<PAGE>
                                                                    EXHIBIT 10.5

                        CORAM 2004 KEY EMPLOYEE RETENTION
                           INCENTIVE PROGRAM AGREEMENT

            This Key Employee Retention Program Agreement ("Agreement") is made
and effective as of the Effective Date, as defined below, by and between Coram,
Inc. (the "Company") and Ron Mills (the "Participant").

            WHEREAS, the Company and its parent, Coram Healthcare Corporation
("CHC"), filed for relief under Chapter 11 of Title 11 of the United States Code
in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") which cases are jointly administered under In re Coram
Healthcare Corporation, Case No. 00-3299 (MFW)(Jointly Administered) and are
intending to complete their financial restructuring and reorganization through a
plan or plans of reorganization (the "Plan(s) of Reorganization"); and

            WHEREAS, Arlin M. Adams was appointed Chapter 11 Trustee for the
Company and CHC (the "Trustee") which appointment was approved by the Bankruptcy
Court on March 7, 2002; and

            WHEREAS, the Company and the Trustee desire to enter into this
Agreement to retain the Participant through the successful completion of the
Plan(s) of Reorganization and Participant is willing to remain in such
employment by the Company in consideration of the payments to be made by the
Company, upon the terms and conditions herein provided;

            NOW THEREFORE, in consideration of the mutual promises and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement, intending to be legally bound,
hereby agree as follows:

SECTION 1. SERVICES OF PARTICIPANT.

            Throughout his or her employment by the Company, CHC or any of their
respective affiliates, the Participant shall devote his or her full time and
attention to performing the duties and responsibilities of his or her current
position in accordance with his or her job description and as assigned by his or
her supervisor, the Trustee or the Trustee's designated executive officer. Such
duties shall include providing his or her assistance in connection with the
completion of the contemplated Plan(s) of Reorganization as may be requested by
the Company from time to time.

SECTION 2. EFFECTIVE DATE.

            The "Effective Date" shall be the date that an Order of the
Bankruptcy Court approving the Company's 2004 Key Employee Retention Program
("KERP") and payments provided for therein becomes final.

SECTION 3. KERP COMPENSATION.

            (a) The Participant shall be entitled to receive compensation in the
amount of $110,000 pursuant to the terms and conditions of the KERP and this
Agreement, subject to the approval by the Bankruptcy Court (the "Compensation")
and, if so approved, fifty percent (50%) of the Compensation shall be paid by
the Company on the Effective Date or as soon as practicable thereafter. The
Company shall pay the remainder of the Compensation on the earlier date (the
"Second Payment Date") of (i) sixty (60) days after the effective date of the
Plan(s) of Reorganization and (ii) December 30, 2004; provided, however, that if
the Participant ceases to be employed by the Company, CHC or any of their
respective affiliates, before the Second Payment Date due to his or her
voluntary termination or his or her being terminated "for cause", then the
Participant shall be obligated to return to the Company, immediately upon the
date of his or her termination, the full amount of the Compensation (less
applicable federal, state and local taxes withheld) which had been paid to
Participant to date. If the Participant ceases to be employed by the Company,
CHC or any of their respective affiliates, before the Second Payment Date for
any reason other than as set forth in the foregoing sentence, the Participant
shall remain entitled to receive the Compensation payable hereunder.

<PAGE>

            (b) For the purpose of this Agreement, "for cause" shall mean (i)
commission of a willful act of dishonesty in the course of Participant's duties
which injures the Company, CHC, or any of their respective affiliates (ii)
conviction by a court of competent jurisdiction of a crime constituting a felony
or conviction in respect of any act involving fraud, dishonesty, or moral
turpitude which relates to Participant's duties, (iii) Participant's continued,
habitual intoxication or performance under the influence of controlled
substances during working hours, and (iv) unjustifiable failure by Participant
to perform his or her duties which injures the Company, CHC or their respective
affiliates.

SECTION 4. CONFIDENTIALITY.

            (a) The Participant agrees not to disclose the terms and conditions
of this Agreement. The Participant may, however, disclose this Agreement to the
Participant's immediate family, legal counsel, tax advisor, and tax authorities
as necessary, provided that they agree not to disclose the terms and conditions
to anyone.

            (b) For purposes of this Section 4, "Confidential Information" shall
mean all confidential and proprietary technical, business and financial
information of the Company, CHC and their respective affiliates, including, but
not limited to, marketing and financial information, personnel, sales and
statistical data, plans for future development, computer programs, information
and knowledge pertaining to products and services offered, trade secrets,
proprietary information, advertising, sales methods and systems, sales and
profit figures, customer and client lists, and relationships between the Company
or CHC and their respective affiliates, customers, clients, suppliers and others
who have business dealings with the Company or CHC and their respective
affiliates, information with respect to various techniques, procedures,
processes and methods and any other information acquired, used or developed by
Participant while employed by the Company, CHC or any of their respective
affiliates.

