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.

 

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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 |

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|           |                                            | 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

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| **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                                                                                              |

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1.     PREAMBLE
       Sun HealthCare Group, Inc. ("Sun")hereby enters into this Corporate Integrity Agreement ("CIA") with the Office ofInspector General ("OIG") of the United States Department of Health and HumanServices ("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 referredto as the "Federal health care programs"). Sun's compliance with the terms andconditions in this CIA shall constitute an element of Sun's present responsibility withregard to participation in the Federal health care programs. Contemporaneously with thisCIA, Sun is entering into a settlement with the United States, as embodied in the Plan ofReorganization soon to be filed in Sun's Chapter 11 proceeding (In re: Sun HealthCareGroup, Inc., et al., Case No. 99-3657 (MFW) Jointly Administered (the "BankruptcyCourt")) (hereafter referred to as "Settlement Agreement"). The scope ofthis CIA shall be governed by the following definitions:

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

                            2.     *"CoveredPersons"*: includes all officers, directors, and employees. This term alsoincludes those contractors who participate in Sun's billing or related submissions to theFederal health care programs.

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

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

II.     TERM OF THE CIA
       The period of the compliance obligationsassumed by Sun under this CIA shall be the period of time that Sun remains obligated bythe payment terms of the Settlement Agreement, but in any event for not less than 5 yearsfrom the Effective Date of this CIA. Thus, once the parties have signed this CIA, it shallbecome final and binding on the Effective Date of Sun's Plan of Reorganization (as theterm 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 remainin effect until OIG has completed its review of the final Annual Report and any additionalmaterials submitted by Sun pursuant to OIG's request.

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III.     CORPORATE INTEGRITY OBLIGATIONS
       Prior to the execution of this CIA, Sunestablished a Compliance Program and as a condition of this CIA agrees to maintain itsCompliance Program for the duration of this CIA. In addition, to the extent not alreadyimplemented and for the duration of this CIA, Sun hereby agrees to supplement itsCompliance Program by adhering to the obligations contained in this CIA including creatingthe following infrastructure:

                            1.     ProgramInfrastructure.

       Within 120 days of the Effective Date of thisCIA, Sun shall review its current infrastructure and to the extent not alreadyaccomplished, create an internal structure whereby individuals are given responsibility atthe facility, regional and corporate levels to address quality of care concerns. Theseindividuals shall not be in the Chief Financial Officer's ("CFO's") chain ofcommand. There shall be in place a mechanism and structure to provide the individuals whoare 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 shallmaintain or establish, as necessary, the following positions and committees. If Sunchanges its Compliance Program infrastructure in a way that affects these positions andcommittees, Sun shall ensure that under the new structure Sun devotes resources of equaleffectiveness to its Compliance Program as are devoted under the structure describedherein and provide notice to the OIG within 15 days after any such change.

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

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

       The individuals who serve on the BoardCommittee shall be available to the Compliance Officer, the Monitor, and the IndependentReview Organization (as these terms are described in Section III.D) required under thisCIA, to respond to any issues or questions that might arise. The names of the BoardCommittee members and the charter for the Board Committee shall be provided to OIG within120 days of the Effective Date of this CIA. When new members of the Board Committee areappointed, or the responsibilities or authorities of the Board Committee are substantiallychanged, Sun shall notify the OIG, in writing, within 15 days after such a change.

                            2.     *ComplianceOfficer.* Sun has appointed a Compliance Officer, who is and shall be responsible fordeveloping and implementing policies, procedures, and practices designed to promotecompliance with the Federal health care program requirements and the obligations set forthin this CIA.

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       The Compliance Officer is and shall be amember of senior management of Sun (i.e., not subordinate to Sun's General Counselor CFO) with unrestricted access to the Board Committee, who shall make regular (at leastquarterly for the first year and semi-annually each year thereafter) reports regardingcompliance matters directly to the CEO and the Board Committee, and who shall beauthorized to report to the Board Committee at any time. The Compliance Officer is andshall remain responsible for monitoring the day-to-day activities engaged in by Sun tofurther its compliance objectives as well as for any reporting obligations created underthis CIA. The Compliance Officer or his or her designees shall also ensure that quality ofcare or claim submission issues are appropriately identified and addressed throughcorrective action plans. In the event a new Compliance Officer is appointed during theterm of this CIA, Sun shall notify the OIG, in writing, within 15 days after such achange.

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

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

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providing leadership and support regarding compliance issues at operational levelswithin their control; distributing written compliance-related materials; ensuring theprovision of appropriate training and the proper documentation of such training; ensuringthe appropriate distribution of internal and external compliance audit reports andmonitoring of corrective action related to such reports or other identifiedcompliance-related issues; ensuring proper reporting and responses to compliance-relatedissues; and monitoring staff in the execution of their compliance-related functions. Ifthese functions or reporting processes change, Sun shall devote resources of similareffectiveness to the compliance functions. Compliance Liaisons shall certify quarterly tothe Compliance Officer that all plans of correction related to identified problems forwhich they are responsible have been implemented, or are in the process of beingimplemented, and that all Compliance Program concerns have been reported. Suchcertifications shall be maintained by the Compliance Officer and shall be available to OIGupon request. False certifications by the Compliance Liaisons shall be grounds forimmediate termination, and proper execution of Compliance Liaison duties shall be acomponent of their performance evaluations.

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

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                            6.     *InternalAudit and Review Functions.* Within 120 days of the Effective Date of this CIA, Sunshall review the adequacy of its system of internal financial controls, accountingpolicies, 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 ifnecessary establish a program for performing, internal audits and reviews that shall:

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

                            b.     makefindings of whether the systems are in place and functioning effectively to ensure thatpatients and residents at Sun facilities are receiving the quality of care and quality oflife consistent with basic care, treatment and protection from harm standards, as requiredby applicable law, including 42 C.F.R. Parts 482 and 483 and any otherapplicable law;

                            c.     conductan annual Minimum Data Set ("MDS") billing review of claims submitted by Sun'snursing facilities; and

                            d.     performsuch other internal audits and reviews as necessary to ensure that this CIA is beingappropriately implemented and to ensure that Sun is meeting its obligations underapplicable law.

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                            2.     WrittenStandards.

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

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

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

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

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

                                                iv.     thepossible consequences to both Sun and to any Covered Person for failing to comply with allFederal health care program requirements and with Sun's own policies and procedures or forfailure to report such non-compliance; and

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                                                v.     theright of all individuals to use the Confidential Disclosure Program (as described inSection III.E. of this CIA), as well as Sun's commitment to confidentiality andnon-retaliation with respect to disclosures.

                            b.     *Distributionand Certification.* Within 100 days of the Effective Date of this CIA, Sun shalldistribute the Code of Conduct to all Covered Persons who have not already received a copythat reflects the required contents as set forth herein. Within 130 days of the EffectiveDate of this CIA, each Covered Person shall certify, in writing, that he or she hasreceived, read, understood, and will abide by Sun's Code of Conduct. New Covered Personsshall 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 certificationwithin 30 days after the commencement of their appointment, employment, or contractor within 130 days of the Effective Date of the CIA, whichever is later. Sun shallcontinue to make the promotion of, and adherence to, the Code of Conduct an element inevaluating the performance of its Covered Persons. Sun shall annually review the Code ofConduct and will revise or supplement it as necessary. Sun shall distribute revisions orsupplements of the Code of Conduct to Covered Persons within 30 days of such changes beingcompleted. Covered Persons shall certify on an 

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

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

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

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

                            a.     Measuresdesigned 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 notlimited to, 42 C.F.R. Parts 424 and 483, and any other and any other applicable lawsthat address quality of care in nursing facilities;

                            b.     Measuresdesigned to ensure that Sun complies with all requirements applicable to Medicare'sProspective Payment System ("PPS") for nursing facilities, including, but notlimited 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 ofthe current Resource Utilization Groups ("RUG") classification system; andbilling and cost report preparation policies and procedures;

                            c.     Measuresdesigned to ensure compliance with state and Federal reporting requirements pertaining toincident, accident, abuse and neglect reporting requirements. Also, measures designed toensure 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. Thereports required under this system shall be of a nature to provide the CorporateCompliance 

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

                            d.     Measuresdesigned to ensure that residents and patients are discharged only for the reasonsauthorized by and in accordance with the procedures established by applicable law and notdischarged for financial reasons unless authorized by law;

                            e.     Measuresdesigned to ensure that staffing is in compliance with Federal health care programrequirements and state laws, including, but not limited to, 42 C.F.R.SectionSection 483.23(a) and (b) (hospitals) and Section 483.30 (nursingfacilities);

