forth at 42 C.F.R. §§ 418.302(b)(2) and 418.204(a), during the period from January 1, 2006 through January 22, 2009. That conduct is referred to below as the Covered Conduct.

E. This Settlement Agreement is neither an admission of liability by Odyssey nor a concession by the United States that its claims are not well founded.

F. Relator claims entitlement under 31 U.S.C. § 3730(d) to a share of the proceeds of this Settlement Agreement and to Relator’s reasonable expenses, attorneys’ fees and costs.

To avoid the delay, uncertainty, inconvenience, and expense of protracted litigation of the above claims, and in consideration of the mutual promises and obligations of this Settlement Agreement, the Parties agree and covenant as follows:

TERMS AND CONDITIONS

1. No later than seven (7) days after the Effective Date of this Agreement, Odyssey

shall:

a. Pay $25,000,000.00 (the Settlement Amount) to the United States by electronic funds transfer pursuant to written instructions to be provided by the Office of the United States Attorney for the Eastern District of Wisconsin; and

b. Pay Relator Rouse in full satisfaction of her anti-retaliation claims under 31 U.S.C. § 3730(h) and attorneys fees and costs under 31 U.S.C. § 3730(d) pursuant to a separate written settlement agreement; and

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c. Pay Relator Tuchalski in full satisfaction of her anti-retaliation claims under 31 U.S.C. § 3730(h) and attorneys fees and costs under 31 U.S.C. § 3730(d) pursuant to a separate written settlement agreement; and

d. Pay Relator Dingus in full satisfaction of his anti-retaliation claims under 31 U.S.C. § 3730(h) and attorneys fees and costs under 31 U.S.C. § 3730(d) pursuant to a separate written settlement agreement.

2. Conditioned upon the United States receiving the Settlement Amount from Odyssey and as soon as feasible after receipt, the United States shall pay $4,687,500.00 for the relators’ share to either (a) an escrow account jointly designated by all the Relators by electronic funds transfer pursuant to written instruction to be provided by counsel; or (b) at the option of the United States and with leave of court, to the Clerk of Court pursuant to Fed. R. Civ. P. 67. All parties to this Agreement consent to the United States depositing the relators’ share with the Clerk pursuant to option (b) at its discretion.

3. Subject to the exceptions in Paragraph 6 (concerning excluded claims) below, and conditioned upon Odyssey’s full payment of the Settlement Amount, the United States releases Odyssey from any civil or administrative monetary claim the United States has for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Civil Monetary Penalties Law, 42 U.S.C, § 1320a-7a; the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-3812, or the common law theories of recoupment, payment by mistake, unjust enrichment, and fraud, or any other cause of action which the Department of Justice, Civil Division has authority to assert and compromise under 28 C.F.R. Part 0. Subpart I, § 0.45 for the Covered Conduct only.

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4. Subject to the exceptions in Paragraph 6 below (concerning excluded claims), and conditioned upon Odyssey’s full payment of the Settlement Amount, Relators, for themselves and for their heirs, successors, attorneys, agents, and assigns, individually and collectively, release Odyssey from the following: any and all claims whatsoever that Relators have or may have arising from or relating to the Covered Conduct or Civil Action; any civil monetary claim Relators have on behalf of the United States for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733; any or all claims or share of claims that Relators have or may have or that any State, entity, or person has or may have, arising from or relating to the Covered Conduct or the Civil Action under any statutory provisions; any and all claims Relators have or may have under the False Claims Act, 31 U.S.C. 3730(d), for fees and costs, under the anti-retaliation provisions of the False Claims Act, 31 U.S.C. § 3730(h), under any whistleblower protection statute, or under any common law theories of liability; and any and all other claims now known or that reasonably should be known by Relators

5. In consideration of the obligations of Odyssey in this Agreement and the Corporate Integrity Agreement (CIA), entered into between OIG-HHS and Odyssey, conditioned upon Odyssey’s full payment of the Settlement Amount, the OIG-HHS agrees to release and refrain from instituting, directing, or maintaining any administrative action seeking exclusion from Medicare, Medicaid, and other Federal health care programs (as defined in 42 U.S.C. § 1320a-7b(f)) against Odyssey under 42 U.S.C. § 1320a-7a (Civil Monetary Penalties Law) or 42 U.S.C. § 1320a-7(b)(7) (permissive exclusion for fraud, kickbacks, and other prohibited activities) for the Covered Conduct, except as reserved in Paragraph 6 (concerning excluded claims), below, and as reserved in this Paragraph. The OIG-HHS expressly reserves all rights to

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comply with any statutory obligations to exclude Odyssey from Medicare, Medicaid, and other Federal health care programs under 42 U.S.C. § 1320a-7(a) (mandatory exclusion) based upon the Covered Conduct. Nothing in this Paragraph precludes the OIG-HHS from taking action against entities or persons, or for conduct and practices, for which claims have been reserved in Paragraph 6, below.

6. Notwithstanding the releases given in paragraphs 3 and 5 of this Agreement, or any other term of this Agreement, the following claims of the United States are specifically reserved and are not released:

a. Any liability arising under Title 26, U.S. Code (Internal Revenue Code);

b. Any criminal liability;

c. Except as explicitly stated in this Agreement, any administrative liability, including mandatory exclusion from Federal health care programs;

d. Any liability to the United States (or its agencies) for any conduct other than the Covered Conduct;

e. Any liability based upon obligations created by this Agreement;

f. Any liability for express or implied warranty claims or other claims for defective or deficient products or services, including quality of goods and services; and

g. Any liability for personal injury or property damage or for other consequential damages arising from the Covered Conduct.

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h. Any liability to the United States for amounts due under 42 C.F.R. § 418.308.

7. Relators and their heirs, successors, attorneys, agents, and assigns shall not object to this Agreement but agree and confirm that this Agreement is fair, adequate, and reasonable under all the circumstances, pursuant to 31 U.S.C. § 3730(c)(2)(B). Conditioned upon Relators’ receipt of the payment described in Paragraph 2, Relators and their heirs, successors, attorneys, agents, and assigns fully and finally release, waive, and forever discharge the United States, its agencies, officers, agents, employees, and servants, from any claims arising from the filing of the Civil Action or under 31 U.S.C. § 3730, and from any claims to a share of the proceeds of this Agreement and/or the Civil Action.

8. Relators, for themselves, and for their heirs, successors, attorneys, agents, and assigns, release Odyssey, and its officers, agents, and employees, from any liability to Relators arising from the filing of the Civil Action, or under 31 U.S.C. § 3730(d) for expenses or attorney’s fees and costs.

9. Odyssey waives and shall not assert any defenses Odyssey may have to any criminal prosecution or administrative action relating to the Covered Conduct that may be based in whole or in part on a contention that, under the Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the Excessive Fines Clause in the Eighth Amendment of the Constitution, this Agreement bars a remedy sought in such criminal prosecution or administrative action. Nothing in this paragraph or any other provision of this Agreement constitutes an agreement by the United States concerning the characterization of the Settlement Amount for purposes of the Internal Revenue laws, Title 26 of the United States Code.

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10. Odyssey fully and finally releases the United States, its agencies, officers, agents, employees, and servants, from any claims (including attorney’s fees, costs, and expenses of every kind and however denominated) that Odyssey has asserted, could have asserted, or may assert in the future against the United States, its agencies, officers, agents, employees, and servants, related to the Covered Conduct and the United States’ investigation and prosecution thereof.

11. The Settlement Amount shall not be decreased as a result of the denial of claims for payment now being withheld from payment by any Medicare carrier, intermediary, or Medicare Administrative Contractor (MAC) or any state payer, related to the Covered Conduct; and Odyssey agrees not to resubmit to any Medicare carrier, intermediary, or Administrative Contractor or any state payer any previously denied claims related to the Covered Conduct, and agrees not to appeal any such denials of claims.

12. Odyssey agrees to the following:

a. Unallowable Costs Defined: All costs (as defined in the Federal Acquisition Regulation, 48 C.F.R. § 31.205-47; and in Titles XVIII and XIX of the Social Security Act, 42 U.S.C. §§ 1395-1395kkk-l and 1396-1396w-5; and the regulations and official program directives promulgated thereunder) incurred by or on behalf of Odyssey, its present or former officers, directors, employees, shareholders, and agents in connection with:

(1) the matters covered by this Agreement;

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(2) the United States’ audit(s) and civil investigation(s) of the matters covered by this Agreement;

(3) Odyssey’s investigation, defense, and corrective actions undertaken in response to the United States’ audit(s) and civil investigation(s) in connection with the matters covered by this Agreement (including attorney’s fees);

(4) the negotiation and performance of this Agreement;

(5) the payment Odyssey makes to the United States pursuant to this Agreement and any payments that Odyssey may make to Relators, including costs and attorneys fees; and

(6) the negotiation of, and obligations undertaken pursuant to the CIA to:

(i) retain an independent review organization to perform annual reviews as described in Section III of the CIA; and

(ii) prepare and submit reports to the OIG-HHS are unallowable costs for government contracting purposes and under the Medicare Program, Medicaid Program, TRICARE Program, and Federal Employees Health Benefits Program (FEHBP) (hereinafter referred to as Unallowable Costs). However, nothing in this paragraph 12.a.(6) that may apply to the obligations undertaken pursuant to the CIA affects the status of costs that are not allowable based on any other authority applicable to Odyssey.

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b. Future Treatment of Unallowable Costs: Unallowable Costs shall be separately determined and accounted for by Odyssey, and Odyssey shall not charge such Unallowable Costs directly or indirectly to any contracts with the United States or any State Medicaid program, or seek payment for such Unallowable Costs through any cost report, cost statement, information statement, or payment request submitted by Odyssey or any of its subsidiaries or affiliates to the Medicare, Medicaid, TRICARE, or FEHBP Programs.

c. Treatment of Unallowable Costs Previously Submitted for Payment: Odyssey further agrees that within 120 days of the Effective Date of this Agreement it shall identify to applicable Medicare and TRICARE fiscal intermediaries, carriers, and/or contractors and MACs, and Medicaid and FEHBP fiscal agents, any Unallowable Costs (as defined in this Paragraph) included in payments previously sought from the United States, or any State Medicaid program, including, but not limited to, payments sought in any cost reports, cost statements, information reports, or payment requests already submitted by Odyssey or any of its subsidiaries or affiliates, and shall request, and agree, that such cost reports, cost statements, information reports, or payment requests, even if already settled, be adjusted to account for the effect of the inclusion of the

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Unallowable Costs. Odyssey agrees that the United States, at a minimum, shall be entitled to recoup from Odyssey any overpayment plus applicable interest and penalties as a result of the inclusion of such Unallowable Costs on previously-submitted cost reports, information reports, cost statements, or requests for payment.

Any payments due after the adjustments have been made shall be paid to the United States pursuant to the direction of the Department of Justice and/or the affected agencies. The United States reserves its rights to disagree with any calculations submitted by Odyssey or any of its subsidiaries or affiliates on the effect of inclusion of Unallowable Costs (as defined in this Paragraph) on Odyssey or any of its subsidiaries or affiliates’ cost reports, cost statements, or information reports,

d. Nothing in this Agreement shall constitute a waiver of the rights of the United States to audit, examine, or re-examine Odyssey’s books and records to determine that no Unallowable Costs have been claimed in accordance with the provisions of this Paragraph.

13. This Agreement is intended to be for the benefit of the Parties only. The Parties do not release any claims against any other person or entity, except to the extent provided for in Paragraph 14 (waiver for beneficiaries paragraph), below.

14. Odyssey agrees that it waives and shall not seek payment for any of the health care billings covered by this Agreement from any health care beneficiaries or their parents, sponsors, legally responsible individuals, or third party payors based upon the claims defined as Covered Conduct.

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15. Upon receipt of the payment described in Paragraph 1, above, the United States and the Relators shall promptly sign and file in the Civil Action a Joint Stipulation of Dismissal with prejudice of the Civil Action pursuant to Rule 41(a)(I).

16. Each Party shall bear its own legal and other costs incurred in connection with this matter, including the preparation and performance of this Agreement.

17. Each Party and signatory to this Agreement represents that it freely and voluntarily enters in to this Agreement without any degree of duress or compulsion.

18. This Agreement is governed by the laws of the United States. The exclusive jurisdiction and venue for any dispute relating to this Agreement is the United States District Court for the Eastern District of Wisconsin. For purposes of construing this Agreement, this Agreement shall be deemed to have been drafted by all Parties to this Agreement and shall not, therefore, be construed against any Party for that reason in any subsequent dispute.

19. This Agreement constitutes the complete agreement between the Parties. This Agreement may not be amended except by written consent of the Parties.

20. The undersigned counsel represent and warrant that they are fully authorized to execute this Agreement on behalf of the persons and entities indicated below.

21. This Agreement may be executed in counterparts, each of which constitutes an original and all of which constitute one and the same Agreement.

22. This Agreement is binding on Odyssey’s successors, transferees, heirs, and assigns.

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23. This Agreement is binding on Relators’ successors, transferees, heirs, and assigns.

24. All parties consent to the United States’ disclosure of this Agreement, and information about this Agreement, to the public.

25. This Agreement is effective on the date of signature of the last signatory to the Agreement (Effective Date of this Agreement). Facsimiles, scans, or other electronic means of signatures shall constitute acceptable, binding signatures for purposes of this Agreement.

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	THE UNITED STATES OF AMERICA
DATED: 2/15/2012	BY:	/s/ James L. Santelle
		JAMES L. SANTELLE United States Attorney STACY C. GERBER WARD Assistant United States Attorney United States Attorney’s Office Eastern District of Wisconsin

DATED: 2/13/12	BY:	/s/ Jonathan H. Gold
		JONATHAN H. GOLD
		Trial Attorney Commercial Litigation Branch Civil Division

DATED: 2/13/12	BY:	/s/ Gregory E. Demske
		GREGORY E. DEMSKE
		Assistant Inspector General for Legal Affairs Office of Counsel to the Inspector General Office of Inspector General United States Department of Health and Human Services

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	ODYSSEY HEALTHCARE. INC.—DEFENDANT
DATED: 2/6/2012	BY:	/s/ Tony Strange
		TONY STRANGE
		Chief Executive Officer and President

DATED: 2-7-2012	BY:	/s/ Gary W. Eiland
		GARY W. EILAND (as to form only)
		King & Spalding LLP
		Counsel for Odyssey Healthcare

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	RELATORS
DATED: l-31-12	BY:	/s/ Debora Rouse
		DEBORA ROUSE

DATED: 1.31.12	BY:	/s/ Alan C. Olson
		ALAN C. OLSON Alan C. Olson & Associates Counsel for Relator Debora Rouse

DATED: 1/27/12	BY:	/s/ Jane Tuchalski
		JANE TUCHALSKI

DATED: 1/27/12	BY:	/s/ Nola Hitchcock Cross
		NOLA HITCHCOCK CROSS Cross Law Firm Counsel for Relator Jane Tuchalski

DATED: 01/31/12	BY:	/s/ Bryan Dingus
		BRYAN DINGUS

DATED: 01/31/12	BY:	/s/ Marcella Auerbach
		MARCELLA AUERBACH Nolan & Auerbach PA Counsel for Relator Bryan Dingus

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EX-10.5

Exhibit 10.5

CORPORATE INTEGRITY AGREEMENT

BETWEEN THE

OFFICE OF INSPECTOR GENERAL

OF THE

DEPARTMENT OF HEALTH AND HUMAN SERVICES

AND

ODYSSEY HEALTHCARE SERVICES, INC.

I. PREAMBLE

Odyssey Healthcare, Inc. (Odyssey) hereby enters into this Corporate Integrity Agreement (CIA) with the Office of Inspector General (OIG) of the United States Department of Health and Human Services (HHS) to promote compliance with the statutes, regulations, and written directives of Medicare, Medicaid, and all other Federal health care programs (as defined in 42 U.S.C. § 1320a-7b(f)) (Federal health care program requirements). Contemporaneously with this CIA, Odyssey is entering into a Settlement Agreement with the United States.

Subsequent to the period relating to the Covered Conduct described in the Settlement Agreement with the United States. Odyssey was acquired by Gentiva Health Services, Inc. (Parent or Gentiva) and Odyssey, as a wholly owned subsidiary of Gentiva, and Odyssey’s hospices are now operational and organizational components of a single hospice division within Gentiva referred to herein as Odyssey Hospice. Accordingly, although Odyssey is the party to the Settlement Agreement with the United States and this CIA, and the party responsible for ensuring implementation of the CIA, the undertakings of this CIA will, for operational and organizational consistency purposes, relate to the entirety of Odyssey Hospice even though neither Gentiva nor certain of the hospice entities and hospices within Odyssey Hospice are alleged by the United States to have engaged in the Covered Conduct described in the Settlement Agreement with the United States.

Gentiva established a voluntary compliance program (“Compliance Program”) in 1994 to which Odyssey Hospice is now subject. The Compliance Program currently includes, among other things, a Compliance Officer, a Code of Business Ethics and Conduct, written policies and procedures, a disclosure program that allows for the confidential disclosure and investigation of potential compliance violations, screening measures for Ineligible Persons (as defined in Section III.F.l.a below), regular compliance training to all employees, various compliance auditing programs, and oversight from Gentiva’s Board of Directors. Gentiva’s Compliance Program was and continues to be

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aimed at Gentiva’s goal of promoting the highest standards of professionalism, ethics and integrity in the conduct of Gentiva’s and the Odyssey Hospice’s business practices. Gentiva will continue to operate its Compliance Program throughout the term of this CIA. Gentiva may modify its Compliance Program as appropriate (subject to the terms of this CIA), but Odyssey Hospice shall ensure that during the term of this CIA it complies with the obligations of Odyssey Hospice set forth herein.

II. TERM AND SCOPE OF THE CIA

A. The period of the compliance obligations assumed by Odyssey Hospice under this CIA shall be five years from the effective date of this CIA. The “Effective Date” shall be the date on which the final signatory of this CIA executes this CIA, unless otherwise specified. Each one-year period, beginning with the one-year period following the Effective Date, shall be referred to as a “Reporting Period.”

B. Sections VII, X, and XI shall expire no later than 120 days after OIG’s receipt of: (1) Odyssey Hospice’s final annual report; or (2) any additional materials submitted by Odyssey Hospice pursuant to OIG’s request, whichever is later.

C. The scope of this CIA shall be governed by the following definitions:

1. “Odyssey Hospice” includes Odyssey and all hospices owned or operated by Odyssey or Parent.

2. “Covered Persons” includes:

a. all owners, officers, directors, and employees of Odyssey and Odyssey Hospice;

b. all contractors, subcontractors, agents, Parent employees, and other persons (including medical directors and associate medical directors) whose job responsibilities involve, either directly or in a supervisory role, the provision of patient care items or services or the performance of billing or coding functions on behalf of Odyssey Hospice, excluding Parent’s financial services unit employees whose responsibilities with respect to Odyssey Hospice are limited to the ministerial tasks

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of submitting and tracking claims and vendors whose sole connection with Odyssey Hospice is selling or otherwise providing medical supplies or equipment to Odyssey Hospice and who do not bill the Federal health care programs for such medical supplies or equipment; and

c. all Parent officers or employees whose job responsibilities involve, directly or indirectly, the provision of legal, compliance, or audit services to Odyssey Hospice.

Notwithstanding the above, this term does not include part-time or per diem employees, contractors, subcontractors, agents, and other persons who are not reasonably expected to work more than 160 hours per year, except that any such individuals shall become “Covered Persons” at the point when they work more than 160 hours during the calendar year.

3. Relevant Covered Persons include:

a. “Relevant Hospice Benefit Covered Persons” includes all Covered Persons whose job responsibilities involve (either directly or in a supervisory role) determining whether Odyssey Hospice patients meet the requirements for continuous care services.

b. “Relevant Hospice Marketing Covered Persons” includes all Covered Persons whose job responsibilities involve (either directly or in a supervisory role) marketing the hospice benefit, specifically including but not limited to those marketing to physicians, hospitals, skilled nursing facilities, nursing facilities, beneficiaries, beneficiary family members, and beneficiary representatives.

4. “Continuous care services” means hospices services provided on a continuous basis for as much as 24 hours a day during periods of crisis to maintain the beneficiary at home, as defined at 42 C.F.R. § 418.204(a).

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III. CORPORATE INTEGRITY OBLIGATIONS

Parent has and shall maintain a Compliance Program. Odyssey Hospice shall participate in and comply with Parent’s Compliance Program, which for Odyssey Hospice shall, at a minimum, contain the following elements:

A. Compliance Officer and Committee

1. Compliance Officer. Odyssey Hospice has and shall maintain a Compliance Officer for the term of the CIA. The Compliance Officer shall be responsible for developing and implementing policies, procedures, and practices designed to ensure compliance with the requirements set forth in this CIA and with Federal health care program requirements. The Compliance Officer shall be a member of senior management of Parent, shall report directly to the President of Odyssey Hospice, shall make periodic (at least quarterly) reports regarding compliance matters directly to the Audit Committee of Parent’s Board of Directors (Board), and shall be authorized to report on such matters to Parent’s Board Audit Committee at any time. The Compliance Officer shall not be or be subordinate to the General Counsel or Chief Financial Officer of Odyssey or Parent. The Compliance Officer shall be responsible for monitoring the day-to-day compliance activities engaged in by Odyssey Hospice as well as for any reporting obligations created under this CIA. Any noncompliance job responsibilities of the Compliance Officer shall be limited and must not interfere with the Compliance Officer’s ability to perform the duties outlined in this CIA.

Odyssey Hospice shall report to OIG, in writing, any change in the identity of the Compliance Officer, or any actions or changes that would affect the Compliance Officer’s ability to perform the duties necessary to meet the obligations in this CIA, within five days after such a change.

2. Compliance Committee. Odyssey Hospice has and shall maintain a Compliance Committee. The Compliance Committee shall, at a minimum, include the Compliance Officer and other members of senior management necessary to meet the requirements of this CIA (e.g., senior executives of relevant departments, such as billing, clinical, human resources, audit, and operations). The Compliance Officer shall chair the Compliance Committee and the Committee shall support the Compliance Officer in fulfilling his/her responsibilities (e.g., shall assist in the analysis of Odyssey Hospice’s risk areas and shall oversee monitoring of internal and external audits and investigations). The Compliance Committee shall meet at least quarterly.

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Odyssey Hospice shall report to OIG, in writing, any changes in the composition of the Compliance Committee, or any actions or changes that would affect the Compliance Committee’s ability to perform the duties necessary to meet the obligations in this CIA, within 15 days after such a change.

3. Board Audit Committee Compliance Obligations. Parent’s Board has appointed and shall maintain an Audit Committee of the Board (the Board Audit Committee). The Board Audit Committee shall be responsible for the review and oversight of matters related to Odyssey Hospice’s compliance with Federal health care program requirements and the obligations of this CIA.

The Board Audit Committee shall, at a minimum, be responsible for the following:

a. meeting at least quarterly to review and oversee Parent’s Compliance Program, including but not limited to the performance of the Compliance Officer and Compliance Committee;

b. ensuring that Odyssey Hospice adopts and implements policies, procedures, and practices designed to ensure compliance with the requirements set forth in this CIA and Federal health care program requirements; and

c. for each Reporting Period of the CIA, adopting a resolution, signed by each member of the Board Audit Committee summarizing its review and oversight of Odyssey Hospice’s compliance with Federal health care program requirements and the obligations of this CIA.

