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                                                                    EXHIBIT 10.1

                              CONSULTING AGREEMENT

      THIS CONSULTING AGREEMENT is made as of the 1st day of January, 2004, by
and between SELECT MEDICAL CORPORATION, a Delaware corporation (the "Company"),
and THOMAS SCULLY, an individual ("Consultant").

                                   WITNESSETH:

      WHEREAS, the Company desires the services of Consultant, and Consultant is
willing to be engaged by the Company in a consulting capacity as an independent
contractor, upon and subject to the terms and conditions set forth herein.

      NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto, intending to be legally bound hereby, agree as follows:

      1.    Engagement. The Company hereby engages Consultant, and Consultant
hereby accepts such engagement, on and subject to the terms and conditions set
forth herein, to serve the Company in a consulting capacity.

      2.    Term. The period of service of Consultant to the Company will be for
a term of one year commencing on January 1, 2004 and terminating on December 31,
2004 (the "Consulting Period"). Either party hereto may terminate this Agreement
at any time, without cause, after giving the other party hereto thirty (30)
days' prior written notice of such decision. The Company will also be entitled
to immediately terminate this Agreement, for cause, if any of the following
events shall occur:

            (a)   Consultant dies or becomes disabled to such an extent that
Consultant cannot perform his duties hereunder;

            (b)   Consultant engages in criminal, unethical, immoral or
fraudulent conduct, in the good faith opinion of the Company, or Consultant is
found guilty of such conduct by any court or governmental agency of competent
jurisdiction;

            (c)   The observed use of illegal drugs by Consultant at any time or
place or the abuse of alcohol or the appearance, in the good faith determination
of the Company, of Consultant being under the influence of drugs and/or alcohol
on the premises of the Company or any client of the Company, during any time
during which Consultant is performing services for the Company, or the good
faith determination of the Company that Consultant is addicted to drugs or
alcohol;

            (d)   Consultant's gross negligence or willful misconduct in the
performance of the duties and services required of Consultant; or

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            (e)   Intentional refusal by Consultant to perform any duty
reasonably required of Consultant hereunder for a continuous period of three (3)
calendar days after delivery of written notice thereof to Consultant by the
Company.

Upon termination of this Agreement, Consultant shall be entitled only to the
compensation payable under Section 4 of this Agreement accruing through the date
of termination.

      3.    Duties.

            (a)   Subject to the terms and conditions hereinafter provided, the
Company engages Consultant to provide regulatory advice and government relations
services as such services are from time to time identified by the Company's
Chief Executive Officer ("CEO") with the concurrence of Consultant. During the
term of this Agreement, Consultant shall report to the CEO. If agreed upon
between the CEO and Consultant, Consultant will perform such additional or
different duties and services appropriate to Consultant's abilities. Consultant
shall at all times comply with, and be subject to, such reasonable policies,
procedures, rules and regulations as the Company may establish from time to
time.

            (b)   During the Consulting Period, Consultant shall use his best
efforts to preserve and promote the name, reputation and business of the
Company. Consultant agrees that at all times during and after the Consulting
Period he shall take no action which would adversely affect the name, reputation
or business of the Company.

      4.    Compensation. As total and exclusive compensation for consulting
services rendered hereunder, the Company agrees to pay Consultant compensation
under this Agreement at an annual rate of $75,000, payable in monthly
installments of $6,250 during the Consulting Period on the first day of each
month.

      5.    Expenses. All reasonable and customary expenses incurred by
Consultant in performance of the services required by this Agreement, including,
but not by way of limitation, all related out-of-pocket expenses, shall be
reimbursed promptly by the Company upon appropriate documentation by Consultant;
provided that each expenditure in excess of $1,000 must be approved in advance
by the CEO or Chief Financial Officer of Company.

      6.    Confidentiality. Consultant covenants and agrees that he will not,
to the detriment of the Company, at any time during or after the termination of
the Consulting Period, reveal, divulge or make known to any person (other than
the Company or its officers, employees or agents who need to know such
information, or as a result of legal process) or use for his own account or the
account of any other person any confidential or proprietary records, data, trade
secrets, customer lists or any other confidential or proprietary information
whatsoever (the "Confidential Information") used by the Company and made known
(whether or not with the knowledge and permission of the Company, and whether or
not developed, devised or otherwise created in whole or in part by the efforts
of Consultant) to Consultant by reason of his association with the Company.
Consultant further covenants and agrees that he shall retain all

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such knowledge and information which he shall acquire or develop respecting such
Confidential Information in trust for the sole benefit of the Company and its
successors and assigns.