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

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

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

                            h.     Measuresdesigned to disfavor the use of individuals at any Sun facility who are from a temporaryagency or not employed by Sun (not including those individuals who are included in thedefinition of Covered Persons) and measures designed to create and maintain a standardizedsystem to track the number of individuals at each facility who fall within this categoryso that the number/proportion of or changing trends in such staff can be adequatelyidentified by Sun and/or the Monitor;

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

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

                            k.     Measuresdesigned to ensure that Covered Contractors are appropriately supervised to ensure thatthey are acting within the parameters of Sun's policies and procedures and the Federalhealth care program requirements;

                            l.     Measuresdesigned to ensure that the internal audits performed in conjunction with the IRO areperformed by appropriate and qualified individuals, as further set forth in SectionIII.D.2.b. of this CIA;

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

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

                            o.     Measuresdesigned to promote adherence to the compliance and quality of care standards set forth inapplicable Federal healthcare program requirements, and this CIA, by developingcompensation policies that: (i) promote quality of resident and patient care;(ii) do not inhibit the quality of resident or patient care; and (iii) promoteadherence to this CIA. Such measures shall include financial incentives for improving thequality 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 toprevent quality of care problems. Nothing in this provision precludes the companygenerally from establishing performance-based financial incentives;

                            p.     Measuresdesigned to ensure cooperation with the Monitor and the IRO both of which shall haveaccess to facilities and documents as set forth in this CIA;

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                            q.     Measuresdesigned to ensure that compliance issues are identified internally (e.g., throughreports of abuse or neglect, financial data, reports to supervisors, the ConfidentialDisclosure Program (described in Section III.E. of this CIA) or other complaints, internalaudits or reviews, patient satisfaction surveys, CMS quality indicators, staff turnoverdata, or internal surveys) or externally (e.g. consultants, audits performed by theIRO or the Monitor's reports) and are promptly and appropriately investigated and, if theinvestigation substantiates compliance issues, Sun implements effective and timelycorrective action plans and monitors compliance with such plans;

                            r.     Measuresdesigned to collect staffing data, including staff to patient/resident ratio and staffturnover data;

                            s.     Measuresdesigned to ensure that an appropriate pre-admission clinical assessment will be made ofall potential respiratory therapy patients/residents;

                            t.     Measuresdesigned to ensure that respiratory therapy residents/patients will only be admitted orcared for if the facility can provide all treatments and care prescribed by thepatient's/resident's admitting/attending physician and that for respiratory therapypatients/residents that Sun cannot clinically accommodate, Sun will refer them to moreappropriate facilities;

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                            u.     Measuresdesigned to ensure that once admitted, respiratory therapy patients/residents will receiveappropriate clinical services based on their assessed needs from appropriately trainedclinicians and that care, treatment plans and progress will be reviewed by qualifiedsupervisory staff to ensure appropriate care;

                            v.     Measuresdesigned to protect patient safety in the event of utility or weather related emergenciesas required by regulations;

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

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

                            3.     Trainingand Education.

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

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                            1.     *GeneralTraining.* Within 120 days after the Effective Date of this CIA, Sun shall provide atleast 2 hours of general training to each Covered Person. This general training shallexplain Sun's:

                            a.     CorporateIntegrity Agreement requirements;

                            b.     ComplianceProgram (including the policies and procedures as they pertain to general complianceissues); and

                            c.     Codeof Conduct.

                    NewCovered Persons shall receive the general training described above during orientation, butnot later than 20 days after the beginning of their employment or within 120 days afterthe Effective Date of this CIA, whichever is later. During the term of this CIA, everyCovered Person shall receive such general training on an annual basis.

                            2.     *SpecificTraining for Relevant Covered Persons.* Within 120 days after the Effective Date ofthis CIA, Sun shall provide specific training of certain designated Covered Persons, asset forth in this Section. Each Covered Person who is involved in the delivery of patientor resident care (including individuals who are responsible for quality assurance, settingpolicies or procedures, or making staffing decisions), the preparation or submission ofclaims for reimbursement or cost reports (or equivalent reporting mechanisms), or theassignment of procedure codes or other diagnostic assessments that might affectreimbursement, for any Federal health care programs (hereinafter, "Relevant CoveredPersons") shall receive at least 2 hours of specific training pertinent to his or herresponsibilities (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 SectionIII.B.2, including, but not limited to:

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                            a.     thesubmission of accurate information (e.g., MDS, claims, bills, and cost reports (orequivalent reporting mechanisms) for services rendered to Medicare or Medicaidbeneficiaries, including, but not limited to, the requirements for an accurate clinicalassessment, if relevant to the person's duties;

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

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

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

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

                            f.     examplesof relevant reimbursement practices related to Federal health care programs found to havebeen improper, if relevant to the person's duties;

                            g.     forRelevant Covered Persons who provide resident care: the coordinated interdisciplinaryapproach to providing care to residents, including, but not limited to, residentassessment and the requirements of 42 C.F.R. Section 483; and

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

                    NewRelevant Covered Persons shall receive this specific training within 40 days of thebeginning of their employment or contract, or within 120 days after the Effective Date ofthis CIA, whichever is later. Newly hired Relevant Covered Persons involved in thedelivery 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 healthcare program shall be adequately supervised by trained employees until they have completedthe specific training relevant to their duties. Each Relevant Covered Person shall receivethe appropriate specific training on an annual basis during the term of the CIA.

                    Inaddition, each facility shall conduct appropriate periodic training at leastsemi-annually, or more frequently, as needed, on quality of care issues, including thoseissues identified by Sun through its various compliance mechanisms. As part of thistraining, during the spring of each year on an annual basis, each facility shall providetraining to each Relevant Covered Person who provides patient care, on identifyingresidents at risk of heat and weather related problems (or other problems associated withthe loss of utility service), identifying heat illness symptoms, and on an appropriateresponse to heat, utility or other weather related emergencies (and shall provide achecklist of measures that should be followed). In determining what additional trainingshould be performed, the Compliance Officer or his/her designees will review thecomplaints received, satisfaction surveys, staff turnover data, any state or Federalsurveys, including those performed by the Joint Commission on Accreditation of HealthcareOrganizations ("JCAHO"), any internal surveys, and the CMS quality indicatorsfor nursing 

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facilities. Such training will be for the length of time necessary to teach the subjectmatter. Such training will be provided to all Relevant Covered Persons at the facility whoare responsible for patient or resident care. Sun shall implement mechanisms to evaluatethat training participants comprehended and (where appropriate) implemented the content ofthe training.

                            3.     *AttendanceLog and Certification.* An attendance log shall document the attendance of each personwho is required to attend the training. The person responsible for the training shallcertify the accuracy of the attendance log. The attendance log shall specify the type oftraining received and the date received. The Compliance Officer or his/her designees shallretain the attendance logs and certifications, along with specific course materials, andmake all of these logs, certifications, and materials available to OIG upon request. Thecertification shall specify the type of training received and the date received.

                            4.     *Submissionof Training and Course Materials*. The training and course materials for General andSpecific Training (as defined herein) shall be submitted to OIG no later than 20 daysafter completion of any training described herein.

                            5.     *PriorTraining.* Training of any type provided to affected Covered Persons within six monthsprior to the Effective Date of this Agreement that meets the requirements of Section III.Cshall be deemed to meet the time frame obligation imposed by this Section, but does notobviate the requirements for attendance certifications.

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                            4.     ReviewProcedures.

                                   1.     *IndependentMonitor (Quality Engagement).*Within 60 days of the Effective Date of this CIA, Sunshall engage an appropriately qualified monitoring team (collectively the"Monitor"), that meets the approval of OIG. The Monitor may retain additionalpersonnel, including, but not limited to, independent consultants, if needed to help meetthe Monitor's obligations under this CIA. It is the intent of the parties to this CIA thatthe Monitor and Sun shall work cooperatively to foster the provision of high quality careat Sun. Sun shall be responsible for all costs incurred by the Monitor in connection withits 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 shallprovide Sun with an estimated, non-binding budget on an annual basis.

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

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

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whether the communication systems are effective, providing for accurate quality-relateddata, information, decisions, and results of decisions are transmitted to the properindividuals in a timely fashion; and whether the training programs are effective andthorough.