At minimum, the resolution shall include the following language:

“The Board Audit Committee has made a reasonable inquiry into the operations of Parent’s Compliance Program including the performance of the Compliance Officer and the Compliance Committee. Based on its inquiry and review, the Board Audit Committee

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has concluded that, to the best of its knowledge, Parent has maintained an effective Compliance Program to meet Federal health care program requirements and Odyssey Hospice’s obligations of the CIA.”

If the Board is unable to provide such a conclusion in the resolution, the Board shall include in the resolution a written explanation of the reasons why it is unable to provide the conclusion and the steps it is taking to implement an effective Compliance Program.

Odyssey Hospice shall report to OIG, in writing, any changes in the composition of the Board Audit Committee, or any actions or changes that would affect the Board Audit Committee’s ability to perform the duties necessary to meet the obligations in this CIA, within 15 days after such a change.

B. Written Standards

1. Code of Business Ethics and Conduct. Parent has and shall maintain for the term of the CIA a written Code of Business Ethics and Conduct to which Odyssey Hospice is subject. Odyssey Hospice shall make the promotion of, and adherence to, the Code of Business Ethics and Conduct an element in evaluating the performance of all employees. The Code of Business Ethics and Conduct shall, at a minimum, set forth:

a. Odyssey Hospice’s commitment to full compliance with all Federal health care program requirements, including its commitment to prepare and submit accurate claims consistent with such requirements;

b. Odyssey Hospice’s requirement that all of its Covered Persons shall be expected to comply with all Federal health care program requirements and with Parent’s own Policies and Procedures;

c. the requirement that all Covered Persons shall be expected to report to the Compliance Officer, or other appropriate individual designated by Odyssey Hospice, suspected violations of any Federal health care program requirements or of Parent’s own Policies and Procedures; and

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d. the right of all individuals to use the Disclosure Program described in Section III.E, and Odyssey Hospice’s commitment to nonretaliation and to maintain, as appropriate, confidentiality and anonymity with respect to such disclosures.

Within 90 days after the Effective Date, each Covered Person shall certify, in writing or in electronic form, that he or she has received, read, understood, and shall abide by Parent’s Code of Business Ethics and Conduct to which Odyssey Hospice is subject. New Covered Persons shall receive the Code of Business Ethics and Conduct and shall complete the required certification within 30 days after becoming a Covered Person or within 90 days after the Effective Date, whichever is later.

Odyssey Hospice shall periodically review the Code of Business Ethics and Conduct to determine if revisions are appropriate and shall recommend to Parent any necessary revisions based on such review. If Parent rejects these recommendations, Odyssey Hospice shall report its recommendations and the basis for Parent’s rejection within 30 days after Parent rejects Odyssey Hospice’s recommendations. Any revised Code of Business Ethics and Conduct shall be distributed within 30 days after any revisions are finalized. Each Covered Person shall certify, in writing, that he or she has received, read, understood, and shall abide by the revised Code of Business Ethics and Conduct within 30 days after the distribution of the revised Code of Business Ethics and Conduct.

2. Policies and Procedures. Odyssey Hospice represents that its Parent has implemented written Policies and Procedures regarding the operation of its compliance program to which Odyssey Hospice is subject, including the compliance program requirements outlined in this CIA and Odyssey Hospice’s compliance with Federal health care program requirements. At a minimum, the Policies and Procedures address and shall continue to address:

a. the subjects relating to the Code of Business Ethics and Conduct identified in Section III.B.l;

b. the OIG’s Compliance Program Guidance for Hospice:

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c. Federal health care program requirements relating to the coverage of hospice services and the eligibility requirements for such coverage, including requirements relating to the initial admission of patients, eligibility of continued stay patients (i.e., patients who have received more than six continuous months of hospice care), and eligibility for continuous care services; and

d. Federal health care program requirements relating to the documentation of eligibility for hospice services and the services provided, and relating to the preparation and submission of accurate claims for such services.

The Policies and Procedures are made available online and shall continue to be made available online to all Covered Persons whose job functions relate to those Policies and Procedures. Appropriate and knowledgeable staff shall be available to explain the Policies and Procedures.

At least annually (and more frequently, if appropriate), Parent shall assess and update, as necessary, the Policies and Procedures. Within 30 days after the effective date of any revisions, any such revised Policies and Procedures shall be distributed to all Covered Persons whose job functions relate to those Policies and Procedures.

C. Training and Education

1. General Training. Within 90 days after the Effective Date, Odyssey Hospice shall provide at least two hours of General Training to each Covered Person. This training, at a minimum, shall explain:

a. Odyssey Hospice’s CIA requirements; and

b. Parent’s Compliance Program to which Odyssey Hospice is subject, including the Code of Business Ethics and Conduct.

Covered Persons who have received two hours of General Training no earlier than 60 days before the Effective Date shall be deemed to have met this requirement. New Covered Persons shall receive the General Training described above within 30 days after becoming a Covered Person or within 90 days after the Effective Date, whichever is later.

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After receiving the initial General Training described above, each Covered Person shall receive at least one hour of General Training in each subsequent Reporting Period.

2. Specific Training. Within 90 days after the Effective Date, each Relevant Covered Person shall receive Specific Training in addition to the General Training required above.

a. Relevant Hospice Benefit Covered Persons shall receive three hours of Specific Training that covers the following topics:

i. the Federal health care program requirements regarding the hospice benefit, including eligibility, certification, and recertification, with specific focus on the requirements for continuous care services;

ii. policies, procedures, and other requirements applicable to the documentation of medical records;

iii. the personal obligation of each individual involved in the claims submission process to ensure that such claims are accurate;

iv. applicable reimbursement statutes, regulations, and program requirements and directives;

v. the legal sanctions for violations of the Federal health care program requirements; and

vi. examples of proper and improper claims submission practices.

After receiving the initial Specific Training described in this section, each Relevant Hospice Benefit Covered Person shall receive at least two hours of Specific Training, in addition to the General Training, in each subsequent Reporting Period.

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b. Relevant Hospice Marketing Covered Persons shall receive two hours of Specific Training that covers the following topics:

i. the Federal health care program requirements regarding the hospice benefit, including eligibility, certification, and recertification, with specific focus on the requirements for continuous care services;

ii. applicable reimbursement statutes, regulations, and program requirements and directives;

iii. the requirements of Anti-Kickback Statute;

iv. examples of violations of the Anti-Kickback Statute; and

v. the legal sanctions for violations of the Federal health care program requirements.

After receiving the initial Specific Training described in this section, each Relevant Hospice Marketing Covered Person shall receive at least one hour of Specific Training, in addition to the General Training, in each subsequent Reporting Period.

c. Relevant Covered Persons who have received the pertinent Specific Training no earlier than 60 days before the Effective Date shall be deemed to have satisfied this requirement. New Relevant Covered Persons shall receive Specific Training within 30 days after the beginning of their employment or becoming Relevant Covered Persons, or within 90 days after the Effective Date, whichever is later.

3. Board Member Training. Within 90 days after the Effective Date, Parent shall provide at least two hours of training to each member of the Board of Directors, in addition to the General Training. This training shall address the responsibilities of board members and corporate governance.

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New members of the Board of Directors shall receive the Board Member Training described above within 30 days after becoming a member or within 90 days after the Effective Date, whichever is later.

4. Certification. Each individual who is required to attend training shall certify, in writing or in electronic form, that he or she has received the required training. The certification shall specify the type of training received and the date received. The Compliance Officer (or designee) shall retain the certifications, along with all course materials.

5. Qualifications of Trainer. Persons providing the training shall be knowledgeable about the subject area.

6. Update of Training. Odyssey Hospice shall review the training annually, and, where appropriate, update the training to reflect changes in Federal health care program requirements, any issues discovered during internal audits or the Eligibility Review, and any other relevant information.

7. Computer-based Training. Odyssey Hospice may provide the training required under this CIA through appropriate computer-based training approaches. If Odyssey Hospice chooses to provide computer-based training, it shall make available appropriately qualified and knowledgeable staff or trainers to answer questions or provide additional information to the individuals receiving such training.

D. Review Procedures

1. Engagement of Independent Review Organization. Within 90 days after the Effective Date, Odyssey Hospice shall engage an entity (or entities), such as an accounting, auditing, or consulting firm (hereinafter “Independent Review Organization” or “IRO”), to perform the Verification Reviews and the Unallowable Cost Review listed in this Section III.D. The applicable requirements relating to the IRO are outlined in Appendix A to this CIA, which is incorporated by reference.

2. Eligibility Review. Odyssey Hospice’s Eligibility Review Team, composed of individuals listed in Appendix B, shall review the eligibility of Odyssey Hospice’s Medicare beneficiaries for the hospice services those Medicare beneficiaries received and shall prepare an Eligibility Review Report, as outlined in Appendix B to this CIA, which is incorporated by reference.

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3. Verification Review. The IRO shall perform a Verification Review of Odyssey Hospice’s Eligibility Reviews and shall prepare a Verification Review Report, as outlined in Appendix C to this CIA, which is incorporated by reference.

4. IRO Assumption of Eligibility Review. Following its review of any of Odyssey Hospice’s Annual Reports, if, in its sole discretion, OIG determines that the Eligibility Reviews performed by the Eligibility Review Team fail to conform with the requirements of the CIA, OIG can require that future Eligibility Reviews be conducted by the IRO.

5. Unallowable Cost Review. For the first Reporting Period, the IRO shall conduct a review of Odyssey’s compliance with the unallowable cost provisions of the Settlement Agreement. The IRO shall determine whether Odyssey has complied with its obligations not to charge to, or otherwise seek payment from, federal or state payors for unallowable costs (as defined in the Settlement Agreement) and its obligation to identify to applicable federal or state payors any unallowable costs included in payments previously sought from the United States, or any state Medicaid program. This unallowable costs analysis shall include, but not be limited to, payments sought in any cost reports, cost statements, information reports, or payment requests already submitted by Odyssey or any affiliates. To the extent that such cost reports, cost statements, information reports, or payment requests, even if already settled, have been adjusted to account for the effect of the inclusion of the unallowable costs, the IRO shall determine if such adjustments were proper. In making this determination, the IRO may need to review cost reports and/or financial statements from the year in which the Settlement Agreement was executed, as well as from previous years.

6. Unallowable Cost Review Report. The IRO shall prepare a report based upon the Unallowable Cost Review performed (Unallowable Cost Review Report). The Unallowable Cost Review Report shall include the IRO’s findings and supporting rationale regarding the Unallowable Cost Review and whether Odyssey has complied with its obligation not to charge to, or otherwise seek payment from, federal or state payors for unallowable costs (as defined in the Settlement Agreement) and its obligation to identify to applicable federal or state payors any unallowable costs included in payments previously sought from such payor.

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7. Retention of Records. The IRO and Odyssey Hospice shall retain and make available to OIG, upon request, all work papers, supporting documentation, correspondence, and draft reports (those exchanged between the IRO and Odyssey Hospice, and those exchanged between the Eligibility Review Team and any individuals who are not on the Eligibility Review Team) related to the reviews.

8. Validation Review. In the event OIG has reason to believe that: (a) Odyssey Hospice’s Eligibility Review, Verification Review, or Unallowable Cost Review fails to conform to the requirements of this CIA; or (b) the Eligibility Review Team’s or IRO’s findings or the Eligibility Review, Verification Review, or Unallowable Cost Review results are inaccurate, OIG may, at its sole discretion, conduct its own review to determine whether the Eligibility Review, Verification Review, or Unallowable Cost Review complied with the requirements of the CIA and/or the findings or Eligibility Review, Verification Review, or Unallowable Cost Review results are inaccurate (Validation Review). Odyssey Hospice shall pay for the reasonable cost of any such review performed by OIG or any of its designated agents. Any Validation Review of Reports submitted as part of the Odyssey Hospice’s final Annual Report shall be initiated no later than one year after Odyssey Hospice’s final submission (as described in Section II) is received by OIG.

Prior to initiating a Validation Review, OIG shall notify Odyssey Hospice of its intent to do so and provide a written explanation of why OIG believes such a review is necessary. To resolve any concerns raised by OIG, Odyssey Hospice may request a meeting with OIG to: (a) discuss the results of any Eligibility Review, Verification Review, or Unallowable Cost Review submissions or findings; (b) present any additional information to clarify the results of the Eligibility Review, Verification Review, or Unallowable Cost Review or to correct the inaccuracy of the Eligibility Review, Verification Review, or Unallowable Cost Review; and/or (c) propose alternatives to the proposed Validation Review. Odyssey Hospice agrees to provide any additional information as may be requested by OIG under this Section III.D.8 in an expedited manner. OIG will attempt in good faith to resolve any Eligibility Review, Verification Review, or Unallowable Cost Review issues with Odyssey Hospice prior to conducting a Validation Review. However, the final determination as to whether or not to proceed with a Validation Review shall be made at the sole discretion of OIG.

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9. Independence and Objectivity Certification. The IRO shall include in its report(s) to Odyssey Hospice a certification that the IRO has (a) evaluated its professional independence and objectivity with respect to the reviews conducted under this Section III.D and (b) concluded that it is, in fact, independent and objective, in accordance with the requirements specified in Appendix A to this CIA.

E. Disclosure Program

Prior to the Effective Date, Odyssey Hospice established and shall maintain for the term of the CIA a Disclosure Program that includes a mechanism (e.g., a toll-free compliance telephone line) to enable individuals to disclose, to the Compliance Officer or some other person who is not in the disclosing individual’s chain of command, any identified issues or questions associated with Odyssey Hospice’s policies, conduct, practices, or procedures with respect to a Federal health care program believed by the individual to be a potential violation of criminal, civil, or administrative law. Odyssey Hospice has and shall continue to appropriately publicize the existence of the disclosure mechanism (e.g., via periodic e-mails to employees or by posting the information in prominent common areas).

The Disclosure Program shall emphasize a nonretribution, nonretaliation policy, and shall include a reporting mechanism for anonymous communications for which appropriate confidentiality shall be maintained. Upon receipt of a disclosure, the Compliance Officer (or designee) shall gather all relevant information from the disclosing individual. The Compliance Officer (or designee) shall make a preliminary, good faith inquiry into the allegations set forth in every disclosure to ensure that he or she has obtained all of the information necessary to determine whether a further review should be conducted. For any disclosure that is sufficiently specific so that it reasonably: (1) permits a determination of the appropriateness of the alleged improper practice; and (2) provides an opportunity for taking corrective action, Odyssey Hospice shall conduct an internal review of the allegations set forth in the disclosure and ensure that proper follow-up is conducted.

The Compliance Officer (or designee) shall maintain a disclosure log, which shall include a record and summary of each disclosure received (whether anonymous or not), the status of the respective internal reviews, and any corrective action taken in response to the internal reviews.

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F. Ineligible Persons

1. Definitions. For purposes of this CIA:

a. an “Ineligible Person” shall include an individual or entity who:

i. is currently excluded, debarred, suspended, or otherwise ineligible to participate in the Federal health care programs or in Federal procurement or nonprocurement programs; or

ii. has been convicted of a criminal offense that falls within the scope of 42 U.S.C. § 1320a-7(a), but has not yet been excluded, debarred, suspended, or otherwise declared ineligible.

b. “Exclusion Lists” include:

i. the HHS/OIG List of Excluded Individuals/Entities (available through the Internet at http://www.oig.hhs.gov); and

ii. the General Services Administration’s List of Parties Excluded from Federal Programs (available through the Internet at http://www.epls.gov).

2. Screening Requirements. Odyssey Hospice shall ensure that all prospective and current Covered Persons are not Ineligible Persons, by implementing the following screening requirements.

a. Odyssey Hospice shall screen all prospective Covered Persons against the Exclusion Lists prior to engaging their services and, as part of the hiring or contracting process, shall require such Covered Persons to disclose whether they are Ineligible Persons.

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b. Odyssey Hospice shall screen all Covered Persons against the Exclusion Lists within 90 days after the Effective Date and on an annual basis thereafter.

c. Odyssey Hospice shall implement a policy requiring all Covered Persons to disclose immediately any debarment, exclusion, suspension, or other event that makes that person an Ineligible Person.

Nothing in Section III.F affects Odyssey Hospice’s responsibility to refrain from (and liability for) billing Federal health care programs for items or services furnished, ordered, or prescribed by excluded persons. Odyssey Hospice understands that items or services furnished by excluded persons are not payable by Federal health care programs and that Odyssey Hospice may be liable for overpayments and/or criminal, civil, and administrative sanctions for employing or contracting with an excluded person regardless of whether Odyssey Hospice meets the requirements of Section III.F.

3. Removal Requirement. If Odyssey Hospice has actual notice that a Covered Person has become an Ineligible Person, Odyssey Hospice shall remove such Covered Person from responsibility for, or involvement with, Odyssey Hospice’s business operations related to the Federal health care programs and shall remove such Covered Person from any position for which the Covered Person’s compensation or the items or services furnished, ordered, or prescribed by the Covered Person are paid in whole or part, directly or indirectly, by Federal health care programs or otherwise with Federal funds at least until such time as the Covered Person is reinstated into participation in the Federal health care programs.

4. Pending Charges and Proposed Exclusions. If Odyssey Hospice has actual notice that a Covered Person is charged with a criminal offense that falls within the scope of 42 U.S.C. §§ 1320a-7(a), 1320a-7(b)(l)-(3), or is proposed for exclusion during the Covered Person’s employment or contract term or during the term of a physician’s or other practitioner’s medical staff privileges, Odyssey Hospice shall take all appropriate actions to ensure that the responsibilities of that Covered Person have not and shall not adversely affect the quality of care rendered to any beneficiary, patient, or resident, or any claims submitted to any Federal health care program.

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G. Notification of Government Investigation or Legal Proceedings

Within 30 days after discovery, Odyssey Hospice shall notify OIG, in writing, of any ongoing investigation or legal proceeding known to Odyssey Hospice conducted or brought by a governmental entity or its agents involving an allegation that Odyssey Hospice has committed a crime or has engaged in fraudulent activities. This notification shall include a description of the allegation, the identity of the investigating or prosecuting agency, and the status of such investigation or legal proceeding. Odyssey Hospice shall also provide written notice to OIG within 30 days after the resolution of the matter, and shall provide OIG with a description of the findings and/or results of the investigation or proceedings, if any.

H. Repayment of Overpayments

1. Definition of Overpayments. For purposes of this CIA, an “Overpayment” shall mean the amount of money Odyssey Hospice has received in excess of the amount due and payable under any Federal health care program requirements.

2. Repayment of Overpayments

a. If, at any time, Odyssey Hospice identifies or learns of any Overpayment, Odyssey Hospice shall repay the Overpayment to the appropriate payor (e.g., Medicare fiscal intermediary or carrier) within 30 days after identification of the Overpayment and take remedial steps within 60 days after identification (or such additional time as may be agreed to by the payor) to correct the problem, including preventing the underlying problem and the Overpayment from recurring. If not yet quantified, within 30 days after identification, Odyssey Hospice shall notify the payor of its efforts to quantify the Overpayment amount along with a schedule of when such work is expected to be completed. Notification and repayment to the payor shall be done in accordance with the payor’s policies.

b. Notwithstanding the above, notification and repayment of any Overpayment amount that routinely is reconciled or adjusted

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pursuant to policies and procedures established by the payor should be handled in accordance with such policies and procedures.

I. Reportable Events

1. Definition of Reportable Event. For purposes of this CIA, a “Reportable Event” means anything that involves:

a. a substantial Overpayment;

b. a matter that a reasonable person would consider a probable violation of criminal, civil, or administrative laws applicable to any Federal health care program for which penalties or exclusion may be authorized;

c. the employment of or contracting with a Covered Person who is an Ineligible Person as defined by Section III.F.l.a; or

d. the filing of a bankruptcy petition by Odyssey or Parent or any corporate entity that owns or operates hospices within Odyssey Hospice.

A Reportable Event may be the result of an isolated event or a series of occurrences.

2. Reporting of Reportable Events. If Odyssey Hospice determines (after a reasonable opportunity to conduct an appropriate review or investigation of the allegations) through any means that there is a Reportable Event, Odyssey Hospice shall notify OIG, in writing, within 30 days after making the determination that the Reportable Event exists.

3. Reportable Events under Section III.I. I .a. For Reportable Events under Section III.I.l.a, the report to OIG shall be made at the same time as the repayment to the payor required in Section III.H, and shall include:

a. a copy of the notification and repayment to the payor required in Section III.H.2;

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b. a description of the steps taken by Odyssey Hospice to identify and quantify the Overpayment;

c. a complete description of the Reportable Event, including the relevant facts, persons involved, and legal and Federal health care program authorities implicated;

d. a description of Odyssey Hospice’s actions taken to correct the Reportable Event; and

e. any further steps Odyssey Hospice plans to take to address the Reportable Event and prevent it from recurring.

4. Reportable Events under Section III.I.1.b and c. For Reportable Events under Section III.I.l.b and III.I.l.c, the report to OIG shall include:

a. a complete description of the Reportable Event, including the relevant facts, persons involved, and legal and Federal health care program authorities implicated;

b. a description of Odyssey Hospice’s actions taken to correct the Reportable Event;

c. any further steps Odyssey Hospice plans to take to address the Reportable Event and prevent it from recurring; and

d. if the Reportable Event has resulted in an Overpayment, a description of the steps taken by Odyssey Hospice to identify and quantify the Overpayment.

5. Reportable Events under Section III.I.1.d. For Reportable Events under Section III.I.l.d, the report to the OIG shall include documentation of the bankruptcy filing and a description of any Federal health care program authorities implicated.

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6. Reportable Events Involving the Stark Law. Notwithstanding the reporting requirements outlined above, any Reportable Event that involves only a probable violation of section 1877 of the Social Security Act, 42 U.S.C. §1395nn (the Stark Law) should be submitted by Odyssey Hospice to the Centers for Medicare & Medicaid Services (CMS) through the self-referral disclosure protocol (SRDP), with a copy to the OIG. The requirements of Section III.H.2 that require repayment to the payor of any identified Overpayment within 30 days shall not apply to any Overpayment that may result from a probable violation of only the Stark Law that is disclosed to CMS pursuant to the SRDP.

IV. CHANGES TO BUSINESS UNITS OR LOCATIONS

A. Change or Closure of Unit or Location

In the event that, after the Effective Date, Odyssey Hospice changes locations or closes a business unit or location related to the furnishing of items or services that may be reimbursed by Federal health care programs, Odyssey Hospice shall notify OIG of this fact as soon as possible, but no later than within 30 days after the date of change or closure of the location.

B. Purchase or Establishment of New Unit or Location

In the event that, after the Effective Date, Odyssey Hospice purchases or establishes a new business unit or location related to the furnishing of items or services that may be reimbursed by Federal health care programs. Odyssey Hospice shall notify OIG at least 30 days prior to such purchase or the operation of the new business unit or location. This notification shall include the address of the new business unit or location, phone number, fax number, the location’s Medicare and state Medicaid program provider number and/or supplier number(s); and the name and address of each Medicare and state Medicaid program contractor to which Odyssey Hospice currently submits claims. Each new business unit or location and all Covered Persons at each new business unit or location shall be subject to the applicable requirements of this CIA.

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C. Sale of Unit or Location

In the event that, after the Effective Date, Odyssey Hospice proposes to sell any or all of its business units or locations that are subject to this CIA, Odyssey Hospice shall notify OIG of the proposed sale at least 30 days prior to the sale of such business unit or location. This notification shall include a description of the business unit or location to be sold, a brief description of the terms of the sale, and the name and contact information of the prospective purchaser. This CIA shall be binding on the purchaser of such business unit or location, unless otherwise determined and agreed to in writing by the OIG.

