EXHIBIT 10.10

 

July 12, 2001

 

 

 

 

CORPORATE INTEGRITY AGREEMENT

BETWEEN THE

OFFICE OF INSPECTOR GENERAL

OF THE

DEPARTMENT OF HEALTH AND HUMAN SERVICES

AND

SUN HEALTHCARE GROUP, INC.

 

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

TABLE OF CONTENTS

I. PREAMBLE 1 1.     "Sun" 1 2.     "Covered Persons" 1 3.     "Covered
Contractor" 2 4.     "Federal health care program requirements" 2 II. TERM OF
THE CIA 2 III. CORPORATE INTEGRITY OBLIGATIONS 3 A. Program Infrastructure 3
1.     Compliance and Audit Committees of the Board of Directors 3
2.     Compliance Officer 4 3.     Corporate Compliance Committee 5
4.     Compliance Liaisons 5 5.     Administrators 6 6.     Internal Audit and
Review Functions 7 B. Written Standards 8 1.     Code of Conduct 8
       a.     Contents 8        b.     Distribution and Certification 9
       c.     Covered Contractor Requirements 10 2.     Policies and Procedures
10 C. Training and Education 16 1.     General Training 17 2.     Specific
Training for Relevant Covered Persons 17 3.     Attendance Log and Certification
20 4.     Submission of Training and Course Materials 20 5.     Prior Training
20 D. Review Procedures 21 1.     Independent Monitor (Quality Engagement) 21
     a.     The Monitor's Function 21      b.     Access 23      c.     Sun's
Obligations 25      d.     The Monitor's Obligations 27
     e.     Miscellaneous Provisions 30 2.     Financial Reviews 31
     a.     General Description 31      b.     Billing Engagement 33
     c.     Compliance Engagement 47      d.     Validation Review 49
     e.     Independence Certification 50 E. Confidential Disclosure Program 50
F. Ineligible Persons 51

ii

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

 

1.     Definition 51 2.     Screening Requirements 52 3.     Review and Removal
Requirement 52 4.     Pending Charges and Proposed Exclusion 53 G. Notification
of Proceedings 53 H. Reporting 54 1.     Definition of "Overpayment" 54
2.     Definition of "Material Deficiency" 54 3.     Reporting of Overpayments
54 2.     Reporting of Material Deficiencies 55 IV. NEW BUSINESS UNITS OR
LOCATIONS 55 V. IMPLEMENTATION AND ANNUAL REPORTS 56 A. Implementation Report 56
B. Annual Reports 58 C. Certifications 61 VI. NOTIFICATION AND SUBMISSION OF
REPORTS 62 VII. OIG INSPECTION AND REVIEW RIGHTS 62 VIII. DOCUMENT AND RECORD
RETENTION 63 IX. DISCLOSURES AND PRIVILEGES 64 X. BREACH AND DEFAULT PROVISIONS
65 A. Stipulated Penalties for Failure to Comply with Certain Obligations 65 B.
Payment of Stipulated Penalties 68 1.     Demand Letter 68 2.     Timely Written
Requests for Extensions 69 3.     Form of Payment 69 4.     Independence from
Material Breach Determination 69 C. Exclusion for Material Breach of this CIA 69
1.     Material Breach 69 2.     Notice of Material Breach and Intent to Exclude
70 3.     Opportunity to cure 71 4.     Exclusion Letter 71 D. Dispute
Resolution 71 1.     Review Rights 72 2.     Stipulated Penalties Review 72
3.     Exclusion Review 73 4.     Review by Other Agencies 74

iii

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

 

XI. EFFECTIVE AND BINDING AGREEMENT 74 Appendix A 76 Sun Monitor Task List 76 I.
ANALYSIS OF THE QUALITY COMPLIANCE INFRASTRUCTURE 76 II. ANALYSIS OF THE
POLICIES AND PROCEDURES AND TRAINING 79 III. ANALYSIS OF QUALITY RELATED DATA 80
IV. MECHANISMS TO ANALYZE THE EFFECTIVENESS AND THOROUGHNES OF SUN'S
IMPLEMENTATION OF THE CIA 81 V. REPORTING TO GOVERNMENT AND SUN ON MONITORING
ACTIVITIES 81 Appendix B 82 Minimum Data Set Audit Guidelines 82 A. General 82
B. Stage 1 of the MDS Audit 83 C. Stage 2 of the MDS Audit 85 D. MDS Audit
Report 87 E. Annual Report 89 Appendix C 90 Overpayment Refund Form 90

iv

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

1.     PREAMBLE

       Sun HealthCare Group, Inc. ("Sun") hereby enters into this Corporate
Integrity Agreement ("CIA") with the Office of Inspector General ("OIG") of the
United States Department of Health and Human Services ("HHS") to promote
compliance by Sun (as this term is defined herein), and by all Covered Persons
and Covered Contractors (as these terms are defined herein) with the
requirements of Medicare, Medicaid, and all other Federal health care programs
(as defined in 42 U.S.C. Section 1320a-7b(f)) (hereinafter collectively referred
to as the "Federal health care programs"). Sun's compliance with the terms and
conditions in this CIA shall constitute an element of Sun's present
responsibility with regard to participation in the Federal health care programs.
Contemporaneously with this CIA, Sun is entering into a settlement with the
United States, as embodied in the Plan of Reorganization soon to be filed in
Sun's Chapter 11 proceeding (In re: Sun HealthCare Group, Inc., et al., Case No.
99-3657 (MFW) Jointly Administered (the "Bankruptcy Court")) (hereafter referred
to as "Settlement Agreement"). The scope of this CIA shall be governed by the
following definitions:

                            1.     "Sun": includes any corporation, subsidiary,
affiliate, joint venture or other organization or entity in which Sun owns
greater than 50% or has a controlling interest, operates, performs billing
functions, or has a management contract or arrangement to provide management and
administrative services or any arrangement in which Sun has control over the
day-to-day operations over the organization or entity.

                            2.     "Covered Persons": includes all officers,
directors, and employees. This term also includes those contractors who
participate in Sun's billing or related submissions to the Federal health care
programs.

Page 1 of 90

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

                            3.      "Covered Contractor": includes any entity or
individual with whom Sun has entered into a contract or other arrangement and
does not fall within the definition of "Covered Persons," but nevertheless
provides patient or resident care to Federal health care program beneficiaries
on a regular basis (i.e., more often than two weeks over a 52-week period) or
otherwise carries out the duties and responsibilities of this CIA (excluding the
Monitor and the Independent Review Organization ("IRO") functions described
herein).

                            4.     "Federal health care program requirements":
includes statutes, regulations, guidelines, the Centers for Medicare & Medicaid
Services (formerly known as the Health Care Financing Administration or HCFA)
(hereinafter "CMS") manuals and written directives of the Federal health care
programs.

II.     TERM OF THE CIA

       The period of the compliance obligations assumed by Sun under this CIA
shall be the period of time that Sun remains obligated by the payment terms of
the Settlement Agreement, but in any event for not less than 5 years from the
Effective Date of this CIA. Thus, once the parties have signed this CIA, it
shall become final and binding on the Effective Date of Sun's Plan of
Reorganization (as the term Effective Date is defined by the Plan), as approved
by the Bankruptcy Court (hereafter referred to as the "Effective Date" in this
CIA).

       Sections VII, VIII, IX, X and XI shall remain in effect until OIG has
completed its review of the final Annual Report and any additional materials
submitted by Sun pursuant to OIG's request.

Page 2 of 90

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

III.     CORPORATE INTEGRITY OBLIGATIONS

       Prior to the execution of this CIA, Sun established a Compliance Program
and as a condition of this CIA agrees to maintain its Compliance Program for the
duration of this CIA. In addition, to the extent not already implemented and for
the duration of this CIA, Sun hereby agrees to supplement its Compliance Program
by adhering to the obligations contained in this CIA including creating the
following infrastructure:

                            1.     Program Infrastructure.

       Within 120 days of the Effective Date of this CIA, Sun shall review its
current infrastructure and to the extent not already accomplished, create an
internal structure whereby individuals are given responsibility at the facility,
regional and corporate levels to address quality of care concerns. These
individuals shall not be in the Chief Financial Officer's ("CFO's") chain of
command. There shall be in place a mechanism and structure to provide the
individuals who are charged with quality of care concerns with direct access to
the Compliance Officer, appropriate clinical and/or medical staff and the
Corporate Compliance Committee.

       As part of this internal structure, Sun shall maintain or establish, as
necessary, the following positions and committees. If Sun changes its Compliance
Program infrastructure in a way that affects these positions and committees, Sun
shall ensure that under the new structure Sun devotes resources of equal
effectiveness to its Compliance Program as are devoted under the structure
described herein and provide notice to the OIG within 15 days after any such
change.

                                 1.     Compliance and Audit Committees of the
Board of Directors. Sun currently has an Audit Committee of the Board of
Directors (the "Audit Committee") and a Compliance Committee of the Board of
Directors (the "Board Committee"). The Board

Page 3 of 90

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

Committee is comprised of not less than three outside directors of Sun. The
Board Committee shall be responsible for the review of matters related to the
Compliance Program, this CIA, and compliance with Federal health care program
requirements. During the term of this CIA, the Audit Committee shall review the
adequacy of Sun's internal financial controls, accounting practices and
financial reporting policies. During the term of this CIA, the Board Committee
shall: a) review the quality and integrity of Sun's claims submission controls,
policies and practices; b) ensure that Sun adopts and implements policies and
procedures designed to comply with all applicable Federal health care program
requirements, and this CIA; c) ensure that Sun has a system in place to respond
to Federal, state, internal, and external reports of quality of care issues and
that such system functions adequately; and d) ensure that Sun adopts and
implements policies and procedures that are designed to ensure that each
individual that is cared for at a Sun facility receives the level of care
required by law. The Board Committee shall meet at least quarterly.

       The individuals who serve on the Board Committee shall be available to
the Compliance Officer, the Monitor, and the Independent Review Organization (as
these terms are described in Section III.D) required under this CIA, to respond
to any issues or questions that might arise. The names of the Board Committee
members and the charter for the Board Committee shall be provided to OIG within
120 days of the Effective Date of this CIA. When new members of the Board
Committee are appointed, or the responsibilities or authorities of the Board
Committee are substantially changed, Sun shall notify the OIG, in writing,
within 15 days after such a change.

                            2.     Compliance Officer. Sun has appointed a
Compliance Officer, who is and shall be responsible for developing and
implementing policies, procedures, and practices designed to promote compliance
with the Federal health care program requirements and the obligations set forth
in this CIA.

Page 4 of 90

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

       The Compliance Officer is and shall be a member of senior management of
Sun (i.e., not subordinate to Sun's General Counsel or CFO) with unrestricted
access to the Board Committee, who shall make regular (at least quarterly for
the first year and semi-annually each year thereafter) reports regarding
compliance matters directly to the CEO and the Board Committee, and who shall be
authorized to report to the Board Committee at any time. The Compliance Officer
is and shall remain responsible for monitoring the day-to-day activities engaged
in by Sun to further its compliance objectives as well as for any reporting
obligations created under this CIA. The Compliance Officer or his or her
designees shall also ensure that quality of care or claim submission issues are
appropriately identified and addressed through corrective action plans. In the
event a new Compliance Officer is appointed during the term of this CIA, Sun
shall notify the OIG, in writing, within 15 days after such a change.

                            3.     Corporate Compliance Committee. Sun has
appointed a Corporate Compliance Committee ("Compliance Committee"). The
Compliance Committee shall include the Compliance Officer and other appropriate
officers or individuals who have the authority and responsibility to ensure
appropriate quality of care at Sun's facilities, ensure proper billing to
Federal health care programs, and to ensure the implementation of this CIA. The
Compliance Officer shall chair the Compliance Committee and the Compliance
Committee shall support the Compliance Officer in fulfilling his/her
responsibilities.

                            4.     Compliance Liaisons. Sun has designated the
presidents of its subsidiary lines of business and certain other employees as
Compliance Liaisons. Each Compliance Liaison is and shall continue to be
responsible for monitoring and ensuring execution of the Compliance Program and
the relevant requirements of this CIA at each operational level for which the
Compliance Liaison is responsible. Compliance Liaisons are and shall remain
responsible for:

Page 5 of 90

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

providing leadership and support regarding compliance issues at operational
levels within their control; distributing written compliance-related materials;
ensuring the provision of appropriate training and the proper documentation of
such training; ensuring the appropriate distribution of internal and external
compliance audit reports and monitoring of corrective action related to such
reports or other identified compliance-related issues; ensuring proper reporting
and responses to compliance-related issues; and monitoring staff in the
execution of their compliance-related functions. If these functions or reporting
processes change, Sun shall devote resources of similar effectiveness to the
compliance functions. Compliance Liaisons shall certify quarterly to the
Compliance Officer that all plans of correction related to identified problems
for which they are responsible have been implemented, or are in the process of
being implemented, and that all Compliance Program concerns have been reported.
Such certifications shall be maintained by the Compliance Officer and shall be
available to OIG upon request. False certifications by the Compliance Liaisons
shall be grounds for immediate termination, and proper execution of Compliance
Liaison duties shall be a component of their performance evaluations.

                            5.     Administrators. Each Sun facility (nursing
home or hospital) is managed by an Administrator or Chief Executive Officer
("Administrator"). The Administrators will continue to be responsible for
compliance activities within their facilities. Execution of compliance duties
shall be a component of the performance evaluations of Administrators. Should it
become necessary to pursue employment of a new Administrator, the new
Administrator shall be granted authority sufficient to carry out all required
duties, including those with respect to Sun's Compliance Program and this CIA.

Page 6 of 90

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

                            6.     Internal Audit and Review Functions. Within
120 days of the Effective Date of this CIA, Sun shall review the adequacy of its
system of internal financial controls, accounting policies, financial reporting
practices and its other internal audit and review functions, as they relate to
the Federal health care programs, and shall continue to perform, or if necessary
establish a program for performing, internal audits and reviews that shall:

                            a.     make findings of whether the cost reports,
claims and submissions to Federal health care programs that affect reimbursement
are accurate and in accordance with applicable law;

                            b.     make findings of whether the systems are in
place and functioning effectively to ensure that patients and residents at Sun
facilities are receiving the quality of care and quality of life consistent with
basic care, treatment and protection from harm standards, as required by
applicable law, including 42 C.F.R. Parts 482 and 483 and any other applicable
law;

                            c.     conduct an annual Minimum Data Set ("MDS")
billing review of claims submitted by Sun's nursing facilities; and

                            d.     perform such other internal audits and
reviews as necessary to ensure that this CIA is being appropriately implemented
and to ensure that Sun is meeting its obligations under applicable law.