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

                                                      (A)     Sun'sability to identify the problem;

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

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

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

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

                                               iii.     theaccuracy of internal reports, data and assessments that relate to patient and residentcare;

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

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                                               v.     whethercompliance with Sun's policies and procedures that promote quality of care is a positivefactor in determining compensation to Sun's employees;

                                               vi.     whetherSun's facility site visits are occurring as necessary to identify and address quality ofcare issues;

                                               vii.     whetherSun has in place an effective system to track temporary agency personnel, staff to patientratios and staff turnover rates;

                                               viii.     whetherSun has complied with its own policies and procedures, training requirements, the Federalhealth care program requirements, and the requirements of this CIA regarding the admissionand care of respiratory therapy patients and residents; and

                                               ix.     whetherSun has complied with its own policies and procedures, training requirements, the Federalhealth care program requirements and the requirements of the CIA related to heat, utilityand weather related emergencies and to determine whether Sun has adopted appropriatecontingency plans to address such emergencies.

                                        b.     *Access.*The Monitor shall have access to:

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

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

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

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

                                               iv.     Currentpatients and residents, subject to: (A) their clinical condition; and (B) theirconsent (without interference from Sun or its counsel), to conduct interviews with themoutside the presence of Sun supervisory staff or counsel provided that such interviews areconducted 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

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

                                        c.     *Sun'sObligations*. Sun shall:

                                               i.     Notimpede the Monitor's access to its facilities (pursuant to the provisions of this CIA) andshall 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 whenmaking document requests);

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

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

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

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                                               v.     Providethe last known contact information for former residents, patients, their families, orguardians consistent with the rights of such individuals under State or Federal law, andnot impede their cooperation;

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

                                               vii.     Paythe Monitor's bills for Monitor's Costs within 30 days of receipt. While Sun must pay allthe Monitor's bills within 30 days, Sun may bring any disputed Monitor's Costs or bills toOIG's attention; and

                                               viii.     Notsue or otherwise bring any action against the Monitor related to any findings made by theMonitor 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 basedsolely on the dishonest or illegal acts of the Monitor, whether acting alone or incollusion with others.

                    Nothingin this Subsection (c) shall limit the right of Sun to inform individuals of their rightsunder law.

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

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

                                               ii.     Whereindependently required by applicable law or professional licensing standard to report anyfinding to an appropriate regulatory or law enforcement authority, simultaneously submitcopies of such reports to OIG and to Sun;

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

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

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

                                               vi.     Notbe 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 andgovernmental agencies shall not be bound by the Monitor's findings

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or conclusions. The Monitor's reports shall not be the sole basis for determiningdeficiencies by the state survey agencies. The parties agree that HHS and its contractorsshall not introduce any material generated by the Monitor, or any opinions, testimony, orconclusions from the Monitor as evidence into any proceeding involving a Medicare orMedicaid survey, certification, or other enforcement action against Sun, and Sun shallsimilarly 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 anymaterial generated by the Monitor, or any opinions, testimony, or conclusions from theMonitor in any action under the CIA or pursuant to other OIG authorities;

                                               vii.     Abideby the legal requirements of Sun's facilities: (A) to maintain the confidentiality ofeach resident's personal and clinical records; and (B) to maintain confidential andnot to disclose the records of Sun's Corporate Compliance Committee and self-evaluativereports including, but not limited to, those from medical review committees, qualityassurance 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 

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

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

                                               ix.     Whereappropriate, communicate requests for access, documents or other information to theCompliance Officer; and

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

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                                        e.     *MiscellaneousProvisions*
                                               i.     TheMonitor may confer and correspond with Sun and OIG on an *ex parte* basis at anytime. If, after consulting with Sun, the Monitor has concerns about corrective actionplans that are not being enforced or systemic or repeated problems that could impact Sun'sability 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 addressset 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 reportto the Compliance Officer and the Board Committee. Sun shall be provided an opportunity torespond to the Consortium concerning any such report;

                                               ii.     TheConsortium shall seek to resolve any such dispute between the Monitor and Sun prior to OIGseeking any remedies pursuant to the terms of this CIA;

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

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

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                                               v.     Nothingin this Agreement changes the applicable requirements for standard of care from thatimposed by the Federal health care program requirements and other laws.

                                   2.     *FinancialReviews.*
                                          a.     *GeneralDescription*.

                                                 i.     Retentionof Independent Review Organization. Prior to the Effective Date of this CIA, Sun willretain an entity, such as an accounting, auditing or consulting firm (hereinafter"Independent Review Organization" or "IRO"), to perform reviewengagements to assist Sun in assessing and evaluating its billing, coding and claimsubmission practices and its compliance obligations pursuant to this CIA and theSettlement 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 industrypertaining to this CIA and in the general requirements of the Federal health careprogram(s) from which Sun seeks reimbursement. The Billing Engagement, described belowshall be accomplished by a combination of reviews performed by the IRO and the SunInternal Review Team pursuant to the schedule in Section III.D.2.b.vii. below. The IROshall assess, along with Sun, whether it can perform the IRO 

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

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

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

                                                 iv.     Retentionof Records. Sun shall retain and make available to the OIG, upon request, all workpapers, supporting documentation, correspondence and draft reports, if any, (thoseexchanged between the IRO and Sun) related to the engagements for the duration of the CIAplus one year.

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

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

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

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identities of the patients in the selected sampling units will be redacted to preservepatient confidentiality. These sampling units will be used to train and assess thecandidates for Sun's Internal Review Team. Using the audit procedures set forth inAppendix B, the IRO will train the prospective Internal Review Team members using thefirst 10 randomly generated sampling units. Following the demonstration training, andusing the remaining 15 randomly selected sampling units, each of the candidates willindependently make coding and overpayment determinations on these units based on definedaudit procedures agreed to by Sun and the IRO as set forth below. Each prospectiveInternal 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 auditelements. These pre-selected objective audit elements and the credentialing standard shallbe 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 orcredentialing standard and may create its own audit elements and credentialing standardand apply it to select Sun's Internal Review Team. Any comments provided, recommendationsmade or the lack thereof or the lack of rejection of any or all of the pre-selectedobjective audit 

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

                                                 iii.     Reportingthe 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 theIRO's recommendations for each proposed Internal Review Team member. Both Sun'sjustification and the IRO's recommendation shall include a narrative evaluation of eachprospective team member's audit test performance for each selected Internal Review Teammember. Sun shall also include each candidate's resume, audit test results, andcredentialing score which support each candidate's selection as an Internal Review Teammember as part of its justification.

                                                 iv.     Replacementof Internal Review Team Members. If at any time during the term of this CIA, anInternal Review Team member needs to be replaced, the protocol described in SectionIII.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 

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

                                                 v.     AnnualIRO Verification Review. At the end of each Review Year (as defined in SectionIII.D.2.b.vi below) of the CIA, the IRO will verify a sample of each Sun Internal ReviewTeam member's MDS Audit determinations to ensure the reviewer is making accuratejudgements. To conduct the verification review, the IRO will review either 10% or 15sampling 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 MDSAudit determinations made by a Team member will constitute an error. If 5% or more of ateam member's determinations are incorrect, the Internal Review Team member will beremoved from the Team unless retention of the Internal Review Team member is otherwiserecommended by the IRO and accepted by the OIG. The audit test results for each InternalReview Team member and any recommendation or supporting rationale will be included in eachAnnual Report to the OIG. The OIG, will have discretion to remove any person from theInternal Review Team at any time.

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

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

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

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

                                                                (2)     Facilitiesthat 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)     Facilitiesthat 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

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                                                                (4)     Facilitiesthat have received payment from Medicare Part A for more than 751 claims during the ReviewYear covered by the billing review (hereinafter referred to as the "Medicare LargeClaim Pool").

                                                 vii.     AnnualFacility Selection Methodology. Consistent with Appendix B, the Audit Period for year1 reviews will begin with the Effective Date of the CIA and will end with the date the MDSAudit begins for each respective Claim Pool. For the first year reviews, no MDS Audit willcontain less than 3 months worth of data and no more than 9 months worth of data. For eachClaim Pool's subsequent yearly review, the Audit Period for the MDS Audit shall consist of12 months of data. These subsequent yearly reviews shall begin at the end of the precedingAudit Period for each Claim Pool and shall end 12 months later.

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

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Audit Period 1 Reviews:

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

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

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

     -     In accordance with SectionIII.D.2.b.v. above, at the end of Review Year 1, the IRO will review 10% or 15 samplingunits for each member of Sun's Internal Review Team, whichever is greater. The IRO willrandomly 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 MedicareSmall Claim Pool facilities that were selected in Audit Period 1, - Sun willperform an MDS Audit on these facilities.

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

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

     -     In accordance with SectionIII.D.2.b.v. above, at the end of Review Year 2, the IRO will review 10% or 15 samplingunits for each member of Sun's Internal Review Team, whichever is greater. The IRO willrandomly 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 MedicareSmall Claim Pool facilities that were selected in Audit Periods 1 or 2 - Sun willperform an MDS Audit on these facilities.