V. IMPLEMENTATION AND ANNUAL REPORTS

A. Implementation Report

Within 120 days after the Effective Date, Odyssey Hospice shall submit a written report to OIG summarizing the status of its implementation of the requirements of this CIA (Implementation Report). The Implementation Report shall, at a minimum, include:

1. the name, address, phone number, and position description of the Compliance Officer required by Section III.A, and a summary of other noncompliance job responsibilities the Compliance Officer may have;

2. the names and positions of the members of the Compliance Committee required by Section III.A;

3. a copy of Parent’s Code of Business Ethics and Conduct required by Section III.B.1;

4. the number of individuals required to complete the Code of Business Ethics and Conduct certification required by Section III.B.1, the percentage of individuals who have completed such certification, and an explanation of any exceptions (the documentation supporting this information shall be available to OIG upon request);

5. a summary of all Policies and Procedures required by Section III.B (copies of the Policies and Procedures shall be made available to OIG upon request):

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6. the following information regarding each type of training required by Section III.C:

a. a description of such training, including a summary of the topics covered, the length of sessions, and a schedule of training sessions;

b. the number of individuals required to be trained, percentage of individuals actually trained, and an explanation of any exceptions.

A copy of all training materials and the documentation supporting this information shall be made available to OIG upon request.

7. a description of the Disclosure Program required by Section III.E;

8. the following information regarding the IRO(s): (a) identity, address, and phone number; (b) a copy of the engagement letter; (c) information to demonstrate that the IRO has the qualifications outlined in Appendix A to this CIA; (d) a summary and description of any and all current and prior engagements and agreements between Odyssey Hospice or Parent and the IRO; and (e) a certification from the IRO regarding its professional independence and objectivity with respect to Odyssey Hospice and Parent;

9. a description of the process by which Odyssey Hospice fulfills the requirements of Section III.F regarding Ineligible Persons;

10. a list of all of Odyssey Hospice’s locations (including locations and mailing addresses); the corresponding name under which each location is doing business; the corresponding phone numbers and fax numbers; each location’s Medicare and state Medicaid program provider number and/or supplier number(s); and the name and address of each Medicare and state Medicaid program contractor to which Odyssey Hospice currently submits claims;

11. a description of Odyssey Hospice’s corporate structure, including identification of any parent and sister companies, subsidiaries, and their respective lines of business; and

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12. the certifications required by Section V.C.

B. Annual Reports

Odyssey Hospice shall submit to OIG annually a report with respect to the status of, and findings regarding, Odyssey Hospice’s compliance activities for each of the five Reporting Periods (Annual Report). Each Annual Report shall include, at a minimum:

1. any change in the identity, position description, or other noncompliance job responsibilities of the Compliance Officer and any change in the membership of the Compliance Committee described in Section III.A;

2. the Board Audit Committee resolution required by Section III.A.3;

3. a summary of any changes or amendments to Parent’s Code of Business Ethics and Conduct required by Section III.B.1 and the reason for such changes, along with a copy of the revised Code of Business Ethics and Conduct;

4. the number of individuals required to complete the Code of Business Ethics and Conduct certification required by Section III.B.1, the percentage of individuals who have completed such certification, and an explanation of any exceptions (the documentation supporting this information shall be made available to OIG upon request);

5. a summary of any significant changes or amendments to the Policies and Procedures required by Section III.B and the reasons for such changes (e.g., change in contractor policy);

6. the following information regarding each type of training required by Section III.C:

a. a description of the initial and annual training, including a summary of the topics covered, the length of sessions, and a schedule of training sessions;

b. the number of individuals required to complete the initial and annual training, the percentage of individuals who actually completed the initial and annual training, and an explanation of any exceptions.

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A copy of all training materials and the documentation to support this information shall be made available to OIG upon request.

7. a complete copy of all reports prepared pursuant to Section III.D, along with a copy of the IRO’s engagement letter;

8. Odyssey Hospice’s response to the reports prepared pursuant to Section III.D. along with corrective action plan(s) related to any issues raised by the reports;

9. a summary and description of any and all current and prior engagements and agreements between Odyssey Hospice or Parent and the IRO (if different from what was submitted as part of the Implementation Report);

10. a certification from the IRO regarding its professional independence and objectivity with respect to Odyssey Hospice and Parent;

11. a summary of Reportable Events (as defined in Section III.I) identified during the Reporting Period and the status of any corrective action relating to all such Reportable Events;

12. a report of the aggregate Overpayments that have been returned to the Federal health care programs. Overpayment amounts shall be broken down into the following categories: inpatient Medicare, outpatient Medicare, Medicaid (report each applicable state separately, if applicable), and other Federal health care programs. Overpayment amounts that are routinely reconciled or adjusted pursuant to policies and procedures established by the payor do not need to be included in this aggregate Overpayment report;

13. a summary of the disclosures in the disclosure log required by Section III.E that relate to Federal health care programs (the complete disclosure log shall be made available to OIG upon request);

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14. any changes to the process by which Odyssey Hospice fulfills the requirements of Section III.F regarding Ineligible Persons;

15. a summary describing any ongoing investigation or legal proceeding required to have been reported pursuant to Section III.G. The summary shall include a description of the allegation, the identity of the investigating or prosecuting agency, and the status of such investigation or legal proceeding;

16. a description of all changes to the most recently provided list of Odyssey Hospice’s locations (including addresses) as required by Section V.A. 10; the corresponding name under which each location is doing business; the corresponding phone numbers and fax numbers; each location’s Medicare and state Medicaid program provider number(s) and/or supplier number(s); and the name and address of each Medicare and state Medicaid program contractor to which Odyssey Hospice currently submits claims; and

17. the certifications required by Section V.C.

The first Annual Report shall be received by OIG no later than 60 days after the end of the first Reporting Period. Subsequent Annual Reports shall be received by OIG no later than the anniversary date of the due date of the first Annual Report.

C. Certifications

The Implementation Report and each Annual Report shall include a certification by the Compliance Officer that:

1. to the best of his or her knowledge, except as otherwise described in the report, Odyssey Hospice is in compliance with all of the requirements of this CIA;

2. he or she has reviewed the report and has made reasonable inquiry regarding its content and believes that the information in the report is accurate and truthful; and

3. to the best of his or her knowledge, Odyssey Hospice has complied with its obligations under the Settlement Agreement: (a) not to resubmit to any Federal health care program payors any previously denied claims related to the Covered Conduct

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addressed in the Settlement Agreement, and not to appeal any such denials of claims; (b) not to charge to or otherwise seek payment from federal or state payors for unallowable costs (as defined in the Settlement Agreement); and (c) to identify and adjust any past charges or claims for unallowable costs.

D. Designation of Information

Odyssey Hospice shall clearly identify any portions of its submissions that it believes are trade secrets, or information that is commercial or financial and privileged or confidential, and therefore potentially exempt from disclosure under the Freedom of Information Act (FOIA), 5 U.S.C. § 552. Odyssey Hospice shall refrain from identifying any information as exempt from disclosure if that information does not meet the criteria for exemption from disclosure under FOIA.

VI. NOTIFICATIONS AND SUBMISSION OF REPORTS

Unless otherwise stated in writing after the Effective Date, all notifications and reports required under this CIA shall be submitted to the following entities:

OIG:

Administrative and Civil Remedies Branch

Office of Counsel to the Inspector General

Office of Inspector General

U.S. Department of Health and Human Services

Cohen Building, Room 5527

330 Independence Avenue, S.W.

Washington, DC 20201

Telephone: 202.619.2078

Facsimile: 202.205.0604

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Odyssey and Odyssey Hospice:

Patrick Cunningham

Vice President Hospice Compliance

Gentiva® Health Services

3350 Riverwood Parkway, Suite 1400

Atlanta, GA 30339

Telephone: 770-951-6489

Facsimile: 913-814-4388

Unless otherwise specified, all notifications and reports required by this CIA may be made by certified mail, overnight mail, hand delivery, or other means, provided that there is proof that such notification was received. For purposes of this requirement, internal facsimile confirmation sheets do not constitute proof of receipt. Upon request by OIG, Odyssey Hospice may be required to provide OIG with an electronic copy of each notification or report required by this CIA in searchable portable document format (pdf), in addition to a paper copy.

VII. OIG INSPECTION, AUDIT, AND REVIEW RIGHTS

In addition to any other rights OIG may have by statute, regulation, or contract. OIG or its duly authorized representative(s) may examine or request copies of Odyssey Hospice’s books, records, and other documents and supporting materials and/or conduct on-site reviews of any of Odyssey Hospice’s locations for the purpose of verifying and evaluating: (a) Odyssey Hospice’s compliance with the terms of this CIA; and (b) Odyssey Hospice’s compliance with the requirements of the Federal health care programs. The documentation described above shall be made available by Odyssey Hospice to OIG or its duly authorized representative(s) at all reasonable times for inspection, audit, or reproduction. Furthermore, for purposes of this provision, OIG or its duly authorized representative(s) may interview any of Odyssey Hospice’s employees, contractors, or agents who consent to be interviewed at the individual’s place of business during normal business hours or at such other place and time as may be mutually agreed upon between the individual and OIG. Odyssey Hospice shall assist OIG or its duly authorized representative(s) in contacting and arranging interviews with such individuals upon OIG’s request. Odyssey Hospice’s employees may elect to be interviewed with or without a representative of Odyssey Hospice present.

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VIII. DOCUMENT AND RECORD RETENTION

Odyssey Hospice shall maintain for inspection all documents and records relating to reimbursement from the Federal health care programs and to compliance with this CIA for six years (or longer if otherwise required by law) from the Effective Date.

I . DISCLOSURES

Consistent with HHS’s FOIA procedures, set forth in 45 C.F.R. Part 5, OIG shall make a reasonable effort to notify Odyssey Hospice prior to any release by OIG of information submitted by Odyssey Hospice pursuant to its obligations under this CIA and identified upon submission by Odyssey Hospice as trade secrets, or information that is commercial or financial and privileged or confidential, under the FOIA rules. With respect to such releases, Odyssey Hospice shall have the rights set forth at 45 C.F.R. § 5.65(d).

BREACH AND DEFAULT PROVISIONS

Odyssey is expected to fully and timely comply with all of its CIA obligations.

A. Stipulated Penalties for Failure to Comply with Certain Obligations

As a contractual remedy, Odyssey Hospice and OIG hereby agree that failure to comply with certain obligations as set forth in this CIA may lead to the imposition of the following monetary penalties (hereinafter referred to as “Stipulated Penalties”) in accordance with the following provisions.

1. A Stipulated Penalty of $2,500 (which shall begin to accrue on the day after the date the obligation became due) for each day Odyssey Hospice fails to establish and implement any of the following obligations as described in Section III:

a. a Compliance Officer;

b. a Compliance Committee;

c. the Board Audit Committee compliance obligations;

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d. a written Code of Business Ethics and Conduct;

e. written Policies and Procedures;

f. the training of Covered Persons, Relevant Covered Persons, and Board Members;

g. a Disclosure Program;

h. Ineligible Persons screening and removal requirements;

i. notification of Government investigations or legal proceedings; and

j. reporting of Reportable Events.

2. A Stipulated Penalty of $2,500 (which shall begin to accrue on the day after the date the obligation became due) for each day Odyssey Hospice fails to engage and use an IRO, as required in Section III.D, Appendix A, Appendix C, and Appendix B if applicable under Section III.D.4.

3. A Stipulated Penalty of $2,500 (which shall begin to accrue on the day after the date the obligation became due) for each day Odyssey Hospice fails to submit the Implementation Report or any Annual Reports to OIG in accordance with the requirements of Section V by the deadlines for submission.

4. A Stipulated Penalty of $2,500 (which shall begin to accrue on the day after the date the obligation became due) for each day Odyssey Hospice fails to submit any Eligibility Review Report, Verification Review Report, or Unallowable Cost Review Report in accordance with the requirements of Section III.D, Appendix B, and Appendix C.

5. A Stipulated Penalty of $1,500 for each day Odyssey Hospice fails to grant access as required in Section VII. (This Stipulated Penalty shall begin to accrue on the date Odyssey Hospice fails to grant access.)

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6. A Stipulated Penalty of $5,000 for each false certification submitted by or on behalf of Odyssey Hospice as part of its Implementation Report, Annual Report, additional documentation to a report (as requested by the OIG), or otherwise required by this CIA.

7. A Stipulated Penalty of $1,000 for each day Odyssey Hospice fails to comply fully and adequately with any obligation of this CIA. OIG shall provide notice to Odyssey Hospice stating the specific grounds for its determination that Odyssey Hospice has failed to comply fully and adequately with the CIA obligation(s) at issue and steps Odyssey Hospice shall take to comply with the CIA. (This Stipulated Penalty shall begin to accrue 10 days after Odyssey Hospice receives this notice from OIG of the failure to comply.) A Stipulated Penalty as described in this Subsection shall not be demanded for any violation for which OIG has sought a Stipulated Penalty under Subsections 1—6 of this Section.

B. Timely Written Requests for Extensions

Odyssey Hospice may, in advance of the due date, submit a timely written request for an extension of time to perform any act or file any notification or report required by this CIA. Notwithstanding any other provision in this Section, if OIG grants the timely written request with respect to an act, notification, or report, Stipulated Penalties for failure to perform the act or file the notification or report shall not begin to accrue until one day after Odyssey Hospice fails to meet the revised deadline set by OIG. Notwithstanding any other provision in this Section, if OIG denies such a timely written request. Stipulated Penalties for failure to perform the act or file the notification or report shall not begin to accrue until three business days after Odyssey Hospice receives OIG’s written denial of such request or the original due date, whichever is later. A “timely written request” is defined as a request in writing received by OIG at least five business days prior to the date by which any act is due to be performed or any notification or report is due to be filed.

C. Payment of Stipulated Penalties

1. Demand Letter. Upon a finding that Odyssey Hospice has failed to comply with any of the obligations described in Section X.A and after determining that Stipulated Penalties are appropriate, OIG shall notify Odyssey Hospice of: (a) Odyssey Hospice’s failure to comply; and (b) OIG’s exercise of its contractual right to demand payment of the Stipulated Penalties. (This notification shall be referred to as the “Demand Letter.”)

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2. Response to Demand Letter. Within 10 days after the receipt of the Demand Letter, Odyssey Hospice shall either: (a) cure the breach to OIG’s satisfaction and pay the applicable Stipulated Penalties or (b) request a hearing before an HHS administrative law judge (ALJ) to dispute OIG’s determination of noncompliance, pursuant to the agreed upon provisions set forth below in Section X.E. In the event Odyssey Hospice elects to request an ALJ hearing, the Stipulated Penalties shall continue to accrue until Odyssey Hospice cures, to OIG’s satisfaction, the alleged breach in dispute. Failure to respond to the Demand Letter in one of these two manners within the allowed time period shall be considered a material breach of this CIA and shall be grounds for exclusion under Section X.D.

3. Form of Payment. Payment of the Stipulated Penalties shall be made by electronic funds transfer to an account specified by OIG in the Demand Letter.

4. Independence from Material Breach Determination. Except as set forth in Section X.D.l.c, these provisions for payment of Stipulated Penalties shall not affect or otherwise set a standard for OIG’s decision that Odyssey Hospice has materially breached this CIA, which decision shall be made at OIG’s discretion and shall be governed by the provisions in Section X.D, below.

D. Exclusion for Material Breach of this CIA

1. Definition of Material Breach. A material breach of this CIA means:

a. a repeated or flagrant violation of the obligations under this CIA, including, but not limited to, the obligations addressed in Section X.A;

b. a failure by Odyssey Hospice to report a Reportable Event, take corrective action, and make the appropriate refunds, as required in Section III.I;

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c. a failure to respond to a Demand Letter concerning the payment of Stipulated Penalties in accordance with Section X.C; or

d. a failure to engage and use an IRO in accordance with Section III.D, Appendix A, Appendix C, and Appendix B if applicable under Section III.D.4.

2. Notice of Material Breach and Intent to Exclude. The parties agree that a material breach of this CIA by Odyssey Hospice constitutes an independent basis for Odyssey Hospice’s exclusion from participation in the Federal health care programs. Upon a determination by OIG that Odyssey Hospice has materially breached this CIA and that exclusion is the appropriate remedy, OIG shall notify Odyssey Hospice of: (a) Odyssey Hospice’s material breach; and (b) OIG’s intent to exercise its contractual right to impose exclusion. (This notification shall be referred to as the “Notice of Material Breach and Intent to Exclude.”)

3. Opportunity to Cure. Odyssey Hospice shall have 30 days from the date of receipt of the Notice of Material Breach and Intent to Exclude to demonstrate to OIG’s satisfaction that:

a. Odyssey Hospice is in compliance with the obligations of the CIA cited by OIG as being the basis for the material breach;

b. the alleged material breach has been cured; or

c. the alleged material breach cannot be cured within the 30 day period, but that: (i) Odyssey Hospice has begun to take action to cure the material breach; (ii) Odyssey Hospice is pursuing such action with due diligence; and (iii) Odyssey Hospice has provided to OIG a reasonable timetable for curing the material breach.

4. Exclusion Letter. If, at the conclusion of the 30 day period, Odyssey Hospice fails to satisfy the requirements of Section X.D.3, OIG may exclude Odyssey Hospice from participation in the Federal health care programs. OIG shall notify Odyssey Hospice in writing of its determination to exclude Odyssey Hospice. (This letter shall be

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referred to as the “Exclusion Letter.”) Subject to the Dispute Resolution provisions in Section X.E, below, the exclusion shall go into effect 30 days after the date of Odyssey Hospice’s receipt of the Exclusion Letter. The exclusion shall have national effect and shall also apply to all other Federal procurement and nonprocurement programs. Reinstatement to program participation is not automatic. After the end of the period of exclusion, Odyssey Hospice may apply for reinstatement by submitting a written request for reinstatement in accordance with the provisions at 42 C.F.R. §§ 1001.3001-.3004.

E. Dispute Resolution

1. Review Rights. Upon OIG’s delivery to Odyssey Hospice of its Demand Letter or of its Exclusion Letter, and as an agreed-upon contractual remedy for the resolution of disputes arising under this CIA, Odyssey Hospice shall be afforded certain review rights comparable to the ones that are provided in 42 U.S.C. § 1320a-7(f) and 42 C.F.R. Part 1005 as if they applied to the Stipulated Penalties or exclusion sought pursuant to this CIA. Specifically. OIG’s determination to demand payment of Stipulated Penalties or to seek exclusion shall be subject to review by an HHS ALJ and, in the event of an appeal, the HHS Departmental Appeals Board (DAB), in a manner consistent with the provisions in 42 C.F.R. § 1005.2-1005.21. Notwithstanding the language in 42 C.F.R. § 1005.2(c), the request for a hearing involving Stipulated Penalties shall be made within 10 days after receipt of the Demand Letter and the request for a hearing involving exclusion shall be made within 25 days after receipt of the Exclusion Letter.

2. Stipulated Penalties Review. Notwithstanding any provision of Title 42 of the United States Code or Title 42 of the Code of Federal Regulations, the only issues in a proceeding for Stipulated Penalties under this CIA shall be: (a) whether Odyssey Hospice was in full and timely compliance with the obligations of this CIA for which OIG demands payment; and (b) the period of noncompliance. Odyssey Hospice shall have the burden of proving Odyssey Hospice’s full and timely compliance and the steps taken to cure the noncompliance, if any. OIG shall not have the right to appeal to the DAB an adverse ALJ decision related to Stipulated Penalties. If the ALJ agrees with OIG with regard to a finding of a breach of this CIA and orders Odyssey Hospice to pay Stipulated Penalties, such Stipulated Penalties shall become due and payable 20 days after the ALJ issues such a decision unless Odyssey Hospice requests review of the ALJ decision by the DAB. If the ALJ decision is properly appealed to the DAB and the DAB upholds the determination of OIG, the Stipulated Penalties shall become due and payable 20 days after the DAB issues its decision.

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3. Exclusion Review. Notwithstanding any provision of Title 42 of the United States Code or Title 42 of the Code of Federal Regulations, the only issues in a proceeding for exclusion based on a material breach of this CIA shall be:

a. whether Odyssey Hospice was in material breach of this CIA;

b. whether such breach was continuing on the date of the Exclusion Letter; and

c. whether the alleged material breach could not have been cured within the 30-day period, but that: (i) Odyssey Hospice had begun to take action to cure the material breach within that period; (ii) Odyssey Hospice has pursued and is pursuing such action with due diligence; and (iii) Odyssey Hospice provided to OIG within that period a reasonable timetable for curing the material breach and Odyssey Hospice has followed the timetable.

For purposes of the exclusion herein, exclusion shall take effect only after an ALJ decision favorable to OIG, or, if the ALJ rules for Odyssey Hospice, only after a DAB decision in favor of OIG. Odyssey Hospice’s election of its contractual right to appeal to the DAB shall not abrogate OIG’s authority to exclude Odyssey Hospice upon the issuance of an ALJ’s decision in favor of OIG. If the ALJ sustains the determination of OIG and determines that exclusion is authorized, such exclusion shall take effect 20 days after the ALJ issues such a decision, notwithstanding that Odyssey Hospice may request review of the ALJ decision by the DAB. If the DAB finds in favor of OIG after an ALJ decision adverse to OIG, the exclusion shall take effect 20 days after the DAB decision. Odyssey Hospice shall waive its right to any notice of such an exclusion if a decision upholding the exclusion is rendered by the ALJ or DAB. If the DAB finds in favor of Odyssey Hospice, Odyssey Hospice shall be reinstated effective on the date of the original exclusion.

4. Finality of Decision. The review by an ALJ or DAB provided for above shall not be considered to be an appeal right arising under any statutes or regulations. Consequently, the parties to this CIA agree that the DAB’s decision (or the ALJ’s decision if not appealed) shall be considered final for all purposes under this CIA.

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I. EFFECTIVE AND BINDING AGREEMENT

Odyssey, Odyssey Hospice, and OIG agree as follows:

A. This CIA shall be binding on the successors, assigns, and transferees of Odyssey Hospice.

B. This CIA shall become final and binding on the date the final signature is obtained on the CIA.

C. This CIA constitutes the complete agreement between the parties and may not be amended except by written consent of the parties to this CIA.

D. OIG may agree to a suspension of Odyssey Hospice’s obligations under this CIA based on a certification by Odyssey Hospice that it is no longer providing health care items or services that will be billed to any Federal health care program and that it does not have any ownership or control interest, as defined in 42 U.S.C. §1320a-3, in any entity that bills any Federal health care program. If Odyssey Hospice is relieved of its CIA obligations, Odyssey Hospice will be required to notify OIG in writing at least 30 days in advance if Odyssey Hospice plans to resume providing health care items or services that are billed to any Federal health care program or to obtain an ownership or control interest in any entity that bills any Federal health care program. At such time, OIG shall evaluate whether the CIA will be reactivated or modified.

E. The undersigned Odyssey and Odyssey Hospice signatories represent and warrant that they are authorized to execute this CIA. The undersigned OIG signatory represents that he is signing this CIA in his official capacity and that he is authorized to execute this CIA.

F. This CIA may be executed in counterparts, each of which constitutes an original and all of which constitute one and the same CIA. Facsimiles of signatures shall constitute acceptable, binding signatures for purposes of this CIA.