Page 7 of 90

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

                            2.     Written Standards.

                                 1.     Code of Conduct. Sun has a Code of
Conduct. Within 90 days of the Effective Date of this CIA, the Code of Conduct
shall be reviewed by the Compliance Officer to ensure it meets the requirements
set forth herein.

                                           a.     Contents: The Code of Conduct
shall, at a minimum, include:

                                                i.     Sun's commitment to full
compliance with all Federal health care program requirements and other
applicable laws, its commitment to prepare and submit accurate billings
consistent with Federal health care program requirements;

                                                ii.     Sun's requirement that
all of its Covered Persons shall be expected to comply with all Federal health
care program requirements and with Sun's own policies and procedures (including
the requirements of this CIA);

                                                iii.     the requirement that
all Covered Persons shall be expected to report suspected violations of any
Federal health care program requirements or of Sun's own policies and procedures
and if there are credible allegations of patient harm, such report shall be made
in accordance with applicable law;

                                                iv.     the possible
consequences to both Sun and to any Covered Person for failing to comply with
all Federal health care program requirements and with Sun's own policies and
procedures or for failure to report such non-compliance; and

Page 8 of 90

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

                                                v.     the right of all
individuals to use the Confidential Disclosure Program (as described in Section
III.E. of this CIA), as well as Sun's commitment to confidentiality and
non-retaliation with respect to disclosures.

                            b.     Distribution and Certification. Within 100
days of the Effective Date of this CIA, Sun shall distribute the Code of Conduct
to all Covered Persons who have not already received a copy that reflects the
required contents as set forth herein. Within 130 days of the Effective Date of
this CIA, each Covered Person shall certify, in writing, that he or she has
received, read, understood, and will abide by Sun's Code of Conduct. New Covered
Persons shall receive the Code of Conduct during orientation or at the time of
their appointment, employment or contract, or within 130 days of the Effective
Date of the CIA, whichever is later. All New Covered Persons shall complete the
required certification within 30 days after the commencement of their
appointment, employment, or contract or within 130 days of the Effective Date of
the CIA, whichever is later. Sun shall continue to make the promotion of, and
adherence to, the Code of Conduct an element in evaluating the performance of
its Covered Persons. Sun shall annually review the Code of Conduct and will
revise or supplement it as necessary. Sun shall distribute revisions or
supplements of the Code of Conduct to Covered Persons within 30 days of such
changes being completed. Covered Persons shall certify on an

Page 9 of 90

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

annual basis that they have received, read, understood and will abide by the
Code of Conduct that is currently in place.

                            c.     Covered Contractor Requirements. For each of
its Covered Contractors, Sun shall: i) require in its contract with the Covered
Contractor that the Covered Contractor acknowledges Sun's Compliance Program and
Code of Conduct; and ii) for any Covered Contractor with whom Sun has an
existing contract, Sun shall in good faith seek to reform the contract to
require the Covered Contractor to acknowledge the Compliance Program and Code of
Conduct and Sun shall ensure that the Code of Conduct is provided (either by Sun
or the Covered Contractor) to all of the Covered Contractors.

                            2.     Policies and Procedures. Sun has established
written policies and procedures governing billing and quality of care issues. To
the extent that it has not already done so, Sun shall develop written policies
and procedures regarding its Compliance Program and its compliance with
applicable law including, but not limited to, the requirements of Federal health
care programs. Sun shall continue to assess and update as necessary the policies
and procedures at least annually and more frequently, as appropriate. The
policies and procedures shall be sent to OIG within 120 days of the Effective
Date of this CIA. To the extent not already accomplished, Sun shall ensure that
the relevant portions of its policies and procedures are available to the
appropriate Covered Persons within 100 days of the Effective Date of this CIA.
Compliance staff or supervisors shall continue to be available to explain any
and all policies and procedures. Within 90 days of the Effective Date of this
CIA, Sun shall review and analyze its

Page 10 of 90

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

policies and procedures to ensure that, at a minimum, Sun has adequate policies
and procedures that specifically address:

                            a.     Measures designed to ensure that Sun complies
with Titles XVIII and XIX of the Social Security Act, 42 U.S.C.
SectionSection 1395-1395ggg and 1396-1396v, and all regulations, written
directives, and guidelines promulgated under these statutes, including, but not
limited to, 42 C.F.R. Parts 424 and 483, and any other and any other applicable
laws that address quality of care in nursing facilities;

                            b.     Measures designed to ensure that Sun complies
with all requirements applicable to Medicare's Prospective Payment System
("PPS") for nursing facilities, including, but not limited to: the collection of
the clinical data required under the Minimum Data Set ("MDS") as specified by
the Resident Assessment Instrument User's Manual; use of the current Resource
Utilization Groups ("RUG") classification system; and billing and cost report
preparation policies and procedures;

                            c.     Measures designed to ensure compliance with
state and Federal reporting requirements pertaining to incident, accident, abuse
and neglect reporting requirements. Also, measures designed to ensure that Sun
has an appropriate system to collect and analyze reports at the facility,
regional, and corporate levels relating to incidents, accidents, abuse, and
neglect. The reports required under this system shall be of a nature to provide
the Corporate Compliance

Page 11 of 90

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

Committee with meaningful information to be able to determine: i) if there are
quality of care problems; and ii) the scope and severity of the problems;

                            d.     Measures designed to ensure that residents
and patients are discharged only for the reasons authorized by and in accordance
with the procedures established by applicable law and not discharged for
financial reasons unless authorized by law;

                            e.     Measures designed to ensure that staffing is
in compliance with Federal health care program requirements and state laws,
including, but not limited to, 42 C.F.R. SectionSection 483.23(a) and (b)
(hospitals) and Section 483.30 (nursing facilities);

                            f.     Measures designed to inform Covered Persons
and Covered Contractors (to the extent relevant to their duties) of the staffing
requirements of Federal and state law;

                            g.     Measures to inform Covered Persons during
orientation and during other training required by this CIA that appropriate
staffing levels are a critical aspect of patient care, and, if any person has a
concern about the level of staffing that there are many avenues available to
each individual to address such concerns, including, but not limited to, the
facility administrator, the Confidential Disclosure Program (as described in
Section III.E. of this CIA),

Page 12 of 90

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

individuals at the regional, or corporate level, or directly to the Compliance
Officer;

                            h.     Measures designed to disfavor the use of
individuals at any Sun facility who are from a temporary agency or not employed
by Sun (not including those individuals who are included in the definition of
Covered Persons) and measures designed to create and maintain a standardized
system to track the number of individuals at each facility who fall within this
category so that the number/proportion of or changing trends in such staff can
be adequately identified by Sun and/or the Monitor;

                            i.     Measures designed to ensure compliance with
the completion of accurate clinical assessments as required by applicable
Federal law (see, e.g., 42 C.F.R. Section 483.20);

                            j.     Measures designed to ensure that where cost
reports affect the level of reimbursement, cost reports correctly reflect
relations with related parties and that Sun only claims entitlement to
exceptions to the extent that they are in accordance with the law;

                            k.     Measures designed to ensure that Covered
Contractors are appropriately supervised to ensure that they are acting within
the parameters of Sun's policies and procedures and the Federal health care
program requirements;

                            l.     Measures designed to ensure that the internal
audits performed in conjunction with the IRO are performed by appropriate and
qualified individuals, as further set forth in Section III.D.2.b. of this CIA;

Page 13 of 90

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

                            m.     Non-retaliation policies and methods for
employees to make disclosures or otherwise report on compliance issues through
the Confidential Disclosure Program required by Section III.E.;

                            n.      Disciplinary guidelines to reflect the Code
of Conduct requirements as specified in Section III.B.1;

                            o.     Measures designed to promote adherence to the
compliance and quality of care standards set forth in applicable Federal
healthcare program requirements, and this CIA, by developing compensation
policies that: (i) promote quality of resident and patient care; (ii) do not
inhibit the quality of resident or patient care; and (iii) promote adherence to
this CIA. Such measures shall include financial incentives for improving the
quality of care at the facilities for which a particular individual shares
responsibility, and financial penalties (e.g., no bonus or increase in salary)
for failure to prevent quality of care problems. Nothing in this provision
precludes the company generally from establishing performance-based financial
incentives;

                            p.     Measures designed to ensure cooperation with
the Monitor and the IRO both of which shall have access to facilities and
documents as set forth in this CIA;

Page 14 of 90

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

                            q.     Measures designed to ensure that compliance
issues are identified internally (e.g., through reports of abuse or neglect,
financial data, reports to supervisors, the Confidential Disclosure Program
(described in Section III.E. of this CIA) or other complaints, internal audits
or reviews, patient satisfaction surveys, CMS quality indicators, staff turnover
data, or internal surveys) or externally (e.g. consultants, audits performed by
the IRO or the Monitor's reports) and are promptly and appropriately
investigated and, if the investigation substantiates compliance issues, Sun
implements effective and timely corrective action plans and monitors compliance
with such plans;

                            r.     Measures designed to collect staffing data,
including staff to patient/resident ratio and staff turnover data;

                            s.     Measures designed to ensure that an
appropriate pre-admission clinical assessment will be made of all potential
respiratory therapy patients/residents;

                            t.     Measures designed to ensure that respiratory
therapy residents/patients will only be admitted or cared for if the facility
can provide all treatments and care prescribed by the patient's/resident's
admitting/attending physician and that for respiratory therapy
patients/residents that Sun cannot clinically accommodate, Sun will refer them
to more appropriate facilities;

Page 15 of 90

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

                            u.     Measures designed to ensure that once
admitted, respiratory therapy patients/residents will receive appropriate
clinical services based on their assessed needs from appropriately trained
clinicians and that care, treatment plans and progress will be reviewed by
qualified supervisory staff to ensure appropriate care;

                            v.     Measures designed to protect patient safety
in the event of utility or weather related emergencies as required by
regulations;

                            w.     Measures designed to achieve compliance with
nutrition and hydration (42 C.F.R. Section 483.25) and physical environmental
regulations (42 C.F.R. Section 483.70); and

                            x.     Measures which direct facilities (at least
annually) to evaluate their physical plants to determine whether they are able
to respond to heat, utility or other weather related emergencies.

                            3.     Training and Education.

Prior to the execution of this CIA, Sun established a training program for all
its Covered Persons and agrees that it shall continue to conduct training
programs that meet the requirements of this CIA. Training may be provided
through appropriate Internet or Intranet-based mechanisms, but at all times
during which any training is conducted, Sun will make available to all training
recipients, persons knowledgeable about the subject area covered in the
training.

Page 16 of 90

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

                            1.     General Training. Within 120 days after the
Effective Date of this CIA, Sun shall provide at least 2 hours of general
training to each Covered Person. This general training shall explain Sun's:

                            a.     Corporate Integrity Agreement requirements;

                            b.     Compliance Program (including the policies
and procedures as they pertain to general compliance issues); and

                            c.     Code of Conduct.

                    New Covered Persons shall receive the general training
described above during orientation, but not later than 20 days after the
beginning of their employment or within 120 days after the Effective Date of
this CIA, whichever is later. During the term of this CIA, every Covered Person
shall receive such general training on an annual basis.

                            2.     Specific Training for Relevant Covered
Persons. Within 120 days after the Effective Date of this CIA, Sun shall provide
specific training of certain designated Covered Persons, as set forth in this
Section. Each Covered Person who is involved in the delivery of patient or
resident care (including individuals who are responsible for quality assurance,
setting policies or procedures, or making staffing decisions), the preparation
or submission of claims for reimbursement or cost reports (or equivalent
reporting mechanisms), or the assignment of procedure codes or other diagnostic
assessments that might affect reimbursement, for any Federal health care
programs (hereinafter, "Relevant Covered Persons") shall receive at least 2
hours of specific training pertinent to his or her responsibilities (as
described below) in addition to the general training required above. This
training shall be conducted at least annually thereafter during the term of this
CIA, and shall include a discussion of the policies and procedures set forth in
Section III.B.2, including, but not limited to:

Page 17 of 90

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

                            a.     the submission of accurate information (e.g.,
MDS, claims, bills, and cost reports (or equivalent reporting mechanisms) for
services rendered to Medicare or Medicaid beneficiaries, including, but not
limited to, the requirements for an accurate clinical assessment, if relevant to
the person's duties;

                            b.     policies, procedures and other requirements
applicable to the documentation of services and completion of medical records,
if relevant to the person's duties;

                            c.     the personal obligation of each individual
involved in the patient care, documentation, or reimbursement processes to
ensure that such submissions are accurate;

                            d.     applicable Federal health care program
requirements, if relevant to the person's duties;

                            e.     the legal sanctions for improper submissions
to Federal health care programs;

                            f.     examples of relevant reimbursement practices
related to Federal health care programs found to have been improper, if relevant
to the person's duties;

                            g.     for Relevant Covered Persons who provide
resident care: the coordinated interdisciplinary approach to providing care to
residents, including, but not limited to, resident assessment and the
requirements of 42 C.F.R. Section 483; and

Page 18 of 90

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

                            h.     for Relevant Covered Persons who provide
resident care: the policies and procedures for appropriate admission and
appropriate care of respiratory therapy patients/residents.

                    New Relevant Covered Persons shall receive this specific
training within 40 days of the beginning of their employment or contract, or
within 120 days after the Effective Date of this CIA, whichever is later. Newly
hired Relevant Covered Persons involved in the delivery of patient or resident
care or in the preparation or submission of information (including, but not
limited to, claims, bills, MDS, or cost reports) to any Federal health care
program shall be adequately supervised by trained employees until they have
completed the specific training relevant to their duties. Each Relevant Covered
Person shall receive the appropriate specific training on an annual basis during
the term of the CIA.

