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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                -----------------

                                    FORM 10-K

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

(Mark One)


    X       Annual Report Pursuant to Section 13 or 15(d) of the Securities
---------   Exchange Act of 1934

                   For the fiscal year ended December 31, 2001

                                       or

            Transition  Report  Pursuant to Section 13 or 15(d) of the
----------- Securities  Exchange Act of 1934

            For the Transition Period From        to


Commission File Number:  000-19370

                         Curative Health Services, Inc.
             (Exact name of registrant as specified in its charter)

                MINNESOTA                            41-1503914
               (State or other jurisdiction of       (I.R.S. Employer
               incorporation or organization)        Identification Number)

                 150 Motor Parkway
               Hauppauge, New York                   11788
        (Address of principal executive offices)     (Zip Code)

       Registrant's telephone number, including area code: (631) 232-7000

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                                (Title of Class)

    Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months ( or such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days:

                                 Yes X    No
                                    ----    ----

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [  ]

    As of March 15, 2002, 11,559,642 shares of Common Stock of  Curative  Health
Services,  Inc. were  outstanding and the aggregate  market value of such Common
Stock held by  non-affiliates  (based upon its  closing  price on such date) was
approximately $102 million.

                       DOCUMENTS INCORPORATED BY REFERENCE
    Portions of Registrant's Proxy Statement for its 2002 Annual Meeting of
Stockholders, which the Registrant intends to file not later than 120 days
following December 31, 2001, are incorporated by reference to Part III of this
Form 10-K Report.

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                                     PART I

Item 1.  Business

Business of Curative Health Services, Inc.

      Curative Health Services, Inc. seeks to deliver high-quality results and
exceptional patient satisfaction for patients experiencing serious or chronic
medical conditions through two unique business units. Our Specialty Pharmacy
Services business unit provides services to help patients manage the healthcare
process and offers related pharmacy products to patients for chronic and
critical disease states. Through our Specialty Pharmacy Services business unit,
we purchase various biopharmaceutical products, which include both
pharmaceuticals (i.e., drugs) as well as biological products (e.g., hemophilia
factor), from manufacturers and then contract with insurance companies,
government agencies and other payors to provide distribution, education and
other support services in connection with these biopharmaceutical products. In
addition, as part of our Specialty Pharmacy Services operations, we provide
biopharmaceutical product distribution, data and support services under contract
with retail pharmacies. The biopharmaceutical products distributed by us are
used by patients with chronic or severe conditions such as hemophilia, hepatitis
C, rheumatoid arthritis and multiple sclerosis. We have contracts with
approximately 170 payors and three retail pharmacies. Our Specialty Pharmacy
Services business unit provides services directly to patients and caregivers via
mail order, overnite courier, retail pharmacy and having our community-based
representatives deliver the products.

      Our Specialty Healthcare Services business unit is a leading disease
management company in chronic wound care management. Currently, our Specialty
Healthcare Services business unit manages, on behalf of hospital clients, a
nationwide network of Wound Care Center(R) programs that offer a comprehensive
range of services for treatment of chronic wounds. Our Wound Management
Program(R) consists of diagnostic and therapeutic treatment procedures which are
designed to meet each patient's specific wound care needs on a cost-effective
basis. Our treatment procedures are designed to achieve positive results for
wound healing based on our significant experience in the field. We maintain a
proprietary database of patient results that we have collected since 1988
containing over 350,000 patient cases. Our treatment procedures, which are based
on our extensive patient data, have allowed us to achieve an overall rate of
healing of approximately 80% for patients completing therapy. Our Wound Care
Center network consists of approximately 100 outpatient clinics
(operating or contracted to open), located on or near campuses of acute care
hospitals in more than 30 states.

Specialty Pharmacy Services Business Unit

      Our Specialty Pharmacy Services business unit provides high cost,
injectable biopharmaceutical products to patients with chronic health conditions
for which there is no cure. Our Specialty Pharmacy Services business unit
services include patient education and instruction regarding the administration
of their medications, monitoring of patient compliance with manufacturers
guidelines, specialized delivery services, including refrigerated overnight
mail, courier or community liaison delivery services, patient and community
advocacy, and reimbursement services on behalf of patients, retail pharmacies
and payors.

Specialty Pharmacy Services Market and Products

      The specialty pharmacy industry has developed as the approval of new
biopharmaceutical products has expanded. These specialty products require
temperature sensitive storage and delivery, patient education, training and
monitoring in their proper use. The principal patient disease states we service
are hemophilia, multiple sclerosis, rheumatoid arthritis, hepatitis C, post
chemotherapy and growth hormone deficiency. The biopharmaceutical drugs we
provide to treat these diseases are high cost, require special dispensing and
temperature sensitive delivery, and are usually self administered by the patient
through an injection. A discussion of the disease states we service and products
we offer follows.

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      Hemophilia - hemophilia is an inherited disorder that causes abnormal
bleeding. This bleeding may occur after trauma, injury, surgery or spontaneously
for no apparent cause. There are two types of hemophilia, hemophilia A and
hemophilia B. Hemophilia A is the result of a deficiency in the bloodstream of a
plasma protein called factor VIII which helps blood to clot. The greater the
deficiency of this plasma protein, the greater the severity of the disease.
Severity in hemophilia is measured as mild, moderate or severe. Approximately
80% of hemophiliacs are type A. Hemophilia B is also the result of a deficiency
in the bloodstream of a plasma protein, factor IX. Severity of this type of
hemophilia is also measured as mild, moderate or severe. Approximately 20% of
all hemophiliacs are type B. It is estimated that there are 20,000 persons in
the United States that suffer from one of the two types of hemophilia and that
60% suffer from a severe form of the disease. In the case of patients with
severe hemophilia, injection of clotting factor is usually required on a weekly
basis, and more frequently if an episode of bleeding occurs. Our Specialty
Pharmacy Services business unit provides hemophilia patients with both factor
VIII and factor IX blood clotting products under prescription from a physician.

      Multiple sclerosis - multiple sclerosis is a disease of the central
nervous system for which neither a cause nor a cure is currently known. The
central nervous system is made up of nerves that act as the body's messenger
system. Nerves are protected by substances called myelin, which insulate the
nerves and aid in the transmission of nerve impulses, or messages between the
brain and other parts of the body. In patients with multiple sclerosis, the
body's immune cells enter the brain and spinal cord and attack the protective
myelin covering. Once the myelin is gone, a process called demyelination, nerve
impulses sent throughout the central nervous system can become disrupted. The
brain then becomes unable to send and receive messages. Although the nerves can
regain myelin, this process is not fast enough to outpace the deterioration that
occurs. The types and severity of multiple sclerosis varies due to the location
and the extent of demyelination. It is estimated that between 250,000 and
300,000 persons in the United States have multiple sclerosis. In recent years
the FDA has approved several biopharmaceutical drugs that been shown to help
slow the progression of multiple sclerosis. These drugs are Avonex, Betaseron
and Copaxone. Our Specialty Pharmacy Services business unit provides these
products, under prescription from a physician, to patients with multiple
sclerosis.

      Rheumatoid arthritis - rheumatoid arthritis is an inflammatory disease of
the synovium, or lining of the joint, that results in pain, stiffness, swelling,
deformity and loss of function in the joints as cartilage and bone is destroyed.
This inflammation is most common in the hands and the feet. Rheumatoid arthritis
is an auto-immune disease, which means it is a disease in which the body's
immune system attacks its own body tissues It is estimated that 2.1 million
people in the United States have rheumatoid arthritis. The treatment of
rheumatoid arthritis involves specialty biopharmaceuticals. Many drugs may be
used to manage pain and slow progression of rheumatoid arthritis, but there is
currently no cure for the disease. Current treatments of rheumatoid arthritis
target reducing inflammation, preventing damage to bones, ligaments and joints,
and preserving joint function. Our Specialty Pharmacy Services business unit
provides to patients, under a physician's prescription, specialty
anti-inflammatory biopharmaceuticals such as Enbrel and Remicade to treat the
symptoms of rheumatoid arthritis.

      Hepatitis C - hepatitis C is a blood borne infection that can attack and
damage the liver. The hepatitis C virus is spread predominately through contact
with infected blood and can lead to cirrhosis, liver cancer or liver failure.
Hepatitis C is the principal reason for liver transplant and affects an
estimated 4 million persons in the United States. It is characterized by a
consistent elevation of liver enzymes. There is currently no cure or vaccination
for hepatitis C. Treatment of hepatitis C may include the use of interferon and
the antiviral drug ribavirin. Our Specialty Pharmacy Services business unit
provides to patients, under a physician's prescription, hepatitis C treatments
such as Intron and Rebetron.

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      Post chemotherapy - post chemotherapy patients often develop fatigue,
anemia and susceptibility to infection as the result of their cancer treatments.
Approximately 70% of all cancer patients receiving chemotherapy treatments
experience fatigue and anemia. Anemia is caused by the destruction of red blood
cells that occurs during chemotherapy. Red blood cells carry hemoglobin, which
transports oxygen to cells and organs. Once depleted of red blood cells, the
body is then unable to adequately transport oxygen and fatigue results. White
blood cells assist the body in staving off infection. A depletion of whit blood
cells occurs in cancer patients who receive chemotherapy treatments. Our
Specialty Pharmacy Services business unit provides to patients, under a
physician's prescription, post chemotherapy treatments such as Epogen and
Procrit to treat red blood cell deficiency and Neupogen to treat white blood
cell deficiency.

      Growth hormone deficiency - growth hormone deficiency occurs when the
pituitary gland produces growth hormones in inadequate amounts or not at all.
There are an estimated 15,000 children in the United States that have some form
of growth failure as the result of growth hormone deficiency. Growth hormone
deficiency is treated by injecting synthetic forms of growth hormones. Growth
rates are usually rapid after treatment starts, which may be noticeable to the
child and parent in 3 to 4 months. This rapid growth rate slowly declines over
time, but it continues to be greater than would occur without treatment. Our
Specialty Pharmacy Services business unit provides to patients, under a
physician's prescription, growth hormone treatments such as Genotropin, Nutropin
and Nutropin Depot.

Specialty Pharmacy Services Product Distribution

      We distibute our products by mail, overnight courier or in person through
our community based representatives. A significant portion of the
biopharmaceuticals we deliver require specialized handling including
refrigeration. The products we ship include the drugs, educational materials and
any supplies necessary for the patient to adminster the medication. Our products
are shipped from our warehouse in San Carlos, California or from one of the
retail pharmacies with which we contract.

Specialty Pharmacy Services Product Suppliers

      Our Specialty Pharmacy Services business unit obtains the products it
offers direct from manufacturers and from wholesale distributors. We purchase
our hemophilia related products from five suppliers with whom we have supply
arrangements. Hemophilia related products, particularly factor VIII has seen
significant supply constraints since December 2000. In December 2000, Bayer
Corporation suspended production of its second generation factor VIII blood
clotting agent in response to an FDA inspection of its manufacturing facility in
Berkeley, California. As a result, factor VIII product supply was significantly
reduced and was often on allocation during 2001. Allocation of product limited
the ability to add new hemophilia patients during 2001. Although we can not be
certain, we believe that under our arrangements with suppliers we will have
adequate supply of factor VIII products to serve our existing patients and to
add new patients in 2002. Other non- hemophilia related injectable products we
offer are purchased directly from manufacturers or through wholesalers.

Specialty Pharmacy Services Strategy

      Our Specialty Pharmacy Services business unit's strategy is to achieve
growth both by adding new patients and through acquisitions of complementary
businesses. Each year many new patients are diagnosed with the disease states we
service creating market opportunity for organic growth and each year new drugs
are approved that require the specialized services we offer. Additionally many
smaller suppliers of specialty pharmaceuticals are seeking partnerships or to be
acquired to better supply and service their patients. Our Specialty Pharmacy
Service business unit's strategy is to take advantage of these opportunities as
they present themselves

      On February 28, 2002, we acquired all of the outstanding capital stock of
Apex Therapeutic Care, Inc., a leading provider of biopharmaceutical products,
therapeutic supplies and disease management services to people with hemophilia
and related bleeding disorders. Apex is based near Los Angeles, California. The
aggregate purchase price for Apex consisted of 1,805,969 newly issued shares of
Curative common stock, $18,700,000 cash and a $5,000,000 promissory note.

      On January 7, 2002, we acquired Hemophilia Access, Inc., a provider of
pharmaceuticals, therapeutic supplies and disease management services to people
with hemophilia and related bleeding disorders. Hemophilia Access is based near
Nashville, Tennessee. The purchase price for Hemophilia Access was $2.65
million, substantially all of which was paid using 175,824 shares of our common
stock.

Specialty Pharmacy Services Payor Contracts

     We currently have contracts with  approximately 170 payors and three retail
pharmacies.  The payors we contract with are typically large health  maintenance
organizations,   major  health  insurers,   government  agencies  and  physician
practices.  The services we provide  include direct  shipping of products to the
patient,  coverage pre authorizations,  distribution of educational materials to
help patients with their disease and other support services.

                                       4
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Specialty Pharmacy Services Reimbursement

      Our Specialty Pharmacy Services business unit purchases biopharmaceutical
products from manufacturers and then contracts with insurance companies,
government and other payors to provide direct-to-patient distribution of, and
education about, the biopharmaceutical products. Our Specialty Pharmacy Services
revenues are derived primarily from fees paid by the payors under these
contracts for the purchase and distribution of these biopharmaceuticals. In
addition, as part of our Specialty Pharmacy Services operations we provide
biopharmaceutical product distribution and support services under contracts with
retail pharmacies for which we receive service fees. The biopharmaceutical
products distributed by us are used by patients with chronic conditions such as
hemophilia, multiple sclerosis, rheumatoid arthritis, hepatitis C, and growth
hormone deficiency. Our Specialty Pharmacy Services business unit has developed
expertise in reimbursement for the products it distributes. Prior to shipping
product, authorization from the patient's health care payor is obtained and
coverage is determined, easing the process for the patients and avoiding billing
disputes with payors which might otherwise occur. We currently contract with
approximately 170 payors and three retail pharmacies.

     The profitability of our Specialty Pharmacy Services  operations depends in
large part on the  reimbursement we receive from third-party  payors.  In recent
years,  competition for patients,  efforts by traditional  third-party payors to
contain or reduce healthcare costs, and the increasing influence of managed care
payors, such as health maintenance organizations, have resulted in reduced rates
of reimbursement.  If these trends continue,  they could harm our business.  The
profitability of our specialty pharmacy operations also depends,  indirectly, on
reimbursement  from third-party  payors because our customers seek reimbursement
from third-party  payors for the cost of drugs and related medical supplies that
we distribute.  Changes in  reimbursement  policies of private and  governmental
third-party  payors,  including policies relating to the Medicare,  Medicaid and
other federally  funded programs,  could reduce the amounts  reimbursed to these
customers  for our products and in turn,  the amount  these  customers  would be
willing to pay for our products and services. In addition,  where we have direct
relationships with payors,  changes in their  reimbursement  policies may reduce
amounts payable  directly to us by such payors.  Changes in those  reimbursement
policies could affect our customers, which in turn could harm our business.

Specialty Pharmacy Services Competition

      The specialty pharmacy industry is highly competitive. Our competitors
include other specialty pharmacy companies, retail chain pharmacies, mail order
and hospital based pharmacies. National competitors include Accredo Health,
Gentiva, which recently announced that it will be acquired by Accredo Health,
Caremark, Chronimed and Priority Healthcare. The Special Pharmacy Services
business unit competes in areas such as quality of service, availability of
pharmacists and patient service representatives on an around the clock basis,
pricing, and reliability. The competitive strategy of Specialty Pharmacy
Services business unit is to stay close to, and maintain a strong relationship
with, on an individual basis, its patient and payor customer base.

Specialty Healthcare Services Business Unit

      Our Specialty Healthcare Services business unit is a leading disease
management Company.  Currently, our Specialty Healthcare Services business unit
manages, on behalf of hospital clients, a nationwide network of Wound Care
Center programs that offer a comprehensive range of services for treatment of
chronic wounds.

Specialty Healthcare Services Market

      Market Overview. Chronic wounds are common in patients with diabetes and
venous stasis disease, as well as patients who are immobilized and afflicted
with pressure sores. A chronic wound generally is a wound which shows no signs
of significant healing in four weeks or has not healed in eight weeks. The
healing of a wound is dependent upon adequate blood flow to stimulate new cell
growth and combat infection. When adequate blood flow does not occur, the
healing process is retarded, often resulting in a chronic wound that can last
for months or years. Without effective treatment, a chronic wound may lead to
more severe medical conditions, such as infection, gangrene and amputation,
which are costly to payors and impede the quality of life for the patient.

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<PAGE>

      According to Chronic Wound Care: U.S. Markets for Wound Management
Products (Medical Data International, 1997), it is estimated that at least six
million people suffer from chronic wounds in the United States. Of the six
million people with chronic wounds, an estimated three million have pressure
sores, over two million have diabetic ulcers, and over one million suffer from
venous stasis ulcers. Diabetic ulcers are responsible for 60,000 limb
amputations each year, accounting for more than half of all such procedures not
related to trauma. Venous stasis disease and pressure sores often afflict the
elderly, who constitute the most rapidly growing segment of the U.S. population
and account for a disproportionately large share of total U.S. health care
expenditures. It is estimated that the wound care segment of the U.S. health
care industry generated $5 billion in expenditures in 1997. It is also
anticipated that the wound care market will continue to grow due to the aging
population and the increasing incidence of health disorders, such as diabetes,
which may lead to chronic wounds.

      Traditional Approach to Chronic Wound Care. Traditional chronic wound care
treatment, which is typically administered by a primary care physician, relies
principally on cleansing and debriding the wound, controlling infection with
antibiotics and protecting the wound. For example, topical or oral antibiotics
are administered to decrease the bacterial count in the wound, protective
dressings are used to decrease tissue trauma and augment repair and various
topical agents are applied that chemically cleanse the wound and remove wound
exudate. These passive treatments do not directly stimulate the underlying wound
healing process. In many cases, the patient may have to see a number of health
care professionals before effective treatment is received. In addition, under
this traditional care model, patients must manage their own care, which often
leads to non-compliance and treatment failure which may lead to infection,
gangrene and amputation. Although wound care programs have begun to evolve to
more specialized and aggressive treatment regimens, we believe that a
significant medical need and market opportunity exists for products and services
that improve and accelerate the wound healing process.

Specialty Healthcare Services - the Curative Approach to Chronic Wound Care

      Our Specialty Healthcare Services Wound Management Program is a
comprehensive array of diagnostic and therapeutic treatment regimens with all
the components of care necessary to treat chronic wounds. Specialty Healthcare
Services' Wound Management Program is administered primarily through Specialty
Healthcare Services' nationwide network of Wound Care Centers. We believe the
Wound Management Program provides a better approach to chronic wound management
than the traditional approach, which Specialty Healthcare Services believes
lacks comprehensive wound programs, effective technology, positive outcomes and
cost efficiency. Each Wound Management Program offers its patients an
inter-disciplinary team of health care professionals, including a medical
director, surgeon, nurse, case manager, nutritionist and endocrinologist.

      In most cases, patients arriving at Specialty Healthcare Services' Wound
Care Centers have been treated with traditional wound healing techniques, but
continue to suffer from chronic wounds. In some cases, patients come to a Wound
Care Center after they have received an opinion from their primary physician
that limb amputation is required. In a retrospective review of Specialty
Healthcare Services' clinical database for the nine year period 1991-1999, it
was determined that 15,922 patients treated under Specialty Healthcare Services'
Wound Management Program had been recommended for amputation by a physician.
After being treated under Specialty Healthcare Services' Wound Management
Program 13,704 patients, or approximately 86%, did not require a limb
amputation. Further, the literature published on the cost of amputation
documents that an amputation and related health care costs are $43,100 to
$63,100 per patient amputation. Specialty Healthcare Services believes that this
demonstrates the impact that Specialty Healthcare Services' Wound Management
Program has on reducing health care costs and improving quality of life. Upon
the commencement of treatment under our Wound Management Program, medical
personnel conduct a systematic diagnostic assessment of the patient. Specialized
treatment protocols are then established for the patient, based on the
underlying cause of the wound and the unique status of the patient. After the
assessment phase, the course of treatment in the Wound Management Program may
include revascularization, infection control, wound debridement, growth factor
therapy, skin grafting, nutrition, protection devices, patient education,
referrals, and effective management of care through patient/provider
communications.

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<PAGE>

      To measure the effectiveness of our Wound Management Program, Specialty
Healthcare Services has developed a functional assessment scoring system to
measure the healing of a wound. Under this system, a chronic wound is considered
healed when (i) it is completely covered by epithelium (i.e., a membranous
cellular tissue that covers and protects a wound as it heals), (ii) maturing
skin is present in the wound, (iii) there is minimal drainage from the wound,
(iv) the wound requires only a protective dressing and (v) the limb involved is
functional. We have a proprietary database of patient outcomes that Specialty
Healthcare Services has collected since 1988 containing approximately 350,000
patient records which indicate an overall healing rate of approximately 80% for
patients completing therapy. In a meta-analysis entitled, "Healing of Diabetic
Neuropathic Foot Ulcers Receiving Standard Care," and published in the May, 1999
issue of Diabetes Care, internationally renowned wound care experts and
researchers David J. Margolis, M.D., and Jesse A. Berlin, S.C.D., studied a
population of wound patients to determine the percentage who could be expected
to heal within a defined period, after receiving what the authors defined as
"good wound care". That study concluded that "after 20 weeks of good wound care,
31 percent of diabetic neuropathic ulcers heal." Specialty Healthcare Services
conducted a shadow analysis to compare healing rates of patients treated at our
managed Wound Care Centers, against the results of Margolis et al meta-analysis.
Using the clinical database, we replicated the methodology and stratified the
data to identify and compare patients with the same wound etiologies and
treatment times as those in the meta-analysis. Our shadow analysis concluded
that the Wound Care Centers achieved a 61 percent healing outcome rate for
patients with neuropathic ulcers in 20 weeks of treatment while the healing
outcome rate in the meta-analysis was 31 percent. Therefore, our Wound Care
Centers were almost twice as effective in healing wounds as compared with the
results from the meta-analysis.

