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

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission file number 0-19294
                                   RehabCare Group, Inc.
                   (Exact name of Registrant as specified in its charter)

            Delaware                               51-0265872
(State or other jurisdiction of        (I.R.S. Employer Identification No.)
 incorporation or organization)

          7733 Forsyth Boulevard, 17th Floor, St. Louis, Missouri 63105
             (Address of principal executive offices and zip code)

Registrant's telephone number, including area code: (314) 863-7422

Securities  registered pursuant to         Name of exchange on which registered:
Section 12(b) of the Act:                  New York Stock Exchange
Common Stock, par value $.01 per share     New York Stock Exchange
Preferred Stock Purchase Rights

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for 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. ( )

     Indicate by check mark whether the Registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).              Yes X    No

     The  aggregate  market  value of voting  stock  held by  non-affiliates  of
Registrant at June 30, 2002 was $414,189,202.  At March 10, 2003, the Registrant
had 15,852,080 shares of Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Part II of this  Annual  Report  on Form  10-K  incorporates  by  reference
information  contained in the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 2002.

     Part III of this  Annual  Report on Form  10-K  incorporates  by  reference
information  contained in the  Registrant's  definitive  Proxy Statement for its
Annual Meeting of Stockholders to be held on April 30, 2003.

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                                       1

<PAGE>


                                     PART I

     This Annual Report on Form 10-K contains  forward-looking  statements  that
are made  pursuant  to the safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995.  Forward-looking  statements  involve  known and
unknown risks and uncertainties  that may cause RehabCare Group's actual results
in future periods to differ materially from forecasted results.  These risks and
uncertainties  may  include,  but are not  limited  to, the effect and timing of
certain corrective actions taken in supplemental  staffing, the magnitude of the
costs  associated  with the  consolidation  of branch  locations in the staffing
division,   the  effect  and  timing  of  the  consolidation  on  the  aggregate
supplemental  staffing  weeks  worked,  new program  openings  and planned  cost
controls,  fluctuations in occupancy of RehabCare  Group's  hospital and skilled
nursing  facility   clients,   changes  in  and  compliance  with   governmental
reimbursement  rates,  regulations  or  policies,  the  inability to attract new
client relationships or to retain existing client  relationships,  the inability
to  attract   operational   and   professional   employees,   the  adequacy  and
effectiveness  of  operating  and  administrative  systems,   litigation  risks,
including  an inability to predict the  ultimate  costs and  liabilities  or the
disruption of RehabCare Group's operations, and general economic downturn.


ITEM 1.  BUSINESS

Overview of Our Company

     RehabCare  Group,  Inc., a Delaware  corporation,  is a leading provider of
temporary  healthcare  staffing and therapy program management for hospitals and
skilled nursing  facilities.  Our healthcare  staffing services  business,  also
known as StarMed  Staffing  Group,  provides  temporary  placement of nurses and
other  healthcare  professionals  on a  supplemental  basis  with  locally-based
personnel and on  longer-term  assignments  with travel  personnel.  Our program
management  services  business  consists  of the  management  of  hospital-based
inpatient acute  rehabilitation  and skilled nursing units,  hospital-based  and
satellite outpatient therapy programs, as well as contract therapy programs with
skilled nursing facilities.

     Established  in  1982,  we have  more  than  20  years  experience  helping
healthcare  providers  increase  revenues and reduce costs while effectively and
compassionately delivering rehabilitation services. We believe our clients place
a high  value on our  extensive  experience  in  assisting  them to  effectively
implement clinical best practices, address competition for patient services, and
navigate the  complexities  inherent to managed care  contracting and government
reimbursement   systems.  Over  the  years,  we  have  diversified  our  program
management services to include management services to hospitals, skilled nursing
units and  outpatient  rehabilitation,  as well as management of  rehabilitation
services in skilled nursing facilities.

     We added  temporary  healthcare  staffing  services to our business in 1996
with the acquisition of Healthcare Staffing Solutions,  Inc. providing traveling
therapists  and,  later,  traveling  nurses to  hospitals  and  skilled  nursing
facilities.  In 1998, we acquired StarMed Staffing, Inc. to significantly expand
our  presence  into the  supplemental  staffing  market.  With the  formation of
StarMed  Staffing  Group, we maintain one of the nation's  largest  databases of
healthcare   professionals  of  many  different   specialties  to  fill  travel,
supplemental and permanent positions.

                                       2
<PAGE>

     We offer  our  portfolio  of  temporary  healthcare  staffing  and  program
management  services  to a highly  diversified  customer  base.  In all, we have
relationships  with more than 7,000  hospitals  and skilled  nursing  facilities
throughout the United States. We currently serve healthcare  staffing clients in
all 50 states plus the District of Columbia and our program management  services
business  currently manages units and programs in 40 states plus the District of
Columbia.

     For the year ended  December 31, 2002, we had operating  revenues of $562.6
million and operating earnings of $39.7 million.  In 2002,  approximately 49% of
our  operating  revenues  were derived  from our  healthcare  staffing  services
business and approximately 51% were derived from our program management services
business.

     The terms  "RehabCare,"  "our company," "we" and "our" as used herein refer
to "RehabCare Group, Inc."

Industry Overview

     As a provider of healthcare staffing and program management  services,  our
revenues  and  growth are  affected  by trends and  developments  in  healthcare
spending.  The U.S. Centers for Medicare and Medicaid Services estimated that in
2001  total  healthcare  expenditures  in the United  States  grew by 9% to $1.4
trillion,  the fifth  consecutive year in which  healthcare  spending grew at an
accelerating  rate. The Centers for Medicare and Medicaid Services reported that
hospital  spending,  which accounted for 30% of the health spending  increase in
2001,  increased  8%. The  Centers  for  Medicare  and  Medicaid  Services  also
projected  that total  healthcare  spending  in the United  States  will grow an
average of 7% annually  from 2002 through  2010.  According to these  estimates,
healthcare expenditures will account for approximately $2.6 trillion, or 16%, of
the United States gross domestic product by 2010.

     Demographic  considerations  also affect long-term  growth  projections for
healthcare   spending.   According  to  the  U.S.  Census  Bureau,   there  were
approximately 35 million  Americans,  comprising  approximately 13% of the total
United States population,  aged 65 or older based on the 2000 census. The number
of Americans aged 65 or older is expected to climb to  approximately  40 million
by 2010 and to  approximately  54  million  by  2020.  By 2030,  the  number  of
Americans 65 and older is estimated to reach  approximately 70 million,  or 20%,
of the total population. Due to the increasing life expectancy of Americans, the
number of people aged 85 years or older is also  expected  to increase  from 4.3
million to 8.9 million by 2030.

     We believe that healthcare  expenditures  and longer life expectancy of the
labor force and general  population will place increased  pressure on healthcare
providers to find innovative, efficient means of delivering healthcare services.
In particular,  many of the health  conditions  associated  with aging - such as
stroke and heart attack, neurological disorders and diseases and injuries to the
muscles,  bones and joints will increase the demand for rehabilitative  therapy.
These trends, combined with the need for client hospitals to move their patients
into the appropriate level of care on a timely basis, will encourage  healthcare
providers  to direct  patients to  inpatient  units and  outpatient  therapy and
contract therapy programs.

     The aging  population  also affects the healthcare  labor market.  Findings
from the  National  Sample  Survey of  Registered  Nurses  conducted by the U.S.
Department  of  Health  and Human  Services  Administration  in 2000,  published
February  2002,  indicates  that  between  1996 and 2000 the  average age of the
registered nurse population increased from 44.3 to 45.2 years. During the period
from 1980 to 2000,  the  proportion of registered  nurses under age 40 decreased
from 53% to 32%.  The major drop was among  those  under the age of 30. In 1980,
25% of registered nurses were under the age of 30 compared to only 9% in 2000.

                                       3
<PAGE>

     We also  see a  growing  demand  from  hospitals,  who  seek  to work  with
organizations  that deliver the most efficient,  responsive,  cost-effective and
high-quality resources, programs and services to support a full range of needs.

     We believe  that these  various  trends  imply that there will be a growing
demand for sophisticated and integrated  healthcare  staffing and rehabilitation
therapy  solutions by  healthcare  providers  seeking to decrease  their overall
labor  costs  and  satisfy  their  increasing  need  for  qualified   healthcare
professionals, who are in high demand.

     Healthcare  Staffing  Services.  The healthcare  staffing industry provides
staffing of nurses, physicians and other allied healthcare professionals such as
physical and occupational therapists,  speech/language pathologists, respiratory
therapists,   radiological   technicians,   advanced   practice   professionals,
pharmacists,  and medical and surgical specialized  technicians.  The healthcare
staffing industry is primarily comprised of the following three services:

     o    Supplemental Staffing. Supplemental staffing comprises the majority of
          all  healthcare  staffing  and  involves  placement  of  locally-based
          healthcare  professionals  on very short-term  assignments,  often for
          daily shift work.  Supplemental  staffing  often  involves  very short
          advance notice of assignments by the client.

     o    Travel Staffing.  Travel staffing involves the placement of healthcare
          professionals on a contracted,  fixed-term basis on assignments, which
          may run several  weeks to a year,  but are generally 13 weeks long and
          typically involves temporary  relocation of the professional.  In some
          instances,  an assignment may be in the same geographic  area, but due
          to its duration,  is assigned  through travel  staffing.  The staffing
          company is responsible for providing arrangements for travel, housing,
          licensure and  credentialing  for the  healthcare  professional  being
          placed.

     o    Placement   and   Search.    Placement    and   search    relates   to
          position-specific searches for specialized healthcare professionals to
          fill open positions on a permanent  basis.  Search firms offer a range
          of placement  and search  services on both a retainer and  contingency
          basis.

     The Staffing Industry Report, an independent staffing industry publication,
estimated  that  revenues in the United  States for all staffing  services  were
$80.2  billion  in  2001.  The  healthcare   staffing   segment   accounted  for
approximately  $9.1  billion of  revenues in 2001,  and was  expected to grow by
approximately  20%  annually  through  2003.  We  believe  that the  demand  for
healthcare staffing services is influenced by a number of factors including:

     o    Economic Conditions and Hospital Initiatives. We believe that extended
          economic  uncertainty  may  result in  reduced  supply  of  healthcare
          professionals  to the temporary  staffing  industry.  Nurses and other
          healthcare   professionals   currently  appear  to  prefer  full-time,
          permanent  employment  as a means of  ensuring  family  income  during
          challenging  economic times.  Some hospitals are also offering greater
          financial  and  workplace  incentives  to recruit or retain  permanent
          employees,  thus reducing the hospital's demand for temporary staffing
          services.  It is not clear whether the duration of economic  pressures
          or the  sustainability  of workplace  incentives will be sufficient to
          overcome the larger, long-term trend of healthcare labor shortages. We
          believe that  staffing  services  providers  will  continue to play an
          important  role over the long-term in helping  hospitals  successfully
          manage variable labor.