            (c) Participant recognizes and acknowledges that by reason of his or
her employment by and service to the Company, CHC or any of their respective
affiliates, he or she has had and will continue to have access to Confidential
Information. Participant acknowledges that such Confidential Information is a
valuable and unique asset and agrees that he or she will not, either while
employed by the Company, CHC or any of their respective affiliates, or
thereafter, use any Confidential Information for his or her own benefit or the
benefit of others or disclose any Confidential Information to any person, firm
or company not connected with the Company for any reason whatsoever except (i)
as his or her duties as an employee may require, (ii) as authorized in writing
by the Trustee, or if no Trustee is serving, by the Board of Directors of the
Company, or (iii) to the extent necessary to comply with law or the valid order
of a court of competent jurisdiction, in which event Participant shall notify
the Company and CHC as promptly as practicable (and, in any event, prior to
making such disclosure). Participant shall use his or her best efforts to
prevent any such disclosure by others.

            (d) Notwithstanding the foregoing, Participant shall be relieved of
his or her responsibilities under this Section 4 with respect to any
Confidential Information (i) which is in the public domain through no fault of
Participant or (ii) which the Participant can demonstrate by clear and
convincing evidence was legally obtained from a third party which did not learn
it, directly or indirectly, from Participant or any other person bound to
maintain the confidentiality thereof or the Company, CHC or any of their
respective affiliates. All documents, magnetic media and other materials
containing Confidential Information made or compiled by or made available to
Participant during the course of his or her employment, and all copies thereof,
are and shall be the property of the Company, CHC and their respective
affiliates, as the case may be, and shall be delivered to the Company by
Participant immediately upon the termination of his or her employment.

            (e) The obligations under this Section 4 shall remain in effect and
be binding upon the Participant following termination of the Participant's
employment for any reason whatsoever.

                                       2
<PAGE>

SECTION 5. AGREEMENT NOT TO SOLICIT EMPLOYEES.

            During the Participant's employment with the Company, CHC or any of
their respective affiliates, and for a period of one (1) year following the
termination of such employment for any reason whatsoever, provided the Company
is not in breach or default hereof, the Participant shall not directly or
indirectly, contact, solicit, divert, take away or hire, or attempt to contact,
solicit, divert, take away or hire, any employees of the Company, CHC or their
affiliates.

SECTION 6. AGREEMENT NOT TO SOLICIT COMPANY CLIENTS.

            During the Participant's employment with the Company, CHC or any of
their respective affiliates, and for a period of one (1) year following the
termination of such employment for any reason whatsoever, provided the Company
is not in breach or default hereof, the Participant shall not directly or
indirectly, contact, solicit, divert, take away or attempt to contact, solicit,
divert, or take away any Client. "Client" shall mean any person, corporation,
partnership, entity or legal organization to whom the Company, CHC or their
affiliates sold their services or products or solicited to sell their services
or products during the twelve (12) months prior to the termination of
Participant's employment.

SECTION 7. AGREEMENT NOT TO COMPETE.

            (a) Participant acknowledges that he or she is an executive,
director or a manager for the Company, CHC or one of their respective
affiliates, and as such, has worked closely with information which represents
vital trade secrets and Confidential Information of the Company, CHC and their
affiliates. Participant further acknowledges that, should Participant perform
work or services for a Competing Business, as defined below, (in any capacity
including, but not limited to, as an employee, officer, agent, consultant or
independent contractor), Participant necessarily would rely on or inevitably
disclose such information. As a result, Participant agrees that, during the
Participant's employment and for a period of one (1) year following the
termination of such employment due to his or her voluntary termination or his or
her being terminated for cause", the Participant shall not (except with the
prior written consent of the Trustee, or if no Trustee is serving, of the Board
of Directors of the Company), within the Restricted Territory, as defined below,
either directly or indirectly, on Participant's own behalf or in the service or
on behalf of others, as an employee, officer, director, agent, consultant, or
independent contractor, or in any other capacity which involves duties and
responsibilities similar to those the Participant has undertaken for the
Company, CHC or any of their respective affiliates, engage in any Competing
Business. If Participant's employment is terminated involuntarily by the Company
and such termination is without "for cause", then the covenant set forth in this
Section 7(a) shall terminate upon the effective date of such employment
termination.

