<PAGE>
                                                                    Exhibit 10.1



                              SETTLEMENT AGREEMENT

     This Settlement Agreement ("Agreement") is entered into between: (i)
the United States of America, acting by and through the United States Department
of Justice and on behalf of the Office of Inspector General of the Department of
Health and Human Services ("OIG-HHS"); (ii) Polymedica Corporation
("Polymedica"), and its wholly-owned subsidiaries Liberty Medical Supply, Inc.
and Liberty Home Pharmacy Corporation (collectively "Defendants"), through their
authorized representatives; (iii) Donna Ben-Barrack ("Relator Ben-Barrack") and
(iv) Claire Schultz ("Relator Schultz") and her estate, heirs, and assigns,
Brenda Sullivan Clark for herself and as Administratrix of the Estate of Claire
Schultz. Collectively, all of the above shall be referred to as "the Parties."

                                   I. PREAMBLE

     As a preamble to this Agreement, the Parties agree to the following:

1.   Defendants aver that they are or have been national providers of, among
     other things, durable medical equipment, pharmaceuticals, and related
     products, and currently provide or have provided in all fifty states in the
     United States, and Puerto Rico.

2.   Defendants submitted or caused to be submitted claims for payment to the
     Medicare Program ("Medicare" or "Program"), Title XVIII of the Social
     Security Act, 42 U.S.C.ss.ss.1395-1395ggg.

3.   On July 25, 2001, pursuant to the qui tam provisions of the False Claims
     Act, 31 U.S.C.ss.3730, Relator Ben-Barrack, in her individual capacity and
     as a relator on behalf of the United States, filed a complaint, under seal,
     in United States ex rel. Donna Ben-Barrack


POLYMEDICA SETTLEMENT AGREEMENT

<PAGE>

     v. Polymedica Corporation and Liberty Medical Supply, Inc., Civil Action
     No. 01-8705, in the United States District Court for the Southern District
     of Florida (qui tam A). On August 7, 2001, pursuant to the qui tam
     provisions of the False Claims Act, 31 U.S.C.ss.3730, Relator Schultz, in
     her individual capacity and as a relator on behalf of the United States,
     filed a complaint, under seal, in United States ex rel. Claire Schultz v.
     Liberty Home Pharmacy Corporation and Polymedica Company, Civil Action No.
     01-11370, in the United States District Court for the District of
     Massachusetts (qui tam B); subsequently Relator Schultz passed away, and
     Brenda Sullivan Clark for herself and as Administratrix of the Estate of
     Claire Schultz was substituted for Relator Schultz in this suit. Together,
     Relator Ben-Barrack, Relator Schultz, and Brenda Sullivan Clark for herself
     and as Administratrix of the Estate of Claire Schultz, shall hereinafter be
     referred to as Relators.

4.   The United States contends that it has certain civil claims, as specified
     in paragraph 13 below, against Defendants for engaging in the following
     conduct:




     a.   Between October 1, 1998 through June 30, 2002: Defendants submitted or
          caused to be submitted claims for reimbursement to Medicare for the
          diabetic and nebulizer products with Healthcare Common Procedure Codes
          descriptions Blood glucose/reagent strips (A4253), Lancets per box
          (A4259), Lancet device each (A4258), Calibrator solution/chips
          (A4256), Albuterol unit dose (J7619, K0505), Ipratropium bromide unit
          dose (J7644, K0518), Nebulizer with compression (E0570),