                                       4
<PAGE>

     o    Shortages in Available  Healthcare  Professionals.  A July 2002 report
          published by the National Center for Health  Workforce  Analysis (part
          of the U.S.  Department of Health and Human  Services)  indicated that
          based on current trends  approximately  2.8 million  registered nurses
          will be needed in the  United  States  by 2020,  but only 2.0  million
          registered  nurses will be  available.  A December  2002 report by the
          American Association of Colleges of Nursing, however, highlighted that
          for  schools  that  reported  in both  2002 and 2001,  enrollments  in
          undergraduate  nursing  programs  increased by 8% in 2002. This is the
          second consecutive year of increased  enrollments following a previous
          6-year  period of decline.  The  American  Association  of Colleges of
          Nursing  believes  the number of  students  in the  pipeline  is still
          insufficient  to fully meet the demand for a million  new nurses  over
          the next 10 years  as  projected  by the  U.S.  Labor  Department.  In
          addition to the shortage of available  nurses,  changes in  healthcare
          and a trend toward  temporary  staffing  have resulted in shortages of
          various  allied  healthcare  professionals,   including  radiological,
          laboratory and other specialized technicians,  pharmacists,  physician
          assistants,  nurse  anesthetists,   transcriptionists,   reimbursement
          specialists,  patient  account  representatives  and medical  clerical
          personnel.

     o    Changes in the Healthcare  Payment System. As healthcare  expenditures
          in the United States have continued to increase,  healthcare providers
          have  experienced  increased cost  reduction  pressures as a result of
          managed care and the implementation of prospective payment systems and
          other changes in Medicare reimbursement. The need to control costs has
          forced  many  healthcare   providers  to  re-evaluate  their  staffing
          policies  and  seek  more  efficient  labor   management   techniques,
          including the use of temporary  employees to enhance  flexibility  and
          reduce costs by transforming a portion of their labor costs from fixed
          to variable.


     Program  Management  Services.  The growth of managed care and its focus on
cost control has encouraged  healthcare providers to provide quality care at the
lowest cost  possible.  While  generally  less  aggressive  than  managed  care,
Medicare and Medicaid  incentives have also driven declines in average inpatient
days per admission.  In many cases, patients are treated initially in the higher
cost,  acute-care hospital setting.  After their condition has stabilized,  they
are either moved to a lower cost setting, such as a skilled nursing facility, or
are  discharged to their home and treated on a home health or outpatient  basis.
Thus, while hospital inpatient  admissions have continued to grow, the number of
average  inpatient  days per admission  has declined.  According to the American
Hospital  Association,  the  aggregate  number of inpatient  days declined at an
average  annual  rate of 1.3%,  from 215.9  million in 1993 to 194.1  million in
2001.

     Many  healthcare  providers  seek to  outsource  a broad  range of services
through  contracts with product line  managers.  Outsourcing  allows  healthcare
providers to take advantage of the specialized  expertise of contract  managers,
enabling  providers to  concentrate on the  businesses  they know best,  such as
facility and acute-care  management.  Continued  reimbursement  pressures  under
managed  care  and  Medicare  have  driven  healthcare  providers  to  look  for
additional  sources of revenue.  As constraints on overhead and operating  costs
have  increased  and manpower has been  reduced,  outsourcing  of ancillary  and
post-acute  services  has become more  important  in order to  increase  patient
volumes and  provide  services at a lower cost while  maintaining  high  quality
standards.

                                       5
<PAGE>

By outsourcing therapy services, hospitals are able to:

o    Improve   Clinical   Quality.   National   program   managers   focused  on
     rehabilitation are able to develop and employ best practices, which benefit
     client hospitals.

o    Increase  Volumes.  Patients who are discharged from an intensive care unit
     or medical/  surgical bed and need acute  rehabilitation or skilled nursing
     care,  and who in the past  would have  otherwise  been  referred  to other
     venues for treatment,  can now remain in the hospital setting.  This allows
     hospitals to capture  revenues that would  otherwise be realized by another
     provider.  Upon discharge,  patients can return for outpatient care, adding
     additional  revenues  for the  provider.  By  offering  new  services,  the
     hospital also attracts new patients.

o    Optimize  Utilization of Space.  Inpatient services help hospitals optimize
     physical plant space to treat patients that are within  specific  diagnoses
     of the particular hospitals' targeted service lines.

o    Increase Cost Control. Because of their extensive experience in the product
     line,  program  managers  can offer  pricing  structures  that  effectively
     control a  healthcare  provider's  financial  risk  related to the  service
     provided.  For hospitals and other providers that utilize program managers,
     the result is often lower average cost than that of self-managed  programs.
     As a result,  the facility is able to increase its revenues  without having
     to increase administrative staff or incur other fixed costs.

o    Sign  Agreements with Managed Care  Organizations.  We believe managed care
     organizations  prefer  to sign  contracts  covering  acute  rehabilitation,
     skilled nursing services and outpatient therapy with one entity rather than
     several separate,  often unrelated  entities.  Program managers may provide
     patient  evaluation  systems that collect data on patients in each of their
     units showing the degree of improvement and the related costs from the time
     the patient is admitted to the unit through the time of discharge.  This is
     an important  feature to managed care  organizations  in controlling  their
     costs while assuring appropriate outcomes.  Program managers may often have
     the ability to capture and analyze this  information from a large number of
     acute  rehabilitation  and skilled nursing units to improve  clinical care,
     which an individual  hospital could not do on its own without a substantial
     investment in specialized systems.  Becoming part of a managed care network
     helps the hospital attract  physicians,  and in turn, attract more patients
     to the hospital.

o    Obtain  Reimbursement  Advice.  Program  managers may employ  reimbursement
     specialists  who are available to assist client  hospitals in  interpreting
     complicated  regulations within a given specialty,  a highly valued service
     in the changing healthcare environment.

     Of the  approximately  5,000  general  acute-care  hospitals  in the United
States,  an estimated 1,000  hospitals  operate  inpatient acute  rehabilitation
units,  of  which  we  estimate  approximately  20%  currently  outsource  acute
rehabilitation  program  management  services.  As of December 31, 2002,  we had
therapy program management  contracts with 116 of those hospitals that outsource
acute rehabilitation unit management services.

                                       6
<PAGE>

By outsourcing therapy services, skilled nursing facilities are able to:

o    Obtain Clinical Resources and Expertise.  Rehabilitation services providers
     have the ability to develop and  implement  clinical  training  and program
     development that will provide best practices for clients.

o    Ensure  Appropriate  Levels of Staffing for  Rehabilitation  Professionals.
     Therapy  staffing  in  the  skilled  nursing  environment  presents  unique
     challenges  that can be addressed by a national  presence that  facilitates
     recruitment of qualified clinical professionals.  Program managers have the
     ability to manage staffing levels to address the fluctuating clinical needs
     of the host facility.

o    Improve Skilled Nursing  Facility  Profitability.  Rehabilitation  services
     providers are equipped to support the clinical needs of the facility and to
     manage staffing  levels such that the client's  overall  profitability  for
     their patients requiring rehabilitation services is improved.

                                       7
<PAGE>

Overview of Our Business Segments

     Our  business  is  divided  into two  main  business  segments:  healthcare
staffing  services  and  program  management   services.   The  following  table
summarizes the type of services we offer and their benefits to our clients.


  Business Segment          Description of Service     Benefits to Client
  ----------------          ----------------------     ------------------
Healthcare Staffing         Placement of temporary     Enables the client to
Services                    healthcare professionals   manage variable labor
                            in hospitals and skilled   costs, such as turnover,
                            nursing facilities         vacation, maternity and
                            generally ranging from     other temporary staffing
                            one day to 13-week         needs.
                            assignments and on a
                            permanent basis.

Program Management
Services

      Inpatient

        Acute               High acuity                Utilizes formerly idle
        Rehabilitation      rehabilitation for         space and affords the
        Units:              conditions such as         client the ability to
                            stroke, hip replacement    offer specialized
                            and head injury.           clinical rehabilitation
        Skilled Nursing                                services to patients who
        Units:              Lower acuity               might otherwise be
                            rehabilitation but often   discharged to a setting
                            more medically complex     outside the client's
                            than acute rehabilitation  facility.
                            units for conditions such
                            as stroke, cancer, heart
                            failure, burns and wounds.

      Outpatient            Outpatient therapy         Helps bring patients
                            programs for               into the client's
                            hospital-based and         facility and helps the
                            satellite programs         client compete with
                            (primarily sports and      freestanding clinics.
                            work-related injuries).

      Contract Therapy      Rehabilitation services    Affords the client the
                            in skilled nursing         ability to fulfill the
                            facilities for             continuing need for
                            neurological, orthopedic   therapists on a
                            and cardiological          full-time or part-time
                            conditions.                basis.  Offers the
                                                       client a better
                                                       opportunity to improve
                                                       the quality of the
                                                       programs.


     Financial  information  about each of our business segments is contained in
note 12 "Industry Segment Information" to our consolidated financial statements.