                    In addition, each facility shall conduct appropriate
periodic training at least semi-annually, or more frequently, as needed, on
quality of care issues, including those issues identified by Sun through its
various compliance mechanisms. As part of this training, during the spring of
each year on an annual basis, each facility shall provide training to each
Relevant Covered Person who provides patient care, on identifying residents at
risk of heat and weather related problems (or other problems associated with the
loss of utility service), identifying heat illness symptoms, and on an
appropriate response to heat, utility or other weather related emergencies (and
shall provide a checklist of measures that should be followed). In determining
what additional training should be performed, the Compliance Officer or his/her
designees will review the complaints received, satisfaction surveys, staff
turnover data, any state or Federal surveys, including those performed by the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"), any
internal surveys, and the CMS quality indicators for nursing

Page 19 of 90

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

facilities. Such training will be for the length of time necessary to teach the
subject matter. Such training will be provided to all Relevant Covered Persons
at the facility who are responsible for patient or resident care. Sun shall
implement mechanisms to evaluate that training participants comprehended and
(where appropriate) implemented the content of the training.

                            3.     Attendance Log and Certification. An
attendance log shall document the attendance of each person who is required to
attend the training. The person responsible for the training shall certify the
accuracy of the attendance log. The attendance log shall specify the type of
training received and the date received. The Compliance Officer or his/her
designees shall retain the attendance logs and certifications, along with
specific course materials, and make all of these logs, certifications, and
materials available to OIG upon request. The certification shall specify the
type of training received and the date received.

                            4.     Submission of Training and Course Materials.
The training and course materials for General and Specific Training (as defined
herein) shall be submitted to OIG no later than 20 days after completion of any
training described herein.

                            5.     Prior Training. Training of any type provided
to affected Covered Persons within six months prior to the Effective Date of
this Agreement that meets the requirements of Section III.C shall be deemed to
meet the time frame obligation imposed by this Section, but does not obviate the
requirements for attendance certifications.

Page 20 of 90

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

                            4.     Review Procedures.

                                   1.     Independent Monitor (Quality
Engagement). Within 60 days of the Effective Date of this CIA, Sun shall engage
an appropriately qualified monitoring team (collectively the "Monitor"), that
meets the approval of OIG. The Monitor may retain additional personnel,
including, but not limited to, independent consultants, if needed to help meet
the Monitor's obligations under this CIA. It is the intent of the parties to
this CIA that the Monitor and Sun shall work cooperatively to foster the
provision of high quality care at Sun. Sun shall be responsible for all costs
incurred by the Monitor in connection with its duties under this CIA, including,
but not limited to, the costs of travel, consultants, administrative personnel,
office space and equipment, or additional personnel ("Monitor's Costs"). Such
costs shall not exceed $2,000,000 annually ("Annual Limit"). To assist in Sun's
budgeting process, the Monitor shall provide Sun with an estimated, non-binding
budget on an annual basis.

                                        a.     The Monitor's Function. The
Monitor shall be responsible for assessing the effectiveness, reliability, and
thoroughness of Sun's quality of care infrastructure and systems with respect to
Sun's nursing facilities. Specifically, the Monitor, guided by the Quality
Monitor Task List (copy attached as Appendix A hereto), shall assess, among
other things the following:

                                               i.     Sun's internal quality of
care infrastructure, including, but not limited to, whether Sun has established
and is carrying out its functions to review, analyze, and address quality of
care issues; whether systems are place to promote quality of care and to respond
to quality of care issues and the systems are operating in a timely and
effective manner;

Page 21 of 90

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

whether the communication systems are effective, providing for accurate
quality-related data, information, decisions, and results of decisions are
transmitted to the proper individuals in a timely fashion; and whether the
training programs are effective and thorough.

                                               ii.     Sun's response to quality
of care issues, which shall include an assessment of:

                                                      (A)     Sun's ability to
identify the problem;

                                                      (B)     Sun's ability to
determine the scope of the problem (e.g., is it isolated or systemic);

                                                      (C)     Sun's ability to
create a corrective action plan;

                                                      (D)     Sun's ability to
execute the corrective action plan;

                                                      (E)     Sun's ability to
evaluate whether the assessment, corrective action plan and execution of that
plan was effective, reliable, and thorough and maintained over time.

                                               iii.     the accuracy of internal
reports, data and assessments that relate to patient and resident care;

                                               iv.     Sun's proactive steps
(including training) to ensure that each patient and resident receives care in
accordance with applicable law and the policies and procedures adopted by Sun,
including those required by this CIA;

Page 22 of 90

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

                                               v.     whether compliance with
Sun's policies and procedures that promote quality of care is a positive factor
in determining compensation to Sun's employees;

                                               vi.     whether Sun's facility
site visits are occurring as necessary to identify and address quality of care
issues;

                                               vii.     whether Sun has in place
an effective system to track temporary agency personnel, staff to patient ratios
and staff turnover rates;

                                               viii.     whether Sun has
complied with its own policies and procedures, training requirements, the
Federal health care program requirements, and the requirements of this CIA
regarding the admission and care of respiratory therapy patients and residents;
and

                                               ix.     whether Sun has complied
with its own policies and procedures, training requirements, the Federal health
care program requirements and the requirements of the CIA related to heat,
utility and weather related emergencies and to determine whether Sun has adopted
appropriate contingency plans to address such emergencies.

                                        b.     Access. The Monitor shall have
access to:

                                               i.     Facilities, at any time
and without prior notice;

                                               ii.     (A) the CMS quality
indicators (for nursing facilities); (B) internal or external surveys or
reports; (C) Sun Quality Line or other allegations or

Page 23 of 90

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

complaints; (D) resident or patient satisfaction surveys; (E) staffing reports
setting forth the staff to patient ratios, temporary staffing levels, and staff
turnover data; (F) incident, accident, abuse, neglect or death reports;
(G) reports of incidents involving a patient or resident that prompt a full
internal investigation; (H) patient or resident records consistent with
applicable laws; (I) financial data relating to the quality of care provided to
residents of Sun facilities; (J) self-evaluative reports including, but not
limited to, those from medical review committees, quality assurance committees,
or peer review committees; and (K) any other pre-existing data, including the
reconfiguring of existing data that the Monitor may determine relevant to
fulfilling the duties required under this CIA in the format requested by the
Monitor, to the extent practicable;

                                               iii.     Covered Persons under
the conditions set forth in Section VII of this CIA governing the rights of OIG
to interview Sun's employees, contractors and agents; and

                                               iv.     Current patients and
residents, subject to: (A) their clinical condition; and (B) their consent
(without interference from Sun or its counsel), to conduct interviews with them
outside the presence of Sun supervisory staff or counsel provided that such
interviews are conducted in accordance with all applicable laws and the rights
of such individuals, including the right of a patient to decline to be
interviewed. Nothing in this CIA

Page 24 of 90

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

shall be construed to limit the Monitor's access to family or guardians, or
former Covered Persons, patients, or residents.

                                        c.     Sun's Obligations. Sun shall:

                                               i.     Not impede the Monitor's
access to its facilities (pursuant to the provisions of this CIA) and shall
provide any requested documentation within the time frame specified by the
Monitor, subject to any extensions and modifications requested by Sun and
granted by the Monitor (the Monitor shall balance the circumstances of the
situation with the burden on Sun when making document requests);

                                               ii.     Assist in contacting and
arranging interviews of Covered Persons (to be conducted in accordance with the
provisions of Section VII), and not impede the cooperation by such individuals;

                                               iii.     Provide access to
current residents or patients and contact information for their families and
guardians, in a manner consistent with the rights of such individuals under
State or Federal law, and not impede their cooperation;

                                               iv.     Provide the last known
contact information for former employees, contractors, and agents, and not
impede the cooperation from such individuals, including, but not limited to,
refraining from placing confidentiality requirements in termination agreements
that would limit such cooperation;

Page 25 of 90

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

                                               v.     Provide the last known
contact information for former residents, patients, their families, or guardians
consistent with the rights of such individuals under State or Federal law, and
not impede their cooperation;

                                               vi.     Address any written
recommendation made by the Monitor either by substantially implementing the
Monitor's recommendations or by explaining why it has elected not to do so;

                                               vii.     Pay the Monitor's bills
for Monitor's Costs within 30 days of receipt. While Sun must pay all the
Monitor's bills within 30 days, Sun may bring any disputed Monitor's Costs or
bills to OIG's attention; and

                                               viii.     Not sue or otherwise
bring any action against the Monitor related to any findings made by the Monitor
or related to any exclusion or other sanction of Sun under this Agreement;
provided, however, that this clause shall not apply to any suit or other action
based solely on the dishonest or illegal acts of the Monitor, whether acting
alone or in collusion with others.

                    Nothing in this Subsection (c) shall limit the right of Sun
to inform individuals of their rights under law.

Page 26 of 90

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

                                        d.     The Monitor's Obligations. The
Monitor shall:

                                               i.     Respect the legal rights,
privacy, and dignity of all Covered Persons, residents, and patients;

                                               ii.     Where independently
required by applicable law or professional licensing standard to report any
finding to an appropriate regulatory or law enforcement authority,
simultaneously submit copies of such reports to OIG and to Sun;

                                               iii.     At all times act
reasonably in connection with its duties under the CIA, including when
requesting information from Sun. Acting reasonably shall mean, when appropriate,
among other things, that the Monitor shall consider the burdens and costs to
Sun;

                                               iv.     Subject to Subsection (e)
below, communicate its assessments of Sun through its quarterly reports to Sun
and OIG concerning the findings made to date;

                                               v.     Submit bills to Sun on a
consolidated basis no more than once per month, and submit an annual summary
representing an accounting of its costs throughout the year to Sun and to OIG.
Sun shall have the opportunity to review such bills and bring any issue of
disputed bills or costs to the attention of OIG;

                                               vi.     Not be bound by any other
private or governmental agency's findings or conclusions, including, but not
limited to, JCAHO, CMS, or the state survey agency. Likewise, such private and
governmental agencies shall not be bound by the Monitor's findings

Page 27 of 90

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

 

or conclusions. The Monitor's reports shall not be the sole basis for
determining deficiencies by the state survey agencies. The parties agree that
HHS and its contractors shall not introduce any material generated by the
Monitor, or any opinions, testimony, or conclusions from the Monitor as evidence
into any proceeding involving a Medicare or Medicaid survey, certification, or
other enforcement action against Sun, and Sun shall similarly be restricted from
using material generated by the Monitor, or any opinions, testimony, or
conclusions from the Monitor as evidence in any of these proceedings. Nothing in
the previous sentence, however, shall preclude the OIG or Sun from using any
material generated by the Monitor, or any opinions, testimony, or conclusions
from the Monitor in any action under the CIA or pursuant to other OIG
authorities;

                                               vii.     Abide by the legal
requirements of Sun's facilities: (A) to maintain the confidentiality of each
resident's personal and clinical records; and (B) to maintain confidential and
not to disclose the records of Sun's Corporate Compliance Committee and
self-evaluative reports including, but not limited to, those from medical review
committees, quality assurance committees or peer review committees. (see
42 C.F.R. SectionSection 483.10 and 483.75(o)(3)). Nothing in the prior
sentence, however, shall limit or affect the Monitor's obligation to provide

Page 28 of 90

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

information, including information from patient and resident clinical records,
to the OIG, and, when legally or professionally required, reporting to other
agencies;

                                               viii.     Except to the extent
required by law, maintain the confidentiality of any proprietary financial and
operational information, processes, procedures and forms obtained in connection
with its duties under this CIA and not comment publicly concerning its findings
except to the extent authorized by the OIG;

                                               ix.     Where appropriate,
communicate requests for access, documents or other information to the
Compliance Officer; and

                                               x.     Where possible, identify
the criteria under which it intends to assess Sun's activities as set forth
herein and communicate those criteria to Sun in advance of its assessments.

Page 29 of 90

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

                                        e.     Miscellaneous Provisions

                                               i.     The Monitor may confer and
correspond with Sun and OIG on an ex parte basis at any time. If, after
consulting with Sun, the Monitor has concerns about corrective action plans that
are not being enforced or systemic or repeated problems that could impact Sun's
ability to render quality care to its patients and residents, then the Monitor
shall: (A) report such concerns in writing to the Consortium, in care of OIG at
the address set forth in Section VI of this CIA (the Consortium consists of
representatives of OIG, CMS, and the Department of Justice); and (B) provide
notice and a copy of the report to the Compliance Officer and the Board
Committee. Sun shall be provided an opportunity to respond to the Consortium
concerning any such report;

                                               ii.     The Consortium shall seek
to resolve any such dispute between the Monitor and Sun prior to OIG seeking any
remedies pursuant to the terms of this CIA;

                                               iii.     The Monitor serves at
the behest of OIG and may be removed from the Monitor position solely at the
discretion of OIG. If the Monitor resigns or is removed for any reason prior to
the termination of the CIA, OIG, at its sole discretion, shall appoint another
Monitor with the same functions and authorities;

                                               iv.     The Monitor shall not
control, manage or operate Sun; and

Page 30 of 90

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

                                               v.     Nothing in this Agreement
changes the applicable requirements for standard of care from that imposed by
the Federal health care program requirements and other laws.

                                   2.     Financial Reviews.

                                          a.     General Description.

                                                 i.     Retention of Independent
Review Organization. Prior to the Effective Date of this CIA, Sun will retain an
entity, such as an accounting, auditing or consulting firm (hereinafter
"Independent Review Organization" or "IRO"), to perform review engagements to
assist Sun in assessing and evaluating its billing, coding and claim submission
practices and its compliance obligations pursuant to this CIA and the Settlement
Agreement. The IRO retained by Sun shall have expertise in the billing, coding,
reporting and other requirements of the particular section of the health care
industry pertaining to this CIA and in the general requirements of the Federal
health care program(s) from which Sun seeks reimbursement. The Billing
Engagement, described below shall be accomplished by a combination of reviews
performed by the IRO and the Sun Internal Review Team pursuant to the schedule
in Section III.D.2.b.vii. below. The IRO shall assess, along with Sun, whether
it can perform the IRO

Page 31 of 90

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

engagements in a professionally independent fashion, taking into account any
other business relationships or other engagements that may exist.

                                                 ii.     Types of Engagements.
The IRO shall conduct two separate engagements. One engagement shall address
Sun's billing, coding and claim submission practices to the Federal health care
programs ("Billing Engagement"). The second engagement shall address Sun's
compliance with the obligations assumed under this CIA and the Settlement
Agreement ("Compliance Engagement").