      A unique aspect of Specialty Healthcare Services' Wound Management Program
was the use of Procuren(R), a wound healing agent which was used to treat
approximately 6% of patients. Procuren was a naturally occurring complex mixture
of several growth factors. Growth factors have been shown to promote the growth
of skin, soft tissue and blood vessels. Procuren was produced by stimulating the
release of growth factors from platelets contained in the patient's own blood.
Blood was taken from the patient at the treatment center and then sent to a
Specialty Healthcare Services-operated blood processing facility located in the
same state where the patient's blood was drawn. To produce Procuren, Specialty
Healthcare Services separated the platelets from the remainder of the blood
sample. Thrombin, a substance in the body that is active in the wound healing
process, was added to the platelets, causing the platelets to release growth
factors. The platelet shells were discarded and the growth factors were diluted
and placed in a buffered solution which was frozen until used. When required as
part of the patient's wound care treatment program, Procuren was applied
topically to the wound area by soaking a gauze dressing in the Procuren solution
and covering the wound area with the gauze. On January 2, 2001, the Company sold
its Procuren operations to Cytomedix, Inc. Under the terms of the agreement,
Cytomedix acquired the assets associated with the Procuren operations and
became the exclusive manufacturer of Procuren while Specialty Healthcare
Services retains exclusive distribution rights for Procuren in the United
States. In May 2001 Cytomedix notified us that due to financial difficulties it
would discontinue offering Procuren effective June 2001. Procuren is no longer
offered at Specialty Healthcare Services Wound Care Centers.

Specialty Healthcare Services Strategy

      Our Specialty Healthcare Services business unit's objective is to enhance
its position as a leading disease management company in the chronic wound care
market. Specialty Healthcare Services' growth strategy is to continue to improve
and refine the Wound Management Program while broadening its delivery models to
cover the entire continuum of care for wound management. Key elements of this
strategy include:

      Continue to Develop Specialty Healthcare Services' Nationwide Network of
Outpatient Wound Care Centers. We intend to continue to establish additional
outpatient Wound Care Centers on or near the campuses of acute care hospitals.
Specialty Healthcare Services currently manages approximately 100 outpatient
wound care centers as of the end of 2001 and believes the opportunity for
further growth remains substantial. Specialty Healthcare Services has identified
over 300 additional markets in the United States which we believe have the
population necessary to support a dedicated wound care program. We believe
hospitals are continually seeking low-cost, high-quality solutions to wound
management such as those provided by Specialty Healthcare Services. In addition,
we believe it enables its hospital clients to differentiate themselves from
their competitors through better wound care treatment outcomes, reduced costs
due to decreased inpatient lengths of stay and increased revenue through the
introduction of new patients. As a result, we believe there is a significant
opportunity for Specialty Healthcare Services to continue to expand its Wound
Care Center operations through affiliation with acute care hospitals.

      Develop New Service Models to Enhance Market Penetration. Specialty
Healthcare Services is actively developing new service models in new health care
delivery settings such as inpatient programs for acute care hospitals and long
term care facilities (e.g., nursing homes and long term acute care hospitals).
These new service models are being operated as a service from Specialty
Healthcare Services' existing hospital outpatient Wound Care Centers. Pressure
sores, the most common form of chronic wound, usually occur among nursing home,
acute care and home care patients due to the sedentary lifestyle associated with
those care settings. As we further develop our inpatient service models, we
believe we will become more capable of penetrating the large pressure sore
market.

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      Provide a Comprehensive Managed Care Product. In addition to providing new
revenue opportunities, we believe its ability to provide its services as a
comprehensive managed care product in a number of settings will increase its
attractiveness to managed care payors seeking to provide a continuum of care
while reducing risk. With its Wound Management Program and increasing presence
in multiple health care delivery settings, Specialty Healthcare Services can
offer managed care payors a shared risk relationship which we believe will
provide better patient healing outcomes and more cost-effective services for
subscribers. Further, in 1998 we entered into a development and license
agreement with Accordant Health Services, Inc., a private disease management
company. As a strategic partner, Accordant has been licensed by Specialty
Healthcare Services to develop and market a wound care disease management
program to the managed care market. Specialty Healthcare Services has not
generated any revenue from this business. Additionally, we have made a $4
million equity investment in Accordant.

      Enhance Specialty Healthcare Services' Wound Management Program. Specialty
Healthcare Services currently offers a unique Wound Management Program which
includes assessment, vascular studies, revascularization, infection control,
wound debridement, growth factor therapy, skin grafting, nutrition, protection
devices, patient education, referrals and effective management of care through
patient/provider communications. In addition, Specialty Healthcare Services is
continually exploring and seeking advances in wound care management services and
products which could enhance its current Wound Management Program. Specialty
Healthcare Services is actively pursuing such advances through the continuous
development of its current services, and the consideration of acquisition
opportunities and co-marketing arrangements with other providers of wound care
products and services. Current product offerings include furnishing hyperbaric
oxygen services to interested hospital partners, alliance with companies
marketing new wound care technologies and developing clinical research
capabilities for the wound care center network.

      Expand Into Other Disease Management Areas. Longer term, Specialty
Healthcare Services is considering capitalizing on its disease management
expertise by expanding its services into other disease management areas to meet
the growing continuum of health care needs of patients and providers. We believe
that there is a significant market potential for the delivery of other disease
management services through its existing network of Wound Care Centers. The
possibilities for expansion of our disease management services include the
treatment of chronic wound related diseases such as diabetes, as well as
non-chronic wound related diseases such as cardiovascular disorders. In February
2001, we signed an agreement forming a strategic alliance with E2M Health
Services, a privately held company. Under the agreement we will provide, to
select hospitals, a diabetes management model owned by E2M. The program is in
the early stages of implementation and there can be no assurances that the
program will be successful.

Specialty Healthcare Services Wound Care Operations

      Specialty Healthcare Services' wound care operations offer health care
providers the opportunity to create specialty wound care departments designed to
meet the needs of chronic wound patients. The initial focus of Specialty
Healthcare Services' wound care operations has been hospital outpatient Wound
Care Centers. Specialty Healthcare Services is currently expanding its
programmatic approach to wound care to inpatient settings such as acute care
hospitals and long term care facilities. In these settings Specialty Healthcare
Services is establishing a wound care program with existing hospital Wound Care
Centers to offer an inter-disciplinary approach to the treatment of chronic
wounds in the inpatient settings.

      Hospital Outpatient Wound Care Centers. Outpatient Wound Care Centers,
located on or near the campuses of acute care hospitals, represent Specialty
Healthcare Services' core business. A typical hospital outpatient Wound Care
Center consists of 2,500 square feet of space comprising four to eight exam
rooms, a nursing station, and physician and administrative offices. These Wound
Care Centers are designed to deliver all necessary outpatient services for the
treatment of chronic wounds, with the hospital providing any inpatient care,
such as revascularization or surgical debridement.

                                       8
<PAGE>

      Specialty Healthcare Services currently offers its hospital clients two
outpatient Wound Care Center models: a management model and an "under
arrangement" model, with a primary focus on developing management models. The
differences between these two models relate primarily to the employment of the
clinical staff at the Wound Care Center and the basis for the management fees
paid to Specialty Healthcare Services. In the management model, generally our
only employee at the Wound Care Center is the Wound Care Center's Program
Director, and Specialty Healthcare Services generally receives a fixed monthly
management fee and a variable case management fee. In the "under arrangement"
model, we employ all of the clinical and administrative staff (other than
physicians) at the Wound Care Center and Specialty Healthcare Services generally
receives fees based on the services provided to each patient. In all other
material respects the two models are identical. In both models, physicians
remain independent and Specialty Healthcare Services recruits and trains the
physicians and staff associated with the Wound Care Center. The physicians
providing services at a Wound Care Center are recruited by Specialty Healthcare
Services primarily from among the doctors who work at the hospital and practice
in related areas. In addition, in both models Specialty Healthcare Services
field support departments provide the staff at each Wound Care Center with
clinical oversight, quality assurance, reimbursement consulting, sales and
marketing and general administrative support services. The terms of Specialty
Healthcare Services' contract with each hospital are negotiated individually.
Generally, in addition to the management fees described above, the contracts
provide for development fees charged to the hospital.  In both models, the
hospital and the physician bill the patient for the services provided and are
responsible for seeking reimbursement from insurers or other third party payors.

      The first Wound Care Center opened in 1988 and there are currently
approximately 100 hospital outpatient Wound Care Centers in operation in 33
states. Specialty Healthcare Services has entered into contracts with 5
hospitals to open additional Wound Care Centers. Specialty Healthcare Services'
hospital client base ranges from medium-sized community-based hospitals to large
hospitals affiliated with national chains and not-for-profit hospitals in local
markets. Specialty Healthcare Services selects hospital clients based on a
number of criteria. A suitable hospital client typically can accommodate at
least 200 inpatient beds, offers services which complement the Wound Management
Program, including physician specialists in the areas of general, plastic and
vascular surgery, endocrinology and diabetes, is financially stable and has a
solid reputation in the community it serves. Of Specialty Healthcare Services'
approximately 100 current hospital outpatient Wound Care Centers, 89 are
management model centers and 11 are "under arrangement" model centers. We
anticipate that many of the existing under arrangement models will be converted
to management models in 2002 because of pending reimbursement changes (see
"Third Party Reimbursement").

      In expanding its product offering, Specialty Healthcare Services furnishes
hyperbaric oxygen therapy (HBO) services to interested hospital partners
operating outpatient wound care centers. These services generally include
furnishing HBO chambers and managing the program. As of December 31, 2001
Specialty Healthcare Services managed 11 HBO programs at existing hospital
outpatient Wound Care Centers which accounted for approximately 3% of Specialty
Healthcare Services' revenue.

      Inpatient Wound Care Programs. Specialty Healthcare Services is addressing
the needs of the inpatient wound care market through the development of new
inpatient programs. These patients often have pressure sores resulting from
inactivity. While not typically as severe as diabetic or venous stasis ulcers,
pressure sores represent the largest segment of the chronic wound market.
Specialty Healthcare Services has developed an inpatient program for its
affiliated acute care hospitals with outpatient wound care centers that is
directed at assisting those hospitals in identifying and managing inpatients in
the acute care hospital that are at risk or who suffer from chronic wounds. The
program is primarily directed at reducing the length of stay of those patients
in the acute care setting. Specialty Healthcare Services has also developed a
Wound Outreach Programsm, whereby a nurse practitioner or physician assistant
from an affiliated outpatient wound care center provides wound related services
to long term care facilities in surrounding cachement areas. As of December 31,
2001, Specialty Healthcare Services has contracts to manage 32 such inpatient
programs at existing acute-care hospital customers of which 18 were operating as
of December 31, 2001. Further, Specialty Healthcare Services has contracts to
manage 16 programs that provide outreach wound care services to local long-term
care facilities. Both programs are in the early stages of development and
implementation. We cannot assure you that these programs will be successful in
the future.

      Procuren Production Facilities. In January 2001, Specialty Healthcare
Services sold its Procuren operations to Cytomedix, Inc. Under the terms of the
agreement, Cytomedix acquired the assets associated with the Procuren operations
and became the exclusive manufacturer of Procuren while Specialty Healthcare
Services retained the exclusive distribution rights for Procuren in the United
States. In May 2001, Cytomedix notified Specialty Healthcare Services that due
to Cytomedix financial difficulties, it would discontinue offering Procuren
effective June 2001. As a result Procuren is no longer offered at Specialty
Healthcare Services wound care centers.

                                       9
<PAGE>

Specialty Healthcare Services Contract Terms and Renewals


            Substantially all of the revenues of Specialty Healthcare Services
are derived from management contracts with acute care hospitals. The contracts
generally have initial terms of three to five years and many have automatic
renewal terms unless specifically terminated. During the year ending December
31, 2002, the contract terms of 32 of Specialty Healthcare Services' management
contracts will expire, including 14 contracts which provide for automatic
one-year renewals. The contracts often provide for early termination either by
the client hospital if specified performance criteria are not satisfied, or by
Specialty Healthcare Services under various other circumstances. Historically,
some contracts have expired without renewal and others have been terminated by
Specialty Healthcare Services or the client hospital for various reasons prior
to their scheduled expiration. During 2001, 9 hospital contracts expired without
renewal and an additional 31 hospital contracts were terminated prior to their
scheduled expiration by the client hospital and in some cases by Specialty
Healthcare Services. Generally, Specialty Healthcare Services elects to
negotiate a mutual termination of a management contract if a client hospital
desires to terminate the contract prior to its stated term. Specialty Healthcare
Services believes that there were a number of reasons why hospitals chose to
terminate their contracts including Specialty Healthcare Services legal actions,
hospital financial difficulties and the Medicare reimbursement changes which
reduced hospital revenues. The continued success of Specialty Healthcare
Services is subject to its ability to renew or extend existing management
contracts and obtain new management contracts. Hospitals choose to terminate or
not to renew contracts based on decisions to terminate their programs or to
convert their programs from independently managed programs to programs operated
internally. There can be no assurance that any hospital will continue to do
business with Specialty Healthcare Services following expiration of its
management contract or earlier, if such management contract is terminable prior
to expiration. In addition, any changes in the Medicare program or third party
reimbursement levels which generally have the effect of limiting or reducing
reimbursement levels for health services provided by programs managed by
Specialty Healthcare Services could result in the early termination of existing
management contracts and would adversely affect the ability of Specialty
Healthcare Services to renew or extend existing management contracts and to
obtain new management contracts. The termination or non-renewal of a material
number of management contracts could harm our business.

Specialty Healthcare Services Managed Care Operations

      Specialty Healthcare Services' managed care strategy is currently focused
on marketing Wound Care Center services to local managed care organizations
("MCOs") in concert with its hospital clients' efforts to promote all
hospital-based services to such MCOs. Specialty Healthcare Services has been
seeking to establish relationships with MCO's. Specialty Healthcare Services'
contractual arrangements with MCOs, which will vary based upon the needs of the
particular MCO, are expected to provide for Specialty Healthcare Services to
receive compensation on a fee-for-service, fixed case rate or at-risk capitation
basis. While Specialty Healthcare Services anticipates that initially most of
its managed care contracts will be fee-for-service or case rate contracts, it
expects that at-risk capitation could become a contracting method.

      Specialty Healthcare Services' longer term managed care strategy is to
establish a wound care carve-out product with selected MCOs. Specialty
Healthcare Services has begun to develop tools to help MCOs assess their current
wound care experiences (both clinical results and costs) against Specialty
Healthcare Services' Wound Management Program in order to demonstrate that a
wound care carve-out product can provide added value. In order to make itself
more attractive to MCOs by offering a broader disease management program,
Specialty Healthcare Services intends, where appropriate, to align itself with
other disease management companies focused on case management or complementary
diseases such as cardiac care venous, stasis management and diabetes. To date
Specialty Healthcare Services has been unsuccessful in establishing managed care
relationships.

                                       10
<PAGE>

      In 1998, Specialty Healthcare Services entered into a development and
license agreement with Accordant Health Services, Inc. a private disease
management company. As a strategic partner, Accordant was licensed by Specialty
Healthcare Services to develop and market a wound care disease management
program to the managed care market including, Health Maintenance Organizations
(HMOs), Preferred Provider Organization (PPOs) and insurance companies. The
wound care disease management program developed includes impact models,
assessment/intervention tools and clinical results reporting. The model was
expected to be a "carve in" approach whereby registered nurses will monitor
health plan subscribers identified as chronic wound patients through care
management programs. The case management software supports and prompts
collection of disease specific data points utilized by the registered nurses to
assist patients in caring for the chronic condition, identify and monitor
patients at risk and educate patients in preventative measures. The nurses
conduct proactive patient monitoring that assesses patient compliance,
complications, functional and clinical health status and patient satisfaction.
The respective health plans are then provided reports. The program was launched
early in 2000 and to date has not had any success. There can be no assurances
that the program will be successful in the future. Additionally, Specialty
Healthcare Services has made a $4 million equity investment in Accordant.

      To date, Specialty Healthcare Services' managed care operations have been
limited. Although Specialty Healthcare Services or its hospital clients have
been reimbursed for wound treatment by a number of MCOs on a case-by-case basis,
Specialty Healthcare Services currently has no contracts that require or
incentivize subscribers to use Specialty Healthcare Services' wound care
services. We cannot assure you that Specialty Healthcare Services will be able
to successfully expand its managed care operations.

Specialty Healthcare Services Community Education and Marketing

      Specialty Healthcare Services' community education and marketing strategy
consists of a two-fold approach involving the development of new wound care
programs as well as growth in operating Wound Care Centers. In 2001, Specialty
Healthcare Services realigned its organizational structure to achieve operating
effectiveness and efficiency. To accomplish this, Specialty Healthcare Services
has divided the United States into four operating regions each headed by a
Regional Manager. The professional community education component is locally
managed and conducted by the Wound Care Center Program Directors under the
supervision of the Regional Managers. The primary community education efforts
are directed at physicians and other healthcare professionals to expand
community awareness of the Wound Care Center services.

      In addition, community education marketing plans are developed each year
at each Wound Care Center program. The development and execution of the plan is
the responsibility of the Program Director at the Wound Care Center along with
the Corporate Marketing Department. The plan details the anticipated marketing
for the year and may include radio, print and television advertising as well as
professional symposiums and other community education. Specialty Healthcare
Services markets the Wound Care Center concept to hospitals as a therapeutic
"Center of Excellence." Specialty Healthcare Services believes that having a
Wound Care Center can differentiate a hospital from its competitors and can
increase the hospital's revenues through the introduction of new patients, which
leads to an increase in ambulatory surgeries, X-rays, laboratory tests and
inpatient surgeries, such as debridements, vascular surgeries and plastic
surgeries. Specialty Healthcare Services has demonstrated that Wound Care
Centers provide significant incremental revenues to participating hospitals, and
therefore provide an attractive economic opportunity for hospitals at the same
time being more cost effective in terms of total healthcare dollars expanded.
Potential benefits to treating physicians include the healing of
difficult-to-heal wounds and an expansion of the physician's practice in
connection with such expanded service offering and clinical results.

      Specialty Healthcare Services' efforts to develop new wound management
programs at acute-care hospitals is headed by a Senior Vice President. This
individual is responsible for the activities of the Directors of Development and
Business Development Managers. The primary role of the Directors of Development
and Business Development Managers is the development of new wound care programs.
As of December 31, 2001, Specialty Healthcare Services had two Directors of
Development and two Business Development Managers.

Specialty Healthcare Services Reimbursement

      Specialty Healthcare Services, through its wound care operations, provides
contractual management services for fees to acute care hospitals and other
health care providers. These providers, in turn, seek reimbursement from third
party payors, such as Medicare, Medicaid, health maintenance organizations and
private insurers, including Blue Cross/Blue Shield plans. The availability of
reimbursement from such payors has been a significant factor in Specialty
Healthcare Services' ability to increase its revenue streams and will be
important for future growth.

                                       11
<PAGE>

      Each third party payor formulates its own coverage and reimbursement
policies. Although we have not, and we believe that our clients have not, in
general experienced difficulty in securing third party reimbursement for Wound
Care Center services, some hospitals have experienced denials, delays and
difficulties in obtaining such reimbursement. To our knowledge, no widespread
denials have been received by hospitals regarding reimbursement for Wound Care
Center. We discuss coverage and reimbursement issues with our hospital clients
and third party payors on a regular basis. Such discussions will continue as we
seek to assure sufficient payments from third party payors to Specialty
Healthcare Services' hospital customers for services managed by Specialty
Healthcare Services and so that Specialty Healthcare Services' hospital
customers and potential customers find it financially feasible to renew
contracts or enter into contracts with Specialty Healthcare Services. Although
no individual coverage and reimbursement decision is material to us, a
widespread denial of reimbursement coverage for clinical services provided in
the wound care centers would have a material adverse effect on our business,
financial position and results of operations.

      As a result of the Balanced Budget Act of 1997, the Centers for Medicare
and Medicaid Services implemented the Outpatient Prospective Payment System
("OPPS") for all hospital outpatient department services furnished to Medicare
patients beginning August 2000. Under the system, a predetermined rate is paid
to hospitals for clinic services rendered, regardless of the hospital's cost.
The new payment system does not provide comparable reimbursement for previously
reimbursed services and the payment rates for many services are insufficient for
many of Specialty Healthcare Services' hospital customers, resulting in revenue
and income shortfalls for the wound care center operations managed by Specialty
Healthcare Services on behalf of the hospitals. As a result, Specialty
Healthcare Services has renegotiated and modified most of its management
contracts which has resulted in reduced revenue and income to us from the
modified contracts and in numerous cases contract termination. Specialty
Healthcare Services expects that contract renegotiation and modification with
many of its hospital customers will continue which could result in further
reduced revenues and income to Specialty Healthcare Services from those
contracts and even contract terminations. The results could have a material
effect on Specialty Healthcare Services' business, financial condition and
results of operations.