                                       8
<PAGE>

     As  announced  on January  6, 2003,  healthcare  staffing  services  branch
locations  were  consolidated,  which reduced the number of healthcare  staffing
services  locations  from the 101  locations  we had at December  31, 2002 to 79
currently.  The following  table  summarizes by geographic  region in the United
States  our  healthcare   staffing  services   locations  as  adjusted  for  the
consolidation  referred  to above  and  program  management  services  units and
programs as of December 31, 2002:
<TABLE>
<CAPTION>

                                     Healthcare               Program
                                 Staffing Services       Management Services

                                                     Acute
                                                   Rehabili-
                                                    tation/
                                     Supplemental   Skilled  Outpatient Contract
                                      Branch and    Nursing  Therapy    Therapy
Geographic Region                  Travel Locations  Units   Programs   Programs
-----------------                  ----------------  -----   --------   --------
<S>                                     <C>        <C>        <C>        <C>
Northeast Region ...................      7          17/1       6          23
Southeast Region....................     24          20/5      20          73
North Central Region................     20          28/6       6         131
Mountain Region.....................      6           3/1       2           2
South Central Region................      8          41/6      16         148
Western Region......................     14           7/2       0          35
                                         --        ------      --         ---
   Total............................     79        116/21      50         412
</TABLE>


     Healthcare Staffing Services

     Our StarMed Staffing Group meets a critical need of supplying nurses, nurse
assistants and other clinical staff to hospitals and skilled nursing  facilities
in communities across the United States,  helping healthcare  facilities operate
to the optimal  level of staffing for their  ever-changing  patient  population.
Additionally,  we assist healthcare  facilities in alleviating  pressures of the
current  nationwide  nursing shortage,  as demand for nurse staffing far exceeds
supply. We introduced  healthcare staffing to our portfolio of services in 1996.
Initially focusing on recruiting traveling physical and occupational  therapists
and  speech/language  pathologists for hospitals and skilled nursing facilities,
we added traveling and supplemental  nurses in 1998 and other allied  healthcare
personnel in 1999.

     Supplemental Staffing

     Our supplemental  staffing operations provide nurses,  nurse assistants and
other allied  healthcare staff to hospitals and other  healthcare  facilities on
short-term  assignments,  typically  ranging from one day to several weeks.  Our
supplemental  staffing operations also performs  position-specific  searches for
specialized  healthcare  professionals  to  fill  open  client  positions  on  a
permanent basis. On January 6, 2003, we announced the  consolidation of branches
for greater focus of our management  resources on client and professional  staff
development.  We  consolidated  22 branch  locations  such that we had 77 branch
locations at January 31, 2003.

     A typical  staffing branch consists of  approximately  1,000 square feet of
leased space. A branch director and a service coordinator are initially hired to
manage the branch. As the branch matures, measured by number of weeks worked the
branch has placed,  new service  coordinators,  marketers and clerical staff are
added to support growth.

                                       9
<PAGE>

     We believe that the  benefits  program we provide for our  temporary  staff
differentiates  us from many other  companies in the  industry.  These  benefits
include direct deposit,  next-day pay in most locations,  401(k) plan,  flexible
assignments,   vacation  pay,  continuing   education   reimbursements,   health
insurance, sign-on bonuses, referral bonuses and a uniform program.

     We believe another  significant factor in our performance is the quality of
our personnel. Our supplemental staffing is a local business, and we believe the
relationships  that  our  branch  director  and  our  placement  and  recruiting
professionals have with our clients are a significant contributor to the success
of our supplemental staffing operations.

     Travel Staffing

     Our travel staffing operations place nursing, radiology,  therapy and other
allied healthcare  professionals typically on 13-week assignments throughout the
United  States.  From two  central  locations  we  employ a staff of  placement,
recruiting,  housing and  benefits  specialists  to support each  traveler.  The
traveler is assigned a recruiter who will assist the traveler through every step
of the assignment.  Our staff is available 24 hours a day, 7 days a week to help
with any issue the traveler may have. We believe our recruiters  have one of the
industry's  largest  databases of healthcare  professionals  available in a wide
variety of specialties in all 50 states.

     We believe the  benefits we offer play a role in a  traveler's  decision to
choose  us  over  our  competition.   Benefits  include  bonuses,  401(k)  plan,
guaranteed pay, assignment cancellation  protection,  direct deposit, health and
dental  insurance,  housing,  travel  reimbursement,  frequent  travel  program,
licensing assistance, 24-hour support and continuing education.

     Strategy

     We plan to  continue  to grow our  healthcare  staffing  services  business
through a combination of controlled  internal growth and selective  acquisitions
that  provide us with the  opportunity  to leverage  our  capabilities  and help
hospitals  and skilled  nursing  facilities  address the  broader  challenge  of
managing their variable labor costs. Key elements of our strategy are:

     o    Increase the volumes and productivity per branch;

     o    Further develop our travel  division,  which represents a mobile asset
          base that can move  across the country to meet the  shifting  needs of
          our customers, and offers the benefit of having the same nurse for the
          duration of a 13-week assignment;

     o    Diversify the services that our branch  locations  offer by furnishing
          both  nurse  staffing  and  other  allied  medical  staffing  at  each
          location;

     o    Maximize the  benefits of our recent  branch  location  consolidation,
          which  allows  us to  reduce  our  fixed  costs  and  concentrate  our
          management resources on client and staff development; and

     o    Consider  strategic  acquisitions  that will  deliver the  benefits of
          synergy and/or growth.

                                       10
<PAGE>

     Program Management Services

     Inpatient

     RehabCare  has  developed an effective  business  model in the  prospective
payment  environment,  and  is  instrumental  in  helping  our  clients  achieve
favorable  outcomes as they convert to this  reimbursement  methodology in their
inpatient settings.

     Acute  Rehabilitation.  Since 1982,  our  inpatient  division  has been the
market leader in operating acute rehabilitation units in acute-care hospitals on
a  contract  basis.  As  of  December  31,  2002,  we  managed  inpatient  acute
rehabilitation  units in 116  hospitals for patients  with  diagnoses  including
stroke,  orthopedic  conditions,  arthritis,  spinal  cord and  traumatic  brain
injuries.  Of the approximately 5,000 general acute-care hospitals in the United
States,  an estimated 1,000  hospitals  operate  inpatient acute  rehabilitation
units of which we estimate  only  approximately  20% currently  outsource  acute
rehabilitation program management services.

     We believe that as the  prospective  payment  system is  implemented in the
inpatient   rehabilitation   environment  for  Medicare   patients,   our  acute
rehabilitation  division will be well  positioned  for internal  growth.  Of the
approximately  4,000  acute-care  hospitals that do not currently  operate acute
rehabilitation  units,  we  estimate  that as many as  2,000  meet  our  general
criteria for support of acute rehabilitation units in their markets. In light of
the changing reimbursement environment,  we believe that there is an opportunity
for growth to the extent that many of the hospitals  currently  operating  their
own acute rehabilitation units reevaluate the efficiency of their operations and
consider outsourcing management services to companies such as ours.

     We establish acute rehabilitation units in hospitals that have vacant space
and unmet  rehabilitation  needs in their  markets.  We also work with hospitals
that  currently  operate acute  rehabilitation  units to determine the projected
level of cost  savings we can deliver to them by  implementing  our  scheduling,
clinical  protocol and outcome  systems.  In the case of  hospitals  that do not
operate acute  rehabilitation  units  already,  we review their  historical  and
existing  hospital  population,  as well as the  demographics  of the geographic
region, to determine the optimal size of the proposed acute  rehabilitation unit
and the potential of the new unit under our  management  to generate  additional
revenues to cover anticipated expenses.

     We are generally  paid by our clients on the basis of a negotiated  fee per
discharge or per patient day pursuant to contracts  that are typically for terms
of three to five years.  These contracts are generally subject to termination or
renegotiation  in the event the hospital  experiences  a material  change in its
reimbursement from government or other providers.

     An acute  rehabilitation  unit  affords the  hospital  the ability to offer
rehabilitation  services to patients,  retaining patients who might otherwise be
discharged to a setting  outside the hospital.  A unit typically  consists of 20
beds and is staffed with a program director,  a  physician-medical  director and
clinical  staff  which may include a  psychologist,  physical  and  occupational
therapists, a speech/language  pathologist,  a social worker, a case manager and
other appropriate supporting personnel.

     Skilled  Nursing Units.  In 1994, the inpatient  division added the skilled
nursing service line in response to client requests for management  services and
our  strategic  decision to broaden our inpatient  services.  As of December 31,
2002, we managed 21 inpatient skilled nursing units. The hospital-based  skilled
nursing unit enables  patients to remain in a hospital  setting where  emergency
needs can be met  quickly as opposed  to being  sent to a  freestanding  skilled
nursing  facility.  The unit is located  within the  acute-care  hospital and is
separately licensed as a skilled nursing unit.

                                       11
<PAGE>

     We are generally  paid by our clients on the basis of a negotiated  fee per
patient day pursuant to contracts  that are typically for terms of three to five
years.  The hospital  benefits by retaining  patients who would be discharged to
another  setting,  capturing  additional  revenue and  utilizing  idle space.  A
skilled  nursing  unit treats  patients  who require  less  intensive  levels of
rehabilitative  care,  but who have a greater need for nursing  care.  Patients'
diagnoses are typically  long-term and medically complex covering  approximately
60 clinical conditions,  including stroke,  post-surgical conditions,  pulmonary
disease, cancer, congestive heart failure, burns and wounds.

     Outpatient

     In  1993,  we began  managing  outpatient  therapy  programs  that  provide
management of therapy services to patients with work-related and  sports-related
illnesses  and  injuries,  and as of December 31, 2002, we managed a total of 50
hospital-based and satellite outpatient therapy programs.  An outpatient therapy
program complements the hospital's  occupational medicine initiatives and allows
therapy to be continued for patients  discharged  from inpatient  rehabilitation
units and  medical/surgical  beds. An outpatient  therapy  program also attracts
patients  into the  hospital and is  conducted  either on the client  hospital's
campus or in satellite locations controlled by the hospital.

     We believe our management of outpatient therapy programs delivers increased
productivity  through our scheduling,  protocol and outcome systems,  as well as
through  productivity  training for existing  staff. We also provide our clients
with expertise in compliance and quality  assurance.  Typically,  the program is
staffed  with a  program  director,  four  to six  therapists  and  two to  four
administrative  and clerical  staff. We are typically paid by our clients on the
basis of a negotiated fee per unit of service.

     In the  fourth  quarter  of  2002,  we  announced  the  combination  of the
inpatient therapy division with the outpatient  therapy division to form the new
hospital rehabilitation services division within our program management services
business. We combined these divisions to streamline two businesses with a shared
base of clients,  and  provide our clients  with one point of contact for all of
their  rehabilitation  service  needs.  We believe  this will enhance our client
relationships  and  increase our  efficiency,  as 23 of our  outpatient  therapy
contracts  are  with  hospital  clients  for  which  we  also  manage  inpatient
rehabilitation  or skilled nursing units.  Creating the hospital  rehabilitation
services   division  also  supports   continued   strategy  for  growth  through
cross-selling our services.