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     -     IRO will randomly select,using RAT-STATS, 15 facilities from the Medicare Medium Claim Pool, excluding thoseMedicare 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 willperform 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 MDSAudit on these facilities.

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

     -     In accordance with SectionIII.D.2.b.v. above, at the end of Review Year 3, the IRO will review 10% or 15 samplingunits for each member of Sun's Internal Review Team, whichever is greater. The IRO willrandomly 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 MedicareSmall Claim Pool facilities that were selected in Audit Periods 1, 2, or 3 - Sunwill perform an MDS Audit on these facilities.

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     -     IRO will randomly select,using RAT-STATS, 15 facilities from the Medicare Medium Claim Pool, excluding thoseMedicare 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 Sunwill 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 MDSAudit on these facilities.

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

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

Audit Period 5 Reviews: All facilities, even if previously selected, will beincluded 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 MDSAudit on these facilities.

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

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

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

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

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

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

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

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

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

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

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

                                                                (4)     Sun'sreporting operations or mechanisms that 

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ensure appropriate communication between Sun and its fiscal intermediaries; and

                                                                (5)     correctiveaction plans to correct any inaccurate coding or billing processes or individual claimforms.

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

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deficiencies and corrective actions in its Process Review Report.

                                                 xi.     ProcessReview 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'sAnnual Reports. The Process Review Report shall include the IRO's findings and supportingrationale regarding:

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

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

                                                         (C)     anyrecommendations the IRO may have to improve any of these systems, operations, orprocesses.

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                                          c.     *ComplianceEngagement.*
                                                 i.     ComplianceReview. The IRO shall conduct a review of Sun's compliance activities("Compliance Review"). The Compliance Review shall consist of a review of Sun'sadherence to the obligations set forth in this CIA, and a review of Sun's compliance withcertain provisions of the Settlement Agreement:

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

                                                        (B)     UnallowableCosts Review. The IRO shall determine whether Sun has complied with its obligation not tocharge 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 applicableFederal or State payors any unallowable costs included in payments previously sought fromthe United States, or any State Medicaid program. This unallowable cost analysis shallinclude, but not be limited to, payments sought in any cost reports, cost statements,information reports or payment requests for post-petition periods. In making thisdetermination, the IRO may need to review cost reports and/or financial statements fromthe year in which of the Settlement Agreement was executed, as well as from previous years

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

                                                 ii.     ComplianceReview Report. The IRO shall prepare a report based upon the Compliance Reviewperformed (the "Compliance Review Report"). The Compliance Review Report shallinclude:

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

                                                        (B)     theIRO's findings and supporting rationale (or narrative explanation) regarding whether Sunhas complied with its obligation not to charge to, or otherwise seek payment from, Federalor State payors for unallowable costs (as defined in the Settlement Agreement) and itsobligation to identify to applicable Federal or State payors any unallowable costsincluded in payments previously sought from such payor.

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

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

                    TheOIG will attempt in good faith, to resolve any Billing or Compliance Engagement and/or MDSAudit issues with Sun prior to conducting a validation review. However, the finaldetermination as to whether or not to proceed with a validation review shall be made atthe sole discretion of the OIG.

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                                          e.     *IndependenceCertification.* The IRO shall include in its report(s) to Sun a certification or swornaffidavit that it has evaluated its professional independence and/or professionalobjectivity, as applicable, with regard to the Billing and Compliance Engagements and thatit has concluded that it was, in fact, independent and/or objective, as applicable.

                            5.     ConfidentialDisclosure Program.

                    Sunhas established a Confidential Disclosure Program, which includes two toll-free telephonelines, known as the "Sun Quality Line" and "Customer First Line"(collectively the "Confidential Disclosure Program"). The Sun Quality Line hasbeen designed and implemented for employees, contractors, and vendors, while the CustomerFirst Line has been designed for patients and families. Within 90 days of the EffectiveDate of this CIA, Sun shall review its Confidential Disclosure Program and ensure that itis in compliance with the requirements of this Section. The Confidential DisclosureProgram shall enable any individual to disclose, to the Compliance Officer or some otherperson who is not in the disclosing individual's chain of command, any identified issuesor questions associated with Sun's policies, practices, or procedures with respect toquality of care or a Federal health care program, believed by the individual to beinappropriate. 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 otherlocations where notices are typically posted) in each of its facilities and locations andshall publicize it in training and newsletters to employees.

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                    TheConfidential Disclosure Program shall emphasize a non-retribution, non-retaliation policy,and shall include a reporting mechanism for anonymous, confidential communication. Uponreceipt of a disclosure, the Compliance Officer, or his/her designee, shall gather theinformation in such a way as to elicit all relevant information from the disclosingindividual. The Compliance Officer, or his/her designee, shall make an inquiry into theallegations set forth in every disclosure to ensure that he or she has obtained all of theinformation necessary to determine whether further review should be conducted. For anydisclosure that is sufficiently specific so that the Compliance Officer, or his/herdesignee, determines further review is warranted, the Compliance Officer, or his/herdesignee, shall conduct such further review of the allegations and ensure that follow-upis conducted and that any inappropriate or improper practice is addressed.

                    TheCompliance Officer shall maintain a written record, which shall include the date ofreceipt of the allegation or complaint, a summary of each allegation or complaintreceived, the status of the respective investigations, and any corrective action taken inresponse to the investigation. The written record shall be made available to OIG uponrequest.

                            6.     IneligiblePersons.

                                   1.     *Definition.*For purposes of this CIA, an "Ineligible Person" shall be any individual orentity who: (a) is currently excluded, suspended, debarred or otherwise ineligible toparticipate in the Federal health care programs; or (b) has been convicted of a criminaloffense and is subject to exclusion under 42 U.S.C. Section 1320a-7(a), but hasnot yet been excluded.

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                                   2.     *ScreeningRequirements.* Sun currently has policies and procedures regarding the screening ofprospective Covered Persons, contractors, and physicians who receive staff privileges toprevent the hiring of, or contracting with, any Ineligible Person. Sun shall screen allprospective Covered Persons and contractors prior to engaging their services, and screenphysicians prior to granting staff privileges by: (a) requiring applicants todisclose whether they are Ineligible Persons; and (b) reviewing the General ServicesAdministration's List of Parties Excluded from Federal Programs (available through theInternet at http://www.arnet.gov/epls) and the HHS/OIG List of ExcludedIndividuals/Entities (available through the Internet at http://www.hhs.gov/oig) (theselists and reports will hereinafter be referred to as the "Exclusion Lists").

                                   3.     *Review and Removal Requirement.*  Within 120 days of the Effective Date of thisCIA, Sun will review its list of current Covered Persons, contractors, and physicians withstaff privileges against the Exclusion Lists. Thereafter, Sun will review the listsemi-annually. If Sun has notice that a Covered Person, contractor, or physician hasbecome an Ineligible Person, Sun will remove such person from responsibility for, orinvolvement with, Sun's business operations related to the Federal health care programsand shall remove such person from any position for which the person's salary or the itemsor 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 atleast until such time as the person is reinstated into participation in the Federal healthcare programs. Semi-annual reviews performed on Sun's Covered Persons, contractors, andphysicians with staff privileges within six months prior to the 

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

                                   4.     *PendingCharges 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 toany Federal health care program, or is proposed for exclusion during his or her employmentor contract, Sun shall take all appropriate actions to ensure that the responsibilities ofthat Covered Person, contractor, or physician do not adversely affect the quality of carerendered to any patient or resident or the accuracy of any claims submitted to any Federalhealth care program.

                            G.     Notificationof Proceedings.

                    Within30 days of discovery, Sun shall notify OIG, in writing, of any ongoing investigation orlegal proceeding conducted or brought by a governmental entity or its agents involving anallegation that Sun has committed a crime or has engaged in fraudulent activities. Thisnotification shall include a description of the allegation, the identity of theinvestigating or prosecuting agency, and the status of such investigation or legalproceeding. Sun shall also provide written notice to OIG within 30 days of the resolutionof the matter, and shall provide OIG with a description of the findings and/or results ofthe proceedings, if any.

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                            H.     Reporting.

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

                                   2.     *Definitionof "Material Deficiency."* For purposes of this CIA, a "MaterialDeficiency" means anything that involves: (i) a substantial Overpayment relatingto any Federal health care program; or (ii) a matter that a reasonable person wouldconsider a potential violation of 42 U.S.C. SectionSection 1320a-7, 1320a-7a, or1320a-7b, or other criminal or civil law related to any Federal health care program forwhich penalties or exclusion may be authorized under the law. A Material Deficiency may bethe result of an isolated event or a series of occurrences.