                                                 iii.     Frequency of Billing
and Compliance Engagements. The Billing Engagement shall be performed in
accordance with the schedule in Section III.D.2.b.vii. beginning with the
Effective Date of this CIA. The IRO and Sun's Internal Review Team shall perform
the Minimum Data Set Audits (hereinafter, "MDS Audits") of the Billing
Engagement and the IRO shall perform the Process Review component of the Billing
Engagement. The Compliance Engagement shall be performed by the IRO for the
first one-year period beginning with the Effective Date of this CIA.

                                                 iv.     Retention of Records.
Sun shall retain and make available to the OIG, upon request, all work papers,
supporting documentation, correspondence and draft reports, if any, (those
exchanged between the IRO and Sun) related to the engagements for the duration
of the CIA plus one year.

Page 32 of 90

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

                                          b.     Billing Engagement. The Billing
Engagement shall be comprised of two separate reviews - an MDS Audit and a
Process Review. The MDS Audit and corresponding MDS Audit Report are discussed
in detail in Appendix B to this CIA, which is incorporated by reference.

                                                 i.     Selection of Potential
Candidates for Sun's Internal Review Team. Sun's Corporate Compliance Officer
shall identify prospective team members based upon the candidate's MDS Audit
experience (i.e. has performed similar MDS audits within the 6 months prior to
becoming part of Sun's Internal Review Team), qualifications, and clinical
background. The IRO and Corporate Compliance Officer shall independently assess
each respective candidate's experience, qualifications, and clinical background.
Both the IRO and Sun shall draft independent recommendations for each
prospective Internal Review Team member regarding whether each member should
serve on Sun's Internal Review Team. The IRO and Sun shall mutually agree on
Sun's proposed Internal Review Team members for the purposes of Credentialing as
set forth below.

                                                 ii.      Credentialing of Sun's
Internal Review Team. To credential Sun's Internal Review Team, the following
protocol will be used. Within 90 days of the Effective Date of this CIA and
prior to the initiation of any MDS Audits, the IRO shall randomly select (using
RAT-STATS) 25 sampling units from Sun's nursing facilities. The

Page 33 of 90

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

identities of the patients in the selected sampling units will be redacted to
preserve patient confidentiality. These sampling units will be used to train and
assess the candidates for Sun's Internal Review Team. Using the audit procedures
set forth in Appendix B, the IRO will train the prospective Internal Review Team
members using the first 10 randomly generated sampling units. Following the
demonstration training, and using the remaining 15 randomly selected sampling
units, each of the candidates will independently make coding and overpayment
determinations on these units based on defined audit procedures agreed to by Sun
and the IRO as set forth below. Each prospective Internal Review Team member
will be evaluated on how they scored each test sampling unit. Each reviewer's
percentage score will be calculated based on pre-selected objective audit
elements. These pre-selected objective audit elements and the credentialing
standard shall be mutually agreed upon by Sun and the IRO and shall be submitted
to the OIG for review. At any time during the term of the CIA, the OIG may
provide Sun with comments, recommendations, or may reject any or all of the
pre-selected objective audit elements or credentialing standard and may create
its own audit elements and credentialing standard and apply it to select Sun's
Internal Review Team. Any comments provided, recommendations made or the lack
thereof or the lack of rejection of any or all of the pre-selected objective
audit

Page 34 of 90

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

elements or credentialing standard shall not constitute acceptance of the
pre-selected objective audit elements or the credentialing standard. Those
Internal Review Team Candidates with credentialing scores at or above the
credentialing standard will be selected as members of Sun's Internal Review
Team.

                                                 iii.     Reporting the
Selection of Sun's Internal Review Team. As part of Sun's Implementation Report,
Sun's Corporate Compliance Officer shall provide the OIG with his justification
and the IRO's recommendations for each proposed Internal Review Team member.
Both Sun's justification and the IRO's recommendation shall include a narrative
evaluation of each prospective team member's audit test performance for each
selected Internal Review Team member. Sun shall also include each candidate's
resume, audit test results, and credentialing score which support each
candidate's selection as an Internal Review Team member as part of its
justification.

                                                 iv.     Replacement of Internal
Review Team Members. If at any time during the term of this CIA, an Internal
Review Team member needs to be replaced, the protocol described in Section
III.D.2.b.i-iii. herein shall be implemented to select a new Internal Review
Team member. However, Sun's justification and the IRO's recommendation, as

Page 35 of 90

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

described in Section III.D.2.b.ii herein, shall be submitted to the OIG prior to
engaging the new Internal Review Team member.

                                                 v.     Annual IRO Verification
Review. At the end of each Review Year (as defined in Section III.D.2.b.vi
below) of the CIA, the IRO will verify a sample of each Sun Internal Review Team
member's MDS Audit determinations to ensure the reviewer is making accurate
judgements. To conduct the verification review, the IRO will review either 10%
or 15 sampling units from each Internal Review Team member's previous year's MDS
Audits, whichever is greater, and the accuracy of the reviewer's determinations
shall be recorded. The IRO shall randomly select each reviewer's sample using
RAT-STATS. Any incorrect MDS Audit determinations made by a Team member will
constitute an error. If 5% or more of a team member's determinations are
incorrect, the Internal Review Team member will be removed from the Team unless
retention of the Internal Review Team member is otherwise recommended by the IRO
and accepted by the OIG. The audit test results for each Internal Review Team
member and any recommendation or supporting rationale will be included in each
Annual Report to the OIG. The OIG, will have discretion to remove any person
from the Internal Review Team at any time.

                                                 vi.     Pooling Methodology.
For the purpose of the MDS Audits that the IRO and Sun will conduct, the IRO
will aggregate total nursing facility data and allocate

Page 36 of 90

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

each of Sun's nursing facilities into four pools based upon their respective
distribution of total claims paid by Medicare Part A.

                                                        (A)     Based upon the
paid claims information, the IRO will sort all of the Sun nursing facilities
into four pools. The facilities shall be resorted annually on the anniversary of
the Effective Date of this CIA and each such annual period shall constitute a
review year (the "Review Year"). The four pools are as follows:

                                                                (1)     Facilities
that have received no Medicare Part A payments during the Review Year
(hereinafter referred to as the "Medicare Zero Claim Pool"). The IRO will remove
the Medicare Zero Claim Pool from the population of nursing facilities that it
will randomly select from for the annual MDS Audits;

                                                                (2)     Facilities
that have received payment from Medicare Part A for 1 to 250 claims during the
Review Year (hereinafter referred to as the "Medicare Small Claim Pool");

                                                                (3)     Facilities
that have received payment from Medicare Part A for 251-750 claims during the
Review Year (hereinafter referred to as the "Medicare Medium Claim Pool"); and

Page 37 of 90

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

                                                                (4)     Facilities
that have received payment from Medicare Part A for more than 751 claims during
the Review Year covered by the billing review (hereinafter referred to as the
"Medicare Large Claim Pool").

                                                 vii.     Annual Facility
Selection Methodology. Consistent with Appendix B, the Audit Period for year 1
reviews will begin with the Effective Date of the CIA and will end with the date
the MDS Audit begins for each respective Claim Pool. For the first year reviews,
no MDS Audit will contain less than 3 months worth of data and no more than 9
months worth of data. For each Claim Pool's subsequent yearly review, the Audit
Period for the MDS Audit shall consist of 12 months of data. These subsequent
yearly reviews shall begin at the end of the preceding Audit Period for each
Claim Pool and shall end 12 months later.

                    The MDS Audit will be prioritized in the following manner:
During each Review Year, the IRO will review facilities in the Medicare Large
Claim Pool prior to reviewing the facilities in the Medicare Medium Claim Pool.
Sun will review facilities in the Medicare Medium Claim Pool prior to reviewing
the facilities in the Medicare Small Claim Pool. The IRO and Sun may deviate
from this prioritization schedule only after receiving prior written approval
from the OIG.

Page 38 of 90

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

Audit Period 1 Reviews

:

     -     IRO will randomly select, using RAT-STATS, 5 facilities from the
Medicare Small Claim Pool - Sun will perform an MDS Audit on these facilities.

     -     IRO will randomly select, using RAT-STATS, 15 facilities from the
Medicare Medium Claim Pool - IRO will perform an MDS Audit on the first five
randomly generated facilities and Sun will perform an MDS Audit on the remaining
10 facilities.

     -     IRO will randomly select, using RAT-STATS, 6 facilities from the
Medicare Large Claim Pool - IRO will perform an MDS Audit on these facilities.

     -     In accordance with Section III.D.2.b.v. above, at the end of Review
Year 1, the IRO will review 10% or 15 sampling units for each member of Sun's
Internal Review Team, whichever is greater. The IRO will randomly select, using
RAT-STATS, each member's sampling units.

Audit Period 2 Reviews

:

     -     IRO will randomly select, using RAT-STATS, 5 facilities from the
Medicare Small Claim Pool, excluding those Medicare Small Claim Pool facilities
that were selected in Audit Period 1, - Sun will perform an MDS Audit on these
facilities.

Page 39 of 90

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

     -     IRO will randomly select, using RAT-STATS, 15 facilities from the
Medicare Medium Claim Pool, excluding those Medicare Medium Claim Pool
facilities that were selected in Audit Period 1 - IRO will perform an MDS Audit
on the first five randomly generated facilities and Sun will perform an MDS
Audit on the remaining 10 facilities.

     -     IRO will randomly select, using RAT-STATS, 6 facilities from the
Medicare Large Claim Pool - IRO will perform an MDS Audit on these facilities.

     -     IRO will randomly select, using RAT-STATS, 1 of the 20 Medium and
Small Claim Pool facilities reviewed in Audit Period 1 and will perform an MDS
Audit on this facility.

     -     In accordance with Section III.D.2.b.v. above, at the end of Review
Year 2, the IRO will review 10% or 15 sampling units for each member of Sun's
Internal Review Team, whichever is greater. The IRO will randomly select, using
RAT-STATS, each member's sampling units.

Audit Period 3 Reviews

:

     -     IRO will randomly select, using RAT-STATS, 5 facilities from the
Medicare Small Claim Pool, excluding those Medicare Small Claim Pool facilities
that were selected in Audit Periods 1 or 2 - Sun will perform an MDS Audit on
these facilities.

Page 40 of 90

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

     -     IRO will randomly select, using RAT-STATS, 15 facilities from the
Medicare Medium Claim Pool, excluding those Medicare Medium Claim Pool
facilities that were selected in Audit Periods 1 or 2 - IRO will perform an MDS
Audit on the first five randomly generated facilities and Sun will perform an
MDS Audit on the remaining 10 facilities.

     -     IRO will randomly select, using RAT-STATS, 6 facilities from the
Medicare Large Claim Pool - IRO will perform an MDS Audit on these facilities.

     -     IRO will randomly select, using RAT-STATS, 1 of the 40 Medium and
Small Claim Pool facilities reviewed in Audit Periods 1 or 2 and will perform an
MDS Audit on these facilities.

     -     In accordance with Section III.D.2.b.v. above, at the end of Review
Year 3, the IRO will review 10% or 15 sampling units for each member of Sun's
Internal Review Team, whichever is greater. The IRO will randomly select, using
RAT-STATS, each member's sampling units.

Audit Period 4 Reviews

:

     -     IRO will randomly select, using RAT-STATS, 5 facilities from the
Medicare Small Claim Pool, excluding those Medicare Small Claim Pool facilities
that were selected in Audit Periods 1, 2, or 3 - Sun will perform an MDS Audit
on these facilities.

Page 41 of 90

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

     -     IRO will randomly select, using RAT-STATS, 15 facilities from the
Medicare Medium Claim Pool, excluding those Medicare Medium Claim Pool
facilities that were selected in Audit Periods 1, 2, or 3 - IRO will perform an
MDS Audit on the first five randomly generated facilities and Sun will perform
an MDS Audit on the remaining 10 facilities.

     -     IRO will randomly select, using RAT-STATS, 6 facilities from the
Medicare Large Claim Pool - IRO will perform an MDS Audit on these facilities.

     -     IRO will randomly select, using RAT-STATS, 2 of the 60 Medium and
Small Claim Pool facilities reviewed in Audit Periods 1, 2, or 3 and will
perform an MDS Audit on these facilities.

     -     In accordance with Section III.D.2.b.v. above, at the end of Review
Year 4, the IRO will review 10% or 15 sampling units for each member of Sun's
Internal Review Team, whichever is greater. The IRO will randomly select, using
RAT-STATS, each member's sampling units.

Audit Period 5 Reviews

: All facilities, even if previously selected, will be included in the universe
for Audit Period 5.

     -     IRO will randomly select, using RAT-STATS, 5 facilities from the
Medicare Small Claim Pool - Sun will perform an MDS Audit on these facilities.

Page 42 of 90

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

     -     IRO will randomly select, using RAT-STATS, 15 facilities from the
Medicare Medium Claim Pool - IRO will perform an MDS Audit on the first five
randomly generated facilities and Sun will perform an MDS Audit on the remaining
10 facilities.

     -     IRO will randomly select, using RAT-STATS, 6 facilities from the
Medicare Large Claim Pool - IRO will perform an MDS Audit on these facilities.

     -     In accordance with Section III.D.2.b.v. above, at the end of Review
Year 5, the IRO will review 10% or 15 sampling units for each member of Sun's
Internal Review Team, whichever is greater. The IRO will randomly select, using
RAT-STATS, each member's sampling units.

                                                 viii.     MDS Audit. The IRO
and Sun's Internal Review Team shall perform an MDS Audit to identify any
overpayments through a variable appraisal of paid claims submitted by Sun to the
Medicare program. The MDS Audit shall be performed in accordance with the
procedures set forth in Appendix B to this CIA.

                                                 ix.     MDS Audit Report. The
IRO shall prepare a report based upon each MDS Audit performed for each facility
the IRO reviewed ("MDS Audit Report"). Sun shall prepare an MDS Audit Report for
each facility it reviewed. The MDS Audit Report shall

Page 43 of 90

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

be created in accordance with the procedures set forth in Appendix B to this CIA
and shall be submitted to OIG by Sun as part of Sun's Annual Reports.