     Contract Therapy

     In  1997,  we  added  contract  therapy   management  for  skilled  nursing
facilities  to our  service  offerings.  This  program  affords  the  client the
opportunity  to fulfill its  continuing  need for  therapists  on a full-time or
part-time  basis  without  the need to hire and retain  full-time  staff.  As of
December 31, 2002, we managed 412 contract therapy programs.

     Our typical  contract  therapy  client has 100 beds, a portion of which are
licensed as skilled nursing beds. We manage therapy services, including physical
and occupational  therapy and speech/language  pathology for the skilled nursing
facility.  Our broad  base of  staffing  strategies,  full-time,  part-time  and
on-call,  can be adjusted at each location  according to the  facility's and its
patients' needs.

     We are generally  paid by our clients on the basis of a negotiated  patient
per  diem  rate or a  negotiated  fee  schedule  based  on the  type of  service
rendered.  Typically, our contract therapy program is led by a full-time program
coordinator  who is also a  therapist  and two to four  full-time  professionals
trained in physical and occupational therapy or speech/language pathology.

                                       12
<PAGE>

     Strategy

     We believe that there is  significant  growth  opportunity  for our program
management  services business as the marketplace  continues to require hospitals
and skilled nursing facilities to provide high-quality  rehabilitation  services
in a cost-efficient and accountable  manner.  Outpatient therapy programs remain
underdeveloped  at most hospitals,  while the aging  population and pressures to
control  costs in all  healthcare  settings  continue  to drive  demand  for our
management  systems  and  expertise,  especially  within a  prospective  payment
system. Key elements of our program management services strategy include:

     o    Focus our efforts on managing the continuum of rehabilitation services
          for our clients;

     o    Maximize  the  benefits of  combining  our  inpatient  and  outpatient
          divisions  to serve as a  single-source  provider  to our  clients and
          facilitate  cross-selling  each of our  programs to  existing  clients
          which are currently utilizing only one of our services;

     o    Continue   leveraging  our  expertise  in  the   prospective   payment
          environment  to retain  clients and sign  contracts with new hospitals
          and skilled  nursing  facilities who must meet the challenges of lower
          reimbursements; and

     o    Consider  strategic  acquisitions  that will  deliver the  benefits of
          synergy and/or growth.

Government Regulation

     Overview.  The healthcare  industry is required to comply with many complex
federal and state laws and  regulations and is subject to regulation by a number
of  federal,  state  and  local  governmental  agencies,  including  those  that
administer  the  Medicare  and  Medicaid  programs,  those  responsible  for the
licensure of  healthcare  providers and  facilities  and those  responsible  for
administering  and  approving  health  facility  construction,  new services and
high-cost  equipment  purchasing.  The  healthcare  industry is also affected by
federal,  state and local  policies  developed  to regulate  the manner in which
healthcare is provided, administered and paid for nationally and locally.

     Laws and regulations in the healthcare  industry are extremely complex and,
in many  instances,  the  industry  does  not have the  benefit  of  significant
regulatory or judicial  interpretation.  As a result, the healthcare industry is
sensitive to legislative  and  regulatory  changes and is affected by reductions
and limitations in healthcare spending as well as changing healthcare  policies.
Moreover,  our business is impacted not only by those laws and regulations  that
are directly applicable to us, but also by certain laws and regulations that are
applicable to our hospital, skilled nursing facility and other clients.

     If we fail to comply with the laws and regulations  directly  applicable to
our business,  we could suffer civil  penalties,  criminal  penalties  and/or be
excluded from contracting with providers participating in Medicare, Medicaid and
other federal and state healthcare  programs.  If our hospital,  skilled nursing
facility  and/or  other  clients  fail to comply  with the laws and  regulations
applicable  to their  businesses,  they could suffer civil  penalties,  criminal
penalties and/or be excluded from participating in Medicare,  Medicaid and other
federal and state healthcare programs, which could, indirectly,  have an adverse
impact on our business.

                                       13
<PAGE>

     Facility Licensure,  Medicare  Certification,  and Certificate of Need. Our
clients are required to comply with state facility  licensure,  federal Medicare
certification,  and  certificate  of need laws in  certain  states  that are not
generally applicable to us.

     Generally,  facility licensure and Medicare  certification  follow specific
standards  and  requirements.  Compliance  is monitored  by various  mechanisms,
including periodic written reports and on-site inspections by representatives of
relevant government agencies.  Loss of licensure or Medicare  certification by a
healthcare  facility  with  which we have a  contract  would  likely  result  in
termination of that contract.

     A few states require that health  facilities  obtain state permission prior
to entering into  contracts for the  management of their  services.  Some states
also require that healthcare facilities obtain state permission in the form of a
certificate of need prior to constructing  or modifying their space,  purchasing
high-cost medical equipment, or adding new healthcare services. If a certificate
of need is required,  the process may take up to 12 months or more, depending on
the state.  The certificate of need  application may be denied if contested by a
competitor or if the new facility or service is deemed  unnecessary by the state
reviewing  agency.  A  certificate  of need is usually  issued  for a  specified
maximum expenditure and requires  implementation of the proposed  improvement or
new service within a specified period of time.

     Professional  Licensure  and  Corporate  Practice.  Many of the  healthcare
professionals  employed or engaged by us, including  nurses and therapists,  are
required to be individually licensed or certified under applicable state law. We
take steps to ensure  that our  licensed  healthcare  professionals  possess all
necessary  licenses  and  certifications,  and we  believe  that our  nurses and
therapists comply with all applicable state laws.

     In  some  states,  business  corporations  such as us are  restricted  from
practicing therapy through the direct employment of therapists. In those states,
to comply with the restrictions  imposed, we contract to obtain therapy services
from an entity permitted to employ therapists.

     Staffing  Agency/Business  Licenses.  A  number  of  states  require  state
licensure for businesses that, for a fee, employ and assign personnel, including
healthcare  personnel,  to provide  temporary  services on-site at hospitals and
other  healthcare   facilities  to  support  or  supplement  the  hospitals'  or
healthcare  facilities'  work  force.  A number of  states  also  require  state
licensure  for  businesses  that  operate  placement  services  for  individuals
attempting to secure  employment.  Failure to obtain the necessary  licenses can
result in injunctions  against operating,  cease and desist orders and/or fines.
We endeavor to maintain all required state licenses.

     Reimbursement.  Federal and state laws and  regulations  establish  payment
methodologies  and  mechanisms  for  healthcare  services  covered by  Medicare,
Medicaid and other  government  healthcare  programs.  While  applicable  to our
clients and not  generally  applicable to us, these laws and  regulations  still
have an indirect impact on our business.

     Medicare pays  acute-care  hospitals for most inpatient  hospital  services
under a payment  system known as the  "prospective  payment  system." Under this
system,  acute-care  hospitals are paid a specific amount toward their operating
costs based on the  diagnosis-related  or case mix group to which each  Medicare
patient is  assigned.  In  general,  a  hospital's  payment for  inpatient  care
provided  to a Medicare  patient is limited  based on the  diagnosis-related  or
case-mix  group to which the patient is  assigned,  regardless  of the amount of
services  provided to the patient or the length of the patient's  hospital stay.
The amount of reimbursement assigned to each diagnosis-related or case mix group
is established  prospectively by the Centers for Medicare and Medicaid Services,
an agency of the U.S. Department of Health and Human Services.

                                       14
<PAGE>

     For certain  Medicare  beneficiaries  who have  unusually  costly  hospital
stays,  the Centers for Medicare and Medicaid  Services will provide  additional
payments  above those  specified for the  diagnosis-related  or case-mix  group.
Under a prospective  payment system, a hospital may keep the difference  between
its diagnosis-related or case mix group payment and its operating costs incurred
in furnishing  inpatient  services,  but is at risk for any operating costs that
exceed the  applicable  diagnosis-related  or case-mix  group payment rate. As a
result, hospitals have an incentive to discharge Medicare patients as soon as it
is clinically appropriate.

     Prior to the  implementation  of the  Balanced  Budget  Act of 1997,  acute
rehabilitation  units,  skilled  nursing  units  and  hospital-based  outpatient
therapy  programs were  generally  exempt from the  above-described  prospective
payment  system and were paid  instead on the basis of their direct and indirect
costs under a "cost-based" reimbursement system.

     Beginning  January  1,  2002,  the  Medicare  program  began  phasing  in a
prospective payment system for eligible inpatient  rehabilitation  hospitals and
rehabilitation  units  in  hospitals,  collectively  referred  to as  "inpatient
rehabilitation  facilities." Inpatient rehabilitation  facilities may transition
into the new payment system over a one-year period,  during which payments would
be based on a blend of rates paid under the old and the new  payment  systems or
inpatient  rehabilitation  facilities  may  elect  to go  directly  to  the  new
prospective payment system rates.

     The prospective payment system for inpatient  rehabilitation  facilities is
similar  to the  diagnosis-related  group  payment  system  used for  acute-care
hospital  services  but uses a case mix group  rather  than a  diagnosis-related
group.  Each  patient  is  assigned  to a  case  mix  group  based  on  clinical
characteristics and expected resource needs as a result of information  reported
on a "patient  assessment  instrument" which is completed upon patient admission
and discharge. Under the new prospective payment system, a hospital may keep the
difference  between its case mix group payment and its operating  costs incurred
in furnishing  patient services,  but is at risk for operating costs that exceed
the applicable case mix group payment.

     We  believe  that  the  new   prospective   payment  system  for  inpatient
rehabilitation  facilities favors low-cost,  efficient  providers,  and that our
strategy of managing  programs on the premises of our hospital clients positions
us well for the changing reimbursement environment. However, in the event that a
client hospital  experiences a material reduction in reimbursement under the new
system,  in most cases,  the client  hospital will have the right to renegotiate
its contract with us, including the financial terms.

     The Balanced Budget Act of 1997 also mandated the phase-in of a prospective
payment  system for  skilled  nursing  facilities  and units  based on  resource
utilization  group  classifications.  This was  targeted  to  reduce  government
spending on skilled nursing services.  All of the skilled nursing units to which
we  provide  management  services  are now fully  phased  in under the  resource
utilization group system for skilled nursing facilities.