                                   3.     *Reportingof 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 (asherein defined), Sun shall notify the payor (e.g., Medicare fiscal intermediary orcarrier) within 30 days of discovering the Overpayment and take remedial steps within 60days of discovery (or such additional time as may be agreed to by the payor) to repay theOverpayment and correct the problem, including preventing the underlying problem and theOverpayments from recurring. Notification and repayment to the contractor should be donein accordance with 

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

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

                                          a.     Acomplete description of the Material Deficiency, including the relevant facts, personsinvolved, and legal and program authorities;

                                          b.     Sun'sactions (and future plans of action) to correct the Material Deficiency; and to preventsuch Material Deficiency from recurring;

                                          c.     Ifapplicable, 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.     Ifapplicable, the date of the check and identification number (or electronic transactionnumber) on which the Overpayment (if any was repaid). 

IV.     NEW BUSINESS UNITS OR LOCATIONS
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                    Inthe event that Sun purchases or establishes new business units that participate in anyFederal health care program after the Effective Date of this CIA, Sun shall notify OIG ofthis fact within 30 days of the date of purchase or establishment. This notification shallinclude 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 andCovered Contractors at such locations shall be subject to the requirements in this CIAthat apply to new Covered Persons and Covered Contractors (e.g., completingcertifications 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 theEffective 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 businessunits or locations that participate in any Federal health care programs as soon aspracticable. Notwithstanding any other provisions to the contrary, the terms of this CIAshall not become effective for new business units or locations until six months after thepurchase or establishment of such new business units or locations.

V.     IMPLEMENTATION AND ANNUAL REPORTS
                    A.     ImplementationReport. Within 120 days after the Effective Date of this CIA, Sun shall submit awritten report to OIG summarizing the status of its implementation of the requirements ofthis CIA. This Implementation Report shall include:

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

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in positions described in Section III.A;

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

                           3.     theprogram for internal audits and reviews and a description of the quality of careinfrastructure as required in Section III.A.;

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

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

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

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

                                  a.     thepolicies and procedures required by Section III.B.2 have been developed, are beingimplemented, and have been made available to all appropriate Covered Persons;

                                  b.     allCovered Persons and Covered Contractors have completed the Code of Conduct certificationas required by Section III.B.1;

                                  c.     allCovered Persons have completed the training and executed the certification required bySection III.C; and

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

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

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

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

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

                           11.     alist 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 doingbusiness, the corresponding telephone numbers and facsimile numbers, each location'sFederal health care program provider identification numbers(s), and the name, address, andtelephone number of the payor (specific contractor) that issued each provideridentification number.

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

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

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

                                  a.     allCovered Persons and Covered Contractors have completed the annual Code of Conductcertification required by Section III.B.1;

                                  b.     allCovered Persons have completed the training and executed the 

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certification required by Section III.C;

                                  c.     Sunhas complied with its obligations under the Settlement Agreement (i) not to resubmitto any Federal health care program payors any previously denied claims related to conductaddressed in the Settlement Agreement, and its obligation not to appeal any such denialsof claims; and (ii) not to charge to or otherwise seek payment from Federal or statepayors for unallowable costs (as defined in the Settlement Agreement) and its obligationto identify and adjust any past charges of unallowable costs;

                                  d.     Sunhas effectively implemented, or is in the process of implementing, all plans of correctionrelated to problems identified under this CIA, Sun's Compliance Program, or internalaudits or reviews; and

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

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

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

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

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

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

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

                           9.     areport of the aggregate Overpayments that have been returned to the Federal health careprograms 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.     asummary of the Sun Quality Line written records required by Section III.E (excluding anycalls that relate solely to human resources issues);

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

                           12.     asummary describing any ongoing investigation or legal proceeding conducted or brought by agovernmental entity involving an allegation that Sun has committed a crime or has engagedin fraudulent activities, which has been reported pursuant to Section III.G. The statementshall include a description of the allegation, the identity of the investigating orprosecuting agency, and the status of such investigation or legal proceeding; and

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

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

                    Thefirst Annual Report shall be received by OIG no later than 1 year and 120 days after theEffective Date of this CIA. Subsequent Annual Reports shall be submitted no later than theanniversary date of the due date of the first Annual Report.

                    C.     Certifications.The Implementation Report and Annual Reports shall include a certification by theCompliance Officer, under penalty of perjury, that: (1) Sun is in compliance with allof the requirements of this CIA (unless the noncompliance is clearly and explicitlydescribed in the Implementation Report or Annual Report), to the best of his or herknowledge; and (2) the Compliance Officer has reviewed the Report and has madereasonable inquiry regarding its content and believes that, upon such inquiry, theinformation is accurate and truthful.

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VI.     NOTIFICATION AND SUBMISSION OF REPORTS****
                    Unlessotherwise stated in writing subsequent to the Effective Date of this CIA, allnotifications and reports required under this CIA shall be submitted to the entitieslisted below:
**OIG:             CivilRecoveries Branch - Compliance Unit                        Officeof Counsel to the Inspector General                        Officeof Inspector General                        U.S.Department of Health and Human Services                        CohenBuilding, Room 5527                        330Independence Avenue, SW                        Washington,DC 20201                        Phone:  202.619.2078                        Fax:    202.205.0604
**Sun:              Mr.Chauncey Hunker, Ph.D.                        CorporateCompliance Officer                        SunHealthCare Group, Inc.                        101Sun Lane, N.E.                        Albuquerque,N.M. 87109                        Phone:  866.468.2125(ext.6853)                                   505.468.6853                        Fax:     505.821.9532                        chauncey.hunker@sunh.com

                    Unlessotherwise specified, all notifications and reports required by this CIA may be made bycertified mail, overnight mail, hand delivery or other means, provided that there is proofthat such notification was received. For purposes of this requirement, internal facsimileconfirmation sheets do not constitute proof of receipt.

VII.     OIG INSPECTION AND REVIEW RIGHTS
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                    Inaddition to any other rights OIG may have by statute, regulation, or contract, OIG or itsduly authorized representative(s), may examine and photocopy Sun's books, records, andother documents and supporting materials and/or conduct an on-site review of any of Sun'sfacilities, 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 withthe requirements of the Federal health care programs in which it participates. Thedocumentation described above shall be made available by Sun to OIG or its duly authorizedrepresentative(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 interviewedat the individuals' place of business during normal business hours or at such other placeand 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 anindividual decision, Sun will not be in breach of this CIA if the interview does not occurbut Sun shall not do anything to impede the cooperation of such employee. Sun agrees toassist OIG in contacting and arranging interviews with such individuals upon OIG'srequest. Sun's employees, contractors and agents may elect to be interviewed with orwithout a representative of Sun present.

VIII.     DOCUMENT AND RECORD RETENTION****
                    Sunshall maintain for inspection all documents and records relating to reimbursement from theFederal health care programs, or to compliance with this CIA, one year longer than theterm of this CIA (or longer if otherwise required by law). 

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IX.     DISCLOSURES AND PRIVILEGES
                    TheOIG will follow all applicable Federal laws concerning privacy and confidentiality,including the Federal Privacy Act, 5 U.S.C. Section 552a, to the greatest extentallowed by law. 

                    Consistentwith HHS's Freedom of Information Act ("FOIA") procedures, set forth in45 C.F.R. Part 5, OIG shall make a reasonable effort to notify Sun prior to anyrelease by OIG of information submitted by Sun pursuant to its obligations under this CIAand identified upon submission by Sun as trade secrets, commercial or financialinformation and privileged and confidential under the FOIA rules. Sun shall refrain fromidentifying any information as trade secrets, commercial, or financial information andprivileged and confidential that does not meet the criteria for exemption from disclosureunder FOIA. With respect to the disclosure of information, Sun shall have the rights setforth in 45 C.F.R. Section 5.65(d). OIG shall protect confidential informationunder the FOIA rules to the greatest extent allowed by law. When required, the OIG shallprovide 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.

                    Nothingin this CIA, or any communication or report made pursuant to this CIA, shall constitute orbe construed as a waiver by Sun of Sun's attorney-client, work product, peer review, orother applicable privileges, including, without limitation, the protections contained in42 C.F.R. Section 483.75(o). Notwithstanding that fact, the existence of anysuch privilege does not affect Sun's obligation to comply with the provisions of this CIA.

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X.     BREACH AND DEFAULT PROVISIONS
                    Sunis expected to fully and timely comply with all of the obligations herein throughout theterm of this CIA or other time frames herein agreed to (subject to Sun's right to requestextensions of time in accordance with Section X.B.2).