                                                 x.     Process Reviews. The IRO
shall perform Process Reviews at Sun's nursing facilities which are selected for
MDS Audits as described above. The Process Reviews shall include a review of
Sun's claims, coding, billing and submission process and other compliance
related activities ("Process Review"). The Process Review may be performed
concurrently with the other elements of the Billing Engagement and shall include
testing or verification of Sun's Systems, processes and/or operations only when
necessary as described below in Section III.D.2.b.x.(B). The Process Review
shall consist of a thorough review and inquiry of the following:

                                                        (A)     Sun's
documentation, coding, billing and reporting operations relating to claims
submitted to all Federal health care programs. As part of this review, the IRO
is expected to evaluate the presence, application and adequacy of:

                                                                (1)     Sun's
billing and medical record documentation and coding process;

                                                                (2)     Sun's
billing policies and procedures to ensure proper coding and billing;

                                                                (3)     Sun's
internal controls to ensure accurate coding and claims submission;

                                                                (4)     Sun's
reporting operations or mechanisms that

Page 44 of 90

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

ensure appropriate communication between Sun and its fiscal intermediaries; and

                                                                (5)     corrective
action plans to correct any inaccurate coding or billing processes or individual
claim forms.

                                                        (B)     In the event Sun
or the IRO identify deficiencies in Sun's medical record documentation, coding
process, policies and procedures, internal controls, reporting mechanisms or
corrective action plans, (either through the Billing Engagement, Process Review,
internal or external audits, or fiscal intermediary review) which result, or
could result, in inappropriate billing to the federal health care programs, the
IRO shall, attempt to quantify any actual or potential underpayment or
overpayments and shall make a report to Sun (and to the OIG as described below)
that shall include the IRO's recommendations to correct the identified
deficiency. In addition, the IRO shall test the applicable Sun system(s) to
ensure the potential deficiency is not a systemic problem. Sun will correct any
identified deficiency within 3 months of the discovery of the deficiency or
provide the OIG with a reason why it cannot correct the deficiency within that
time frame. Sun will report its findings regarding any potential

Page 45 of 90

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

deficiencies and corrective actions in its Process Review Report.

                                                 xi.     Process Review Report.
The IRO shall prepare a report based upon each Process Review performed
("Process Review Report") which shall be submitted to the OIG as part of Sun's
Annual Reports. The Process Review Report shall include the IRO's findings and
supporting rationale regarding:

                                                         (A)     any identified
deficiencies in Sun's medical record documentation, coding process, policies and
procedures, internal controls, reporting mechanisms or corrective action plans;

                                                         (B)     any weakness or
potential weaknesses in Sun's medical record documentation, coding process,
policies and procedures, internal controls, reporting mechanisms or corrective
action plans; and

                                                         (C)     any
recommendations the IRO may have to improve any of these systems, operations, or
processes.

Page 46 of 90

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

                                          c.     Compliance Engagement.

                                                 i.     Compliance Review. The
IRO shall conduct a review of Sun's compliance activities ("Compliance Review").
The Compliance Review shall consist of a review of Sun's adherence to the
obligations set forth in this CIA, and a review of Sun's compliance with certain
provisions of the Settlement Agreement:

                                                        (A)     CIA Obligations
Review. The IRO shall assess and evaluate Sun's compliance with the obligations
set forth in each section of this CIA.

                                                        (B)     Unallowable
Costs Review. The IRO shall determine whether Sun 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 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 payment requests for post-petition periods. In making this
determination, the IRO may need to review cost reports and/or financial
statements from the year in which of the Settlement Agreement was executed, as
well as from previous years

Page 47 of 90

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

but shall not include any Closed Cost Years as defined in the Settlement
Agreement, or post-petition periods which are the subject of a settlement with a
state.

                                                 ii.     Compliance Review
Report. The IRO shall prepare a report based upon the Compliance Review
performed (the "Compliance Review Report"). The Compliance Review Report shall
include:

                                                        (A)     the IRO's
findings, and supporting rationale (or narrative explanation), if any, and a
summary of such findings and rationale regarding Sun's compliance with the terms
of each section of the CIA, as applicable; and

                                                        (B)     the IRO's
findings and supporting rationale (or narrative explanation) regarding whether
Sun 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.

Page 48 of 90

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

                                          d.     Validation Review. In the event
the OIG has reason to believe that: Sun's Billing or Compliance Engagement fails
to conform to the requirements of this CIA; or the findings or MDS Audit results
are believed to be inaccurate, the OIG may, at its sole discretion, conduct its
own review to determine whether the Billing and Compliance Engagements comply
with the requirements of the CIA and/or to determine if the findings or MDS
Audit results are inaccurate. Sun agrees to pay for the reasonable cost of any
such review performed by the OIG or any of its designated agents so long as it
is initiated before one year after Sun's final submission is received by the
OIG.

                    Prior to initiating a validation review, the OIG shall
notify Sun of its intent to do so with an explanation stating why the OIG
believes such a review is necessary. In order to resolve any concerns raised by
the OIG, Sun may request a meeting with the OIG to discuss the results of any
Engagement submissions; present any additional or relevant information to
clarify the results of the Engagements or to correct the inaccuracy of the MDS
Audit; and/or propose alternatives to the proposed validation review.

                    The OIG will attempt in good faith, to resolve any Billing
or Compliance Engagement and/or MDS Audit issues with Sun 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 the
OIG.

Page 49 of 90

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

                                          e.     Independence Certification. The
IRO shall include in its report(s) to Sun a certification or sworn affidavit
that it has evaluated its professional independence and/or professional
objectivity, as applicable, with regard to the Billing and Compliance
Engagements and that it has concluded that it was, in fact, independent and/or
objective, as applicable.

                            5.     Confidential Disclosure Program.

                    Sun has established a Confidential Disclosure Program, which
includes two toll-free telephone lines, known as the "Sun Quality Line" and
"Customer First Line" (collectively the "Confidential Disclosure Program"). The
Sun Quality Line has been designed and implemented for employees, contractors,
and vendors, while the Customer First Line has been designed for patients and
families. Within 90 days of the Effective Date of this CIA, Sun shall review its
Confidential Disclosure Program and ensure that it is in compliance with the
requirements of this Section. The Confidential Disclosure Program shall enable
any individual 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 Sun's policies, practices, or procedures with respect
to quality of care or a Federal health care program, believed by the individual
to be inappropriate. Sun shall publicize the existence of the Confidential
Disclosure Program, and, at a minimum shall post notice of it prominently in
common gathering areas (e.g., lobbies, dining rooms, activity rooms, waiting
rooms, employee break rooms and other locations where notices are typically
posted) in each of its facilities and locations and shall publicize it in
training and newsletters to employees.

Page 50 of 90

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

                    The Confidential Disclosure Program shall emphasize a
non-retribution, non-retaliation policy, and shall include a reporting mechanism
for anonymous, confidential communication. Upon receipt of a disclosure, the
Compliance Officer, or his/her designee, shall gather the information in such a
way as to elicit all relevant information from the disclosing individual. The
Compliance Officer, or his/her designee, shall make an 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 further review should be
conducted. For any disclosure that is sufficiently specific so that the
Compliance Officer, or his/her designee, determines further review is warranted,
the Compliance Officer, or his/her designee, shall conduct such further review
of the allegations and ensure that follow-up is conducted and that any
inappropriate or improper practice is addressed.

                    The Compliance Officer shall maintain a written record,
which shall include the date of receipt of the allegation or complaint, a
summary of each allegation or complaint received, the status of the respective
investigations, and any corrective action taken in response to the
investigation. The written record shall be made available to OIG upon request.

                            6.     Ineligible Persons.

                                   1.     Definition. For purposes of this CIA,
an "Ineligible Person" shall be any individual or entity who: (a) is currently
excluded, suspended, debarred or otherwise ineligible to participate in the
Federal health care programs; or (b) has been convicted of a criminal offense
and is subject to exclusion under 42 U.S.C. Section 1320a-7(a), but has not yet
been excluded.

Page 51 of 90

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

                                   2.     Screening Requirements. Sun currently
has policies and procedures regarding the screening of prospective Covered
Persons, contractors, and physicians who receive staff privileges to prevent the
hiring of, or contracting with, any Ineligible Person. Sun shall screen all
prospective Covered Persons and contractors prior to engaging their services,
and screen physicians prior to granting staff privileges by: (a) requiring
applicants to disclose whether they are Ineligible Persons; and (b) reviewing
the General Services Administration's List of Parties Excluded from Federal
Programs (available through the Internet at http://www.arnet.gov/epls) and the
HHS/OIG List of Excluded Individuals/Entities (available through the Internet at
http://www.hhs.gov/oig) (these lists and reports will hereinafter be referred to
as the "Exclusion Lists").

                                   3.      Review and Removal Requirement. 
Within 120 days of the Effective Date of this CIA, Sun will review its list of
current Covered Persons, contractors, and physicians with staff privileges
against the Exclusion Lists. Thereafter, Sun will review the list semi-annually.
If Sun has notice that a Covered Person, contractor, or physician has become an
Ineligible Person, Sun will remove such person from responsibility for, or
involvement with, Sun's business operations related to the Federal health care
programs and shall remove such person from any position for which the person's
salary or the items or services rendered, 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.
Semi-annual reviews performed on Sun's Covered Persons, contractors, and
physicians with staff privileges within six months prior to the

Page 52 of 90

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

Effective Date that satisfy the requirements of Section III.F.2 shall be deemed
to have met the time frame obligation imposed by this Section, but do not
obviate the semi-annual review requirements of this Section.

                                   4.     Pending Charges and Proposed
Exclusions. If Sun has notice that a Covered Person, contractor, or physician
with staff privileges is formally charged with a criminal offense related to any
Federal health care program, or is proposed for exclusion during his or her
employment or contract, Sun shall take all appropriate actions to ensure that
the responsibilities of that Covered Person, contractor, or physician do not
adversely affect the quality of care rendered to any patient or resident or the
accuracy of any claims submitted to any Federal health care program.

                            G.     Notification of Proceedings.

                    Within 30 days of discovery, Sun shall notify OIG, in
writing, of any ongoing investigation or legal proceeding conducted or brought
by a governmental entity or its agents involving an allegation that Sun 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.
Sun shall also provide written notice to OIG within 30 days of the resolution of
the matter, and shall provide OIG with a description of the findings and/or
results of the proceedings, if any.

Page 53 of 90

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

                            H.     Reporting.

                                   1.     Definition of "Overpayment." For
purposes of this CIA, an "Overpayment" shall mean the amount of money Sun has
received in excess of the amount due and payable under the Federal health care
program requirements, but shall not include periodic interim payments subject to
reconciliation upon submission of a final cost report or reconciliation of other
interim payments. Sun may not subtract any underpayments for purposes of
determining the amount of relevant "Overpayments."

                                   2.     Definition of "Material Deficiency."
For purposes of this CIA, a "Material Deficiency" means anything that involves:
(i) a substantial Overpayment relating to any Federal health care program; or
(ii) a matter that a reasonable person would consider a potential violation of
42 U.S.C. SectionSection 1320a-7, 1320a-7a, or 1320a-7b, or other criminal or
civil law related to any Federal health care program for which penalties or
exclusion may be authorized under the law. A Material Deficiency may be the
result of an isolated event or a series of occurrences.

                                   3.     Reporting of Overpayments. If, at any
time, Sun identifies or learns of any billing, reporting, or other policies,
procedures and/or practices that has resulted in an Overpayment (as herein
defined), Sun shall notify the payor (e.g., Medicare fiscal intermediary or
carrier) within 30 days of discovering the Overpayment and take remedial steps
within 60 days of discovery (or such additional time as may be agreed to by the
payor) to repay the Overpayment and correct the problem, including preventing
the underlying problem and the Overpayments from recurring. Notification and
repayment to the contractor should be done in accordance with

Page 54 of 90

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

the contractor policies, and, for Medicare contractors, must include the
information contained on the Overpayment Refund Form, provided as Appendix C to
this CIA.

                                   4.     Reporting of Material Deficiencies. If
Sun determines that there is a Material Deficiency (as defined herein), Sun
shall notify OIG within 40 days of discovering the Material Deficiency. The
report to OIG shall include:

                                          a.     A complete description of the
Material Deficiency, including the relevant facts, persons involved, and legal
and program authorities;

                                          b.     Sun's actions (and future plans
of action) to correct the Material Deficiency; and to prevent such Material
Deficiency from recurring;

                                          c.     If applicable, the information
on the Overpayment Refund Form and the payor's name, address, and contact person
where the Overpayment (if any) was sent; and

                                          d.     If applicable, the date of the
check and identification number (or electronic transaction number) on which the
Overpayment (if any was repaid).

IV.     NEW BUSINESS UNITS OR LOCATIONS

Page 55 of 90

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

                    In the event that Sun purchases or establishes new business
units that participate in any Federal health care program after the Effective
Date of this CIA, Sun shall notify OIG of this fact within 30 days of the date
of purchase or establishment. This notification shall include the type of
facility, location of the new operation(s), phone number, fax number, Federal
health care program provider number(s) (if any), and the corresponding payor(s)
(contractor specific) that has issued each provider number. All Covered Persons
and Covered Contractors at such locations shall be subject to the requirements
in this CIA that apply to new Covered Persons and Covered Contractors (e.g.,
completing certifications and undergoing training). In the case of new business
units and locations, the obligations of this CIA shall apply only to services or
activities occurring after the Effective Date of the acquisition or
establishment of the new business unit or location. Sun shall use its best
efforts to implement the requirements of this CIA in new business units or
locations that participate in any Federal health care programs as soon as
practicable. Notwithstanding any other provisions to the contrary, the terms of
this CIA shall not become effective for new business units or locations until
six months after the purchase or establishment of such new business units or
locations.

V.     IMPLEMENTATION AND ANNUAL REPORTS

                    A.     Implementation Report. Within 120 days after the
Effective Date of this CIA, Sun shall submit a written report to OIG summarizing
the status of its implementation of the requirements of this CIA. This
Implementation Report shall include:

                           1.     the name, address, phone number and position
description of all individuals

Page 56 of 90

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

in positions described in Section III.A;

                           2.     the charter for the Board Committee as
required in Section III.A.1;

                           3.     the program for internal audits and reviews
and a description of the quality of care infrastructure as required in Section
III.A.;

                           4.     a copy of Sun's Code of Conduct required by
Section III.B.l;

                           5.     a copy of the policies and procedures required
by Section III.B.2;

                           6.     a description of the training programs
required by Section III.C., including a description of the targeted audiences
and a schedule of when the training sessions were held and are to be held;

                           7.     a certification by the Compliance Officer that
to the best of his or her knowledge:

                                  a.     the policies and procedures required by
Section III.B.2 have been developed, are being implemented, and have been made
available to all appropriate Covered Persons;

                                  b.     all Covered Persons and Covered
Contractors have completed the Code of Conduct certification as required by
Section III.B.1;

                                  c.     all Covered Persons have completed the
training and executed the certification required by Section III.C; and

                                  d.     such certification may also include, if
necessary, an explanation of noncompliance.