      The Wound Care Center programs managed by Specialty Healthcare Services on
behalf of acute care hospitals are generally treated as "provider based
entities" for Medicare reimbursement purposes. This designation is required for
the hospital based program to be covered under the Medicare outpatient
reimbursement system. With OPPS, Medicare published criteria for determining
when programs may be designated "provider based entities". Although the
implementation date for Provider Based Designation Regulations for our managed
outpatient programs is October 2002, the regulations continue to be subject to
change and further clarification. Specialty Healthcare Services' 11 managed
"under arrangement" models, where we employ the clinical and administrative
staff that work in the center, are potentially at risk for not meeting the
criteria for a "provider based entity. Specialty Healthcare Services has been in
discussions with its "under arrangement" hospital customers to convert the
programs to a management model. The interpretation and application of these
criteria are not entirely clear and there is a risk that some of the programs,
in particular the 11 under arrangement models, managed by Specialty Healthcare
Services could be found not to be "provider based entities". Although we believe
that the programs it manages substantially meet the current criteria to be
designated "provider based entities", a widespread denial on such designation
would have a material adverse effect on Specialty Healthcare Services' business,
financial position and results of operations.

Specialty Health Care Services Competition

      Our principal competition in the chronic wound care market consists of
specialty clinics that have been established by some hospitals or physicians.
Additionally, there are a number of private companies which provide wound care
services through an HBO program format. In the market for disease management
products and services, we face competition from other disease management
entities, general health care facilities and service providers, pharmaceutical
companies, biopharmaceutical companies and other competitors. Many of these
companies have substantially greater capital resources and marketing staffs, and
greater experience in commercializing products and services, than we have. In
addition, recently developed technologies, or technologies that may be developed
in the future, are or may be the basis for products which compete with our
chronic wound program. There can be no assurance that we will be able to enter
into co-marketing arrangements with respect to these products, or that we will
be able to compete effectively against such companies in the future.

Government Regulation

      Our operations and the marketing of our services are subject to extensive
regulation by numerous governmental authorities in the United States, both
federal and state. We believe that we are currently in substantial compliance
with applicable laws, regulations and rules. However, we can not assure you that
a governmental agency or a third party will not contend that certain aspects of
business are subject to or are not in compliance with such laws, regulations or
rules or that the state or federal regulatory agencies or courts would interpret
such laws, regulations and rules in our favor. The sanctions for failure to
comply with such laws, regulations or rules could include denial of the right to
conduct business, significant fines and criminal penalties. Additionally, an
increase in the complexity or substantive requirements of such laws, regulations
or rules could have a material adverse effect on our business.

                                       12
<PAGE>

      Any change in current regulatory interpretations by, or positions of,
state officials where we operate could adversely affect our operation within
those states. In states where we are not currently located, we intend to utilize
the same approaches adopted elsewhere for achieving state compliance. However,
state regulatory requirements could adversely affect our ability to establish
operations in such other states.

      Various state and federal laws and agencies regulate providers of health
care services and suppliers of biopharmaceutical products. These laws include
the fraud and abuse provisions and referral restrictions of the Medicare and
Medicaid statutes, which prohibit the solicitation, payment, receipt or offering
of any direct or indirect remuneration for the referral of Medicare and Medicaid
patients or for purchasing, arranging for or recommending the purchase, leasing
or ordering of Medicare or Medicaid covered services, items or equipment. The
Health Insurance Portability and Accountability Act of 1996, or HIPAA, created
new violations for fraudulent activity applicable to both public and private
health care benefit programs and prohibits inducements to Medicare or Medicaid
eligible patients. Violations of these provisions may result in civil or
criminal penalties for individuals or entities including exclusion from
participation in the Medicare or Medicaid programs. Several states have adopted
similar laws that cover patients in private programs as well as government
programs. Because the anti-fraud and abuse laws have been broadly interpreted,
they limit the manner in which we can operate its business and market its
services to, and contract for services with, other health care providers.

     Additionally,  federal  and some  state  laws  impose  restrictions  on the
relationships  between  providers of health care  services or products and other
persons or entities,  such as physicians  and other  clinicians,  including with
respect  to  employment  or  service  contracts,  investment  relationships  and
referrals for certain designated health services.  Outpatient prescription drugs
are one of the designated services. There is considerable uncertainty about some
facets of these laws,  especially  the federal law,  since only the first of two
phases of final  regulations has been issued and as it is unclear as to when the
second phase will be published.  We believe we have structured our operations in
an attempt to comply with these  provisions.  Periodically  there are efforts to
expand  the  scope of  these  referral  restrictions  from  its  application  to
government  health  care  programs  to  all  payors,  and to  additional  health
services.  Certain  states are  considering  adopting  similar  restrictions  or
expanding  the scope of  existing  restrictions.  We can not assure you that the
federal government or other states in which we operate will not enact similar or
more  restrictive  legislation or  restrictions  or interpret  existing laws and
regulations in a manner that could harm our business.

      The laws of many states prohibit physicians from sharing professional fees
with non-physicians and prohibit non-physician entities, such as us, from
practicing medicine and from employing physicians to practice medicine. The laws
in most states regarding the corporate practice of medicine have been subjected
to limited judicial and regulatory interpretation. In addition, our pharmacies
are subject to various state laws relating to pharmacy operation, including
requirements regarding licensure and handling, securing, storing, labeling,
dispensing, record-keeping, and reporting for pharmaceutical products, as well
as patient confidentiality requirements and prohibitions on fee-splitting by
pharmacies. Federal requirements relating to labeling, packaging and
repackaging, advertising, adulteration and dispensing of prescription drugs may
also apply.

      State laws prohibit the practice of medicine, pharmacy and nursing without
a license. To the extent that we assist patients and providers with prescribed
treatment programs, a state could consider our activities to constitute the
practice of medicine. In addition, in some states, coordination of nursing
services for patients could necessitate licensure as a home health agency and/or
could necessitate the need to use licensed nurses to provide certain patient
directed services. If we are found to have violated those laws, we could face
civil and criminal penalties and be required to reduce, restructure or even
cease our business in that state.

      Federal and some state laws also impose requirements in connection
with the submission of claims for payment for health care services and products,
including prohibiting the knowing submission of false or fraudulent claims and
submission of false records or statements. Such requirements would apply to the
operations of our pharmacies, and to the hospital customers to which we provide
wound care management services. Not only are government agencies active in
investigating and enforcing actions with respect to applicable health laws, but
also health care providers are often subject to actions brought by individuals
on behalf of the government. Such "whistleblower" lawsuits are generally filed
under seal to allow the government the opportunity to investigate and determine
whether it will intervene in the action, and health care providers are often
without knowledge of such actions until the government has progressed with its
investigation and the seal is lifted.

                                       13
<PAGE>

     In  2000,  the  Department  of  Health  and  Human  Services  issued  final
regulations  implementing the Administrative  Simplification provision of Health
Insurance  Portability  and  Accountability  Act.  concerning  the  maintenance,
transmission  and  security  of  electronic  health  information,   particularly
individually  identifiable  information.  The regulations,  when effective, will
require the development and implementation of security and transaction standards
for all electronic health  information and impose significant use and disclosure
obligations  on  entities  that  send  or  receive   individually   identifiable
electronic health information.  As a result of these regulations,  we anticipate
new expenditures in ensuring that patient data kept on our computer networks are
in compliance with these regulations.

      Federal and state investigations and enforcement actions continue to focus
on the health care industry, scrutinizing a wide range of items such as joint
venture arrangements, referral and billing practices, product discount
arrangements, home health care services, dissemination of confidential patient
information, clinical drug research trials and gifts for patients or referral
sources. We believe our current and planned activities are substantially in
compliance with applicable legal requirements. We can not assure you, however,
that a governmental agency or a third party will not contend that certain
aspects of business are subject to or are not in compliance with such laws,
regulations or rules, or that state or federal regulatory agencies or courts
would interpret such laws, regulations and rules in our favor, or that future
interpretations of such laws will not require structural or organizational
modifications of our existing business or have a negative impact on our
business. Applicable laws and regulations are very broad and complex, and in
many cases the courts interpret them differently, making compliance difficult.
Although we try to comply with such laws, regulations and rules, a violation
could result in denial of the right to conduct business, significant fines and
criminal penalties. Additionally, an increase in the complexity or substantive
requirements of such laws, regulations or rules, or reform of the structure of
health care delivery systems and payment methods, could have a material adverse
effect on our business.

Intellectual Property

      Our success depends in part on our ability to maintain trade secret
protection and operate without infringing on or violating the proprietary rights
of third parties. In addition, we also rely, in part, on trade secrets,
proprietary know-how and technological advances which we seeks to protect by
measures such as confidentiality agreements with our employees, consultants and
other parties with whom we do business. We can not assure you that these
agreements will not be breached, that we will have adequate remedies for any
breach, or that our trade secrets and proprietary know-how will not otherwise
become known, be independently discovered by others or found to be unprotected.

      We have registered the name "Wound Care Center" as a trademark in the
United States for use in connection with Specialty Healthcare Services' wound
care operations.

Employees

      As of December 31, 2001, we employed 302 full-time employees, of which 228
employees were in Specialty Health Services business unit, 35 were in Specialty
Pharmacy Services business unit and 39 were in various support departments. We
expect to add additional personnel to our business units in the next year. We
believe that our relations with our employees are good.

Item 2.  Properties

      Our headquarters are located in Hauppauge, Long Island, New York. We lease
this 30,000 square foot facility under a lease through 2005. We believe that our
facilities are adequate and suitable for our operation. Formerly we leased 27
Procuren production facilities totaling 53,175 square feet. In January 2001, we
sold our Procuren operations and transferred the lease facilities to the buyer,
Cytomedix, Inc. In many leases, we continue to be named a party to the lease.
Our facilities at the hospital outpatient Wound Care Centers are owned or leased
by the hospitals.

                                       14
<PAGE>

Item 3.  Legal Proceedings

      On December 28, 2001, we reached a comprehensive settlement with the
United States Department of Justice (the "DOJ"), the U.S. Department of Health
and Human Services, Office of the Inspector General (the "USHHS") and other
related parties in connection with all previously disclosed federal
investigations and related legal proceedings against us in the United States
District Court for the Southern District of New York and the United States
District Court for the District of Columbia. Under the terms of the settlement,
even though we maintained that there was no basis for the imposition of
liability, in order to avoid the delay and expense of protracted litigation, we
agreed to pay the United States a total of $16.5 million, with an initial
payment of $9.0 million and the balance payable over four years. We are also
required to fulfill certain additional obligations including abiding by a
five-year Corporate Integrity Agreement we have executed with the USHHS (which
incorporates much of our existing compliance program), avoiding violations of
law and providing certain information to the DOJ from time to time.

      Subsequent to the disclosure of the DOJ action, we and, in some cases,
certain of our officers were named in four shareholder lawsuits. All suits were
filed in the United States District Court for the Eastern District of New York.
The four shareholder lawsuits have been consolidated into one class-action
lawsuit. On or about March 8, 2002, we reached an agreement in principle to
settle the lawsuit. Under the terms of the proposed settlement, even though we
maintained that there was no basis for the imposition of liability, in order to
avoid the delay and expense of protracted litigation, we agreed to pay  $10.5
million to the class, of which $6.5 million will be paid in common stock, cash
or a combination thereof as determined in Curative's discretion. The remaining
$4 million will be paid from insurance proceeds. This settlement is subject to
execution and filing with the court of a stipulation of settlement by the
parties, notice to the class and court approval.  We expect the settlement to be
approved by the end of the third quarter of 2002.

     We are  currently  in  dispute  with  some of the  former  shareholders  of
eBioCare.com,  Inc. over claims by us for indemnification in connection with our
acquisition of  eBioCare.com,  Inc. These claims are for  indemnification  in an
aggregate amount in excess of $3,000,000, which is currently held in escrow, for
a  breach  of  certain  representations  and  warranties  made  by  such  former
shareholders. In response to our indemnification claims, the former shareholders
have filed a lawsuit in Superior Court of  California,  County of Santa Clara on
or about February 1, 2002 against us seeking a declaratory judgment in its favor
with  respect  to  certain  of our  claims,  and other  remedies  including  the
rescission of our  acquisition of  eBioCare.com,  Inc.  Although we believe this
lawsuit  is  groundless  and we intend to defend  these  claims  vigorously,  an
adverse result in this dispute could harm our business.

      In addition, in the ordinary course of our business, we are the subject of
or party to various lawsuits, including those arising out of services or
products provided by or to its operations, personal injury and employment
disputes, the outcome of which, in the opinion of management, will not have a
material adverse effect on our financial position or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders

      None.

                                       15
<PAGE>

                                     PART II


Item 5  Market  for  the  Registrant's  Common  Equity and  Related  Stockholder
Matters

      The Company's common stock is traded on The Nasdaq Stock Market under the
symbol "CURE". As of March 15, 2002, there were approximately 194 holders of
record and approximately 3,510 beneficial shareholders of the Company's common
stock. The Company has not paid any cash dividends since its inception. The
Company currently does not intend to pay cash dividends in the foreseeable
future but intends to retain all earnings, if any, for use in its business
operations.

      The following table sets forth, for the fiscal periods indicated, the
range of high and low sales prices of the common stock as quoted on The Nasdaq
National Market System:


               2001                               High               Low
               ----                               ----               ----
               Fourth Quarter..................$ 15.49            $  9.50
               Third Quarter....................  9.96               5.60
               Second Quarter...................  8.02               5.20
               First Quarter....................  6.78               5.50

               2000
               Fourth Quarter..................$  6.00            $  5.375
               Third Quarter...................   6.594              5.063
               Second Quarter..................   6.188              5.188
               First Quarter...................   8.063              5.50

                                       16
<PAGE>




Item 6  Selected Consolidated Financial Data

      Please see Item 1 of this report for information regarding the acquisition
and disposition of significant business operations that affect the comparability
of the information set forth below

   Five year selected consolidated financial data of Curative Health Services,
                         Inc., and subsidiaries follow:
                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                          ----------------------
                                                2001         2000        1999       1998        1997
                                              ------------------------------------------------------

Statement of Operations Data:
<S>                                       <C>            <C>        <C>         <C>         <C>
Total revenues                            $   81,638     $  77,691  $  101,209  $ 103,987   $ 87,906
Costs and operating expenses:
Costs  of  products sales and services        55,666        51,073      59,945     56,035     48,200
Selling, general and administrative           51,466        29,441      26,273     23,358     22,617
                                              ------        ------      ------     ------     ------
Total costs and operating expenses           107,132        80,514      86,218     79,393     70,817
                                             -------        ------      ------     ------     ------
(Loss) income from operations
   before interest income                    (25,494)       (2,823)     14,991     24,594     17,089
Interest income                                  816         2,609       2,037      2,660      2,666
                                             -------        -------     ------     ------     ------
(Loss) income before income taxes            (24,678)         (214)     17,028     27,254     19,755
Income tax (benefit) provision                (2,473)          (86)      6,566     10,217      3,293
                                             -------        -------     ------     ------     ------
Net (loss) income                         $  (22,205)    $    (128)  $  10,462  $ 17,037    $ 16,462
                                             ========       =======     ======    ======      ======
Net (loss) income  per common
   share, diluted                          $   (3.09)    $    (.01)  $     .97  $   1.30    $   1.27
                                                ====           ===         ===      ====        ====
Denominator for diluted earnings per share,
weighted average common shares                 7,193         8,780      10,756    13,071      12,954
                                               =====         =====      ======    ======      ======

Balance Sheet Data:
Working capital                           $    2,525     $  44,394   $  55,456  $ 76,419    $ 62,583

Total assets                                  76,927        75,166      87,910   109,121      84,939
Long-term liabilities
(including capital lease obligation)           6,000             -           -         -           7
Retained earnings (deficit)                    2,398        24,603      24,731    14,269      (2,768)
Stockholders' equity                          36,492        55,570      71,600    93,396      72,592
</TABLE>

                                       17
<PAGE>



 Item 7  Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

     Curative Health Services, Inc. is a leading disease management company that
operates in two business  segments:  Specialty  Pharmacy  Services and Specialty
Healthcare Services. In its Specialty Pharmacy operations, the Company purchases
biopharmaceutical  drugs from  manufacturers  and then  contracts with insurance
companies, government and other payors to provide direct to patient distribution
of  and  education  about,   and  other  support  services   relating  to  these
biopharmaceutical  drugs. The Company's  Specialty Pharmacy revenues are derived
primarily  from fees paid by the payors under these  contracts  for the purchase
and  distribution  of  these  biopharmaceuticals.  In  addition,  as part of its
Specialty  Pharmacy  operations the Company provides  biopharmaceutical  product
distribution  and support  services  under  contract with retail  pharmacies for
which it receives service fees. The  biopharmaceutical  drugs distributed by the
Company  are  used by  patients  with  chronic  conditions  such as  hemophilia,
hepatitis C, rheumatoid arthritis and multiple sclerosis.  The Company contracts
with approximately 170 payors and three retail pharmacies.

     The Specialty Healthcare Services business unit contracts with hospitals to
manage  outpatient Wound Care Center programs.  These Wound Care Centers offer a
comprehensive  range of services that enable the Specialty  Healthcare  Services
business unit to provide patient specific wound care diagnosis and treatments on
a cost-effective  basis.  Specialty  Healthcare Services also offers an expanded
disease management offering that addresses the diabetic disease state. Specialty
Healthcare  Services currently operates two types of Wound Care Center contracts
with hospitals: a management model and an "under arrangement" model.

     In the management model,  Specialty Healthcare Services provides management
and support  services for a chronic wound care  facility  owned or leased by the
hospital and staffed by  employees of the  hospital,  and  generally  receives a
fixed monthly  management fee and a variable case  management fee. In the "under
arrangement"  model, the Specialty  Healthcare  Services provides management and
support  services,  as well as the  clinical  and  administrative  staff,  for a
chronic  wound care  facility  owned or leased by the  hospital,  and  generally
receives fees based on the services  provided to each  patient.  In both models,
physicians remain  independent,  and Specialty  Healthcare Services recruits and
trains the physicians and staff associated with the Wound Care Center.

Critical Accounting Policies and Estimates

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the financial  statements  and the reported  amounts of revenues and expenses
during the reporting  period.  On an on-going  basis,  management  evaluates its
estimates and  judgments,  including  those  related to bad debts,  inventories,
intangibles,  income  taxes  and  revenue  recognition.   Management  bases  its
estimates and judgments on  historical  experience  and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for  making  judgments  about the  carrying  values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ  from  these  estimates   under  different   assumptions  or  conditions.
Management  believes the following critical accounting  policies,  among others,
affect its more  significant  judgments and estimates used in the preparation of
its consolidated financial statements.

     Trade  receivables:  Considerable  judgment is required  in  assessing  the
ultimate realization of receivables including the current financial condition of
the customer, age of the receivable, and the relationship with the customer. The
Company estimates its allowances for doubtful  accounts using these factors.  If
the  financial  condition  of  the  Company's  customers  were  to  deteriorate,
resulting  in an  impairment  of  their  ability  to make  payments,  additional
allowances  may be required.  In  circumstances  where the Company is aware of a
specific  customer's   inability  to  meet  its  financial   obligations  (e.g.,
bankruptcy  filings),  a  specific  reserve  for bad debts is  recorded  against
amounts  due,  to reduce the  receivable  to the amount the  Company  reasonably
believes will be collected.  For all other  customers,  we have general reserves
for bad debt based upon the total accounts  receivable  balance.  As of December
31, 2001 the Company's reserves for accounts receivable was approximately 17% of
total receivables.

     Inventory:  Inventories  are  carried  at the  lower of cost or market on a
first in, first out basis.  Inventory  consists of high cost  biopharmaceuticals
that in many cases require  refrigeration or other special handling. As a result
inventories  are  subject to  spoilage or  shrinkage.  On a quarterly  basis the
Company performs a physical  inventory,  and determines whether any shrinkage or
spoilage  adjustments are needed.  Although 4the Company  believes its inventory
balances  at December  31, 2001 are  correct,  there can be no  assurances  that
spoilage or shrinkage  reserves will not be needed in the future.  The recording
of any such  reserve  may have a  negative  impact  on the  Company's  operating
results.

     Deferred tax assets: The Company has approximately $6.3 million in deferred
tax assets as of December 31, 2001 to record against future income.  The Company
does not have a valuation allowance against this asset as it believes it is more
likely than not that the tax assets will be realized. The Company has considered
future income  expectations and prudent tax strategies in assessing the need for
a valuation  allowance.  In the event that the Company  determines in the future
that it needs to record a valuation  allowance,  an  adjustment  to deferred tax
assets would be charged against income in the period of determination.

     Goodwill and intangibles: Goodwill and intangibles consist of the excess of
purchase  price  over  the fair  value of net  tangible  and  intangible  assets
acquired, and separately identifiable  intangibles such as pharmacy and customer
relationships,  workforce in place,  covenants not to compete,  and  trademarks.
Effective  January 1, 2002,  the  company  will adopt  State3ment  of  Financial
Standards No. 142,  "Goodwill and Other Intangible  Assets" and will be required
to analyze its goodwill for  impairment  on an annual  basis.  In assessing  the
recoverability  of the Company's  goodwill and intangibles the Company must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the  respective  assets.  If these  estimates  or  assumptions
change in the future,  the Company may need to record an  impairment  charge for
these assets.  An impairment  charge would reduce operating income in the period
it was determined that the charge was needed.