     The Balanced Budget Act of 1997 also affected  Medicare  reimbursement  for
non hospital-based outpatient rehabilitation services. Since 1999, reimbursement
for such  services is  currently  based on the lesser of the  provider's  actual
charge for such  services or the  applicable  Medicare  physician  fee  schedule
amount  established  by the Centers for  Medicare and  Medicaid  Services.  This
reimbursement  system  applies  regardless  of whether the therapy  services are
furnished in a hospital  outpatient  department,  a skilled nursing facility,  a
physician's  office,  or the office of a therapist  in private  practice.  Under
current  law, an  outpatient  therapy  program that is not  designated  as being
hospital  provider-based  is subject to annual  limits on  payment  for  therapy
services. These limits have, however, been suspended through June 30, 2003.

                                       15
<PAGE>

     Provider-Based  Rules.  The  Centers for  Medicare  and  Medicaid  Services
recently  promulgated new rules regarding the  provider-based  status of certain
facilities  and  organizations   furnishing   healthcare  services  to  Medicare
beneficiaries.  Designation as a provider-based facility or organization can, in
some cases, result in greater reimbursement from the Medicare program than would
otherwise be the case. Under the new rules, a designation as provider-based also
mandates  compliance  with a specific  set of billing and  patient  notification
requirements and emergency medical treatment regulations.  Any program, facility
or  organization  having  provider-based  status on  October  1,  2000,  will be
considered  provider-based  until the  hospital's  first cost  reporting  period
beginning on or after July 1, 2003. At that time,  all programs,  facilities and
organizations,  previously  established  and new,  must submit  self-attestation
stating that the provider  based criteria and  obligations  are met. The Centers
for Medicare and Medicaid Services have clarified that the provider-based  rules
do  not  apply  to  skilled  nursing  facilities  and  inpatient  rehabilitation
facilities.

     Health   Information   Practices.   Subtitle  F  of  the  Health  Insurance
Portability and Accountability Act of 1996 was enacted to improve the efficiency
and  effectiveness  of  the  healthcare  system  through  the  establishment  of
standards and  requirements  for the electronic  transmission  of certain health
information.  To achieve that end,  the act  requires the  Secretary of the U.S.
Department  of Health and Human  Services to  promulgate  a set of  interlocking
regulations  establishing  standards  and  protections  for  health  information
systems, including standards for the following:

     o    the development of electronic transactions and code sets to be used in
          those transactions;

     o    the  development  of  unique  health   identifiers  for   individuals,
          employers, health plans, and healthcare providers;

     o    the security of protected health information in electronic form;

     o    the transmission and authentication of electronic signatures; and

     o    the privacy of individually identifiable health information.

     Final rules setting forth  standards for electronic  transactions  and code
sets  were  published  on August  17,  2000,  for the  privacy  of  individually
identifiable  health  information  on December 28, 2000, and for the security of
protected  health  information  in electronic  form on February 20, 2003, all of
which apply to health plans, healthcare  clearinghouses and healthcare providers
who transmit any healthcare  information in electronic  form in connection  with
certain administrative and billing transactions. The compliance deadline for the
electronic  transaction  and  code  set  standards  is  October  16,  2003  if a
compliance  plan was filed with the  Secretary of the  Department  of Health and
Human Services by October 16, 2002; if no plan was filed,  the  compliance  date
was October 16, 2002.  Compliance with the final rules concerning the privacy of
individually  protected  healthcare  information  is required by April 14, 2003.
Compliance with the final rules concerning the security of protected  healthcare
information  in electronic  form is April 21, 2005.  Proposed rules that include
standards for unique health identifiers for employers and healthcare  providers,
as  well  as  standards  related  to  the  security  of  individual   healthcare
information and the use of electronic signatures have been published.

     We  have   reviewed  the  final  rules  and  through  the  efforts  of  our
company-based  task  force  have  taken  steps to  institute  new  policies  and
procedures to meet this regulation at various locations in our company. Included
in these changes has been the  implementation of a company-wide  training effort
for all  employees  on how the  regulations  apply to their job  role.  We serve
predominantly  as a business  associate and have been diligent in our pursuit of
business associate agreements with all of our clients.

                                       16
<PAGE>

     Fraud and Abuse.  Various  federal  laws  prohibit  the knowing and willful
submission of false or fraudulent  claims,  including  claims to obtain  payment
under Medicare,  Medicaid and other government healthcare programs.  The federal
anti-kickback statute also prohibits individuals and entities from knowingly and
willfully  paying,  offering,  receiving or soliciting money or anything else of
value in order to  induce  the  referral  of  patients  or to induce a person to
purchase,  lease,  order,  arrange for or recommend services or goods covered by
Medicare, Medicaid, or other government healthcare programs.

     The  anti-kickback  statute is extremely broad and potentially  covers many
standard business arrangements.  Violations can lead to significant criminal and
civil penalties,  including fines of up to $25,000 per violation, civil monetary
penalties of up to $50,000 per  violation,  assessments of up to three times the
amount  of  the  prohibited  remuneration,   imprisonment,   or  exclusion  from
participation in Medicare,  Medicaid,  and other government healthcare programs.
The  Office of the  Inspector  General  of the  Department  of Health  and Human
Services has published  regulations  that identify a limited  number of specific
business  practices that fall within safe harbors  guaranteed not to violate the
anti-kickback  statute. While many of our business relationships fall outside of
the published  safe harbors,  conformity  with the safe harbors is not mandatory
and failure to meet all of the  requirements  of an applicable  safe harbor does
not by itself make conduct illegal.

     A number of states have in place statutes and regulations that prohibit the
same general types of conduct as that  prohibited by the federal laws  described
above.  Some states'  antifraud and  anti-kickback  laws apply only to goods and
services covered by Medicaid.  Other states'  antifraud and  anti-kickback  laws
apply to all healthcare goods and services,  regardless of whether the source of
payment is governmental or private.

     In recent years,  federal and state government  agencies have increased the
level  of  enforcement  resources  and  activities  targeted  at the  healthcare
industry.  In  addition,  federal law allows  individuals  to bring  lawsuits on
behalf  of the  government  in what  are  known  as qui  tam or  "whistleblower"
actions,  alleging false or fraudulent  Medicare or Medicaid  claims and certain
other  violations of federal law. The use of these private  enforcement  actions
against   healthcare   providers  and  their  business  partners  has  increased
dramatically  in the recent past,  in part,  because the  individual  filing the
initial  complaint  is  entitled  to share in a  portion  of any  settlement  or
judgment.

     Anti-Referral  Laws.  The federal Stark law generally  provides  that, if a
physician  or a  member  of a  physician's  immediate  family  has  a  financial
relationship with a healthcare  entity,  the physician may not make referrals to
that entity for the furnishing of designated  healthcare  services covered under
Medicare,  Medicaid,  or other  government  healthcare  programs,  unless one of
several specific exceptions applies.  For purposes of the Stark law, a financial
relationship  with a  healthcare  entity  includes an  ownership  or  investment
interest  in that  entity  or a  compensation  relationship  with  that  entity.
Designated   healthcare  services  include  physical  and  occupational  therapy
services,  durable medical  equipment,  home health services,  and inpatient and
outpatient  hospital  services.  The first phase of the final regulations of the
Centers for Medicare and Medicaid  Services  interpreting  the Stark laws became
effective  on January 4, 2002.  We have  policies in place to set  standards  so
employees do not make errors in violations of the Stark law.

     The federal  government will make no payment for designated health services
provided in violation of the Stark law. In addition, sanctions for violating the
Stark law include  civil  monetary  penalties  of up to $15,000  per  prohibited
service  provided and exclusion  from any federal,  state,  or other  government
healthcare programs.  There are no criminal penalties for violation of the Stark
law.

                                       17
<PAGE>

     A number of states have in place statutes and regulations that prohibit the
same  general  types of  conduct as that  prohibited  by the  federal  Stark law
described  above.  Some  states'  Stark laws  apply  only to goods and  services
covered by  Medicaid.  Other  states'  Stark  laws  apply to certain  designated
healthcare  goods and  services,  regardless of whether the source of payment is
government or private.

     Corporate Compliance Program. In recognition of the importance of achieving
and maintaining  regulatory  compliance,  we have a corporate compliance program
that  establishes  general  standards  of conduct and  procedures  that  promote
compliance with business ethics,  regulations,  law and accreditation standards.
We have compliance standards and procedures to be followed by our employees that
are reasonably  capable of reducing the prospect of criminal  conduct,  and have
designed systems for the reporting and auditing of potentially criminal acts.

     A key  element  of our  compliance  program is  ongoing  communication  and
training  of  employees  so that it  becomes a part of our  day-to-day  business
operations.  A compliance  committee  consisting of three independent members of
our board of  directors  has been  established  to  oversee  implementation  and
ongoing operations of our compliance  program, to enforce our compliance program
through  appropriate  disciplinary  mechanisms and to ensure that all reasonable
steps  are  taken to  respond  to an  offense  and to  prevent  further  similar
offenses.  We are not aware of the  existence of any current  activities  on the
part of any of our employees that would not be materially in compliance with our
compliance program.

Competition

     Our healthcare  staffing services  business competes in national,  regional
and local markets with  full-service  staffing  companies  and with  specialized
staffing agencies.  We believe our strategic advantages in this line of business
include our ability to match qualified  employees to specific job  requirements,
our ability to provide  qualified  employees in a timely manner,  the pricing of
our services,  our  monitoring of the job  performance  of our employees and the
diversity of our staffing solutions.

     Our program  management  services business competes with companies that may
offer one or more of the same services and with  hospitals  and skilled  nursing
facilities  that do not  choose to  outsource  their  acute  rehabilitation  and
skilled  nursing  units,   outpatient  therapy  programs  and  contract  therapy
programs.  The fundamental  challenge in this line of business is convincing our
potential clients,  primarily hospitals and skilled nursing facilities,  that we
can provide  rehabilitation  services more efficiently than they can themselves.
The  inpatient  units  and  outpatient  programs  that we  manage  are in highly
competitive  markets and compete for patients  with other  hospitals and skilled
nursing  facilities.   Among  our  principal  competitive   advantages  are  our
reputation for quality,  cost effectiveness,  a proprietary  outcomes management
system, innovation and price and the location of our programs within hospitals.

     We rely significantly on our ability to attract, develop and retain nurses,
therapists  and other  healthcare  personnel who possess the skills,  experience
and, as required,  licensure necessary to meet the specified requirements of our
healthcare  staffing  clients,  as well as our own needs in our therapy  program
management  services  business.  We compete for healthcare  staffing  personnel,
including  nurses and therapists,  with other healthcare  companies,  as well as
actual and potential  clients,  some of whom seek to fill  positions with either
regular or temporary employees.