            (b) As used in this Agreement, "Restricted Territory" means the
geographic region over which the Participant has responsibility as of the date
of Participant's termination. As used in this Agreement, "Competing Business"
means any business organization of whatever form engaged in any business or
enterprise which in whole or in part is the same as, or substantially the same
as, the business of the Company, CHC or their affiliates.

SECTION 8. SEVERABILITY.

            If, at the time of enforcement of Sections 4, 5, 6, and/or 7 herein
a court shall hold that the duration, scope or area restrictions stated herein
are unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.

SECTION 9. NOT A CONTRACT OF EMPLOYMENT.

            BY PARTICIPANT'S SIGNATURE BELOW, SUBJECT TO PARAGRAPH 12,
PARTICIPANT ACKNOWLEDGES THAT EMPLOYMENT WITH THE COMPANY, CHC OR ANY OF THEIR
RESPECTIVE AFFILIATES, IS AT-WILL, MEANING THE PARTICIPANT OR THE COMPANY AND

                                       3
<PAGE>

ITS AFFILIATES MAY TERMINATE THAT EMPLOYMENT RELATIONSHIP AT ANY TIME WITHOUT
NOTICE, CAUSE, OR ANY SPECIFIC DISCIPLINARY PROCEDURES. NOTHING IN THIS
AGREEMENT OR ANY OTHER POLICY, PRACTICE, PROCEDURE, OR BENEFIT OF THE COMPANY,
CHC OR ANY OF THEIR RESPECTIVE AFFILIATES, CONSTITUTES AN EXPRESS OR IMPLIED
CONTRACT, GUARANTEE, PROMISE, OR COVENANT OF EMPLOYMENT FOR A SPECIFIED TERM OR
FOR TERMINATION ONLY FOR CAUSE.

SECTION 10. GOVERNING LAW/VENUE.

            This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado. Jurisdiction and venue over
any dispute involving the enforcement or construction of this Agreement shall be
in the United States District Court for the District of Colorado, Denver
District Court, or the Bankruptcy Court.

SECTION 11. BINDING AGREEMENT.

            Participant may not assign this Agreement, and any attempted
assignment shall be void and of no force or effect. This Agreement shall be
effective as of the date hereof and shall be binding upon and inure to the
benefit of the Participant, Participant's heirs, personal and legal
representatives, or guardians. The obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon any successor
and assign of the Company. The rights of the Company, CHC and their affiliates
under this Agreement shall inure to the benefit of any successors and assigns
and the Trustee and his successors and assigns.

SECTION 12. ENTIRE AGREEMENT.

            This Agreement supersedes any and all prior arrangements,
understandings or agreements, whether written or oral, including (i) any
Management Incentive Plan for fiscal year 2003, and (ii) any other employee
retention or incentive plans. However, this Agreement is not intended to
supersede any other written agreements between the parties with respect to the
employment of the Participant or the terms or conditions set forth therein.

SECTION 13. AMENDMENTS.

            This Agreement may not be amended or modified except by a written
instrument signed by the Company and the Participant and approved by the
Trustee.

SECTION 14. NOTICES.

            Any notices provided for by this Agreement shall be sufficient if in
writing and shall be deemed given when hand delivered or sent by registered or
certified mail to the Participant at the last residence address Participant has
filed in writing with the Company or, in the case of the Company, with its Legal
Department at the Denver, Colorado corporate offices, with a copy to the Trustee
c/o Schnader Harrison Segal & Lewis, LLP, 1600 Market Street, Suite 3600,
Philadelphia, Pennsylvania 19103-7286.

SECTION 15. WITHHOLDING.

            All payments made by the Company to the Participant under this
Agreement shall be subject to applicable federal, state and local tax
withholding and 401(k) withholding.

                        [THIS SPACE INTENTIONALLY BLANK]

                                       4
<PAGE>
 IN WITNESS WHEREOF, the parties knowingly and voluntarily have executed, sealed
and delivered this 2004 Key Employee Retention and Incentive Program Agreement
as of the date first above written.

PARTICIPANT                           CORAM, INC.

By: /s/ RON MILLS                     By: /s/ ALLEN J. MARABITO
------------------------                  --------------------------------------
 Ron Mills                            Name: Allen J. Marabito
                                      Title:Executive Vice President

                                             APPROVED BY:

                                             ARLIN M. ADAMS, Chapter 11 Trustee

                                              By: /s/ JOSEPH J. DEVINE
                                                  ------------------------------
                                                      Joseph J. Devine,
                                                      Attorney for the Trustee

                                       5