                    A.     StipulatedPenalties for Failure to Comply with Certain Obligations.

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

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

                                  a.     ComplianceOfficer;

                                  b     CorporateCompliance Committee;

                                  c     BoardCommittee;

                                  d     AuditCommittee;

                                  e     ComplianceLiaisons;

                                  f.     aprogram for performing internal audits and reviews;

                                  g.     awritten Code of Conduct;

                                  h.     writtenpolicies and procedures;

                                  i.     aTraining Program; and

                                  j.     aConfidential Disclosure Program. 

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

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

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

                                  a.     hires,enters into a contract with, or grants staff privileges to an Ineligible Person after thatperson has been listed by a federal agency as excluded, debarred, suspended or otherwiseineligible for participation in the Medicare, Medicaid or any other Federal health careprogram (as defined in 42 U.S.C. Section 1320a-7b(f)) (this Stipulated Penaltyshall not be demanded for any time period during which Sun can demonstrate that it did notdiscover the person's exclusion or other ineligibility after fulfilling the obligationsdescribed 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 tothe Federal health care programs; or (ii) is in a position for which the person'ssalary or the items or services rendered, ordered, or prescribed by the person are paid inwhole or part, 

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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 candemonstrate that it did not discover the person's exclusion or other ineligibility afterfulfilling the obligations described in Section III.F as to the status of the person).

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

                           5.     AStipulated Penalty of $1,000 (which shall begin to accrue 10 days after the date that OIGprovides notice by certified mail to Sun of the failure to comply or any extensionsgranted by OIG) for each day Sun fails to comply fully and adequately with any obligationof this CIA, including those that are under the purview of the Monitor. In its notice toSun, OIG shall state the specific grounds for its determination that Sun has failed tocomply fully and adequately with the CIA obligation(s) at issue and a basis for Sun tocure noncompliance that will be deemed acceptable to OIG before accrual of any penaltyhereunder. With respect to the Stipulated Penalty provision described in this SectionX.A.5 only, OIG shall not seek a Stipulated Penalty if Sun cures or demonstrates to OIG' ssatisfaction that the alleged failure to comply could not be cured with the 10 dayperiod, 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

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

                    B.     Paymentof Stipulated Penalties.

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

                    Within15 days of the date of the Demand Letter, Sun shall either: (a) cure the breach toOIG's satisfaction and pay the applicable Stipulated Penalties; or (b) request ahearing before an HHS administrative law judge ("ALJ") to dispute OIG' sdetermination of noncompliance, pursuant to the agreed upon provisions set forth below inSection X.D. In the event Sun elects to request an ALJ hearing, the Stipulated Penaltiesshall continue to accrue until Sun cures, to OIG' s satisfaction, the alleged breach indispute; however, the payment of such accrued Stipulated Penalties shall remain pendinguntil the ALJ determination. Failure to respond to the Demand Letter in one of these twomanners within the allowed time period shall be considered a material breach of this CIAand shall be grounds for exclusion under Section X.C.

                           2.     *TimelyWritten Requests for Extensions*. OIG will reasonably consider any timely writtenrequest by Sun for an extension of time to perform any act or file any notification orreport required by this CIA. Notwithstanding any other provision in this Section, if OIGgrants 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 reportshall not begin to accrue until 1 day after Sun fails to meet the revised deadline asagreed to by OIG-approved extension. 

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Notwithstanding any other provision in this Section, if OIG denies such a timelywritten request, Stipulated Penalties for failure to perform the act or file thenotification or report shall not begin to accrue until 2 business days after Sun receivesOIG'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 inwriting received by OIG at least 5 business days prior to the date by which any act is dueto be performed or any notification or report is due to be filed.

                           3.     *Formof Payment*. Payment of the Stipulated Penalties shall be made by certified orcashier's check, payable to "Secretary of the Department of Health and HumanServices," and submitted to OIG at the address set forth in Section VI.

                           4.     *Independencefrom Material Breach Determination*. Except as otherwise noted, these provisions forpayment of Stipulated Penalties shall not affect or otherwise set a standard for OIG'sdetermination that Sun has materially breached this CIA, which decision shall be made atOIG's discretion and governed by the provisions in Section X.C, below.

                   C.     Exclusionfor Material Breach of this CIA.

                           1.     *MaterialBreach*. A material breach of this CIA means:

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

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

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                                  c.     repeated,systemic, or flagrant violations of the obligations under this CIA, including, but notlimited to, the obligations addressed in Section X.A of this CIA;

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

                                  e.     afailure to retain and use an IRO for review purposes or to fund the Monitor in accordancewith Section III.D.

                           2.     *Noticeof Material Breach and Intent to Exclude*. The parties agree that a material breach ofthis CIA by Sun constitutes an independent basis for Sun's exclusion from participation inthe 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 exclusionshould be imposed, OIG shall notify Sun by certified mail of: (a) Sun's materialbreach and the specific nature of the breach; and (b) OIG's intent to exercise itscontractual right to impose exclusion (this notification is hereinafter referred to as the"Notice of Material Breach and Intent to Exclude"). The exclusion may bedirected at the corporation, or one or more individual facilities or subsidiaries,depending upon the facts of the breach.

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

                                  a.     Sunis not in Material Breach of this CIA;

                                  b.     thealleged material breach has been cured; or

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

                           4.     *ExclusionLetter*. If at the conclusion of the 35 day period, Sun fails to satisfy therequirements of Section X.C.2, OIG may exclude the entity, entities or individualfacilities identified in the Notice of Material Breach and Intent to Exclude fromparticipation in the Federal health care programs. OIG will notify Sun in writing of itsdetermination to exclude Sun or one or more of its individual facilities or subsidiaries(this letter shall be referred to hereinafter as the "Exclusion Letter"). UnlessSun 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 individualfacilities identified in the Notice of Material Breach and Intent to Exclude and shallpreclude such entities or individual facilities from participating in the Federal healthcare programs and all other federal procurement and non-procurement programs. If Sun orone or more of its individual facilities or subsidiaries is excluded under the provisionsof this CIA, Sun or the individual facility or subsidiary may seek reinstatement pursuantto the provisions at 42 C.F.R. Sections 1001.3001-.3004.

                   D.     DisputeResolution
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                           1.     *ReviewRights*. Upon OIG's delivery to Sun of its Demand Letter or its Exclusion Letter, andas an agreed-upon contractual remedy for the resolution of disputes arising under theobligation of this CIA, Sun shall be afforded certain review rights comparable to the onesthat 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 soughtpursuant to this CIA. Specifically, OIG's determination to demand payment of StipulatedPenalties or to seek exclusion shall be subject to review by an ALJ and, in the event ofan appeal, the Departmental Appeals Board ("DAB"), in a manner consistent withthe provisions in 42 C.F.R. Section 1005.2-1005.21. Notwithstanding the languagein 42 C.F.R. Section 1005.2(c), a request for a hearing involving StipulatedPenalties shall be made within 15 days of the date of the Demand Letter, and therequest for a hearing involving exclusion shall be made within 30 days of the date ofthe Exclusion Letter. 

                           2.     *StipulatedPenalties Review*. Notwithstanding any provision of Title 42 of the United StatesCode or Chapter 42 of the Code of Federal Regulations, the only issues in aproceeding for Stipulated Penalties under this CIA shall be: (a) whether Sun was infull 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 Penaltyauthorized under Section X.A.5 only, whether the failure to comply could not be curedwithin the 10 day period, but that by the end of that period: (i) Sun had begun totake action to cure the failure to comply, (ii) Sun was and is pursuing such actionwith due diligence; and (iii) Sun had provided to OIG a reasonable timetable forcuring the breach which is being followed. Sun shall have the burden of 

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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 andorders Sun to pay Stipulated Penalties, such Stipulated Penalties shall become due andpayable 20 days after the ALJ issues such a decision notwithstanding that Sun may requestreview of the ALJ decision by the DAB.

                           3.     *ExclusionReview*. Notwithstanding any provision of Title 42 of the United States Code orChapter 42 of the Code of Federal Regulations, the only issues in a proceeding forexclusion based on a material breach of this CIA shall be: (a) whether Sun was inmaterial breach of this CIA; (b) whether such breach was continuing on the date ofthe Exclusion Letter; and (c) whether the alleged material breach could not be curedwithin the 35 day period, but that (i) Sun has begun to take action to cure thematerial 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. 

                    Forpurposes of the exclusion herein, exclusion shall take effect only after an ALJ decisionthat is favorable to OIG. Sun's election of its contractual right to appeal to the DABshall 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.