Results of Operations

     Fiscal Year 2000 vs.  Fiscal Year 2001.  The Company's  revenues  increased
from $77.7  million in 2000 to $81.6  million in 2001,  a 5%  increase.  Service
revenues,  attributed  entirely to the Specialty  Healthcare  Services  business
unit,  decreased from $71.5 million in 2000 to $44.9 million in 2001, a decrease
of $26.6 million and revenues from product sales  increased from $6.1 million in
2000 to $36.8 million in 2001. The increase in product  revenues is attributable
to the  inclusion of Specialty  Pharmacy  Services  revenues of $35.1 million in
2001 offset by a reduction in Procuren product revenues in 2001 of $4.4 million.
Revenues  from the  Specialty  Healthcare  Services  business unit totaled $46.5
million  in 2001 a  decrease  of  $31.2  million  or 40% and  revenues  from the
Specialty  Pharmacy  business  unit totaled $35.1 million for the nine months of
2001 that the Company owned  eBiocare.com Inc. The Specialty  Healthcare Service
business unit ended the year with 96 hospital based Wound Care Centers operating
compared with 126 at the end of 2000. The $31.2 million  decrease in revenue for
the Specialty  Healthcare business unit is attributable to the termination of 36
programs  during 2001,  re-negotiation  of existing  contracts which resulted in
reduced  revenue to the Company,  the  conversion of 8 under  arrangement  model
programs to  management  models  which have lower  revenue and  expenses,  and a
reduction  of  Procuren  revenues  as a  result  of  a  decline  and  subsequent
elimination  of  Procuren  as  a  product  offered  by  the  Company.  Specialty
Healthcare  revenues at existing  centers  declined 25% in 2001 primarily due to
such  renegotiations,  conversions and declining Procuren revenues.  At any time
during  the  year,  10%  to  20% of the  Specialty  Healthcare  business  unit's
contracts  are  being  renegotiated  with  client  hospitals  for a  variety  of
contractual terms or issues.  Historically,  some contracts have expired without
renewal and others have been  terminated  by the Company or the client  hospital
for various reasons prior to their scheduled expiration. Hospitals are currently
facing  financial  challenges  associated with lower occupancy rates and reduced
revenue streams due to pricing pressures from third party payers.
                                       18
<PAGE>

Program  terminations  by  client  hospitals  have been  affected  for such
reasons as reduced reimbursement, financial restructuring, layoffs, bankruptcies
or even  hospital  closings.  Further,  the Medicare  program  implemented a new
reimbursement  system  during 2000 for hospital  outpatient  services  which has
reduced  reimbursement  rates to  hospitals.  The  termination,  non-renewal  or
re-negotiation  of a material  number of management  contracts could result in a
continued decline in the Specialty  Healthcare  business unit's revenue.  During
the past several years the  Specialty  Healthcare  business  unit's new contract
development  has been  slower  than  historically  experienced  given  the legal
uncertainties  that the  business  unit  was  facing  as well as the  increasing
financial  difficulties  hospitals  are facing.  Any inability of the Company to
develop  new Wound  Care  Centers  could  continue  the  revenue  decline in the
Specialty  Healthcare business unit. The Specialty  Healthcare business unit has
and expects that it will continue to modify its  management  contracts with many
of its hospital  customers  which could result in reduced revenue to the Company
or even  contract  terminations.  The Specialty  Healthcare  business unit has a
number of initiatives  to counter the decline in revenue,  although there can be
no assurance that the initiatives will be successful.  These initiatives include
new product offering such as outpatient  Diabetes Clinics,  inpatient wound care
programs at acute care hospitals  focusing on pressure sores, and wound outreach
programs  whereby nurse  practioners or physicians  from  affiliated  wound care
centers  provide  related  services to long term care  facilities in surrounding
cachement areas. All of these programs are currently being offered to hospitals.
Total new patients to the Specialty  Healthcare business unit wound care centers
decreased  17% from  59,834  in 2000 to  49,390  in 2001.  The  total  number of
patients  receiving  Procuren therapy decreased 81% from 3,470 in 2001 to 674 in
2001.  Effective July 2001 Procuren was eliminated as an offered  product at the
Specialty Health Services Wound Care Centers.

      For the nine months of ownership of eBiocare.com Inc. the Company's
Specialty Pharmacy Services business unit contributed revenues of $35.1 million.
Specialty Pharmacy Services revenues from sales of hemophilia related products
were $18.4 million and revenues from injectable products were $16.7 million.
During the fourth quarter of 2001 the Specialty Pharmacy Services business
unit renegotiated or terminated a number of contracts that were deemed to be
unprofitable. As a result the Specialty Pharmacy Services business unit expects
that the rate of growth in injectable product sales will slow while at the same
time improving contribution margins.

     Costs of product sales increased from $7.3 million in 2000 to $29.8 million
in 2001,  an increase of $22.5  million.  The  increase is  attributable  to the
inclusion of Specialty  Pharmacy Services cost of sales of $27.9 million related
to the eBiocare.com  acquisition  offset by a reduction in Specialty  Healthcare
Services cost of sales of $5.4 million  related to lower Procuren sales in 2001.
In January 2001,  the Company  completed the sale of its Procuren  operations to
Cytomedix, Inc. (See Note B to consolidated financial statements). In June 2001,
Cytomedix  exercised  its  right  under  the  purchase  agreement  to cease  the
production of Procuren.  As a result, the Specialty Healthcare Services business
unit no longer  offers  Procuren at its Wound Care  Centers.  As a percentage of
product  sales,  cost of product  sales was 81% in 2001 as  compared  to 118% in
2000. The  improvement is  attributable  to the inclusion of Specialty  Pharmacy
Services sales,  which have higher gross margins than Procuren,  in 2001 and the
elimination of Procuren as an offered product.

     Costs of services, attributed entirely to the Specialty Healthcare Services
business unit,  decreased from $43.8 million in 2000 to $25.9 million in 2001, a
decrease of $17.9 million.  The decrease is attributable to reduced staffing and
operating  expenses of approximately $6.0 million related to the operation of 96
programs at the end of 2001 as compared to 126 programs  operating at the end of
2000. Additionally there were 20 fewer  under-arrangement  programs in operation
at the end of 2001 as compared to the same period for 2000 at which the services
component  of costs is higher  than at the  Company's  other  centers due to the
additional  clinical  staffing and expenses that these models require.  For 2001
this  reduction  in the  number  of  under-arrangement  programs  accounted  for
approximately $6.1 million of the decrease in product costs and services. During
2000,  the  Company  eliminated  58  sales  positions  which  resulted  in  cost
reductions  of $4.0 million in 2001 as compared  with 2000.  As a percentage  of
Specialty  Healthcare Services service revenues,  costs of services for 2001 was
58%  compared to 61% for 2000.  The  improvement  in 2001 is  attributed  to the
elimination  of sales  positions  in 2000 and a higher  percentage  of Specialty
Health Services revenues coming from management  service type contracts at which
gross margins are higher.
                                       19
<PAGE>

     Cost of product  sales and  services for the first nine months of ownership
of  eBiocare.com  Inc.  totaled  $29.8  million.  As a  percentage  of Specialty
Pharmacy Services  revenues,  Specialty Pharmacy Services costs of product sales
and services  was 84% during the first nine months of ownership of  eBiocare.com
Inc. During the fourth quarter of 2001 the Specialty  Pharmacy Services business
unit  renegotiated  or  terminated a number of contracts  that were deemed to be
unprofitable.  As a result the Specialty Pharmacy Services business unit expects
that the rate of growth in injectable  product sales will slow while at the same
time improving contribution margins.

     Selling,  general and administrative  expenses increased from $29.4 million
in 2000 to $51.5 million in 2001, an increase of $22.1 million.  The increase in
selling, general and administrative expenses for 2001 is due to the inclusion of
charges of $17.0 million for the DOJ  settlement  and related  legal fees,  $6.5
million  for  settlement  of  the  shareholder  lawsuit,   $4.1  million  for  a
reorganization  of the Company's  business  units and the inclusion of Specialty
Pharmacy Services selling,  general and administrative  expenses of $3.5 million
for the first  nine  months of  ownership  of  eBiocare.com  Inc,  and  goodwill
amortization  expense of $1.3 million related to purchase of  eBiocare.com.  The
increase is partially  offset by a reduction in  Specialty  Healthcare  Services
selling,  general and  administrative  expenses of  $7.5million as a result of a
reduction in workforce  and  reorganization  of the business  done in 2000. As a
percentage of revenues, selling, general and administrative expenses were 63% in
2001 compared to 38% in 2000. The increase is  attributable to the charges taken
in 2001.

      Interest income was $.8 million in 2001 compared to $2.6 million in 2000.
The decrease is attributable to the utilization of the Company's cash and
marketable securities to purchase eBiocare.com in March of 2001.

      Net loss increased from $.1 million or $(.01) (diluted) per share in 2000
to $22.2 million or $(3.09) per share, diluted in 2001. The increased net loss
of $22.1 million is primarily due to the D.O.J. settlement, shareholder lawsuit
settlement, reorganization charges, reduced interest income and increased
goodwill amortization expense.

      Fiscal Year 1999 vs. Fiscal Year 2000. The Company's revenues decreased
from $101.2 million in 1999 to $77.7 million in 2000, a 23% decrease. The
Company ended the year with 126 hospital based Wound Care Centers operating
compared with 158 at the end of 1999. The decrease in revenue is attributable to
the termination of 40 programs during 2000, renegotiation of existing contracts
which resulted in reduced revenue to the Company, the conversion of 11 under
arrangement model programs to management models which have lower revenue and
expenses, and a reduction of Procuren revenues as a result of a decline in
Procuren patients. Revenue at existing centers declined 16% in 2000 primarily
due to such renegotiations, conversions and declining Procuren revenues. At any
time during the year, 10% to 20% of the Company's contracts are being
renegotiated with the client hospital for a variety of contractual terms or
issues. Historically, some contracts have expired without renewal and others
have been terminated by the Company or the client hospital for various reasons
prior to their scheduled expiration. Hospitals are currently facing financial
challenges associated with lower occupancy rates and reduced revenue streams due
to pricing pressures from third party payors. Program terminations by client
hospitals have been effected for such reasons as reduced reimbursement,
financial restructuring, layoffs, bankruptcies or even hospital closings.
Further, the Medicare program implemented a new reimbursement system during 2000
for hospital outpatient services which has reduced reimbursement rates to
hospitals. The termination, non-renewal or renegotiation of a material number of
management contracts could result in a continued decline in the Company's
revenue.

                                       20
<PAGE>

As the result of the recent legal action against the Company, further
unanticipated terminations or non-renewals may take place. Additionally, new
business development has been slower than normal given the legal uncertainties
facing the Company. Any inability of the Company to develop new Wound Care
Centers could continue the revenue decline. The Company has and expects that it
will continue to modify its management contracts with many of its hospital
customers which could result in reduced revenue to the Company or even contract
terminations. The Company has a number of initiatives to counter the decline in
revenue, although there can be no assurance that the initiatives will be
successful. Total new patients to the wound care centers decreased 3% from
61,539 in 1999 to 59,384 in 2000. The total number of patients receiving
Procuren therapy decreased 40% from 5,797 in 1999 to 3,470 in 2000. The
percentage of patients receiving Procuren decreased from 9% in 1999 to 6% in
2000. The Company believes that this decrease is attributable to an increase in
the percentage of less severe chronic wounds being treated at the Company's
Wound Care Centers(R), for which physicians are less likely to prescribe
Procuren(R), a lack of available reimbursement for Medicare patients, the
inability of hospitals to assume collection risks due to financial constraints
and increased competition from other wound healing products. The Company
anticipates that the percentage of patients receiving Procuren(R) will continue
to decline in the future.

      Costs of product sales and services decreased from $59.9 million in 1999
to $51.1 million in 2000, a 15% decrease. The decrease is attributable to
reduced staffing and operating expenses of approximately $4.2 million related to
the operation of 126 programs operating at the end of 2000 as compared to 158
programs operating at the end of 1999 and reduced expenses of approximately $1.4
million related to Procuren production. Additionally there were 16 fewer
under-arrangement programs in operation at the end of 2000 as compared to the
same period for 1999 at which the services component of costs is higher than at
the Company's other centers due to the additional clinical staffing and expenses
that these models require. For 2000 this reduction in the number of
under-arrangement programs accounted for approximately $2.0 million of the
decrease in product costs and services. During 2000, the Company eliminated 58
sales positions which resulted in charges of $550,000 for severances and related
equipment write offs. Additionally, the Company recorded charges of $601,000
related to processing facilities not sold as part of the sale of its Procuren
operations to Cytomedix (see Note B) and severance and equipment write offs
related to closed Wound Care Centers. As a percentage of revenues, costs of
product sales and services for 2000 was 66% compared to 59% for 1999. The 7%
increase is attributed to the lower revenue and negative same store sales growth
which decreased margins and created an inability to leverage expenses over a
broader revenue base.

      Selling, general and administrative expenses increased from $26.3 million
in 1999 to $29.4 million in 2000, a 12% increase. Selling, general and
administrative expenses for 2000 include charges of $4.2 million including $2.0
million of severance expense associated with a reduction in workforce, $.6
million in costs related to the closing of the Company's Dallas field office,
$1.0 million in reserves related to the Cytomedix purchase of the Company's
Procuren operations, and equipment and lease space write offs related to the
reduction in work force. Additionally legal and other costs associated with the
Department of Justice actions and shareholder class action lawsuits were
approximately $.6 million higher in 2000 as compared with 1999. The Company
expects to continue to incur significant legal and other related costs until the
aforementioned actions are resolved. The increase in selling, general and
administrative expense for 2000 as compared with 1999 was partially offset by a
reduction of $1.5 million in bad debt expense and reductions in corporate
support department expenditures related to the reduced number of programs in
operation. As a percentage of revenues, selling, general and administrative
expenses were 38% in 2000 compared to 26% in 1999. The increase is due to the
restructuring costs, higher legal expense and decreased revenue in 2000.

      Interest income was $2.6 million in 2000 compared to $2.0 million in 1999.
The increase is primarily attributable to higher average cash balances during
2000.

      Net income decreased from $10.5 million or $.97 (diluted) per share in
1999 to a net loss of $.1 million or $(.01) (diluted) per share in 2000. The
decrease in earnings of $10.6 million is attributable to a reduced revenue base
which impacted wound care center margins, restructuring costs and higher legal
expense.


                                       21
<PAGE>

Liquidity and Capital Resources

      Working capital was $2.5 million at December 31, 2001 compared to $44.4
million at December 31, 2000. Total cash and cash equivalents as of December 31,
2001 was $12.3 million and was invested primarily in highly liquid money market
funds. The ratio of current assets to current liabilities decreased from 3.3:1
at December 31, 2000 to 1.1:1 at December 31, 2001. The Company's decrease in
working capital and current ratio is primarily attributable to the use of $38.7
million for the purchase of eBiocare.com on March 30, 2001 and the accrual of
the shareholder lawsuit.

     Cash flows used in  operations  for 2001  totaled  $1.8  million  primarily
attributable to the net loss for the period, an increase in accounts payable and
accrued expenses of $14.7 million and a decrease in accounts  receivable of $4.7
million.  Cash flows used in investing activities for 2001 totaled approximately
$7.0 million primarily  attributable to the investment in eBiocare.com offset by
sales of  marketable  securities.  Cash flows  provided by financing  activities
totaled $2.0 million for 2001 which was attributable  primarily to proceeds from
stock option exercises.

      During 2001, the Company experienced a $3.3 million increase in net
accounts receivable primarily attributable to the purchase of eBiocare. Accounts
receivable days outstanding were 58 days at December 31, 2001 compared to 61
days as of December 31, 2000. Days outstanding for the Specialty Healthcare
Services business was 60 days and for the Specialty Pharmacy business was 55
days at December 31, 2001.

     The Company's longer term cash requirements include working capital for the
expansion of its Specialty  Healthcare  Services and Specialty Pharmacy Services
business,  and for  acquisitions.  Other cash  requirements  are anticipated for
settlement of the D.O.J. and shareholder  lawsuits,  capital expenditures in the
normal  course of  business  and the  acquisition  of  software,  computers  and
equipment related to the Company's management information systems. In January of
2002 the  Company  entered  into $25  million  line of  credit  with  Healthcare
Business  Credit  Corporation  and in February  2002 the Company sold  1,059,000
shares of common  stock in a private  placement  transaction  raising a total of
$16.9 million.  These  transactions  were to provide  liquidity for both working
capital and acquisitions.  In January 2002, we paid $9 million to the Department
of  Justice  as part of our  settlement  agreement  and in  February  2002  used
approximately  $21 million in cash related to the purchase of Apex.  The Company
expects that based on its current  business  plan,  its  existing  cash and cash
equivalents  and  available  credit  will be  sufficient  to satisfy its current
working capital needs. The effect of inflation risk is considered immaterial.

Health Insurance Portability and Accountability Act

     During 2000 final  regulations  regarding the  protection of the privacy of
personal  health  information,promulgated  by the Department of Health and Human
Services,  were published in the Federal  Register.  These  regulations  set the
standards for securing  patient records and generally  prohibit covered entities
from using or  disclosing  protected  health  information.  As a result of these
regulations,  the Company anticipates expenditures in ensuring patient data kept
on computer networks  maintained at the Wound Care Centers,  Specialty  Pharmacy
operations and corporate offices are in compliance with these regulations. While
the  Company  believes  that it  will  be in  compliance  by the  February  2003
deadline,  there can be no assurances that the cost of reaching  compliance will
not have a material impact on the financial condition of the Company.

Cautionary Statement

      This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements include statements
regarding intent, belief or current expectations of the Company and its
management. These forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in
these statements. Factors that might cause such differences include, but are not
limited to, those described under the heading "Risk Factors" in our Registration
Statement on Form S-3 filed with the SEC on February 25, 2002, and other factors
described in the Company's future filings with the SEC.


Item 7a  Quantitative and Qualitative Disclosures About Market Risk

      The primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we receive from our
investments without significantly increasing risk. Some of the securities that
we invest in may have market risk. This means that a change in prevailing
interest rates may cause the fair market value of the principal amount of the
investment to fluctuate. For example, if we hold a security that was issued with
a fixed interest rate at the then-prevailing rate and the prevailing interest
rate later rises, the fair value of the principal amount of our investment will
probably decline. To minimize this risk our portfolio of cash equivalents and
short-term investments may be invested in a variety of securities, including
commercial paper, money market funds, government and non-government debt
securities. The average duration of all of our investments has generally been
less than one year. Due to the short-term nature of these investments, we
believe we have no material exposure to interest rate risk arising from our
investments.

                                       22
<PAGE>

Item 8  Consolidated Financial Statements and Supplementary Data

      The information required by this item is incorporated herein by reference
to the Consolidated Financial Statements listed in Item 14(a) of Part IV of this
Report.

      The following table sets forth the financial results of the Company for
the eight quarters ended December 31, 2001 (in thousands, except per share
data):



                                                         Income       Income
                                                         Per Common   Per Common
Quarter            Total          Gross     Net (Loss)   Share        Share
Ended              Revenues       Profit      Income     Basic        Diluted
--------------------------------------------------------------------------------
2001:
December 31      $  20,386     $  6,897     $  (22,883)     $ (3.12)    $ (3.12)
September 30        23,764        6,857            176          .02         .02
June 30             23,971        6,798             10           .-          .-
March 31            13,517        5,420            492          .07         .07
2000:
December 31      $  14,982     $  3,662     $   (2,661)     $  (.34)    $  (.34)
September 30        18,919        6,834            309          .04         .04
June 30             21,590        7,906            835          .09         .09
March 31            22,200        8,216          1,389          .14         .14




     Item 9 Changes in and Disagreements with Accountants on Accounting and
     Financial Disclosure None.


                                       23
<PAGE>



                                    PART III


      This information required by Part III of this Form 10-K is omitted from
this Report in that the Registrant will file a definitive proxy statement
pursuant to Regulation 14(a) for its 2002 Annual Meeting of Stockholders (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.

Item 10  Directors and Executive Officers of the Registrant

      The information required by this Item is incorporated by reference to the
sections "Election of Directors" and "Executive Officers" of the Company's Proxy
Statement.

Item 11  Executive Compensation

      The information required by this Item is incorporated by reference to the
section "Executive Compensation" of the Company's Proxy Statement.

Item 12  Security Ownership of Certain Beneficial Owners and Management

      The information required by this Item is incorporated by reference to the
section "Stock Ownership of Certain Beneficial Owners and Management" of the
Company's Proxy Statement.

Item 13  Certain Relationships and Related Transactions

      The information required by this Item is incorporated by reference to the
sections "Election of Directors", "Executive Officers" and "Executive Committee"
of the Company's Proxy Statement.

                                       24
<PAGE>

                                     PART IV


Item 14  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)   1.    Index to Financial Statements.

      The following  consolidated  financial  statements of Curative Health
      Services, Inc. are included herein:

                                                                          Page
                                                                         Number
                                                                         ------
      Report of Independent Auditors..............................          F-1

      Consolidated Balance Sheets at December 31, 2001 and 2000...          F-2

      Consolidated Statements of Operations for the years ended
        December 31, 2001, 2000 and 1999..........................          F-3

      Consolidated Statements of Stockholders' Equity for the
        years ended December 31, 2001, 2000 and 1999..............          F-4

      Consolidated Statements of Cash Flows for the years ended
        December 31, 2001, 2000 and 1999..........................          F-5

      Notes to Consolidated Financial Statements..................          F-6

   2. Financial Statement Schedules.  The following  financial  statement
      schedule of Curative Health Services, Inc. is included herein:

      Schedule                                                            Page
      --------                                                            ----
      II   Valuation and Qualifying Accounts......................          S-1

      All other schedules are omitted because they are not applicable, or not
      required, or because the required information is included in the
      consolidated financial statements or notes thereto.

   3. Exhibits.  The  exhibits listed  in the  accompanying  Index  to  Exhibits
      immediately  following  the financial  statement  schedules are filed with
      this report.

(b)   Reports on Form 8-K. No reports were filed on Form 8-K by the Company
      during the fiscal quarter ended December 31, 2001.

(c)   Exhibits - The response to this portion of Item 14 is submitted as a
      separate section of this report.


