SETTLEMENT AGREEMENT

This Settlement Agreement (“Agreement”) is entered into among the United States
of America, acting through the United States Department of Justice and on behalf
of the Office of Inspector General (“OIG-HHS”) of the Department of Health and
Human Services (“HHS”) (collectively the “United States”), The Ensign Group,
Inc., a Delaware corporation, and several of its Medicare-certified operating
subsidiaries identified on Schedule A, each of which is a party hereto
(collectively “Ensign”) and Carol Jean Sanchez and Gloria Patterson (“Relators”)
(hereafter collectively referred to as “the Parties”), through their authorized
representatives.
RECITALS
A. The Ensign Group, Inc. is a Delaware corporation with its principal place of
business in Mission Viejo, California. The Ensign Group subsidiaries which are
parties hereto are Nevada corporations or limited liability companies, each with
its own unique principal place of business, and are healthcare providers
certified to participate in federal healthcare programs. These
Medicare-certified operating subsidiaries operate individual skilled nursing
facilities which provide medical services to beneficiaries of the federal
Medicare program.

B. On October 31, 2006 Gloria Patterson filed a qui tam action in the United
States District Court for the Central District of California captioned United
States ex rel. Patterson v. Ensign Group, Inc., et al, CV06-6956 pursuant to the
qui tam provisions of the False Claims Act, 31 U.S.C. §3730(b). On July 12,2006
Carol Jean Sanchez filed a qui tam action in the Central District of California
captioned United States ex rel. Sanchez v. Ensign Group, Inc., CV06-0643 (the
“Civil Actions”). Both Complaints alleged that Ensign subsidiaries throughout
the United States overcharged the Medicare program by billing for services not
provided and for unnecessary services.

C. Ensign submitted or caused to be submitted claims for payment to the Medicare
Program (Medicare), Title XVIII of the Social Security Act, 42 U.S.C. §§1395-
1395kkk-l.

D. The United States contends that it has certain civil claims against six of
the Ensign operating subsidiaries arising from the submission of false claims
during the period from January 1, 1999 through August 31,2011 for payment to
Medicare that sought payment under the Medicare PPS system for skilled nursing
facilities. The United States alleges that the claims were false in that they
sought reimbursement based on levels of rehabilitation therapy that either (1)
was not provided; (2) was medically unnecessary; and/or (3) was inflated on
Minimum Data Set forms despite therapy logs that document less therapy. The
United States also alleges that the claims were false in that admission of
certain patients was not medically necessary and that certain patients remained
in the facility as in-patients for periods of time that exceeded what was
medically necessary. The six Ensign operating subsidiaries are Atlantic Memorial
Healthcare Associates, Inc., d/b/a Atlantic Memorial Healthcare Center, Provider
No. 05-5744; Ensign Panorama LLC d/b/a Panorama Gardens, Provider No. 05-6337;
Ensign Whittier West LLC d/b/a The Orchard Post-Acute Care (aka Royal Court),
Provider No. 05-5706; HB Healthcare Associates LLC d/b/a Sea Cliff Healthcare
Center, Provider No. 55-5249; Southland Management LLC d/b/a Southland Care
Center, Provider No. 55-5070; and Victoria Ventura Healthcare LLC d/b/a Victoria
Care Center, Provider j No. 55-5478. The United States further contends that
Ensign and its operating subsidiaries knew or should have known that the
operating subsidiaries were submitting or causing the submission of these false
claims because the corporate culture at certain Ensign subsidiaries improperly
incentivized therapists and others to increase the amount of therapy provided to
patients in order to meet allegedly planned targets for Medicare revenue. The
United States contends that these targets were set without regard to patients'
individual therapy needs and could only be achieved by billing at the Ultra High
or Very High RUG levels and/or by keeping patients on service for extended
periods regardless of individual patient needs. Such conduct is referred to
below as the Covered Conduct.

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

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

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

TERMS AND CONDITIONS

1. Ensign shall pay to the United States $48,000,000.00 (“Settlement Amount") no
later than 30 days after the Effective Date of this Agreement by electronic
funds transfer pursuant to written instructions to be provided by the office of
the United States Attorney for the Central District of California.