POLYMEDICA SETTLEMENT AGREEMENT        2

<PAGE>
          Dispensing fee dme nebulizer set (E0590), Nondisposable nebulizer set
          (A7005), Nebulizer administration set (A7003), and Aerosol mask used
          with nebulizer (A7015), Sterile saline/water (J7051), albuterol
          solution concentrated (J7618), Bitolterol mesylate concentrated
          (J7628), Cromolyn sodium unit dose (J7631), Metaproterenol unit dose
          (J7669), Inhalation solution for DME (J7699), Acetylcysteine unit dose
          (J7608), Budesonide inhalation solution (J7626), Triamcinolene unit
          dose (J7684), Dexamethasone unit dose (J7638), Atropine concentrated
          (J7636), Acetylcysteine unit dose (K0503), Albuterol concentrate
          (K0504), Atropine unit dose (K0507), Bitolterol concentrated (K0508),
          Cromolyn sodium unit dose (K0511), Metaproterenol unit dose (K0524),
          Disposable nebulizer set (K0168), Aerosol mask with nebulizer (K0180),
          Tracheotomy mask or collar (A4621), Non-disposable nebulizer set
          (K0170), non-covered item or service (A9270), Nasal vaccine inhalation
          (J3535), Nasal vaccine inhalation (J3530), Metaproterenal sulfate
          (J7670), and Dexamethasone concentrated (J7637), without fully
          complying with the following Medicare coverage and documentation
          requirements, as prescribed and defined by the Centers for Medicare
          and Medicaid Services and the applicable Durable Medical Equipment
          Regional Carriers: (1) a signed, written doctor's order must be
          obtained by the supplier prior to submitting a claim to Medicare for
          any diabetes or nebulizer related product, where such an order is
          described and defined by the local medical review policy for diabetic
          related and nebulizer related products, and by the


POLYMEDICA SETTLEMENT AGREEMENT        3

<PAGE>

          applicable DMERC Supplier Manual; (2) documentation of the medical
          necessity of testing or treatment in excess of the utilization
          guidelines, where applicable, must be obtained by the supplier prior
          to submitting a claim to Medicare for any diabetes or nebulizer
          related product; (3) before dispensing any diabetic or nebulizer
          related products to a Medicare beneficiary, the supplier must have
          either an oral or written dispensing order from the treating
          physician, as described and defined by the applicable DMERC Supplier
          Manual; (4) the supplier must have and maintain proof of the delivery
          of the product to the Medicare beneficiary; (5) the supplier or
          physician must maintain documentation of actual use of certain
          products when prescribed and dispensed in excess of utilization
          guidelines where required by local medical review policy, and by the
          applicable DMERC Supplier Manual; and (6) the supplier must be in
          possession of a valid assignment of benefits form, as defined by the
          beneficiary authorization section of the applicable DMERC Supplier
          Manual; and

     b.   Between August 1, 1997 through June 30, 2003: Defendants submitted or
          caused to be submitted claims for reimbursement to Medicare for
          quantities of diabetic and nebulizer products with Healthcare Common
          Procedure Codes descriptions: Blood glucose/reagent strips (A4253),
          Lancets per box (A4259), Albuterol unit dose (J7619, K0505),
          Ipratropium bromide unit dose (J7644, K0518), Nondisposable nebulizer
          set (A7005), Nebulizer administration set (A7003), and Aerosol mask
          used with nebulizer (A7015), Sterile saline/water (J7051), albuterol


POLYMEDICA SETTLEMENT AGREEMENT        4

<PAGE>

          solution concentrated (J7618), Bitolterol mesylate concentrated
          (J7628), Cromolyn sodium unit dose (J7631), Metaproterenol unit dose
          (J7669), Inhalation solution for DME (J7699), Acetylcysteine unit dose
          (J7608), Budesonide inhalation solution (J7626), Triamcinolene unit
          dose (J7684), Dexamethasone unit dose (J7638), Atropine concentrated
          (J7636), Acetylcysteine unit dose (K0503), Albuterol concentrate
          (K0504), Atropine unit dose (K0507), Bitolterol concentrated (K0508),
          Cromolyn sodium unit dose (K0511), Metaproterenol unit dose (K0524),
          Disposable nebulizer set (K0168), Aerosol mask with nebulizer (K0180),
          Tracheotomy mask or collar (A4621), Non-disposable nebulizer set
          (K0170), non-covered item or service (A9270), Nasal vaccine inhalation
          (J3535), Nasal vaccine inhalation (J3530), Metaproterenal sulfate
          (J7670), and Dexamethasone concentrated (J7637), which quantities were
          in excess of the quantities specified in the written doctor's order
          (for the date of service of the claim) that was in Defendants'
          possession on or prior to the date of submission of the claim to
          Medicare.

The conduct specified above in this paragraph is hereinafter referred to as the
"Covered Conduct."



5.   The United States also contends that it has certain administrative claims
     against Defendants for engaging in the Covered Conduct.

6.   Defendants deny the allegations and contentions in paragraphs 4 and 5
     above, and further deny any and all wrongdoing and/or liability under the
     False Claims Act, 31 U.S.C. ss.ss.