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ON BEHALF OF THE OFFICE OF INSPECTOR GENERAL

OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES

/s/ Gregory E. Demske	2/13/12
GREGORY E. DEMSKE	DATE
Assistant Inspector General for Legal Affairs Office of Inspector General U. S. Department of Health and Human Services

/s/ Laura E. Ellis	2-9-12
LAURA E. ELLIS	DATE
Senior Counsel Office of Inspector General U. S. Department of Health and Human Services

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ON BEHALF OF ODYSSEY HEATHCARE, INC. AND ODYSSEY HOSPICE

/s/ John Camperlengo	2/6/12
JOHN CAMPERLENGO	DATE
General Counsel Odyssey Healthcare, Inc.

/s/ Gary W. Eiland	2-7-12
GARY W. EILAND (as to form only)	DATE
King & Spalding, LLP Counsel to Odyssey Healthcare, Inc.

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APPENDIX A

INDEPENDENT REVIEW ORGANIZATION

This Appendix contains the requirements relating to the Independent Review Organization (IRO) required by Section III.D of the CIA.

A. IRO Engagement

1. Odyssey Hospice shall engage an IRO that possesses the qualifications set forth in Paragraph B, below, to perform the responsibilities in Paragraph C, below. The IRO shall conduct the review in a professionally independent and objective fashion, as set forth in Paragraph D. Within 30 days after OIG receives the information identified in Section V.A.8 of the CIA or any additional information submitted by Odyssey Hospice in response to a request by OIG, whichever is later, OIG will notify Odyssey Hospice if the IRO is unacceptable. Absent notification from OIG that the IRO is unacceptable, Odyssey Hospice may continue to engage the IRO.

2. If Odyssey Hospice engages a new IRO during the term of the CIA, this IRO shall also meet the requirements of this Appendix. If a new IRO is engaged, Odyssey Hospice shall submit the information identified in Section V.A.8 of the CIA to OIG within 30 days of engagement of the IRO. Within 30 days after OIG receives this information or any additional information submitted by Odyssey Hospice at the request of OIG, whichever is later, OIG will notify Odyssey Hospice if the IRO is unacceptable. Absent notification from OIG that the IRO is unacceptable, Odyssey Hospice may continue to engage the IRO.

B. IRO Qualifications

The IRO shall:

1. assign individuals to conduct the Verification Review, the Eligibility Review if required by OIG under Section III.D.4 of the CIA, and the Unallowable Cost Review who have expertise in the clinical, billing, and other standards and requirements of the hospice industry and Federal health care programs hospice eligibility requirements;

2. assign individuals to design and select the Verification Review, and the Eligibility Review, if applicable, sample who are knowledgeable about the appropriate statistical sampling techniques;

3. assign individuals to conduct the Verification Review, and the Eligibility Review, if applicable, of patient records who are licensed registered nurses or physicians (“Eligibility Reviewers”) with demonstrated hospice experience or expertise; and

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4. have sufficient staff and resources to conduct the reviews required by the CIA on a timely basis.

C. IRO Responsibilities

The IRO shall:

1. perform each Verification Review. Eligibility Review, if applicable, and Unallowable Cost Review in accordance with the specific requirements of the CIA;

2. follow all applicable Medicare rules and applicable hospice eligibility guidance in making assessments in the Verification Review, or Eligibility Review if applicable;

3. if in doubt of the application of a particular Medicare policy or regulation, request clarification from the appropriate authority (e.g., fiscal intermediary or carrier);

4. respond to all OIG inquires in a prompt, objective, and factual manner; and

5. prepare timely, clear, well-written reports that include all the information required by Appendix B to the CIA.

D. IRO Independence and Objectivity

The IRO must perform the Verification Review, and the Eligibility Review, if applicable, in a professionally independent and objective fashion, as defined in the Government Auditing Standards (July 2007 Revision) issued by the United States Government Accountability Office.

E. IRO Removal/Termination

1. Provider and IRO. If Odyssey Hospice terminates its IRO or if the IRO withdraws from the engagement during the term of the CIA, Odyssey Hospice must submit a notice explaining its reasons for termination or the reason for withdrawal to OIG no later than 30 days after termination or withdrawal. Odyssey Hospice must engage a new IRO in accordance with Paragraph A of this Appendix and within 60 days of termination or withdrawal of the prior IRO or at least 60 days prior to the end of the current Reporting Period, whichever is earlier.

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2. OIG Removal of IRO. In the event OIG has reason to believe the IRO does not possess the qualifications described in Paragraph B, is not independent and objective as set forth in Paragraph D, or has failed to carry out its responsibilities as described in Paragraph C, OIG may, at its sole discretion, require Odyssey Hospice to engage a new IRO in accordance with Paragraph A of this Appendix. Odyssey Hospice must engage a new IRO within 60 days of termination of the prior IRO or at least 60 days prior to the end of the current Reporting Period, whichever is earlier.

Prior to requiring Odyssey Hospice to engage a new IRO, OIG shall notify Odyssey Hospice of its intent to do so and provide a written explanation of why OIG believes such a step is necessary. To resolve any concerns raised by OIG, Odyssey Hospice may present additional information regarding the IRO’s qualifications, independence or performance of its responsibilities. OIG will attempt in good faith to resolve any differences regarding the IRO with Odyssey Hospice prior to requiring Odyssey Hospice to terminate the IRO. However, the final determination as to whether or not to require Odyssey Hospice to engage a new IRO shall be made at the sole discretion of OIG.

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APPENDIX B

ELIGIBILITY REVIEW

A. Eligibility Review. The Eligibility Review Team shall perform the Eligibility Review annually to cover each of the five Reporting Periods. Subject to the IRO Verification Review and Section III.D.4 of the CIA, as applicable, the Eligibility Review Team shall perform all components of each Eligibility Review.

1. Definitions. For the purposes of the Eligibility Review, the following definitions shall be used:

a. Eligibility Review Team: A team of internal auditors within Odyssey Hospice consisting of the Compliance Officer, the internal review team of Odyssey Hospice, and an outside consultant.

i. The Eligibility Review team members who review the patient records and the outside consultant shall be licensed registered nurses or physicians with demonstrated hospice experience, or expertise.

ii. The Eligibility Review Team shall assign individuals to design and select the Eligibility Review sample who are knowledgeable about the appropriate statistical sampling techniques.

b. Overpayment: The amount of money Odyssey Hospice has received in excess of the amount due and payable under any Federal health care program requirements.

c. Patient: A Medicare patient for whom Odyssey Hospice submitted a claim.

d. Paid Claim: A claim submitted by Odyssey Hospice and for which Odyssey Hospice has received reimbursement from the Medicare program.

e. Population: The Population shall be defined as all Paid Claims during the 12-month period covered by the Eligibility Review.

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f. Error Rate: The Error Rate shall be the percentage of net Overpayments identified in the sample. The net Overpayments shall be calculated by subtracting all under payments identified in the sample from all gross Overpayments identified in the sample.

2. Discovery Sample. The Eligibility Review Team shall randomly select two hospices from each region within Odyssey Hospice for a total of 10 hospices. The Eligibility Review Team shall randomly select and review a sample of 50 Paid Claims from each hospice paid during the 12-month period covered by the Eligibility Review (Discovery Sample). The Paid Claims shall be reviewed based on the supporting documentation available at Odyssey Hospice’s office or under Odyssey Hospice’s control, including the Patient’s medical record, and eligibility criteria regulations and guidance, to determine whether a certification was made for the period in which the claim was filed that the Patient had a terminal diagnosis and whether the evidence in the medical record supports the terminal diagnosis. If the Paid Claim includes continuous care services, the Eligibility Review Team shall determine whether evidence in the record supports a determination that the Patient was eligible for continuous care services. For any Paid Claim in which the Eligibility Review Team determines that no certification was made, that the evidence in the record does not support the terminal diagnosis, or that the evidence in the record does not support a determination that the Patient was eligible for continuous care services, the Eligibility Review Team shall review all prior and subsequent claims for the Patient to determine whether a certification was made that the Patient had a terminal diagnosis, whether the evidence in the record supports the terminal diagnosis, and whether the evidence in the record supports eligibility for continuous care services if Odyssey Hospice submitted any claim for continuous care services.

If the Error Rate (as defined above) for a Discovery Sample is less than 5%, no additional sampling is required, nor is a Systems Review required. (Note: The guidelines listed above do not imply that this is an acceptable error rate. Accordingly, Odyssey Hospice should, as appropriate, further analyze any errors identified in the Discovery Samples. Odyssey Hospice recognizes that OIG or other HHS component, in its discretion and as authorized by statute, regulation, or other appropriate authority may also analyze or review Paid Claims included, or errors identified, in a Discovery Sample or any other segment of the universe.)

3. Full Sample. If a Discovery Sample for a hospice indicates that the Error Rate is 5% or greater, the Eligibility Review Team shall select an additional sample of Paid Claims (Full Sample) from that hospice using commonly accepted sampling methods. The Full Sample shall be designed to: (1) estimate the actual Overpayment in the population with a 90% confidence level and with a maximum relative precision of 25% of the point estimate; and (2) conform with the Centers for Medicare and Medicaid Services’ statistical sampling for overpayment estimation guidelines. The Eligibility

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Review Team shall perform the same review for the Paid Claims selected for the Full Sample as it performed for the Discovery Sample. For purposes of calculating the size of the Full Sample, the Discovery Sample may serve as the probe sample, if statistically appropriate. Additionally, the Eligibility Review Team may use the Paid Claims sampled as part of the Discovery Sample, and the corresponding findings for those Paid Claims, as part of its Full Sample, if: (1) statistically appropriate and (2) the Eligibility Review Team selects the Full Sample Paid Claims using the seed number generated by the Discovery Sample. OIG, in its sole discretion, may refer the findings of the Full Sample (and any related workpapers) received from Odyssey Hospice to the appropriate Federal health care program payor, including the Medicare contractor (e.g., carrier, fiscal intermediary, or DMERC), for appropriate follow-up by that payor.

4. Systems Review. If a Discovery Sample identifies an Error Rate of 5% or greater, the Eligibility Review Team shall also conduct a Systems Review. For each claim in the Discovery Sample that triggered the Systems Review, the Eligibility Review Team shall perform a “walk through” of the system(s) and proccss(es) used to determine eligibility to identify any problems or weaknesses that may have resulted in the identified Overpayments. The Eligibility Review Team shall provide its observations and recommendations on suggested improvements to the system(s) and the process(es) used to determine eligibility.

5. Other Requirements

a. Supplemental Materials. The Eligibility Review Team shall request all documentation and materials required for its review of the Paid Claims selected as part of the Discovery Sample or Full Sample (if applicable), and Odyssey Hospice shall furnish such documentation and materials to the Eligibility Review Team prior to the Eligibility Review Team initiating its review of the Discovery Sample or Full Sample (if applicable). If the Eligibility Review Team accepts any supplemental documentation or materials from Odyssey Hospice after the Eligibility Review Team has completed its initial review of the Discovery Sample or Full Sample (if applicable) (Supplemental Materials), the Eligibility Review Team shall identify in the Claims Review Report the Supplemental Materials, the date the Supplemental Materials were accepted, and the relative weight the Eligibility Review Team gave to the Supplemental Materials in its review. In addition, the Eligibility Review Team shall include a narrative in the Eligibility Review Report describing the process by which the Supplemental Materials were accepted and the Eligibility Review Team’s reasons for accepting the Supplemental Materials.

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b. Paid Claims without Supporting Documentation. Any Paid Claim for which Odyssey Hospice cannot produce documentation sufficient to support the Paid Claim shall be considered an error and the total reimbursement received by Odyssey Hospice for such Paid Claim shall be deemed an Overpayment. Replacement sampling for Paid Claims with missing documentation is not permitted.

c. Use of First Samples Drawn. For the purposes of all samples (Discovery Sample(s) and Full Sample(s)) discussed in this Appendix, the Paid Claims selected in each first sample shall be used (i.e., it is not permissible to generate more than one list of random samples and then select one for use with the Discovery Sample or Full Sample).

6. Repayment of Identified Overpayments. Odyssey Hospice shall repay within 30 days any Overpayment(s) identified in the Discovery Sample or the Full Sample (if applicable), regardless of the Error Rate, to the appropriate payor and in accordance with payor refund policies. Odyssey Hospice shall make available to OIG all documentation that reflects the refund of the Overpayment(s) to the payor.

B. Eligibility Review Report. The Eligibility Review Team shall prepare an Eligibility Review Report as described in this Appendix for each Eligibility Review performed. The following information shall be included in the Eligibility Review Report for each Discovery Sample and Full Sample (if applicable).

1. Eligibility Review Methodology

a. Eligibility Review Population. A description of the Population subject to the Claims Review.

b. Eligibility Review Objective. A clear statement of the objective intended to be achieved by the Eligibility Review.

c. Source of Data. A description of the specific documentation relied upon by the Eligibility Review Team when performing the Eligibility Review (e.g., medical records, physician orders, certificates of medical necessity, requisition forms, local medical review policies (including title and policy number), CMS program memoranda (including title and

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issuance number), Medicare carrier or intermediary manual or bulletins (including issue and date), other policies, regulations, or directives).

d. Review Protocol. A narrative description of how the Eligibility Review was conducted and what was evaluated.

e. Supplemental Materials. A description of any Supplemental Materials as required by A.5.a., above.

2. Statistical Sampling Documentation

a. A copy of the printout of the random numbers generated by the “Random Numbers” function of the statistical sampling software used by the Eligibility Review Team.

b. A copy of the statistical software printout(s) estimating how many Paid Claims are to be included in the Full Sample, if applicable.

c. A description or identification of the statistical sampling software package used to select the sample and determine the Full Sample size, if applicable.

3. Eligibility Review Findings

a. Narrative Results

i. A description of Odyssey Hospice’s eligibility- determination system(s), including the identification, by position description, of the personnel involved in eligibility decisions and including any regional or hospice-level systems, policies, or procedures that differ from Odyssey Hospice’s corporate systems, policies, and procedures.

ii. A narrative explanation of the Eligibility Review Team’s findings and supporting rationale (including reasons for errors, patterns noted, etc.) regarding the Eligibility Review, including the results of the Discovery Sample, and the results of the Full Sample (if any).

b. Quantitative Results

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i. Total number and percentage of instances in which the Eligibility Review Team determined that the Paid Claims submitted by Odyssey Hospice (Claim Submitted) differed from what should have been the correct claim (Correct Claim), regardless of the effect on the payment.

ii. Total number and percentage of instances in which the Claim Submitted differed from the Correct Claim and in which such difference resulted in an Overpayment to Odyssey Hospice.

iii. Total dollar amount of all Overpayments in the sample.

iv. Total dollar amount of Paid Claims included in the sample and the net Overpayment associated with the sample.

v. Error Rate in the sample.

vi. A spreadsheet of the Eligibility Review results that includes the following information for each Paid Claim: Federal health care program billed, beneficiary health insurance claim number, date(s) of service, the correct allowed amount (as determined by the Eligibility Review Team), and the dollar difference between allowed amount reimbursed by payor and the correct allowed amount.

c. Recommendations. The Eligibility Review Team’s report shall include any recommendations for improvements to Odyssey Hospice’s eligibility-determination system based on the findings of the Eligibility Review.

4. Systems Review Findings. The Eligibility Review Team shall prepare a Systems Review Report based on the Systems Review performed (if applicable) that shall include the Eligibility Review Team’s observations, findings, and recommendations regarding suggested improvements to the system(s) and the process(es) used to determine eligibility.

5. Credentials. The names and credentials of the individuals who: (1) designed the statistical sampling procedures and the review methodology utilized for the Eligibility Review and (2) performed the Eligibility Review.

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APPENDIX C

VERIFICATION REVIEW

A. Eligibility Review. The IRO shall perform the Verification Review annually to cover each of the five Reporting Periods. The IRO shall perform all components of each Verification Review.

1. Definitions. For the purposes of the Verification Review, the definitions in Section A.1 of Appendix B of the CIA shall be used.

2. Discovery Sample.

a. The IRO shall randomly select 50 Paid Claims from the 500 Paid Claims selected by the Eligibility Review Team in the Discovery Samples. The IRO shall review the Paid Claims selected by the Eligibility Review Team. The Paid Claims shall be reviewed based on the documentation and materials gathered by the Eligibility Review Team, supplemented as necessary as described in Sections A.4.b and A.4.c below, to determine whether a certification was made for the period in which the claim was filed that the Patient had a terminal diagnosis and whether the evidence in the medical record supports the terminal diagnosis. If the Paid Claim includes continuous care services, the IRO shall determine whether evidence in the record supports a determination that the Patient was eligible for continuous care services.

b. For any Paid Claim in which the Eligibility Review Team determined that no certification was made, that the evidence in the record does not support the terminal diagnosis, or that the evidence in the record does not support a determination that the Patient was eligible for continuous care services, the IRO shall review all prior and subsequent Patient claims in the Reporting Period to determine whether a certification was made that the Patient had a terminal diagnosis, whether the evidence in the record supports the terminal diagnosis, and whether the evidence in the record supports eligibility for continuous care services if Odyssey Hospice submitted any claim for continuous care services, using the documentation and materials gathered by the Eligibility Review Team, supplemented as necessary as described in Sections A.4.b and A.4.c below.

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c. For any Paid Claim for which the IRO disagrees with the Eligibility Team determination that a certification was made for the period in which the claim was filed that the Patient had a terminal diagnosis, that the evidence in the medical record supports a terminal diagnosis, or, if applicable, that the evidence in the record supports a determination that the Patient was eligible for continuous care services, the IRO shall review all prior and subsequent Patient claims in the Reporting Period to determine whether a certification was made that the Patient had a terminal diagnosis, whether the evidence in the record supports the terminal diagnosis, and whether the evidence in the record supports eligibility for continuous care services if Odyssey Hospice submitted any claim for continuous care services.

3. Full Sample. If the Eligibility Review Team performs a Full Sample, the IRO shall randomly select 10 percent of the Paid Claims comprising the Full Sample. The IRO shall perform the same review for the Paid Claims selected for the Full Sample as it performed for the Discovery Sample. The IRO may use the Paid Claims sampled as part of the Discovery Sample, and the corresponding findings for those Paid Claims, as part of its Full Sample, if: (1) statistically appropriate and (2) the Eligibility Review Team selected the Full Sample Paid Claims using the seed number generated by the Discovery Sample.

4. Other Requirements

a. Verification Review Materials. The Eligibility Review Team shall provide all documents and materials used in its review of the Discovery Sample and, if applicable, the Full Sample, prior to the IRO initiating its review. For any prior and subsequent Patient claims reviewed under Section A.2.c above, the IRO shall request all documentation and materials required for its review of the claims and Odyssey Hospice shall furnish such documentation and materials to the IRO prior to the IRO initiating that portion of its review.

b. Supplemental Record Documentation. If the IRO requests or accepts any supplemental documentation from Odyssey Hospice or the Eligibility Review Team (Supplemental Record Documentation), the IRO shall identify in the Verification Review Report the Supplemental Record Documentation, the date the Supplemental Record

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Documentation was requested or accepted, and the relative weight the IRO gave to the Supplemental Record Documentation in its review. In addition, the IRO shall include a narrative in the Verification Review Report describing the process by which the Supplemental Record Documentation was requested or accepted and the IRO’s reasons for requesting or accepting the Supplemental Documentation.

c. Supplemental Verification Materials. If the IRO relies on any materials that the Eligibility Review Team did not use in its Eligibility Review (Supplemental Verification Materials), the IRO shall identify the Supplemental Verification Materials (e.g., local medical review policies (including title and policy number), CMS program memoranda (including title and issuance number), Medicare carrier or intermediary manual or bulletins (including issue and date), other policies, regulations, or directives) and the IRO’s reasons for using the Supplemental Verification Materials.

d. Paid Claims without Supporting Documentation. Any Paid Claim for which Odyssey Hospice cannot produce documentation sufficient to support the Paid Claim shall be considered an error and the total reimbursement received by Odyssey Hospice for such Paid Claim shall be deemed an Overpayment.

5. Repayment of Identified Overpayments. Odyssey Hospice shall repay within 30 days any Overpayment(s) identified by the IRO in the Discovery Sample or the Full Sample (if applicable), regardless of the Error Rate, to the appropriate payor and in accordance with payor refund policies. Odyssey Hospice shall make available to OIG all documentation that reflects the refund of the Overpayment(s) to the payor.

B. Verification Review Report. The IRO shall prepare a Verification Review Report as described in this Appendix for each Verification Review performed. The following information shall be included in the Verification Review Report for each Discovery Sample and Full Sample (if applicable).

1. Verification Review Methodology

a. Verification Review Population. A description of the Population subject to the Claims Review.

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b. Verification Review Objective. A clear statement of the objective intended to be achieved by the Verification Review.

c. Source of Data. A description of the Verification Review Materials that the Eligibility Review Team, and, for claims reviewed under Section A.2.c above, Odyssey Hospice, provided.

d. Review Protocol. A narrative description of how the Eligibility Review was conducted and what was evaluated.

e. Supplemental Materials. A description of any Supplemental Record Documentation and Supplemental Verification Materials as required by Sections A.4.b and A.4.c, above.

2. Eligibility Review Findings

a. Narrative Results

i. A narrative explanation of the IRO’s findings and supporting rationale (including reasons for errors, patterns noted, etc.) regarding the Verification Review, including the results of the Discovery Sample, and the results of the Full Sample (if any).

ii. A narrative description of the differences, if any, between the Eligibility Review Team’s and the IRO’s findings and supporting rationale.

iii. The IRO’s observations and recommendations on the Eligibility Review Team’s performance of the Eligibility Review.

b. Quantitative Results

i. Total number and percentage of instances in which the IRO’s determination regarding whether the Paid Claims submitted by Odyssey Hospice (Claim Submitted) differed from what should have been the correct claim (Correct Claim) (IRO Results) was different than the Eligibility Review Team’s determination (Eligibility Review Team Results), regardless of the effect on the payment.

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ii. Total number and percentage of instances in which the IRO Results differed from the Eligibility Review Team Results and in which such difference resulted in an Overpayment to Odyssey Hospice.

iii. The IRO Results’ total dollar amount of all Overpayments in the sample, and the difference from the Eligibility Review Team Results’ total dollar amount of all Overpayments in the sample.

iv. Total dollar amount of Paid Claims included in the sample and the net Overpayment associated with the sample.

v. Error Rate in the sample.

vi. A spreadsheet of the Verification Review results that includes the following information for each Paid Claim: Federal health care program billed, beneficiary health insurance claim number, date(s) of service, the allowed amount reimbursed by the payor, the allowed amount as determined by the Eligibility Review Team, the correct allowed amount as determined by the IRO, and the dollar difference between allowed amount reimbursed by payor and the correct allowed amount.

c. Recommendations. The IRO’s report shall include any recommendations for improvements to Odyssey Hospice’s eligibility-determination system based on the findings of the Verification Review.

3. Credentials. The names and credentials of the individuals who: (1) designed the statistical sampling procedures and the review methodology utilized for the Verification Review and (2) performed the Verification Review.

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Tony Strange, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2012

/s/ Tony Strange

Tony Strange

Chairman, Chief Executive Officer and President

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Eric R. Slusser, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2012

/s/ Eric R. Slusser

Eric R. Slusser

Executive Vice President,

Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

Furnished (but not filed) as an exhibit to the periodic report identified in the Certification.

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 ended March 31, 2012 as filed with the Securities and Exchange Commission (the “Report”), I, Tony Strange, Chairman, Chief Executive Officer and President, 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: May 9, 2012	/s/ Tony Strange
	Tony Strange
	Chairman, Chief Executive Officer and President

EX-32.2

Exhibit 32.2

Furnished (but not filed) as an exhibit to the periodic report identified in the Certification.