                                       25
<PAGE>


                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                CURATIVE  HEALTH SERVICES, INC.
                                                By: /s/  Joseph Feshbach
                                                         ---------------
                                                         Joseph Feshbach
                                                         Chief Executive Officer
Dated:  April 1, 2002
                                POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Joseph Feshbach and Thomas Axmacher,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature                   Title                             Date
Title
Date
                            Chief Executive Officer           April 1, 2002
/s/ Joseph Feshbach         (Principal Executive Officer)
-------------------
Joseph Feshbach

/s/ Thomas Axmacher         VP Finance and CFO                April 1, 2002
-------------------         (Principal Financial and
Thomas Axmacher             Accounting Officer)


s/ John C. Prior            President, Specialty Healthcare   April 1, 2002
----------------            Services
John C. Prior               Director

/s/ Paul S. Auerbach        Director                          April 1, 2002
--------------------
Paul S. Auerbach

/s/ Daniel E. Berce         Director                          April 1, 2002
-------------------
Daniel E. Berce

/s/ Lawrence English        Director                          April 1, 2002
--------------------
Lawrence English

/s/ Gerard Moufflet         Director                          April 1, 2002
-------------------
Gerard Moufflet

/s/ Timothy I. Maudlin      Director                          April 1, 2002
----------------------
Timothy I. Maudlin

<PAGE>


                         Report of Independent Auditors




Board of Directors and Stockholders
Curative Health Services, Inc.

      We have audited the accompanying consolidated balance sheets of Curative
Health Services, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Curative Health
Services, Inc. and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

                                          /s/ Ernst & Young LLP
Melville, New York
March 19, 2002


                                      F-1
<PAGE>



                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)


                                                                 December 31,
                                                                --------------
                                                                2001      2000
                                                                ----      ----
ASSETS

     Cash and cash equivalents                                $12,264   $19,016
     Marketable securities held-to-maturity                         -    26,978
     Accounts receivable (less allowance of $2,748
     and $2,046 at December 31, 2001 and 2000,respectively)    13,139    9,843
     Deferred tax assets                                        6,265    2,806
     Assets available for sale                                      -    3,683
     Inventory                                                  4,547        -
     Prepaid and other current assets                             745    1,664
                                                               ------   ------
          Total current assets                                 36,960   63,990
     Property and equipment, net                                3,795    7,065
     Goodwill and intangibles (less accumulated
     amortization of $2,204 and $393 at December 31,           34,787    2,988
     2001 and 2000, respectively)
     Other assets                                               1,385    1,123
                                                               ------   ------
         Total assets                                         $76,927  $75,166
                                                              =======  =======
LIABILITIES AND STOCKHOLDER'S EQUITY

     Accounts payable                                         $ 9,249  $ 7,308
     Accrued expenses                                          25,186   12,288
                                                               ------   ------
          Total current liabilities                            34,435   19,596

     Long term liabilities                                      6,000        -

     Commitments and contingencies

     Stockholders' equity
       Preferred stock, $.01 par value per share;
       10,000,000 shares authorized, none issued                    -        -
       Preferred stock, Series A Junior
       Participating, par value $.01 per share,
       500,000 shares authorized, none issued                       -        -
       Common stock, $.01 par value per share;
       50,000,000 shares authorized, 7,540,921
       shares issued and outstanding
       (7,196,439 shares in 2000)                                  75       71
       Additional paid in capital                              34,019   30,896
       Retained earnings                                        2,398   24,603
                                                               ------   ------
          Total stockholders' equity                           36,492   55,570
                                                               ------   ------
          Total liabilities and stockholders' equity          $76,927  $75,166
                                                              =======  =======

                  See notes to consolidated financial statement


                                      F-2
<PAGE>



                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in thousands, except per share data)


                                                         Year Ended December 31,
                                                         -----------------------
                                                        2001      2000      1999
                                                        ----      ----      ----
Revenues:
          Services                                   $44,862   $71,547   $89,531
          Products                                    36,776     6,144    11,678
                                                      ------     -----    ------
Total revenues                                        81,638    77,691   101,209
Costs and operating expenses:
          Cost of services                            25,887    43,803    50,400
          Cost of product sales                       29,779     7,270     9,545
          Selling, general and administrative         51,466    29,441    26,273
                                                      ------    ------    ------
          Total costs and operating expenses         107,132    80,514    86,218
                                                     -------    ------    ------
(Loss) income from operations                        (25,494)   (2,823)   14,991

Interest income                                          816     2,609     2,037
                                                      ------     -----     -----
(Loss) income before income taxes                    (24,678)    (214)    17,028

Income tax (benefit) provision                        (2,473)     (86)     6,566
                                                     --------   ------    ------
Net (loss) income                                   $(22,205)   $(128)   $10,462
                                                     ========   ======    ======

Net (loss) income per common share, basic           $  (3.09)   $(.01)      $.99
                                                     ========   ======      ====

Net (loss) income per common share, diluted         $  (3.09)   $(.01)      $.97
                                                     ========   ======      ====
Denominator for basic earnings per
share, weighted average common shares                  7,193    8,780     10,559
                                                       =====    =====     ======
Denominator for diluted earnings per
share, weighted average common shares
assuming conversions                                   7,193    8,780     10,756
                                                       =====    =====     ======



                 See notes to consolidated financial statements


                                      F-3
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      (Dollars in thousands, except shares)
<TABLE>
<CAPTION>


                                                                     Additional               Total
                                                   Common Stock      Paid-in      Retained    Stockholders'
                                               Shares        Amount  Capital      Earnings    Equity
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>     <C>            <C>         <C>
Balance, December 31, 1998                     12,758,282    $127     $79,000        $14,269    $ 93,396
   Exercise of options and restricted
   stock awards                                     6,828       -          33              -          33
   Shares repurchased and retired              (2,675,000)    (27)    (32,293)             -     (32,320)
   Tax benefit from stock option
           exercises                                    -       -          29              -          29
----------------------------------------------------------------------------------------------------------
   Net income for 1999                                  -      -          -           10,462      10,462
----------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                    10,090,110      100      46,769         24,731      71,600
   Exercise of options                            27,654        -         125              -         125
   Shares repurchased and retired             (2,921,325)     (29)    (17,333)             -     (17,362)
   Increased equity in Accordant Health
     Services, Inc.                                     -        -      (1,335)             -       1,335
----------------------------------------------------------------------------------------------------------
   Net loss for 2000                                   -       -            -            (128)      (128)
----------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                      7,196,439      71      30,896          24,603      55,570
   Exercise of options and restricted
   stock awards                                   525,282       5       3,159               -       3,164
   Shares repurchased and retired                (180,800)     (1)     (1,116)              -      (1,117)
   Tax benefit from stock option
           exercises                                    -       -       1,080               -       1,080
   Net loss for 2001                                    -       -           -         (22,205)    (22,205)
----------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                     7,540,921      $75     $34,019         $ 2,398     $36,492
==========================================================================================================
</TABLE>
                 See notes to consolidated financial statements

                                      F-4
<PAGE>





                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
<TABLE>
<CAPTION>


                                                                        Year Ended December 31,
                                                                   -------------------------------
                                                                  2001         2000           1999
                                                                  ----         ----           ----
<S>                                                            <C>            <C>          <C>
OPERATING ACTIVITIES
Net (loss) income .........................................    $(22,205)      $  (128)     $ 10,462

Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
  Depreciation and amortization ...........................       4,069         4,294         3,983
  Provision for doubtful accounts .........................       1,615         2,189         3,668
  Equity in operations of investee ........................         380           431           496
  Deferred income taxes ...................................     ( 2,754)         (535)       (1,229)
  Tax benefit from stock option exercises .................       1,080             -            29
Change in operating assets and liabilities:
   Decrease (increase) in accounts receivable .............       4,739         8,621        (4,450)
   Increase in prepaid and other current assets ...........      (3,364)         (294)         (641)
   Increase in accounts payable and accrued expenses.......      14,663         3,320            592
                                                                -------        -------       -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES .......      (1,777)       17,898         12,910
INVESTING ACTIVITIES
   Purchase of eBiocare.com, Inc. .........................     (38,648)            -              -
   Investment in Accordant Health Services, Inc. and  other        (165)            -         (1,071)
   Purchases of property and equipment ....................      (1,127)       (1,689)        (2,575)
   Disposal of property and equipment .....................       2,257             -              -
   Purchases of marketable securities held-to-maturity ....           -       (30,359)       (35,854)
   Sales of marketable securities held-to-maturity ........      26,978        34,188         50,877
   Proceeds from disposal of assets available for sale ....       3,683             -              -
                                                               --------      --------       --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .......      (7,022)        2,140         11,377
FINANCING ACTIVITIES
Stock repurchases .........................................      (1,117)      (17,362)       (32,320)
Proceeds from exercise of stock options, warrants and
subscription receivable....................................       3,164           125             33
Principal payments on capital lease obligations ...........           -             -             (7)
                                                               --------      --------        --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .......       2,047       (17,237)       (32,294)
                                                               --------      --------        --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..........      (6,752)        2,801         (8,007)
Cash and cash equivalents at beginning of year ............      19,016        16,215         24,222
                                                               --------      --------       --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ..................    $ 12,264      $ 19,016       $ 16,215
                                                               ========      ========       ========
SUPPLEMENTARY CASH FLOW INFORMATION:
     Interest paid                                             $      -      $      -       $      2
                                                               ========      ========       ========
     Income taxes paid                                         $    347      $  1,374       $  6,315
                                                               ========      ========       ========
</TABLE>

SUPPLEMENTAL INFORMATION PERTAINING TO NON-CASH INVESTING AND FINANCING
ACTIVITIES: During 2000, the Company recorded an increase of $1,335,000 to its
investment in Accordant Health Services, Inc. and a corresponding increase to
paid-in capital related to an increase in the value of the Company's equity
interest in Accordant resulting from an equity offering done by Accordant.



                 See notes to consolidated financial statements


                                      F-5
<PAGE>



                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization: The Company was organized under the laws of the State of Minnesota
in October 1984. It is a leading disease management company that operates in two
business segments: Specialty Pharmacy Services and Specialty Healthcare
Services. In its Specialty Pharmacy operations, the Company purchases
biopharmaceutical drugs from manufacturers and then contracts with insurance
companies, government and other payors to provide direct to patient distribution
of, and education about, these biopharmaceutical drugs. The Company's Specialty
Pharmacy revenues are derived primarily from fees paid by the payors under these
contracts for the purchase and distribution of these biopharmaceuticals. In
addition, as part of its Specialty Pharmacy operations, the Company provides
biopharmaceutical product distribution and support services under contracts with
retail pharmacies for which it receives service fees. The biopharmaceutical
drugs distributed by the Company are used by patients with chronic conditions
such as hemophilia, hepatitis C, rheumatoid arthritis and multiple sclerosis.
The Specialty Pharmacy Services business unit contracts with approximately 170
payors and three retail pharmacies.

In its Specialty Healthcare Services operations, the Company contracts with
hospitals to manage outpatient Wound Care Centers. These Wound Care Centers
offer a comprehensive range of services that enables the Company to provide
patient specific wound care diagnosis and treatments on a cost-effective basis.
Currently, the Company has 96 such contracts. The Company also offers an
expanded disease management offering that addresses the diabetic disease state.

      Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany balances and transactions have been eliminated in consolidation.

      Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

      Net Income  (Loss) Per Share:  Basic and diluted  income  (loss) per share
is calculated in accordance  with Financial  Accounting Standards Board ("FASB")
Statement No. 128.

      Property and Equipment: Property and equipment are recorded at cost.
Depreciation of property and equipment is provided using the straight-line
method over the estimated useful lives (generally 4 to 7 years). Leased
equipment capitalized and leasehold improvements are amortized over the life of
the lease or the useful life of the related asset, whichever is shorter.

      Inventory:  Inventory,  which consists of biopharmaceutical drugs held for
sale, is stated at the lower of cost (first in, first out method) or market.

      Goodwill and Intangibles: Goodwill and intangibles consist of the excess
of purchase price over the fair value of net tangible and intangible assets
acquired, and separately identifiable intangibles such as pharmacy and customer
relationships, workforce in place, covenants not to compete, and trademarks.
Goodwill and intangibles are amortized using the straight-line method with
various lives from three to twenty years.


                                      F-6
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE A-- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Recently  Issued  Accounting  Standards:  In July  2001,  the  FASB  issued
Statement No. 141 "Business  Combinations" and Statement No. 142,  "Goodwill and
Other Intangible Assets".  Statement No. 141 requires all business  combinations
initiated  after June 30, 2001 to be accounted  for using the  purchase  method.
Under  Statement  No. 142  (which  supersedes  APB  Opinion  No. 17,  Intangible
Assets),  goodwill and  intangible  assets with  indefinite  lives are no longer
amortized but are reviewed annually, or more frequently if impairment indicators
arise, for impairment.  Separable  intangible assets that are not deemed to have
an indefinite  life will continue to be amortized  over their useful lives.  The
amortization  provisions  of  Statement  No.  142  require  non-amortization  of
goodwill and indefinite  lived  intangible  assets acquired after June 30, 2001.
However,  the  impairment  provisions of Statement No. 142 apply to these assets
upon  adoption of Statement  No. 142.  With  respect to goodwill and  intangible
assets acquired prior to July 1, 2001, companies are required to adopt Statement
No. 142 in their  fiscal year  beginning  after  December  15, 2001 (i.e.,  year
beginning   January  1,  2002  for  Curative   Health   Services,   Inc.).   The
non-amortization  provisions of Statement No. 142 apply to the Company's  excess
investment in Accordant Health Services,  Inc. as well (See Note C). Application
of the non-amortization provisions of Statement No. 142 is expected to result in
a decrease in amortization  expense of  approximately  $1.7 million per year for
the  Company.  During  fiscal  2002,  the Company  will perform the first of the
required  impairment tests of goodwill.  The Company has not yet determined what
the effect of these tests will be on the earnings and financial  position of the
Company.

      In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001, with
transition provisions for certain matters. The FASB's new rules on asset
impairment supersede FASB No. 121, "Accounting for the Impairment of Long-Lived
Assets and Assets to be Disposed Of", and provide a single accounting model for
long-lived assets to be disposed of. Although retaining many of the fundamental
recognition and measurement provisions of FASB No. 121, the new rules
significantly change the criteria that would have to be met to classify an asset
as held for sale. The new rules supersede the provisions of APB Opinion No. 30
with regard to reporting the effects of a disposal of a segment of a business
and require expected future operating losses from discontinued operations to be
displayed in discontinued operations in the period in which losses are incurred
rather than as of the measurement date as presently required by APB Opinion No.
30. In addition, more dispositions will qualify for discontinued operations
treatment in the income statement. The Company expects to adopt Statement No.
144 as of January 1, 2002 and it does not expect that the adoption of the
Statement will have a significant impact on the Company's financial position and
results of operations.

      Long-Lived Assets: The Company periodically reviews the carrying value of
its long-lived assets in determining the ultimate recoverability of their
unamortized values using future undiscounted cash flows analyses. Such review
has been performed by management and does not indicate an impairment of such
assets, except for the impairment of assets available for sale (See Note B).

      Cash and Cash Equivalents: Cash and cash equivalents consist of demand
deposits with banks, certificates of deposit with maturities of less than three
months at the time of purchase and highly liquid money market fund investments.

      Marketable Securities Held-to-Maturity: Held-to-maturity marketable
securities represent highly liquid money market instruments with maturities of
greater than three months at time of purchase. These securities, consisting
principally of securities of municipalities, commercial paper and U.S.
Government agencies are valued at amortized cost which approximates market.


                                      F-7
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE A-- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)


      The Company's investment policy gives primary consideration to safety of
principal, liquidity and return. The Company invests its funds with institutions
that have high credit ratings and to date has not experienced any losses on its
investments. The Company classifies its investments in such securities as
held-to-maturity as the Company has the intent and ability to hold these
securities to maturity. As of December 31, 2000, the Company had approximately
$55,000 of unrealized gains related to its holdings of corporate bonds, $31,000
of unrealized losses related to its holdings of municipal bonds and $8,000 of
unrealized losses related to its holdings of certificates of deposit. The
Company had no marketable securities holdings at December 31, 2001.

      Concentration of Credit Risk: The Company's revenues are generated from
its Specialty Healthcare Services business unit's Wound Care Centers which have
been established as cooperative ventures with acute care hospitals and from its
Specialty Pharmacy Services business unit's sales of pharmaceuticals. Specialty
Pharmacy Services receivables consist of amounts due from various payors,
including government programs, insurance companies, retail pharmacies, and self
pay patient accounts. Credit is extended based upon a pre authorization of
coverage check, or contractual arrangement. Payment terms are generally thirty
days from date of invoice. The Specialty Healthcare Services receivables are
from its hospital partners under contractual management services contracts.
Credit is extended based on an evaluation of the hospital's financial condition.
Payment terms are generally thirty to ninety days from date of invoice. In 1999
and 2000, the Company derived 13% and 11% of its consolidated revenue from one
customer. In 2001, no customer accounted for 10% or greater of consolidated
revenues.

      Revenues: Specialty Pharmacy Services revenues are recognized, net of any
contractual allowances, when the product is shipped to a patient, retail
pharmacy or a physician's office. Specialty Healthcare Services revenues are
recognized after the management services are rendered or the product is
dispensed, and are billed monthly in arrears.

      Advertising: The Specialty Healthcare Services business unit expenses
advertising and community education costs when incurred. Advertising and
community education expense was approximately $8.1 million, $6.0 million and
$3.7 million for 1999, 2000 and 2001, respectively. The Specialty Pharmacy
Services business unit's advertising and community education expenses are
insignificant.

      Income  Taxes:  Income taxes have been provided using the liability method
in accordance with  FASB Statement No. 109, "Accounting for Income Taxes."

     Stock Based  Compensation  Plans:  The Company  grants  options for a fixed
number of shares to employees, directors, consultants and advisors with exercise
price  equal to the fair value of the shares at the date of grant.  The  Company
accounts for stock option grants in accordance with Accounting  Principles Board
("APB")  Opinion No. 25,  "Accounting  for Stock Issued  Employees"  and related
Interpretations because the Company believes the alternate fair value accounting
provided  for  under  FASB  Statement  No.  123,  "Accounting  for  Stock  Based
Compensation",  requires  the use of  option  valuation  models  that  were  not
developed for use in valuing  employee stock options.  Under APB 25, because the
exercise  price of the Company's  employee stock options equals the market price
of the  underlying  stock on the  date of  grant,  no  compensation  expense  is
recorded.


                                      F-8
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE B -- SALE OF PROCUREN BUSINESS

      On January 2, 2001, the Company sold the assets of its Procuren business
for approximately $3.8 million to Cytomedix, Inc. ("Cytomedix"). Under the
agreement, Cytomedix will be the exclusive manufacturer of Procuren and the
Company will be the exclusive distributor of Procuren solution in the United
States. The Company will also receive royalties based on the sales of products
that are developed from the associated patents on sales outside the United
States. The Company will recognize these royalties when and if they are
received. The consideration received by the Company was $2.1 million in cash,
$1.7 million in a convertible secured promissory note, and a warrant certificate
to purchase 600,846 shares of Cytomedix common stock at purchase price of the
lesser of $.50 per share or a price per share equal to the average of the three
lowest intraday sales prices as reported by a reliable reporting service during
the 20 trading days preceding the date on which the warrant is exercised. Assets
related to this sale are shown as assets available for sale in the accompanying
December 31, 2000 consolidated balance sheet and are carried at fair value. The
Company recorded a $.2 million impairment charge on the assets available for
sale at December 31, 2000, based on the net realizable value of the assets. The
$.2 million charge was included in selling, general and administrative expense
in the accompanying December 31, 2000 financial statements. The Company recorded
reserves totaling $.8 million at December 31, 2000, related to leases assigned
to Cytomedix under which the Company remains as a guarantor.

      In 2001, the Company received $1.3 million in proceeds related to the $1.7
million convertible secured promissory note in the form of cash payments from
Cytomedix, exercise and sale of warrant shares, and conversion and sale of
shares of the convertible promissory note. Also during 2001, the Company
recorded a charge of $.2 million related to the unpaid balance of the promissory
note. As of December 31, 2001, the Company does not carry any balance due on
this promissory note. In May 2001, Cytomedix informed the Company that it would
exercise its right under the sale agreement to cease the production of Procuren
in June 2001. In July 2001, Cytomedix filed for Chapter 11 protection under the
United States Bankruptcy Code. As a result, the Company has had to pay for
certain lease obligations it guaranteed. During 2001, the Company paid $.4
million under these guarantees and as of December 31, 2001, maintained
liabilities of $.4 million related to these guarantees.

NOTE C -- EQUITY INVESTMENT

     On June 4, 1998,  the Company  signed an agreement  with  Accordant  Health
Services, Inc. ("Accordant") in which the Company agreed to invest $4 million in
Accordant  preferred  stock.  The  Company  currently  has an 8.6 % interest  in
Accordant  which is accounted  for using the equity  method of accounting as the
Company  has the option to convert  the  Accordant  preferred  stock into common
stock. In addition, the Company has significant influence over the operations of
Accordant.  The Company's share of Accordant's  1999, 2000 and 2001 net loss was
approximately  $.5 million,  $.4 million and $.4 million,  respectively.  During
2000,  the  Company  recorded an increase of  $1,335,000  to its  investment  in
Accordant Health Services,  Inc. and a corresponding increase to paid in capital
related  to an  increase  in the  value  of the  Company's  equity  interest  in
Accordant as the result of an equity  financing  done by Accordant in 2000.  The
financing  diluted  the  Company's  ownership  interest  to 8.6% from  11%,  but
increased  the  value  of its  share of the  underlying  equity.  The  Company's
investment in Accordant is not material to the Company's  consolidated financial
statements. At December 31, 2000 and 2001, the Company's investment in Accordant
exceeded  its  underlying  equity in such  investment  by $3.0  million and $2.8
million,  respectively.  Such excess is being amortized over twenty years. As of
December 31, 2001 and 2000 the total  investment  in Accordant  was $3.4 million
and $3.9 million respectively.

