8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

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

Date of Report (Date of earliest event reported): November 3, 2004

POLYMEDICA CORPORATION

(Exact name of registrant as specified in charter)

Massachusetts	0-19842	04-3033368
(State or other juris-	(Commission	(IRS Employer
diction of incorporation)	File Number)	Identification No.)

11 State Street, Woburn, Massachusetts 01801

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (781) 933-2020

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registration under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4)c))

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TABLE OF CONTENTS

	Item 1.01. Entry Into a Material Definitive Agreement.
	Item 8.01. Other Events
	Item 9.01. Financial Statements and Exhibits.
SIGNATURE
EXHIBIT INDEX
EX-10.1 SETTLEMENT AGREEMENT
EX-10.2 CORPORATE INTEGRITY AGREEMENT

Item 1.01. Entry Into a Material Definitive Agreement.

The registrant has disclosed in its prior quarterly and annual filings on Forms 10-Q and 10-K, respectively, that the U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the Federal Bureau of Investigation (“FBI”) and the Department of Health and Human Services’ Office of Inspector General (“OIG”), was investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty Medical Supply and Liberty Home Pharmacy, two of the registrant’s operating subsidiaries. This investigation was civil and criminal. The government’s investigation related to certain medical billing and documentation practices.

On November 3, 2004, the registrant reached final settlement of the investigation and entered into a civil settlement agreement with the United States Department of Justice and the Office of Inspector General. Under the terms of the settlement agreement, the registrant will make a one-time payment of $35 million, admit no wrongdoing, and the Department of Justice and Officer of the Inspector General will release the claims that were under investigation. This agreement is filed hereto as Exhibit 10.1.

As part of the civil settlement, the registrant has also entered into a 5 year corporate integrity agreement which provides for an annual review of a sample of its Medicare claims by an independent review organization for a 3 to 5 year period, and further obligates the registrant to continue its compliance program and the measures it has implemented to promote compliance with Medicare regulations. This agreement is filed hereto as Exhibit 10.2.

Item 8.01. Other Events

The registrant has received a non-prosecution agreement, in which the United States Attorney’s Office for the Southern District of Florida has agreed not to prosecute the Company, Liberty Medical Supply or Liberty Home Pharmacy in connection with the allegations that were the subject matter of the investigation referred to in Item 1.01, above.

Item 9.01. Financial Statements and Exhibits.

(a)	Financial Statements of Businesses Acquired
	Not Applicable.
(b)	Pro Forma Financial Information
	Not Applicable.
(c)	Exhibits

10.1

Settlement Agreement, entered into on November 3, 2004, between the United States of America, acting by and through the United States Department of Justice and on behalf of the Office of Inspector General of the Department of Health and Human Services, PolyMedica Corporation and its wholly-owned subsidiaries Liberty Medical Supply, Inc. and Liberty Home Pharmacy, Donna Ben-Barrack and Claire Schultz.

10.2

Corporate Integrity Agreement, entered into on November 3, 2004, between the Office of Inspector General of the Department of Health and Human Services and PolyMedica Corporation.

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SIGNATURE

     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 hereunto duly authorized.

Date: November 8, 2004	POLYMEDICA CORPORATION
	By:	/s/ William B. Eck
		William B. Eck
		Senior Vice President, General Counsel and Chief of Healthcare Affairs

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Settlement Agreement, entered into on November 3, 2004, between the United States of America, acting by and through the United States Department of Justice and on behalf of the Office of Inspector General of the Department of Health and Human Services, PolyMedica Corporation and its wholly-owned subsidiaries Liberty Medical Supply, Inc. and Liberty Home Pharmacy, Donna Ben-Barrack and Claire Schultz.
10.2	Corporate Integrity Agreement, entered into on November 3, 2004, between the Office of Inspector General of the Department of Health and Human Services and PolyMedica Corporation.

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EX-10.1

                                                                    Exhibit 10.1



                              SETTLEMENT AGREEMENT

     This Settlement Agreement ("Agreement") is entered into between: (i)
the United States of America, acting by and through the United States Department
of Justice and on behalf of the Office of Inspector General of the Department of
Health and Human Services ("OIG-HHS"); (ii) Polymedica Corporation
("Polymedica"), and its wholly-owned subsidiaries Liberty Medical Supply, Inc.
and Liberty Home Pharmacy Corporation (collectively "Defendants"), through their
authorized representatives; (iii) Donna Ben-Barrack ("Relator Ben-Barrack") and
(iv) Claire Schultz ("Relator Schultz") and her estate, heirs, and assigns,
Brenda Sullivan Clark for herself and as Administratrix of the Estate of Claire
Schultz. Collectively, all of the above shall be referred to as "the Parties."

                                   I. PREAMBLE

     As a preamble to this Agreement, the Parties agree to the following:

1.   Defendants aver that they are or have been national providers of, among
     other things, durable medical equipment, pharmaceuticals, and related
     products, and currently provide or have provided in all fifty states in the
     United States, and Puerto Rico.

2.   Defendants submitted or caused to be submitted claims for payment to the
     Medicare Program ("Medicare" or "Program"), Title XVIII of the Social
     Security Act, 42 U.S.C.ss.ss.1395-1395ggg.

3.   On July 25, 2001, pursuant to the qui tam provisions of the False Claims
     Act, 31 U.S.C.ss.3730, Relator Ben-Barrack, in her individual capacity and
     as a relator on behalf of the United States, filed a complaint, under seal,
     in United States ex rel. Donna Ben-Barrack


POLYMEDICA SETTLEMENT AGREEMENT



     v. Polymedica Corporation and Liberty Medical Supply, Inc., Civil Action
     No. 01-8705, in the United States District Court for the Southern District
     of Florida (qui tam A). On August 7, 2001, pursuant to the qui tam
     provisions of the False Claims Act, 31 U.S.C.ss.3730, Relator Schultz, in
     her individual capacity and as a relator on behalf of the United States,
     filed a complaint, under seal, in United States ex rel. Claire Schultz v.
     Liberty Home Pharmacy Corporation and Polymedica Company, Civil Action No.
     01-11370, in the United States District Court for the District of
     Massachusetts (qui tam B); subsequently Relator Schultz passed away, and
     Brenda Sullivan Clark for herself and as Administratrix of the Estate of
     Claire Schultz was substituted for Relator Schultz in this suit. Together,
     Relator Ben-Barrack, Relator Schultz, and Brenda Sullivan Clark for herself
     and as Administratrix of the Estate of Claire Schultz, shall hereinafter be
     referred to as Relators.

4.   The United States contends that it has certain civil claims, as specified
     in paragraph 13 below, against Defendants for engaging in the following
     conduct:




     a.   Between October 1, 1998 through June 30, 2002: Defendants submitted or
          caused to be submitted claims for reimbursement to Medicare for the
          diabetic and nebulizer products with Healthcare Common Procedure Codes
          descriptions Blood glucose/reagent strips (A4253), Lancets per box
          (A4259), Lancet device each (A4258), Calibrator solution/chips
          (A4256), Albuterol unit dose (J7619, K0505), Ipratropium bromide unit
          dose (J7644, K0518), Nebulizer with compression (E0570),



POLYMEDICA SETTLEMENT AGREEMENT        2


          Dispensing fee dme nebulizer set (E0590), Nondisposable nebulizer set
          (A7005), Nebulizer administration set (A7003), and Aerosol mask used
          with nebulizer (A7015), Sterile saline/water (J7051), albuterol
          solution concentrated (J7618), Bitolterol mesylate concentrated
          (J7628), Cromolyn sodium unit dose (J7631), Metaproterenol unit dose
          (J7669), Inhalation solution for DME (J7699), Acetylcysteine unit dose
          (J7608), Budesonide inhalation solution (J7626), Triamcinolene unit
          dose (J7684), Dexamethasone unit dose (J7638), Atropine concentrated
          (J7636), Acetylcysteine unit dose (K0503), Albuterol concentrate
          (K0504), Atropine unit dose (K0507), Bitolterol concentrated (K0508),
          Cromolyn sodium unit dose (K0511), Metaproterenol unit dose (K0524),
          Disposable nebulizer set (K0168), Aerosol mask with nebulizer (K0180),
          Tracheotomy mask or collar (A4621), Non-disposable nebulizer set
          (K0170), non-covered item or service (A9270), Nasal vaccine inhalation
          (J3535), Nasal vaccine inhalation (J3530), Metaproterenal sulfate
          (J7670), and Dexamethasone concentrated (J7637), without fully
          complying with the following Medicare coverage and documentation
          requirements, as prescribed and defined by the Centers for Medicare
          and Medicaid Services and the applicable Durable Medical Equipment
          Regional Carriers: (1) a signed, written doctor's order must be
          obtained by the supplier prior to submitting a claim to Medicare for
          any diabetes or nebulizer related product, where such an order is
          described and defined by the local medical review policy for diabetic
          related and nebulizer related products, and by the


POLYMEDICA SETTLEMENT AGREEMENT        3



          applicable DMERC Supplier Manual; (2) documentation of the medical
          necessity of testing or treatment in excess of the utilization
          guidelines, where applicable, must be obtained by the supplier prior
          to submitting a claim to Medicare for any diabetes or nebulizer
          related product; (3) before dispensing any diabetic or nebulizer
          related products to a Medicare beneficiary, the supplier must have
          either an oral or written dispensing order from the treating
          physician, as described and defined by the applicable DMERC Supplier
          Manual; (4) the supplier must have and maintain proof of the delivery
          of the product to the Medicare beneficiary; (5) the supplier or
          physician must maintain documentation of actual use of certain
          products when prescribed and dispensed in excess of utilization
          guidelines where required by local medical review policy, and by the
          applicable DMERC Supplier Manual; and (6) the supplier must be in
          possession of a valid assignment of benefits form, as defined by the
          beneficiary authorization section of the applicable DMERC Supplier
          Manual; and

     b.   Between August 1, 1997 through June 30, 2003: Defendants submitted or
          caused to be submitted claims for reimbursement to Medicare for
          quantities of diabetic and nebulizer products with Healthcare Common
          Procedure Codes descriptions: Blood glucose/reagent strips (A4253),
          Lancets per box (A4259), Albuterol unit dose (J7619, K0505),
          Ipratropium bromide unit dose (J7644, K0518), Nondisposable nebulizer
          set (A7005), Nebulizer administration set (A7003), and Aerosol mask
          used with nebulizer (A7015), Sterile saline/water (J7051), albuterol