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

2. Ensign shall pay to Relators the aggregate amount of $630,000.00 no later
than 30 days after the Effective Date of this Agreement by electronic funds
transfer pursuant to written instructions to be provided jointly by Relators'
counsel, in full satisfaction of any obligation Ensign may have to pay
reasonable attorneys' fees or costs under 31 U.S.C. §3730(d). Said instructions
shall designate the portion of the aggregate amount to be paid to each Relator.

3. Subject to the exceptions in Paragraph 5 below, and conditioned upon Ensign’s
full payment of the Settlement Amount, the United States (on behalf of itself,
its officers, agents, agencies, and departments) releases Ensign and each of its
current and former officers, directors, employees, agents, shareholders and
attorneys; its current and former parent corporations; each of its direct and
indirect subsidiaries; brother or sister corporations; divisions and affiliates
and the successors and assigns of any of them from any civil or administrative
monetary claim the United States has for the Covered Conduct under (1) the False
Claims Act, 31 U.S.C. §§3729-3733; (2) the Civil Monetary Penalties Law, 42
U.S.C. §1320a-7a; (3) the Program Fraud Civil Remedies Act, 31 U.S.C.
§§3801-3812; (4) the common law and/or equitable theories of recovery of payment
by mistake, unjust enrichment, and fraud.

4. Subject to the exceptions in Paragraph 6 below (concerning excluded claims),
and conditioned upon Ensign’s full payment of the Settlement Amount, Relators,
for themselves and for their heirs, successors, attorneys, agents, and assigns,
release Ensign, its respective past, present, and future parent companies,
subsidiaries, divisions, affiliates, related entities, predecessors, successors,
partners, members, directors, officers, trustees, employees, owners, attorneys,
legal representatives, agents, benefit plans, subrogees, insurers, heirs,
executors, representatives and assigns, jointly and severally, of and from any
and all claims, causes of actions, debts, suits, rights of action, dues, sums of
money, accounts, liabilities, losses, and expenses, including without limitation
attorneys’ fees, charges, liens, bills, covenants, contracts, controversies,
agreements, promises, damages, judgments, executions, demands or obligations of
any kind or nature whatsoever, matured or unmatured, known or unknown,
liquidated or unliquidated, absolute or contingent, at law, equity, or otherwise
including but not limited to, any civil monetary claim the Relators have or may
have on behalf of the United States pursuant to the False Claims Act, 31 U.S.C.
§§3729-3733.

5. In consideration of the obligations of Ensign in this Agreement and the
Corporate Integrity Agreement (CIA), entered into between OIG-HHS and Ensign,
and conditioned upon Ensign’s full payment of the Settlement Amount, the OIG-HHS
agrees to release and refrain from instituting, directing, or maintaining any
administrative action seeking exclusion from Medicare, Medicaid, and other
Federal health care programs (as defined in 42 U.S.C. §1320a-7b(f)) against
Ensign under 42 U.S.C. §1320a-7a (Civil Monetary Penalties Law) or 42 U.S.C.
§1320a-7(b)(7) (permissive exclusion for fraud, kickbacks, and other prohibited
activities) for the Covered Conduct, except as reserved in Paragraph 6
(concerning excluded claims), below, and as reserved in this Paragraph. The
OIG-HHS expressly reserves all rights to comply with any statutory obligations
to exclude Ensign from Medicare, Medicaid, and other Federal health care
programs under 42 U.S.C. §1320a-7(a) (mandatory exclusion) based upon the
Covered Conduct. Nothing in this Paragraph precludes the OIG-HHS from taking
action against entities or persons, or for conduct and practices, for which
claims have been reserved in Paragraph 6, below.

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

(a)Any liability arising under Title 26, U.S. Code (Internal Revenue Code);
(b)Any criminal liability;
(c)Except as explicitly stated in this Agreement, any administrative liability,
including mandatory exclusion from Federal health care programs;
(d)Any liability to the United States (or its agencies) for any conduct other
than the Covered Conduct; and
(e) Any liability based upon obligations created by this Agreement.

