<PAGE>

                                                                    EXHIBIT 10.4

                       SETTLEMENT AGREEMENT AND RELEASE
                       --------------------------------

                                  I.  PARTIES
                                      -------

     This Settlement Agreement ("Agreement") is entered by and among:

     A. The United States of America, acting through its Department of Justice
and the United States Attorney's Office for the District of Massachusetts, and
on behalf of the United States Department of Health and Human Services ("HHS")
through its office of Inspector General ("HHS-OIG") (collectively the "United
States"); and  B.  National Medical Care, Inc. ("NMC"), a Delaware corporation
and a wholly owned subsidiary of Fresenius Medical Care Holdings, Inc. including
its Dialysis Services Division ("DSD"); Clinical Diagnostic Systems, Inc.
("CDS"), a Florida corporation and wholly owned subsidiary of NMC; NMC
Diagnostic Services, Inc. ("DSI"), a Delaware corporation and wholly owned
subsidiary of NMC; Bio-Medical Applications Management Company, Inc. ("BMAMC");
NMC's and BMAMC's subsidiary entities that provide dialysis services ("Dialysis
Facilities") including those listed on the attached Exhibit E; and Fresenius
Medical Care Holdings, Inc. ("FMCH")(d/b/a Fresenius Medical Care North
America).

     Collectively, all of the above will be referred to as "the Parties".

                                 II.  PREAMBLE
                                      --------
<PAGE>

     A.   WHEREAS, at all relevant times, NMC primarily was in the business of
providing dialysis and related services to patients with End-Stage Renal Disease
("ESRD") throughout the United States.

     B.   WHEREAS, NMC, CDS, DSI, DSD and the Dialysis Facilities submitted or
caused to be submitted ESRD claims for payment to the Medicare program, Title
XVIII of the Social Security Act, 42 U.S.C. (S)(S) 1395-1395ddd (1997), which is
administered by HHS;

     C.   WHEREAS, the United States contends that it has certain civil claims
against NMC, CDS, DSI, DSD and the Dialysis Facilities, and against FMCH as
parent, for violations of the federal statutes and/or common law doctrines
specified in Paragraph 8 of the Terms and Conditions below, in connection with
the following conduct ("the Covered Conduct"):

     1.   Doppler Flow Test Clinical Study
          ---------------------------------

     a.   Beginning in 1991, NMC, through DSD, planned and carried out a
clinical cohort and intervention study involving color flow doppler ultrasound
examination ("Doppler Flow Tests" or "DFTs") of hemodialysis access sites of
various patients at the Dialysis Facilities. The purpose of the DFT clinical
study included determining if baseline DFTs could be a predictor of access
failure, assessing the interrelationships and effects which hematocrit and EPO
dose have on the probability of access failure given a specified DFT profile,
and determining the correlation of vascular access disease progression. The
results of this study were published in 1998 in the American Journal Of
Nephrology in an article entitled, Predicting Hemodialysis Access
<PAGE>

Failure with Color Flow Doppler Ultrasound. The DFTs involved in this study were
performed during the period approximately July 1991 to April 1994.

     b.   NMC, DSI, CDS, BMAMC, and the Dialysis Facilities submitted or caused
to be submitted claims to the Medicare Program seeking reimbursement for the
technical component of the DFTs performed in the DFT clinical study.  Such
claims/billings were improper because the tests were conducted for research
purposes, and/or were not otherwise reasonable and medically necessary for the
diagnosis or treatment of illness or injury or to improve the functioning of a
malformed body member for the patient(s) for whom the claim was submitted and
the service billed.   In addition, NMC, DSI, CDS, DSD, and the Dialysis
Facilities caused individual physicians to submit claims to Part B of the
Medicare Program seeking reimbursement for the professional or interpretation
component of the DFTs performed in the DFT clinical study.  Such claims/billing
were improper because the underlying technical components were not reimbursable.
<PAGE>

     2.   Bioelectrical Impedance Analysis Test Clinical Study
          ----------------------------------------------------

     a.   From approximately January 1, 1995 through June 30, 1995, NMC through
DSD, carried out Phase II of a clinical study involving bioelectrical impedance
analysis ("BIA") tests. This phase involved providing one or more BIA tests to
various patients at the Dialysis Facilities.  The purpose of this BIA clinical
study was to assess if BIA test results predict mortality and to assess
correlations with other nutritional measurements.

     b.   NMC, DSI, CDS, BMAMC, and the Dialysis Facilities submitted or caused
to be submitted claims to the Medicare Program seeking reimbursement for the
technical component for the BIA tests performed as part of the BIA Clinical
Study.  Such claims/billings were improper because the tests were conducted for
research purposes, and/or were not otherwise reasonable and medically necessary
for the diagnosis or treatment of illness or injury or to improve the
functioning of a malformed body member for the patient for whom the claim was
submitted and the service billed.

               Medical Director Compensation
               -----------------------------

          The United States also contends that it has certain civil claims
against NMC for violations of the federal statutes and/or common law doctrines
enumerated in Paragraph 9 of the Terms and Conditions below, for compensation
paid or offered to physicians for serving as the medical directors of BMA
dialysis facilities, to the extent that this compensation
<PAGE>

reflected services rendered for years through 1994, under contracts entered into
prior to December 31, 1994.

     D.   WHEREAS, the United States also contends that it has certain
administrative claims against CDS, DSI, NMC, DSD, the Dialysis Facilities, and
against FMCH, as parent, under the provisions for permissive exclusion from the
Medicare, Medicaid and other federal health care programs, 42 U.S.C. (S) 1320a-
7(b), and the provisions for civil monetary penalties, 42 U.S.C. (S) 1320a-7a,
for the Covered Conduct.