POLYMEDICA SETTLEMENT AGREEMENT        4



          solution concentrated (J7618), Bitolterol mesylate concentrated
          (J7628), Cromolyn sodium unit dose (J7631), Metaproterenol unit dose
          (J7669), Inhalation solution for DME (J7699), Acetylcysteine unit dose
          (J7608), Budesonide inhalation solution (J7626), Triamcinolene unit
          dose (J7684), Dexamethasone unit dose (J7638), Atropine concentrated
          (J7636), Acetylcysteine unit dose (K0503), Albuterol concentrate
          (K0504), Atropine unit dose (K0507), Bitolterol concentrated (K0508),
          Cromolyn sodium unit dose (K0511), Metaproterenol unit dose (K0524),
          Disposable nebulizer set (K0168), Aerosol mask with nebulizer (K0180),
          Tracheotomy mask or collar (A4621), Non-disposable nebulizer set
          (K0170), non-covered item or service (A9270), Nasal vaccine inhalation
          (J3535), Nasal vaccine inhalation (J3530), Metaproterenal sulfate
          (J7670), and Dexamethasone concentrated (J7637), which quantities were
          in excess of the quantities specified in the written doctor's order
          (for the date of service of the claim) that was in Defendants'
          possession on or prior to the date of submission of the claim to
          Medicare.

The conduct specified above in this paragraph is hereinafter referred to as the
"Covered Conduct."



5.   The United States also contends that it has certain administrative claims
     against Defendants for engaging in the Covered Conduct.

6.   Defendants deny the allegations and contentions in paragraphs 4 and 5
     above, and further deny any and all wrongdoing and/or liability under the
     False Claims Act, 31 U.S.C. ss.ss.


POLYMEDICA SETTLEMENT AGREEMENT        5


     3729-3733, or other federal or state law or regulation with respect to the
     Covered Conduct.

7.   This Agreement is neither an admission of any wrongful conduct or liability
     by Defendants, nor a concession by the United States that its claims are
     not well founded.

8.   The Relators claim entitlement under 31 U.S.C.ss.3730(d) to a share of the
     proceeds of this Agreement, but the Relators and the United States have not
     agreed on the entitlement or amount of that award, if any.

9.   In order to avoid the disruption, delay, uncertainty, inconvenience, and
     expense of protracted litigation of these claims, the Parties have agreed
     to a full and final settlement as set forth below.

                            II. TERMS AND CONDITIONS

     NOW, THEREFORE, in consideration of the mutual promises, covenants, and
obligations set forth below, and for good and valuable consideration as stated
herein, the Parties agree as follows:


10.  Payment to the United States: Defendants agree to pay $35 million dollars
     (the "Settlement Amount") to the United States pursuant to the Manner and
     Method of Payment defined below in paragraph 11.

11.  Manner and Method of Payment: Polymedica shall effect the payment provided
     for in paragraph 10 above by electronic transfer pursuant to written
     routing instructions provided by the United States. This payment shall
     occur within 5 business days after the Effective Date of this Agreement.


POLYMEDICA SETTLEMENT AGREEMENT        6



12.  Integrity Agreement: Simultaneously herewith, Defendants are entering into
     a Corporate Integrity Agreement ("CIA") with OIG-HHS, attached as Exhibit A
     which is incorporated into this Agreement by reference. Defendants shall
     immediately, upon execution of the CIA, implement their obligations under
     the CIA.

13.  In consideration of the obligations of Defendants under this Agreement and
     subject to the exceptions in paragraph 15 below, and conditioned upon
     payment in full of the Settlement Amount, the United States shall release
     and forever discharge Defendants from any civil or administrative monetary
     claims that the United States has or may have for the Covered Conduct under
     the False Claims Act, 31 U.S.C.ss.ss.3729-3733; the Civil Monetary
     Penalties Law, 42 U.S.C.ss.1320a-7a; the Program Fraud Civil Remedies Act,
     31 U.S.C.ss.ss.3801-3812; any other statute creating causes of action for
     civil damages or civil penalties that the Civil Division has actual or
     present authority to assert and compromise pursuant to 28 C.F.R. Part O,
     Subpart I,ss.0.45(d); or the common law theories of unjust enrichment,
     payment by mistake, and fraud. No individuals are released by this
     Agreement, except that in consideration of the obligations of Defendants
     under this Agreement and subject to the exceptions in paragraph 15 below,
     and conditioned upon payment in full of the Settlement Amount, the United
     States shall release and forever discharge current directors, officers, and
     employees of the Defendants who were not employed by or otherwise in any
     way affiliated with Defendants at any time prior to June 30, 2003, from any
     civil or administrative monetary claims that the United States has or may
     have for the Covered Conduct under the False Claims Act, 31 U.S.C.


POLYMEDICA SETTLEMENT AGREEMENT        7


     ss.ss. 3729-3733; the Civil Monetary Penalties Law, 42 U.S.C.ss.1320a-7a;
     the Program Fraud Civil Remedies Act, 31 U.S.C.ss.ss. 3801-3812; or the
     common law theories of unjust enrichment, payment by mistake, and fraud.

14.  In consideration of the obligations of Defendants set forth in this
     Agreement and the CIA incorporated by reference, and conditioned upon
     Defendants' payment in full of the Settlement Amount, OIG-HHS agrees to
     release and refrain from instituting, directing, or maintaining any
     administrative action seeking exclusion from the Medicare, Medicaid, or
     other Federal health care programs (as defined in 42 U.S.C.ss.1320a-7b(f))
     against Defendants under 42 U.S.C.ss. 1320a-7a (Civil Monetary Penalties
     Law) or 42 U.S.C.ss.1320a-7(b)(7) (permissive exclusion for fraud,
     kickbacks, and other prohibited activities), for the Covered Conduct,
     except as reserved in paragraph 15 below, and as reserved in this
     paragraph. The OIG-HHS expressly reserves all rights to comply with any
     statutory obligations to exclude Defendants from the Medicare, Medicaid, or
     other Federal health care program under 42 U.S.C.ss.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
     15, below.

15.  Notwithstanding any term of this Agreement, specifically reserved and
     excluded from the scope and terms of this Agreement as to any entity or
     person (including Defendants and Relator(s)) are the following claims of
     the United States:

     a.   Any civil, criminal, or administrative liability arising under Title
          26, U.S. Code


POLYMEDICA SETTLEMENT AGREEMENT        8

    (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 such obligations as are created by this
          Agreement;

     f.   Any liability of individuals, including officers and employees, except
          as explicitly described in paragraph 13 above.

     g.   Any civil or administrative liability of individuals (including
          current and former directors, officers, employees, agents, or
          shareholders of Defendants) who receive written notification that they
          are the target of a criminal investigation (as defined in the United
          States' Attorneys' Manual), are indicted, charged, convicted, or who
          enter into a plea agreement related to the Covered Conduct.

     h.   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

     i.   Any liability for personal injury or property damage or for other
          consequential damages arising from the Covered Conduct. j. Any
          liability for failure to deliver goods or services due.

16.  The Relators and their heirs, successors, attorneys, agents, and assigns
     agree not to object to this Agreement and agree and confirm that this
     Agreement is fair, adequate, and

POLYMEDICA SETTLEMENT AGREEMENT        9


     reasonable under all the circumstances, pursuant to 31 U.S.C.ss.
     3730(c)(2)(B). In connection with this Agreement and qui tams A and B,
     Relators and their heirs, successors, attorneys, agents, and assigns agree
     that neither this Agreement, any intervention by the United States in qui
     tams A and B in order to dismiss qui tams A and B, nor any dismissal of
     these qui tams, will waive or otherwise affect the ability of the United
     States to contend that provisions in the False Claims Act, including 31
     U.S.C.ss.ss.3730(d)(3) and 3730(e), bar the relator from sharing in the
     proceeds of this Agreement. Moreover, the United States and Relators and
     their heirs, successors, attorneys, agents, and assigns agree that they
     each retain all of their rights pursuant to the False Claims Act on the
     issue of the percentage, if any, that the Relators should receive of any
     proceeds of this settlement, and that no agreement between the United
     States and Relators with regard to this percentage has been reached to
     date.

17.  Subject to the exceptions in paragraph 15, in consideration of the
     obligations of Defendants in this Agreement, conditioned upon Defendants'
     full payment of the Settlement Amount, Relators, for themselves and for
     their heirs, successors, attorneys, agents, and assigns, agree to release
     Defendants from any civil monetary claim the United States has or may have
     for the Covered Conduct under the False Claims Act, 31 U.S.C. ss.ss.
     3729-3733.

18.  Nothing in this Agreement shall constitute a waiver, or otherwise affect,
     any rights arising from Relator Ben-Barrack's claims under 31
     U.S.C.ss.3730(h) as contained in Relator Ben-Barrack's qui tam A.

POLYMEDICA SETTLEMENT AGREEMENT        10



19.  Defendants fully and finally release the United States, its agencies,
     employees, servants, and agents from any claims (including attorneys fees,
     costs, and expenses of every kind and however denominated) which Defendants
     have asserted, could have asserted, or may assert in the future against the
     United States, its agencies, employees, servants, and agents, related to
     the Covered Conduct and the United States' audits and investigations of
     Defendants.

20.  Defendants waive and shall not assert any defenses Defendants 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. The Parties agree that this Agreement
     is not punitive in purpose or effect. 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.

21.  The Settlement Amount shall not be decreased as a result of the denial of
     claims for payment now being withheld from payment to Defendants by any
     Medicare carrier or intermediary, or any State payer, related to the
     Covered Conduct; and Defendants agree not to resubmit to any Medicare
     carrier or intermediary, or any State payer any previously denied claims
     related to the Covered Conduct, and agrees not to appeal any such denials



POLYMEDICA SETTLEMENT AGREEMENT        11

     of claims.