                                      F-9
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE D -- PURCHASE OF eBIOCARE.COM, INC.

     On March 30, 2001,  the Company  purchased all of the  outstanding  capital
stock of  eBiocare.com,  Inc.  ("eBiocare")  which does  business as  Millennium
Health for $32.3 million in cash, the assumption and repayment of  approximately
$5 million in debt, and approximately $1.3 million in related accruals. eBiocare
is a specialty pharmacy which contracts with insurance companies, government and
other  payors to provide  direct to patient  distribution  of  biopharmaceutical
drugs.  The  acquisition  was accounted for as a stock purchase and,  therefore,
operating  results of eBiocare have been included in the accompanying  financial
statements from the date of acquisition.  Purchase price  allocations  have been
done in accordance with the provisions of APB Opinion No. 16. Goodwill resulting
from  the  acquisition  is  being  amortized  over  a  twenty  year  period  and
identifiable  intangibles are amortized over various lives ranging from three to
twenty years.  Unaudited  pro forma  results of  operations  for the years ended
December 31, 2001 and 2000 assuming the eBiocare  acquisition had occurred as of
the beginning of each respective  year are as follows (in thousands,  except per
share data):

                                        Years Ended December 31,
                                        ------------------------
                                         2001          2000
                  ----------------------------------------------
                  Revenues            $  92,193   $ 106,597

                  Net (loss) income     (22,844)     (2,944)

                  Net (loss) income
                  per common share,
                  diluted             $   (3.18)  $    (.34)


The pro forma operating results shown above are not necessarily indicative of
operations in the period following acquisition.


NOTE E -- PROPERTY AND EQUIPMENT
      A summary of property and equipment and related accumulated depreciation
and amortization follows:
                                                                   December 31,
                                                                   -----------
                                                               2001        2000
                                                               ----------------
                                                                (In thousands)
       Property and equipment...........................    $ 9,149     $ 15,829
       Leased equipment capitalized.....................         -         1,371
       Leasehold improvements...........................      2,660        2,556
                                                              -----        -----
                                                             11,809       19,756
       Less accumulated depreciation and amortization...      8,014       12,691
                                                              -----       ------
                                                           $  3,795     $  7,065
                                                              =====        =====

                                      F-10
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001




NOTE  F -- ACCRUED EXPENSES Accrued expenses are as follows:
                                                                   December 31,
                                                                   -----------
                                                                 2001       2000
                                                                 ---------------
                                                                  (In thousands)

            Incentive compensation and benefits............ $    753    $  1,817
            Deferred compensation .........................        -       1,251
            Marketing and community education .............      693         560
            Salaries ......................................      894       1,246
            Health benefits ...............................      706         990
            Severance pay .................................       76       2,102
            Reserves for leases assigned...................      397         800
            Reserve for Department of Justice settlement...   10,500           -
            Reserve for shareholder lawsuit settlement.....    6,500           -
            Other .........................................    4,667       3,522
                                                               -----       -----
                                                            $ 25,186    $ 12,288
                                                              ======      ======


NOTE G -- LEASES
      The Company has entered into several non-cancelable operating leases for
the rental of certain office space expiring in various years through 2005. The
principal lease for office space provides for monthly rent of approximately
$60,000. The following is a schedule of future lease payments, by year and in
the aggregate, under non-cancelable operating leases with initial or remaining
terms of one year or more at December 31, 2001:

                                                      Operating Leases
                                                      -----------------
                                                       (In  thousands)

      2002 ............................................. $    893
      2003 .............................................      849
      2004..............................................      846
      2005..............................................      393
      Total............................................. $  2,981
                                                            =====

Rent expense for all operating leases was approximately $2,130,000, $1,534,000
and $893,000 for the years ended December 31, 1999, 2000 and 2001, respectively.


NOTE H -- STOCKHOLDERS' EQUITY

      Director Share Purchase Program: The Company maintains a Director Share
Purchase Program (the "Program") to encourage ownership of its common stock by
its directors. Under the Program, each non-employee director can elect to forego
receipt of cash payments for director's annual retainer and meeting fees and, in
lieu thereof, receive shares of common stock at market value equal to the cash
payment. The Program authorized the issuance of up to 120,000 shares of the
Company's common stock at market value. At December 31, 2001 and 2000, 118,406
shares of common stock were reserved for future issuance under the Program.


                                      F-11
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE H -- STOCKHOLDERS' EQUITY (Continued)

      Stock Repurchase Plans: Since February 1999, the Company has announced
stock repurchase plans authorizing repurchases of 7.5 million shares. As of
December 31, 2001, a total of 5,777,125 shares had been repurchased at a cost of
$50,799,000, including 180,800 purchased in 2001 at a cost of $1,117,000.

      Restricted Stock Awards Plans: During 1999, the Company implemented a
Restricted Stock Award Plan ("the Plan") for certain key executives. The total
shares to be granted under the Plan are 73,000 shares at a price of $5.41 per
share. The shares vest over a three-year period. During 2000 and 2001, 17,222
and 25,000 shares were executed under the Plan, respectively.

      Rights Plan: On October 25, 1995, the Board of Directors of the Company
declared a dividend of one preferred share purchase right per share for each
outstanding share of common stock of the Company. The dividend was paid on
November 6, 1995 to shareholders of record on that date. Under certain
circumstances each right may be exercised to purchase one-one hundredth of a
share of Series A Junior Participating Preferred Stock, par value $.01, of the
Company for $65. The rights, which are redeemable by the Company at $.01 per
right, expire in November 2005. The purchase right issued under the Company's
Rights Agreement dated October 22, 1995 provides the holder in the event of (i)
the acquisition of 15% or more of the Company's outstanding common stock by an
Acquiring Person (as defined in the Rights Agreement), (ii) the commencement of
a tender offer or exchange offer which results in a person or group owning 15%
or more of the Company's common stock, to exercise each right (other than rights
held by an Acquiring Person) to purchase common stock of the Company or a
successor company with a market value of twice the $65 exercise price.


NOTE I -- STOCK BASED COMPENSATION PLANS

      The Company has stock option plans which provide for the granting of
non-qualified, incentive options, or restricted stock awards to employees,
directors, consultants and advisors. The plans authorize granting of up to
6,406,695 shares of the Company's common stock at the market value at the date
of such grants. All options are exercisable at times as determined by the Board
of Directors, not to exceed ten years after the grant date.

      Pro forma information regarding net income (loss) and net income (loss)
per share is required by Statement No. 123, and has been determined as if the
Company has accounted for its stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions at December 31, 1999, 2000 and 2001 respectively: risk-free interest
rate of 5.75%, 5.43% and 1.8%; no dividend yields; volatility factor of the
expected market price of the Company's common stock of 74.1%, 70.2% and 69.1%;
and a weighted-average expected life of the options of 4 years.

      The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

                                      F-12
<PAGE>



                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE I-- STOCK BASED COMPENSATION PLANS - (CONTINUED)

The Company's pro forma information is as follows:

                                            (In thousands, except per
                                                   share data)
                                                2001    2000       1999
                                            -----------------------------
           Net (loss) income:  As reported  $(22,205)  $  (128)   $10,462
                               Pro forma     (24,900)   (2,465)     8,403

           Basic EPS:          As reported  $  (3.09)  $  (.01)   $   .99
                               Pro forma       (3.46)     (.28)       .80

           Diluted EPS:        As reported  $  (3.09)  $  (.01)   $   .97
                               Pro forma       (3.46)     (.28)       .78


A summary of the Company's stock option activity and related information for the
years ended is as follows:

                        2001                2000                 1999
                 --------------------------------------------------------------
                  Weighted   Average    Weighted  Average     Weighted Average
                  Options    Exercise   Options   Exercise    Options  Exercise
                             Price                Price                Price
                 --------------------------------------------------------------
Outstanding at
beginning of     3,460,220   $17.57  1,678,548    $24.58   1,367,434   $25.81
year
     Granted     1,278,409     7.88  2,387,311      5.56     450,550     7.55
     Exercised    (500,282)    5.82    (10,432)     3.67      (6,828)    4.88
     Cancelled    (500,258)   10.27   (595,207)    10.44    (132,608)   19.13
                 ---------            ---------            ---------
Outstanding at
end of year      3,738,089    11.13  3,460,220     17.57   1,678,548    24.58
                 =========           =========             =========
Exercisable at
end of year      1,522,645    10.72  1,144,934     13.76     710,762    18.58
                 ---------           ---------               -------
Weighted average
fair value of
options granted              $ 4.23               $ 3.16               $ 4.47
                             ------               ------               ------


                                      F-13
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE I-- STOCK BASED COMPENSATION PLANS - (CONTINUED)

The following table summarizes information about stock options outstanding at
December 31, 2001:
<TABLE>
<CAPTION>
                     Options  Outstanding                           Options Exercisable
 --------------------------------------------------------------------------------------------------
                              Weighted Average
                     Options  Remaining            Weighted Average                  Weighted
 Exercise prices Outstanding  Contractual Life     Exercise Price     Shares         Average
                              (In Years)                                             Exercise Price
 ==================================================================================================
  <S>              <C>              <C>            <C>                <C>              <C>
   $3.50  - $5.25     31,560         2.96          $  4.66               29,690        $  4.65

   $5.25  - $7.88  2,045,608         8.53             5.69            1,010,840           5.71

   $7.88  - $11.82   894,516         8.69             9.24              125,710          10.84

   $11.82 - $17.73    20,576         6.56            15.01               10,576          15.97

   $17.73 - $26.60   187,912         4.97            22.52              187,912          22.52

   $26.60 - $32.00   557,917         5.92            30.48              157,917          29.47
                     -------         ----                               -------
                   3,738,089         6.27                             1,522,645
                   =========         ====                             =========
</TABLE>


     At December 31, 2001, 818,301 shares of common stock were reserved for
     future issuance, excluding shares reserved for options outstanding.


NOTE J -- INCOME TAXES
      Significant components of the Company's deferred tax assets as of December
31, 2001 and 2000 are as follows:
                                                      2001          2000
                                                      ------------------
           Bad debt reserve                           $  1,810     $    640
           Affiliate net operating loss carryforward       691          642
           Other reserves and accruals                     182        1,004
           Shareholder lawsuit                           2,535            -
           Book over tax depreciation                    1,046          520
                                                         -----          ---
           Deferred tax assets                        $  6,265     $  2,806
                                                      ========     ========

Significant components of the (benefit) provision for income taxes are as
follows:

                                          2001            2000     1999
                                          -----------------------------
          Current:
             Federal                   $   224     $  378      $  6,651
             State                          57         71         1,144
          Deferred                      (2,754)      (535)       (1,229)
                                        -------      -----       -------
          Total income tax (benefit)
          provision                    $(2,473)    $  (86)     $   6,566
                                       ========    =======     =========


A reconciliation of income tax computed at the U.S. Federal statutory tax rate
to income tax (benefit) expense is as follows:

                                              2001         2000     1999
                                              --------------------------

     Federal statutory tax rate              (35.0%)       (35.0%)  35.0%
     State income taxes net
       of Federal tax benefit                  (.3%)        (4.0%)   4.4%
     Non deductible Department of Justice
       settlement costs                       23.4%           -        -
     Non deductible amortization               2.2%           -        -
     Other                                     (.3%)       (1.2%)    (.8%)
                                              ------       ------    -----
     Effective tax rate                      (10.0%)      (40.2%)    38.6%
                                             =======       =====    =====


                                      F-14
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE K -- SEGMENT INFORMATION

The Company follows the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information". The Company operated under one segment prior to the acquisition of
eBiocare.com Inc. in March 2001. Effective April 2001, the Company has two
reportable segments: Specialty Health Services and Specialty Pharmacy Services.
In its Specialty Health Services, the Company contracts with hospitals to manage
outpatient Wound Care Centers. In its Specialty Pharmacy Services, the Company
contracts with insurance companies, government and other payors to provide
direct to patient distribution of biopharmaceutical drugs. The Company evaluates
segment performance based on (loss) income from operations. The accounting
policies of the reportable segments are the same as those described in the
significant accounting policies footnote. Intercompany transactions are
eliminated to arrive at consolidated totals.

The following table presents the results of operations and total assets of the
reportable segments of the Company for the year ended December 31, 2001 (in
thousands):

                           Specialty      Specialty    Eliminating
                             Health        Pharmacy     Entries           Total
                           ----------------------------------------------------
Revenues                    $ 46,534       $ 35,104    $       -       $ 81,638
                              ======         ======     =========       =======
Interest income             $    807       $      9    $       -       $    816
                              ======         ======     =========       =======
Depreciation and
  amortization              $  3,914       $    155    $       -       $  4,069
                              ======         ======     ========        =======
Income tax (benefit)
   expense                  $ (3,310)      $    837    $       -       $ (2,473)
                              ======         ======     ========        =======
(Loss) income from
   operations              $ (27,581)      $  2,087    $       -       $(25,494)
                              ======         ======     ========        =======
Total assets                $ 71,866       $ 14,897    $  (9,836)      $ 76,927
                              ======         ======     ========        =======


NOTE L-- LEGAL PROCEEDINGS

     On December 28, 2001, the Company reached a  comprehensive  settlement with
the United  States  Department  of Justice (the "DOJ"),  the U.S.  Department of
Health and Human Services,  Office of the Inspector  General (the "USHHS"),  and
other  related  parties in  connection  with all  previously  disclosed  federal
investigations  and related  legal  proceedings  against it in the United States
District  Court for the  Southern  District  of New York and the  United  States
District Court for the District of Columbia.  Under the terms of the settlement,
even though the Company maintained that there was no basis for the imposition of
liability, in order to avoid the delay and expense of protracted litigation, the
Company  agreed  to pay the  United  States a total of  $16.5  million,  with an
initial  payment  of $9 million  and the  balance  payable  over four years with
interest. The Company is also required to fulfill certain additional obligations
including abiding by a five-year  Corporate Integrity Agreement we have executed
with the USHHS (which  incorporates  much of our existing  compliance  program),
avoiding  violations of law and providing  certain  information  to the DOJ from
time to time.

     Subsequent to the  disclosure  of the DOJ action,  the Company and, in some
cases,  certain of its officers  were named in four  shareholder  lawsuits.  All
suits were filed in the United States District Court for the Eastern District of
New York. The four shareholder  lawsuits were consolidated into one class-action
lawsuit.  On or about  March 8,  2002,  the  Company  reached  an  agreement  in
principle  to settle the lawsuit.  Under the terms of the  proposed  settlement,
even though the Company maintained that there was no basis for the imposition of
liability, in order to avoid the delay and expense of protracted litigation,  it
agreed to pay the $10.5 million to the class, of which $6.5 million will be paid
in common stock, cash or a combination  thereof,  as determined at the Company's
discretion.  The remaining $4 million will be paid by using insurance  proceeds.
The  $6.5  million  has been  accrued  in the  accompanying  December  31,  2001
financial  statements.  This  settlement is subject to execution and filing with
the court of a stipulation of settlement by the parties, notice to the class and
court  approval.   The Company expects the settlement to be approved by the end
of the third quarter of 2002.

     The Company is currently in dispute with some of the former shareholders of
eBioCare.com,  Inc. over claims by it for indemnification in connection with our
acquisition of  eBioCare.com,  Inc. These claims are for  indemnification  in an
aggregate amount in excess of $3 million which is currently held in escrow for
a  breach  of  certain  representations  and  warranties  made  by  such  former
shareholders. In response to the Company's indemnification claims, the former
shareholders have filed a lawsuit in


                                      F-15
<PAGE>



                   CURATIVE HEALTH SERVICES,  INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE L -- LEGAL PROCEEDINGS (CONTINUED)

Superior Court of California, County of Santa Clara on or about February 1, 2002
against the Company seeking a declaratory  judgment in its favor with respect to
certain of the Company's claims,  and other remedies including the rescission of
the Company's  acquisition of eBiocare.com,  Inc.  Although the Company believes
this lawsuit is  groundless  and intends to defend these claims  vigorously,  an
adverse result in this dispute could harm the Company's business.

     In addition,  in the ordinary  course of our  business,  the Company is the
subject of or party to various lawsuits, including those arising out of services
or products  provided by or to its  operations,  personal  injury and employment
disputes,  the outcome of which,  in the opinion of management,  will not have a
material adverse effect on financial position or results of operations.


NOTE M -- EARNINGS PER SHARE

      The following table sets forth the computation of basic and diluted
earnings per share:
                                                   2001        2000         1999
                                               ---------------------------------
                                                            (In thousands)
      Denominator:
          Denominator for basic earnings per
          share, weighted average shares          7,193       8,780       10,559

      Effect of dilutive employee
          stock options (a)                           -           -          197
                                                  -----       -----       ------
      Denominator for diluted earnings per share,
          adjusted weighted average shares and
          assumed conversions                     7,193        8,780      10,756
                                                  =====        =====      ======

(a)  Potentially dilutive employee and director stock options that have been
     excluded from this amount because they are anti-dilutive amounted to
     1,198,000, 3,460,220 and 3,738,039 in 1999, 2000, and 2001, respectively.



      The numerator for basic and diluted earnings per share for the years ended
December 31, 1999, 2000 and 2001 is the net income (loss) for the period.


NOTE N -- EMPLOYEE BENEFITS

      The Company maintains a qualified Employee Savings Plan (the "Plan") for
eligible employees under Section 401(k) of the Internal Revenue Code. The Plan
provides for voluntary employee contributions through salary reductions and
employer contributions at the discretion of the Company. The Company currently
has authorized employer contributions of 25% of employees' contribution up to 1%
of the employees' compensation. The Company's contribution expense was $.6
million $.5 million and $.1 million in 1999, 2000 and 2001, respectively.

      Since 1999, the Company also maintained a non-qualified Deferred
Compensation Plan for certain executives and directors. The Company's expense
for this Deferred Compensation Plan was $.1 million in 1999 and 2000,
respectively. This plan was terminated effective January 1, 2001.


                                      F-16
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2001


NOTE O -- SUBSEQUENT EVENTS

     On or about March 8, 2002, the Company reached an agreement in principle to
settle the  outstanding  shareholder  lawsuit.  Under the terms of the  proposed
settlement,  even though the Company  maintained that there was no basis for the
imposition of  liability,  in order to avoid the delay and expense of protracted
litigation,  the Company agreed to pay the $10.5 million to the class,  of which
$6.5  million will be paid in common  stock,  cash or a  combination  thereof as
determined  at the Company's  discretion.  The remaining $4 million will be paid
from insurance proceeds. This settlement is subject to execution and filing with
the court of a stipulation of settlement by the parties, notice to the class and
court approval.  The Company expects the settlement to be approved by the end of
the third quarter of 2002. The charge of $6.5 million has been taken in the 2001
financial statements.

     On February 8, 2002, the Company sold 1,059,000  newly issued shares of its
common stock in a private placement to institutional investors. The net proceeds
of  approximately  $16.9 million will be used to finance the Company's  recently
announced acquisition of Apex Therapeutic Care, Inc. ("Apex") and for additional
acquisitions and general operating purposes.

     On January 31, 2002, the Company  entered into a $25 million line of credit
with  Healthcare  Business  Credit  Corporation.  The Company intends to use the
funds for additional acquisitions, to add new product offerings in its Specialty
Pharmacy Services business unit and for general operating purposes.

     On January 27, 2002, the Company entered into an agreement to acquire Apex,
a leading  provider of  biopharmaceutical  products,  therapeutic  supplies  and
disease  management  services to people  with  hemophilia  and related  bleeding
disorders.  Apex is based near Los Angeles,  California.  The aggregate purchase
price for Apex was $60 million.  Approximately $40 million of the purchase price
was paid in shares of the Company's  common stock with the remainder  payable in
cash and a  promissory  note.  The closing of the Apex  occurred on February 28,
2002.

     On January  7, 2002,  the  Company  acquired  Hemophilia  Access,  Inc.,  a
provider  of  pharmaceuticals,   therapeutic  supplies  and  disease  management
services to people with hemophilia and related  bleeding  disorders.  Hemophilia
Access is based near  Nashville,  Tennessee.  The purchase  price for Hemophilia
Access was $2.65  million,  substantially  all of which was paid  using  175,824
shares of the Company's common stock. The Company has the option of repurchasing
from the seller all, but not less than all, of the number of shares equal to 50%
of the purchase price ("Option Shares"),  (a) at any time prior to the six month
anniversary date of the closing, at a price per share of 107.5% of the price per
share  determined  for purposes of the  closing;  (b) at any time after such six
month  anniversary date but prior to the twelve month anniversary of the closing
date,  at a price  per  share of 115% of the  price  per  share  determined  for
purposes of the closing. If the Company shall not have exercised these rights by
the twelve month  anniversary  of the closing date,  the seller has the one time
right,  by  providing   notice  to  the  Company  within  ninety  days  of  such
anniversary,  to sell all,  but not less than all, of the Option  Shares back to
the Company at a price per share equal to 115% of the price per share determined
for purposes of the closing.