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 ended March 31, 2012 as filed with the Securities and Exchange Commission (the “Report”), I, Eric R. Slusser, Executive Vice President, Chief Financial Officer and Treasurer 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: May 9, 2012	/s/ Eric R. Slusser
	Eric R. Slusser
	Executive Vice President, Chief Financial Officer and Treasurer

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Acquisitions And Dispositions

3 Months Ended

Mar. 31, 2012

Acquisitions And Dispositions [Abstract]

Acquisitions And Dispositions

Note 4. Acquisitions and Dispositions

Dispositions

Homemaker Services Agency and Rehab Without Walls^® Dispositions

Effective October 14, 2011, the Company completed the sale of its IDOA business to Premier Home Health Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $2.4 million, consisting of (i) cash proceeds of approximately $2.0 million and (ii) an escrow fund of approximately $0.4 million, to be received by the Company subject to certain post closing conditions. During the first quarter of 2012, the Company reduced the escrow fund receivable to approximately $0.3 million as a result of certain post closing conditions.

Effective September 10, 2011, the Company completed the sale of its Rehab Without Walls^® business to Southern Home Care Services, Inc., pursuant to an asset purchase agreement, for total consideration of approximately $9.8 million. The consideration consisted of (i) cash proceeds of approximately $9.2 million and (ii) an escrow fund of approximately $0.6 million that will be received by the Company subject to certain post closing conditions.

Net revenues and operating results for the first quarter of 2011 for the homemaker services agency business in Illinois, the Rehab Without Walls^® business as well as a $0.3 million change in settlement of the Company's post closing liabilities in connection with the 2010 sale of its HME and IV businesses were as follows (in thousands):

	First Quarter 2011
Net revenues	$	7,706
Income before income taxes	$	741
Income tax expense		294
Discontinued operations, net of tax	$	447

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Accounting Policies

3 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Accounting Policies

Note 3. Accounting Policies

Cash and Cash Equivalents

The Company considers all investments with a maturity date three months or less from their date of acquisition to be cash equivalents, including money market funds invested in U.S. Treasury securities, short-term treasury bills and commercial paper. Cash and cash equivalents also included amounts on deposit with several major financial institutions in excess of the maximum amount insured by the Federal Deposit Insurance Corporation. Management believes that these major financial institutions are viable entities.

The Company had operating funds of approximately $5.4 million and $5.0 million at March 31, 2012 and December 31, 2011, respectively, which relate exclusively to a non-profit hospice operation managed in Florida.

Investments

At March 31, 2012 and December 31, 2011, the Company had no remaining ownership interest in CareCentrix Holdings Inc. See Note 7 for additional information.

At March 31, 2012 and December 31, 2011, the Company had assets of $29.2 million and $26.3 million, respectively, held in a Rabbi Trust for the benefit of participants of the Company's non-qualified defined contribution retirement plan. The corresponding amounts payable to the plan participants are equivalent to the underlying value of the assets held in the Rabbi Trust. Assets held in a Rabbi Trust and amounts payable to plan participants are classified in other assets and other liabilities, respectively, in the Company's consolidated balance sheets.

Debt Issuance Costs

The Company amortizes deferred debt issuance costs over the term of its credit agreement and senior notes. As of March 31, 2012 and December 31, 2011, the Company had unamortized debt issuance costs of $54.1 million and $53.7 million, respectively, recorded in other assets in the Company's consolidated balance sheets. During the first quarter of 2012, the Company incurred incremental debt issuance costs of approximately $5.3 million in connection with an amendment to the Company's Term Loan A, Term Loan B and revolving credit facilities. Approximately $4.1 million of these costs have been capitalized and are being amortized over the remaining life of the debt using an effective interest rate methodology. In addition, the Company wrote off prepaid debt issuance costs of approximately $0.5 million, which is reflected in interest expense in the Company's consolidated statement of comprehensive income, associated with the reduction in the revolving credit facility.

During the first quarter of 2011, the Company (i) incurred incremental debt issuance costs of approximately $10.9 million and (ii) recorded a write-off of deferred debt issuance costs of approximately $3.5 million in connection with the refinancing of the Company's Term Loan A and Term Loan B under the Company's senior secured credit agreement. See Note 11 for additional information.

Fixed Assets

Fixed assets, including costs of Company developed software, are stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the life of the lease or the life of the improvement. Repairs and maintenance costs are expensed as incurred. As of March 31, 2012 and December 31, 2011, fixed assets, net were $45.7 million and $46.2 million, respectively.

Goodwill and Other Indefinite-Lived Intangible Assets

The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and between annual tests if current events or circumstances require an interim impairment assessment. The Company allocates goodwill to its various operating units. The Company compares the fair value of each operating unit to its carrying amount to determine if there is potential goodwill impairment. If the fair value of an operating unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the operating unit is less than the carrying value of its goodwill. To determine the fair value of the Company's operating units, the Company uses a present value (discounted cash flow) technique corroborated by market multiples when available, or other valuation methodologies, as appropriate.

If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.

During 2011, the Company determined a triggering event had occurred and performed an interim impairment test of its identifiable intangible assets and goodwill. The Company recorded a non-cash charge to reduce the carrying value of certain identifiable intangible assets, as well as goodwill, to their estimated fair values. See Note 9 for additional information.

The Company also completed its annual impairment test of goodwill and indefinite-lived intangible assets for the Company's operating units as of December 31, 2011, which indicated that there was no additional impairment.

Obligations Under Self Insurance Programs

As of March 31, 2012 and December 31, 2011, the Company's obligations under insurance programs were $56.6 million and $55.0 million, respectively. The increase is primarily attributable to the increase in and timing of payments.

Workers' compensation and professional and general liability expenses associated with continuing operations were $4.7 million for the first quarter of 2012, as compared to $4.1 million for the corresponding period of 2011. The Company's workers' compensation and professional and general liability costs relating to discontinued operations were approximately $0.2 million for the first quarter of 2011.

Employee health and welfare expenses associated with continuing operations were $23.6 million for the first quarter of 2012, as compared to $20.1 million for the corresponding period of 2011, primarily related to an increased cost of claims. The Company's employee health and welfare expenses relating to discontinued operations were approximately $0.2 million for the first quarter of 2011.

Nursing Home Costs

For patients receiving nursing home care under a state Medicaid program who elect hospice care under Medicare or Medicaid, the Company contracts with nursing homes for the nursing homes to provide patients' room and board services. The state must pay the Company, in addition to the applicable Medicare or Medicaid hospice daily or hourly rate, an amount equal to at least 95 percent of the Medicaid daily nursing home rate for room and board furnished to the patient by the nursing home. Under the Company's standard nursing home contracts, the Company pays the nursing home for these room and board services at the Medicaid daily nursing home rate. Nursing home costs are partially offset by nursing home net revenue, and the net amount is included in cost of services sold in the Company's consolidated statements of comprehensive income.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 72,762	$ 164,912
Accounts receivable, less allowance for doubtful accounts of $12,829 and $11,562 at March 31, 2012 and December 31, 2011, respectively	312,768	290,589
Deferred tax assets, net	17,472	26,451
Prepaid expenses and other current assets	48,726	38,379
Total current assets	451,728	520,331
Note receivable from CareCentrix	25,000	25,000
Fixed assets, net	45,682	46,246
Intangible assets, net	211,802	214,874
Goodwill	641,669	641,669
Other assets	85,492	82,208
Total assets	1,461,373	1,530,328
LIABILITIES AND EQUITY
Current portion of long-term debt	9,193	14,903
Accounts payable	15,943	12,613
Payroll and related taxes	32,679	42,027
Deferred revenue	39,797	34,114
Medicare liabilities	24,553	23,066
Obligations under insurance programs	56,598	54,976
Accrued nursing home costs	26,047	24,223
Other accrued expenses	53,080	89,270
Total current liabilities	257,890	295,192
Long-term debt	928,932	973,222
Deferred tax liabilities, net	30,050	32,498
Other liabilities	34,776	26,885
Equity:
Common stock, $0.10 par value; authorized 100,000,000 shares; issued 31,557,654 and 31,435,264 shares at March 31, 2012 and December 31, 2011, respectively	3,158	3,144
Additional paid-in capital	390,125	387,803
Retained (deficit)	(173,291)	(178,131)
Treasury stock, 655,802 shares at both March 31, 2012 and December 31, 2011	(12,878)	(12,878)
Total Gentiva shareholders' equity	207,114	199,938
Noncontrolling interests	2,611	2,593
Total equity	209,725	202,531
Total liabilities and equity	$ 1,461,373	$ 1,530,328

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Background And Basis Of Presentation

3 Months Ended

Mar. 31, 2012

Background And Basis Of Presentation [Abstract]

Background And Basis Of Presentation

Note 1. Background and Basis of Presentation

Gentiva Health Services, Inc. ("Gentiva" or the "Company") provides home health services and hospice care throughout most of the United States. The Company's continuing operations involve servicing its patients and customers through (i) its Home Health segment and (ii) its Hospice segment.

Effective October 14, 2011, the Company sold its homemaker services agency business in Illinois ("IDOA") pursuant to an asset purchase agreement. The financial results of this business are presented as discontinued operations in the Company's consolidated financial statements for the three months ended March 31, 2011. See Note 4 for additional information.

Effective September 10, 2011, the Company completed the sale of its Rehab Without Walls^® business. The financial results of the Rehab Without Walls^® business are presented as discontinued operations in the Company's consolidated financial statements for the three months ended March 31, 2011. See Note 4 for additional information.

The accompanying interim consolidated financial statements are unaudited, and have been prepared by the Company using accounting principles consistent with those described in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, include all adjustments necessary for a fair statement of financial position, results of operations and cash flows for each period presented. Certain information and disclosures normally included in the consolidated statements of financial position, comprehensive income and cash flows prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. 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.

The Company's consolidated financial statements include the accounts and operations of the Company and its subsidiaries in which the Company owns more than a 50 percent interest. Noncontrolling interests, which relate to the minority ownership held by third party investors in certain of the Company's hospice programs, are reported below net income under the heading "Net income attributable to noncontrolling interests" in the Company's consolidated statements of comprehensive income and presented as a component of equity in the Company's consolidated balance sheets. All balances and transactions between the consolidated entities have been eliminated.

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Supplemental Guarantor And Non-Guarantor Financial Information

3 Months Ended

Mar. 31, 2012

Supplemental Guarantor And Non-Guarantor Financial Information [Abstract]

Supplemental Guarantor And Non-Guarantor Financial Information

Note 17. Supplemental Guarantor and Non-Guarantor Financial Information

Gentiva's guarantor subsidiaries are guarantors to the Company's debt securities which are registered under the Securities Act of 1933, as amended. The condensed consolidating financial statements presented below are provided pursuant to Rule 3-10 of Regulation S-X. Separate financial statements of each subsidiary guaranteeing Gentiva's debt securities are not presented because the guarantor subsidiaries are jointly and severally, fully and unconditionally liable under the guarantees, and 100 percent owned by the Company. There are no restrictions on the ability to obtain funds from these subsidiaries by dividends or other means.

The following condensed consolidating financial statements include the balance sheets as of March 31, 2012 and December 31, 2011, statements of comprehensive income for the three months ended March 31, 2012 and 2011 and statements of cash flows for the three months ended March 31, 2012 and 2011 of (i) Gentiva Health Services, Inc. (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) its guarantor subsidiaries, (iii) its non-guarantor subsidiaries, and (iv) the eliminations necessary to arrive at the information for the Company on a consolidated basis.

Condensed Consolidating Balance Sheet

March 31, 2012

(In thousands)

	Gentiva Health		Guarantor		Non-Guarantor					Consolidated
	Services, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	31,128	$	—	$	41,634	$	—		$	72,762
Receivables, net		—		305,683		26,430		(19,345	)		312,768
Deferred tax assets, net		—		15,085		2,387		—			17,472
Prepaid expenses and other current assets		—		40,709		8,374		(357	)		48,726
Total current assets		31,128		361,477		78,825		(19,702	)		451,728
Note receivable from CareCentrix		—		25,000		—		—			25,000
Fixed assets, net		—		45,367		315		—			45,682
Intangible assets, net		—		211,702		100		—			211,802
Goodwill		—		635,605		6,064		—			641,669
Investment in subsidiaries		1,114,111		27,297		—		(1,141,408	)		—
Other assets		—		85,485		7		—			85,492
Total assets	$	1,145,239	$	1,391,933	$	85,311	$	(1,161,110	)	$	1,461,373
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	9,193	$	—	$	—	$	—		$	9,193
Accounts payable		—		34,494		794		(19,345	)		15,943
Other current liabilities		—		178,522		54,589		(357	)		232,754
Total current liabilities		9,193		213,016		55,383		(19,702	)		257,890
Long-term debt		928,932		—		—		—			928,932
Deferred tax liabilities, net		—		30,050		—		—			30,050
Other liabilities				34,756		20					34,776
Total Gentiva shareholders' equity		207,114		1,114,111		27,297		(1,141,408	)		207,114
Noncontrolling interests		—		—		2,611		—			2,611
Total equity		207,114		1,114,111		29,908		(1,141,408	)		209,725
Total liabilities and equity	$	1,145,239	$	1,391,933	$	85,311	$	(1,161,110	)	$	1,461,373

Condensed Consolidating Balance Sheet

December 31, 2011

(In thousands)

	Gentiva Health		Guarantor		Non-Guarantor					Consolidated
	Services, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	124,101	$	—	$	40,811	$	—		$	164,912
Receivables, net		—		283,552		18,168		(11,131	)		290,589
Deferred tax assets, net		—		24,560		1,891		—			26,451
Prepaid expenses and other current assets		—		32,619		6,904		(1,144	)		38,379
Total current assets		124,101		340,731		67,774		(12,275	)		520,331
Note receivable from CareCentrix		—		25,000		—		—			25,000
Fixed assets, net		—		45,917		329		—			46,246
Intangible assets, net		—		214,774		100		—			214,874
Goodwill		—		635,605		6,064		—			641,669
Investment in subsidiaries		1,063,962		25,173		—		(1,089,135	)		—
Other assets		—		82,200		8		—			82,208
Total assets	$	1,188,063	$	1,369,400	$	74,275	$	(1,101,410	)	$	1,530,328
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	14,903	$	—	$	—	$	—		$	14,903
Accounts payable		—		22,913		831		(11,131	)		12,613
Other current liabilities		—		223,165		45,655		(1,144	)		267,676
Total current liabilities		14,903		246,078		46,486		(12,275	)		295,192
Long-term debt		973,222		—		—		—			973,222
Deferred tax liabilities, net		—		32,498		—		—			32,498
Other liabilities				26,862		23					26,885
Total Gentiva shareholders' equity		199,938		1,063,962		25,173		(1,089,135	)		199,938
Noncontrolling interests		—		—		2,593		—			2,593
Total equity		199,938		1,063,962		27,766		(1,089,135	)		202,531
Total liabilities and equity	$	1,188,063	$	1,369,400	$	74,275	$	(1,101,410	)	$	1,530,328

Condensed Consolidating Statement of Comprehensive Income

For the Three Months Ended March 31, 2012

(In thousands)

	Gentiva Health			Guarantor			Non-Guarantor						Consolidated
	Services, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Net revenues	$	—		$	424,353		$	14,312		$	(3,013	)	$	435,652
Cost of services sold		—			229,527			6,347			(3,013	)		232,861
Gross profit		—			194,826			7,965			—			202,791
Selling, general and administrative expenses		—			(169,549	)		(4,158	)		—			(173,707	)
Interest (expense) income and other, net		(21,543	)		—			41			—			(21,502	)
Equity in earnings of subsidiaries		17,561			2,059			—			(19,620	)		—
(Loss) income from continuing operations before income taxes		(3,982	)		27,336			3,848			(19,620	)		7,582
Income tax benefit (expense)		8,822			(9,775	)		(1,576	)		—			(2,529	)
Net income		4,840			17,561			2,272			(19,620	)		5,053
Noncontrolling interests		—			—			(213	)		—			(213	)
Net income attributable to Gentiva shareholders	$	4,840		$	17,561		$	2,059		$	(19,620	)	$	4,840
Comprehensive income	$	4,840		$	17,561		$	2,272		$	(19,620	)	$	5,053

Condensed Consolidating Statement of Comprehensive Income

For the Three Months March 31, 2011

(In thousands)

	Gentiva Health			Guarantor			Non-Guarantor						Consolidated
	Services, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Net revenues	$	—		$	440,782		$	13,338		$	(3,011	)	$	451,109
Cost of services sold		—			227,269			6,498			(3,011	)		230,756
Gross profit		—			213,513			6,840			—			220,353
Selling, general and administrative expenses		—			(169,125	)		(3,608	)		—			(172,733	)
Interest (expense) and other, net		(26,889	)		—			6			—			(26,883	)
Equity in earnings of subsidiaries		29,612			2,043			—			(31,655	)		—
Income from continuing operations before income taxes and equity in net earnings of CareCentrix		2,723			46,431			3,238			(31,655	)		20,737
Income tax benefit (expense)		10,729			(17,701	)		(1,147	)		—			(8,119	)
Equity in net earnings of CareCentrix		—			554			—			—			554
Income from continuing operations		13,452			29,284			2,091			(31,655	)		13,172
Discontinued operations, net of tax		—			328			119			—			447
Net income		13,452			29,612			2,210			(31,655	)		13,619
Noncontrolling interests		—			—			(167	)		—			(167	)
Net income attributable to Gentiva shareholders	$	13,452		$	29,612		$	2,043		$	(31,655	)	$	13,452
Comprehensive income	$	12,974		$	29,612		$	2,210		$	(31,655	)	$	13,141

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2012

(In thousands)

	Gentiva Health			Guarantor			Non-Guarantor					Consolidated
	Services, Inc.			Subsidiaries			Subsidiaries			Eliminations		Total
OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(5,497	)	$	(30,212	)	$	1,004		$	—	$	(34,705	)
INVESTING ACTIVITIES:
Purchase of fixed assets		—			(3,787	)		(6	)		—		(3,793	)
Net cash used in investing activities		—			(3,787	)		(6	)		—		(3,793	)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock		705			—			—			—		705
Repayment of long-term debt		(50,000	)		—			—			—		(50,000	)
Debt issuance costs		(4,125	)		—			—			—		(4,125	)
Repayment of capital lease obligations		(37	)		—			—			—		(37	)
Other		—			(20	)		(175	)		—		(195	)
Net payuments related to intercompany financing		(34,019	)		34,019			—			—		—
Net cash (used in) provided by financing activities		(87,476	)		33,999			(175	)		—		(53,652	)
Net change in cash and cash equivalents		(92,973	)		—			823					(92,150	)
Cash and cash equivalents at beginning of period		124,101			—			40,811			—		164,912
Cash and cash equivalents at end of period	$	31,128		$	—		$	41,634		$	—	$	72,762

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2011

(In thousands)

	Gentiva Health			Guarantor			Non-Guarantor					Consolidated
	Services, Inc.			Subsidiaries			Subsidiaries			Eliminations		Total
OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities	$	(8,295	)	$	10,853		$	163		$	—	$	2,721
INVESTING ACTIVITIES:
Purchase of fixed assets		—			(3,211	)		(106	)		—		(3,317	)
Net cash used in investing activities		—			(3,211	)		(106	)		—		(3,317	)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock		4,652			—			—			—		4,652
Windfall tax benefits associated with equity-based compensation		194			—			—			—		194
Repayment of long-term debt		(3,438	)		—			—			—		(3,438	)
Debt issuance costs		(13,457	)		—			—			—		(13,457	)
Repayment of capital lease obligations		(76	)		—			—			—		(76	)
Other		—			64			(303	)		—		(239	)
Net payments related to intercompany financing		7,706			(7,706	)		—			—		—
Net cash used in financing activities		(4,419	)		(7,642	)		(303	)		—		(12,364	)
Net change in cash and cash equivalents		(12,714	)		—			(246	)		—		(12,960	)
Cash and cash equivalents at beginning of period		63,816			—			40,936			—		104,752
Cash and cash equivalents at end of period	$	51,102		$	—		$	40,690		$	—	$	91,792

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

On September 15, 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-08, Intangibles—Goodwill and Other (Topic 350), which provides final guidance on goodwill impairment that gives companies the option to perform a qualitative assessment that may allow them to skip the annual two-step quantitative test and reduce costs. ASU 2011-08 gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step quantitative test. Otherwise, a company can skip the two-step quantitative test. The ASU is effective for the year beginning January 1, 2012 for the Company. The adoption of ASU 2011-08 did not have a material impact on the Company's consolidated financial statements.

In July 2011, the FASB issued ASU 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities, which requires health care organizations that do not assess the collectibility of a receivable before recognizing revenue to present their provision for bad debt related to patient service revenue as a deduction from revenue on the face of the statement of comprehensive income. Enhanced disclosure about policies for recognizing revenue, assessing bad debts and qualitative and quantitative information about changes in the allowance for doubtful accounts also are required. The guidance is effective for the first quarter of 2012 for the Company. The adoption of ASU 2011-07 did not have a material impact on the Company's consolidated financial statements as the Company currently evaluates the collectibility of a receivable before recognizing revenue.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in shareholders' equity. ASU 2011-05 requires that all items of net income, items of other comprehensive income and total comprehensive income be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is required for the quarter ending on or after March 31, 2012 and must be applied retrospectively. The Company adopted the updated presentation required by ASU 2011-05 as further amended by ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, for the Company's March 31, 2012 consolidated financial statements and retrospectively applied the updated presentation to the March 31, 2011 consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 primarily clarifies existing concepts in accounting principles generally accepted in the United States of America. However, ASU 2011-04 requires new disclosures for Level 3 fair value measurements including quantitative information about significant unobservable inputs, the valuation process in place for all Level 3 measurements, and a narrative description of the sensitivity of recurring Level 3 fair value measurements to changes in the unobservable inputs used. In addition, ASU 2011-04 requires disclosure of transfers between Level 1 and Level 2 of the fair value hierarchy, the hierarchy classification for assets and liabilities whose fair value is disclosed only in the footnotes, and, if applicable, the reason nonfinancial assets measured at fair value are being used in a manner that differs from their highest and best use. ASU 2011-04 is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on the Company's consolidated financial statements.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 12,829	$ 11,562
Common stock, par value	$ 0.10	$ 0.10
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	31,557,654	31,435,264
Treasury stock, shares	655,802	655,802

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Equity

3 Months Ended

Mar. 31, 2012

Equity [Abstract]

Equity

Note 12. Equity

Changes in equity for the three months ended March 31, 2012 and 2011 were as follows (in thousands, except share amounts):

	Gentiva Shareholders
										Accumulated
					Additional		Retained			Other
	Common Stock				Paid-in		Earnings			Comprehensive			Treasury			Noncontrolling
	Shares		Amount		Capital		(Deficit)			Income (Loss)			Stock			Interests			Total
Balance at December 31, 2010		30,799,091	$	3,080	$	372,106	$	272,394		$	478		$	(12,484	)	$	2,658		$	638,232
Comprehensive income:
Net income		—		—		—		13,452			—			—			167			13,619
Changes in fair value of interest rate swaps		—		—		—		—			(768	)		—			—			(768	)
Realized loss on interest rate swaps		—		—		—		—			290			—			—			290
Total comprehensive income		—		—		—		13,452			(478	)		—			167			13,141
Income tax benefits associated with the exercise of non-qualified stock options		—		—		258		—			—			—			—			258
Equity-based compensation expense		—		—		1,629		—			—			—			—			1,629
Net issuance of stock upon exercise of stock options and under stock plans for employees and directors		354,137		35		4,629		—			—			—			—			4,664
Distribution to partnership interests		—		—		—		—			—			—			(302	)		(302	)
Balance at March 31, 2011		31,153,228	$	3,115	$	378,622	$	285,846		$	—		$	(12,484	)	$	2,523		$	657,622
Balance at December 31, 2011		31,435,264	$	3,144	$	387,803	$	(178,131	)	$	—		$	(12,878	)	$	2,593		$	202,531
Comprehensive income:
Net income		—		—		—		4,840			—			—			213			5,053
Total comprehensive income		—		—		—		4,840			—			—			213			5,053
Equity-based compensation expense		—		—		1,631		—			—			—			—			1,631
Net issuance of stock upon exercise of stock options and under stock plans for employees and directors		122,390		14		691		—			—			—			—			705
Distribution to partnership interests		—		—		—		—			—			—			(195	)		(195	)
Balance at March 31, 2012		31,557,654	$	3,158	$	390,125	$	(173,291	)	$	—		$	(12,878	)	$	2,611		$	209,725

Comprehensive income amounted to $5.1 million for the first three months of 2012, and $13.1 million for the first three months of 2011. The amounts in comprehensive income for the three months ended March 31, 2011 are reflected net of tax of approximately $0.4 million.