22.  Defendants agree to the following:

     1.   Unallowable Costs Defined: that all costs (as defined in the Federal
          Acquisition Regulation, 48 C.F.R. ss. 31.205-47 and in Titles XVIII
          and XIX of the Social Security Act, 42 U.S.C. ss.ss. 1395-1395ggg and
          1396-1396v, and the regulations and official program directives
          promulgated thereunder) incurred by or on behalf of Defendants, their
          present or former officers, directors, employees, shareholders, and
          agents in connection with the following shall be "unallowable costs"
          on government contracts and under the Medicare Program, Medicaid
          Program, TRICARE Program, and Federal Employees Health Benefits
          Program (FEHBP):

          (1)  the matters covered by this Agreement;

          (2)  the United States' audits and civil and criminal investigations
               of the matters covered by this Agreement;

          (3)  Defendants' investigation, defense, and corrective actions
               undertaken in response to the United States' audits and civil and
               criminal investigations in connection with the matters covered by
               this Agreement (including attorney's fees); (4) the negotiation
               and performance of this Agreement;

          (5)  the payment Defendants make pursuant to this Agreement and any
               payments that Defendants make to Relator(s), including expenses,
               costs, and attorney fees; and

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

               (i)  Retain an independent review organization to perform annual
                    reviews

POLYMEDICA SETTLEMENT AGREEMENT        12

                    as described in Section III of the CIA; and

                    (ii) prepare and submit reports to the OIG-HHS.

               However, nothing in this paragraph 22.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 Defendants. (All costs described or set forth in
               this paragraph 22.a. are hereafter, "unallowable costs").

          b.   Future Treatment of Unallowable Costs: These unallowable costs
               shall be separately determined and accounted for by Defendants,
               and Defendants 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 Defendants or any of
               their subsidiaries or affiliates to the Medicare, Medicaid,
               TRICARE, or FEHBP Programs.

          c.   Treatment of Unallowable Costs Previously Submitted for Payment:
               Defendants further agree that within 90 days of the Effective
               Date of this Agreement they shall identify to applicable Medicare
               and TRICARE fiscal intermediaries, carriers, and/or contractors,
               and Medicaid, VA 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 Defendants or any of their
               subsidiaries or


POLYMEDICA SETTLEMENT AGREEMENT        13

               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 unallowable costs. Defendants agree that the
               United States, at a minimum, shall be entitled to recoup from
               Defendants 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 Defendants or any of their
                    subsidiaries or affiliates on the effect of inclusion of
                    unallowable costs (as defined in this paragraph) on
                    Defendants or any of their 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 Defendants' books and
     records to determine that no unallowable costs have been claimed in
     accordance with the provisions of this paragraph.

POLYMEDICA SETTLEMENT AGREEMENT        14



23.  Defendants agree to cooperate fully and truthfully with the United States'
     investigation of individuals and entities not released in this Agreement.
     Upon reasonable notice, Defendants shall encourage, and agree not to
     impair, the cooperation of their directors, officers, and employees, and
     shall use their best efforts to make available, and encourage the
     cooperation of former directors, officers, and employees for interviews and
     testimony, consistent with the rights and privileges of such individuals.
     Defendants agree to disclose fully to the United States the non-privileged
     findings of any internal audit or review related to the Covered Conduct,
     and to furnish to the United States upon reasonable request all
     non-privileged materials, documents and records in their possession,
     custody, or control relating to the Covered Conduct. Defendants shall not
     be required to disclose attorney-client privileged materials, documents, or
     records or attorney-work product.

24.  This Agreement is intended to be for the benefit of the Parties only, and
     by this instrument the Parties do not release any claims against any other
     person or entity, except to the extent provided for in paragraph 25, below.

25.  Defendants agree that they shall waive and shall not seek payment for any
     of the health care billings covered by this Agreement from any health care
     beneficiaries, their parents, sponsors, legally responsible individuals, or
     third party payors. Defendants waive any cause of action against these
     beneficiaries or their parents or sponsors based upon the claims for
     payment covered by this Agreement.

26.  Upon receipt of the Settlement Amount, the United States shall file a
     Notice of Intervention and Motion to Dismiss in qui tams A and B pursuant
     to the terms of the

POLYMEDICA SETTLEMENT AGREEMENT        15

     Agreement. Except as expressly stated below and subject to paragraph 16,
     this Motion to Dismiss shall seek dismissal (1) with prejudice to Relators
     with respect to all claims against Defendants by Relator(s); and (2) with
     prejudice to the United States with respect to claims against Defendants
     for the Covered Conduct, but without prejudice to the United States as to
     any other allegation in qui tams A and B; but in no event shall (1) the
     dismissal of qui tam A dismiss or otherwise prejudice Relator Ben-Barrack's
     claims under 31 U.S.C.ss.3730(h) as contained in Relator Ben-Barrack's qui
     tam A; (2) the dismissal of qui tam A or qui tam B dismiss or otherwise
     prejudice Relators' claims against defendants for necessary expenses and
     reasonable attorney fees and costs pursuant to 31 U.S.C.ss.3739(d)(1); and
     (3) the dismissal of qui tam A or qui tam B dismiss or otherwise prejudice
     the United States' or Relators' rights with regard to Relators' share of
     the Settlement Amount pursuant to 31 U.S.C.ss.3730(d).

27.  Except as provided in paragraph 26 above and paragraph 30 below, each Party
     shall bear its own legal and other costs incurred in connection with this
     matter, including the preparation and performance of this Agreement.

28.  Defendants and Relators represent that this Agreement is freely and
     voluntarily entered into without any degree of duress or compulsion
     whatsoever.

29.  This Agreement is governed by the laws of the United States. The Parties
     agree that the exclusive jurisdiction and venue for any dispute arising
     between and among the Parties under this Agreement shall be the United
     States District Court for the Southern District of Florida, except that
     disputes arising under the CIA shall be resolved exclusively under the
     dispute resolution provisions in the CIA.

POLYMEDICA SETTLEMENT AGREEMENT        16


30.  This Agreement and the CIA incorporated by reference constitute the
     complete agreement between the Parties. This Agreement may not be amended
     except by written consent of the Parties, except that: (1) only Defendants
     and OIG-HHS must agree in writing to modification of the CIA; (2) a
     separate agreement between Relators and Defendants shall address attorney
     expenses, fees, and costs, if any, to which Relators are entitled pursuant
     to 31 U.S.C.ss.3730(d), and if no such agreement between Defendants and
     Relator(s) is reached, the amount of such attorneys expenses, fees and
     costs, if any, shall be determined by the Court; (3) a separate agreement
     between Relator Ben-Barrack and Defendants shall address Relator
     Ben-Barrack's claims under 31 U.S.C.ss.3730(h) as stated in qui tam A, and
     if no such agreement between Defendants and Relator Ben-Barrack is reached,
     those claims shall be addressed at Relator Ben-Barrack's discretion to the
     Court; and (4) a separate agreement between Relators and the United States
     shall address Relators' claims to a share of the Settlement Amount pursuant
     to 31 U.S.C.ss.3730(d), and if no such agreement between Relators and the
     United States is reached, those claims shall be determined by the Court.

31.  This Agreement is binding on Defendants' and Relators' successors,
     transferees, heirs, and assigns.

32.  The undersigned individuals signing this Agreement on behalf of Defendants
     and Relators represent and warrant that they are authorized to execute this
     Agreement. The undersigned United States signatories represent that they
     are signing this Agreement in


POLYMEDICA SETTLEMENT AGREEMENT        17

     their official capacities and that they are authorized to execute this
     Agreement.

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

34.  The Parties agree that they shall execute and deliver all such other
     documents and instruments as may be necessary and appropriate to effectuate
     the terms of the Agreement.

35.  This Agreement is binding on Defendants' and Relators' successors,
     transferees, heirs, and assigns.

36.  This Agreement is effective on the date of signature of the last signatory
     to the Agreement (the "Effective Date of this Agreement"). Facsimiles of
     signatures shall constitute acceptable, binding signatures for purposes of
     this Agreement.

37.  All Parties consent to the United States' disclosure of this Agreement and
     information about this Agreement, to the public.


POLYMEDICA SETTLEMENT AGREEMENT        18


                            UNITED STATES OF AMERICA


                                         PETER D. KEISLER
                                         Assistant Attorney General
                                         United States Department of Justice

11/03/04                                 /s/ Andrew Skowronek
- -------------------------                --------------------------------
DATE                                     ANDREW SKOWRONEK
                                         POLLY DAMMANN
                                         MIKE HERTZ
                                         Commercial Litigation Branch
                                         Civil Division
                                         United States Department of Justice


                                         MARCOS DANIEL JIMENEZ
                                         United States Attorney for the
                                         Southern District of Florida

11/03/04                                 /s/ Marilynn Koonce Lindsey
- -------------------------                ---------------------------------
DATE                                     MARILYNN KOONCE LINDSEY
                                         Assistant U.S. Attorney
                                         Southern District of Florida


                                         MICHAEL J. SULLIVAN
                                         United States Attorney
                                         District of Massachusetts

11/03/04                                 /s/ Mark Grady
- -------------------------                ---------------------------------
DATE                                     MARK GRADY
                                         Assistant United States Attorney
                                         1 Courthouse Way, Suite 9200
                                         Boston, MA 02210


POLYMEDICA SETTLEMENT AGREEMENT        19



11/3/04                                  /s/ Lewis Morris
- -------------------------                --------------------------------------
DATE                                     LEWIS MORRIS
                                         Chief Counsel to the Inspector General
                                         Office of Inspector General
                                         United States Department of Health and
                                         Human Services

                                   DEFENDANTS


11/3/04                                  /s/ William B. Eck
- -------------------------                --------------------------------------
DATE                                     WILLIAM B. ECK
                                         Sr. Vice President and General Counsel
                                         On Behalf of Polymedica Corporation,
                                         Liberty Medical Supply, Inc., and
                                         Liberty Home Pharmacy Corp.