     E.   WHEREAS, NMC, CDS, DSI, DSD, the Dialysis Facilities, and FMCH
specifically deny and affirmatively contest the contentions of the United States
as set forth in Preamble Paragraph C, above, and specifically deny any
wrongdoing in connection with those claims; and further contend that their
practices described in the Covered Conduct, were appropriate and lawful and did
not result in any violations of federal law, state law, or common law doctrines,
and do not give rise to any civil or administrative cause of action; and

     F.   WHEREAS, in order to avoid the delay, uncertainty, inconvenience and
expense of protracted litigation of these claims, the Parties reach a full and
final compromise of claims that the United States has against NMC, CDS, DSI, DSD
and the Dialysis Facilities and FMCH as parent, for the Covered Conduct,
pursuant to the Terms and Conditions set forth below.

                          III.  TERMS AND CONDITIONS
                                --------------------

     NOW, THEREFORE, in reliance on the representations contained herein and in
consideration of the mutual promises, covenants,
<PAGE>

and obligations in this Agreement, and for good and valuable consideration,
receipt of which is hereby acknowledged, the Parties agree as follows:

     1.   NMC and FMCH, collectively, shall pay to the United States the sum of
two million eight hundred thirty five thousand thirty two dollars ($2,835,032)
("the Settlement Amount"), and this sum shall constitute a debt immediately due
and owing to the United States on the "First Payment Date", which is the later
of the dates on which (a) the four civil Settlement Agreements are fully
executed by the Parties, (b) all notices of dismissal described in the civil
Settlement Agreements are docketed by the Court, or (c) the Court accepts
LIFECHEM, INC.'s, NMC Medical Products, Inc.'s, and NMC Homecare, Inc.'s guilty
pleas and imposes the sentences set forth in their respective Plea Agreements.
NMC and FMCH, collectively, shall pay the Settlement Amount to the United States
according to the schedule, terms and instructions contained in the Promissory
Note executed contemporaneously with this Agreement, attached as Exhibit A, and
incorporated herein by reference.

     2.   As an express condition of the Settlement Agreement, to secure NMC's
and FMCH's payment obligations under Paragraph 1 of this Agreement (and the
other civil Settlement Agreements and criminal Plea Agreements being executed at
the same time), NMC and FMCH shall:

          (a)  procure from the Bank of Nova Scotia and deliver or cause to be
delivered to the United States Attorney's Office for the District of
Massachusetts, on or before January 19, 2000, an
<PAGE>

amendment to the unconditional, irrevocable Letter of Credit No. S020/43695/96
issued to the United States of America on September 27, 1996 (the "Letter of
Credit") to increase the amount of the Letter of Credit to $189,634,446.00. Such
amendment shall be in the form attached as Exhibit B. Within 10 days of receipt
by the U.S. Attorney's Office of written confirmation from the transferring bank
that a quarterly payment or prepayment of such quarterly payments, has been made
to the United States, the United States shall provide written permission to the
Bank of Nova Scotia to reduce the amount available for drawing under Letter of
Credit No. S020/43695/96 by the amount of the principal payment received. In the
event that the entire outstanding payment obligation secured by the Letter of
Credit is prepaid, then the United States shall provide written permission to
reduce the amount available for drawing to zero. The United States shall return
this Letter of Credit for cancellation when all obligations are paid in full or
it is determined, by the United States, or pursuant to a final and non-
appealable order of a court of competent jurisdiction, that NMC and FMCH have
fulfilled all payment obligations pursuant to this Agreement.

          (b)  On January 19, 2000, NMC and FMCH shall establish an escrow
account in an initial amount of $236,401,919.00 to be held by an independent
third party agreeable to the United States, and NMC and FMCH shall increase the
escrow amount each day in an amount of $48,546.00 (through accrued interest
and/or deposits), beginning on January 20, 2000 and continuing through April 15,
2000, when NMC and FMCH shall increase the escrow
<PAGE>

amount by an additional amount each day of $7,271.00 (through accrued interest
and/or deposits), for each quarterly payment due before the first payment is due
on the First Payment Date. On the First Payment Date, all funds in the escrow
account shall be paid to the United States to satisfy the payment obligation in
Paragraph 1. The terms and conditions of this escrow account shall in no way
limit NMC's and FMCH's payment obligations to the United States secured by the
Letter of Credit.

     3.   NMC and FMCH are in default of this Agreement on
the date of occurrence of any of the following events ("Events of Default"):

          a.   NMC's and FMCH's failure to procure, deliver or maintain the
Letter of Credit;

          b.   Failure by NMC's and FMCH's failure to pay any amount provided
for in the Promissory Note attached as Exhibit A within 2 days of when such
payment is due and payable;

          c.   If prior to making the full payment of the amount due under the
Promissory Note or Paragraph 1 above,(i) NMC and/or FMCH commences any case,
proceeding, or other action (A) under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have any order for
relief of debtors, or seeking to adjudicate NMC and/or FMCH as bankrupt or
insolvent, or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for NMC and/or FMCH or for all or any substantial part of NMC's
and/or FMCH's assets; or (ii) there shall be commenced against NMC and/or FMCH
any such case, proceeding or other action referred to in clause (i) which
<PAGE>

results in the entry of an order for relief and any such order remains
undismissed, or undischarged or unbonded for a period of thirty (30) days; or
(iii) NMC and/or FMCH takes any action authorizing, or in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth above in this sub-Paragraph 3.c.;

          d.   NMC's and FMCH's failure to establish, maintain or
make the required payments to the escrow account described in Paragraph 2b.

