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                                                                    Exhibit 10.1



                               July 20, 1999



Mr. George D. Morgan
Chief Financial Officer
Mariner Post-Acute Network, Inc.
One Ravinia Drive, Suite 1500
Atlanta, GA  30346

Dear Mr. Morgan:

     In the conference call that we both participated in on June 30th and in a
follow up call held on July 7, we reached a general understanding as to the
terms of repayment of outstanding Medicare overpayments incurred by skilled
nursing facilities in the Mariner Health Group, Inc. (MHG) chain, a wholly owned
subsidiary of Mariner Post-Acute Network, Inc.  On July 1, the fiscal
intermediary function for all of these facilities was transferred from Anthem
Blue Cross of Connecticut to Empire Medicare Services.  According to the
information we received from Anthem, of the 78 MHG facilities in this group, 50
currently have Medicare liabilities, mostly due to overpayments resulting from
recently issued cost report reopenings, final settlements and tentative
settlements.  The total balance due to the program as of June 29, was
$15,920,767.

     We believe that the following provisions are consistent with the key points
of our discussion and are acceptable to HCFA:

1.   We have instructed Empire to immediately cease the 100% recoupment from the
     claims of overpaid providers and institute a 20% withholding rate effective
     with payments beginning on July 9.

2.   At the earliest practicable date, the 20% withholding will be eliminated,
     to be replaced by a monthly payment from MHG to Empire in the amount of
     $1.8 million.

3.   The $1.8 million monthly repayment will be effective during the period from
     July, 1999 through December, 1999. Mariner will make monthly repayments in
     the amount of $1.5 million from January, 2000 through May, 2000. The
     monthly repayments include principal and interest. Any remaining balance
     will be paid by MHG in June 2000, so that the entire overpayment amount
     covered under this agreement, plus accrued interest at the applicable
     statutory per annum rate, is recovered by the Medicare program by the end
     of that month.

4.   Empire and MHG will establish the timing and method of the monthly payment.
     Should MHG fail to make timely payment within five (5) business days after
     the due date thereof, Empire will have the right, upon written notice to
     MHG, to re-institute 100% recoupment through withholding from claims from
     all MHG facilities until outstanding principal and interest is recovered.
     MHG agrees to waive the right in 42CFR Section 405.373 to rebut the re-
     instituted recoupment. MHG does not waive the right to formally rebut
     and/or appeal additional recoupments not covered by this agreement.

5.   Empire will have discretion to apply the principal portion of the monthly
     payment against the individual provider overpayment balances as it deems
     appropriate.
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6.   Any amounts determined to be due to any MHG facility served by Empire, as a
     result of a tentative settlement, final settlement or cost report reopening
     will be used to reduce the overpayment balance, but will not reduce the
     monthly payment until such time as the total MHG overpayment balance is
     less than the agreed upon monthly payment amount.

7.   Although a large volume of MHG settlements was completed by Anthem just
     prior to the transition, cost report settlements will continue to be made
     by Empire on a flow basis. Some of these may result in additional amounts
     due to the Medicare program. We propose that any additional overpayments
     issued during the remainder of this calendar year be added to the MHG chain
     overpayment balance and repaid in accordance with the provisions of this
     understanding. Separate repayment arrangements will be determined for
     overpayments established after 1/1/2000.

8.   Mariner will repay the full amount of all overpayments contributing to the
     total even if individual facilities are sold or otherwise pass under other
     ownership prior to completion of the repayment. Furthermore, should MHG
     itself be sold or become controlled by another organization, closing
     documents will include provisions to insure that the successor organization
     will assume the liabilities of MHG to the Medicare program. Repayment will
     continue according to the agreed upon terms unless new terms that are more
     favorable to the Medicare program can be arranged. In the event that a
     proposed successor to MHG is unwilling to assume the MHG repayment plan as
     described in this letter, MHG will liquidate its liability to HCFA at or
     before the transaction closing.

9.   MHG will keep Empire apprised of its financial status through submission of
     monthly financial statements, including cash flow projections.  Empire will
     notify HCFA of material changes and trends.

10.  If the financial information submitted by MHG, or other information that is
     brought to the attention of HCFA and Empire, indicates that MHG may be
     unable to continue to meet its obligations under this plan of repayment,
     HCFA may direct Empire to accelerate the recoupment through re-institution
     of claims withholding. HCFA or Empire will notify MHG immediately prior to
     taking this action and give MHG an opportunity to respond, but MHG
     voluntarily waives its formal right of rebuttal.

     We understand that MHG and its affected provider subsidiaries currently
dispute the overpayment determinations, both as to the fact of the overpayments
and the methodology.  We hereby acknowledge that by executing this letter
agreement, MHG and its subsidiaries expressly reserve all rights to contest and
appeal any Medicare cost report overpayment determination and to seek redress in
court to the extent such remedy is available at law.

     We are pleased that we have been able to reach an apparent arrangement
concerning this difficult matter.  However, if any of the foregoing provisions
are not consistent with you understanding, please call me at (212) 264-2505.  If
they are acceptable to Mariner please indicate your agreement by signing in the
space below and returning a copy to me.  Please call Steven Hartmann, Director
of Audit and Reimbursement, Empire Medicare Services at (315) 442-4959 to
complete the details of the arrangements.

                              Sincerely,

                              /s/ Peter Reisman
                              --------------------------------
                              Peter Reisman
                              Associate Regional Administrator
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Agreed to by:  /s/ George D. Morgan
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Mariner Health Group, Inc.

By:     /s/ George D. Morgan
        ------------------------------

Name:   George D. Morgan

Title:  Executive Vice President and Chief Financial Officer

Cc:     C. Booth
        A.  Seubert
        L. Silva
        H. Guerette
        S. Hartmann
        W. Willis