11/5/04                                  /s/ Mark Schnapp
- -------------------------                --------------------------------------
DATE                                     MARK SCHNAPP
                                         Greenberg Traurig, PA
                                         Attorney for Polymedica Corporation


                                    RELATORS



11/05/04                                 /s/ Donna Ben-Barrack
- -------------------------                --------------------------------------
DATE                                     DONNA BEN-BARRACK


11/05/04                                 /s/ Dan Small
- -------------------------                --------------------------------------
DATE                                     DAN SMALL
                                         Attorney for Donna Ben-Barrack




POLYMEDICA SETTLEMENT AGREEMENT        20





11/08/04                                 /s/ Brenda Sullivan Clark
- -----------------                        -------------------------------------
DATE                                     BRENDA SULLIVAN CLARK


11/08/04                                 /s/ Brenda Sullivan Clark
- -----------------                        -------------------------------------
DATE                                     BRENDA SULLIVAN CLARK
                                         Administratrix of the Estate of Claire
                                         Schultz


11/08/04                                 /s/ Jeffrey Beeler
- -----------------                        -------------------------------------
DATE                                     JEFFREY BEELER
                                         Attorney for Claire Schultz, the Estate
                                         of Claire Schultz, and Brenda Sullivan
                                         Clark

POLYMEDICA SETTLEMENT AGREEMENT         21

EX-10.2

                                                                    Exhibit 10.2


                          CORPORATE INTEGRITY AGREEMENT
                                   BETWEEN THE
                           OFFICE OF INSPECTOR GENERAL
                                     OF THE
                     DEPARTMENT OF HEALTH AND HUMAN SERVICES
                                       AND
                             POLYMEDICA CORPORATION

I.   PREAMBLE

     PolyMedica Corporation, for itself and its subsidiaries that provide items
and services for which payment may be made by Federal health care programs
(collectively, PolyMedica) hereby enter 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. ss. 1320a-7b(f)) (Federal health
care program requirements). Contemporaneously with this CIA, PolyMedica is
entering into a Settlement Agreement with the United States, and this CIA is
incorporated by reference into the Settlement Agreement.

     Polymedica has operated voluntary Compliance Programs which, as represented
by PolyMedica, include a Compliance Officer, Compliance Committees, a written
Code of Conduct, policies and procedures, a Disclosure Program and screening of
Ineligible Persons, and are aimed at ensuring that the activities of these
suppliers are in compliance with all Federal health care program requirements
and at meeting PolyMedica's goal of promoting high ethical standards in the
conduct of PolyMedica's business practices. PolyMedica agrees to continue the
operation of its Compliance Program and measures in accordance with the terms
set forth below for the term of this CIA. PolyMedica may modify its voluntary
compliance measures as appropriate (subject to the terms of this CIA) but shall
ensure that during the term of this CIA it complies with the obligations of
PolyMedica set forth in this CIA.

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       1




II.  TERM AND SCOPE OF THE CIA

     A. The period of the compliance obligations assumed by PolyMedica under
this CIA shall be 5 years from the effective date of this CIA, unless otherwise
specified. The effective date shall be the date on which the final signatory of
this CIA executes this CIA (Effective Date). 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, VIII, IX, X, and XI shall expire no later than 120 days
after OIG's receipt of: (1) PolyMedica's final annual report; or (2) any
additional materials submitted by PolyMedica pursuant to OIG's request,
whichever is later.

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

                  1.  "Covered Persons" includes:

                          a. all officers, directors, and employees of
                          PolyMedica; and

                          b. all individuals, including contractors,
                          subcontractors, agents, and other persons, who provide
                          patient care items or services or who perform billing
                          or coding functions on behalf of PolyMedica;

                    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.

                    2.  "Relevant Covered Persons" includes:

                           a. all Covered Persons who solicit, obtain, receive,
                           fill, or otherwise handle orders from physicians or
                           individuals for durable medical equipment and/or
                           supplies on behalf of PolyMedica;


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       2


                           b. all Covered Persons who code or submit to Medicare
                           claims for durable medical equipment and/or supplies
                           on behalf of PolyMedica; and

                           c. all Covered Persons who make or implement company
                           policy and procedures for PolyMedica with regard to
                           durable medical equipment, supplies, and/or Medicare
                           billing.

III. CORPORATE INTEGRITY OBLIGATIONS

     To the extent not already accomplished, PolyMedica shall establish and
maintain a Compliance Program that includes the following elements:


     A. Compliance Officer and Committee.

     1. COMPLIANCE OFFICER. PolyMedica presently has a Compliance Officer with
responsibility for administering PolyMedica's Compliance Program. PolyMedica
shall maintain a Compliance Officer during 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 PolyMedica, shall
make periodic (at least quarterly) reports regarding compliance matters directly
to the Board of Directors of PolyMedica Corporation (or the appropriate
committee thereof), and shall be authorized to reportdirectly on such matters to
the Board of Directors(or the appropriate committee thereof) at any time. The
Compliance Officer shall not be or be subordinate to the General Counsel or
Chief Financial Officer. The Compliance Officer shall be responsible for
monitoring the day-to-day compliance activities engaged in by PolyMedica as well
as for any reporting obligations created under this CIA.

     PolyMedica shall report to OIG, in writing, any changes in the identity or
position description 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 15 days after such a change.


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       3




     2. COMPLIANCE COMMITTEE. PolyMedica and presently has Compliance
Committees. PolyMedica shall maintain these Compliance Committees during the
term of the CIA. The Compliance Committees 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 Committees and the Committees shall support
the Compliance Officer in fulfilling his/her responsibilities (e.g., shall
assist in the analysis of the organization's risk areas and shall oversee
monitoring of internal and external audits and investigations).

     PolyMedica shall report to OIG, in writing, any changes in the composition
of the Compliance Committees, or any actions or changes that would affect the
Compliance Committees' 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 CONDUCT. PolyMedica presently has a written Code of Conduct.
PolyMedica shall maintain a written Code of Conduct during the term of the CIA.
To the extent not already accomplished, within 120 days after the Effective
Date, PolyMedica shall distribute its written Code of Conduct to all Covered
Persons. PolyMedica shall make the promotion of, and adherence to, the Code of
Conduct an element in evaluating the performance of all employees. The Code of
Conduct shall, at a minimum, set forth:

               a. PolyMedica'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. PolyMedica's requirement that all of its Covered Persons shall
               be expected to comply with all Federal health care program
               requirements and with PolyMedica's own Policies and Procedures as
               implemented pursuant to this Section III.B (including the
               requirements of this CIA);

               c. the requirement that all of PolyMedica's Covered Persons shall
               be expected to report to the Compliance Officer or other


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       4


               appropriate individual designated by PolyMedica suspected
               violations of any Federal health care program requirements or of
               PolyMedica's own Policies and Procedures;

               d. the possible consequences to both PolyMedica and Covered
               Persons of failure to comply with Federal health care program
               requirements and with PolyMedica's own Policies and Procedures
               and the failure to report such noncompliance; and

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

     To the extent not already accomplished, within 120 days after the Effective
Date, each Covered Person shall certify, in writing, that he or she has
received, read, understood, and shall abide by PolyMedica's Code of Conduct. New
Covered Persons shall receive the Code of Conduct and shall complete the
required certification within 30 days after becoming a Covered Person or within
120 days after the Effective Date, whichever is later. To the extent a Covered
Person is on a leave of absence, such Covered Person shall receive the Code of
Conduct and complete the required certification within 30 days after the
conclusion of the leave of absence.


     PolyMedica shall periodically review the Code of Conduct to determine if
revisions are appropriate and shall make any necessary revisions based on such
review. Any revised Code of 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
Conduct within 30 days after the distribution of the revised Code of Conduct.

          2. POLICIES AND PROCEDURES. During the term of the CIA, PolyMedica
     shall maintain written Policies and Procedures regarding the operation of
     PolyMedica's compliance program and its compliance with Federal health care
     program requirements. At a minimum, the Policies and Procedures shall
     address:

               a. the subjects relating to the Code of Conduct identified in
               Section III.B.1; and

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       5


               b. the requirements under the Federal health care programs for
               filing claims for durable medical equipment and supplies.

     To the extent not already accomplished, within 120 days after the Effective
Date, the relevant portions of the Policies and Procedures shall be distributed
to all individuals 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), PolyMedica shall
assess and update as necessary the Policies and Procedures. Within 30 days after
the effective date of any revisions, the relevant portions of any such revised
Policies and Procedures shall be distributed to all individuals whose job
functions relate to those Policies and Procedures.

     C. Training and Education.

          1. General Training. Within 120 days after the Effective Date,
     PolyMedica shall provide at least two hours of General Training to each
     Covered Person. This training, at a minimum, shall explain PolyMedica's:

                         a. CIA requirements; and

                         b. PolyMedica's Compliance Program (including the Code
                         of Conduct and the Policies and Procedures as they
                         pertain to general compliance issues).

     New Covered Persons shall receive the General Training described above
within 30 days after becoming a Covered Person or within 120 days after the
Effective Date, whichever is later. After receiving the initial General Training
described above, each Covered Person shall receive at least one hour of General
Training annually. To the extent a Covered Person is on a leave of absence, such
Covered Person shall receive the General Training within 30 days after the
conclusion of the leave of absence.

     2. SPECIFIC TRAINING. Within 120 days after the Effective Date, each
Relevant Covered Person shall receive at least two hours of Specific Training in
addition to the General Training required above. This Specific Training shall
include a discussion of:


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       6





          1.   the Federal health care program requirements regarding physician
               orders for durable medical equipment and supplies;

          2.   policies, procedures, and other requirements applicable to the
               documentation of orders for durable medical equipment and
               supplies;

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

          4.   applicable reimbursement statutes, regulations, and program
               requirements and directives

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

          6.   examples of proper and improper claims documentation and
               submission practices.