     1.   If payments due under Paragraph 1 are received late, but within the
          two-day grace period provided in Paragraph 5.b. of the Promissory
          Note, interest incurred during such grace period will be assessed at
          two times the daily amount in effect on the date the payment was due.

               5.   NMC and FMCH shall provide the United States written notice
          of an Event of Default within two (2) business days of such event by
          overnight mail, or facsimile followed by overnight delivery, to the
          United States Attorney's Office, District of Massachusetts, One
          Courthouse Way, Suite 9200, Boston, MA 02210, Attention: Suzanne E.
          Durrell, Assistant U.S. Attorney (or to the attention of such other
          person as may be designated in writing by the United States Attorney's
          Office).

               6.   Immediately upon the occurrence of an Event of Default,
<PAGE>

          without further notice or presentment and demand by the United States:

                    a.   The Settlement Amount plus accrued interest through the
          end of the applicable quarter as set forth in Paragraph 1 of the
          Promissory Note (minus any payments to date of principle and accrued
          interest) shall become immediately due and payable ("Settlement
          Default Amount").  Interest shall be calculated on the Settlement
          Default Amount at the Prime Rate as published in the Wall Street
                                                               -----------
          Journal on the Effective Date of this Agreement plus 5% from the date
          -------
          of the Event of Default.

                    b.   In addition, NMC and FMCH will pay the United States
          all reasonable costs of collection and enforcement of this Agreement,
          including attorney's fees and expenses, plus interest described in
          Paragraph 6.a. above. The Settlement Default Amount, plus interest,
          described in Paragraph 6.a. above, together with the costs of
          collection and enforcement described in this sub-paragraph, will be
          referred to as the "Default Obligation".

               7.   Upon the occurrence of an Event of Default, the United
          States may exercise, at its sole option, one or more of the following
          rights:

                    a.   The United States may draw the full amount available
          for drawing under the Letter of Credit and retain all proceeds
          thereof.
<PAGE>

                    b.   The United States may enforce the terms of the
          Guarantee Agreement between the United States of America, Fresenius
          Medical Care GMBH, a German corporation and the predecessor of
          Fresenius Medical Care AG, W.R. Grace & Co., a New York corporation,
          and National Medical Care, Inc., dated July 31, 1996, attached as
          Exhibit C.

                    c.   The United States retains any and all other rights and
          remedies it has or may have under law and equity.

                    d.   No failure or delay on the part of the United
          States to exercise any right or remedy shall operate as a waiver of
          the United States' rights.  No single or partial exercise by the
          United States of any right or remedy shall operate as a waiver of the
          United States' rights.

               8.   In an Event of Default under Paragraph 3.c. above
          (Commencement of Bankruptcy or Reorganization Proceeding):       a.
          NMC and FMCH agree not to contest or oppose any motion filed by the
          United States seeking relief from or modification of the automatic
          stay of 11 U.S.C. (S) 362(a); not to seek relief under 11 U.S.C. (S)
          105 to enjoin or restrain the United States from recovering monies
          owed by NMC and FMCH arising out of this Agreement or the attached
          Promissory Note, or from recovering monies through presentment against
          the
<PAGE>

          Letter of Credit.  NMC and FMCH recognize that this express waiver
          is in consideration for the settlement of claims by the United States
          described in Paragraph C above, under the terms and conditions
          contained in this Settlement Agreement.

                    b.   By expressly waiving the automatic stay provision, NMC
          and FMCH agree not to oppose or interfere with any motion made in
          federal court (including bankruptcy courts) by the United States to
          suspend payments to NMC and DSD from the Title XVIII (Medicare), Title
          XIX (Medicaid) programs, and other federal health care programs;

                    c.   This Agreement shall be voidable at the sole
          option of the United States;

                    d.   If any term(s) of this Agreement are set aside for any
          reason, including as a result of a preference action brought pursuant
          to 11 U.S.C. (S) 547, the United States, at its sole option and in its
          discretion, may rescind all terms of this Agreement and seek recovery
          of the full amount of claims and allegations identified herein and in
          the Civil Actions, or, in the alternative, enforce the remaining terms
          of this Agreement.  In the event of rescission of this Agreement, all
          Parties reserve all rights, claims, and defenses that are available
          under law and equity as of the Effective Date of this Agreement; and
<PAGE>

                    e.   In addition to the rights enumerated in Paragraph 8.a.
          through 8.d. above, the United States and all other Parties shall
          retain all rights and claims they have or may have under law and
          equity.

               9.   Subject to the exceptions and limitations in Paragraph 10
          below, in consideration of the obligations of NMC and FMCH set forth
          in this Agreement, conditioned upon payment in full of the Settlement
          Amount, subject to Paragraph 23 (concerning bankruptcy proceedings
          commenced within 91 days of any payment under this Agreement), the
          United States, on behalf of itself, and its officers, agents,
          agencies, and departments, will release and will be deemed to have
          released FMCH, BMAMC, NMC, DSI, CDS, the Dialysis Facilities and their
          parents, and the affiliates and subsidiaries listed on the attached
          Exhibit D (collectively, the parties described in Preamble Paragraph B
          and the corporate entities listed on Exhibit D constitute the NMC
          Companies within the meaning of this Agreement), and the current
          directors, officers, employees, and agents of the NMC Companies who
          were not employed by or in any way affiliated with DSD, NMC, or NMC's
          parents, subsidiaries, divisions, or affiliates at any time prior to
          September 30, 1996, from any civil or administrative monetary claim
          (including recoupment claims) that the United States
<PAGE>

          has or may have under the False Claims Act, 31 U.S.C. (S)(S) 3729-
          3733; the Program Fraud Civil Remedies Act, 31 U.S.C. (S)(S) 3801-
          3812; the Civil Monetary Penalties Law, 42 U.S.C. (S) 1320a-7a; or
          common law claims for fraud, payment by mistake of fact, breach of
          contract or unjust enrichment for the conduct described in Preamble
          Paragraph C above with respect to Medicare.