Employees

     As of December  31,  2002,  we had  approximately  5,400  employees  in our
program management  services business and approximately  8,000 additional travel
and supplemental staff employed on a regular or periodic basis by our healthcare
staffing services business.  The physicians who are the medical directors of our
acute  rehabilitation  units are independent  contractors and not our employees.
None of our employees are subject to a collective bargaining agreement.

                                       18
<PAGE>

Non-Audit Services Performed by Independent Accountants

     Pursuant to Section  10A(i)(2) of the  Securities  Exchange Act of 1934 and
Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for disclosing
to  investors  the  non-audit  services  approved by our audit  committee  to be
performed by KPMG LLP, our independent auditors.  Non-audit services are defined
as services other than those provided in connection with an audit or a review of
our financial statements. During the period covered by this Form 10-K, our audit
committee pre-approved non-audit services related to tax compliance.

Web Site Access to Reports

     Our Form 10-K, Form 10-Qs, definitive proxy statements,  Form 8-Ks, and any
amendments to those reports are made available free of charge on our web site at
www.rehabcare.com as soon as reasonably practicable after such reports are filed
with the Securities and Exchange Commission.

ITEM 2.  PROPERTIES

     We currently lease 71,000 square feet of executive office space in Clayton,
Missouri  under a lease that  expires in the year 2012,  assuming all options to
renew are  exercised.  In  addition  to the  monthly  rental  cost,  we are also
responsible  for  specified  increases in  operating  costs.  In  addition,  our
subsidiaries lease 10,000 square feet in Salt Lake City, Utah under a lease that
expires in 2011,  26,000  square  feet of  executive  office  space in  Andover,
Massachusetts under a lease that expires in 2007, 6,000 square feet of executive
office  space in  Clearwater,  Florida  under a lease  that  expires in 2007 and
10,000 square feet of executive  office space in Phoenix,  Arizona under a lease
that expires in 2003, each assuming all options to renew are exercised.  We also
lease 77  store-front  locations  that  serve as the  branch  locations  for the
supplemental staffing operations of our StarMed Staffing Group.

ITEM 3.  LEGAL PROCEEDINGS

     We are involved in various claims and legal actions in the ordinary  course
of business. These matters include, without limitation,  professional liability,
employee-related  and  stockholder-related   matters,  commercial  disputes  and
inquiries and  investigations by governmental  agencies related to reimbursement
and other issues involving our clients.

     In November  2002,  the United  States  Department  of Labor  approved  the
results of our  self-audit  of the wage and hour  practices  within our  StarMed
Staffing Group during the period from January 1, 1998 through December 31, 2001.
This  approval  provided  the basis for fully  settling a federal  action  filed
against us by the  Department of Labor in October  2001.  Under the terms of the
final  settlement,  we computed and paid back wages in the  aggregate  amount of
$2.85 million to those temporary  employees of our healthcare  staffing services
business who were not properly  compensated for overtime during the period.  The
settlement  had no adverse  impact on our income for 2002 because we had accrued
the cost of the back  wages  identified  through  the  self-audit  in the fourth
quarter of 2001,  including  the computed  payments to employees and the related
employment taxes and assessments payable by us.

     In May 2002,  we were  named as a  defendant  in a suit filed in the United
States District Court for the Eastern District of Missouri  alleging  violations
of the  federal  securities  laws and  seeking  to  certify  the suit as a class
action.  Certain  current and former officers of the Company are also defendants
in the suit and are being  jointly  defended  with us. The court has appointed a
lead  plaintiff and lead counsel for the action.  The proposed class consists of
persons that  purchased  shares of our common stock between  August 10, 2000 and
January 21, 2002.  The  plaintiffs  filed an amended  complaint in December 2002
which focuses primarily on alleged weaknesses in the software system selected by
our StarMed Staffing Group and the purported negative effects of such systems on
the healthcare staffing services business  operations.  Our director and officer
liability  insurance carrier has preliminarily  accepted coverage of the action,
including the payment of defense costs after the satisfaction of our deductible.
We have recently filed a motion to dismiss with the court. No discovery has been
commenced in the case pending the court's ruling on the motion to dismiss.

                                       19
<PAGE>

     In August 2002,  each of our directors was named as a defendant and we were
named as the nominal  defendant in a derivative  suit filed in the Circuit Court
of St. Louis County, Missouri. The complaint,  which is based upon substantially
the same facts as are alleged in the federal  securities class action, was filed
on behalf of the derivative  plaintiff by a law firm that had earlier filed suit
against us in the federal case. We filed a motion to dismiss based  primarily on
the  derivative  plaintiff's  failure  to make a  pre-suit  demand on the board.
Alternatively,  we filed a motion to stay the  derivative  suit  until the final
resolution of the federal securities law class action. The federal court hearing
the  securities  law class action  recently  stayed  discovery in the derivative
proceeding until discovery commences in the class action.

     In February 2003, we were named as a co-defendant  in a complaint  filed in
the United States District Court for the Northern  District of Illinois  seeking
investment  banking fees under a retainer  agreement executed by Maurice Echales
in February  1997 on behalf of eai  Healthcare  Staffing  Solutions  ("eai"),  a
company that we acquired in December 1999. Mr. Echales, the former owner of eai,
has also been named as a defendant in this suit.  The complaint  asserts fees in
connection  with  three  separate  financing  transactions  and two  acquisition
transactions   which  we  understand  were  consummated  by  eai  prior  to  its
acquisition  by us. We are a party to the suit in our  position as  successor to
eai. At the time of the acquisition, we had identified potential fees under this
retainer agreement as a possible  contingent  liability of eai and we negotiated
indemnification  from Mr. Echales and his spouse in the stock purchase agreement
for any fees and costs,  including  attorneys'  fees and expenses,  arising from
such  retainer  agreement.  We have given notice to Mr. and Mrs.  Echales of our
demand for indemnification in this suit. We have received no definitive response
from Mr. or Mrs.  Echales with  respect to our  indemnification  demand,  but we
expect to assert  cross-claims  against Mr. Echales and to join Mrs.  Echales in
this  suit  if Mr.  and  Mrs.  Echales  fail to  voluntarily  perform  on  their
indemnification obligations to us.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Not applicable.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         STOCKHOLDER MATTERS

     Information  concerning  our Common  Stock is  included  under the  heading
"Stock Data" in our Annual Report to  Stockholders  for the year ended  December
31, 2002 and is incorporated herein by reference.

ITEM 6.  SELECTED FINANCIAL DATA

     Our  Six-Year  Financial  Summary  is  included  in our  Annual  Report  to
Stockholders for the year ended December 31, 2002 and is incorporated  herein by
reference.

                                       20
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

Overview

     We provide healthcare staffing services and program management services for
hospitals  and  skilled  nursing  facilities.  We derive  our  revenue  from two
business  segments:  healthcare  staffing and program management  services.  Our
program management services segment includes inpatient programs (including acute
rehabilitation  and skilled  nursing  units),  outpatient  therapy  programs and
contract  therapy  programs.  Summarized  information  about  our  revenues  and
earnings from operations in each segment is provided below.
<TABLE>
<CAPTION>

                                                Year Ended December 31,
                                             ----------------------------
                                             2002        2001        2000
                                             ----        ----        ----
                                                   (in thousands)
Revenues from Unaffiliated Customers:
<S>                                        <C>         <C>         <C>
   Healthcare staffing..................   $277,543    $304,574    $260,100
   Program management:
     Inpatient..........................    130,743     123,276     119,963
     Outpatient.........................     49,003      49,754      42,332
     Contract therapy...................    105,276      64,661      29,979
                                           --------    --------    --------
     Program management total...........    285,022     237,691     192,274
                                           --------    --------    --------
      Total.............................   $562,565    $542,265    $452,374
                                           ========    ========    ========

Operating Earnings (Loss): (1)
   Healthcare staffing..................   $ (1,683)   $  1,496    $ 12,298
   Program management:
     Inpatient..........................     28,941      28,606      28,350
     Outpatient.........................      3,315       3,895       4,372
     Contract therapy...................      9,124       2,970        (831)
                                           --------    --------    --------
     Program management total...........     41,380      35,471      31,891
                                           --------    --------    --------
      Total.............................   $ 39,697    $ 36,967    $ 44,189
                                           ========    ========    ========
</TABLE>

   (1) Operating earnings for 2000 and 2001 have been adjusted to reflect
       the corporate expense allocation methodology utilized in 2002.

                                       21
<PAGE>

Revenues

     We derive  substantially  all of our  revenues  from fees paid  directly by
healthcare  providers rather than through payment or reimbursement by government
or other third-party  payers.  Our inpatient and outpatient therapy programs are
typically  provided  through  agreements  with  hospital  clients  with three to
five-year terms. Our contract therapy and temporary healthcare staffing services
are typically provided under interim or short-term agreements with hospitals and
skilled nursing facilities.

     Our  healthcare  staffing  revenues and earnings are impacted by changes in
the level of occupancy at hospitals  where we provide our staffing  services and
fluctuation in our clients staffing levels.  These historical  trends have shown
an increase in the demand for our  services in the first and fourth  quarters of
each  year as  hospitals  generally  experience  an  increase  in the  number of
patients in the first quarter and experience  increased vacation  utilization of
their staff during the fourth  quarter.  Hospitals  generally  experience a more
stable work force during the second and third quarters,  resulting in a decrease
in the demand for our  services  and a decrease in our revenues and earnings for
our healthcare staffing services business.

     Extended  economic  uncertainty  may result in reduced supply of healthcare
professionals  to  the  temporary   staffing  industry.   Full-time,   permanent
employment   may   currently  be  preferred  by  nurses  and  other   healthcare
professionals as a means of ensuring family income during  challenging  economic
times.  Some  hospitals  are  also  offering  greater  financial  and  workplace
incentives  to  recruit  or  retain  permanent  employees,   thus  reducing  the
hospital's demand for temporary staffing  services.  It is not clear whether the
duration of economic  pressures or the  sustainability  of workplace  incentives
will be sufficient to overcome the larger,  long-term trend of healthcare  labor
shortages.  We believe that staffing services providers will continue to play an
increasingly important role over the long-term in helping hospitals successfully
manage  variable labor.  We believe that the economic  uncertainty  will improve
over time and that the  historical  trends  described  above  have  shown  these
initiatives  are  unlikely to overcome  the  long-term  trend of a widening  gap
between required staffing levels and available staff.