     Relevant Covered Persons shall receive this training within 30 days after
the beginning of their employment or becoming Relevant Covered Persons, or
within 120 days after the Effective Date, whichever is later. To the extent a
Relevant Covered Person is on a leave of absence, such Relevant Covered Person
shall receive the General Training within 30 days after the conclusion of the
leave of absence. A PolyMedica employee who has completed the Specific Training
shall review a new Relevant Covered Person's work, to the extent that the work
relates to the delivery of patient care items or services and/or the preparation
or submission of claims for reimbursement from any Federal health care program,
until such time as the new Relevant Covered Person completes his or her Specific
TraininG After receiving the initial Specific Training described in this
Section, each Relevant Covered Person shall receive at least one hour of
Specific Training annually.

     3. CERTIFICATION. Each individual who is required to attend training shall
certify, in writing, or in electronic form, if applicable, 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. These shall be
made available to OIG, upon request.

     4. QUALIFICATIONS OF TRAINER. Persons providing the training shall be
knowledgeable about the subject area.

     5. UPDATE OF TRAINING. PolyMedica shall annually review the training, and,
where appropriate, update the training to reflect changes in Federal health care
program requirements,

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       7




any issues discovered during internal audits or the IRO Claims Review and
Unallowable Costs Review, and any other relevant information.

     6. COMPUTER-BASED TRAINING. PolyMedica may provide the training required
under this CIA through appropriate computer-based training approaches. If
PolyMedica 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. General Description.

               a. Engagement of Independent Review Organization. Within 150 days
               after the Effective Date, PolyMedica shall engage an entity (or
               entities), such as an accounting, auditing, or consulting firm
               (hereinafter "Independent Review Organization" or "IRO"), to
               perform reviews to assist PolyMedica in assessing and evaluating
               its billing and coding practices and certain other obligations
               pursuant to this Agreement and the Settlement Agreement. The
               applicable requirements relating to the IRO are outlined in
               Appendix A to this Agreement, which is incorporated by reference.

               Each IRO engaged by PolyMedica shall have expertise in the
               billing, coding, reporting, and other requirements of Medicare
               claims for durable equipment and supplies and in the general
               requirements of the Federal health care program(s) from which
               PolyMedica seeks reimbursement. Each IRO shall assess, along with
               PolyMedica, whether it can perform the IRO review in a
               professionally independent and/or objective fashion, as
               appropriate to the nature of the engagement, taking into account
               any other business relationships or other engagements that may
               exist.

               The IRO(s) review shall evaluate and analyze PolyMedica's coding,
               billing, and claims submission to the Federal health care
               programs and the reimbursement received (Claims Review), and
               shall analyze whether Polymedica sought payment for certain
               unallowable costs (Unallowable Cost Review).

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       8


               b. FREQUENCY OF CLAIMS REVIEW. The Claims Review shall be
               performed annually and shall cover each of the Reporting Periods.
               The IRO(s) shall perform all components of each annual Claims
               Review. However, after delivery of the Claims Review and Annual
               Report for the third Reporting Period, Polymedia, at its option,
               may request that the OIG permit the Claims Review be conducted
               internally and subject only to verification by the IRO for the
               remainder of the term of the CIA. The OIG retains sole discretion
               over whether to permit Claims Review to be conducted internally
               by Polymedica and subject to validation by the IRO. If the OIG
               denies Polymedica's request, Polymedica agrees to engage the IRO
               to complete the remaining Claims Reviews in accordance with the
               CIA.

               c. FREQUENCY OF UNALLOWABLE COST REVIEW. If applicable, the IRO
               shall perform the Unallowable Cost Review for the first Reporting
               Period.

               d. RETENTION OF RECORDS. The IRO and PolyMedica shall retain and
               make available to OIG, upon request, all work papers, supporting
               documentation, correspondence, and draft reports (those exchanged
               between the IRO and PolyMedica) related to the reviews.

     2. CLAIMS REVIEW. The Claims Review shall include a Discovery Sample and,
if necessary, a ull Sample. The applicable definitions, procedures, and
reporting requirements are outlined in Appendix B to this Agreement, which is
incorporated by reference.

               a. Discovery Sample. The IRO shall randomly select and review a
               sample of 50 Paid Claims submitted by or on behalf of PolyMedica
               (Discovery Sample).

               The Paid Claims shall be reviewed based on the supporting
               documentation available at PolyMedica's office or under
               PolyMedica's control and applicable billing and coding
               regulations and guidance to determine whether the claim was
               correctly coded, submitted, and reimbursed.

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       9




                         i. If the Error Rate (as defined in Appendix B) for the
                         Discovery Sample is less than 5%, no additional
                         sampling is required, nor is the Systems Review
                         required. (Note: The guidelines listed above do not
                         imply that this is an acceptable error rate.
                         Accordingly, PolyMedica should, as appropriate, further
                         analyze any errors identified in the Discovery Sample.
                         PolyMedica 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 the Discovery Sample or any other
                         segment of the universe.)

                         ii. If the Discovery Sample indicates that the Error
                         Rate is 5% or greater, the IRO shall perform a Full
                         Sample and a Systems Review, as described below.

                    b. Full Sample. If necessary, as determined by procedures
                    set forth in Section III.D.2.a, the IRO shall perform an
                    additional sample of Paid Claims using commonly accepted
                    sampling methods and in accordance with Appendix B. The Full
                    Sample shall be designed to: (i) 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 (ii) conform with the Centers for Medicare and
                    Medicaid Services' statistical sampling for overpayment
                    estimation guidelines. The Paid Claims shall be reviewed
                    based on supporting documentation available at PolyMedica's
                    office or under PolyMedica's control and applicable billing
                    and coding regulations and guidance to determine whether the
                    claim was correctly coded, submitted, and reimbursed. For
                    purposes of calculating the size of the Full Sample, the
                    Discovery Sample may serve as the probe sample, if
                    statistically appropriate. Additionally, PolyMedica may use
                    the Items sampled as part of the Discovery Sample, and the
                    corresponding findings for those 50 Items, as part of its
                    Full Sample, if: (i) statistically appropriate and (ii)
                    PolyMedica selects the Full Sample Items using the seed
                    number generated by the Discovery Sample. OIG, in its sole
                    discretion, may refer


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       10


                    the findings of the Full Sample (and any related workpapers)
                    received from PolyMedica 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.

                    c. SYSTEMS REVIEW. If PolyMedica's Discovery Sample
                    identifies an Error Rate of 5% or greater, PolyMedica's IRO
                    shall also conduct a Systems Review. Specifically, for each
                    claim in the Discovery Sample and Full Sample that resulted
                    in an Overpayment, the IRO shall perform a "walk through" of
                    the system(s) and process(es), that generated the claim to
                    identify any problems or weaknesses that may have resulted
                    in the identified Overpayments. The IRO shall provide its
                    observations and recommendations on suggested improvements
                    to the system(s) and the process(es) that generated the
                    claim.

                    d. REPAYMENT OF IDENTIFIED OVERPAYMENTS. In accordance with
                    Section III.I.1 of this Agreement, PolyMedica 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. PolyMedica shall
                    make available to OIG any and all documentation and the
                    associated documentation that reflects the refund of the
                    Overpayment(s) to the payor.

     3. CLAIMS REVIEW REPORT. The IRO shall prepare a report based upon the
Claims Review performed (Claims Review Report). Information to be included in
the Claims Review Report is described in Appendix B.

     4. UNALLOWABLE COST REVIEW. If applicable, the IRO shall conduct a review
of Polymedica's compliance with the unallowable cost provisions of the
Settlement Agreement. The IRO shall determine whether Polymedica 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 cost analysis shall include, but
not be limited to, payments sought in any cost reports, cost statements,
information reports, or

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       11





payment requests already submitted by Polymedica 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.

     5. UNALLOWABLE COST REVIEW REPORT. If applicable, the IRO shall prepare a
report based upon the Unallowable Cost Review performed. The Unallowable Cost
Review Report shall include the IRO's findings and supporting rationale
regarding the Unallowable Costs Review and whether Polymedica 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.

     6. VALIDATION REVIEW. In the event OIG has reason to believe that: (a)
PolyMedica's Claims Review fails to conform to the requirements of this
Agreement; or (b) the IRO's findings or Claims Review results or Unallowable
Cost Review are inaccurate, OIG may, at its sole discretion, conduct its own
review to determine whether the Claims Review or Unallowable Cost Review
complied with the requirements of the Agreement and/or the findings or Claims
Review results or Unallowable Cost Review results are inaccurate (Validation
Review). PolyMedica 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 PolyMedica's final Annual Report must be initiated
no later than one year after PolyMedica's final submission (as described in
Section II) is received by OIG.

     Prior to initiating a Validation Review, OIG shall notify PolyMedica 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, PolyMedica may
request a meeting with OIG to: (a) discuss the results of any Claims Review or
Unallowable Cost Review submissions or findings; (b) present any additional
information to clarify the results of the Claims Review or Unallowable Cost
Review or to correct the inaccuracy of the Claims Review or Unallowable Cost
Review; and/or (c) propose alternatives to the proposed Validation Review.
PolyMedica agrees to provide any additional information as may be requested by
OIG under this Section in an expedited manner. OIG will attempt in good faith to
resolve any


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                                       12





Claims Review or Unallowable Cost Review issues with PolyMedica 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.


     7. INDEPENDENCE/OBJECTIVITY CERTIFICATION. The IRO shall include in its
report(s) to Polymedica a certification or sworn affidavit that it has evaluated
its professional independence and/or objectivity, as appropriate to the nature
of the engagement, with regard to the Claims Review or Unallowable Cost Review
and that it has concluded that it is, in fact, independent and/or objective.

     E. DISCLOSURE PROGRAM.

     PolyMedica presently has a Disclosure Program. PolyMedica shall maintain a
Disclosure Program during the term of the CIA. To the extent not already
accomplished, within 120 days after the Effective Date, PolyMedica shall
establish 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 PolyMedica'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. PolyMedica shall 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, PolyMedica 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

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                                       13




anonymous or not), the status of the respective internal reviews, and any
corrective action taken in response to the internal reviews. The disclosure log
shall be made available to OIG upon request.