      7.    Independent Contractor; Limitations on Authority. In the performance
of the duties and obligations imposed under this Agreement, it is mutually
understood and agreed that Consultant is at all times acting and performing as
an independent contractor. It is agreed by the parties hereto that no act or
inaction of Consultant shall be construed to make or render Consultant the
agent, employee or servant of the Company. Consultant shall have no authority to
bind the Company by or to any obligation, agreement, promise or representation
without first obtaining the Company's prior written approval.

      8.    Taxes. Consultant will assume full responsibility for payment of
federal, state and local taxes, contributions required under Social Security and
any other taxes imposed with respect to his receipt of compensation hereunder.
Consultant agrees to fully indemnify and hold the Company harmless with respect
to any claims, assessments, suits, expenses (including, but not limited to
reasonable attorneys' fees) damages, settlements or losses incurred by or
threatened against the Company which arise as a result of any taxing authority
alleging liability on the part of the Company for any such taxes.

      9.    Entire Agreement. This instrument contains the entire agreement of
the parties with respect to the subject matter hereof. Any other oral or written
agreements entered into with respect hereto are hereby revoked and superseded by
this Agreement.

      10.   Existing Agreements. Consultant represents to the Company that he is
not subject or a party to any employment or consulting agreement,
non-competition covenant or other agreement, covenant or understanding or any
other obligation which might prohibit him from executing this Agreement or limit
his ability to fulfill his responsibilities hereunder.

      11.   Paragraph Headings. The paragraph headings of this Agreement are for
convenience of reference only and shall not limit or define the text thereof.

      12.   Severability. In the event that any one or more of the provisions of
this Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected thereby.

      13.   Notices. All notices and other communications which are required or
permitted hereunder shall be in writing and shall be sufficient if mailed by
registered or certified mail, postage prepaid to the following addresses:

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            If to Consultant:

            Thomas Scully
            c/o Welsh Carson Anderson & Stowe
            320 Park Avenue, 25th Floor
            New York, NY 10022-6815

            If to the Company:

            Select Medical Corporation
            P.O. Box 2034
            4716 Old Gettysburg Road
            Mechanicsburg, PA 17055
            Attention: Mr. Robert A. Ortenzio

            with a copy to:

            Select Medical Corporation
            P.O. Box 2034
            4718 Old Gettysburg Road
            Mechanicsburg, PA 17055
            Attention: General Counsel

or such other address as any party hereto shall have specified by notice in
writing to the other party hereto. All such notices and communications shall be
deemed to have been received on the date of delivery thereof or the third
business day after the mailing thereof, whichever is earlier.

      14.   Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement or any such modification or amendment is sought. Either
party hereto may, by an instrument in writing, waive compliance by the other
party with any term or provision of this Agreement on the part of such other
party hereto to be performed or complied with. The waiver by any party hereto of
a breach of any term or provision of this Agreement shall not be construed as a
waiver of any subsequent or other breach, whether or not similar to the breach
waived.

      15.   Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts so executed shall constitute an original
agreement binding on all the parties but together shall constitute but one
instrument.

      16.   Successors. This Agreement shall inure to the benefit of, and shall
be binding upon, the parties hereto and their respective successors, assigns,
heirs and legal representatives. Consultant may not assign Consultant's rights
or interest in this Agreement, and any purported assignment by Consultant in
violation hereof shall be null and void. This Agreement shall not be assignable
by the Company unless there shall occur (i) a sale of all or substantially all
of the

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assets of the Company, (ii) a dissolution or liquidation of the Company or (iii)
a merger of the Company into another entity in which the Company is not the
surviving corporation.

      17.   Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the State of New York, without giving effect to the
conflicts of laws principles thereof.

      IN WITNESS WHEREOF, Consultant and the Company have executed this
Agreement on the date first above set forth.

                                             The Company:

                                             SELECT MEDICAL CORPORATION, a
                                             Delaware corporation

                                             By: /s/ Robert A. Ortenzio
                                                 -------------------------------
                                                        Robert A. Ortenzio,
                                                        CEO & President

                                             Consultant:

                                             /s/ Thomas Scully
                                             -----------------------------------
                                                        THOMAS SCULLY

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