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                                                                   EXHIBIT 10.30
 
                                                                     Final Draft

                             [Vitalink letterhead]

                                August 29, 1997


GranCare, Inc.
One Ravinia Drive
Suite 1500
Atlanta, Georgia  30346
Attention:  M. Scott Athans,
               President and Chief Executive Officer

            Re:   Preferred Provider Arrangement

Dear Mr. Athans:

     As you know, pursuant to the terms of those certain Pharmaceutical Supply
Agreements ("PSA's") described in that certain Omnibus Reconciliation Services
Agreement, dated March 1, 1997 (the "ORSA"), Vitalink Pharmacy Services, Inc.
and/or certain affiliates of Vitalink including, without limitation, TeamCare,
Inc. (Vitalink and all such affiliates being referred to herein collectively as
("Vitalink") has the contractual right to provide to all of GranCare's
"Facilities" (as defined in the ORSA) all of their pharmaceutical goods and
services. In recognition of the fact that Vitalink has chosen not to provide
such goods and services to a number of the Facilities at this time, and in
anticipation of the closing of your announced merger with Living Centers of
America, Inc., Vitalink hereby authorizes GranCare to contract with American
Pharmaceutical Services, Inc. ("APS") to provide all pharmaceutical goods and
services to such Facilities; provided, however, that if during the term of the
PSA's Vitalink, either itself or through a joint venture, chooses to provide all
or some of the pharmaceutical goods and services to any Facility then being
serviced by APS, then Vitalink shall give GranCare 30 days prior written notice
of Vitalink's intent to commence service to such Facility (a "Service
Commencement Notice") which service shall be pursuant to the a PSAs to be
executed by Vitalink and GranCare relating to such Facility and upon the end of
such 30 day period GranCare shall cease obtaining such goods and services from
APS for the applicable Facility and Vitalink, or the joint venture with which it
is a joint venturer, shall begin providing the same, whereupon such Facility
shall be a "Newly Served Facility" (as defined in the ORSA) for purposes of
establishing the pricing applicable to such Facility's PSA.

     Furthermore, in the event that Vitalink has chosen not to provide all or
some of the pharmaceutical goods and services to any Facility, and APS also
chooses not to provide the same, then such Facility may contract with any other
institutional pharmacy for the provision of those pharmaceutical goods and
services not being provided by 
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Vitalink or APS; provided, however, that all contracts between a Facility and
any institutional pharmacy other than Vitalink must include a provision which
gives such Facility the right to terminate such contracts, with or without
cause, upon no more than 60 days prior written notice. Following receipt of a
Service Commencement Notice from Vitalink, or the joint venture with which it is
a joint venturer, of the desire by Vitalink, or the joint venture with which it
is a joint venturer, to begin providing all or some of the pharmaceutical goods
and services to a Facility (which goods and services shall be described in the
Service Commencement Notice with particularity in the event that Vitalink elects
to provide some but less than all of such Facility's pharmaceutical goods and
services), such Facility shall promptly give the required termination notice to
the institutional pharmacy then providing the such goods and services to the

     In the event that Vitalink provides GranCare a Service Commencement Notice
as set forth herein and GranCare fails to give or cause the appropriate Facility
to give APS or any other institutional pharmacy then providing such Facility
with pharmaceutical supplies and services the termination notice required herein
and/or APS or such other institutional pharmacy otherwise fails to terminate
services as required herein, then the parties hereto acknowledge and agree that
the failure to permit Vitalink to commence providing service to such Facility
shall constitute a Supply Termination Event (as defined in that certain Letter
of Clarification of even date herewith between Vitalink and GranCare and
Vitalink shall be entitled to liquidated damages pursuant to the appropriate
provisions contained in such letter.

     If you agree and accept the terms and provisions set forth above,please
acknowledge in the space provided below.

                              Vitalink Pharmacy Services, Inc.


                              /s/ Donna L. DeNardo
                              ---------------------------------  
                              Donna L. DeNardo, President

ACKNOWLEDGED AND AGREED:

GranCare, Inc.

/s/ M. Scott Athans
------------------------------------
M. Scott Athans, President and Chief
 Executive Officer