     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 ambit of 42 U.S.C.ss.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://oig.hhs.gov); and

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

               7.   "Screened Persons" include prospective and current owners
                    (other than shareholders who: (1) have an ownership interest
                    of less than 5%; and (2) acquired the ownership interest
                    through public trading), officers, directors, employees,
                    contractors, and agents of PolyMedica.

          2. SCREENING REQUIREMENTS. PolyMedica shall ensure that all Screened
     Persons are not Ineligible Persons, by implementing the following screening
     requirements.

               1.   PolyMedica shall screen all Screened Persons against the
                    Exclusion Lists prior to engaging their services and, as
                    part of the hiring or


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       14



                    contracting process, shall require such persons to disclose
                    whether they are an Ineligible Person.

               2.   PolyMedica shall screen all Screened Persons against the
                    Exclusion Lists within 90 days after the Effective Date and
                    on an annual basis thereafter.

               3.   PolyMedica shall implement a policy requiring all Screened
                    Persons to disclose immediately any debarment, exclusion,
                    suspension, or other event that makes that person an
                    Ineligible Person.

     Nothing in this Section affects the responsibility of (or liability for)
PolyMedica to refrain from billing Federal health care programs for items or
services furnished, ordered, or prescribed by an Ineligible Person.

     3. REMOVAL REQUIREMENT. If PolyMedica has actual notice that a Screened
Person has become an Ineligible Person, PolyMedica shall remove such person from
responsibility for, or involvement with, PolyMedica's business operations
related to the Federal health care programs and shall remove such person from
any position for which the person's compensation or the items or services
furnished, ordered, or prescribed by the 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 person is reinstated into
participation in the Federal health care programs.

     4. PENDING CHARGES AND PROPOSED EXCLUSIONS. If PolyMedica has actual notice
that a Screened Person is charged with a criminal offense that falls within the
ambit of 42 U.S.C. ss.ss. 1320a-7(a), 1320a-7(b)(1)-(3), or is proposed for
exclusion during his or her employment or contract term, PolyMedica shall take
all appropriate actions to ensure that the responsibilities of that person have
not and shall not adversely affect the quality of care rendered to any
beneficiary, patient, or resident, or the accuracy of any claims submitted to
any Federal health care program.

     G. NOTIFICATION OF GOVERNMENT INVESTIGATION OR LEGAL PROCEEDINGS.

     Within 30 days after discovery, Polymedica shall notify OIG, in writing, of
any ongoing investigation or legal proceeding known to PolyMedica conducted or
brought by a governmental entity or its agents involving an allegation that
PolyMedica 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. PolyMedica 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. REPORTING.

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     1. OVERPAYMENTS.

          4. DEFINITION OF OVERPAYMENTS. For purposes of this CIA, an
          "Overpayment" shall mean the amount of money PolyMedica has received
          in excess of the amount due and payable under any Federal health care
          program requirements.

          5. REPORTING OF OVERPAYMENTS. If, at any time, PolyMedica identifies
          or learns of any Overpayment, PolyMedica shall notify the 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. Also, within 30
          days after identification of the Overpayment, PolyMedica shall repay
          the Overpayment to the appropriate payor to the extent such
          Overpayment has been quantified. If not yet quantified, within 30 days
          after identification, PolyMedica 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, and, for
          Medicare contractors, shall include the information contained on the
          Overpayment Refund Form, provided as Appendix C to this CIA.
          Notwithstanding the above, notification and repayment of any
          Overpayment amount that routinely is reconciled or adjusted pursuant
          to policies and procedures established by the payor should be handled
          in accordance with such policies and procedures.

     2. REPORTABLE EVENTS.

          8. DEFINITION OF REPORTABLE EVENT. For purposes of this CIA, a
          "Reportable Event" means anything that involves:

               i. a substantial Overpayment; or

               ii. a matter that a reasonable person would consider a probable


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       16




               violation of criminal, civil, or administrative laws applicable
               to any Federal health care program for which penalties or
               exclusion may be authorized.

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

     6.   Reporting of Reportable Events. If PolyMedica determines (after a
          reasonable opportunity to conduct an appropriate review or
          investigation of the allegations) through any means that there is a
          Reportable Event, PolyMedica shall notify OIG, in writing, within 30
          days after making the determination that the Reportable Event exists.
          The report to OIG shall include the following information:

               i. If the Reportable Event results in an Overpayment, the report
               to OIG shall be made at the same time as the notification to the
               payor required in Section III.H.1, and shall include all of the
               information on the Overpayment Refund Form, as well as:

                    (A) the payor's name, address, and contact person to whom
                    the Overpayment was sent; and

                    (B) the date of the check and identification number (or
                    electronic transaction number) by which the Overpayment was
                    repaid/refunded;

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

               iii. a description of PolyMedica's actions taken to correct the
               Reportable Event; and

               iv. any further steps PolyMedica plans to take to address the
               Reportable Event and prevent it from recurring.

IV.      NEW BUSINESS UNITS OR LOCATIONS

         In the event that, after the Effective Date, PolyMedica changes
locations or sells, closes, 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, PolyMedica shall notify OIG of this fact as
soon as possible, but no later

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than within 30 days after the date of change of location, sale, closure,
purchase, or establishment. This notification shall include the address of the
new business unit or location, phone number, fax number, Medicare Provider
number, provider identification number and/or supplier number, and the
corresponding contractor's name and address that has issued each Medicare
number. Each new business unit or location shall be subject to all the
requirements of this CIA.

V.   IMPLEMENTATION AND ANNUAL REPORTS

     A. Implementation Report. Within 150 days after the Effective Date,
PolyMedica 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 all Codes of Conduct required by Section III.B.1;

     4. a copy of all Policies and Procedures required by Section III.B.2;

     5. the number of individuals required to complete the Code of 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);

     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

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                                       18



               exceptions.

A copy of all training materials and the documentation supporting this
information shall be 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) a summary and
description of any and all current and prior engagements and agreements between
PolyMedica and the IRO; and (d) the proposed start and completion dates of the
Claims Review and Unallowable Cost Review;

     9. a certification from the IRO regarding its professional independence
and/or objectivity with respect to PolyMedica;

     10. a description of the process by which PolyMedica fulfills the
requirements of Section III.F regarding Ineligible Persons;

     11. the name, title, and responsibilities of any person who is determined
to be an Ineligible Person under Section III.F; the actions taken in response to
the screening and removal obligations set forth in Section III.F; and the
actions taken to identify, quantify, and repay any overpayments to Federal
health care programs relating to items or services furnished, ordered or
prescribed by an Ineligible Person;

     12. a list of all of PolyMedica'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 Provider number(s), provider identification number(s), and/or supplier
number(s); and the name and address of each Medicare contractor to which
PolyMedica currently submits claims;

     13. a description of PolyMedica's corporate structure, including
identification of any parent and sister companies, subsidiaries, and their
respective lines of business; and

     14. the certifications required by Section V.C.

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     B. ANNUAL REPORTS. PolyMedica shall submit to OIG annually a report with
respect to the status of, and findings regarding, PolyMedica's compliance
activities for each of the 5 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. 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) and copies of any compliance-related Policies and
Procedures;

     3. the number of individuals required to complete the Code of 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);

     4. 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 available to OIG, upon request.

     5. a complete copy of all reports prepared pursuant to Section III.D, along
with a copy of the IRO's engagement letter (if applicable);

     6. PolyMedica's response and corrective action plan(s) related to any
issues raised by the reports prepared pursuant to Section III.D;

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       20


     7. summary and description of any and all current and prior engagements and
agreements between PolyMedica and the IRO, if different from what was submitted
as part of the Implementation Report;

     8. a certification from the IRO regarding its professional independence
and/or objectivity with respect to PolyMedica;

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


     10. 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;

     11. a summary of the disclosures in the disclosure log required by Section
III.E that: (a) relate to Federal health care programs; or (b) allege abuse or
neglect of patients;

     12. any changes to the process by which PolyMedica fulfills the
requirements of Section III.F regarding Ineligible Persons;

     13. the name, title, and responsibilities of any person who is determined
to be an Ineligible Person under Section III.F; the actions taken by PolyMedica
in response to the screening and removal obligations set forth in Section III.F;
and the actions taken to identify, quantify, and repay any overpayments to
Federal health care programs relating to items or services relating to items or
services furnished, ordered or prescribed by an Ineligible Person;

     14. 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;

     15. a description of all changes to the most recently provided list of


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       21



PolyMedica's locations (including addresses) as required by Section V.A.11; the
corresponding name under which each location is doing business; the
corresponding phone numbers and fax numbers; each location's Medicare Provider
number(s), provider identification number(s), and/or supplier number(s); and the
name and address of each Medicare contractor to which PolyMedica currently
submits claims; and

          16. 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 Annual Reports shall
include a certification by the Compliance Officer that:

     1. to the best of his or her knowledge, except as otherwise described in
the applicable report, PolyMedica 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. PolyMedica 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 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. PolyMedica 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. ss. 552. PolyMedica shall refrain from identifying any information as
exempt from disclosure if that information does not meet the criteria for
exemption from

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       22



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

             PolyMedica: Ms. Alana Bloom Sullivan
                         8881 Liberty Lane Port
                         St. Lucie, Florida 34952
                         Telephone: 772.398.3064
                         Facsimile: 772.337.7180

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.

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 PolyMedica's books, records, and other documents and supporting
materials and/or conduct on-site reviews of any of PolyMedica's locations for
the purpose of verifying and evaluating: (a) PolyMedica's compliance with the
terms of this CIA; and (b) PolyMedica's compliance with the requirements of the
Federal health care programs in which it participates. The documentation
described above shall be made available by PolyMedica to OIG or its duly
authorized representative(s) at all reasonable times for inspection, audit, or
reproduction.

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                                       23




Nothing in this Section VII shall require a waiver by Polymedica
or Polymedica's attorney-client, attorney work-product, or other applicable
privileges. Notwithstanding that fact, the existence of any such privilege shall
not be used by Polymedica to avoid its obligation to comply with the provisions
of this Section VII.