     As a provider of healthcare staffing and program management  services,  our
revenues  and  growth are  affected  by trends and  developments  in  healthcare
spending.  Over the last three years, our revenues and earnings from our program
management  services have been  negatively  impacted by an aggregate  decline in
average  billable  lengths of stay. The decline in average  billable  lengths of
stay reflects the  continued  trend of reduced  rehabilitation  lengths of stay.
Going forward,  we have minimized our exposure to revenue  decreases as a result
of decreased lengths of stay through restructuring our contracting philosophy to
align our incentives with the hospitals' incentives.

     Material  changes in the rates or methods of government  reimbursements  to
our clients for services  rendered in the programs that we manage could give our
clients the right to  renegotiate  their  existing  contracts with us to include
terms that are less favorable to us. For example,  outpatient  therapy  programs
receive  payment from the Medicare  program under a fee schedule.  Under current
law,  an   outpatient   therapy   program  that  is  not   designated  as  being
provider-based  is subject to an annual limit on payments  for therapy  services
provided to Medicare  beneficiaries;  however,  these limits have been suspended
through June 30, 2003.  See  discussion  under "Item 1.  Business --  Government
Regulation --  Provider-Based  Rules." The  Secretary of the U.S.  Department of
Health  and Human  Services  is  required  to review  reimbursement  claims  for
outpatient  therapy  services  while the  moratorium  is in effect and to make a
proposal  to  Congress  to revise  the  payment  system for  outpatient  therapy
services.  Any changes  adopted by Congress,  which could include reduced annual
limits or a new payment  system,  could have an adverse effect on the outpatient
therapy program business.

                                       22
<PAGE>

     In addition,  changes in the rates or methods of government  reimbursements
could negatively impact the benefits that we are able to provide to our clients.
We believe the recently released rates and other reimbursement  regulations with
respect  to  the  implementation  of a  prospective  payment  system  for  acute
rehabilitation  services will be favorable  for the majority of our clients.  We
are unable to predict with  certainty the impact of any future  changes,  and we
may  experience  a decline in our revenue and earnings as a result of any future
changes to the prospective payment system or from any other changes in the rates
or methods of government reimbursements.

Results of Operations

     The following  table sets forth the  percentage  that selected items in the
consolidated  statements  of earnings  bear to operating  revenues for the years
ended December 31, 2002, 2001 and 2000:
<TABLE>
<CAPTION>
                                           Year Ended December 31,
                                        ----------------------------
                                        2002        2001        2000
                                        ----        ----        ----
<S>                                    <C>         <C>         <C>
Operating revenues..................   100.0%      100.0%      100.0%
Cost and expenses:
   Operating .......................    73.4        72.8        71.0
   General and administrative.......    18.0        18.6        17.7
   Depreciation and amortization....     1.5         1.8         1.5
                                        ----        ----        ----
Operating earnings..................     7.1         6.8         9.8
Other expense, net..................     (.1)        (.4)       (1.2)
                                        ----        ----        ----
Earnings before income taxes........     7.0         6.4         8.6
Income taxes........................     2.7         2.5         3.4
                                        ----        ----        ----
Net earnings........................     4.3%        3.9%        5.2%
                                        ====        ====        ====
</TABLE>

                                       23
<PAGE>

Twelve Months Ended December 31, 2002 Compared to Twelve Months
Ended December 31, 2001

     Revenues

     Operating  revenues in 2002 increased by $20.3 million,  or 3.7%, to $562.6
million as compared to $542.3  million in  operating  revenues in 2001.  Revenue
increases in  inpatient,  contract  therapy and travel  staffing  were offset by
revenue declines in supplemental staffing and outpatient.

     Staffing revenue decreased by $27.1 million, or 8.9% from $304.6 million in
2001 to $277.5 million in 2002, reflecting a 22.0% decrease in weeks worked from
233,898  in 2001 to  182,552  in 2002,  offset by a 16.7%  increase  in  average
revenue  per week  worked  from  $1,302 in 2001 to $1,520 in 2002.  Supplemental
staffing revenues  decreased 23.7% from $225.6 million in 2001 to $172.1 million
in 2002,  reflecting  a 31.8%  decrease in weeks  worked from 188,368 in 2001 to
128,396  in 2002.  The  decrease  in  supplemental  staffing  weeks  worked  was
primarily  a  result  of  the  continued   management   transition  and  systems
implementation  and  training  initiated  during the fourth  quarter of 2001,  a
softening  in demand as a result of client's  efforts to reduce  utilization  of
agency staff and the impact of the economy on  non-skilled  labor  availability.
The  decrease in  supplemental  weeks  worked was  partially  offset by an 11.9%
increase  in average  revenue  per week  worked from $1,198 in 2001 to $1,340 in
2002 as a result of placing more highly  credentialed  staff such as  registered
nurses and licensed  practical nurses as compared to certified nurse assistants,
as well as increased bill rates.  Travel staffing revenues  increased 33.6% from
$78.9 million in 2001 to $105.5 million in 2002, reflecting an 18.9% increase in
weeks worked to 54,156 and a 12.3%  increase in average  revenue per week worked
to $1,948.

     Inpatient  program revenue increased by 6.1% from $123.3 million in 2001 to
$130.7 million in 2002. The increase in revenue was primarily a result of a 7.4%
increase in revenue per patient day,  offset by a 1.3%  decrease in patient days
from  746,583 to 737,017.  The  decrease in patient  days was a result of a 1.9%
decrease  in the  average  number of  programs  to 134.6 and a 3.6%  decrease in
average  length of stay to 13.3  days,  offset  by a 4.2%  increase  in  average
admissions  per  program to 410.7.  The  increase  in revenue per patient day is
primarily  due to  renegotiation  of  contracts  to operate  under a payment per
discharge  methodology under the prospective  payment  environment.  The average
length  of  stay  decrease  is  also  attributable  to the  prospective  payment
environment  which  encourages  the  discharge  of a  patient  as  soon as it is
clinically appropriate.

     Outpatient  revenue  decreased by 1.5% from $49.8  million in 2001 to $49.0
million  in  2002,  reflecting  an  11.1%  decrease  in the  average  number  of
outpatient programs managed from 61.5 in 2001 to 54.7 in 2002,  partially offset
by a 10.7 % increase in revenue per program as a result of closing smaller, less
profitable  locations.  The increase in revenue per program is attributable to a
3.1%  increase  in units of service  per  program to 68,519 and  increased  bill
rates.

     Contract  therapy revenue  increased by 62.8% from $64.7 million in 2001 to
$105.3 million in 2002,  which  resulted  primarily from a 51.4% increase in the
average number of contract therapy  locations  managed from 249.8 to 378.1 and a
7.5% increase in revenue per location from $258,902 to $278,427. The increase in
revenue  per  location  is  primarily  the  result of same  store  growth  and a
continued focus on opening larger locations.

                                       24
<PAGE>

     Operating Earnings

     Consolidated  operating  earnings  increased by 7.4% from $37.0  million in
2001 to $39.7  million in 2002.  Operating  expenses as a percentage of revenues
increased  from  72.8%  in 2001 to  73.4%  in  2002,  primarily  reflecting  the
continued  migration  of the skill mix in our  staffing  division to more highly
credentialed professionals and increased labor costs as a percentage of revenues
in all  divisions.  General  and  administrative  expenses  as a  percentage  of
revenues  decreased from 18.6% in 2001 to 18.0% in 2002.  Excluding $3.9 million
in general and  administrative  expenses  associated with the 2001 non-recurring
charge,  general and  administrative  expenses as a percentage  of revenue would
have  increased  from  17.9%  in  2001  to  18.0%  in  2002.   Depreciation  and
amortization  expense as a percentage of revenue  decreased from 1.8% in 2001 to
1.5% in 2002 reflecting the elimination of goodwill  amortization as a result of
the adoption of Statement of Financial  Accounting  Standards No. 142, "Goodwill
and Other  Intangible  Assets" on January  1, 2002.  See note 5 to  consolidated
financial  statements  for  additional  information  on goodwill and  identified
intangible assets.  The following  discussion by division includes the effect of
adjusting 2001  operating  earnings to reflect the current  overhead  allocation
methodology utilized in 2002.

     Operating  earnings in the  staffing  group  decreased by $3.2 million from
$1.5 million in 2001 to a $1.7  million  loss in 2002,  primarily as a result of
decreased revenues in our supplemental staffing division. Gross profit margin in
the staffing  group  decreased  from 23.7% in 2001 to 22.8% due to a lower gross
profit margin in our supplemental staffing division. Supplemental staffing gross
profit margin decreased from 26.6% in 2001 to 23.5% in 2002 due to the continued
migration  of the  skill  mix to more  highly  credentialed  professionals  that
deliver  greater  profitability  but less margin.  Travel  staffing gross profit
margin  increased  from 21.4% in 2001 to 21.7% in 2002,  primarily  reflecting a
favorable pricing  environment  combined with a decrease in housing expense as a
percentage  of  revenue.  General  and  administrative  expenses as a percent of
staffing revenue increased from 21.1% in 2001 to 22.0% in 2002, primarily due to
lower  revenues  in  our  supplemental   staffing  division.   Depreciation  and
amortization  expense as a percentage of staffing revenue decreased from 1.1% in
2001 to 0.7% in  2002,  reflecting  the  elimination  of  goodwill  amortization
expense related to Statement No. 142.

     Inpatient  operating  earnings increased by 1.2% from $28.6 million in 2001
to $28.9 million in 2002,  primarily  resulting from a 6.1% increase in revenues
and a decrease  in general and  administrative  expenses as a percent of revenue
from 11.9% to 11.6%,  partially offset by a decrease in contribution margin from
38.3% to 37.7%. The decrease in contribution  margin was primarily the result of
higher labor costs as a percentage of revenues. Depreciation and amortization as
a  percentage  of  revenues  increased  from  3.0% to 3.5%  as  depreciation  on
increased  capital  expenditures  more that offset the  elimination  of goodwill
amortization expense related to Statement No. 142.