7.Relators and their heirs, successors, attorneys, agents, and assigns shall not
object to this Agreement but agree and confirm that this Agreement is fair,
adequate, and reasonable under all the circumstances, pursuant to 31 U.S.C.
§3730(cX2)(B). In connection with this Agreement and these Civil Actions,
Relators and their heirs, successors, attorneys, agents, and assigns agree that
neither this Agreement, any intervention by the United States in the Civil
Action in order to dismiss the Civil Action, nor any dismissal of the Civil
Action, shall waive or otherwise affect the ability of the United States to
contend that provisions in the False Claims Act, including 31 U.S.C.
§§3730(d)(3) and 3730(e), bar Relators from sharing in the proceeds of this
Agreement. Moreover, the United States and Relators and their heirs, successors,
attorneys, agents, and assigns agree that they each retain all of their rights
pursuant to the False Claims Act on the issue of the share percentage, if any,
that Relators should receive of any proceeds of the settlement of their claims.

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

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

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

10. Ensign fully and finally releases the Relators and their attorneys, and
their respective successors, assigns and agents, from any claims, causes of
actions, debts, suits, rights of action, dues, sums of money, accounts,
liabilities, losses, and expenses, including without limitation attorneys’ fees,
charges, liens, bills, covenants, contracts, controversies, agreements,
promises, damages, judgments, executions, demands or obligations of any kind or
nature whatsoever, matured or unmatured, known or unknown, liquidated or
unliquidated, absolute or contingent, at law, equity, or otherwise that Ensign
has asserted, could have asserted or may assert in the future against Relators
or their attorneys related to the investigation and prosecution of the Civil
Actions.

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

12.Ensign agrees to the following:

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

(i) the matters covered by this Agreement;
(ii) the United States’ audit(s) and civil and criminal investigations of the
matters covered by this Agreement;
(iii) Ensign’s investigation, defense, and corrective actions undertaken in
response to the United States' audit(s) and civil and criminal investigations in
connection with the matters covered by this Agreement (including attorneys' fees
and expenses);
(iv) the payment Ensign makes to the United States pursuant to this Agreement
and any payments that Ensign may make to Relators, including costs and
attorneys' fees; and
(v) the negotiation of, and obligations undertaken pursuant to the
CIA to:
(1) retain an independent review organization to perform annual reviews as
described in the CIA; and
(2) prepare and submit reports to the OIG-HHS, are unallowable costs for
government contracting purposes and under the Medicare Program, Medicaid
Program, TRICARE Program, and Federal Employees Health Benefits Program (FEHBP)
(hereinafter referred to as Unallowable Costs). However, nothing in paragraph
12(a)(v) that may apply to the obligations undertaken pursuant to the CIA
affects the status of costs that are not allowable based on any other authority
applicable to Ensign.
(b) Future Treatment of Unallowable Costs: Unallowable Costs shall be separately
determined and accounted for by Ensign, and Ensign shall not charge such
Unallowable Costs directly or indirectly to any contracts with the United States
or any State Medicaid program, or seek payment for such Unallowable Costs
through any cost report, cost statement, information statement, or payment
request submitted by Ensign or any of its subsidiaries or affiliates to the
Medicare, Medicaid, TRICARE, or FEHBP Programs.

(c)Treatment of Unallowable Costs Previously Submitted for Payment:
Ensign further agrees that within 90 days of the Effective Date of this
Agreement it shall identify to applicable Medicare and TRICARE fiscal
intermediaries, carriers, and/or contractors, and Medicaid and FEHBP fiscal
agents, any Unallowable Costs (as defined in this Paragraph) included in
payments previously sought from the United States, or any State Medicaid
program, including, but not limited to, payments sought in any cost reports,
cost statements, information reports, or payment requests already

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

submitted by Ensign or any of its subsidiaries or affiliates, and shall request,
and agree, that such cost reports, cost statements, information reports, or
payment requests, even if already settled, be adjusted to account for the effect
of the inclusion of the Unallowable Costs. Ensign agrees that the United States,
at a minimum, shall be entitled to recoup from Ensign any overpayment plus
applicable interest and penalties as a result of the inclusion of such
Unallowable Costs on previously-submitted cost reports, information reports,
cost statements, or requests for payment.

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

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

13. This Agreement is intended to be for the benefit of the Parties only. The
Parties do not release any claims against any other person or entity, except to
the extent provided for in Paragraph 11 (waiver for beneficiaries paragraph),
below.

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

15.Upon receipt of the payment described in Paragraph 1, above, the Parties
shall promptly sign and file in the Civil Actions Joint Stipulations of
Dismissal of the Civil Actions pursuant to Rule 41(a)(1).

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

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

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

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

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

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

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

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

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

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