     Furthermore, for purposes of this provision, OIG or its duly authorized
representative(s) may interview any of PolyMedica'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. PolyMedica shall assist OIG or its
duly authorized representative(s) in contacting and arranging interviews with
such individuals upon OIG's request. PolyMedica's employees may elect to be
interviewed with or without a representative of Polymedica present.

VIII. DOCUMENT AND RECORD RETENTION

     PolyMedica shall maintain for inspection all documents and records relating
to reimbursement from the Federal health care programs, or to compliance with
this CIA, for 6 years (or longer if otherwise required by law).

IX. DISCLOSURES

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

X. BREACH AND DEFAULT PROVISIONS

     PolyMedica 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, PolyMedica 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.


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       24


     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 PolyMedica fails to
establish and implement any of the following obligations as described in
Section III:


                    a. a Compliance Officer;

                    b. a Compliance Committee;

                    c. a written Code of Conduct;

                    d. written Policies and Procedures;

                    e. the training of Covered Persons;

                    f. a Disclosure Program;

                    g. Ineligible Persons screening and removal requirements;
                    and

                    h. Notification of Government investigations or legal
                    proceedings.

     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 PolyMedica fails to
engage an IRO, as required in Section III.D and Appendix A.

     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 PolyMedica fails to
submit the Implementation Report or the 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 PolyMedica fails to
submit the annual Claims Review Report and Unallowable Costs Review Report in
accordance with the requirements of Section III.D and Appendix B.

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

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       25



access.)

     6. A Stipulated Penalty of $5,000 for each false certification submitted by
or on behalf of PolyMedica 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 PolyMedica fails to comply
fully and adequately with any obligation of this CIA. OIG shall provide notice
to PolyMedica, stating the specific grounds for its determination that
PolyMedica has failed to comply fully and adequately with the CIA obligation(s)
at issue and steps PolyMedica shall take to comply with the CIA. (This
Stipulated Penalty shall begin to accrue 10 days after PolyMedica 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. PolyMedica 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 PolyMedica 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 PolyMedica 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 PolyMedica 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 PolyMedica of: (a)

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       26



PolyMedica's failure to comply; and (b) OIG's exercise of its contractual right
to demand payment of the Stipulated Penalties (this notification is referred to
as the "Demand Letter").

     2. RESPONSE TO DEMAND LETTER. Within 10 days after the receipt of the
Demand Letter, PolyMedica 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 PolyMedica elects to request an ALJ hearing,
the Stipulated Penalties shall continue to accrue until PolyMedica 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
certified or cashier's check, payable to: "Secretary of the Department of Health
and Human Services," and submitted to OIG at the address set forth in Section
VI.

     4. INDEPENDENCE FROM MATERIAL BREACH DETERMINATION. Except as set forth in
Section X.D.1.c, these provisions for payment of Stipulated Penalties shall not
affect or otherwise set a standard for OIG's decision that PolyMedica 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 failure by PolyMedica to report a Reportable Event,
                    take corrective action, and make the appropriate refunds, as
                    required in Section III.H;

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

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

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       27



                    or

                    d. a failure to engage and use an IRO in accordance with
                    Section III.D.

     2. NOTICE OF MATERIAL BREACH AND INTENT TO EXCLUDE. The parties agree that
a material breach of this CIA by PolyMedica constitutes an independent basis for
PolyMedica's exclusion from participation in the Federal health care programs.
Upon a determination by OIG that PolyMedica has materially breached this CIA and
that exclusion is the appropriate remedy, OIG shall notify PolyMedica of: (a)
PolyMedica's material breach; and (b) OIG's intent to exercise its contractual
right to impose exclusion (this notification is hereinafter referred to as the
"Notice of Material Breach and Intent to Exclude").

     3. OPPORTUNITY TO CURE. PolyMedica 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. PolyMedica 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) PolyMedica has begun to take
                    action to cure the material breach; (ii) PolyMedica is
                    pursuing such action with due diligence; and (iii)
                    PolyMedica has provided to OIG a reasonable timetable for
                    curing the material breach.

     4. EXCLUSION LETTER. If, at the conclusion of the 30-day period, PolyMedica
fails to satisfy the requirements of Section X.D.3, OIG may exclude PolyMedica
from participation in the Federal health care programs. OIG shall notify
PolyMedica in writing of its determination to exclude PolyMedica (this letter
shall be referred to hereinafter 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 PolyMedica'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,
PolyMedica may apply for

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       28



reinstatement by submitting a written request for reinstatement in accordance
with the provisions at 42 C.F.R. ss.ss. 1001.3001-.3004.

E. DISPUTE RESOLUTION

     1. REVIEW RIGHTS. Upon OIG's delivery to PolyMedica 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, PolyMedica shall be afforded
certain review rights comparable to the ones that are provided in 42 U.S.C. ss.
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. ss. 1005.2-1005.21. Notwithstanding the language in 42 C.F.R. ss.
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 PolyMedica was in full and timely compliance with the obligations of
this CIA for which OIG demands payment; and (b) the period of noncompliance.
PolyMedica shall have the burden of proving its 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 PolyMedica to pay Stipulated Penalties, such Stipulated Penalties shall
become due and payable 20 days after the ALJ issues such a decision unless
PolyMedica 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.

     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:

          9. whether PolyMedica was in material breach of this CIA;

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       29



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

          11. whether the alleged material breach could not have been cured
          within the 30-day period, but that: (i) PolyMedica had begun to take
          action to cure the material breach within that period; (ii) PolyMedica
          has pursued and is pursuing such action with due diligence; and (iii)
          PolyMedica provided to OIG within that period a reasonable timetable
          for curing the material breach and PolyMedica 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 PolyMedica,
only after a DAB decision in favor of OIG. PolyMedica's election of its
contractual right to appeal to the DAB shall not abrogate OIG's authority to
exclude PolyMedica 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 PolyMedica 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. PolyMedica
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
PolyMedica, PolyMedica 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.

XI. EFFECTIVE AND BINDING AGREEMENT

     Consistent with the provisions in the Settlement Agreement pursuant to
which this CIA is entered, and into which this CIA is incorporated, PolyMedica
and OIG agree as follows:

     A. This CIA shall be binding on the successors, assigns, and transferees of
PolyMedica to the extent of the businesses and operations of PolyMedica that
exist at the time of any transfer;

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       30



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

     C. Any modifications to this CIA shall be made with the prior written
consent of the parties to this CIA;

     D. OIG may agree to a suspension of PolyMedica's obligations under the CIA
in the event of PolyMedica's cessation of participation in Federal health care
programs. If PolyMedica withdraws from participation in Federal health care
programs and is relieved of its CIA obligations by OIG, PolyMedica shall notify
OIG at least 30 days in advance of PolyMedica's intent to reapply as a
participating provider or supplier with any Federal health care program. Upon
receipt of such notification, OIG shall evaluate whether the CIA should be
reactivated or modified.

     E. The undersigned PolyMedica 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.

POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       31




                       ON BEHALF OF POLYMEDICA CORPORATION
                              AND ITS SUBSIDIARIES



/s/ Samuel L. Shanaman                                  11/08/04
- ---------------------------                             -------------------
SAMUEL L. SHANAMAN                                      DATE
Chairman
PolyMedica Corporation


/s/ Alana Bloom Sullivan                                11/04/2004
- ---------------------------                             -------------------
ALANA BLOOM SULLIVAN                                    DATE
Chief Compliance Officer
PolyMedica Corporation


/s/ William B. Eck                                      11/03/2004
- ---------------------------                             -------------------
WILLIAM B. ECK                                          DATE
Sr. Vice President and Deputy General Counsel
PolyMedica Corporation


/s/ Mark P. Schnapp                                     11/03/2004
- ---------------------------                             -------------------
MARK P. SCHNAPP                                         DATE
Greenberg Traurig, P.A.


POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       32





                  ON BEHALF OF THE OFFICE OF INSPECTOR GENERAL
                 OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES








/s/ Larry J. Goldberg                                   11/3/04
- ---------------------------------------------           -------------
LARRY J. GOLDBERG                                       DATE
Assistant Inspector General for Legal Affairs
Office of Inspector General
U. S. Department of Health and Human Services



POLYMEDICA CORPORATE INTEGRITY AGREEMENT

                                       33



                                   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.

     Polymedica 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/or
objective fashion, as set forth in Paragraph D. Within 30 days after OIG
receives written notice of the identity of the selected IRO, OIG will notify
Polymedica if the IRO is unacceptable. Absent notification from OIG that the IRO
is unacceptable, Polymedica may continue to engage the IRO.

     If Polymedica 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, Polymedica
shall submit the information identified in Section V.A.8 to OIG within 30 days
of engagement of the IRO. Within 30 days after OIG receives written notice of
the identity of the selected IRO, OIG will notify Polymedica if the IRO is
unacceptable. Absent notification from OIG that the IRO is unacceptable,
Polymedica may continue to engage the IRO.

B. IRO QUALIFICATIONS.

The IRO shall:

     1. assign individuals to conduct the Claims Review and Unallowable Cost
Review, if applicable engagement who have expertise in the billing, coding,
reporting, and Medicare claims for durable equipment and supplies and in the
general requirements of the Federal health care program(s) from which Polymedica
seeks reimbursement;

     2. assign individuals to design and select the Claims Review sample who are
knowledgeable about the appropriate statistical sampling techniques;

     3. assign individuals to conduct the coding review portions of the Claims
Review who have a nationally recognized coding certification (e.g., CCA, CCS,
CCS-P, CPC, RRA, etc.) and who have maintained this certification (e.g.,
completed applicable continuing education requirements); and

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

                                       1





C. IRO RESPONSIBILITIES.

The IRO shall:

     1. perform each Claim Review in accordance with the specific requirements
of the CIA;

     2. follow all applicable Medicare, Medicaid or other Federal health care
program rules and reimbursement guidelines in making assessments in the Claims
Review;

     3. if in doubt of the application of a particular Medicare, Medicaid or
other Federal health care program 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.