The Company has an authorized stock repurchase program under which the Company can repurchase and retire up to 1,500,000 shares of its outstanding common stock. The repurchases can occur periodically in the open market or through privately negotiated transactions based on market conditions and other factors. During the three months ended March 31, 2012 and 2011, the Company did not repurchase shares of its outstanding common stock. As of March 31, 2012, the Company had remaining authorization to repurchase an aggregate of 180,568 shares of its outstanding common stock. In addition, the Company's Board of Directors has also authorized the repurchase of additional shares of the Company's outstanding common stock with an aggregate purchase price up to $5.0 million, which shares are in addition to the remaining 180,568 shares. During the period from April 1, 2012 through May 1, 2012, the Company repurchased 605,077 shares of its common stock at an average cost of $8.20 per share and a total cost of approximately $5.0 million.

The Company's Credit Agreement provides for repurchases of the Company's common stock not to exceed $5.0 million per year, and not to exceed $20.0 million per year if the consolidated leverage ratio is less than or equal to 3.5:1 immediately after giving effect on a pro forma basis to the repurchase. The indenture governing the Company's Senior Notes also contains limitations on the Company's repurchases of its common stock.

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Document And Entity Information	3 Months Ended
	Mar. 31, 2012	May 02, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Entity Central Index Key	0001096142
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Entity Registrant Name	GENTIVA HEALTH SERVICES INC
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		30,433,403

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Equity-Based Compensation Plans

3 Months Ended

Mar. 31, 2012

Equity-Based Compensation Plans [Abstract]

Equity-Based Compensation Plans

Note 13. Equity-Based Compensation Plans

The Company provides several equity-based compensation plans under which the Company's officers, employees and non-employee directors may participate, including (i) the 2004 Equity Incentive Plan (amended and restated) ("2004 Plan"), (ii) the Stock & Deferred Compensation Plan for Non-Employee Directors ("DSU Plan") and (iii) the Employee Stock Purchase Plan ("ESPP"). Collectively, these equity-based compensation plans permit the grants of (i) incentive stock options, (ii) non-qualified stock options, (iii) stock appreciation rights, (iv) restricted stock, (v) performance units, (vi) stock units and (vii) cash, as well as allow employees to purchase shares of the Company's common stock under the ESPP at a pre-determined discount.

For both the first quarter of 2012 and 2011, the Company recorded equity-based compensation expense, as calculated on a straight-line basis over the vesting periods of the related equity instruments, of $1.6 million, which was reflected as selling, general and administrative expense in the consolidated statements of comprehensive income.

Stock Options

The weighted average fair values of the Company's stock options granted during the first three months of 2012 and 2011 calculated using the Black-Scholes option pricing model and other assumptions, were as follows.

	Three Months Ended
	March 31, 2012		March 31, 2011
Weighted average fair value of options granted	$	8.33	$	11.30
Risk-free interest rate		0.77% -0.95%		2.15%
Expected volatility		64%		44%
Contractual life		7 years		7 years
Expected life		3.4 - 5.4 years		4.5 - 6.5 years
Expected dividend yield		0%		0%

Stock option grants in 2011 and 2012 vest over a three-year period based on a vesting schedule that provides for one-third vesting after each year. Stock option grants in 2006 through 2010 fully vest over a four year period based on a vesting schedule that provides for one-half vesting after year two and an additional one-fourth vesting after each of years three and four. The Company's expected volatility assumptions are based on the historical volatility of the Company's stock price over a period corresponding to the expected term of the stock option. Forfeitures are estimated utilizing the Company's historical forfeiture experience. The expected life of the Company's stock options is based on the Company's historical experience of the exercise patterns associated with its stock options.

A summary of Gentiva stock option activity as of March 31, 2012 and changes during the three months then ended is presented below:

							Weighted-
				Weighted-			Average
				Average			Remaining		Aggregate
	Number of			Exercise			Contractual		Intrinsic
	Options			Price			Life (Years)		Value
Balance as of December 31, 2011		4,228,907		$	15.59
Granted		26,000			8.33
Exercised		—			—
Cancelled		(144,308	)		(16.92	)
Balance as of March 31, 2012		4,110,599		$	15.50			6.5	$	4,299,454
Exercisable options		2,262,157		$	19.57			4.7	$	125,039

There were no options exercised during the three months ended March 31, 2012. The total intrinsic value of options exercised during the three months ended March 31, 2011 was $1.7 million. As of March 31, 2012, the Company had $4.4 million of unrecognized compensation expense related to nonvested stock options. This compensation expense is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of options that vested during the first three months of 2012 was $3.4 million.

Performance Share Units

The Company may grant performance share units under its 2004 Plan. Performance share units result in the issuance of common stock at the end of a three-year period and may range between zero and 150 percent of the performance share units granted at target in 2010 and between zero and 200 percent of the performance share units granted at target in 2011, based on the achievement of defined thresholds of the performance criteria over a three-year period (in the case of performance share units granted in 2010) and at the end of a one-year period (in the case of performance share units granted in 2011).

A summary of Gentiva performance share unit activity as of March 31, 2012 is presented below:

				Weighted-
	Number of			Average
	Performance			Exercise
	Share Units			Price
Balance as of December 31, 2011		114,564		$	26.40
Granted		—			—
Exercised		—			—
Earned, but not released		(93,683	)		26.38
Cancelled		(600	)		26.58
Balance as of March 31, 2012		20,281		$	26.08

These performance share units carry performance criteria measured on annual diluted earnings per share targets and fully vest at the end of a three-year period provided the performance criteria are met. Forfeitures are estimated utilizing the Company's historical forfeiture experience.

As of March 31, 2012 and 2011, the Company had $1.6 million and $2.8 million, respectively, of total unrecognized compensation cost related to performance share units. This compensation expense is expected to be recognized over a weighted-average period of 1.7 years and 2.5 years, respectively.

Restricted Stock

A summary of Gentiva restricted stock activity as of March 31, 2012 is presented below:

				Weighted-
	Number of			Average			Aggregate
	Restricted			Exercise			Intrinsic
	Shares			Price			Value
Balance as of December 31, 2011		377,750		$	25.30
Granted		—			—
Exercised		—			—
Cancelled		(1,100	)		(26.58	)
Balance as of March 31, 2012		376,650		$	25.29		$	3,291,921

The restricted stock fully vests at the end of a three-year or five-year period, depending on the individual grants. Forfeitures are estimated utilizing the Company's historical forfeiture experience.

As of March 31, 2012, the aggregate intrinsic value of the restricted stock awards was $3.3 million. The Company had $6.3 million and $8.2 million of total unrecognized compensation cost related to restricted stock as of March 31, 2012 and 2011, respectively. This compensation expense is expected to be recognized over a weighted-average period of 3.0 years and 3.8 years, respectively.

Directors Deferred Stock Units

Under the Company's DSU Plan, each non-employee director receives an annual deferred stock unit award credited quarterly and paid in shares of the Company's common stock following termination of the director's service on the Board of Directors. The total number of shares of common stock reserved for issuance under this plan is 300,000, of which 7 shares were available for future grants as of March 31, 2012. During the first three months of 2012, the Company granted 1,888 stock units under the DSU Plan at a grant date weighted-average fair value of $7.90 per stock unit. Because there were insufficient deferred stock units available under the DSU Plan for the full quarterly equity grant to each non-employee director, the Company also made a cash payment of approximately $28,100 to each non-employee director during the first three months of 2012. Under the DSU Plan, 201,746 stock units were outstanding as of March 31, 2012.

Employee Stock Purchase Plan

The Company provides an ESPP under which the offering period is three months and the purchase price of shares is equal to 85 percent of the fair market value of the Company's common stock on the last day of the three-month offering period. All employees of the Company are eligible to purchase stock under the ESPP regardless of their actual or scheduled hours of service. During the first three months of 2012, the Company issued 126,728 shares of common stock under its ESPP. Under the Company's ESPP, compensation expense is equal to the 15 percent discount from the fair market value of the Company's common stock on the date of purchase.

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Consolidated Statements Of Comprehensive Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Statements Of Comprehensive [Abstract]
Net revenues	$ 435,652	$ 451,109
Cost of services sold	232,861	230,756
Gross profit	202,791	220,353
Selling, general and administrative expenses	(173,707)	(172,733)
Interest income	661	665
Interest expense and other	(22,163)	(27,548)
Income from continuing operations before income taxes and equity in net earnings of CareCentrix	7,582	20,737
Income tax expense	(2,529)	(8,119)
Equity in net earnings of CareCentrix		554
Income from continuing operations	5,053	13,172
Discontinued operations, net of tax		447
Net income	5,053	13,619
Less: Net income attributable to noncontrolling interests	(213)	(167)
Net income attributable to Gentiva shareholders	4,840	13,452
Comprehensive income	5,053	13,141
Basic earnings per common share:
Income from continuing operations attributable to Gentiva shareholders	$ 0.16	$ 0.43
Discontinued operations, net of tax		$ 0.02
Net income attributable to Gentiva shareholders	$ 0.16	$ 0.45
Weighted average shares outstanding	30,724	30,127
Diluted earnings per common share:
Income from continuing operations attributable to Gentiva shareholders	$ 0.16	$ 0.42
Discontinued operations, net of tax		$ 0.02
Net income attributable to Gentiva shareholders	$ 0.16	$ 0.44
Weighted average shares outstanding	30,959	30,789
Amounts attributable to Gentiva shareholders:
Income from continuing operations	5,053	13,172
Discontinued operations, net of tax		447
Less: Net income attributable to noncontrolling interests	(213)	(167)
Net income	$ 4,840	$ 13,452

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Note Receivable From And Investment In CareCentrix

3 Months Ended

Mar. 31, 2012

Note Receivable From And Investment In CareCentrix [Abstract]

Note Receivable From And Investment In CareCentrix

Note 7. Note Receivable from and Investment in CareCentrix

The Company holds a $25 million subordinated promissory note from CareCentrix, Inc. In connection with the sale of the Company's ownership interest in CareCentrix Holdings, the maturity date of the note was extended to the earlier of March 19, 2017, which is five and one-half years from the closing of the transaction, or a sale of CareCentrix Holdings. The note bears interest at a fixed rate of 10 percent, which is payable quarterly; provided that CareCentrix remains in compliance with its senior debt covenants. Interest on the CareCentrix promissory note, which is included in interest income in the Company's consolidated statements of comprehensive income, amounted to $0.6 million for both the first quarter of 2012 and 2011.

During 2011, the Company sold its equity investment in CareCentrix Holdings.

The Company recognized $0.6 million of equity in the net earnings of CareCentrix for the first quarter of 2011.

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Net Revenues And Accounts Receivable

3 Months Ended

Mar. 31, 2012

Net Revenues And Accounts Receivable [Abstract]

Net Revenues And Accounts Receivable

Note 6. Net Revenues and Accounts Receivable

Net Revenues

Net revenues in the Home Health and Hospice segments were derived from all major payer classes and were as follows (in millions):

	First Quarter
	2012		2011		Percentage Variance
Medicare:
Home Health	$	190.6	$	201.6		(5.5	%)
Hospice		182.0		181.0		0.6	%
Total Medicare		372.6		382.6		(2.6	%)
Medicaid and Local Government		19.5		21.0		(7.0	%)
Commercial Insurance and Other:
Paid at episodic rates		20.0		18.7		6.7	%
Other		23.6		28.8		(18.1	%)
Total Commercial Insurance and Other		43.6		47.5		(8.4	%)
Total net revenues	$	435.7	$	451.1		(3.4	%)

For the first quarter of 2012 and 2011, the Company recorded hospice Medicare cap expenses of $2.1 million and $0.6 million, respectively, which is reflected in net revenues in the Company's consolidated statements of comprehensive income. The Medicare payment cap, which is calculated for each provider by the Medicare fiscal intermediary at the end of the hospice cap period, is determined by multiplying the number of first time patient admissions during the cap period by the Medicare cap amount, subject to certain adjustments. Medicare revenue paid to a provider during the twelve month cap period that ends annually on October 31 cannot exceed the aggregate Medicare payment cap calculated for the related twelve month period. As of March 31, 2012 and December 31, 2011, the Company had Medicare cap liabilities of $17.7 million and $15.6 million, respectively, which were reflected in Medicare liabilities in the Company's consolidated balance sheets.

Accounts Receivable

Net revenues in the Home Health and Hospice segments were derived from all major payer classes. Accounts receivable attributable to major payer sources of reimbursement were as follows (in thousands):

	March 31, 2012			December 31, 2011
Medicare	$	226,098		$	217,028
Medicaid and Local Government		56,876			46,553
Commercial Insurance and Other		42,623			38,570
Gross Accounts Receivable		325,597			302,151
Less: Allowance for doubtful accounts		(12,829	)		(11,562	)
Net Accounts Receivable	$	312,768		$	290,589

The Commercial Insurance and Other payer group included self-pay accounts receivable relating to patient co-payments of $2.3 million and $2.1 million as of March 31, 2012 and December 31, 2011, respectively.

The Company's only financing receivable is the note receivable from CareCentrix, Inc. The Company measures impairment based on the present value of expected cash flows after considering assumptions relating to risk factors and economic conditions. On an ongoing basis, the Company assesses the credit quality based on the Company's review of CareCentrix, Inc.'s financial position and receipt of interest payments when due. Based on the Company's analysis, as of March 31, 2012 and December 31, 2011, the Company had no allowances for credit losses.

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Subsequent Event

3 Months Ended

Mar. 31, 2012

Subsequent Event [Abstract]

Subsequent Event

Note 18. Subsequent Event

Sale of Louisiana Branches

In January 2012, the Company entered into an asset purchase agreement to sell eight home health and two hospice branches in Louisiana for total consideration of $5.0 million. That agreement was terminated and on March 26, 2012, the Company entered into an asset purchase agreement with a different purchaser to sell eight home health and four hospice branches in Louisiana for total consideration of approximately $6.5 million.

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Legal Matters

3 Months Ended

Mar. 31, 2012

Legal Matters [Abstract]

Legal Matters

Note 14. Legal Matters

Litigation

In addition to the matters referenced in this Note 14, 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. Management does not expect that these other legal actions will have a material adverse effect on the business, financial condition, results of operations, liquidity or capital resources of the Company.

On May 10, 2010, a collective and class action complaint entitled Lisa Rindfleisch et al. v. Gentiva Health Services, Inc. was filed in the United States District Court for the Eastern District of New York against the Company in which five former employees allege wage and hour law violations. The former employees claim they were paid pursuant to "an unlawful hybrid" compensation plan that paid them on both a per visit and an hourly basis, thereby voiding their exempt status and entitling them to overtime pay. The plaintiffs have alleged continuing violations of federal and state law and seek damages under the Fair Labor Standards Act ("FLSA"), as well as under the New York Labor Law and North Carolina Wage and Hour Act ("NCWHA"). On October 8, 2010, the Court granted the Company's motion to transfer the venue of the lawsuit to the United States District Court for the Northern District of Georgia. On April 13, 2011, the Court granted plaintiffs' motion for conditional certification of the FLSA claims as a collective action. On May 26, 2011, the Court bifurcated the FLSA portion of the suit into a liability phase, in which discovery is scheduled to close on August 28, 2012, and a damages phase, to be scheduled pending outcome of the liability phase. Following a motion for partial summary judgment by the Company regarding the New York state law claims, plaintiffs agreed voluntarily to dismiss those claims in a filing on December 12, 2011. Plaintiffs continue to seek class certification of allegedly similar employees and seek attorneys' fees, back wages and liquidated damages going back three years under the FLSA and two years under the North Carolina statute. Plaintiffs filed a motion for certification of a North Carolina state law class for NCWHA claims on January 20, 2012. The Company filed a motion for partial summary judgment on plaintiffs' claims under the NCWHA on March 22, 2012. Plaintiffs also filed a motion for partial summary judgment with regard to the Company's liability for plaintiffs' FLSA claims on April 3, 2012. Briefing in each of these motions is pending.

Based on the information the Company has at this time in the Rindfleisch lawsuit, the Company is unable to assess the probable outcome or potential liability, if any, arising from this proceeding on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for this lawsuit at this time. The Company intends to defend itself vigorously in this lawsuit.

On June 11, 2010, a collective and class action complaint entitled Catherine Wilkie, individually and on behalf of all others similarly situated v. Gentiva Health Services, Inc. was filed in the United States District Court for the Eastern District of California against the Company in which a former employee alleges wage and hour violations under the FLSA and California law. The complaint alleges that the Company paid some of its employees on both a per visit and hourly basis, thereby voiding their exempt status and entitling them to overtime pay. The complaint further alleges that California employees were subject to violations of state laws requiring meal and rest breaks, accurate wage statements and timely payment of wages. The plaintiff seeks class certification, attorneys' fees, back wages, penalties and damages going back three years on the FLSA claim and four years on the state wage and hour claims. The parties held mediation discussions on August 3, 2011 and March 7, 2012. The parties are in the process of finalizing the terms of a monetary settlement whereby the Company would pay the total sum of $5 million to settle all claims in the lawsuit, including the plaintiff's attorney's fees and costs.

On December 29, 2011, Odyssey HealthCare, Inc. was served with a complaint captioned United States of America and the State of Illinois ex rel. Laurie Geschrey and Laurie Janus v. Generations Healthcare, LLC, Odyssey HealthCare, Inc. Narayan Ponakala and Catherine Ponakala, which was filed on April 19, 2010 as a qui tam action in the United States District Court for the Northern District of Illinois, Eastern Division, Case No. 10 C 2413, under the provisions of the Federal False Claims Act, the Illinois Whistleblower Reward and Protection Act and the Illinois Whistleblower Act. The plaintiffs, two former employees of Generations Healthcare, LLC, a hospice company whose assets were acquired by Odyssey on December 31, 2009, are the relators and allege that defendants committed fraud against the United States and the State of Illinois by, among other things, recruiting and certifying patients as being eligible for hospice care when they were known not to be eligible and falsifying patients' medical records in support of the claims for reimbursement. Relators further allege that Odyssey was aware of Generations Healthcare's alleged fraudulent business practices. Both the United States and the State of Illinois declined to intervene in the action, and the complaint was unsealed on December 1, 2011. Relators seek statutory damages, which are three times the amount of any actual damages suffered by the United States and the State of Illinois, the maximum statutory civil penalty due under the statutes plus all costs and attorneys fees. Additionally, relators seek back pay plus interest and other damages because of defendants' alleged retaliation against relators.

Odyssey filed a motion to dismiss the complaint against it with a supporting memorandum of law on March 23, 2012. Plaintiffs filed a brief in opposition to Odyssey's motion on April 4, 2012, and Odyssey filed a reply brief on April 18, 2012. Odyssey is also pursuing indemnification from Generations Healthcare and its owners, who are defendants in this action. Given the preliminary stage of this action, the Company is unable to assess the probable outcome or potential liability, if any, arising from this action on the business, financial condition, results of operations, liquidity or capital resources of the Company or Odyssey. Odyssey intends to defend itself vigorously in the action.

Odyssey Merger Litigation

Three putative class action lawsuits were filed in connection with the Company's acquisition ("Merger") of Odyssey HealthCare, Inc. ("Odyssey"). The first, entitled Pompano Beach Police & Firefighters' Retirement System v. Odyssey HealthCare, Inc. et al., was filed on May 27, 2010 in the County Court, Dallas County, Texas. The second, entitled Eric Hemminger et al. v. Richard Burnham et al., was filed on June 9, 2010 in the District Court, Dallas, Texas. The third, entitled John O. Hansen v. Odyssey HealthCare, Inc. et al., was filed on July 2, 2010 in the United States District Court for the Northern District of Texas. All three lawsuits named the Company, GTO Acquisition Corp., Odyssey and the members of Odyssey's board of directors as defendants. All three lawsuits were brought by purported stockholders of Odyssey, both individually and on behalf of a putative class of stockholders, alleging that Odyssey's board of directors breached its fiduciary duties in connection with the Merger by failing to maximize shareholder value and that the Company and Odyssey aided and abetted the alleged breaches. On October 8, 2010, the District Court consolidated the Hemminger and Pompano Beach actions and transferred the Hemminger action to County Court No. 5 in Dallas County, Texas. On October 12, 2010, Gentiva entered a general denial with respect to the material allegations in both the Pompano Beach and Hemminger complaints. On December 16, 2010, defendants in the actions executed a Memorandum of Understanding ("MOU") with plaintiffs Pompano Beach Police & Firefighters' Retirement System, Eric Hemminger and John O. Hansen reflecting an agreement in principle to settle each of the actions for additional disclosures which were included in Odyssey's Definitive Proxy Statement on Schedule 14A, filed on July 9, 2010. Defendants also agreed not to contest an application for attorneys' fees to be made by plaintiffs, which application shall not exceed $675,000. On February 17, 2012, the court preliminarily approved a settlement of the Pompano Beach, Hemminger and Hansen actions. The settlement remains subject to final court approval. A final settlement approval hearing has been set for May 18, 2012.

Federal Securities Class Action Litigation

Between November 2, 2010 and October 25, 2011, five shareholder class actions were filed against Gentiva and certain of its current and former officers and directors in the United States District Court for the Eastern District of New York. Each of these actions asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with the Company's participation in the Medicare Home Health Prospective Payment System ("HH PPS"). Following consolidation of the actions, and the appointment of Los Angeles City Employees' Retirement System as lead plaintiff and Kaplan Fox & Kilsheimer LLP as lead counsel, on April 16, 2012, a consolidated shareholder class action complaint, captioned In re Gentiva Securities Litigation, Civil Action No. 10-CV-5064, was filed in the United States District Court for the Eastern District of New York. The complaint, which names Gentiva and certain current and former officers and directors as defendants, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Sections 11 and 15 of the Securities Act of 1933, in connection with the Company's participation in the HH PPS. The complaint alleges, among other things, that the Company's public disclosures misrepresented and failed to disclose that the Company improperly increased the number of in-home therapy visits to patients for the purposes of triggering higher reimbursement rates under the HH PPS, which caused an artificial inflation in the price of Gentiva's common stock during the period between July 31, 2008 and October 4, 2011.