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

                           9.     the identity of the Independent Review
Organization(s) and the proposed

Page 57 of 90

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

start and completion date of the engagements for the first year as well as the
identification of the individual members comprising Sun's Internal Review Team
and the respective credentialing information required in Section III.D.2.b;

                           10.     a summary of personnel actions taken pursuant
to Section III.F.; and

                           11.     a list of all of Sun's business units
participating in a Federal health care program (including mailing addresses),
the corresponding name under which each location is doing business, the
corresponding telephone numbers and facsimile numbers, each location's Federal
health care program provider identification numbers(s), and the name, address,
and telephone number of the payor (specific contractor) that issued each
provider identification number.

                    B.     Annual Reports. Sun shall submit to OIG an Annual
Report with respect to the status and findings of Sun's Compliance activities
over the one-year period covered by the Annual Report. Each Annual Report shall
include:

                           1.     any change in the identity or position
description of individuals in positions described in Section III.A., a change in
any of the committees' structure or charter, any change in the internal audit
and review program, or any change in the quality of care infrastructure;

                           2.     a certification by the Compliance Officer that
to the best of his or her knowledge:

                                  a.     all Covered Persons and Covered
Contractors have completed the annual Code of Conduct certification required by
Section III.B.1;

                                  b.     all Covered Persons have completed the
training and executed the

Page 58 of 90

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

certification required by Section III.C;

                                  c.     Sun has complied with its obligations
under the Settlement Agreement (i) not to resubmit to any Federal health care
program payors any previously denied claims related to conduct addressed in the
Settlement Agreement, and its obligation not to appeal any such denials of
claims; and (ii) 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 and adjust any past charges of unallowable costs;

                                  d.     Sun has effectively implemented, or is
in the process of implementing, all plans of correction related to problems
identified under this CIA, Sun's Compliance Program, or internal audits or
reviews; and

                                  e.     Such certification may also include, if
necessary, an explanation of noncompliance.

                           3.     notification of any material changes or
amendments to the policies and procedures required by Section III.B.2 and the
reasons for such changes (e.g., change in contractor policy);

                           4.     a summary of the facilities audited or
reviewed pursuant to Sun's internal audit and review program, a summary of the
findings of such audit or review, and a summary of the corrective actions taken
under the program for internal audits and reviews;

                           5.     a complete copy of the reports prepared
pursuant to the IRO's Submissions and compliance engagements, including all the
information required in Section III.D;

Page 59 of 90

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

                           6.     Sun's response/corrective action plan to any
findings by the IRO;

                           7.     Sun's response/corrective action plan to any
issues raised by the Monitor;

                           8.     a summary of Material Deficiencies and
reported throughout the course of the previous 12 months pursuant to Section
III.H, and the corresponding corrective action plans;

                           9.     a report of the aggregate Overpayments that
have been returned to the Federal health care programs that were discovered as a
direct or indirect result of implementing this CIA. Overpayment amounts shall be
broken down into the following categories: Medicare, Medicaid (report each
applicable state separately) and other Federal health care programs;

                           10.     a summary of the Sun Quality Line written
records required by Section III.E (excluding any calls that relate solely to
human resources issues);

                           11.     a description of any personnel actions (other
than hiring) taken by Sun as a result of the obligations in Section III.F, and
the name, title, and responsibilities of any person who falls within the ambit
of Section III.F.3 and 4, and the actions taken in response to the obligations
set forth in that Section;

                           12.     a summary describing any ongoing
investigation or legal proceeding conducted or brought by a governmental entity
involving an allegation that Sun has committed a crime or has engaged in
fraudulent activities, which has been reported pursuant to Section III.G. The
statement shall include a description of the allegation, the identity of the
investigating or prosecuting agency, and the status of such investigation or
legal proceeding; and

                           13.     a description of all changes to the most
recently provided list (as updated)

Page 60 of 90

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

of Sun's locations that participate in any Federal health care program
(including mailing addresses), the corresponding name under which each location
is doing business, the corresponding telephone numbers and facsimile numbers,
each location's Federal health care program provider identification numbers(s),
and the name, address, and telephone number of the payor (specific contractor)
that issued each provider identification number.

                    The first Annual Report shall be received by OIG no later
than 1 year and 120 days after the Effective Date of this CIA. Subsequent Annual
Reports shall be submitted 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, under penalty
of perjury, that: (1) Sun is in compliance with all of the requirements of this
CIA (unless the noncompliance is clearly and explicitly described in the
Implementation Report or Annual Report), to the best of his or her knowledge;
and (2) the Compliance Officer has reviewed the Report and has made reasonable
inquiry regarding its content and believes that, upon such inquiry, the
information is accurate and truthful.

Page 61 of 90

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

VI.     NOTIFICATION AND SUBMISSION OF REPORTS

                    Unless otherwise stated in writing subsequent to the
Effective Date of this CIA, all notifications and reports required under this
CIA shall be submitted to the entities listed below:

OIG

:             Civil Recoveries Branch - Compliance Unit
                        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, SW
                        Washington, DC 20201
                        Phone:  202.619.2078
                        Fax:     202.205.0604

Sun

:              Mr. Chauncey Hunker, Ph.D.
                        Corporate Compliance Officer
                        Sun HealthCare Group, Inc.
                        101 Sun Lane, N.E.
                        Albuquerque, N.M. 87109
                        Phone:  866.468.2125 (ext.6853)
                                     505.468.6853
                        Fax:      505.821.9532
                        chauncey.hunker@sunh.com

                    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 AND REVIEW RIGHTS

Page 62 of 90

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

                    In addition to any other rights OIG may have by statute,
regulation, or contract, OIG or its duly authorized representative(s), may
examine and photocopy Sun's books, records, and other documents and supporting
materials and/or conduct an on-site review of any of Sun's facilities,
locations, or operations for the purpose of verifying and evaluating: (a) Sun's
compliance with the terms of this CIA, and (b) Sun's compliance with the
requirements of the Federal health care programs in which it participates. The
documentation described above shall be made available by Sun to OIG or its duly
authorized representative(s) at all reasonable times for inspection, audit, or
reproduction. Furthermore, for purposes of this provision, OIG or its duly
authorized representative(s) may interview any of Sun's employees, contractors
or agents who consent to be interviewed at the individuals' 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. If an employee, consistent with his
or her rights and privileges, refuses to be interviewed based upon an individual
decision, Sun will not be in breach of this CIA if the interview does not occur
but Sun shall not do anything to impede the cooperation of such employee. Sun
agrees to assist OIG in contacting and arranging interviews with such
individuals upon OIG's request. Sun's employees, contractors and agents may
elect to be interviewed with or without a representative of Sun present.

VIII.     DOCUMENT AND RECORD RETENTION

                    Sun shall maintain for inspection all documents and records
relating to reimbursement from the Federal health care programs, or to
compliance with this CIA, one year longer than the term of this CIA (or longer
if otherwise required by law).

Page 63 of 90

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

IX.     DISCLOSURES AND PRIVILEGES

                    The OIG will follow all applicable Federal laws concerning
privacy and confidentiality, including the Federal Privacy Act, 5 U.S.C.
Section 552a, to the greatest extent allowed by law.

                    Consistent with HHS's Freedom of Information Act ("FOIA")
procedures, set forth in 45 C.F.R. Part 5, OIG shall make a reasonable effort to
notify Sun prior to any release by OIG of information submitted by Sun pursuant
to its obligations under this CIA and identified upon submission by Sun as trade
secrets, commercial or financial information and privileged and confidential
under the FOIA rules. Sun shall refrain from identifying any information as
trade secrets, commercial, or financial information and privileged and
confidential that does not meet the criteria for exemption from disclosure under
FOIA. With respect to the disclosure of information, Sun shall have the rights
set forth in 45 C.F.R. Section 5.65(d). OIG shall protect confidential
information under the FOIA rules to the greatest extent allowed by law. When
required, the OIG shall provide the pre-disclosure notice required pursuant to
45 C.F.R. Section 5.65(d) to the Compliance Officer at the address provided in
Section VI.

                    Nothing in this CIA, or any communication or report made
pursuant to this CIA, shall constitute or be construed as a waiver by Sun of
Sun's attorney-client, work product, peer review, or other applicable
privileges, including, without limitation, the protections contained in
42 C.F.R. Section 483.75(o). Notwithstanding that fact, the existence of any
such privilege does not affect Sun's obligation to comply with the provisions of
this CIA.

Page 64 of 90

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

X.     BREACH AND DEFAULT PROVISIONS

                    Sun is expected to fully and timely comply with all of the
obligations herein throughout the term of this CIA or other time frames herein
agreed to (subject to Sun's right to request extensions of time in accordance
with Section X.B.2).

                    A.     Stipulated Penalties for Failure to Comply with
Certain Obligations.

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

                           1.     A Stipulated Penalty of $2,500 (which shall
begin to accrue on the day after the date the obligation became due or after any
extension granted by OIG has expired) for each day Sun fails to have in place
any of the following:

                                  a.     Compliance Officer;

                                  b     Corporate Compliance Committee;

                                  c     Board Committee;

                                  d     Audit Committee;

                                  e     Compliance Liaisons;

                                  f.     a program for performing internal
audits and reviews;

                                  g.     a written Code of Conduct;

                                  h.     written policies and procedures;

                                  i.     a Training Program; and

                                  j.     a Confidential Disclosure Program.

                           2.     A Stipulated Penalty of $2,500 (which shall
begin to accrue on the day

Page 65 of 90

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

after the date the obligation became due) for each day Sun fails meet any of the
deadlines (or any extension granted by OIG) to submit the Implementation Report
or the Annual Reports to OIG.

                           3.     A Stipulated Penalty of $2,000 (which shall
begin to accrue on the date the failure to comply began) for each day Sun:

                                  a.     hires, enters into a contract with, or
grants staff privileges to an Ineligible Person after that person has been
listed by a federal agency as excluded, debarred, suspended or otherwise
ineligible for participation in the Medicare, Medicaid or any other Federal
health care program (as defined in 42 U.S.C. Section 1320a-7b(f)) (this
Stipulated Penalty shall not be demanded for any time period during which Sun
can demonstrate that it did not discover the person's exclusion or other
ineligibility after fulfilling the obligations described in Section III.F as to
the status of the person); or

                                  b.     employs, contracts with, or grants
staff privileges to an Ineligible Person and that person: (i) has responsibility
for, or involvement with, Sun's business operations related to the Federal
health care programs; or (ii) is in a position for which the person's salary or
the items or services rendered, ordered, or prescribed by the person are paid in
whole or part,

Page 66 of 90

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

directly or indirectly, by Federal health care programs or otherwise with
Federal funds (this Stipulated Penalty shall not be demanded for any time period
during which Sun can demonstrate that it did not discover the person's exclusion
or other ineligibility after fulfilling the obligations described in Section
III.F as to the status of the person).

                           4.     A Stipulated Penalty of $1,500 (which shall
begin to accrue on the date the Sun fails to grant access) for each day Sun
fails to grant access to the information or documentation as required in Section
VII of this CIA.

                           5.     A Stipulated Penalty of $1,000 (which shall
begin to accrue 10 days after the date that OIG provides notice by certified
mail to Sun of the failure to comply or any extensions granted by OIG) for each
day Sun fails to comply fully and adequately with any obligation of this CIA,
including those that are under the purview of the Monitor. In its notice to Sun,
OIG shall state the specific grounds for its determination that Sun has failed
to comply fully and adequately with the CIA obligation(s) at issue and a basis
for Sun to cure noncompliance that will be deemed acceptable to OIG before
accrual of any penalty hereunder. With respect to the Stipulated Penalty
provision described in this Section X.A.5 only, OIG shall not seek a Stipulated
Penalty if Sun cures or demonstrates to OIG' s satisfaction that the alleged
failure to comply could not be cured with the 10 day period, but that: (i) Sun
has begun to take action to cure the failure to comply; (ii) Sun is pursuing
such action with due diligence, and (iii) Sun has provided

Page 67 of 90

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

to OIG a reasonable timetable for curing the failure to comply.

                    B.     Payment of Stipulated Penalties.

                           1.     Demand Letter. Upon a finding that Sun has
failed to comply with any of the obligations described in Section X.A and
determining that Stipulated Penalties are appropriate, OIG shall notify Sun by
personal service or certified mail of: (a) Sun's failure to comply; and
(b) OIG's exercise of its contractual right to demand payment of the Stipulated
Penalties (this notification is hereinafter referred to as the "Demand Letter").

                    Within 15 days of the date of the Demand Letter, Sun 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.D. In the event Sun elects
to request an ALJ hearing, the Stipulated Penalties shall continue to accrue
until Sun cures, to OIG' s satisfaction, the alleged breach in dispute; however,
the payment of such accrued Stipulated Penalties shall remain pending until the
ALJ determination. 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.C.

                           2.     Timely Written Requests for Extensions. OIG
will reasonably consider any timely written request by Sun 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 1 day after Sun fails to meet the revised
deadline as agreed to by OIG-approved extension.

Page 68 of 90

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

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 2 business days after Sun
receives OIG's written denial of such request or when the original obligation
becomes due, whichever is later. A "timely written request" is defined as a
request in writing received by OIG at least 5 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.

                           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 otherwise noted, these provisions for payment of
Stipulated Penalties shall not affect or otherwise set a standard for OIG's
determination that Sun has materially breached this CIA, which decision shall be
made at OIG's discretion and governed by the provisions in Section X.C, below.

                   C.     Exclusion for Material Breach of this CIA.

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

                                  a.     a failure to address concerns raised by
the Monitor regarding the quality of care provided to patients or residents, as
set forth in Section III.D. of this CIA;

                                  b.     a failure by Sun to report a material
deficiency, take and enforce corrective action and pay the appropriate refunds,
as provided in Section III.D and Section III.H;

Page 69 of 90

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

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

                                  d.     a failure to respond to a Demand letter
concerning the payment of Stipulated Penalties in accordance with Section X.B
above; or

                                  e.     a failure to retain and use an IRO for
review purposes or to fund the Monitor 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 Sun constitutes
an independent basis for Sun's exclusion from participation in the Federal
health care programs (as defined in 42 U.S.C. Section 1320a-7b(f)). Upon a
determination by OIG that Sun has materially breached this CIA and that
exclusion should be imposed, OIG shall notify Sun by certified mail of:
(a) Sun's material breach and the specific nature of the 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"). The exclusion may be directed at the corporation, or one or more
individual facilities or subsidiaries, depending upon the facts of the breach.