POLYMEDICA SETTLEMENT AGREEMENT        5
<PAGE>

     3729-3733, or other federal or state law or regulation with respect to the
     Covered Conduct.

7.   This Agreement is neither an admission of any wrongful conduct or liability
     by Defendants, nor a concession by the United States that its claims are
     not well founded.

8.   The Relators claim entitlement under 31 U.S.C.ss.3730(d) to a share of the
     proceeds of this Agreement, but the Relators and the United States have not
     agreed on the entitlement or amount of that award, if any.

9.   In order to avoid the disruption, delay, uncertainty, inconvenience, and
     expense of protracted litigation of these claims, the Parties have agreed
     to a full and final settlement as set forth below.

                            II. TERMS AND CONDITIONS

     NOW, THEREFORE, in consideration of the mutual promises, covenants, and
obligations set forth below, and for good and valuable consideration as stated
herein, the Parties agree as follows:


10.  Payment to the United States: Defendants agree to pay $35 million dollars
     (the "Settlement Amount") to the United States pursuant to the Manner and
     Method of Payment defined below in paragraph 11.

11.  Manner and Method of Payment: Polymedica shall effect the payment provided
     for in paragraph 10 above by electronic transfer pursuant to written
     routing instructions provided by the United States. This payment shall
     occur within 5 business days after the Effective Date of this Agreement.


POLYMEDICA SETTLEMENT AGREEMENT        6

<PAGE>

12.  Integrity Agreement: Simultaneously herewith, Defendants are entering into
     a Corporate Integrity Agreement ("CIA") with OIG-HHS, attached as Exhibit A
     which is incorporated into this Agreement by reference. Defendants shall
     immediately, upon execution of the CIA, implement their obligations under
     the CIA.

13.  In consideration of the obligations of Defendants under this Agreement and
     subject to the exceptions in paragraph 15 below, and conditioned upon
     payment in full of the Settlement Amount, the United States shall release
     and forever discharge Defendants from any civil or administrative monetary
     claims that the United States has or may have for the Covered Conduct under
     the False Claims Act, 31 U.S.C.ss.ss.3729-3733; the Civil Monetary
     Penalties Law, 42 U.S.C.ss.1320a-7a; the Program Fraud Civil Remedies Act,
     31 U.S.C.ss.ss.3801-3812; any other statute creating causes of action for
     civil damages or civil penalties that the Civil Division has actual or
     present authority to assert and compromise pursuant to 28 C.F.R. Part O,
     Subpart I,ss.0.45(d); or the common law theories of unjust enrichment,
     payment by mistake, and fraud. No individuals are released by this
     Agreement, except that in consideration of the obligations of Defendants
     under this Agreement and subject to the exceptions in paragraph 15 below,
     and conditioned upon payment in full of the Settlement Amount, the United
     States shall release and forever discharge current directors, officers, and
     employees of the Defendants who were not employed by or otherwise in any
     way affiliated with Defendants at any time prior to June 30, 2003, from any
     civil or administrative monetary claims that the United States has or may
     have for the Covered Conduct under the False Claims Act, 31 U.S.C.


POLYMEDICA SETTLEMENT AGREEMENT        7
<PAGE>

     ss.ss. 3729-3733; the Civil Monetary Penalties Law, 42 U.S.C.ss.1320a-7a;
     the Program Fraud Civil Remedies Act, 31 U.S.C.ss.ss. 3801-3812; or the
     common law theories of unjust enrichment, payment by mistake, and fraud.

14.  In consideration of the obligations of Defendants set forth in this
     Agreement and the CIA incorporated by reference, and conditioned upon
     Defendants' payment in full of the Settlement Amount, OIG-HHS agrees to
     release and refrain from instituting, directing, or maintaining any
     administrative action seeking exclusion from the Medicare, Medicaid, or
     other Federal health care programs (as defined in 42 U.S.C.ss.1320a-7b(f))
     against Defendants under 42 U.S.C.ss. 1320a-7a (Civil Monetary Penalties
     Law) or 42 U.S.C.ss.1320a-7(b)(7) (permissive exclusion for fraud,
     kickbacks, and other prohibited activities), for the Covered Conduct,
     except as reserved in paragraph 15 below, and as reserved in this
     paragraph. The OIG-HHS expressly reserves all rights to comply with any
     statutory obligations to exclude Defendants from the Medicare, Medicaid, or
     other Federal health care program under 42 U.S.C.ss.1320a-7(a) (mandatory
     exclusion) based upon the Covered Conduct. Nothing in this paragraph
     precludes the OIG-HHS from taking action against entities or persons, or
     for conduct and practices, for which claims have been reserved in paragraph
     15, below.