               10.  Notwithstanding any term of this Agreement, the United
          States specifically does not release the NMC Companies, or any
          individual from any and all of the following:  (a) any potential
          criminal, civil or administrative claims arising under Title 26, U.S.
          Code (Internal Revenue Code); (b) any criminal liability; (c) any
          potential liability to the United States (or any agencies thereof) for
          any conduct other than that identified in Preamble Paragraph C above;
          (d) any entities not specifically included on
<PAGE>

          the list of NMC entities set forth in Exhibit D; (e) any claims based
          upon such obligations as are created by this Agreement; (f) except as
          explicitly stated in this Agreement, any administrative liability,
          including mandatory exclusion from Federal health care programs; (g)
          any express or implied warranty claims or other claims for defective
          or deficient products and services provided by DSD, DSI, CDS, or the
          Dialysis Facilities including quality of testing or product claims;
          (h) any claims for personal injury or property damage or for other
          consequential damages arising from the conduct described in Paragraph
          C above; (i) any claims based upon failure to deliver items or
          services; (j) any civil or administrative claims against any
          individual who was an officer, director, trustee, agent, employee, or
          was in any way affiliated with CDS, DSI, DSD, NMC, or NMC's parents,
          subsidiaries, divisions, or affiliates at any time prior to September
          30, 1996; or (k) any civil or administrative claims against any
          individual, including current directors, officers, employees and
          agents who receives written notification that he or she is a target of
          the criminal investigation, who is criminally indicted or convicted of
          an offense, or who enters a criminal plea related to the conduct
          alleged in Preamble Paragraph C above.

               11.  FMCH, on behalf of itself and its parents, affiliates,
          subsidiaries, and divisions, including but
<PAGE>

          not limited to NMC, has entered into a Corporate Integrity Agreement
          with HHS-OIG, which is incorporated by reference into this Agreement.
          FMCH will immediately upon execution of this Agreement implement its
          obligations under the Corporate Integrity Agreement.

               12.  In consideration of the obligations of NMC and FMCH set
          forth in this Agreement, conditioned upon payment in full of the
          Settlement Amount, subject to Paragraph 23 below (concerning
          bankruptcy proceedings commenced within 91 days of any payment under
          this Agreement), and conditioned upon FMCH's entering into the
          Corporate Integrity Agreement, the OIG-HHS agrees to release and
          refrain from instituting, directing, or maintaining any administrative
          claim or any action seeking exclusion from the Medicare, Medicaid or
          other Federal health care programs (as defined in 42 U.S.C. (S) 1320a-
          7b(f)) against the NMC Companies and the current directors, officers,
          employees, and agents of the NMC Companies who were not employed by or
          in any way affiliated with CDS, DSI, DSD, the Dialysis Facilities,
          NMC, or any of NMC's parents, subsidiaries, divisions, or affiliates
          at any time prior to September 30, 1996, under 42 U.S.C. (S) 1320a-7a
          (Civil Monetary Penalties Law) or 42 U.S.C. (S) 1320a-7(b) (permissive
          exclusion) for the conduct described in Preamble Paragraph C, except
          as reserved in Paragraph 10 above and as
<PAGE>

          reserved in this Paragraph. The OIG-HHS expressly reserves all rights
          to comply with any statutory obligations to exclude the NMC Companies
          from the Medicare, Medicaid, or other Federal health care programs
          under 42 U.S.C. (S) 1320a-7(a)(mandatory exclusion). Nothing in this
          Paragraph precludes the OIG-HHS from taking action against entities or
          individuals for conduct and practices for which civil claims have been
          reserved in Paragraph 10 above.

               13.  The NMC Companies waive and will not assert any defenses
          these entities may have to any criminal prosecution or administrative
          action relating to the conduct described in Preamble Paragraph C,
          which defenses may be based in whole or in part on a contention that,
          under the Double Jeopardy Clause of the Fifth Amendment of the
          Constitution or Excessive Fines Clause of the Eighth Amendment of the
          Constitution, this Settlement Agreement bars a remedy sought in such
          criminal prosecution or administrative action.  The NMC Companies
          further agree that nothing in this Agreement is punitive in purpose or
          effect.

               14.  The NMC Companies covenant to cooperate fully and
          truthfully with the United States' civil investigation of individuals
          and entities not specifically released in this Agreement.  Upon
          reasonable notice, the NMC Companies will make reasonable efforts to
          facilitate
<PAGE>

          access to, and encourage the cooperation of, its directors, officers,
          and employees for interviews and testimony, consistent with the rights
          and privileges of such individuals, and will furnish to the United
          States, upon reasonable request, all non-privileged documents and
          records in its possession, custody or control.

               15.  On the effective date of this Agreement, the NMC Companies
          release and will be deemed to have released the United States, its
          agencies, employees, servants, and agents from any claims (including
          attorneys fees, costs, and expenses of every kind and however
          denominated) which the NMC Companies have or may have against the
          United States, its agencies, employees, servants, and agents, related
          to or arising from the United States' civil, criminal and
          administrative investigation and prosecution of DSD, DSI, CDS, the
          Dialysis Facilities, NMC and FMCH involving the conduct specified in
          Paragraph C of the Preamble.