D. IRO INDEPENDENCE/OBJECTIVITY.

The IRO must perform the Claims Review in a professionally independent and/or
objective fashion, as appropriate to the nature of the engagement, taking into
account any other business relationships or engagements that may exist between
the IRO and Polymedica.

E. IRO REMOVAL/TERMINATION.

     1. PROVIDER. If Polymedica terminates its IRO during the course of the
engagement, Polymedica must submit a notice explaining its reasons to OIG no
later than 30 days after termination. Polymedica must engage a new IRO in
accordance with Paragraph A of this Appendix.

     2. OIG REMOVAL OF IRO. In the event OIG has reason to believe that the IRO
does not possess the qualifications described in Paragraph B, is not independent
and/or 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 Polymedica to engage a new IRO in accordance with Paragraph A of this
Appendix.

         Prior to requiring Polymedica to engage a new IRO, OIG shall notify
Polymedica 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,
Polymedica may request a meeting

                                       2





with OIG to discuss any aspect of the IRO's qualifications, independence or
performance of its responsibilities and to present additional information
regarding these matters. Polymedica shall provide any additional information as
may be requested by OIG under this Paragraph in an expedited manner. OIG will
attempt in good faith to resolve any differences regarding the IRO with
Polymedica prior to requiring Polymedica to terminate the IRO. However, the
final determination as to whether or not to require Polymedica to engage a new
IRO shall be made at the sole discretion of OIG.

                                       3


                                   APPENDIX B
                                  CLAIMS REVIEW


A. CLAIMS REVIEW.

     1. DEFINITIONS. For the purposes of the Claims Review, the following
definitions shall be used:

     a. OVERPAYMENT: The amount of money Polymedica has received in excess of
     the amount due and payable under any Federal health care program
     requirements.

     b. ITEM: Any discrete unit that can be sampled (e.g., code, line item,
     beneficiary, patient encounter, etc.).

     c. PAID CLAIM: A code or line item submitted by Polymedica and for which
     Polymedica has received reimbursement from the Medicare program

     d. POPULATION: For the first Reporting Period, the Population shall be
     defined as all Items for which a code or line item has been submitted by or
     on behalf of Polymedica and for which Polymedica has received reimbursement
     from Medicare, Medicaid or other Federal health care programs (i.e., Paid
     Claim) during the 12-month period covered by the first Claims Review.

     For the remaining Reporting Periods, the Population shall be defined as all
     Items for which Polymedica has received reimbursement from Medicare
     Medicaid or other Federal health care programs (i.e., Paid Claim) during
     the 12-month period covered by the Claims Review.

     To be included in the Population, an Item must have resulted in at least
     one Paid Claim.

     e. 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 underpayments identified in the sample from all gross
     Overpayments identified in the sample. (Note: Any potential cost
     settlements or other supplemental payments should not be included in the
     net Overpayment calculation. Rather, only underpayments identified as

APPENDIX B:
PAGE 1




          part of the Discovery Sample shall be included as part of the net
          Overpayment calculation.)

          The Error Rate is calculated by dividing the net Overpayment
          identified in the sample by the total dollar amount associated with
          the Items in the sample.

     2. OTHER REQUIREMENTS.

          a. PAID CLAIMS WITHOUT SUPPORTING DOCUMENTATION. For the purpose of
          appraising Items included in the Claims Review, any Paid Claim for
          which Polymedica cannot produce documentation sufficient to support
          the Paid Claim shall be considered an error and the total
          reimbursement received by Polymedica for such Paid Claim shall be
          deemed an Overpayment. Replacement sampling for Paid Claims with
          missing documentation is not permitted.

          2. REPLACEMENT SAMPLING. Considering the Population shall consist only
             of Paid Claims and that Items with missing documentation cannot be
             replaced, there is no need to utilize alternate or replacement
             sampling units.

          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 associated with the Items selected in each first
          sample (or first sample for each strata, if applicable) 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).

B.   CLAIMS REVIEW REPORT. The following information shall be included in the
     Claims Review Report for each Discovery Sample and Full Sample (if
     applicable).

     1. CLAIMS REVIEW METHODOLOGY.

          a. SAMPLING UNIT. A description of the Item as that term is utilized
          for the Claims Review.

          b. CLAIMS REVIEW POPULATION. A description of the Population subject
          to the Claims Review.

          c. CLAIMS REVIEW OBJECTIVE. A clear statement of the objective
          intended to be achieved by the Claims Review.


APPENDIX B:
PAGE 2



          3.   SAMPLING FRAME. A description of the sampling frame, which is the
               totality of Items from which the Discovery Sample and, if any,
               Full Sample has been selected and an explanation of the
               methodology used to identify the sampling frame. In most
               circumstances, the sampling frame will be identical to the
               Population.

          e. SOURCE OF DATA. A description of the specific documentation relied
          upon by the IRO when performing the Claims 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 issuance
          number), Medicare carrier or intermediary manual or bulletins
          (including issue and date), other policies, regulations, or
          directives).

          f. REVIEW PROTOCOL. A narrative description of how the Claims Review
          was conducted and what was evaluated.

     2.   STATISTICAL SAMPLING DOCUMENTATION.

          a. The number of Items appraised in the Discovery Sample and, if
          applicable, in the Full Sample.

          b. A copy of the printout of the random numbers generated by the
          "Random Numbers" function of the statistical sampling software
          used by the IRO.

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

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

     3.   CLAIMS REVIEW FINDINGS.

          a. NARRATIVE RESULTS.

               i. A description of Polymedica's billing and coding system(s),
               including the identification, by position description, of the
               personnel involved in coding and billing.

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


APPENDIX B:
PAGE 3

                                       4



               b. QUANTITATIVE RESULTS.

                    i. Total number and percentage of instances in which the IRO
                    determined that the Paid Claims submitted by Polymedica
                    (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 Polymedica.

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

                    iv. Total dollar amount of paid Items included in the sample
                    and the net Overpayment associated with the sample.

                    v. Error Rate in the sample.

                    vi. A spreadsheet of the Claims Review results that includes
                    the following information for each Paid Claim appraised:
                    Federal health care program billed, beneficiary health
                    insurance claim number, date of service, procedure code
                    submitted, procedure code reimbursed, allowed amount
                    reimbursed by payor, correct procedure code (as determined
                    by the IRO), correct allowed amount (as determined by the
                    IRO), dollar difference between allowed amount reimbursed by
                    payor and the correct allowed amount. (See Attachment 1 to
                    this Appendix.)

     4. SYSTEMS REVIEW. Observations, findings, and recommendations on possible
improvements to the system(s) and process(es) that generated the Overpayment(s).

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

APPENDIX B:
PAGE 4



                                                                      APPENDIX C


                               OVERPAYMENT REFUND


================================================================================
                           TO BE COMPLETED BY MEDICARE CONTRACTOR
================================================================================

Date:_______________

Contractor Deposit Control #______________   Date of Deposit: __________________

Contractor Contact Name:______________________ Phone # _________________________

Contractor Address:_____________________________________________________________

Contractor Fax:_________________________________________________________________

- --------------------------------------------------------------------------------


================================================================================
                 TO BE COMPLETED BY PROVIDER/PHYSICIAN/SUPPLIER

Please complete and forward to Medicare Contractor. This form, or a similar
document containing the following information, should accompany every voluntary
refund so that receipt of check is properly recorded and applied.

PROVIDER/PHYSICIAN/SUPPLIERNAME_________________________________________________

ADDRESS_________________________________________________________________________

PROVIDER/PHYSICIAN/SUPPLIER #_________________   CHECK NUMBER#__________________
CONTACT PERSON:_________________ PHONE #___________________     AMOUNT OF CHECK

$_______________ CHECK DATE________________


                               REFUND INFORMATION

For each Claim, provide the following:

Patient Name___________________________________ HIC #___________________________

Medicare Claim Number______________________ Claim Amount Refunded $_____________

Reason Code for Claim Adjustment:_____ (Select reason code from list below.
Use one reason per claim)

 (PLEASE LIST ALL CLAIM NUMBERS INVOLVED. ATTACH SEPARATE SHEET, IF NECESSARY)


Note: If Specific Patient/HIC/Claim #/Claim Amount data not available for all
      claims due to Statistical Sampling, please indicate methodology and
      formula used to determine amount and reason for
      overpayment: _____________________________________________________________

For Institutional Facilities Only:

Cost Report Year(s) ____________________
(If multiple cost report years are involved, provide a breakdown by amount and
corresponding cost report year.)

For OIG Reporting Requirements:

Do you have a Corporate Integrity Agreement with OIG?       Yes       No
================================================================================




REASON CODES:
- -------------
BILLING/CLERICAL ERROR          MSP/OTHER PAYER INVOLVEMENT                MISCELLANEOUS
- ----------------------          ---------------------------                -------------
                                                                     
01 -- Corrected Date of Service   08 -- MSP Group Health Plan Insurance     13 -- Insufficient Documentation
02 -- Duplicate                   09 -- MSP No Fault Insurance              14 -- Patient Enrolled in an HMO
03 -- Corrected CPT Code          10 -- MSP Liability Insurance             15 -- Services Not Rendered
04 -- Not Our Patient(s)          11 -- MSP, Workers Comp. (Including       16 -- Medical Necessity
05 -- Modifier Added/Removed             Black Lung)                        17 -- Other (Please Specify)
06 -- Billed in Error             12 -- Veterans Administration             _________________________
07 -- Corrected CPT Code


================================================================================



                                                                    Attachment 1

                              CLAIM REVIEW RESULTS


- ---------------------------------------------------------------------------------------------------------------------

Federal         Bene   Date of  Procedure   Procedure   Allowed      Correct      Correct        Dollar Difference
Health Care     HIC    Service  Code        Code        Amount       Procedure    Allowed Amt    Between Amt
Program          #              Submitted   Reimbursed  Reimbursed   Code (IRO    Reimbursed     Reimbursed and
Billed                                                               determined)  (IRO           Correct Allowed Amt
                                                                                  determined)
- ---------------------------------------------------------------------------------------------------------------------
                                                                         

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