15.  Notwithstanding any term of this Agreement, specifically reserved and
     excluded from the scope and terms of this Agreement as to any entity or
     person (including Defendants and Relator(s)) are the following claims of
     the United States:

     a.   Any civil, criminal, or administrative liability arising under Title
          26, U.S. Code


POLYMEDICA SETTLEMENT AGREEMENT        8
<PAGE>
    (Internal Revenue Code);


     b.   Any criminal liability;

     c.   Except as explicitly stated in this Agreement, any administrative
          liability, including mandatory exclusion from Federal health care
          programs;

     d.   Any liability to the United States (or its agencies) for any conduct
          other than the Covered Conduct;

     e.   Any liability based upon such obligations as are created by this
          Agreement;

     f.   Any liability of individuals, including officers and employees, except
          as explicitly described in paragraph 13 above.

     g.   Any civil or administrative liability of individuals (including
          current and former directors, officers, employees, agents, or
          shareholders of Defendants) who receive written notification that they
          are the target of a criminal investigation (as defined in the United
          States' Attorneys' Manual), are indicted, charged, convicted, or who
          enter into a plea agreement related to the Covered Conduct.

     h.   Any liability for express or implied warranty claims or other claims
          for defective or deficient products or services, including quality of
          goods and services; and

     i.   Any liability for personal injury or property damage or for other
          consequential damages arising from the Covered Conduct. j. Any
          liability for failure to deliver goods or services due.

16.  The Relators and their heirs, successors, attorneys, agents, and assigns
     agree not to object to this Agreement and agree and confirm that this
     Agreement is fair, adequate, and

POLYMEDICA SETTLEMENT AGREEMENT        9
<PAGE>

     reasonable under all the circumstances, pursuant to 31 U.S.C.ss.
     3730(c)(2)(B). In connection with this Agreement and qui tams A and B,
     Relators and their heirs, successors, attorneys, agents, and assigns agree
     that neither this Agreement, any intervention by the United States in qui
     tams A and B in order to dismiss qui tams A and B, nor any dismissal of
     these qui tams, will waive or otherwise affect the ability of the United
     States to contend that provisions in the False Claims Act, including 31
     U.S.C.ss.ss.3730(d)(3) and 3730(e), bar the relator from sharing in the
     proceeds of this Agreement. Moreover, the United States and Relators and
     their heirs, successors, attorneys, agents, and assigns agree that they
     each retain all of their rights pursuant to the False Claims Act on the
     issue of the percentage, if any, that the Relators should receive of any
     proceeds of this settlement, and that no agreement between the United
     States and Relators with regard to this percentage has been reached to
     date.

17.  Subject to the exceptions in paragraph 15, in consideration of the
     obligations of Defendants in this Agreement, conditioned upon Defendants'
     full payment of the Settlement Amount, Relators, for themselves and for
     their heirs, successors, attorneys, agents, and assigns, agree to release
     Defendants from any civil monetary claim the United States has or may have
     for the Covered Conduct under the False Claims Act, 31 U.S.C. ss.ss.
     3729-3733.

18.  Nothing in this Agreement shall constitute a waiver, or otherwise affect,
     any rights arising from Relator Ben-Barrack's claims under 31
     U.S.C.ss.3730(h) as contained in Relator Ben-Barrack's qui tam A.

POLYMEDICA SETTLEMENT AGREEMENT        10
<PAGE>


19.  Defendants fully and finally release the United States, its agencies,
     employees, servants, and agents from any claims (including attorneys fees,
     costs, and expenses of every kind and however denominated) which Defendants
     have asserted, could have asserted, or may assert in the future against the
     United States, its agencies, employees, servants, and agents, related to
     the Covered Conduct and the United States' audits and investigations of
     Defendants.