               16.  The Settlement Amount that NMC and FMCH must pay pursuant to
          Paragraph 1 of this Agreement will not be decreased as a result of the
          denial of claims for payment now being withheld from payment by any
          Medicare carrier or intermediary, Railroad Retirement Medicare
          carrier, TRICARE, Federal Employees Health Benefits Program ("FEHBP"),
          or Veteran's Administration
<PAGE>

          ("VA"), or any Medicaid payor, related to the conduct described in
          Preamble Paragraph C; and the NMC Companies agree not to resubmit to
          any Medicare carrier or intermediary, Railroad Retirement Medicare
          carrier, TRICARE, FEHBP, VA, or any Medicaid payor any previously
          denied claims related to the conduct described in Preamble Paragraph
          C, and agree not to appeal any such denials of claims.

               17.  The NMC Companies agree that all costs (as defined in the
          Federal Acquisition Regulations ("FAR") (S) 31.205-47 and in Titles
          XVIII and XIX of the Social Security Act, 42 U.S.C. (S)(S) 1395-
          1395ddd (1997) and 1396-1396v(1997), and the regulations promulgated
          thereunder) incurred by or on behalf of the NMC Companies, and their
          divisions, subsidiaries and affiliates, and their present and former
          officers, directors, employees, shareholders and agents in connection
          with:  (a) the matters covered by this Agreement; (b) the Government's
          audits, administrative, civil and criminal investigation and
          prosecution of CDS, DSI, DSD, the Dialysis Facilities, NMC, and FMCH;
          (c) these corporate entities' investigation, defense, and corrective
          actions undertaken in response to the Government's administrative,
          civil and criminal investigations, and in connection with the matters
          covered by this Agreement, and including the obligations undertaken
          pursuant to the Corporate
<PAGE>

          Integrity Agreement (including attorney's fees); (d) the negotiation
          and performance of this Agreement, and the Corporate Integrity
          Agreement; and (e) the payments made to the United States provided for
          in this Agreement, are unallowable costs on Government contracts and
          under Medicare, Railroad Retirement Medicare, Medicaid, TRICARE,
          FEHBP, and the VA programs (hereafter, "unallowable costs"). These
          unallowable costs will be separately estimated and accounted for by
          the NMC Companies and these entities will not charge such unallowable
          costs directly or indirectly to any contracts with the United States
          or any Medicaid program, or seek payment for such unallowable costs
          through any cost report, cost statement, information statement or
          payment request submitted by the NMC Companies or any of their
          divisions, subsidiaries or affiliates to the Medicare, Railroad
          Retirement Medicare, Medicaid, TRICARE, VA or FEHBP programs.

               The NMC Companies further agree that within 270 days of the
          effective date of this Agreement these entities will identify to
          applicable Medicare, Railroad Retirement Medicare, and TRICARE fiscal
          intermediaries, carriers and/or contractors, and Medicaid, VA and
          FEHBP fiscal agents, any unallowable costs (as defined above) included
          in payments previously sought from the United States, or any Medicaid
          Program, including, but not limited to, payments sought in any cost
          reports, cost
<PAGE>

          statements, information reports, or payment requests already submitted
          by the NMC Companies or any of their subsidiaries, affiliates, or
          divisions and will 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. The NMC Companies agree that the United States will
          be entitled to recoup from the NMC Companies any overpayment 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 the NMC Companies, or any of their subsidiaries, affiliates or
          divisions, on the effect of inclusion of unallowable costs (as defined
          above) on the NMC Companies or any of their subsidiaries, affiliates
          or divisions' cost reports, cost statements or information reports.
          Nothing in this Agreement shall constitute a waiver of the rights of
          the United States to examine or reexamine the unallowable costs
          described above.

               18.  This Agreement is intended to be for the benefit of the
          Parties only, and by this instrument the
<PAGE>

          Parties do not release any claims against any other person or entity
          except as specifically identified in Paragraphs 9 and 11, above.

               19.  The NMC Companies agree that they will not seek payment for
          any of the health care billings covered by this Agreement from any
          health care beneficiaries or their parents, sponsors, estates, heirs,
          successors or assigns.  The NMC Companies waive any causes of action
          against these beneficiaries or their parents, sponsors, estates,
          heirs, successors, or assigns based upon the claims for payment
          covered by this Agreement.

               20.  Nothing in this Agreement constitutes an agreement by the
          United States concerning the characterization of the amounts paid
          hereunder for purposes of any proceeding under Title 26 of the
          Internal Revenue Code.

               21.  Except as provided in Paragraph 6, each party to this
          Agreement will bear its own legal and other costs incurred in
          connection with this matter, including by way of example only, all
          costs incurred in the investigation and defense of this matter, the
          preparation and performance of this Agreement, and all corrective
          actions taken in response to the investigation and resolution of this
          matter.

               22.  NMC and FMCH expressly warrant that they have reviewed their
          financial condition and that they
<PAGE>

          currently are solvent on a consolidated basis within the meaning of 11
          U.S.C. Section 547(b)(3), and expect to remain solvent on a
          consolidated basis following payment to the United States hereunder.
          Further, the Parties expressly warrant that, in evaluating whether to
          execute this Agreement, the Parties (a) have intended that the mutual
          promises, covenants and obligations set forth herein constitute a
          contemporaneous exchange for new value given to NMC and FMCH within
          the meaning of 11 U.S.C. Section 547(c)(1), and (b) have concluded
          that these mutual promises, covenants, and obligations do, in fact,
          constitute such a contemporaneous exchange.