                                      F-17
<PAGE>


                        Inserted Blank Page for Page Formatting


                                      F-18
<PAGE>

                                                                    Schedule II



                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                          YEAR ENDED DECEMBER 31, 2001



  <TABLE>
<CAPTION>


 COL. A                             COL.B                 COL. C                        COL. D        COL. E
--------------------------------------------------------------------------------------------------------------
                                                          ADDITIONS

                                    Balance at            Charged to    Charged to                   Balance at
                                    Beginning             Costs and     Other Account   Deductions   End
 DESCRIPTION                        of Period             Expenses      Describe        Describe     of Period
---------------------------------------------------------------------------------------------------------------
<S>                                 <C>                   <C>           <C>        <C>               <C>
Year ended December 31, 2001:
Allowance for doubtful accounts     $ 2,046,000           $ 1,615,000   $      -   $   913,000(1)    $ 2,748,000
                                    ===========           ===========      =====   =============     ===========
Year ended December 31, 2000
Allowance for doubtful accounts     $ 2,276,000           $ 2,189,000   $      -   $ 2,419,000(1)    $ 2,046,000
                                    ===========           ===========      =====   =============     ============
Year ended December 31, 1999:
Allowance for doubtful accounts     $ 1,679,000           $ 3,668,000   $      -   $ 3,071,000(1)    $  2,276,000
                                    ===========           ===========      =====   =============     ============
</TABLE>


(1)   Accounts written off.


                                      S-1
<PAGE>


                                INDEX TO EXHIBITS

Exhibit No. Description                                                Page No.
-------------------------------------------------------------------------------

   3.1      Articles of Incorporation of the Company                         (1)

   3.2      Bylaws of the Company                                            (1)

   4.0      Rights Agreement, dated as of October 25, 1995 between
            Curative Technologies, Inc. and Bank Minnesota,
            National Association, as Rights Agent                            (7)

   4.1      Stock Purchase Agreement, dated July 6, 1989, among
            the Company and certain investors named therein        (1) (Ex. 4.2)

  10.1      Technology Transfer Agreement, dated September 21, 1990,
            between Curative Technologies GmbH and the Company    (1) (Ex. 10.8)

  10.2      Contractual Agreement for Wound Healing Product effective as of
            January 1, 1988, between the Company and the University of
            Minnesota Hospital and Clinic                         (1) (Ex.10.17)

  10.3      Form of Wound Care Center(R)Contract                            (12)

  10.4      Lease Agreement dated June 30, 1997, and amended Lease Agreement
            dated November 13, 1997, between New York Life Insurance Company and
            the Company                                                     (12)

  10.5      Employment Agreement, dated as of September 1, 1997 between
            John C. Prior and the Company                                  (9)**

  10.6      1991 Stock Option Plan                               (1)(Ex.10.27)**

  10.7      Amendment No. 4 to the 1991 Stock Option Plan                 (12)**

  10.9      Curative Health Services, Inc., Director Share Purchase
            Program                                                        (3)**

  10.10     Employment Agreement, dated as of October 21, 1993, between
            Howard Jones and the Company                                   (4)**

  10.11     Curative  Health  Services,  Inc.  Employee  401(k)
            Savings Plan, as amended and restated                          (5)**

  10.12     Settlement Agreement by and between the University of California,
            David R. Knighton and the Company dated September 1, 1993        (6)

  10.13     Settlement Agreement by and among the United States of
            America and UltraMed, Inc., Robert Baurys, Susan  Hrim,
            Cy Corgan, Chris Rosenski and the Company dated
            October 18, 1994 and related agreements                          (6)

<PAGE>



                          INDEX TO EXHIBITS (continued)

Exhibit No. Description                                                 Page No.
--------------------------------------------------------------------------------

  10.14     Amendment of Employment Agreement, dated September 1, 1997
            between John Vakoutis and the Company                          (9)**

  10.14.1   Transition Agreement between Curative Health Services, Inc. and
            John Vakoutis                                                   (17)

  10.15     Employment Agreement dated as of September 1, 1997, between
            Carol Gleber and the Company                                   (9)**

  10.15.1   Transition Agreement between Curative Health Services, Inc. and
            Carol Gleber                                                    (13)

  10.16     Employment Agreement dated as of June 17, 1987, between
            Gary Jensen and the Company                                    (6)**

  10.19     Curative Technologies, Inc. Non-Employee Director
            Stock Option Plan                                                (8)


  10.19.1   Amendment No. 1 to Curative Technologies, Inc. Non-Employee
            Director Stock Option Plan                           (10)(Ex. 10.19)

  10.19.2   Amendment to the Non-Employee Director Stock Option Plan        (14)

  10.20     Employment Agreement dated as of October 21, 1998
            between Robert Heisler and the Company                        (12)**

  10.21     Amended Employment Agreement dated December 17, 1997
            between William Tella and the Company                         (11)**

  10.22     Development and Licensing Agreement dated May 19, 1998
            between Accordant Health Services, Inc. and the Company         (12)

  10.23     Stock Purchase Agreement dated May 1998, among Accordant Health
            Services, Inc, the Company and certain investor named herein.   (12)

  10.24     Curative Health Services, Inc. 2000 Stock Option Plan           (18)

  10.25     Asset Purchase Agreement among Cytomedix, Inc.,
            Cytomedix, N.V., CHS Services, Inc. and Curative
            Health Services, Inc. dated as of October 12, 2000.             (13)

  10.26     Employment Agreement dated as of September 18, 2000,
            between Roy McKinley and the Company.                           (19)

  10.27     Employment Agreement dated as of September 18, 2000,
            between Jule Crider and the Company.                            (20)

  10.28     Form of Restricted Stock Award Agreement                        (15)


<PAGE>

                          INDEX TO EXHIBITS (continued)

Exhibit No. Description                                                 Page No.
--------------------------------------------------------------------------------

   10.29    Non-Employee Director Severance Plan                            (16)

   10.30    Stock Purchase Agreement dated March 19, 2001,
            among Curative Health Services, Inc. and certain
            stockholders of eBiocare.com                                    (21)

   10.31    Form of Stockholder Purchase Agreement, between Curative Health
            Services, Inc. and all other stockholders of eBiocare.com       (22)

   10.32    Form of Option/Warrant Repurchase and Surrender Agreement
            between EBiocare.com and the holders of options and warrants
            to purchase common Stock of ebiocare.com                        (23)

   10.33    Employment Agreement dated as of June 25, 2001 between Nancy
            Lanis and the Company                                           (24)

   10.34    Employment Agreement dated as of September 17, 2001 between
            Gary Blackford and the Company                                  (25)

   10.35    Employment Agreement dated as of September 17, 2001 between
            David Lawson and the Company                                       *

   10.36    Employment Agreement dated as of September 17, 2001 between
            Steven Michurski and the Company                                   *

   10.37    Curative Health Services, Inc. 2001 Broad-Based Stock
            Incentive Plan                                                     *

   10.38    Curative Health Services, Inc. Non-Qualified Stock Option
            Agreement                                                          *

   21       Subsidiaries of the Registrant                                     *

   23       Consent of Ernst & Young LLP                                       *

   24       Power of Attorney (included signature page)



*     Filed herewith
** Required to be filed pursuant to Item 601(b) (10) (ii) (A) or (iii) of
Regulation S-K.

(1) Incorporated by reference to similarly numbered exhibit to the Company's
   current report on Form 8-K dated May 30, 1996.
(2) Incorporated  by  reference  to  the  similarly  numbered  exhibit  (unless
    otherwise  indicated) to the Company's Registration  Statement  on Form S-1
   (No. 33-39880).
(3) Incorporated by reference to the Company's  Registration  Statement on Form
    S-8 (filed July 7, 1993, No. 33-65710).
(4) Incorporated by reference to Exhibit 10.32 to the Company's Annual Report on
    Form 10-K filed for the year ended December 31, 1993.
(5) Incorporated by reference to the Company's  Registration  Statement on Form
    S-8 (filed October 13, 1994, No. 33-85188).
(6) Incorporated by reference to the similarly numbered exhibit to the Company's
    Annual Report on Form 10-K filed for the year ended December 31, 1994.
(7) Incorporated by reference to similarly numbered exhibit to the Company's
    Current Report on Form 8-K dated November 6, 1995.
(8) Incorporated by reference to Exhibit 10.25.2 to the Company's Quarterly
    Report on Form 10-Q filed for the year ended June 30, 1996.
(9) Incorporated by reference to the similarly numbered exhibit to the Company's
    Annual Report and Form 10-K filed the year ended December 31, 1997.
(10) Incorporated by reference to the similarly numbered exhibit (unless
     otherwise indicated) to the Company's Quarterly Report on Form 10-Q for the
     quarter ended June 30, 1998.
(11) Incorporated by reference to Exhibit 10.45.1 to the Company's Quarterly
     Report on Form 10Q for the quarter ended March 3, 1998.
(12) Incorporated by reference to similarly numbered exhibit to the Company's
     Annual Report on From 10K filed for the year ended December 31, 1998.
(13) Incorporated by reference to similarly numbered exhibit to the Company's
     Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
(14) Incorporated by reference to similarly numbered exhibit to the Company's
     Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
(15) Incorporated by reference to Exhibit 10.25 to the Company's Quarterly
     Report on Form 10-Q for the quarter ended June 30, 2000.
(16) Incorporated by reference to Exhibit 10.26 to the Company's Quarterly
     Report on Form 10-Q for the quarter ended June 30, 2000.
(17) Incorporated by reference to similarly numbered exhibit to the Company's
     Annual Report on Form 10K filed for the year ended December 31, 2000.
(18) Incorporated by reference to similarly numbered exhibit to the Company's
    Annual Report on 10-Q for the quarter ended March 31, 2001.
(19) Incorporated by reference to similarly numbered exhibit to the Company's
     Annual Report on Form 10K filed for the year ended December 31, 2000.
(20) Incorporated by reference to similarly numbered exhibit to the Company's
     Annual Report on Form 10K filed for the year ended December 31, 2000.
(21) Incorporated by reference to Exhibit 2.1 to the Company's Form 8K filed
     April 13, 2001.
(22) Incorporated by reference to Exhibit 2.2 to the Company's Form 8K filed
     April 13, 2001.
(23) Incorporated by reference to Exhibit 2.3 to the Company's Form 8K filed
     April 13, 2001.
(24) Incorporated by reference to similarly numbered exhibit to the Company's
     Quarterly Report on 10-Q for the quarter ended June 30, 2001.
(25)Incorporated by reference to similarly numbered exhibit to the Company's
     Quarterly Report on 10-Q for the quarter ended September 30, 2001.

<PAGE>

                                                                     Exhibit 21


SUBSIDIARIES OF THE REGISTRANT

The following is a list of all of the subsidiaries of the registrant:
1. CHS Services, Inc., organized under the laws of Delaware.
2. eBiocare.com, Inc., organized under the laws of the State of California
3. Hemophilia Access, Inc., organized under the laws of the State of Tennessee
4. Apex Therapeutic Care, Inc., organized under the laws of the State of
   California

<PAGE>
                                                                     Exhibit 23

                         CONSENT OF INDEPENDENT AUDITORS

     We consent to the incorporation by reference in the Registration  Statement
(Form S-8 No.  333-73376)  pertaining  to Curative  Health  Services,  Inc. 2001
Broad-Based Stock Incentive Plan and  Non-Qualified  Stock Option Agreements for
David Lawson, Steven Michurski,  and Beth Oliver, in the Registration  Statement
(Form  S-8  No.  333-60854)   pertaining  to  Curative  Health  Services,   Inc.
Non-Employee  Director  Stock  Option  Plan,  as  amended,  in the  Registration
Statement (Form S-8 No. 333-60852) pertaining to Curative Health Services,  Inc.
2000  Stock  Incentive  Plan  in  the  Registration  Statement  (Form  S-8  No.
333-65751)  pertaining to the Curative Health  Services,  Inc. and  subsidiaries
1991 Stock Option Plan, as amended, in the Registration  Statement (Form S-8 No.
333-65753)  pertaining to Curative Health Services,  Inc.  Non-Employee Director
Stock Option  Plan,  as amended,  in the  Registration  Statement  (Form S-8 No.
33-19370)  pertaining to the Curative  Health  Services,  Inc. and  subsidiaries
Director Share Purchase Program and in the Registration  Statement (Form S-8 No.
33-85188)  pertaining to the Curative  Health  Services,  Inc. and  subsidiaries
Employee  401(k) Savings Plan of our report March 19, 2002,  with respect to the
consolidated financial statements and schedule of Curative Health Services, Inc.
and  subsidiaries  included in the Annual  Report (Form 10-K) for the year ended
December 31, 2001.
                                                /s/  Ernst & Young LLP

Melville, New York
March 29, 2002

<PAGE>
                                                                   Exhibit 10-35

Curative Health Services
150 Motor Parkway
Hauppauge, NY  11788


October 12, 2001


Mr. David Lawson
36 Thomas Avenue South
Minneapolis, MN 55405

      Re:   Offer of Employment

Dear David:

It is my pleasure to offer you the position of Chief Administrative Officer of
Curative Health Services, Inc, effective October 1, 2001. Your duties will be
defined by, and you will report directly to, the Chief Executive Officer.

Your salary will be set at the annual rate of $175,000, with a target bonus
potential of up to 50% of your annualized base salary, based on achievement of
specific performance objectives to be defined by the Chief Executive Officer.
You will also be eligible to participate in other Curative Health Services, Inc.
benefit plans, to the same extent and at the same levels offered to similarly
situated company executives, consistent with the terms of those plans. Specific
information regarding eligibility, coverages and premiums will be provided to
you separately.

You have also been granted 100,000 options to acquire the common stock of
Curative Health Services, Inc., effective as of October 1, 2001. These options
will vest and become exercisable in accordance with the terms of the
Non-Qualified Stock Option Agreement attached as Exhibit A.

Your employment will be at-will and, as such, you are free to terminate the
relationship at any time, as is Curative.

However, should your employment terminate involuntarily (other than "for cause"
as defined in Exhibit A) within sixty (60) days of a Change of Control (also
defined in Exhibit A) or a change in management (defined as a change in
Curative's Chief Executive Officer), you will be entitled to receive separation
pay equivalent to one year's base salary, together with prorated target bonus
for the year in which termination occurs, and continuation of or reimbursement
for insurance coverages at preexisting levels for the one-year separation pay
period. In the event of termination related to a Change of Control, the
exercisability of your unvested option shares would accelerate, as more fully
outlined in the Option Agreement.

In partial exchange for this offer from Curative, and as a condition to your
acceptance, you will be asked to execute the Employee Agreement attached as
Exhibit B, which protects the company's proprietary information and trade
secrets.

David, I am very enthusiastic about this new role for you in our company, and
the opportunity for us to work closely together. I hope you will find these
terms acceptable and consistent with our prior discussions. If you agree with
the terms of employment set forth in this offer, please sign this letter below
and return the original to me.

Sincerely,

/s/ Gary D. Blackford
---------------------
Gary D. Blackford
Chief Executive Officer





ACCEPTED AND APPROVED:

/s/ David Lawson
----------------------------------
David Lawson


Date:  10/12/01


<PAGE>
                                                                   Exhibit 10-36

Curative Health Services
150 Motor Parkway
Hauppauge, NY  11788


October 12, 2001


Mr. Steven Michurski
8970 Westhill
Eden Prairie, MN 55347

      Re:   Offer of Employment

Dear Steve:

It is my pleasure to offer you the position of Executive Vice President of
Curative Health Services, Inc, effective October 8, 2001. Your duties will be
defined by, and you will report directly to, the Chief Executive Officer.

Your salary will be set at the annual rate of $175,000, with a target bonus
potential of up to 50% of your annualized base salary, based on achievement of
specific performance objectives to be defined by the Chief Executive Officer.
You will also be eligible to participate in other Curative Health Services, Inc.
benefit plans, to the same extent and at the same levels offered to similarly
situated company executives, consistent with the terms of those plans. Specific
information regarding eligibility, coverages and premiums will be provided to
you separately.

You have also been granted 100,000 options to acquire the common stock of
Curative Health Services, Inc., effective as of October 8, 2001. These options
will vest and become exercisable in accordance with the terms of the
Non-Qualified Stock Option Agreement attached as Exhibit A.

Your employment will be at-will and, as such, you are free to terminate the
relationship at any time, as is Curative.

However, should your employment terminate involuntarily (other than "for cause"
as defined in Exhibit A) within sixty (60) days of a Change of Control (also
defined in Exhibit A) or a change in management (defined as a change in
Curative's Chief Executive Officer), you will be entitled to receive separation
pay equivalent to one year's base salary, together with prorated target bonus
for the year in which termination occurs, and continuation of or reimbursement
for insurance coverages at preexisting levels for the one-year separation pay
period. In the event of termination related to a Change of Control, the
exercisability of your unvested option shares would accelerate, as more fully
outlined in the Option Agreement.

In partial exchange for this offer from Curative, and as a condition to your
acceptance, you will be asked to execute the Employee Agreement attached as
Exhibit B, which protects the company's proprietary information and trade
secrets.

Steve, I am very enthusiastic about this new role for you in our company, and
the opportunity for us to work closely together. I hope you will find these
terms acceptable and consistent with our prior discussions. If you agree with
the terms of employment set forth in this offer, please sign this letter below
and return the original to me.

Sincerely,

/s/ Gary D. Blackford
---------------------
Gary D. Blackford
Chief Executive Officer





ACCEPTED AND APPROVED:

/s/ Steven Michurski
----------------------------------
Steven Michurski


Date:


<PAGE>
                                                                   Exhibit 10-37

                         CURATIVE HEALTH SERVICES, INC.
                      2001 BROAD-BASED STOCK INCENTIVE PLAN


Section 1.  Purpose of Plan.

The purpose of the Plan (as defined below) is to promote the interests of
Curative Health Services, Inc., a Minnesota corporation, and its shareholders by
aiding the Company in attracting and retaining employees, officers, consultants,
independent contractors and non-employee directors capable of assuring the
future success of the Company, to offer such persons incentives to put forth
maximum efforts for the success of the Company's business and to afford such
persons an opportunity to acquire a proprietary interest in the Company.

Section 2.  Definitions.

As used in the Plan, the following terms shall have the meanings set forth
below:

(a) "Affiliate" shall mean (i) any entity that, directly or indirectly through
one or more intermediaries, is controlled by the Company and (ii) any entity in
which the Company has a significant equity interest, in each case as determined
by the Committee.

(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock,
Restricted Stock Unit, Performance Award, Other Stock Grant or Other Stock-Based
Award granted under the Plan.

(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan. Each Award
Agreement shall be subject to the applicable terms and conditions of the Plan
and any other terms and conditions (not inconsistent with the Plan) determined
by the Committee.

(d)   "Board" shall mean the Board of Directors of the Company.

(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time, and any regulations promulgated thereunder.

(f) "Committee" shall mean the Compensation Committee of the Board or such other
committee of Directors designated by the Board to administer the Plan. The
Committee shall be comprised of not less than such number of Directors as shall
be required to permit Awards granted under the Plan to qualify under Rule 16b-3,
and each member of the Committee shall be a "Non-Employee Director" within the
meaning of Rule 16b-3 and an "outside director" within the meaning of Section
162(m) of the Code. The Company expects to have the Plan administered in
accordance with the requirements for the award of "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code.

(g)   "Company"  shall  mean  Curative  Health  Services,  Inc.,  a  Minnesota
corporation, and any successor corporation.

(h)   "Director" shall mean a member of the Board.

(i)   "Effective Date" shall mean the date given in Section 10 of the Plan.

(j) "Eligible Person" shall mean any employee, officer, consultant, independent
contractor or Director providing services to the Company or any Affiliate whom
the Committee determines to be an Eligible Person.

(k) "Fair Market Value" shall mean, with respect to any property (including,
without limitation, any Shares or other securities), the fair market value of
such property determined by such methods or procedures as shall be reasonably
established in good faith from time to time by the Committee.

(l) "Option" shall mean an option granted under Section 6(a) of the Plan and
shall not be an "incentive stock option" within the meaning of Section 422 of
the Code or any successor provision and shall include Reload Options.

(m) "Other Stock Grant" shall mean any right granted under Section 6(e) of the
Plan.

(n) "Other Stock-Based Award" shall mean any right granted under Section 6(f) of
the Plan.

(o) "Participant" shall mean an Eligible Person designated to be granted an
Award under the Plan.

(p) "Performance Award" shall mean any right granted under Section 6(d) of the
Plan.

(q) "Person" shall mean any individual, corporation, partnership, limited
liability company, association or trust.

(r)   "Plan" shall mean the Curative Health  Services,  Inc. 2001  Broad-Based
Stock  Incentive  Plan, as amended from time to time,  the provisions of which
are set forth herein.

(s) "Reload Option" shall mean any Option granted under Section 6(a)(iv) of the
Plan.

(t) "Restricted Stock" shall mean any Shares granted under Section 6(c) of the
Plan.

(u) "Restricted Stock Unit" shall mean any unit granted under Section 6(c) of
the Plan evidencing the right to receive a Share (or a cash payment equal to the
Fair Market Value of a Share) at some future date.

(v) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
any successor rule or regulation.

(w) "Shares" shall mean shares of Common Stock, $.01 par value per share, of the
Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.

(x) "Stock Appreciation Right" shall mean any right granted under Section 6(b)
of the Plan.

Section 3.  Administration.

(a) Power and Authority of the Committee. The Plan shall be administered by the
Committee. Subject to the express provisions of the Plan and to applicable law,
the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to each
Participant under the Plan; (iii) determine the number of Shares to be covered
by (or with respect to which payments, rights or other matters are to be
calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of any Award
or the lapse of restrictions relating to any Award; (vi) determine whether, to
what extent and under what circumstances Awards may be exercised in cash,
Shares, promissory notes, other securities, other Awards or other property, or
canceled, forfeited or suspended; (vii) determine whether, to what extent and
under what circumstances cash, Shares, promissory notes, other securities, other
Awards, other property and other amounts payable with respect to an Award under
the Plan shall be deferred either automatically or at the election of the holder
thereof or the Committee; (viii) interpret and administer the Plan and any
instrument or agreement, including an Award Agreement, relating to the Plan;
(ix) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.