The defendants have not yet responded to the complaint. Given the preliminary stage of the action, the Company is unable to assess the probable outcome or potential liability, if any, arising from the action on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for the action at this time. The defendants intend to defend themselves vigorously in the action.

Shareholder Derivative Litigation

On January 4, 2011 and October 31, 2011, two actions were filed against Gentiva's current directors in Superior Court of DeKalb County in the State of Georgia, alleging, among other things, that Gentiva's board of directors breached its fiduciary duties to the Company. The actions were consolidated and, on February 9, 2012, plaintiffs filed a consolidated complaint (the "Georgia State Court Action"). The Georgia State Court Action, which names Gentiva's current directors as defendants, alleges, among other things, that Gentiva's board of directors had actual or constructive knowledge that the Company's public disclosures misrepresented and failed to disclose that the Company improperly increased the number of in-home therapy visits to patients for the purpose of triggering higher reimbursement rates under HH PPS, which caused an artificial inflation in the price of Gentiva's common stock. On March 26, 2012, defendants filed a motion to dismiss the Georgia State Court Action.

On October 7 and October 13, 2011, two actions were filed against Gentiva's current directors and one former officer in the United States District Court for the Northern District of Georgia, alleging, among other things, that Gentiva's board of directors breached its fiduciary duties to the Company. The actions also asserted a claim under Section 14(a) of the Securities Exchange Act of 1934. The actions were consolidated and, on March 5, 2012, plaintiffs filed a consolidated complaint (the "Georgia Federal Court Action"). The Georgia Federal Court Action, which names Gentiva's current directors and one former officer as defendants, alleges, among other things, that Gentiva's board of directors had actual or constructive knowledge that the Company's public disclosures misrepresented and failed to disclose that the Company improperly increased the number of in-home therapy visits to patients for the purpose of triggering higher reimbursement rates under HH PPS, which caused an artificial inflation in the price of Gentiva's common stock. The complaint further alleges that the Company's Proxy Statement for its 2010 Annual Meeting of Shareholders was materially false and misleading. On April 16, 2012, defendants filed a motion to dismiss the Georgia Federal Court Action.

Given the preliminary stage of the actions, the Company is unable to assess the probable outcome or potential liability, if any, arising from these actions on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for these actions at this time. The defendants intend to defend themselves vigorously in these actions.

Government Matters

PRRB Appeal

In connection with the audit of the Company's 1997 cost reports, the Medicare fiscal intermediary made certain audit adjustments related to the methodology used by the Company to allocate a portion of its residual overhead costs. The Company filed cost reports for years subsequent to 1997 using the fiscal intermediary's methodology. The Company believed the methodology it used to allocate such overhead costs was accurate and consistent with past practice accepted by the fiscal intermediary; as such, the Company filed appeals with the Provider Reimbursement Review Board ("PRRB") concerning this issue with respect to cost reports for the years 1997, 1998 and 1999. The Company's consolidated financial statements for the years 1997, 1998 and 1999 had reflected use of the methodology mandated by the fiscal intermediary. In June 2003, the Company and its Medicare fiscal intermediary signed an Administrative Resolution relating to the issues covered by the appeals pending before the PRRB. Under the terms of the Administrative Resolution, the fiscal intermediary agreed to reopen and adjust the Company's cost reports for the years 1997, 1998 and 1999 using a modified version of the methodology used by the Company prior to 1997. This modified methodology will also be applied to cost reports for the year 2000, which are currently under audit. The Administrative Resolution required that the process to (i) reopen all 1997 cost reports, (ii) determine the adjustments to allowable costs through the issuance of Notices of Program Reimbursement and (iii) make appropriate payments to the Company, be completed in early 2004. Cost reports relating to years subsequent to 1997 were to be reopened after the process for the 1997 cost reports was completed.

The fiscal intermediary completed the reopening of all 1997, 1998 and 1999 cost reports and determined that the adjustment to allowable costs aggregated $15.9 million which the Company has received and recorded as adjustments to net revenues in the fiscal years 2004 through 2006. The Company is unable to predict when the Centers for Medicare & Medicaid Services ("CMS") will finalize all items relating to the 2000 cost reports.

Senate Finance Committee Report

In a letter dated May 12, 2010, the United States Senate Finance Committee requested information from the Company regarding its Medicare utilization rates for therapy visits. The letter was sent to all publicly traded home healthcare companies mentioned in a Wall Street Journal article that explored the relationship between the CMS' home health policies and the utilization rates of some health agencies. The Company responded to this request as well as to supplemental requests for information. On October 3, 2011, the Senate Finance Committee released its report, which generally criticized certain of the home health therapy practices of publicly traded home healthcare companies, including the Company. The Company maintains its belief that it has provided and is providing the highest quality of care and has received and continues to receive payment within the standards set forth by the reimbursement system established by CMS. The Company is unable to assess the probable outcome or potential liability, if any, arising from this matter on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for this matter at this time.

Subpoena

On July 13, 2010, the SEC informed the Company that the SEC had commenced an investigation relating to the Company's participation in the Medicare Home Health Prospective Payment System, and, on July 16, 2010, the Company received a subpoena from the SEC requesting certain documents in connection with its investigation. Similar to the Senate Finance Committee request, the SEC subpoena, among other things, focused on issues related to the number of and reimbursement received for therapy visits before and after changes in the Medicare reimbursement system, relationships with physicians, compliance efforts including compliance with fraud and abuse laws, and certain documents sent to the Senate Finance Committee. The Company is unable to assess the probable outcome or potential liability, if any, arising from this matter on the business, financial condition, results of operations, liquidity or capital resources of the Company. The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made for this matter at this time.

Investigations Involving Odyssey

On February 14, 2008, Odyssey received a letter from the Medicaid Fraud Control Unit of the Texas Attorney General's office notifying Odyssey that the Texas Attorney General was conducting an investigation concerning Medicaid hospice services provided by Odyssey, including its practices with respect to patient admission and retention, and requesting medical records of approximately 50 patients served by its programs in the State of Texas. Based on the limited information that Odyssey has at this time, the Company cannot predict the outcome of this investigation, the Texas Attorney General's views of the issues being investigated or any actions that the Texas Attorney General may take.

On May 5, 2008, Odyssey received a letter from the U.S. Department of Justice ("DOJ") notifying Odyssey that the DOJ was conducting an investigation of VistaCare, Inc. ("VistaCare") and requesting that Odyssey provide certain information and documents related to the DOJ's investigation of claims submitted by VistaCare to Medicare, Medicaid and the U.S. government health insurance plan for active military members, their families and retirees, formerly the Civilian Health and Medical Program of the Uniformed Services ("TRICARE"), from January 1, 2003 through March 6, 2008, the date Odyssey completed the acquisition of VistaCare. Odyssey has been informed by the DOJ and the Medicaid Fraud Control Unit of the Texas Attorney General's Office that they are reviewing allegations that VistaCare may have billed the federal Medicare, Medicaid and TRICARE programs for hospice services that were not reasonably or medically necessary or performed as claimed. The basis of the investigation is a qui tam lawsuit filed in the United States District Court for the Northern District of Texas by a former employee of VistaCare. The lawsuit was unsealed on October 5, 2009 and served on Odyssey on January 28, 2010. In connection with the unsealing of the complaint, the DOJ filed a notice with the court declining to intervene in the qui tam action at such time. The Texas Attorney General also filed a notice of non-intervention with the court. These actions should not be viewed as a final assessment by the DOJ or the Texas Attorney General of the merits of this qui tam action. Odyssey continues to cooperate with the DOJ and the Texas Attorney General in their investigation. The relator has continued to pursue the qui tam lawsuit that is in the motion to dismiss phase. Based on the information that Odyssey has at this time, the Company cannot predict the outcome of the qui tam lawsuit, the governments' continuing investigation, the DOJ's or Texas Attorney General's views of the issues being investigated, other than the DOJ's and Texas Attorney General's notice declining to intervene in the qui tam action, or any actions that the DOJ or Texas Attorney General may take.

On October 28, 2011, the Assistant United States Attorney for the Northern District of Texas notified Odyssey and the Company of the existence of a second qui tam lawsuit against VistaCare, doing business as VistaCare Hospice, Odyssey Healthcare, Inc., and Gentiva Healthcare Services, that had initially been filed on October 29, 2010, in the Northern District of Alabama, but transferred to the Northern District of Texas due to the similarity of allegations with the first qui tam lawsuit. A non-intervention order and unsealing of the second complaint was entered by the District Court for the Northern District of Texas on October 27, 2011. The Company believes this action should not be viewed as a final assessment by the DOJ of the merits of this qui tam action. On February 28, 2012, the court ordered a stay in this qui tam action until the court rules on the pending motion to dismiss in the first qui tam action. Based on the limited information that Odyssey has at this time, the Company cannot predict the outcome of this second qui tam lawsuit, the government's continuing investigation, the DOJ's views of the issues being investigated, other than the DOJ's non-intervention in the qui tam action, or any actions that the DOJ may take.

On January 5, 2009, Odyssey received a letter from the Georgia State Health Care Fraud Control Unit notifying Odyssey that the Georgia State Health Care Fraud Unit was conducting an investigation concerning Medicaid hospice services provided by VistaCare from 2003 through 2007 and requesting certain documents. Odyssey is cooperating with the Georgia State Health Care Fraud Control Unit and has complied with the document request. Based on the limited information that Odyssey has at this time, the Company cannot predict the outcome of the investigation, the Georgia State Health Care Fraud Control Unit's views of the issues being investigated or any actions that the Georgia State Health Care Fraud Control Unit may take.

On February 23, 2010, Odyssey received a subpoena from the Department of Health and Human Services, Office of Inspector General ("OIG"), requesting various documents and certain patient records of one of Odyssey's hospice programs relating to services performed from January 1, 2006 through December 31, 2009. Odyssey is cooperating with the OIG and has completed its subpoena production. Based on the limited information that Odyssey has at this time, the Company cannot predict the outcome of the investigation, the OIG's views of the issues being investigated or any actions that the OIG may take.

The Company does not believe that an estimate of a reasonably possible loss or range of loss can be made at this time with regard to the above investigations involving Odyssey. Based on the limited information that Odyssey has at this time regarding such investigations, the Company is unable to predict the impact, if any, that such investigations may have on Odyssey's and the Company's business, financial condition, results of operations, liquidity or capital resources.

On February 2, 2009, Odyssey received a subpoena from the OIG requesting certain documents related to Odyssey's provision of continuous care services from January 1, 2004 through January 22, 2009. On September 9, 2009 and June 24, 2011, Odyssey received two additional subpoenas from the OIG requesting medical records for certain patients who had been provided continuous care services by Odyssey during the same time period. On February 15, 2012, Odyssey entered into a settlement agreement ("Settlement Agreement") with the United States, acting through the DOJ and on behalf of the OIG, regarding Odyssey's provision of continuous care services prior to the Company's acquisition of Odyssey in August 2010. Pursuant to the Settlement Agreement, Odyssey paid the United States $25 million on February 22, 2012. Additionally, Odyssey entered into a five-year Corporate Integrity Agreement (the "CIA") with the OIG. Under the CIA, among other things, Odyssey must maintain a compliance officer and compliance committee, provide special training and education to its employees, undertake annual internal and external audits and submit annual reports on compliance with the CIA requirements to the OIG.

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Earnings Per Share

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Note 10. Earnings Per Share

Basic and diluted earnings per share for each period presented have been computed by dividing income from continuing operations, discontinued operations, net of tax and net income attributable to Gentiva shareholders by the weighted average number of shares outstanding for each respective period. The computations of the basic and diluted per share amounts were as follows (in thousands, except per share amounts):

	For the Three Months Ended
	March 31, 2012		March 31, 2011
Net income attributable to Gentiva shareholders	$	4,840	$	13,452
Basic weighted average common shares outstanding		30,724		30,127
Shares issuable upon the assumed exercise of stock options and under stock plans for employees and directors using the treasury stock method		235		662
Diluted weighted average common shares outstanding		30,959		30,789
Basic earnings per common share
Net income attributable to Gentiva shareholders	$	0.16	$	0.45
Diluted earnings per common share:
Net income attributable to Gentiva shareholders	$	0.16	$	0.44

For the first three months of 2012, approximately 3.7 million stock options and 0.3 million restricted stock awards were excluded from the computations of diluted earnings per share, as their inclusion would be anti-dilutive. For the first three months of 2011, approximately 1.3 million stock options were excluded from the computations of diluted earnings per share, as their inclusion would be anti-dilutive.

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Cost Savings Initiatives And Other Restructuring Costs, Acquisition And Integration Activities And Legal Settlements

3 Months Ended

Mar. 31, 2012

Cost Savings Initiatives And Other Restructuring Costs, Acquisition And Integration Activities And Legal Settlements [Abstract]

Cost Savings Initiatives And Other Restructuring Costs, Acquisition And Integration Activities And Legal Settlements

Note 8. Cost Savings Initiatives and Other Restructuring Costs, Acquisition and Integration Activities and Legal Settlements

During the first quarter of 2012 and 2011, the Company recorded net charges relating to cost savings initiatives and other restructuring costs, acquisition and integration activities and legal settlements of $5.4 million and $3.8 million, respectively, which were recorded in selling, general and administrative expenses in the Company's consolidated statements of comprehensive income.

Cost Savings Initiatives and Other Restructuring Costs

During 2011, the Company undertook a comprehensive review of its branch structure, support infrastructure and other significant expenditures in order to reduce its ongoing operating costs given the challenging rate environment the Company is facing. As a result of this effort, the Company closed or divested 34 home health branches and 9 hospice branches during the fourth quarter of 2011 and 4 home health branches in the first quarter of 2012 and completed significant reductions in staffing levels in regional, area and corporate support functions. In connection with these activities, the Company recorded charges of $0.8 million in the first quarter of 2012, related to severance costs, facility lease and other costs. During the first quarter 2011, the Company recorded charges of $1.3 million in connection with restructuring activities, including severance costs in connection with the termination of personnel and facility leases and other costs.

Acquisition and Integration Activities

During the first quarter of 2012, the Company recorded a credit of $0.4 million related to acquisition and integration activities. During the first quarter of 2011, the Company recorded charges of $2.5 million, in connection with acquisition and integration activities, primarily related to the Odyssey transaction. These costs consisted of legal, accounting and other professional fees and expenses, costs of obtaining required regulatory approvals, write-off of prepaid fees in connection with the termination of the Company's 2006 credit agreement and severance costs.

Legal Settlements

For the first quarter of 2012, the Company recorded legal settlements of $5.0 million related to certain of the wage and hour litigation. During the first quarter of 2012, the Company paid approximately $26 million related to settlement of the continuous care investigation. See Note 14 for additional information.

The costs incurred and cash expenditures associated with these activities during 2012 and 2011 were as follows (in thousands):

	Cost Savings Initiatives and Other Restructuring			Acquisition  & Integration			Legal Settlements			Total
Ending balance at December 31, 2010	$	2,893		$	3,984		$	12,500		$	19,377
Charge in first quarter 2011		1,259			2,506			—			3,765
Cash expenditures		(1,490	)		(2,346	)		—			(3,836	)
Ending balance at March 31, 2011	$	2,662		$	4,144		$	12,500		$	19,306
Ending balance at December 31, 2011	$	8,671		$	3,708		$	26,000		$	38,379
Charge in first quarter 2012		842			(409	)		4,958			5,391
Cash expenditures		(3,527	)		(755	)		(25,958	)		(30,240	)
Non-cash expenditures		19			(216	)		—			(197	)
Ending balance at March 31, 2012	$	6,005		$	2,328		$	5,000		$	13,333

The balance of unpaid charges relating to cost savings initiatives and other restructuring costs, acquisition and integration activities and legal settlements approximated $13.3 million at March 31, 2012 and $38.4 million at December 31, 2011, which were included in other accrued expenses in the Company's consolidated balance sheets.

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Identifiable Intangible Assets And Goodwill

3 Months Ended

Mar. 31, 2012

Identifiable Intangible Assets And Goodwill [Abstract]

Identifiable Intangible Assets And Goodwill

Note 9. Identifiable Intangible Assets and Goodwill

The gross carrying amount and accumulated amortization and impairment losses of each category of identifiable intangible assets as of March 31, 2012 and December 31, 2011 were as follows (in thousands):

	March 31, 2012									December 31, 2011
	Home Health			Hospice			Total			Home Health			Hospice			Total			Useful Life
Amortized intangible assets:
Covenants not to compete	$	1,473		$	15,675		$	17,148		$	1,473		$	15,675		$	17,148			2-5 Years
Less: accumulated amortization		(1,417	)		(10,756	)		(12,173	)		(1,411	)		(9,144	)		(10,555	)
Net covenants not to compete		56			4,919			4,975			62			6,531			6,593
Customer relationships		27,196			910			28,106			27,196			910			28,106			5-10 Years
Less: accumulated amortization		(15,891	)		(321	)		(16,212	)		(15,304	)		(299	)		(15,603	)
accumulated impairment losses		(27	)		—			(27	)		(27	)		—			(27	)
Net customer relationships		11,278			589			11,867			11,865			611			12,476
Tradenames		18,215			16,730			34,945			18,215			16,730			34,945			5-10 Years
Less: accumulated amortization		(10,946	)		(2,767	)		(13,713	)		(10,522	)		(2,346	)		(12,868	)
accumulated impairment losses		(411	)		—			(411	)		(411	)		—			(411	)
Net tradenames		6,858			13,963			20,821			7,282			14,384			21,666
Subtotal		18,192			19,471			37,663			19,209			21,526			40,735
Indefinite-lived intangible assets:
Medicare licenses and certificates of need		220,285			98,526			318,811			220,285			98,526			318,811			Indefinite
Less: accumulated impairment losses		(144,672	)		—			(144,672	)		(144,672	)		—			(144,672	)
Net medicare licenses and certificates of need		75,613			98,526			174,139			75,613			98,526			174,139
Total identifiable intangible assets	$	93,805		$	117,997		$	211,802		$	94,822		$	120,052		$	214,874

The Company recorded amortization expense of approximately $3.1 million and $3.3 million for the first quarter of 2012 and 2011, respectively. The estimated amortization expense for the remainder of 2012 is $7.7 million and for each of the next five succeeding years approximates $7.4 million for 2013, $5.7 million for 2014, $5.6 million for 2015, $3.4 million for 2016, and $2.9 million for 2017.

The gross carrying amount of goodwill as of March 31, 2012 and December 31, 2011 and activity during the first three months of 2012 were as follows (in thousands):

	Home Health			Hospice			Total
Balance at December 31, 2010	$	264,679		$	820,387		$	1,075,454
Goodwill adjustment		2,379			11,261			13,640
Accumulated impairment losses		(263,370	)		(193,667	)		(457,037	)
Balance at December 31, 2011	$	3,688		$	637,981		$	641,669
Goodwill acquired during 2012		—			—			—
Balance at March 31, 2012	$	3,688		$	637,981		$	641,669

During 2011, the Company reclassified deferred tax assets of $13.6 million associated with the classification of deductible intangible assets and goodwill related to a 2006 acquisition. The impact of this reclassification was an increase in goodwill in the Home Health and Hospice divisions of $2.4 million and $11.2 million, respectively, and a decrease in non-current deferred tax assets of $13.6 million.

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Long-Term Debt

3 Months Ended

Mar. 31, 2012

Long-Term Debt [Abstract]

Long-Term Debt

Note 11. Long-Term Debt

Credit Arrangements

At March 31, 2012, the Company's credit arrangements included a senior secured credit agreement providing (i) a $200 million Term Loan A facility, (ii) a $550 million Term Loan B facility and (iii) a $110 million revolving credit facility (collectively, the "Credit Agreement") and $325 million aggregate principal amount of 11.5% Senior Notes due 2018 (the "Senior Notes"). The Credit Agreement's revolving credit facility also includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swing line loans.

As of March 31, 2012 and December 31, 2011, the Company's long-term debt consisted of the following (in thousands):

	March 31, 2012			December 31, 2011
Credit Agreement:
Term Loan A, maturing August 17, 2015	$	146,693		$	158,653
Term Loan B, maturing August 17, 2016		466,432			504,472
11.5% Senior Notes due 2018		325,000			325,000
Total debt		938,125			988,125
Less: current portion of long-term debt		(9,193	)		(14,903	)
Total long-term debt	$	928,932		$	973,222

In response to uncertainties around Medicare reimbursement rates and to ensure compliance under its Credit Agreement as of December 31, 2011, on November 28, 2011, the Company entered into Amendment No. 2 to the Credit Agreement ("Amendment No. 2"). In addition, on March 6, 2012, the Company entered into Amendment No. 3 to the Credit Agreement ("Amendment No. 3") in order to provide increased flexibility in the Company's debt covenants over the remaining term of the Credit Agreement and to provide reasonable assurance with respect to the Company's ability to remain in compliance with its debt covenants beyond January 1, 2012, including the maximum consolidated leverage ratio and the minimum interest coverage ratio, which are discussed below under "Debt Covenants." Among other things, Amendment No. 3 also reduced the revolving credit facility from $125 million to $110 million.

As of March 31, 2012, advances under the revolving credit facility may be made, and letters of credit may be issued, up to the $110 million borrowing capacity of the facility at any time prior to the facility expiration date of August 17, 2015. In connection with the reduction in the revolving credit facility, the Company wrote-off prepaid debt issuance costs of approximately $0.5 million, which is reflected in interest expense and other in the Company's consolidated statement of comprehensive income and capitalized costs associated with the revolving credit facility of approximately $0.8 million. Outstanding letters of credit were $41.8 million at both March 31, 2012 and December 31, 2011. The letters of credit were issued to guarantee payments under the Company's workers' compensation program and for certain other commitments. As of March 31, 2012, the Company's unused and available borrowing capacity under the Credit Agreement was $68.2 million.

As of March 31, 2012, the mandatory aggregate principal payments of long-term debt are $2.9 million in 2012, $25.0 million in both 2013 and 2014, $93.8 million in 2015 and $466.4 million in 2016, all under the Credit Agreement, and $325.0 million thereafter under the Senior Notes. The weighted average cash interest rate on outstanding borrowings was 8.2 percent per annum at March 31, 2012 and 6.9 percent per annum at December 31, 2011.

The Term Loan A facility is subject to mandatory principal payments of $25 million per year, payable in equal quarterly installments, with the remaining balance of the original $200 million loan payable on August 17, 2015. Pursuant to Amendment No. 3, the Company made a payment of $12.0 million on its Term Loan A facility. There are no required payments on the Company's Term Loan A facility until the end of the fourth quarter of 2012, at which time a principal payment of $2.9 million is required and $6.3 million per quarter thereafter. The Term Loan B facility is subject to mandatory principal payments of $13.8 million per year, payable in equal quarterly installments, with the remaining balance of the original $550 million loan payable on August 17, 2016. Pursuant to Amendment No. 3, the Company made a payment of $38.0 million on its Term Loan B facility. There are no required payments on the Company's Term Loan B facility until August 17, 2016, at which time a payment of the outstanding balance of $466.4 million is required.

On March 9, 2011, the Company entered into a First Refinancing Amendment to the Credit Agreement ("Amendment No. 1"), which provided for, among other things, (i) refinancing of the outstanding indebtedness under the Company's senior secured Term Loan A and Term Loan B facilities, (ii) elimination of the requirement to hedge a certain portion of the Company's variable rate debt, (iii) a reduction in the minimum Base Rate from 2.75 percent to 2.25 percent, (iv) a reduction in the minimum Eurodollar Rate from 1.75 percent to 1.25 percent, (v) reductions in Term Loan B Applicable Rates to 3.50 percent for Eurodollar Rate Loans and 2.50 percent for Base Rate Loans as compared to 5.00 percent and 4.00 percent, respectively, under the previous arrangement and (vi) reductions in the Applicable Rate for Term Loan A as reflected in the table below.