               23.  In the event NMC or FMCH commences, or a third party
          commences, within 91 days of any payment under of this Agreement, any
          case, proceeding, or other action (i) under any law relating to
          bankruptcy, insolvency, reorganization or relief of debtors, seeking
          to have any order for relief of NMC and/or FMCH's debts, or seeking to
          adjudicate NMC and/or FMCH as bankrupt or insolvent, or (ii) seeking
          appointment of a receiver, trustee, custodian or other similar
          official for NMC and/or FMCH or for all or any substantial part of NMC
          and/or FMCH's assets, NMC and FMCH agree as follows:

                    a.   NMC and FMCH's obligations under this Agreement may
          not be avoided pursuant to 11 U.S.C.
<PAGE>

          Section 547, and NMC and FMCH will not argue or otherwise take the
          position in any such case, proceeding or action that: (i) NMC and/or
          FMCH's obligations under this Agreement may be avoided under 11 U.S.C.
          Section 547; (ii) NMC and FMCH were insolvent on a consolidated basis
          at the time this Agreement was entered into, or became insolvent on a
          consolidated basis as a result of the payment made to the United
          States hereunder; or (iii) the mutual promises, covenants and
          obligations set forth in this Agreement do not constitute a
          contemporaneous exchange for new value given to NMC and/or FMCH.

                    b.   In the event that NMC and/or FMCH's obligations
          hereunder are avoided pursuant to 11 U.S.C. Section 547, the United
          States, at its sole option, may rescind the releases in this
          Agreement, and bring any civil and/or administrative claim, action or
          proceeding against NMC, CDS, DSI, DSD, the Dialysis Facilities, and
          the NMC Companies and/or FMCH for the claims that would otherwise be
          covered by the releases provided in Paragraphs 9 and 11 above.  If the
          United States chooses to do so, CDS, DSI, DSD, the Dialysis
          Facilities, NMC and FMCH agree that (i) any such claims, actions or
          proceedings brought by the United States (including any proceedings to
          exclude any of the NMC Companies from participation in Medicare,
          Medicaid, or other federal health care programs) are not subject
<PAGE>

          to an "automatic stay" pursuant to 11 U.S.C. Section 362(a) as a
          result of the action, case or proceeding described in the first clause
          of this Paragraph, and that CDS, DSI, DSD, the Dialysis Facilities,
          NMC and FMCH will not argue or otherwise contend that the United
          States' claims, actions or proceedings are subject to an automatic
          stay; (ii) that CDS, DSI, DSD, the Dialysis Facilities, NMC and FMCH
          will not plead, argue or otherwise raise any defenses under the
          theories of statute of limitations, laches, estoppel or similar
          theories, to any such civil or administrative claims, actions or
          proceeding which are brought by the United States within 90 calendar
          days of written notification to NMC and FMCH that the releases herein
          have been rescinded pursuant to this Paragraph, and (iii) the United
          States has a valid claim against CDS, DSI, DSD, the Dialysis
          Facilities, NMC and FMCH in the amount of the Default Obligation and
          the United States may pursue its claims in any case, action, or
          proceeding.

                    c.   CDS, DSI, DSD, the Dialysis Facilities, NMC and FMCH
          acknowledge that their agreements in this Paragraph are provided in
          exchange for valuable consideration provided in this Agreement.

               24.  CDS, DSI, DSD, the Dialysis Facilities, NMC and FMCH
          represent that this Agreement is freely and
<PAGE>

          voluntarily entered into without any degree of duress or compulsion
          whatsoever.

               25.  This Agreement is governed by the laws of the United
          States.  The Parties agree that the exclusive jurisdiction and venue
          for any disputes arising between and among the Parties under this
          Agreement will be the United States District Court for the District of
          Massachusetts, except that disputes arising under the Corporate
          Integrity Agreement shall be resolved exclusively upon the dispute
          resolution provisions set forth in the Corporate Integrity Agreement.

               26.  The undersigned CDS, DSI, DSD, the Dialysis Facilities, NMC
          and FMCH signatories represent and warrant that they are authorized by
          their respective Board of Directors to execute this Agreement.  The
          undersigned United States signatories represent that they are signing
          this Agreement in their respective official capacities and that they
          are authorized to execute this Agreement.

               27.  Except for the representations in Paragraph 21 (regarding
          solvency), and Paragraph 23 (concerning bankruptcy proceedings
          commenced within 91 days of any payments under this Agreement), the
          Parties agree that nothing in this Agreement constitutes an admission
          by any person or entity with respect to any issue of law or fact.
<PAGE>

               28.  This Agreement is effective on the date of signature of the
          last signatory to the Agreement (the "Effective Date").

               29.  This Agreement shall be binding on all successors,
          transferees, heirs and assigns.

               30.  This Agreement, together with Exhibits A through E,  and
          the Corporate Integrity Agreement, constitute the complete agreement
          among the Parties with regard to the conduct described in Preamble
          Paragraph C.  This Agreement may not be amended except by written
          consent of the Parties, except that only FMCH and OIG-HHS must agree
          in writing to modification of the Corporate Integrity Agreement.