                           3.     Opportunity to cure. Sun shall have 35 days
from the date of the Notice of Material Breach and Intent to Exclude Letter to
demonstrate to OIG's satisfaction that:

                                  a.     Sun is not in Material Breach of this
CIA;

                                  b.     the alleged material breach has been
cured; or

Page 70 of 90

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

                                  c.     the alleged material breach cannot be
cured within the 35 day period, but that: (i) Sun has begun to take action to
cure the material breach; (ii) Sun is pursuing such action with due diligence;
and (iii) Sun has provided to OIG a reasonable timetable for curing the material
breach.

                           4.     Exclusion Letter. If at the conclusion of the
35 day period, Sun fails to satisfy the requirements of Section X.C.2, OIG may
exclude the entity, entities or individual facilities identified in the Notice
of Material Breach and Intent to Exclude from participation in the Federal
health care programs. OIG will notify Sun in writing of its determination to
exclude Sun or one or more of its individual facilities or subsidiaries (this
letter shall be referred to hereinafter as the "Exclusion Letter"). Unless Sun
requests a hearing pursuant to the Dispute Resolution provisions in Section X.D,
below, the exclusion shall go into effect 30 days after the date of the
Exclusion Letter. The exclusion shall have national effect with respect to the
entities or individual facilities identified in the Notice of Material Breach
and Intent to Exclude and shall preclude such entities or individual facilities
from participating in the Federal health care programs and all other federal
procurement and non-procurement programs. If Sun or one or more of its
individual facilities or subsidiaries is excluded under the provisions of this
CIA, Sun or the individual facility or subsidiary may seek reinstatement
pursuant to the provisions at 42 C.F.R. Sections 1001.3001-.3004.

                   D.     Dispute Resolution

Page 71 of 90

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

                           1.     Review Rights. Upon OIG's delivery to Sun of
its Demand Letter or its Exclusion Letter, and as an agreed-upon contractual
remedy for the resolution of disputes arising under the obligation of this CIA,
Sun shall be afforded certain review rights comparable to the ones that are
provided in 42 U.S.C. Section 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 ALJ and, in the event of an
appeal, the Departmental Appeals Board ("DAB"), in a manner consistent with the
provisions in 42 C.F.R. Section 1005.2-1005.21. Notwithstanding the language in
42 C.F.R. Section 1005.2(c), a request for a hearing involving Stipulated
Penalties shall be made within 15 days of the date of the Demand Letter, and the
request for a hearing involving exclusion shall be made within 30 days of the
date of the Exclusion Letter.

                           2.     Stipulated Penalties Review. Notwithstanding
any provision of Title 42 of the United States Code or Chapter 42 of the Code of
Federal Regulations, the only issues in a proceeding for Stipulated Penalties
under this CIA shall be: (a) whether Sun was in full and timely compliance with
the obligations of this CIA for which OIG demands payment; (b) the period of
noncompliance; and (c) with respect to a Stipulated Penalty authorized under
Section X.A.5 only, whether the failure to comply could not be cured within the
10 day period, but that by the end of that period: (i) Sun had begun to take
action to cure the failure to comply, (ii) Sun was and is pursuing such action
with due diligence; and (iii) Sun had provided to OIG a reasonable timetable for
curing the breach which is being followed. Sun shall have the burden of

Page 72 of 90

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

proving its full and timely compliance and the steps taken to cure the
noncompliance, if any. If the ALJ finds for OIG with regard to a finding of a
breach of this CIA and orders Sun to pay Stipulated Penalties, such Stipulated
Penalties shall become due and payable 20 days after the ALJ issues such a
decision notwithstanding that Sun may request review of the ALJ decision by the
DAB.

                           3.     Exclusion Review. Notwithstanding any
provision of Title 42 of the United States Code or Chapter 42 of the Code of
Federal Regulations, the only issues in a proceeding for exclusion based on a
material breach of this CIA shall be: (a) whether Sun was in material breach of
this CIA; (b) whether such breach was continuing on the date of the Exclusion
Letter; and (c) whether the alleged material breach could not be cured within
the 35 day period, but that (i) Sun has begun to take action to cure the
material breach, (ii) Sun is pursuing such action with due diligence, and
(iii) Sun has provided to OIG a reasonable timetable for curing the material
breach.

                    For purposes of the exclusion herein, exclusion shall take
effect only after an ALJ decision that is favorable to OIG. Sun's election of
its contractual right to appeal to the DAB shall not abrogate OIG's authority to
exclude Sun upon the issuance of the ALJ's decision. 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 Sun may request review of the ALJ decision by the DAB.

Page 73 of 90

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

                           4.     Review by Other Agencies. Nothing in this CIA
shall affect the right of CMS or any other Federal or state agency to enforce
any statutory or regulatory authorities with respect to Sun's compliance with
applicable Federal and state health care program requirements.

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,
Sun and OIG agree as follows:

                    A.     This CIA shall be binding on the successors, assigns,
and transferees of Sun except that divested facilities and entities shall be
excused from the obligations under this CIA upon the assignment of a provider
agreement or upon the disposition of assets to an unrelated entity;

                    B.     This CIA shall become final and binding upon
execution on the date the final signature is obtained on the CIA and effective
upon confirmation by the Bankruptcy Court;

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

                    D.     Nothing in this CIA precludes Sun from lawfully
contesting the legality, enforceability or applicability of any Federal health
care program requirement; and

                    E.     The undersigned Sun signatory represents and warrants
that he is signing this CIA in his official capacity and that he is 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.

Page 74 of 90

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

 

ON BEHALF OF SUN HEALTHCARE GROUP, INC.

 

 

  /s/ Mark Wimer                                   July 26,
2001                              Mark Wimer Date Chief Executive Officer Sun
Healthcare Group, Inc.

 

 

  /s/ Chauncey Hunker                              July 26,
2001                              Chauncey Hunker Date Corporate Compliance
Officer Sun Healthcare Group, Inc.

 

 

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

 

 

  /s/ Lewis Morris                                   July 11,
2001                              Lewis Morris Date Assistant Inspector General
for Legal Affairs Office of Inspector General U.S. Department of Health & Human
Services

 

Page 75 of 90

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

Appendix A

Sun Monitor Task List

THIS DOCUMENT IS DESIGNED TO PROVIDE GUIDANCE TO THE MONITOR; IT MAY BE AMENDED
AT ANY TIME CONSISTENT WITH THE TERMS OF THE CORPORATE INTEGRITY AGREEMENT
("CIA"). NOTHING IN THIS TASK LIST SHOULD BE INTERPRETED TO LIMIT THE TERMS AND
CONDITIONS OF THE CIA.

1.     ANALYSIS OF THE QUALITY COMPLIANCE INFRASTRUCTURE

       A.     Board of Directors: Existence of the Board level Compliance
Committee (the "Board Committee") with a quality improvement function.

              1.     Existence of a Charter.

              2.     Analysis of whether the Charter reflects the duties and
responsibilities set forth in the CIA.

              3.     Review of Board Report(s) related to quality of care.

              4.     Review of minutes with an analysis of whether the Board
Committee is:

                     a.     carrying out the duties and responsibilities set
forth in the CIA;

                     b.     receiving the information necessary to ensure that
Sun has a system in place to respond to Federal, state, internal, and external
reports of quality of care issues and that such system functions effectively;
and

                     c.     providing the direction and support necessary to
respond to these problems in a timely and effective manner.

       B.     Corporate Compliance Committee: Existence of and Analysis

              1.     Review of individuals appointed to the Compliance Committee
to ensure that those individuals have the authority to carry out the duties and
responsibilities set forth in the CIA.

              2.     Review of the Committee Report(s) related to quality of
care.

              3.     Review of minutes and analysis of Compliance Committees'
effectiveness.

Page 76 of 90

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

                     a.     are the meetings being conducted on a regular basis?

                     b.     is the Compliance Committee receiving and analyzing
quality data reports?

                     c.     is the Compliance Committee ensuring that
investigations are being conducted where necessary to determine the scope and
severity of the problem and corrective action plans are initiated where
appropriate?

                     d.     is the Compliance Committee monitoring development
and implementation of corrective action plans, ensuring that follow up occurs,
making necessary adjustments to corrective action plans, and ensuring that such
correction is effectively maintained over time? and

                     e.     is the Compliance Committee recommending and
implementing changes to policies and procedures and training where appropriate
and necessary?

       C.     Internal Review Functions

              1.     Verify whether there exists sufficient resources to conduct
internal reviews in order to obtain data concerning the quality of care provided
to patients and residents at Sun facilities (as defined in the CIA).

              2.     Analysis of whether the individuals conducting the internal
review functions have the appropriate qualifications, have been sufficiently
trained, and are appropriately supervised.

              3.     Analysis of the effectiveness of internal review functions.

                     a.     ability to identify the problem;

                     b.     ability to determine the scope of the problem (e.g.,
is it isolated or systemic);

                     c.     ability to create corrective action plans;

                     d.     ability to execute the corrective action plans; and

                     e.     ability to evaluate whether the assessment,
corrective action plan, and execution of the plan were effective,

Page 77 of 90

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

reliable, thorough, and maintained over time.

       D.     Other Quality Compliance Infrastructure

              1.     Analysis of whether there is an infrastructure that allows
information concerning quality of care at the facilities to be communicated to
the personnel with the authority to make decisions about that information (e.g.,
are data reports being reviewed to identify potential quality problems at the
facility, regional and corporate levels).

              2.     Analysis of whether there is an infrastructure that allows
the decisions that are made concerning quality of care at the facilities to be
communicated to the personnel with the authority to carry out those decisions
and that follow up occurs to ensure that any corrective action or other
decisions are implemented and maintained over time.

              3.     Analysis of whether there is an infrastructure that allows
the personnel that are carrying out decisions to communicate the outcomes and
effectiveness of any decisions to the personnel directing such action.

              4.     Analysis of whether there are staff compensation and reward
policies that:

(a) promote quality of resident and patient care; and (b) do not inhibit the
quality of resident or patient care, and that there is an infrastructure to
effectively carry out such appropriate staff compensation and reward policies.

              5.     Assessment of whether facility site visits are occurring to
determine whether potential quality problems are being appropriately identified
and acted upon.

       E.     Effectiveness and Accessibility of the Compliance Officer, the
Compliance Staff and Senior Medical and/or Clinical Advisors.

              1.     Analysis of whether the Compliance Officer, Compliance
Staff and Senior Medical and/or Clinical Advisors are accessible when necessary
to assist in making decisions that impact the quality of care of the patients
and residents at Sun facilities.

              2.     Analysis of the involvement of the Compliance Officer, the
Compliance Staff and Senior Medical and/or Clinical Advisors in the Compliance
Committee's activities.

              3.     Analysis of whether the Compliance Officer is providing
accurate and complete reports to the Board Committee and Compliance Committee.

Page 78 of 90

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

              4.     Analysis of the effectiveness of the Compliance Officer and
the Compliance Staff and/or the Senior Medical and/or Clinical Advisors to:

                     a.     ability to identify the problem;

                     b.     ability to determine the scope of the problem (e.g.
is it isolated or systemic);

                     c.     ability to create corrective action plans;

                     d.     ability to execute the corrective action plans; and

                     e.     ability to evaluate whether the assessment,
corrective action plan, and execution of the plan were effective, reliable,
thorough, and maintained over time.

2.     ANALYSIS OF THE POLICIES AND PROCEDURES AND TRAINING

       A.     Analysis of the substance of the policies and procedures relating
to quality of care to determine if they assist the employees in providing
appropriate quality of care to the patients and residents at Sun and are in
accordance with professionally recognized standards of care.

              1.     Assessment of the clarity of policies and procedures.

              2.     Assessment of the distribution and availability of policies
and procedures.

              3.     Assessment of the enforcement of policies and procedures.

       B.     Training related to Quality of Care.

              1.     Review of training materials.

              2.     effectively communicated.

              3.     Assessment of impact over time of Sun's training program
concerning quality of care issues.

Page 79 of 90

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

3.     ANALYSIS OF QUALITY RELATED DATA

       A.     Existence of a system or systems to collect, report, analyze, and
disseminate data on quality of care, including, but not limited to, deficiency
data, MDS data, Confidential Disclosure Program or other complaints, incident,
accident, neglect, and abuse reports, CMS quality indicators, resident and
patient satisfaction surveys, JCAHO reports, and any other appropriate key
indicator variables.

              1.     Analysis of the integrity of this system or systems.

                     a.     accuracy of the data being supplied;

                     b.     system controls that maintain the accuracy of the
data;

                     c.     availability of the data to the appropriate
personnel; and

                     d.     timeliness of the data.

              2.     Existence of appropriate and adequate red flag thresholds
for use in quality improvement process.

              3.     Existence of adequate consistent reporting mechanism for
determining staffing ratios and levels.

              4.     Existence of a system to determine the level of temporary
staff usage.

              5.     Existence of a system to ensure that the incident,
accident, abuse, and neglect reports are being created and centrally maintained,
and are of a nature to allow the Quality and Ethics Committee meaningful
information to be able to determine: 1) if there is a quality of care problem;
and 2) the full scope and severity of the problem.

                     B.     Access to incident, accident, neglect, and abuse
reports to determine the accuracy of the reports.

                     C.     Analysis of whether Sun accurately determines
whether the incidents, accidents, neglect or abuse reports are related to
quality of care issues, and if so, whether they are appropriately investigated
to determine the scope and severity of the problem, and, if warranted, that
corrective action was taken.

                     D.     Analysis of whether complaints related to quality of
care (including, but not limited to, those received through the Confidential
Disclosure Program) are appropriately investigated to determine the scope and
severity of the problem, and, if warranted, that corrective action was taken and
monitored to ensure permanent correction over time.

Page 80 of 90

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

IV.     MECHANISMS TO ANALYZE THE EFFECTIVENESS AND THOROUGHNESS OF SUN'S
IMPLEMENTATION OF THE CIA.

                     A.     Access to data, employees, residents, patients as
specified in the CIA, subject to the confidentiality provisions of the CIA and
applicable law.