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

21.  The Settlement Amount shall not be decreased as a result of the denial of
     claims for payment now being withheld from payment to Defendants by any
     Medicare carrier or intermediary, or any State payer, related to the
     Covered Conduct; and Defendants agree not to resubmit to any Medicare
     carrier or intermediary, or any State payer any previously denied claims
     related to the Covered Conduct, and agrees not to appeal any such denials



POLYMEDICA SETTLEMENT AGREEMENT        11
<PAGE>
     of claims.

22.  Defendants agree to the following:

     1.   Unallowable Costs Defined: that all costs (as defined in the Federal
          Acquisition Regulation, 48 C.F.R. ss. 31.205-47 and in Titles XVIII
          and XIX of the Social Security Act, 42 U.S.C. ss.ss. 1395-1395ggg and
          1396-1396v, and the regulations and official program directives
          promulgated thereunder) incurred by or on behalf of Defendants, their
          present or former officers, directors, employees, shareholders, and
          agents in connection with the following shall be "unallowable costs"
          on government contracts and under the Medicare Program, Medicaid
          Program, TRICARE Program, and Federal Employees Health Benefits
          Program (FEHBP):

          (1)  the matters covered by this Agreement;

          (2)  the United States' audits and civil and criminal investigations
               of the matters covered by this Agreement;

          (3)  Defendants' investigation, defense, and corrective actions
               undertaken in response to the United States' audits and civil and
               criminal investigations in connection with the matters covered by
               this Agreement (including attorney's fees); (4) the negotiation
               and performance of this Agreement;

          (5)  the payment Defendants make pursuant to this Agreement and any
               payments that Defendants make to Relator(s), including expenses,
               costs, and attorney fees; and

          (6)  the negotiation of, and obligations undertaken pursuant to the
               CIA to:

               (i)  Retain an independent review organization to perform annual
                    reviews

POLYMEDICA SETTLEMENT AGREEMENT        12
<PAGE>
                    as described in Section III of the CIA; and

                    (ii) prepare and submit reports to the OIG-HHS.

               However, nothing in this paragraph 22.a.(6) that may apply to the
               obligations undertaken pursuant to the CIA affects the status of
               costs that are not allowable based on any other authority
               applicable to Defendants. (All costs described or set forth in
               this paragraph 22.a. are hereafter, "unallowable costs").

          b.   Future Treatment of Unallowable Costs: These unallowable costs
               shall be separately determined and accounted for by Defendants,
               and Defendants shall not charge such unallowable costs directly
               or indirectly to any contracts with the United States or any
               state Medicaid program, or seek payment for such unallowable
               costs through any cost report, cost statement, information
               statement, or payment request submitted by Defendants or any of
               their subsidiaries or affiliates to the Medicare, Medicaid,
               TRICARE, or FEHBP Programs.

          c.   Treatment of Unallowable Costs Previously Submitted for Payment:
               Defendants further agree that within 90 days of the Effective
               Date of this Agreement they shall identify to applicable Medicare
               and TRICARE fiscal intermediaries, carriers, and/or contractors,
               and Medicaid, VA and FEHBP fiscal agents, any unallowable costs
               (as defined in this paragraph) included in payments previously
               sought from the United States, or any state Medicaid program,
               including, but not limited to, payments sought in any cost
               reports, cost statements, information reports, or payment
               requests already submitted by Defendants or any of their
               subsidiaries or


POLYMEDICA SETTLEMENT AGREEMENT        13
<PAGE>
               affiliates, and shall request, and agree, that such cost reports,
               cost statements, information reports, or payment requests, even
               if already settled, be adjusted to account for the effect of the
               inclusion of the unallowable costs. Defendants agree that the
               United States, at a minimum, shall be entitled to recoup from
               Defendants any overpayment plus applicable interest and penalties
               as a result of the inclusion of such unallowable costs on
               previously-submitted cost reports, information reports, cost
               statements, or requests for payment.

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



d.   Nothing in this Agreement shall constitute a waiver of the rights of the
     United States to audit, examine, or re-examine Defendants' books and
     records to determine that no unallowable costs have been claimed in
     accordance with the provisions of this paragraph.