               31.  This Agreement may be executed in counterparts, each of
          which shall constitute an original and all of which shall constitute
          one and the same Agreement.
<PAGE>

                         THE UNITED STATES OF AMERICA
                         ----------------------------


          By:  /s/ Suzanne E. Durrell             Dated:  January 18, 2000
               --------------------------                 ----------------
               SUZANNE E. DURRELL
               Assistant U.S. Attorney
               District of Massachusetts

          By:  /s/ Patricia M. Connolly           Dated:  January 18, 2000
               --------------------------                 ----------------
               PATRICIA M. CONNOLLY
               Special Assistant U.S. Attorney
               District of Massachusetts

          By:  /s/ Maya Guerra                    Dated:  January 18, 2000
               --------------------------                 ----------------
               MAYA GUERRA
               Trial Attorney
               Civil Division
               U.S. Department of Justice

          By:  /s/ Lewis Morris                   Dated:      1/18/00
               --------------------------                 ------------------
               LEWIS MORRIS
               Assistant Inspector General
               Office of Inspector General
               U.S. Department of Health and
                    Human Services
<PAGE>

                      CLINICAL DIAGNOSTIC SYSTEMS, INC.,
                        NMC DIAGNOSTIC SERVICES, INC.,
               Bio-Medical Applications Management Company, Inc.
                          NATIONAL MEDICAL CARE, INC.
                     FRESENIUS MEDICAL CARE HOLDINGS, INC.


          By:  /s/ Ben J. Lipps                   Dated:    1/18/00
               ------------------------                  --------------------
               Ben J. Lipps
               President
               Clinical Diagnostic Systems, Inc.

          By:  /s/ Ben J. Lipps                   Dated:    1/18/00
               ------------------------                  --------------------
               Ben J. Lipps
               President
               NMC Diagnostic Services, Inc.

          By:  /s/ Ben J. Lipps                   Dated:    1/18/00
               ------------------------                  --------------------
               Ben J. Lipps
               President
               Bio-Medical Applications Management Company, Inc.

          By:  /s/ Ben J. Lipps                   Dated:    1/18/00
               ------------------------                   --------------------
               Ben J. Lipps
               President
               National Medical Care, Inc.

          By:  /s/ Ben J. Lipps                   Dated:    1/18/00
               ------------------------                   --------------------
               Ben J. Lipps
               President
               Fresenius Medical Care Holdings, Inc.
<PAGE>

          Acknowledged:
          -------------

          By: /s/ Jonathan E. Chiel       Dated: January 18, 2000
             --------------------------         -------------------
               JONATHAN CHIEL
               Counsel to Clinical Diagnostic
               Systems, Inc., NMC BMA Management Co.,
               NMC Diagnostic Services, Inc.
               National Medical Care, Inc.
               Fresenius Medical Care Holdings, Inc.

          By: /s/ Alan E. Reider          Dated: 1/18/00
             --------------------------         -------------------
               ALAN E. REIDER
               Counsel to Clinical Diagnostic
               Systems, Inc., NMC Diagnostic
               Services, Inc., NMC BMA Management Co.,
               National Medical Care, Inc.
               Fresenius Medical Care Holdings, Inc.

<PAGE>

                                   EXHIBIT A
                               (Promissory Note)

The Promissory Note dated January 19, 2000 from National Medical Care, Inc. and
Fresenius Medical Care Holdings, Inc. payable to the order of the United States
is incorporated by reference to Exhibit A of Exhibit 10.2 to this Current Report
on Form 8-K.


<PAGE>

                                   EXHIBIT B
          (Amendment to Irrevocable Nontransferable Letter of Credit)

The Amendment to Irrevocable Nontransferable Letter of Credit dated January 19,
2000 issued by the Bank of Nova Scotia, Atlanta Agency to the United States is
incorporated by reference to Exhibit B of Exhibit 10.2 to this Current Report
on Form 8-K.
<PAGE>
                                   EXHIBIT C
                                  (Guarantee)

The Guarantee Agreement dated as of July 31, 1996 among Fresenius Medical Care
GmbH, the predecessor of Fresenius Medical Care AG, National Medical Care, Inc.,
W.R. Grace & Co. and the United States of America, is incorporated by reference
to the Company's Registration Statement on Form S-4 (Registration No. 333-09497)
dated August 2, 1996 and the exhibits thereto.


<PAGE>

                                   EXHIBIT D
                    (List of Fresenius Affiliated Entities)

The List of Fresenius Affiliated Entities is incorporated by reference to
Exhibit D of Exhibit 10.2 to this Current Report on Form 8-K.
<PAGE>

                                   EXHIBIT E

<TABLE>
<CAPTION>
                          FACILITIES IN BIA STUDY

LOCATION          CORPORATE NAME                                          FACILITY
<C>               <S>                                                     <C>
1629              BIO-MEDICAL APPLICATIONS OF MA.,INC.                    WALTHAM
1110              BIO-MEDICAL APPLICATIONS OF MA.,INC.                    BOSTON - TKC
1109              BIO-MEDICAL APPLICATIONS OF MA.,INC.                    FRAMINGHAM
1654              BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC.        SMITHFIELD
1656              BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC.        ROANOKE RAPIDS
1688              BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC.        CLINTON
1498              BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC.        ROCKY MOUNT
1653              BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC.        RALEIGH
1358              BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC.        KINSTON
1652              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          PARKVIEW
1087              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          HARRISBURG
1380              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          NW PHILADELPHIA
1176              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          GREENSBURG
1175              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          PITTSBURGH
1122              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          SW PENN
1726              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          MOUNT PLEASANT
1683              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          UNIONTOWN
1209              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          HAZELTON
1123              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          POTTSVILLE
1395              BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.          FAIRMOUNT
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                              FACILITIES IN DFT COHORT STUDY