(b) Delegation. The Committee may delegate its powers and duties under the Plan
to one or more officers of the Company or any Affiliate or a committee of such
officers, subject to such terms, conditions and limitations as the Committee may
establish in its sole discretion, provided, however, that the Committee shall
not delegate its powers and duties under the Plan (i) with regard to officers or
directors of the Company or any Affiliate who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended or (ii) in such a manner as would
cause the Plan not to comply with the requirements of Section 162(m) of the
Code.

(c) Power and Authority of the Board of Directors. Notwithstanding anything to
the contrary contained herein, the Board may, at any time and from time to time,
without any further action of the Committee, exercise the powers and duties of
the Committee under the Plan.

Section 4.  Shares Available for Awards.

(a) Shares Available. Subject to adjustment as provided in Section 4(c) of the
Plan, the aggregate number of Shares that may be issued under all Awards under
the Plan shall be 1,000,000. Shares to be issued under the Plan may be either
authorized but unissued Shares or Shares acquired in the open market or
otherwise. Any Shares that are used by a Participant as full or partial payment
to the Company of the purchase price relating to an Award, or in connection with
the satisfaction of tax obligations relating to an Award, shall again be
available for granting Awards under the Plan. In addition, if any Shares covered
by an Award or to which an Award relates are not purchased or are forfeited, or
if an Award otherwise terminates without delivery of any Shares, then the number
of Shares counted against the aggregate number of Shares available under the
Plan with respect to such Award, to the extent of any such forfeiture or
termination, shall again be available for granting Awards under the Plan.

(b) Accounting for Awards. For purposes of this Section 4, if an Award entitles
the holder thereof to receive or purchase Shares, the number of Shares covered
by such Award or to which such Award relates shall be counted on the date of
grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan.

(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or other property) that thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase or exercise price
with respect to any Award; provided, however, that the number of Shares covered
by any Award or to which such Award relates shall always be a whole number.

(d) Award Limitations Under the Plan. No Eligible Person may be granted any
Award or Awards under the Plan, the value of which Award or Awards is based
solely on an increase in the value of the Shares after the date of grant of such
Award or Awards, for more than 500,000 Shares (subject to adjustment as provided
for in Section 4(c)of the Plan), in the aggregate in any calendar year. The
foregoing annual limitation specifically includes the grant of any Award or
Awards representing "qualified performance-based compensation" within the
meaning of Section 162(m) of the Code.

Section 5.  Eligibility.

Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Award and the terms of any
Award, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions to
the success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, the Committee
shall not have the authority to grant Awards to Participants who are officers
and directors of the Company in an aggregate amount that equals or exceeds
500,000 shares.

Section 6.  Awards.

(a) Options. The Committee is hereby authorized to grant Options to Participants
with the following terms and conditions and with such additional terms and
conditions not inconsistent with the provisions of the Plan as the Committee
shall determine:

(i)   Exercise Price. The purchase price per Share purchasable under an Option
      shall be determined by the Committee; provided, however, that such
      purchase price shall not be less than 100% of the Fair Market Value of a
      Share on the date of grant of such Option.

(ii)  Option Term.  The term of each Option shall be fixed by the Committee.
      -----------

(iii) Time and Method of Exercise. The Committee shall determine the time or
      times at which an Option may be exercised in whole or in part and the
      method or methods by which, and the form or forms (including, without
      limitation, cash, Shares, promissory notes, other securities, other Awards
      or other property, or any combination thereof, having a Fair Market Value
      on the exercise date equal to the relevant exercise price) in which,
      payment of the exercise price with respect thereto may be made or deemed
      to have been made.

(iv)  Reload Options. The Committee may grant Reload Options, separately or
      together with another Option, pursuant to which, subject to the terms and
      conditions established by the Committee, the Participant would be granted
      a new Option when the payment of the exercise price of a previously
      granted option is made by the delivery of Shares owned by the Participant
      pursuant to Section 6(a)(iii) of the Plan or the relevant provisions of
      another plan of the Company, and/or when Shares are tendered or withheld
      as payment of the amount to be withheld under applicable income tax laws
      in connection with the exercise of an Option, which new Option would be an
      Option to purchase the number of Shares not exceeding the sum of (A) the
      number of Shares so provided as consideration upon the exercise of the
      previously granted option to which such Reload Option relates and (B) the
      number of Shares, if any, tendered or withheld as payment of the amount to
      be withheld under applicable tax laws in connection with the exercise of
      the option to which such Reload Option relates pursuant to the relevant
      provisions of the plan or agreement relating to such option. Reload
      Options also may be granted with respect to options previously granted
      under any other stock option plan of the Company or may be granted in
      connection with any option granted under any other stock option plan of
      the Company at the time of such grant; provided, however, that Reload
      Options may be granted only to Eligible Persons. Such Reload Options shall
      have a per share exercise price equal to the Fair Market Value of one
      Share as of the date of grant of the new Option. Any Reload Option shall
      be subject to availability of sufficient Shares for grant under the Plan.

(b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock
Appreciation Rights to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Stock Appreciation Right granted under the Plan
shall confer on the holder thereof a right to receive upon exercise thereof the
excess of (i) the Fair Market Value of one Share on the date of exercise (or, if
the Committee shall so determine, at any time during a specified period before
or after the date of exercise) over (ii) the grant price of the Stock
Appreciation Right as specified by the Committee, which price shall not be less
than 100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. Subject to the terms of the Plan and any applicable
Award Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.

(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Restricted Stock and Restricted Stock Units to Participants
with the following terms and conditions and with such additional terms and
conditions not inconsistent with the provisions of the Plan as the Committee
shall determine:

(i)   Restrictions. Shares of Restricted Stock and Restricted Stock Units shall
      be subject to such restrictions as the Committee may impose (including,
      without limitation, a waiver by the Participant of the right to vote or to
      receive any dividend or other right or property with respect thereto),
      which restrictions may lapse separately or in combination at such time or
      times, in such installments or otherwise as the Committee may deem
      appropriate.

(ii)  Stock Certificates. Any Restricted Stock granted under the Plan shall be
      registered in the name of the Participant and shall bear an appropriate
      legend referring to the terms, conditions and restrictions applicable to
      such Restricted Stock. In the case of Restricted Stock Units, no Shares
      shall be issued at the time such Awards are granted.

(iii) Forfeiture. Except as otherwise determined by the Committee, upon
      termination of employment (as determined under criteria established by the
      Committee) during the applicable restriction period, all Shares of
      Restricted Stock and all Restricted Stock Units at such time subject to
      restriction shall be forfeited and reacquired by the Company; provided,
      however, that the Committee may, when it finds that a waiver would be in
      the best interest of the Company, waive in whole or in part any or all
      remaining restrictions with respect to Shares of Restricted Stock or
      Restricted Stock Units. Upon the lapse or waiver of restrictions and the
      restricted period relating to Restricted Stock Units evidencing the right
      to receive Shares, such Shares shall be issued and delivered to the
      holders of the Restricted Stock Units.

(d) Performance Awards. The Committee is hereby authorized to grant Performance
Awards to Participants subject to the terms of the Plan and any applicable Award
Agreement. A Performance Award granted under the Plan (i) may be denominated or
payable in cash, Shares (including, without limitation, Restricted Stock and
Restricted Stock Units), other securities, other Awards or other property and
(ii) shall confer on the holder thereof the right to receive payments, in whole
or in part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish. Subject to the terms of
the Plan and any applicable Award Agreement, the performance goals to be
achieved during any performance period, the length of any performance period,
the amount of any Performance Award granted, the amount of any payment or
transfer to be made pursuant to any Performance Award and any other terms and
conditions of any Performance Award shall be determined by the Committee.

(e) Other Stock Grants. The Committee is hereby authorized, subject to the terms
of the Plan and any applicable Award Agreement, to grant to Participants Shares
without restrictions thereon as are deemed by the Committee to be consistent
with the purpose of the Plan.

(f) Other Stock-Based Awards. The Committee is hereby authorized to grant to
Participants subject to the terms of the Plan and any applicable Award
Agreement, such other Awards that are denominated or payable in, valued in whole
or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as are
deemed by the Committee to be consistent with the purpose of the Plan. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including, without limitation,
cash, Shares, promissory notes, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine, the value of
which consideration, as established by the Committee, shall not be less than
100% of the Fair Market Value of such Shares or other securities as of the date
such purchase right is granted.

(g)   General.
      -------

(i)   No Cash  Consideration  for Awards.  Awards shall be granted for no cash
      ----------------------------------
      consideration or for such minimal cash  consideration as may be required
      by applicable law.

(ii)  Awards May Be Granted Separately or Together. Awards may, in the
      discretion of the Committee, be granted either alone or in addition to, in
      tandem with or in substitution for any other Award or any award granted
      under any plan of the Company or any Affiliate other than the Plan. Awards
      granted in addition to or in tandem with other Awards or in addition to or
      in tandem with awards granted under any such other plan of the Company or
      any Affiliate may be granted either at the same time as or at a different
      time from the grant of such other Awards or awards.

(iii) Forms of Payment under Awards. Subject to the terms of the Plan and of any
      applicable Award Agreement, payments or transfers to be made by the
      Company or an Affiliate upon the grant, exercise or payment of an Award
      may be made in such form or forms as the Committee shall determine
      (including, without limitation, cash, Shares, promissory notes, other
      securities, other Awards or other property or any combination thereof),
      and may be made in a single payment or transfer, in installments or on a
      deferred basis, in each case in accordance with rules and procedures
      established by the Committee. Such rules and procedures may include,
      without limitation, provisions for the payment or crediting of reasonable
      interest on installment or deferred payments or the grant or crediting of
      dividend equivalents with respect to installment or deferred payments.

(iv)  Limits on Transfer of Awards. No Award (other than Other Stock Grants) and
      no right under any such Award shall be transferable by a Participant
      otherwise than by will or by the laws of descent and distribution;
      provided, however, that, if so determined by the Committee, a Participant
      may, in the manner established by the Committee, transfer Options or
      designate a beneficiary or beneficiaries to exercise the rights of the
      Participant and receive any property distributable with respect to any
      Award upon the death of the Participant. Subject to the foregoing
      exception, each Award or right under any Award shall be exercisable during
      the Participant's lifetime only by the Participant or, if permissible
      under applicable law, by the Participant's guardian or legal
      representative. No Award or right under any such Award may be pledged,
      alienated, attached or otherwise encumbered, and any purported pledge,
      alienation, attachment or encumbrance thereof shall be void and
      unenforceable against the Company or any Affiliate.

(v)   Term of Awards.  The term of each Award  shall be for such period as may
      --------------
      be determined by the Committee.

(vi)  Restrictions; Securities Exchange Listing. All Shares or other securities
      delivered under the Plan pursuant to any Award or the exercise thereof
      shall be subject to such restrictions as the Committee may deem advisable
      under the Plan, applicable federal or state securities laws and regulatory
      requirements, and the Committee may cause appropriate entries to be made
      or legends to be affixed to reflect such restrictions. If any securities
      of the Company are traded on a securities exchange, the Company shall not
      be required to deliver any Shares or other securities covered by an Award
      unless and until such Shares or other securities have been admitted for
      trading on such securities exchange.

Section 7.  Amendment and Termination; Adjustments.
---------------------------------------------------

(a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue or
terminate the Plan at any time; provided, however, that, notwithstanding any
other provision of the Plan or any Award Agreement, no such amendment,
alteration, suspension, discontinuation or termination shall be made that would
violate the rules or regulations of the Nasdaq National Market System or any
securities exchange that are applicable to the Company.

(b) Amendments to Awards. The Committee may waive any conditions of or rights of
the Company under any outstanding Award, prospectively or retroactively. Except
as otherwise provided herein or in the Award Agreement, the Committee may not
amend, alter, suspend, discontinue or terminate any outstanding Award,
prospectively or retroactively, if such action would adversely affect the rights
of the holder of such Award, without the consent of the Participant or holder or
beneficiary thereof.

(c) Correction of Defects, Omissions and Inconsistencies. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.

Section 8.  Income Tax Withholding; Tax Bonuses.
------------------------------------------------

(a) Withholding. In order to comply with all applicable federal or state income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to assist
a Participant in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise or receipt of (or the lapse of restrictions
relating to) an Award, the Committee, in its discretion and subject to such
additional terms and conditions as it may adopt, may permit the Participant to
satisfy such tax obligation by (i) electing to have the Company withhold a
portion of the Shares otherwise to be delivered upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal
to the amount of such taxes or (ii) delivering to the Company Shares other than
Shares issuable upon exercise or receipt of (or the lapse of restrictions
relating to) such Award with a Fair Market Value equal to the amount of such
taxes. The election, if any, must be made on or before the date that the amount
of tax to be withheld is determined.

(b) Tax Bonuses. The Committee, in its discretion, shall have the authority, at
the time of grant of any Award under this Plan or at any time thereafter, to
approve cash bonuses to designated Participants to be paid upon their exercise
or receipt of (or the lapse of restrictions relating to) Awards in order to
provide funds to pay all or a portion of federal and state taxes due as a result
of such exercise or receipt (or the lapse of such restrictions). The Committee
shall have full authority in its discretion to determine the amount of any such
tax bonus.

Section 9.  General Provisions.

(a) No Rights to Awards. No Eligible Person, Participant or other Person shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.

(b) Award Agreements. No Participant will have rights under an Award granted to
such Participant unless and until an Award Agreement shall have been duly
executed on behalf of the Company and, if requested by the Company, signed by
the Participant.

(c) No Rights of Shareholders. Except with respect to Restricted Stock and Other
Stock Awards, neither a Participant nor the Participant's legal representative
shall be, or have any of the rights and privileges of, a shareholder of the
Company with respect to the Shares issuable upon exercise or payment of any
Award, in whole or in part, unless and until the Shares have been issued.

(d) No Limit on Other Compensation Arrangements. Nothing contained in the Plan
shall prevent the Company or any Affiliate from adopting or continuing in effect
other or additional compensation arrangements, and such arrangements may be
either generally applicable or applicable only in specific cases.

(e) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such employment at any time, with or without cause. In
addition, the Company or an Affiliate may at any time dismiss a Participant from
employment free from any liability or any claim under the Plan or any Award,
unless otherwise expressly provided in the Plan or in any Award Agreement.

(f)   Governing  Law.  The  validity,  construction  and effect of the Plan or
      --------------
any Award,  and any rules and  regulations  relating to the Plan or any Award,
shall be determined in accordance with the laws of the State of Minnesota.

(g) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction or would
disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.

(h) No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.

(i) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash shall be paid in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.

(j) Headings. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

Section 10.       Effective Date of the Plan.

The Plan shall be effective as of ____________, 2001 (the "Effective Date").

Section 11.       Term of the Plan.

No Award shall be granted under the Plan after the tenth anniversary of the
Effective Date or any earlier date of discontinuation or termination established
pursuant to Section 7(a) of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond such date, and the authority of the Committee provided
for hereunder with respect to the Plan and any Awards, and the authority of the
Board to amend the Plan, shall extend beyond that date.


<PAGE>
                                                                   Exhibit 10-38


                         CURATIVE HEALTH SERVICES, INC.
                      NON-QUALIFIED STOCK OPTION AGREEMENT

            THIS AGREEMENT, made this _______________, 20__, by and between
CURATIVE HEALTH SERVICES, INC., a Minnesota corporation ("Company"), and
_________________, an individual resident of the State of _______________
("Employee").

            WITNESSETH, THAT:

            WHEREAS, the Company pursuant to its 2001 Broad-Based Stock
Incentive Plan, wishes to grant this stock option to Employee.

            NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:

1.    Grant of Option

            The Company hereby grants to Employee, on the date set forth above,
the right and option (hereinafter called "the option") to purchase all or any
part of an aggregate of ________ shares of Common Stock, par value $.01 per
share, at the price of $______ per share on the terms and conditions set forth
herein. This option is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").

2.    Duration and Exercisability

(a) This option may not be exercised by Employee until ________, 20__ and this
option shall in all events terminate ten (10) years after the date of grant.

            Commencing immediately upon the date of grant and subject to the
other terms and conditions set forth herein, this option may be exercised by
Employee in cumulative installments as follows:

                                              Cumulative percentage
            On or after each of               of shares as to which
            the following dates               option is exercisable
            ---------------------             -----------------------
            ---------------------             -----------------------

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

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

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

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


(b) During the lifetime of Employee, the option shall be exercisable only by
Employee and shall not be assignable or transferable by Employee, other than by
will or the laws of descent and distribution.

3.    Effect of Termination Of Employment

(a) In the event that Employee shall cease to be employed by the Company or its
subsidiaries, if any, for any reason other than termination of Employee's
employment by the Company for cause (as defined below) or Employee's death,
Employee shall have the right to exercise the option at any time within three
months after such termination of employment to the extent of the full number of
shares Employee was entitled to purchase under the option on the date of
termination, subject to the condition that this option shall not be exercisable
after the expiration of the term hereof.

(b) In the event that Employee shall cease to be employed by the Company or its
subsidiaries, if any, by reason of Employee's gross and willful misconduct
during the course of his or her employment, including but not limited to
wrongful appropriation of the Company funds or the commission or a gross
misdemeanor or felony (termination "for cause"), this option shall be terminated
as of the date of such misconduct.

(c) If Employee (i) shall die while in the employ of the Company or a
subsidiary, if any, or within three months after termination of employment for
any reason other than termination by the Company for cause or (ii) shall become
disabled within the meaning of Code Section 22(e)(3) while in the employ of the
Company or a subsidiary, if any, and Employee shall not have fully exercised the
option, such option may be exercised at any time within twelve months after
Employee's death or disability by the personal representatives or
administrators, or if applicable, guardian, of Employee or by any person or
persons to whom the option is transferred by will or the applicable laws of
descent and distribution, to the extent of the full number of shares Employee
was entitled to purchase under the option on the date of death, (or termination
of employment, if earlier) or disability (after giving effect to the provisions
of Section 2 hereof), subject to the condition that this option shall not be
exercisable after the expiration of the term of the option.

4.    Manner of Exercise

(a) The option can be exercised only by Employee or other proper party by
delivering within the option period written notice to the Company at its
principal office. The notice shall state the number of shares as to which the
option is being exercised and be accompanied by payment in full of the option
price for all shares designated in the notice.

(b) Employee may pay the option price by check (bank check, certified check or
personal check) or with the approval of the Company by delivering to the Company
for cancellation Common Stock of the Company with a fair market value equal to
the option price; provided, however, that Employee shall not be entitled to
tender shares of the Company's Common Stock pursuant to successive,
substantially simultaneous exercises of this option or any other stock option of
the Company's. For these purposes the fair market value of the Company's Common
Stock shall be as reasonably determined by the Company but shall not be less
than, if applicable, (i) the closing price of the stock as reported for
composite transactions, if the Common Stock is then traded on a national
securities exchange, (ii) the last sale price if the Common Stock is then quoted
on the NASDAQ National Market System or (iii) the average of the closing
representative bid and asked prices of the Common Stock as reported on NASDAQ on
the date as of which fair market value is being determined.

5.    Miscellaneous

(a) This option is issued pursuant to the Company's 2001 Broad-Based Stock
Incentive Plan, and is subject to its terms. The terms of the Plan are available
for inspection during business hours at the principal offices of the Company.

(b) This Agreement shall not confer on Employee any right with respect to
continuance of employment by the Company or any of its subsidiaries, nor will it
interfere in any way with the right of the Company or any subsidiary to
terminate such employment at any time. Employee shall have none of the rights of
a shareholder with respect to shares subject to this option until such shares
shall have been issued to Employee upon exercise of this option.

(c) The exercise of all or any part of this option shall only be effective at
such time that the sale of Common Stock pursuant to such exercise will not
violate any state or federal securities or other laws, including (but not
limited to) federal and state requirements of registration. If the Board of
Directors of the Company (or its Executive Committee in the absence of express
Board of Directors action thereon) determines that such conditions have not been
met at the time the option is otherwise properly exercised, the Company may
either (i) defer effectiveness of the exercise (with notice to Employee) until
such reasonable date as the conditions have been met, or (ii) refund or return
to Employee the consideration given to the Company for the exercise, with an
explanation that the exercise cannot then be given effect.

(d) If Employee exercises all or any portion of the option subsequent to any
change in the number or character of the Common Stock of the Company (through
merger, consolidation, reorganization, recapitalization, stock dividend or
otherwise), Employee shall then receive for the aggregate price paid by Employee
on such exercise of the option, the number and type of securities or other
consideration which Employee would have received if such option had been
exercised prior to the event changing the number of outstanding shares or this
character of the Common Stock of the Company.

(e) The Company shall at all times during the term of the option reserve and
keep available such number of shares as will be sufficient to satisfy the
requirements of this Agreement. The certificates for shares issued upon exercise
of the option may bear legends and notices of transfer restrictions as the Board
of Directors of the Company (or its Executive Committee in the absence of
express Board of Directors action thereon) deems appropriate in the
circumstances.

(f) In order to provide the Company with the opportunity to claim the benefit of
any income tax deduction which may be available to it upon the exercise of the
option, Employee shall promptly notify the Company of the dates of acquisition
and disposition of such shares, the number of shares so disposed of, and the
consideration, if any, received for such shares. In order to comply with all
applicable federal or state income tax laws or regulations, the Company may take
such action as it deems appropriate to insure (i) notice to the Company of any
disposition of the Common Stock of the Company and (ii) that, if necessary, all
applicable federal or state payroll, withholding, income or other taxes are
withheld or collected from Employee.

(g) This Agreement does not obligate the Company to register the option or the
shares subject to the option under applicable securities laws, to maintain any
such registration or to list such shares on any securities exchange.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.


                                    CURATIVE HEALTH SERVICES, INC.


                                    By:
                                        --------------------------------

                                    Its:
                                         -------------------------------
                                                EMPLOYEE