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

XI.     EFFECTIVE AND BINDING AGREEMENT
                    Consistentwith the provisions in the Settlement Agreement pursuant to which this CIA is entered, andinto which this CIA is incorporated, Sun and OIG agree as follows:

                    A.     ThisCIA shall be binding on the successors, assigns, and transferees of Sun except thatdivested facilities and entities shall be excused from the obligations under this CIA uponthe assignment of a provider agreement or upon the disposition of assets to an unrelatedentity;

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

                    C.     Anymodifications to this CIA shall be made only with the prior written consent of the partiesto this CIA;

                    D.     Nothingin this CIA precludes Sun from lawfully contesting the legality, enforceability orapplicability of any Federal health care program requirement; and

                    E.     Theundersigned Sun signatory represents and warrants that he is signing this CIA in hisofficial capacity and that he is authorized to execute this CIA. The undersigned OIGsignatory represents that he is signing this CIA in his official capacity and that he isauthorized to execute this CIA.

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**ON BEHALF OF SUN HEALTHCARE GROUP, INC.**
 

 
  /s/ Mark    Wimer                                  July 26,    2001                             **Mark Wimer**DateChief Executive OfficerSun Healthcare Group, Inc. 
 

 
  /s/ Chauncey    Hunker                             July 26,    2001                             **Chauncey Hunker**DateCorporate Compliance OfficerSun Healthcare Group, Inc. 
 

 
**ON BEHALF OF THE OFFICE OF INSPECTOR GENERALOF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES**
 

 
  /s/ Lewis    Morris                                  July 11,    2001                             **Lewis Morris**DateAssistant Inspector General for Legal AffairsOffice of Inspector GeneralU.S. Department of Health & Human Services
 

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**Appendix A

Sun Monitor Task List

THIS DOCUMENT IS DESIGNED TO PROVIDE GUIDANCE TO THE MONITOR; IT MAY BEAMENDED 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 ANDCONDITIONS OF THE CIA.**
1.     ANALYSIS OF THE QUALITY COMPLIANCE INFRASTRUCTURE
       A.     Board ofDirectors: Existence of the Board level Compliance Committee (the "BoardCommittee") with a quality improvement function. 

              1.     Existenceof a Charter. 

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

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

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

                     a.     carryingout the duties and responsibilities set forth in the CIA;

                     b.     receivingthe 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 systemfunctions effectively; and

                     c.     providingthe direction and support necessary to respond to these problems in a timely and effectivemanner. 

       B.     CorporateCompliance Committee: Existence of and Analysis

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

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

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

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                     a.     arethe meetings being conducted on a regular basis?

                     b.     isthe Compliance Committee receiving and analyzing quality data reports?

                     c.     isthe Compliance Committee ensuring that investigations are being conducted where necessaryto determine the scope and severity of the problem and corrective action plans areinitiated where appropriate?

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

                     e.     isthe Compliance Committee recommending and implementing changes to policies and proceduresand training where appropriate and necessary?

       C.     InternalReview Functions

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

              2.     Analysisof whether the individuals conducting the internal review functions have the appropriatequalifications, have been sufficiently trained, and are appropriately supervised. 

              3.     Analysisof the effectiveness of internal review functions. 

                     a.     abilityto identify the problem;

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

                     c.     abilityto create corrective action plans;

                     d.     abilityto execute the corrective action plans; and

                     e.     abilityto evaluate whether the assessment, corrective action plan, and execution of the plan wereeffective,

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reliable, thorough, and maintained over time. 

       D.     Other QualityCompliance Infrastructure

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

              2.     Analysisof whether there is an infrastructure that allows the decisions that are made concerningquality of care at the facilities to be communicated to the personnel with the authorityto carry out those decisions and that follow up occurs to ensure that any correctiveaction or other decisions are implemented and maintained over time. 

              3.     Analysisof whether there is an infrastructure that allows the personnel that are carrying outdecisions to communicate the outcomes and effectiveness of any decisions to the personneldirecting such action. 

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

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

              5.     Assessmentof whether facility site visits are occurring to determine whether potential qualityproblems are being appropriately identified and acted upon. 

       E.     Effectivenessand Accessibility of the Compliance Officer, the Compliance Staff and Senior Medicaland/or Clinical Advisors.

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

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

              3.     Analysisof whether the Compliance Officer is providing accurate and complete reports to the BoardCommittee and Compliance Committee. 

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              4.     Analysisof the effectiveness of the Compliance Officer and the Compliance Staff and/or the SeniorMedical and/or Clinical Advisors to:

                     a.     abilityto identify the problem;

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

                     c.     abilityto create corrective action plans;

                     d.     abilityto execute the corrective action plans; and

                     e.     abilityto evaluate whether the assessment, corrective action plan, and execution of the plan wereeffective, reliable, thorough, and maintained over time. 

2.     ANALYSIS OF THE POLICIES AND PROCEDURES AND TRAINING
       A.     Analysis ofthe substance of the policies and procedures relating to quality of care to determine ifthey assist the employees in providing appropriate quality of care to the patients andresidents at Sun and are in accordance with professionally recognized standards of care. 

              1.     Assessmentof the clarity of policies and procedures.

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

              3.     Assessmentof the enforcement of policies and procedures. 

       B.     Trainingrelated to Quality of Care. 

              1.     Reviewof training materials. 

              2.     effectivelycommunicated. 

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

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3.     ANALYSIS OF QUALITY RELATED DATA
       A.     Existence ofa 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 Programor other complaints, incident, accident, neglect, and abuse reports, CMS qualityindicators, resident and patient satisfaction surveys, JCAHO reports, and any otherappropriate key indicator variables. 

              1.     Analysisof the integrity of this system or systems. 

                     a.     accuracyof the data being supplied;

                     b.     systemcontrols that maintain the accuracy of the data;

                     c.     availabilityof the data to the appropriate personnel; and

                     d.     timelinessof the data. 

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

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

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

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

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

                     C.     Analysisof whether Sun accurately determines whether the incidents, accidents, neglect or abusereports are related to quality of care issues, and if so, whether they are appropriatelyinvestigated to determine the scope and severity of the problem, and, if warranted, thatcorrective action was taken. 

                     D.     Analysisof whether complaints related to quality of care (including, but not limited to, thosereceived through the Confidential Disclosure Program) are appropriately investigated todetermine the scope and severity of the problem, and, if warranted, that corrective actionwas taken and monitored to ensure permanent correction over time. 

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

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

                     B.     Facilityvisits, ability to copy data, including, but not limited to, patient/resident records andother appropriate documents, subject to the confidentiality provisions of the CIA andapplicable law. 

                     C.     Attendanceat Board Meetings. 

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

                     E.     Attendance at training sessions. 

V.     REPORTING TO GOVERNMENT AND SUN ON MONITORINGACTIVITIES
                     A.     Quarterlyreports to Sun and OIG.

                     B.     Annualreports to OIG on costs incurred.

                     C.     Reportson immediate jeopardy issues as specified in the CIA.

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

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**Appendix B
**Minimum Data Set Audit Guidelines

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

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

       3.     The auditperiod for the first year MDS Audits shall be begin on the Effective Date of the CIA andwill end with the date the MDS Audit begins for each respective Claim Pool (as identifiedin 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 atthe end of the preceding year's Audit Period for each Claim Pool and shall end 12 monthslater. For the first MDS Audit, the universe from which the IRO and Sun will randomlyselect the UB-92 bills to review will include those UB-92s that were paid and have a dateof service during the relevant Audit Period. For the remaining MDS Audits, the universefrom which the IRO and Sun will randomly select the UB-92 bills to review will includethose UB-92s that were paid during the relevant Audit Period.

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

       5.     Sun shallretain copies of all work papers, supporting documentation, correspondence and draftreports, if any, (those exchanged between the IRO and Sun) used or created in connectionwith the MDS Audits and shall make such information available to OIG upon request. The IROshall retain and make available to the OIG, upon request, all supporting rationale for itsfindings.