LOCATION           CORPORATE NAME                                         FACILITY NAME
<C>                <S>                                                    <C>
1605               BIO-MEDICAL APPLICATIONS OF MICHIGAN, INC.             ADRIAN
1273               BIO-MEDICAL APPLICATIONS OF OHIO, INC.                 AKRON
1481               BIO-MEDICAL APPLICATIONS OF INDIANA, INC.              ANDERSON
1253               BIO-MEDICAL APPLICATIONS OF MICHIGAN, INC.             ANN ARBOR
1181               BIO-MEDICAL APPLICATIONS OF MARYLAND, INC.             ANNAPOLIS
1277               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             ARLINGTON
1178               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         BUTLER
1356               BIO-MEDICAL APPLICATIONS OF MARYLAND, INC.             CAMP SPRINGS
1112               BIO-MEDICAL APPLICATIONS OF MA.,INC.                   CAPE COD
1272               BIO-MEDICAL APPLICATIONS OF OHIO, INC.                 CENTRAL OHIO \ COLUMBUS
1639               BIO-MEDICAL APPLICATIONS OF OHIO, INC.                 CENTRAL OHIO EAST
1389               BIO-MEDICAL APPLICATIONS OF MA.,INC.                   CHICOPEE
1224               BIO-MEDICAL APPLICATIONS OF FLORIDA, INC.              DELTONA
1265               BIO-MEDICAL APPLICATIONS OF MICHIGAN, INC.             DETROIT
1119               BIO-MEDICAL APPLICATIONS OF DC, INC.                   DUPONT CIRCLE
1441               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             EASTERN VIRGINIA
1682               BIO-MEDICAL APPLICATIONS OF WEST VIRGINIA, INC.        ELKINS
1667               BIO-MEDICAL APPLICATIONS OF MICHIGAN, INC.             FLINT
1433               BIO-MEDICAL APPLICATIONS OF OHIO, INC.                 GRANT PARK
1176               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         GREENSBURG
1300               BIO-MEDICAL APPLICATIONS OF INDIANA, INC.              INDIANAPOLIS
1298               BIO-MEDICAL APPLICATIONS OF JERSEY CITY, INC.          JERSEY CITY
1418               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         KITTANNING
1625               BIO-MEDICAL APPLICATIONS OF MARYLAND, INC.             LA PLATA
1108               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         LATROBE
1354               BIO-MEDICAL APPLICATIONS OF MARYLAND, INC.             LAUREL
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                              FACILITIES IN DFT COHORT STUDY

LOCATION           CORPORATE NAME                                         FACILITY NAME
<C>                <S>                                                    <C>
1355               BIO-MEDICAL APPLICATIONS OF MARYLAND, INC.             LEONARDTOWN
1263               BIO-MEDICAL APPLICATIONS OF MICHIGAN, INC.             LIVONIA
1250               BIO-MEDICAL APPLICATIONS OF KENTUCKY, INC.             LOUISVILLE
1487               BIO-MEDICAL APPLICATIONS OF MANCHESTER, INC.           MANCHESTER
1262               BIO-MEDICAL APPLICATIONS OF OHIO, INC.                 MANSFIELD
1362               BIO-MEDICAL APPLICATIONS OF INDIANA, INC.              MARION COUNTY
1606               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         MON VALLEY
1680               BIO-MEDICAL APPLICATIONS OF WEST VIRGINIA, INC.        MORGANTOWN
1417               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         NEW CASTLE
1450               BIO-MEDICAL APPLICATIONS  OF NEW HAMPSHIRE, INC.       NEW HAMPSHIRE
1361               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             NEW RIVER VALLEY
1397               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             NORTH ROANOKE
1466               BIO-MEDICAL APPLICATIONS OF NORTHEAST DC, INC.         NORTHEAST D.C.
1132               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             NORTHERN VIRGINIA AT ALEXANDRIA
1663               BIO-MEDICAL APPLICATIONS OF MICHIGAN, INC.             OWOSSO
1175               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         PITTSBURGH
1170               BIO-MEDICAL APPLICATIONS OF RHODE ISLAND, INC.         PROVIDENCE
1106               BIO-MEDICAL APPLICATIONS OF NEW YORK, INC.             QUEENS
1601               ROCKWOOD DIALYSIS CENTER, INC.                         RICHMOND
1133               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             ROANOKE
1340               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             SMYTH COUNTY
1480               BIO-MEDICAL APPLICATIONS OF KENTUCKY, INC.             SOMERSET
1324               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         SOUTH HILLS
1635               BIO-MEDICAL APPLICATIONS OF KENTUCKY, INC.             SOUTH LOUISVILLE
1377               BIO-MEDICAL APPLICATIONS OF SOUTH QUEENS, INC.         SOUTH QUEENS
1633               BIO-MEDICAL APPLICATIONS OF OHIO, INC.                 SOUTH SUMMIT
1434               BIO-MEDICAL APPLICATIONS OF INDIANA, INC.              SOUTHERN INDIANA
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                              FACILITIES IN DFT COHORT STUDY

LOCATION           CORPORATE NAME                                         FACILITY NAME
<C>                <S>                                                    <C>
1122               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         SOUTHWESTERN PENN.
1111               BIO-MEDICAL APPLICATIONS OF MA., INC.                  SPRINGFIELD
1488               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             STERLING
1195               BIO-MEDICAL APPLICATIONS OF VIRGINIA, INC.             SUFFOLK
1604               TAPPAHANNOCK DIALYSIS CENTER, INC.                     TAPPAHANNOCK
1386               BIO-MEDICAL APPLICATIONS OF PENNSYLVANIA, INC.         THREE RIVERS
1602               WEST END DIALYSIS CENTER, INC.                         WEST END
1490               BIO-MEDICAL APPLICATIONS OF KENTUCKY, INC.             WEST LOUISVILLE
1307               BIO-MEDICAL APPLICATIONS OF WOONSOCKET, INC.           WOONSOCKET
</TABLE>