	Amended Applicable Rate						Previous Applicable Rate
Consolidated Leverage Ratio	Eurodollar  Rate Term A Facility			Base Rate Term  A Facility			Eurodollar  Rate Term A Facility			Base Rate Term  A Facility
³ 3.0:1		3.25	%		2.25	%		5.00	%		4.00	%
³ 2.0:1 and < 3.0:1		3.00	%		2.00	%		4.50	%		3.50	%
< 2.0:1		2.75	%		1.75	%		4.00	%		3.00	%

In addition, Amendment No. 1 provided for a reduction in the Company's minimum consolidated interest coverage ratio to a ratio of 2.25 to 1.00 from the previous ratio of 2.75 to 1.00. As discussed below under "Debt Covenants," Amendment No. 3 provided for a further reduction in the minimum consolidated interest coverage ratio.

The interest rate per annum on borrowings under the Credit Agreement is based on, at the option of the Company, (i) the Eurodollar Rate or (ii) the Base Rate, plus an Applicable Rate. The Base Rate represents the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50 percent and (z) the Eurodollar Rate plus 1.00 percent. In connection with determining the interest rates on the Term Loan A and Term Loan B facilities, in no event shall the Eurodollar Rate be less than 1.25 percent and the Base Rate be less than 2.25 percent. The Company may select interest periods of one, two, three or six months for Eurodollar Rate loans. Interest is payable at the end of the selected interest period. From August 17, 2010 through March 9, 2011, the interest rate on borrowings under the Credit Agreement was 6.75 percent per annum. From March 9, 2011 through March 5, 2012, the interest rate on Term Loan A borrowings was 4.50 percent and on Term Loan B borrowings was 4.75 percent. Giving effect to Amendment No. 3, subsequent to March 5, 2012, the interest rate on Term Loan A borrowings is 6.25 percent and on Term Loan B borrowings is 6.50 percent. The Company must also pay a fee of 0.50 percent per annum on unused commitments under the revolving credit facility.

The Company's Credit Agreement, in effect prior to Amendment No. 1, included a requirement that the Company enter into and maintain interest rate swap contracts covering a notional value of not less than 50 percent of the Company's aggregate consolidated outstanding indebtedness (other than total revolving credit outstanding) including the Senior Notes for a period of not less than three years. On November 15, 2010, the Company entered into derivative instruments consisting of (i) a one year interest rate cap with a notional value of $220.0 million and (ii) two year forward starting interest rate swaps with notional value of $300.0 million. Under the interest rate cap, the Company would pay a fixed rate of 1.75 percent per annum plus an applicable rate (an aggregate of 6.75 percent per annum for the period beginning November 15, 2010 through December 30, 2011) on the $220 million rather than a variable rate plus an applicable rate should the variable rate plus applicable rate exceed 6.75 percent. In connection with Amendment No. 1, the Company terminated the two year forward starting interest rate swaps and paid a termination fee of approximately $0.3 million, which is reflected in interest expense and other in the Company's consolidated statement of comprehensive income for the three months ended March 31, 2011.

The Company may voluntarily repay outstanding loans under the revolving credit facility or Term Loan A at any time without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans. For the period from March 9, 2011 to September 9, 2011, the Company was subject to a prepayment premium equal to 1.0 percent of the aggregate principal amount of Term Loan B. Prepayment and commitment reductions will be required in connection with (i) certain asset sales, (ii) certain extraordinary receipts such as certain insurance proceeds, (iii) cash proceeds from the issuance of debt, (iv) 50 percent of the proceeds from the issuance of equity with step-downs based on leverage, with certain exceptions, and (v) 75 percent of "Excess Cash Flow" (as defined in the Credit Agreement) with two step-downs based on the Company's leverage ratio.

In connection with the refinancing pursuant to Amendment No. 1, the Company paid a two percent prepayment penalty on its Term Loan B facility of approximately $10.9 million which was recorded as deferred debt issuance costs. In accordance with applicable guidance, due to changes in some of the participating lenders, the Company recorded a write-off of a portion of its deferred debt issuance costs of approximately $3.5 million, which is reflected in interest expense and other in the Company's consolidated statement of comprehensive income for the three months ended March 31, 2011.

Debt Covenants

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, the Company's and its subsidiaries' ability to incur additional indebtedness or issue certain preferred stock, create liens on assets, enter into sale and leaseback transactions, engage in mergers or consolidations with other companies, sell assets, pay dividends, repurchase capital stock, make investments, loans and advances, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements, repay certain indebtedness, change the nature of the Company's business, change accounting policies and practices, grant negative pledges and incur capital expenditures. In addition, after giving effect to Amendment No. 3, the Credit Agreement requires the Company to maintain no more than a maximum consolidated leverage ratio as shown in the second table below and no less than a minimum cash interest coverage ratio of 2.00 to 1.00 through June 30, 2013, 1.75 to 1.00 from September 30, 2013 through June 30, 2014 and 2.00 to 1.00 thereafter and also contains certain customary affirmative covenants and events of default. The previously required ratio was 2.25 to 1.00 for all periods.

On November 28, 2011, the Company entered into Amendment No. 2 ("Amendment No. 2") to the Credit Agreement, which provided for modification to the definition of "Consolidated EBITDA" contained in the Credit Agreement to allow for the add-back of costs associated with the Company's cost realignment activities and operating losses associated with branches closed or sold during the fourth quarter of 2011 and to reset the maximum consolidated leverage ratio for the fourth quarter of 2011 to 4.75 to 1.00. As of March 31, 2012, the Company was in compliance with all covenants in the Credit Agreement.

The maximum consolidated leverage ratio under Amendment No. 2 was as follows:

For the period	Maximum Consolidated Leverage Ratio
August 17, 2010 to September 30, 2011		£4.75:1
October 1, 2011 to September 30, 2012		£4.50:1
October 1, 2012 to September 30, 2013		£3.75:1
Thereafter		£3.00:1

On March 6, 2012, the Company entered into Amendment No. 3 to the Credit Agreement, which provided, among other things, for (i) an increase by 175 basis points per annum of the interest rates applicable to each of outstanding Term Loan A loans and Term Loan B loans, (ii) an increase in the Company's permitted maximum consolidated leverage ratio as set forth in the table below, (iii) an amendment to the consolidated interest coverage ratio (and corresponding definitions) to provide that consolidated interest charges included in such calculation are such charges paid in cash (as compared with the previous covenant that included non-cash interest charges), along with a decrease in the Company's permitted minimum consolidated cash interest coverage ratio to (a) 2.00 to 1.00 through June 30, 2013, (b) 1.75 to 1.00 from September 30, 2013 through June 30, 2014 and (c) 2.00 to 1.00 thereafter, (iv) amendments to the definition of "Consolidated EBITDA," which include the ability to add-back certain costs associated with the Company's cost realignment and operating losses associated with certain facilities and branches closed or sold by the Company during the fourth quarter of 2011 and during 2012 and an increase in the add-back for litigation settlement costs, (v) an addition of a mechanism for the Company to make discounted prepayments of Term Loan A loans and Term Loan B loans pursuant to Dutch auction procedures and (vi) a reduction of the revolving credit facility from $125 million to $110 million. As a condition to effectiveness of Amendment No. 3, the Company paid $50 million of the outstanding term loans under the Credit Agreement, applied ratably between the Term Loan A facility and the Term Loan B facility. The Company also paid certain fees in connection with Amendment No. 3, including a consent fee to each lender approving Amendment No. 3 in an amount equal to 0.50% of its respective term loans and revolving credit commitments. In connection with Amendment No. 3, the Company incurred costs of approximately $5.3 million. Approximately $4.1 million of these costs (including the $0.8 million associated with the revolving credit facility) have been capitalized and are being amortized over the remaining life of the debt using an effective interest rate.

The increase in Gentiva's permitted maximum consolidated leverage ratio under Amendment No. 3 is set forth in the following table:

Four Fiscal Quarters Ending	Maximum Consolidated Leverage Ratio
March 31, 2012 to September 30, 2014	£6.25:1
Each fiscal quarter thereafter	£5.75:1

The previously required ratio was (i) 4.50 to 1.00 through September 30, 2012, (ii) 3.75 to 1.00 from December 31, 2012 through September 30, 2013 and (iii) 3.00 to 1.00 thereafter.

As of March 31, 2012, the Company's consolidated leverage ratio was 4.4x and the Company's interest coverage ratio was 3.0x.

Guaranty Agreement and Security Agreement

Gentiva and substantially all of its subsidiaries (the "Guarantor Subsidiaries") entered into a guaranty agreement pursuant to which the Guarantor Subsidiaries have agreed, jointly and severally, fully and unconditionally to guarantee all of the Company's obligations under the Credit Agreement. Additionally, Gentiva and its Guarantor Subsidiaries entered into a security agreement pursuant to which a first-priority security interest was granted in substantially all of the Company's and its Guarantor Subsidiaries' present and future real, personal and intangible assets, including the pledge of 100 percent of all outstanding capital stock of substantially all of the Company's domestic subsidiaries to secure full payment of all of the Company's obligations for the ratable benefit of the lenders.

Senior Notes

The Senior Notes are unsecured, senior subordinated obligations of the Company. The Senior Notes are guaranteed by all of Gentiva's subsidiaries that are guarantors under the Credit Agreement. Interest on the Senior Notes accrues at a rate of 11.5 percent per annum and is payable semi-annually in arrears on March 1 and September 1. Gentiva will make each interest payment to the holders of record on the immediately preceding February 15 and August 15.

The Senior Notes mature on September 1, 2018 and are generally free to be transferred. Gentiva may redeem the Senior Notes, in whole or in part, at any time prior to the first interest payment of 2014, at a price equal to 100 percent of the principal amount of the Senior Notes redeemed plus an applicable make-whole premium based on the present value of the remaining payments discounted at the treasury rate plus 50 basis points plus accrued and unpaid interest, if any, to the date of redemption. In addition, prior to September 1, 2013, Gentiva may redeem up to 35 percent of the aggregate principal amount of the Senior Notes with the net cash proceeds of a qualified equity offering at a redemption price equal to 111.5 percent of the aggregate principal amount, provided that (i) at least 65 percent of the aggregate principal amount of Senior Notes originally issued remain outstanding after the occurrence of such redemption and (ii) such redemption occurs within 180 days after the closing of a qualified equity offering.

On or after September 1, 2014, Gentiva may redeem all or part of the Senior Notes at redemption prices set forth below plus accrued and unpaid interest and Additional Interest, if any, as defined in the indenture relating to the Senior Notes during the twelve month period beginning on September 1 of the years indicated below:

Year	Percentage
2014		105.750	%
2015		102.875	%
2016 and thereafter		100.000	%

Other

The Company has equipment capitalized under capital lease obligations. At March 31, 2012 and December 31, 2011, the Company had no long-term capital lease obligations. The current portion of obligations under capital leases was $0.1 million at both March 31, 2012 and December 31, 2011, and was recorded in other accrued expenses on the Company's consolidated balance sheets.

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Business Segment Information

3 Months Ended

Mar. 31, 2012

Business Segment Information [Abstract]

Business Segment Information

Note 16. Business Segment Information

The Company's operations involve servicing its patients and customers through its Home Health segment and its Hospice segment.

Home Health

The Home Health segment is comprised of direct home nursing and therapy services operations, including specialty programs and its consulting business. The Company conducts direct home nursing and therapy services operations through licensed and Medicare-certified agencies, located in 39 states, from which the Company provides various combinations of skilled nursing and therapy services and paraprofessional nursing services to adult and elder patients. The Company's direct home nursing and therapy services operations also deliver services to its customers through focused specialty programs that include:

• Gentiva Orthopedics, which provides individualized home orthopedic rehabilitation services to patients recovering from joint replacement or other major orthopedic surgery;

• Gentiva Safe Strides^®, which provides therapies for patients with balance issues who are prone to injury or immobility as a result of falling;

• Gentiva Cardiopulmonary, which helps patients and their physicians manage heart and lung health in a home-based environment;

• Gentiva Neurorehabilitation, which helps patients who have experienced a neurological injury or condition by removing the obstacles to healing in the patient's home; and

• Gentiva Senior Health, which addresses the needs of patients with age-related diseases and issues to effectively and safely stay in their homes.

In addition, the Company provides consulting services to home health agencies which include operational support, billing and collection activities, and on-site agency support and consulting. For 2011, the Company's Rehab Without Walls^® and homemaker services business in Illinois are reflected as discontinued operations in accordance with applicable accounting guidance. See Note 4 for additional information.

Hospice

The Hospice segment serves terminally ill patients and their families through Medicare-certified providers operating in 29 states. Comprehensive management of the healthcare services and products needed by hospice patients and their families are provided through the use of an interdisciplinary team. Depending on a patient's needs, each hospice patient is assigned an interdisciplinary team comprised of a physician, nurse(s), home health aide(s), medical social worker(s), chaplain, dietary counselor and bereavement coordinator, as well as other care professionals. The Hospice segment also delivers services to its customers through focused specialty programs that include:

• Dementia Specialty Program, which provides an individualized disease management program addressing the physical needs specific to Alzheimer's and dementia patients and support mechanisms for their caregivers;

• Cancer Specialty Program, which provides advanced pain and symptom management for patients coping with the effects of cancer;

• Cardiac Specialty Program, which helps patients and their physicians aggressively manage symptoms associated with heart disease, focusing on quality of life and pain control; and

• Pulmonary Specialty Program, which addresses the needs of patients who have experienced a respiratory crisis by increasing quality of life and promoting comfort by specialized symptom management.

Corporate Expenses

Corporate expenses consist of costs relating to executive management and corporate and administrative support functions that are not directly attributable to a specific segment, including equity-based compensation expense. Corporate and administrative support functions represent primarily information services, accounting and finance, tax compliance, risk management, procurement, marketing, clinical administration, training, legal and human resource benefits and administration.

Other Information

The Company's senior management evaluates performance and allocates resources based on operating contributions of the reportable segments, which exclude corporate expenses, depreciation, amortization and net interest costs, but include revenues and all other costs (including special items) directly attributable to the specific segment. Segment assets represent net accounts receivable, identifiable intangible assets, goodwill, and certain other assets associated with segment activities. All other assets are assigned to corporate assets for the benefit of all segments for the purposes of segment disclosure.

Segment net revenues by major payer source were as follows (in millions):

	First Quarter
	2012						2011
	Home						Home
	Health		Hospice		Total		Health		Hospice		Total
Medicare	$	190.6	$	182.0	$	372.6	$	201.6	$	181.0	$	382.6
Medicaid and Local Government		11.9		7.6		19.5		13.2		7.8		21.0
Commercial Insurance and Other:
Paid at episodic rates		20.0		—		20.0		18.7		—		18.7
Other		17.5		6.1		23.6		22.5		6.3		28.8
Total net revenues	$	240.0	$	195.7	$	435.7	$	256.0	$	195.1	$	451.1

Segment information about the Company's operations is as follows (in thousands):

	Home Health			Hospice			Total
For the three months ended March 31, 2012
Net revenues	$	239,964		$	195,688		$	435,652
Operating contribution	$	25,876	(1)	$	32,482	(1)	$	58,358
Corporate expenses								(21,844	)(1)
Depreciation and amortization								(7,430	)
Interest expense and other, net of interest income								(21,502	)(2)
Income from continuing operations before income taxes							$	7,582
Segment assets	$	246,294		$	919,629		$	1,165,923
Corporate assets								295,450
Total assets							$	1,461,373
For the three months ended March 31, 2011
Net revenues	$	256,039		$	195,070		$	451,109
Operating contribution	$	41,882	(1)	$	36,137	(1)	$	78,019
Corporate expenses								(22,805	)(1)
Depreciation and amortization								(7,594	)
Interest expense and other, net of interest income								(26,883	)(2)
Income from continuing operations before income taxes and equity in earnings of CareCentrix							$	20,737
Segment assets	$	662,295		$	1,065,074		$	1,727,369
Corporate assets								398,794
Total assets							$	2,126,163

(1) For the three months ended March 31, 2012 and 2011, the Company recorded charges relating to cost savings initiatives and other restructuring costs, acquisition and integration costs and legal settlements of $5.4 million and $3.8 million, respectively. See Note 8 for additional information.

The charges were reflected as follows for segment reporting purposes (dollars in millions):

	First Quarter
	2012			2011
Home Health	$	5.8		$	0.3
Hospice		(0.2	)		0.7
Corporate expenses		(0.2	)		2.8
Total	$	5.4		$	3.8

(2) For the first quarter of 2012 interest expense and other, net included charges of $0.5 million relating to the write-off of deferred debt issuance costs associated with the revolving credit facility. In addition, interest expense and other, net for the first quarter of 2011 included fees of $3.8 million associated with terminating the Company's interest rate swaps in connection with the refinancing of the Company's Term Loan A and Term Loan B under the Company's senior secured credit agreement. See Note 11 for additional information.

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
OPERATING ACTIVITIES:
Net income	$ 5,053	$ 13,619
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	7,430	7,614
Amortization and write-off of debt issuance costs	3,686	6,418
Provision for doubtful accounts	2,262	2,581
Equity-based compensation expense	1,631	1,641
Windfall tax benefits associated with equity-based compensation		(194)
Equity in net earnings of CareCentrix		(554)
Deferred income tax benefit	6,531	2,754
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Accounts receivable	(24,441)	(20,449)
Prepaid expenses and other current assets	(10,347)	2,489
Accounts payable	3,330	2,240
Payroll and related taxes	(9,348)	21,248
Deferred revenue	5,683	4,787
Medicare liabilities	1,487	(1,859)
Obligations under insurance programs	1,622	(4,775)
Accrued nursing home costs	1,824	(3,203)
Other accrued expenses	(36,191)	(31,712)
Other, net	5,083	76
Net cash (used in) provided by operating activities	(34,705)	2,721
INVESTING ACTIVITIES:
Purchase of fixed assets	(3,793)	(3,317)
Net cash used in investing activities	(3,793)	(3,317)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock	705	4,652
Windfall tax benefits associated with equity-based compensation		194
Repayment of long-term debt	(50,000)	(3,438)
Debt issuance costs	(4,125)	(13,457)
Repayment of capital lease obligations	(37)	(76)
Other	(195)	(239)
Net cash used in financing activities	(53,652)	(12,364)
Net change in cash and cash equivalents	(92,150)	(12,960)
Cash and cash equivalents at beginning of period	164,912	104,752
Cash and cash equivalents at end of period	72,762	91,792
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	27,776	32,318
Income taxes paid	$ 247	$ 613

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Fair Value Of Financial Instruments

3 Months Ended

Mar. 31, 2012

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

Note 5. Fair Value of Financial Instruments

The Company's financial instruments are measured and recorded at fair value on a recurring basis, except for the note receivable from CareCentrix and long-term debt. The fair values for the note receivable from CareCentrix and non-financial assets, such as fixed assets, intangible assets and goodwill, are measured periodically and adjustments recorded only if an impairment charge is required. The carrying amount of the Company's accounts receivable, accounts payable and certain other current liabilities approximates fair value due to their short maturities.

Fair value is defined under authoritative guidance as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The three levels of inputs are as follows:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial Instruments Recorded at Fair Value

The Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis was as follows (in thousands):

	March 31, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	34,027	$	—	$	—	$	34,027	$	54,006	$	—	$	—	$	54,006
Rabbi Trust:
Mutual funds		22,972		—		—		22,972		25,626		—		—		25,626
Money market funds		6,201		—		—		6,201		697		—		—		697
Total assets	$	63,200	$	—	$	—	$	63,200	$	80,329	$	—	$	—	$	80,329
Liabilities:
Payables to plan participants	$	29,173	$	—	$	—	$	29,173	$	26,323	$	—	$	—	$	26,323

Assets held in the Rabbi Trust are held for the benefit of participants of the Company's non-qualified defined contribution retirement plan. The value of assets held in the Rabbi Trust is based on quoted market prices of securities and investments, including money market accounts and mutual funds, maintained within the Rabbi Trust. The corresponding amounts payable to plan participants are equivalent to the underlying value of assets held in the Rabbi Trust. Assets held in the Rabbi Trust and amounts payable to plan participants are classified in other assets and other liabilities, respectively, in the Company's consolidated balance sheets. Money market funds held in the Company's account represent cash equivalents and were classified in cash and cash equivalents in the Company's consolidated balance sheets at March 31, 2012 and December 31, 2011.

Other Financial Instruments

The carrying amount and estimated fair value of the Company's other financial instruments were as follows (in thousands):

	March 31, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Note receivable from CareCentrix	$	25,000	$	27,500	$	25,000	$	26,600
Liabilities:
Long-term debt, including current portion	$	938,125	$	889,823	$	988,125	$	863,313

The estimated fair value of the note receivable from CareCentrix was determined from Level 3 inputs based on an income approach using the discounted cash flow method. The fair value represents the net present value of (i) the after tax cash flows relating to the note's annual income stream plus (ii) the return of the invested principal using a maturity date of March 19, 2017, after considering assumptions relating to risk factors and economic conditions. See Note 7 for additional information.

In determining the estimated fair value of long-term debt, Level 2 inputs based on the use of bid and ask prices were considered. Due to the infrequent number of transactions that occur related to the long-term debt, the Company does not believe an active market exists for purposes of this disclosure.

Cash Flow Hedge

The Company may utilize derivative financial instruments to manage interest rate risk. Derivatives are held only for the purpose of hedging such risk, not for speculative purposes. The Company's derivative instruments consisted of (i) a one year interest cap with a notional value of $220.0 million and (ii) until March 9, 2011, two year forward starting interest rate swaps with notional value of $300.0 million, each agreement designated as a cash flow hedge of the variability of cash flows associated with a portion of the Company's variable rate term loans. During the first quarter of 2011, the Company terminated the two year forward starting interest rate swaps in connection with the refinancing of the Company's Term Loan A and Term Loan B facilities under its senior secured credit agreement. The Company paid approximately $0.3 million to terminate the interest rate swaps, which is reflected in interest expense and other in the Company's consolidated statement of comprehensive income in 2011. The Company's interest rate cap expired in November 2011. The Company held no derivative instruments as of March 31, 2012 or December 31, 2011.

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Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

Income Taxes

Note 15. Income Taxes

The Company recorded an income tax provision of $2.5 million for the first quarter of 2012. The Company's effective income tax rate for the first quarter of 2012 was 33.4 percent. The rate for the first quarter is lower than what is expected for the year as a result of an issue being effectively settled with the IRS and a reversal of related reserves in the first quarter. The difference between the federal statutory income tax rate of 35 percent and the Company's effective rate of 33.4 percent for the first three months of 2012 is primarily due to state income taxes (approximately 4.9 percent), and other items (approximately 1.1 percent) offset by a change in tax reserves (approximately 7.6 percent).

The Company recorded an income tax provision of $8.1 million for the first quarter of 2011. The Company's effective rate for the first quarter of 2011 was 39.2 percent. The difference between the federal statutory income tax rate of 35 percent and the Company's effective rate of 39.2 percent for the first three months of 2011 is primarily due to state income taxes (approximately 4.7 percent), offset by other items (approximately 0.5 percent).