POLYMEDICA SETTLEMENT AGREEMENT        14

<PAGE>

23.  Defendants agree to cooperate fully and truthfully with the United States'
     investigation of individuals and entities not released in this Agreement.
     Upon reasonable notice, Defendants shall encourage, and agree not to
     impair, the cooperation of their directors, officers, and employees, and
     shall use their best efforts to make available, and encourage the
     cooperation of former directors, officers, and employees for interviews and
     testimony, consistent with the rights and privileges of such individuals.
     Defendants agree to disclose fully to the United States the non-privileged
     findings of any internal audit or review related to the Covered Conduct,
     and to furnish to the United States upon reasonable request all
     non-privileged materials, documents and records in their possession,
     custody, or control relating to the Covered Conduct. Defendants shall not
     be required to disclose attorney-client privileged materials, documents, or
     records or attorney-work product.

24.  This Agreement is intended to be for the benefit of the Parties only, and
     by this instrument the Parties do not release any claims against any other
     person or entity, except to the extent provided for in paragraph 25, below.

25.  Defendants agree that they shall waive and shall not seek payment for any
     of the health care billings covered by this Agreement from any health care
     beneficiaries, their parents, sponsors, legally responsible individuals, or
     third party payors. Defendants waive any cause of action against these
     beneficiaries or their parents or sponsors based upon the claims for
     payment covered by this Agreement.

26.  Upon receipt of the Settlement Amount, the United States shall file a
     Notice of Intervention and Motion to Dismiss in qui tams A and B pursuant
     to the terms of the

POLYMEDICA SETTLEMENT AGREEMENT        15
<PAGE>
     Agreement. Except as expressly stated below and subject to paragraph 16,
     this Motion to Dismiss shall seek dismissal (1) with prejudice to Relators
     with respect to all claims against Defendants by Relator(s); and (2) with
     prejudice to the United States with respect to claims against Defendants
     for the Covered Conduct, but without prejudice to the United States as to
     any other allegation in qui tams A and B; but in no event shall (1) the
     dismissal of qui tam A dismiss or otherwise prejudice Relator Ben-Barrack's
     claims under 31 U.S.C.ss.3730(h) as contained in Relator Ben-Barrack's qui
     tam A; (2) the dismissal of qui tam A or qui tam B dismiss or otherwise
     prejudice Relators' claims against defendants for necessary expenses and
     reasonable attorney fees and costs pursuant to 31 U.S.C.ss.3739(d)(1); and
     (3) the dismissal of qui tam A or qui tam B dismiss or otherwise prejudice
     the United States' or Relators' rights with regard to Relators' share of
     the Settlement Amount pursuant to 31 U.S.C.ss.3730(d).

27.  Except as provided in paragraph 26 above and paragraph 30 below, each Party
     shall bear its own legal and other costs incurred in connection with this
     matter, including the preparation and performance of this Agreement.

28.  Defendants and Relators represent that this Agreement is freely and
     voluntarily entered into without any degree of duress or compulsion
     whatsoever.

29.  This Agreement is governed by the laws of the United States. The Parties
     agree that the exclusive jurisdiction and venue for any dispute arising
     between and among the Parties under this Agreement shall be the United
     States District Court for the Southern District of Florida, except that
     disputes arising under the CIA shall be resolved exclusively under the
     dispute resolution provisions in the CIA.

POLYMEDICA SETTLEMENT AGREEMENT        16
<PAGE>

30.  This Agreement and the CIA incorporated by reference constitute the
     complete agreement between the Parties. This Agreement may not be amended
     except by written consent of the Parties, except that: (1) only Defendants
     and OIG-HHS must agree in writing to modification of the CIA; (2) a
     separate agreement between Relators and Defendants shall address attorney
     expenses, fees, and costs, if any, to which Relators are entitled pursuant
     to 31 U.S.C.ss.3730(d), and if no such agreement between Defendants and
     Relator(s) is reached, the amount of such attorneys expenses, fees and
     costs, if any, shall be determined by the Court; (3) a separate agreement
     between Relator Ben-Barrack and Defendants shall address Relator
     Ben-Barrack's claims under 31 U.S.C.ss.3730(h) as stated in qui tam A, and
     if no such agreement between Defendants and Relator Ben-Barrack is reached,
     those claims shall be addressed at Relator Ben-Barrack's discretion to the
     Court; and (4) a separate agreement between Relators and the United States
     shall address Relators' claims to a share of the Settlement Amount pursuant
     to 31 U.S.C.ss.3730(d), and if no such agreement between Relators and the
     United States is reached, those claims shall be determined by the Court.