       6.     If Sunbecomes aware that any facility (including those not selected to be included as part of anannual MDS Audit) is potentially experiencing non-compliance with the Federal health careprogram requirements for claims submissions, Sun shall, after reasonably determiningwhether further review is warranted, in addition to its other CIA obligations, conduct areview of

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

       7.     Consistentwith the definition of Overpayment as articulated in Section III.H.1. of the CIA, anOverpayment is the amount of money Sun has received in excess of the amount due andpayable under any Federal health care program requirements. For the purposes of the MDSAudit and all reporting to the OIG under this CIA, Sun shall not subtract or "netout" underpayments when determining the amount of relevant Overpayments.
**B.     Stage 1 of the MDS Audit***       1.     Conductingthe probe sample audit.*
              a.     Astatistically valid random sample of a minimum of 30 UB-92s shall be selected, usingRAT-STATS, from each facility selected for review. If the reviewer chooses to stratify theprobe sample, the strata shall be determined prior to selecting the random sample ofUB-92s and an explanation of how the strata was determined shall be included in the MDSAudit Report.

              b.     Forboth the probe and full sample MDS Audits, the IRO and Sun's Internal Review Team shallperform the following steps:

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

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

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

                     iii.     TheIRO and Sun's Internal Review Team shall notify each nursing facility of the paid UB-92sthat were selected for review. The IRO and Sun's Internal Review Team shall obtain allappropriate medical records, billing and related supporting documentation. If Sun cannotproduce the medical records or any other supporting documentation necessary to make anaccurate claim determination, the IRO or Sun's Internal Review Team shall consider therelevant portion of the UB-92 which lacks proper documentation to be billed in error.

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

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

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

              f.     Ifthe financial error rate (i.e. total dollars identified as overpaid in the probesample divided by total dollars paid to the facility based on the UB-92s selected in theprobe sample) does not exceed the 5% threshold, the facility shall refund all identifiedOverpayments to the appropriate payor. If the financial error rate exceeds the 5%threshold, a full sample will be evaluated for that facility.
*       2.     Selection offacilities for Stage 2 of the MDS Audit.

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             a.     TheIRO and Sun's Internal Review Team shall conduct Stage 2 of the MDS Audit for eachindividual nursing facility selected as part of the probe sample for which the financialerror rate in Stage 1 was greater than 5%. 

              b.     The5% financial error threshold only applies to criteria for sample expansion, not forextrapolation of an error rate. If the financial error rate exceeds 5%, the universe shallbe comprised of all sampling units for that facility, including those sampling units thatwere selected as part of the probe.
**C.     Stage 2 of the MDS Audit
*       1.     Selecting thefull sample.*
              a.     Stage2 shall consist of reviewing a full sample of UB-92s that have been randomly selected fromthe applicable Audit Period using RAT-STATS.

              b.     Thefull sample shall contain a sufficient number of sampling units to generate results thatprovide, at a minimum, a 90% confidence interval and a maximum precision (relativeprecision i.e., semi-width of the confidence interval) of plus or minus 25% of the pointestimate (i.e., the upper and lower bounds of the 90% confidence interval shall notexceed 125% and shall not fall below 75% of the midpoint of the confidence interval,respectively).

       *2.*     *Conductingthe claims review.*
              a.     TheIRO shall assist Sun's Internal Review Team with the development of the necessary MDSAudit tools and with executing the appropriate sampling methodology.

              b.     Foreach UB-92 selected in Stage 1 and Stage 2, the IRO and Sun's Internal Review Team shallreview the MDS and the medical record documentation supporting the MDS. The review processshall entail an evaluation of the MDS and verification that each entry that affects theRUG code outcome for the MDS is supported by the medical record for the correspondingperiod of time consistent with the assessment reference date ("ARD") specifiedon the MDS. 

              c.     TheIRO and Sun's Internal Review Team shall perform the steps identified in Section B.1.b ofthis Appendix.

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

                      i.     Theaccuracy of the MDS coding and the resulting RUG category selection based on thedocumentation within the medical record. The review of the MDS and related documentationshall include the following:

                            -     assessmentreference date for accuracy;

                            -     activitiesof daily living and the look-back period used;

                            -     specialtreatments and procedures along with the look-back periods;

                            -     nursingrestorative with look-back periods;

                            -     supplementfor PPS with look-back periods used (e.g., estimated therapies and minutes for the5-Day MDS); and

                            -     resultingRUG category.

                      ii.     Thedemonstration of medical necessity in the medical record by verifying the presence ofphysician orders for the services reflected as necessary in the MDS;

                      iii.     Theaccuracy of the associated UB-92s. At a minimum these claims shall be reviewed for thefollowing:

                            -     coverageperiod;

                            -     revenuecodes;

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

                            -     Unitsof service.

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

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

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              g.     Ifan incorrect RUG was used, but it did not result in an Overpayment, it will be noted inthe Audit Report. 
**D.     MDS Audit Report. The following information shallbe included for each MDS Audit in the MDS Audit Report:
*        1.     MDSAudit Methodology*
              a.     MDSAudit Objective: A clear statement of the objective intended to be achieved by the MDSAudit.

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

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

              d.     SamplingFrame: A description of the sampling frame, which is the totality of Items from whichthe probe and full sample have been selected and an explanation of the methodology used toidentify the sampling frame. In most circumstances, the sampling frame will be identicalto the Population. 

              e.     Sourcesof Data: A description of the documentation relied upon by the IRO and Sun's InternalReview Team when performing the MDS Audit (e.g., medical records, physician orders,certificates of medical necessity, requisition forms, local medical review policies, CMSprogram memoranda, Medicare carrier or intermediary manual or bulletins, other policies,regulations, or directives).

              f.     ReviewProtocol: A narrative description of how the MDS Audit was conducted and what wasevaluated.
*        2.     StatisticalSampling Documentation*
              a.     Thenumber of sampling units appraised in each probe sample and in each full sample.

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              b.     Acopy of all RAT-STATS printouts of the random numbers generated by the "RandomNumbers" function.

              c.     Acopy of all RAT-STATS printouts of the "Sample Size Estimators" results used tocalculate the minimum number of Items for inclusion in the full samples.

              d.     Acopy of all RAT-STATS printouts of the "Variable Appraisals," "DifferenceValues Only" function results for each Probe Sample, including a copy of the datafiles.

              e.     TheSampling Frame used in the probe sample(s) and full samples will be available to the OIGupon request.
*        3.     MDSAudit Results*
              a.     Foreach MDS Audit, the total number and percentage of instances in which the IRO and Sun'sInternal Review Team determined that the paid UB-92s submitted by Sun and reimbursed bythe fiscal intermediary differed from what should have been submitted by Sun andreimbursed by the fiscal intermediary (the "Correct UB-92"), regardless of theeffect on the payment.

              b.     Foreach MDS Audit, the total number and percentage of instances in which the UB-92 submitteddiffered from the Correct UB-92 and in which such difference resulted in an Overpayment toSun.

              c.     Foreach MDS Audit, the total dollar amount of all paid claims in the MDS Audit Sample and thetotal dollar amount of Overpayments associated with the paid claims identified by the MDSAudit. (This is the total dollar amount of the Overpayments identified in Section B.3.babove.) The IRO and Sun's Internal Review Team may identify underpayments, but anyunderpayments identified during the MDS Audit shall not be offset or "nettedout" of the total dollar amount of paid claims or of the Overpayments when reportingthese amounts in the MDS Audit Report to the OIG.

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

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

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submitted, procedure code reimbursed, allowed amount reimbursed by payor, correctprocedure code (as determined by the IRO and Sun's Internal Review Team), correct allowedamount (as determined by the IRO and Sun's Internal Review Team), dollar differencebetween allowed amount reimbursed by payor and the correct allowed amount.
*        4.     Credentials.The names and credentials of the individuals who: (1) designed the statistical samplingprocedures and the review methodology utilized for the MDS Audit; and (2) performed theMDS Audit.
**E.     Annual Report**
       Sun shall report the findings from all of theMDS Audits (the "MDS Audit Report") described above as part of its AnnualReport. The OIG may obtain documentation from the IRO and Sun regarding the work that hasbeen performed on these audits, to assist the OIG in determining the appropriateness ofthe findings.

 

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**Appendix C

Overpayment Refund Form**
TO BE    COMPLETED BY MEDICARE CONTRACTORDate:                                               Contractor Deposit Control #                          Date    of Deposit:                                                     Contractor Contact Name:                                             Phone    #                                                      Contractor Address:                                                                                                                       Contractor Fax:                                                                                                                                 
TO BE    COMPLETED BY PROVIDER/PHYSICIAN/SUPPLIERPlease 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    INFORMATIONFor 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                      NoReason Codes:Billing/Clerical ErrorMSP/Other Payer InvolvementMiscellaneous01 - Corrected Date of Service08 - MSP Group Health Plan             Insurance13 - Insufficient Documentation02 - Duplicate09 - MSP No Fault Insurance14 - Patient Enrolled in an HMO03 - Corrected CPT Code10 - MSP Liability Insurance15 - Services Not Rendered04 - Not Our Patient(s)11 - MSP, WorkersComp.(Including16 - Medical Necessity05 - ModifierAdded/Removed       Black    Lung)17 - Other (Please Specify)06 - Billed in Error12 - Veterans Administration                                                 07 - Corrected CPT Code************