                     B.     Facility visits, ability to copy data, including,
but not limited to, patient/resident records and other appropriate documents,
subject to the confidentiality provisions of the CIA and applicable law.

                     C.     Attendance at Board Meetings.

                     D.     Attendance at committee meetings at the corporate,
regional, and facility level.

                     E.      Attendance at training sessions.

V.     REPORTING TO GOVERNMENT AND SUN ON MONITORING ACTIVITIES

                     A.     Quarterly reports to Sun and OIG.

                     B.     Annual reports to OIG on costs incurred.

                     C.     Reports on immediate jeopardy issues as specified in
the CIA.

                     D.     Reports on systemic or repeated problems to the
Consortium and to Sun as specified in the CIA.

Page 81 of 90

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

Appendix B

Minimum Data Set Audit Guidelines

A.     General

       1.     The IRO and Sun's Internal Review Team shall conduct Minimum Data
Set ("MDS") Audits pursuant to the schedule set forth in Section III.D.2.b.vii
of the CIA. The IRO and Sun's internal reviewers shall review paid Medicare Part
A claims from Sun's nursing facilities and shall focus on the MDS.

       2.     The MDS Audit shall consist of a variable appraisal sample (dollar
amount in error). For purposes of determining dollar amounts associated with
errors, the final sampling unit shall be a single UB-92 bill and all associated
MDS information on the UB-92 bill shall be reviewed.

       3.     The audit period for the first year MDS Audits shall be begin on
the Effective Date of the CIA and will end with the date the MDS Audit begins
for each respective Claim Pool (as identified in the annual facility selection
methodology of Section III.D.2.b.vii of the CIA) (the "Audit Period"). The Audit
Period for each subsequent MDS Audit shall begin at the end of the preceding
year's Audit Period for each Claim Pool and shall end 12 months later. For the
first MDS Audit, the universe from which the IRO and Sun will randomly select
the UB-92 bills to review will include those UB-92s that were paid and have a
date of service during the relevant Audit Period. For the remaining MDS Audits,
the universe from which the IRO and Sun will randomly select the UB-92 bills to
review will include those UB-92s that were paid during the relevant Audit
Period.

       4.     If, in any Review Year, Sun's Internal Review Team cannot perform
the number of MDS Audits required in any given year, the IRO shall perform the
remainder of the MDS Audits in that year.

       5.     Sun shall retain copies of all work papers, supporting
documentation, correspondence and draft reports, if any, (those exchanged
between the IRO and Sun) used or created in connection with the MDS Audits and
shall make such information available to OIG upon request. The IRO shall retain
and make available to the OIG, upon request, all supporting rationale for its
findings.

       6.     If Sun becomes aware that any facility (including those not
selected to be included as part of an annual MDS Audit) is potentially
experiencing non-compliance with the Federal health care program requirements
for claims submissions, Sun shall, after reasonably determining whether further
review is warranted, in addition to its other CIA obligations, conduct a review
of

Page 82 of 90

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

the potential area of non-compliance. If warranted, Sun shall develop a
corrective action plan and conduct appropriate follow-up to ensure that any
inappropriate or improper practice(s) related to claims submission is
appropriately addressed. All such instances of inappropriate or improper claims
submission, regardless of whether the facility was selected in the MDS Audit,
shall be reported to OIG, pursuant to Section III.H. of this CIA.

       7.     Consistent with the definition of Overpayment as articulated in
Section III.H.1. of the CIA, an Overpayment is the amount of money Sun has
received in excess of the amount due and payable under any Federal health care
program requirements. For the purposes of the MDS Audit and all reporting to the
OIG under this CIA, Sun shall not subtract or "net out" underpayments when
determining the amount of relevant Overpayments.

B.     Stage 1 of the MDS Audit

       1.     Conducting the probe sample audit.

              a.     A statistically valid random sample of a minimum of 30
UB-92s shall be selected, using RAT-STATS, from each facility selected for
review. If the reviewer chooses to stratify the probe sample, the strata shall
be determined prior to selecting the random sample of UB-92s and an explanation
of how the strata was determined shall be included in the MDS Audit Report.

              b.     For both the probe and full sample MDS Audits, the IRO and
Sun's Internal Review Team shall perform the following steps:

                     i.     For the first year reviews, the IRO and Sun's
Internal Review Team shall obtain a computer download (in either an ASCII, Lotus
1-2-3 or Microsoft Excel format), of the total Medicare Part A paid claims that
had dates of service during the Audit Period for each of Sun's randomly selected
nursing facilities (if a computer download is not available, then a
computer-generated printout can be used). For subsequent year reviews, the IRO
and Sun's Internal Review Team shall obtain a computer download of the total
Medicare Part A paid claims for each randomly selected facility;

                     ii.     The IRO and Sun's Internal Review Team shall
identify the universe of paid UB-92s for each nursing facility in the audit year
in accordance with Section A.3 of this Appendix. Based on the results of the
probe sample, the IRO and Sun's internal reviewers shall select a sufficient
number of sampling units to meet the parameters of Section C.1.b. of this

Page 83 of 90

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

Appendix from each nursing facility's total Medicare Part A claims population
for the full sample; and

                     iii.     The IRO and Sun's Internal Review Team shall
notify each nursing facility of the paid UB-92s that were selected for review.
The IRO and Sun's Internal Review Team shall obtain all appropriate medical
records, billing and related supporting documentation. If Sun cannot produce the
medical records or any other supporting documentation necessary to make an
accurate claim determination, the IRO or Sun's Internal Review Team shall
consider the relevant portion of the UB-92 which lacks proper documentation to
be billed in error.

              c.     The probe sample, as a whole, shall not be used as part of
the full sample during Stage 2 of the MDS Audit. The UB-92s reviewed in the
probe sample shall be included in the universe from which the full sample is
selected so that all UB-92s have an equal chance of selection in the full
sample.

              d.     The dollar difference (i.e. the amount that was paid versus
the amount that should have been paid) will be determined for each UB-92. Any
underpayment identified in the probe sample shall be treated as a "zero"
Overpayment. This dollar difference amount shall be the variable input into
RAT-STATS to determine the full sample size.

              e.     The results of the probe sample (dollar difference) shall
be used to identify nursing facilities that have exceeded a designated financial
error rate and to determine the appropriate sample sizes for the full sample MDS
Audits, when applicable. The reviewer shall input the dollar difference results
of the probe sample into RAT-STATS in order to determine the full sample size.

              f.     If the financial error rate (i.e. total dollars identified
as overpaid in the probe sample divided by total dollars paid to the facility
based on the UB-92s selected in the probe sample) does not exceed the 5%
threshold, the facility shall refund all identified Overpayments to the
appropriate payor. If the financial error rate exceeds the 5% threshold, a full
sample will be evaluated for that facility.

       2.     Selection of facilities for Stage 2 of the MDS Audit.

Page 84 of 90

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

             a.     The IRO and Sun's Internal Review Team shall conduct Stage 2
of the MDS Audit for each individual nursing facility selected as part of the
probe sample for which the financial error rate in Stage 1 was greater than 5%.

              b.     The 5% financial error threshold only applies to criteria
for sample expansion, not for extrapolation of an error rate. If the financial
error rate exceeds 5%, the universe shall be comprised of all sampling units for
that facility, including those sampling units that were selected as part of the
probe.

C.     Stage 2 of the MDS Audit

       1.     Selecting the full sample.

              a.     Stage 2 shall consist of reviewing a full sample of UB-92s
that have been randomly selected from the applicable Audit Period using
RAT-STATS.

              b.     The full sample shall contain a sufficient number of
sampling units to generate results that provide, at a minimum, a 90% confidence
interval and a maximum precision (relative precision i.e., semi-width of the
confidence interval) of plus or minus 25% of the point estimate (i.e., the upper
and lower bounds of the 90% confidence interval shall not exceed 125% and shall
not fall below 75% of the midpoint of the confidence interval, respectively).

       2.     Conducting the claims review.

              a.     The IRO shall assist Sun's Internal Review Team with the
development of the necessary MDS Audit tools and with executing the appropriate
sampling methodology.

              b.     For each UB-92 selected in Stage 1 and Stage 2, the IRO and
Sun's Internal Review Team shall review the MDS and the medical record
documentation supporting the MDS. The review process shall entail an evaluation
of the MDS and verification that each entry that affects the RUG code outcome
for the MDS is supported by the medical record for the corresponding period of
time consistent with the assessment reference date ("ARD") specified on the MDS.

              c.     The IRO and Sun's Internal Review Team shall perform the
steps identified in Section B.1.b of this Appendix.

 Page 85 of 90

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

             d.     The IRO and Sun's Internal Review Team shall perform an
evaluation of the data on the UB-92 and determine whether the variables that
affect the RUG assignment outcome for the MDS are supported by the medical
record for the corresponding time period consistent with the assessment
reference date specified in the MDS. This shall include the following issues:

                      i.     The accuracy of the MDS coding and the resulting
RUG category selection based on the documentation within the medical record. The
review of the MDS and related documentation shall include the following:

                            -     assessment reference date for accuracy;

                            -     activities of daily living and the look-back
period used;

                            -     special treatments and procedures along with
the look-back periods;

                            -     nursing restorative with look-back periods;

                            -     supplement for PPS with look-back periods used
(e.g., estimated therapies and minutes for the 5-Day MDS); and

                            -     resulting RUG category.

                      ii.     The demonstration of medical necessity in the
medical record by verifying the presence of physician orders for the services
reflected as necessary in the MDS;

                      iii.     The accuracy of the associated UB-92s. At a
minimum these claims shall be reviewed for the following:

                            -     coverage period;

                            -     revenue codes;

                            -     HIPPS codes (RUG categories and the modifiers
for assessment type); and

                            -     Units of service.

              e.     In those cases where an incorrect MDS has been identified,
the IRO and Sun's Internal Review Team shall re-enter data from that MDS into
Sun's or the IRO's grouper software to verify that the correct RUG code
assignment was properly assigned on the UB-92. If an incorrect RUG code was
assigned, this shall be considered an error.

              f.     If there is insufficient support for an MDS data point(s)
that results in a downward change in RUG assignment, the IRO and Sun's Internal
Review Team should consider the dollar difference to be an Overpayment.

Page 86 of 90

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

              g.     If an incorrect RUG was used, but it did not result in an
Overpayment, it will be noted in the Audit Report.

D.     MDS Audit Report

. The following information shall be included for each MDS Audit in the MDS
Audit Report:

        1.     MDS Audit Methodology

              a.     MDS Audit Objective: A clear statement of the objective
intended to be achieved by the MDS Audit.

              b.     Sampling Unit: A description of the Item, as that term is
utilized for the MDS Audit. In accordance with Section A.2 of this Appendix, the
sampling unit for the first year shall be paid UB92s with a date of service
during the relevant Audit Period. For the remaining years, the sampling unit
shall be paid UB-92s during the relevant Audit Period.

              c.     MDS Audit Population: A description of the Population
subject to the MDS Audit.

              d.     Sampling Frame: A description of the sampling frame, which
is the totality of Items from which the probe and full sample have 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.     Sources of Data: A description of the documentation relied
upon by the IRO and Sun's Internal Review Team when performing the MDS Audit
(e.g., medical records, physician orders, certificates of medical necessity,
requisition forms, local medical review policies, CMS program memoranda,
Medicare carrier or intermediary manual or bulletins, other policies,
regulations, or directives).

              f.     Review Protocol: A narrative description of how the MDS
Audit was conducted and what was evaluated.

        2.     Statistical Sampling Documentation

              a.     The number of sampling units appraised in each probe sample
and in each full sample.

Page 87 of 90

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

              b.     A copy of all RAT-STATS printouts of the random numbers
generated by the "Random Numbers" function.

              c.     A copy of all RAT-STATS printouts of the "Sample Size
Estimators" results used to calculate the minimum number of Items for inclusion
in the full samples.

              d.     A copy of all RAT-STATS printouts of the "Variable
Appraisals," "Difference Values Only" function results for each Probe Sample,
including a copy of the data files.

              e.     The Sampling Frame used in the probe sample(s) and full
samples will be available to the OIG upon request.

        3.     MDS Audit Results

              a.     For each MDS Audit, the total number and percentage of
instances in which the IRO and Sun's Internal Review Team determined that the
paid UB-92s submitted by Sun and reimbursed by the fiscal intermediary differed
from what should have been submitted by Sun and reimbursed by the fiscal
intermediary (the "Correct UB-92"), regardless of the effect on the payment.

              b.     For each MDS Audit, the total number and percentage of
instances in which the UB-92 submitted differed from the Correct UB-92 and in
which such difference resulted in an Overpayment to Sun.

              c.     For each MDS Audit, the total dollar amount of all paid
claims in the MDS Audit Sample and the total dollar amount of Overpayments
associated with the paid claims identified by the MDS Audit. (This is the total
dollar amount of the Overpayments identified in Section B.3.b above.) The IRO
and Sun's Internal Review Team may identify underpayments, but any underpayments
identified during the MDS Audit shall not be offset or "netted out" of the total
dollar amount of paid claims or of the Overpayments when reporting these amounts
in the MDS Audit Report to the OIG.

              d.     The level of precision achieved by the MDS Audit at a 90%
confidence level.

              e.     A spreadsheet of the MDS Audit results (for both the probe
and full samples) that includes the following information for each paid claim
appraised: Federal health care program billed, beneficiary health insurance
claim number, date of service, MDS procedure code

Page 88 of 90

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

submitted, procedure code reimbursed, allowed amount reimbursed by payor,
correct procedure code (as determined by the IRO and Sun's Internal Review
Team), correct allowed amount (as determined by the IRO and Sun's Internal
Review Team), dollar difference between allowed amount reimbursed by payor and
the correct allowed amount.

        4.     Credentials.

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

E.     Annual Report

       Sun shall report the findings from all of the MDS Audits (the "MDS Audit
Report") described above as part of its Annual Report. The OIG may obtain
documentation from the IRO and Sun regarding the work that has been performed on
these audits, to assist the OIG in determining the appropriateness of the
findings.

 

Page 89 of 90

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

Appendix C

Overpayment Refund Form

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,
WorkersComp.(Including 16 - Medical Necessity 05 - ModifierAdded/Removed       
Black Lung) 17 - Other (Please Specify) 06 - Billed in Error 12 - Veterans
Administration                                                   07 - Corrected
CPT Code