31.  This Agreement is binding on Defendants' and Relators' successors,
     transferees, heirs, and assigns.

32.  The undersigned individuals signing this Agreement on behalf of Defendants
     and Relators represent and warrant that they are authorized to execute this
     Agreement. The undersigned United States signatories represent that they
     are signing this Agreement in


POLYMEDICA SETTLEMENT AGREEMENT        17
<PAGE>
     their official capacities and that they are authorized to execute this
     Agreement.

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

34.  The Parties agree that they shall execute and deliver all such other
     documents and instruments as may be necessary and appropriate to effectuate
     the terms of the Agreement.

35.  This Agreement is binding on Defendants' and Relators' successors,
     transferees, heirs, and assigns.

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

37.  All Parties consent to the United States' disclosure of this Agreement and
     information about this Agreement, to the public.


POLYMEDICA SETTLEMENT AGREEMENT        18
<PAGE>

                            UNITED STATES OF AMERICA


                                         PETER D. KEISLER
                                         Assistant Attorney General
                                         United States Department of Justice

11/03/04                                 /s/ Andrew Skowronek
-------------------------                --------------------------------
DATE                                     ANDREW SKOWRONEK
                                         POLLY DAMMANN
                                         MIKE HERTZ
                                         Commercial Litigation Branch
                                         Civil Division
                                         United States Department of Justice


                                         MARCOS DANIEL JIMENEZ
                                         United States Attorney for the
                                         Southern District of Florida

11/03/04                                 /s/ Marilynn Koonce Lindsey
-------------------------                ---------------------------------
DATE                                     MARILYNN KOONCE LINDSEY
                                         Assistant U.S. Attorney
                                         Southern District of Florida


                                         MICHAEL J. SULLIVAN
                                         United States Attorney
                                         District of Massachusetts

11/03/04                                 /s/ Mark Grady
-------------------------                ---------------------------------
DATE                                     MARK GRADY
                                         Assistant United States Attorney
                                         1 Courthouse Way, Suite 9200
                                         Boston, MA 02210


POLYMEDICA SETTLEMENT AGREEMENT        19

<PAGE>

11/3/04                                  /s/ Lewis Morris
-------------------------                --------------------------------------
DATE                                     LEWIS MORRIS
                                         Chief Counsel to the Inspector General
                                         Office of Inspector General
                                         United States Department of Health and
                                         Human Services

                                   DEFENDANTS


11/3/04                                  /s/ William B. Eck
-------------------------                --------------------------------------
DATE                                     WILLIAM B. ECK
                                         Sr. Vice President and General Counsel
                                         On Behalf of Polymedica Corporation,
                                         Liberty Medical Supply, Inc., and
                                         Liberty Home Pharmacy Corp.


11/5/04                                  /s/ Mark Schnapp
-------------------------                --------------------------------------
DATE                                     MARK SCHNAPP
                                         Greenberg Traurig, PA
                                         Attorney for Polymedica Corporation


                                    RELATORS



11/05/04                                 /s/ Donna Ben-Barrack
-------------------------                --------------------------------------
DATE                                     DONNA BEN-BARRACK


11/05/04                                 /s/ Dan Small
-------------------------                --------------------------------------
DATE                                     DAN SMALL
                                         Attorney for Donna Ben-Barrack




POLYMEDICA SETTLEMENT AGREEMENT        20



<PAGE>

11/08/04                                 /s/ Brenda Sullivan Clark
-----------------                        -------------------------------------
DATE                                     BRENDA SULLIVAN CLARK


11/08/04                                 /s/ Brenda Sullivan Clark
-----------------                        -------------------------------------
DATE                                     BRENDA SULLIVAN CLARK
                                         Administratrix of the Estate of Claire
                                         Schultz


11/08/04                                 /s/ Jeffrey Beeler
-----------------                        -------------------------------------
DATE                                     JEFFREY BEELER
                                         Attorney for Claire Schultz, the Estate
                                         of Claire Schultz, and Brenda Sullivan
                                         Clark

POLYMEDICA SETTLEMENT AGREEMENT         21