     Outpatient  operating earnings decreased 14.9% from $3.9 million in 2001 to
$3.3 million in 2002,  primarily resulting from an 11.1% decrease in the average
number of programs from 61.5 to 54.7 and a decrease in contribution  margin from
27.8% to 25.7% as a result of higher  labor costs as a  percentage  of revenues.
General and  administrative  expenses as a percentage of revenues increased from
16.7% in 2001 to  16.9% in 2002.  Depreciation  and  amortization  expense  as a
percentage of revenue  decreased  from 3.1% in 2001 to 1.6% in 2002,  reflecting
the  elimination  of goodwill  amortization  expense  related to the adoption of
Statement No. 142.

     Contract therapy operating  earnings  increased 207.2% from $3.0 million in
2001 to $9.1  million  in 2002,  primarily  as a result of a 62.8%  increase  in
operating  revenues,  partially offset by a decrease in contribution margin from
29.3% in 2001 to 27.3% in 2002 due to higher  salary-related  expenses.  General
and administrative  expenses as a percentage of revenues decreased from 21.2% in
2001 to 16.1% in 2002,  primarily due to increased  revenues.  Depreciation  and
amortization  expense as a percentage of revenues decreased from 1.7% in 2001 to
1.0% in 2002,  reflecting  the  elimination  of  goodwill  amortization  expense
related to the adoption of Statement No. 142.

                                       25
<PAGE>

Non-operating Items

     Interest  income  decreased  by 17.1%  from  $0.4  million  in 2001 to $0.3
million in 2002, primarily due to decreased average cash balances as a result of
the stock repurchase and lower interest rates.

     Interest  expense  decreased  by $1.2  million from $1.9 million in 2001 to
$0.7  million in 2002,  due to the  repayment of the line of credit in 2001 from
cash generated from the March 2001 publicly underwritten equity offering and the
repayment of all subordinated debt during the fourth quarter of 2001.

     Earnings  before income taxes increased by 12.6% from $35.0 million in 2001
to $39.3 million in 2002. Excluding $9.0 million of non-recurring  charges and a
$0.5 million write-down of investment in 2001,  earnings before income taxes for
2001 were  $44.4  million.  The  provision  for  income  taxes in 2002 was $15.0
million compared to $13.9 million in 2001, reflecting effective income tax rates
of 38.0% and 39.8%,  respectively.  Net earnings  increased by $3.4 million,  or
16.0%, from $21.0 million in 2001 to $24.4 million in 2002. Net earnings in 2001
excluding  non-recurring  charges  and a  write-down  of  investment  were $26.7
million. Diluted net earnings per share increased by 19.0% from $1.16 in 2001 to
$1.38 in 2002 on a 2.4% decrease in  weighted-average  shares  outstanding.  The
decrease in the weighted-average  shares outstanding was attributable  primarily
to the  repurchase by RehabCare of 1.7 million shares of common stock during the
third  quarter 2002,  offset by the effect of issuing 1.5 million  shares in the
March 2001 publicly underwritten equity offering, and a decrease in the dilutive
effect of stock options resulting from a lower average stock price.

                                       26
<PAGE>

Twelve Months Ended December 31, 2001 Compared to Twelve Months
Ended December 31, 2000

     Revenues

     Operating revenues in 2001 increased by $89.9 million,  or 19.9%, to $542.3
million  as  compared  to $452.4  million in  operating  revenues  in 2000.  The
September 2000  acquisition of DiversiCare  Rehab Services,  Inc.  (DiversiCare)
accounted for 6.1% of the net increase.

     Staffing  revenue  increased by 17.1% from $260.1 million in 2000 to $304.6
million in 2001,  reflecting  a 4.4%  increase in weeks  worked from  223,951 to
233,898 and a 12.1%  increase in average  revenue per week worked from $1,161 to
$1,302.

     Inpatient  program revenue increased by 2.8% from $120.0 million in 2000 to
$123.3  million in 2001.  A 1.0%  increase  in the average  number of  inpatient
programs  managed from 135.8 to 137.2,  and a 2.8% increase in the average daily
billable  census per  inpatient  program  from 14.4 to 14.8  resulted  in a 3.3%
increase  in  billable  days to 740,938.  The  increase  in billable  census per
program for inpatient  programs is primarily  attributable to a 5.7% increase in
average  admissions per program from 373.0 to 394.3 offset by a 3.5% decrease in
the average length of stay to 13.7 days. The increase in patient days was offset
by a 0.4% decrease in the average per diem billing rates.

     Outpatient  revenue  increased by 17.5% from $42.3 million in 2000 to $49.8
million in 2001, reflecting $5.5 million from the September 15, 2000 acquisition
of DiversiCare, an increase in the average number of outpatient programs managed
from 53.1 to 61.5 (including a net increase of 7.7 from DiversiCare) and an 8.1%
increase in units of service per program.

     Contract therapy revenue  increased by 115.7% from $30.0 million in 2000 to
$64.7  million in 2001,  reflecting  a 60.1%  increase in the average  number of
contract therapy  locations managed from 156.0 to 249.8, and a 34.8% increase in
revenue per  location.  The increase in revenue per  location is  primarily  the
result of opening larger, more efficient programs.

     Operating Earnings

     Consolidated  operating  earnings  decreased by 16.3% from $44.2 million in
2000 to $37.0 million in 2001,  due  primarily to $9.0 million of  non-recurring
charges related to our staffing division recorded in the fourth quarter of 2001.
These  non-recurring  charges  consisted of approximately  $6.0 million in costs
associated with correcting  overtime  payments for the period January 1, 1998 to
December 31, 2001 and $3.0 million  related to severance  and  technology  costs
associated with the  reorganization of certain  functions and processes.  Of the
$9.0 million  non-recurring  charges,  $5.1 million was recorded as an operating
expense,  while the remaining $3.9 million represents general and administrative
expenses.  Excluding these non-recurring  charges,  operating earnings increased
4.0% to $45.9 million. Depreciation and amortization as a percentage of revenues
increased  from  1.5% in 2000 to 1.8%  in  2001 as a  result  of the  change  in
goodwill amortization from 40 years to 25 years on certain regional acquisitions
plus depreciation  expense recorded on $10.6 million of capital  expenditures in
2001. The additional  amortization expense recorded as a result of the change in
goodwill   amortization  lives  was  approximately  $0.7  million  pre-tax.  The
following  discussion  by division  includes the effect of  adjusting  operating
earnings to reflect  the current  overhead  allocation  methodology  utilized in
2002.

     Operating  earnings in the staffing  group  decreased by $10.8 million from
$12.3 million in 2000 to $1.5 million in 2001, including the aforementioned $9.0
million of non-recurring charges. Excluding the non-recurring charges, operating
earnings  decreased  by $1.8  million  to  $10.5  million  in  2001,  reflecting
significant  expenses  associated  with  systems  training  and  a  move  toward
consolidation of the division's branch  administrative  functions.  As a result,
general and administrative  expenses,  excluding the non-recurring charges, as a
percentage  of  revenues  increased  by  0.6%.  Operating  costs  excluding  the
non-recurring charges increased by 0.7% in 2001 due to increased  salary-related
costs.  Depreciation  and  amortization  expense as a percentage  of revenue was
comparable for the two periods compared.

                                       27
<PAGE>

     Inpatient  operating  earnings increased 1.0% from $28.4 million in 2000 to
$28.6 million in 2001,  reflecting a 3.3%  increase in billable  patient days, a
0.1% increase in gross margin and a 0.3% reduction in general and administrative
costs as a percentage of revenue.  Depreciation and amortization as a percentage
of revenues increased from 2.4% in 2000 to 3.0% in 2001, reflecting current year
depreciation expense on capital expenditures.

     Outpatient  operating earnings decreased 10.9% from $4.4 million in 2000 to
$3.9 million in 2001  reflecting a 0.7%  decrease in gross margin as a result of
increased labor expenses and an increase in general and administrative  expenses
as a percentage  of revenues  from 15.8% in 2000 to 16.7% in 2001.  Depreciation
and amortization expense as a percentage of revenues increased from 1.9% in 2000
to 3.1% in 2001, reflecting additional  amortization expense associated with the
September 15, 2000  acquisition of  DiversiCare,  plus  additional  amortization
expense  recorded in the current year as a result of the change in  amortization
lives on certain  prior  acquisitions  and  current  year  depreciation  expense
recorded on capital expenditures.

     Contract  therapy  operating  earnings  increased  $3.8 million from a $0.8
million  loss in 2000 to $3.0 million in 2001,  reflecting a 115.7%  increase in
operating  revenues,  offset by a slight decrease in gross margin as a result of
increased labor costs.  General and  administrative  expenses as a percentage of
revenues  decreased  from  29.1% to 21.2%,  primarily  as a result of  increased
revenues.  Depreciation  and  amortization  expense as a percentage  of revenues
increased  from  1.3% in 2000 to 1.7% in 2001,  reflecting  an  additional  $0.3
million of amortization expense associated with the change in amortization lives
on certain prior acquisitions,  plus current year depreciation  expense recorded
on capital expenditures.

     Non-operating Items

     Interest  income  increased by $0.2 million or 65.9% to $0.4 million due to
increased cash balances.

     Interest  expense  decreased  by $3.5  million or 65.2% to $1.9  million in
2001,  primarily  reflecting the repayment of $49.4 million in debt from the net
proceeds  of the sale of  common  stock in a March  2001  publicly  underwritten
equity  offering and the  repayment of $18.9 million of debt as a result of cash
generated from operations.

     Other expense in 2001 primarily  reflected a $0.5 million  write-down of an
investment.

     Earnings  before income  taxes,  including  the  non-recurring  charges and
write-down  of an  investment,  decreased by $4.1  million,  or 10.6% from $39.1
million in 2000 to $35.0 million in 2001. The provision for income taxes in 2001
was $13.9 million compared to $15.6 million in 2000, reflecting effective income
tax rates of 39.8% for each period.  Net earnings,  including the  non-recurring
charges and write-down of an investment, decreased by $2.5 million, or 10.6%, to
$21.0 million from $23.5 million in 2000.  Diluted  earnings per share including
the non-recurring charges and write-down,  decreased by 20.0% from $1.45 in 2000
to  $1.16  in  2001  on  an  11.1%  increase  in  the  weighted-average   shares
outstanding. The increase in weighted-average shares outstanding is attributable
primarily to the March 2001 publicly  underwritten  equity  offering,  and stock
option grants and exercises.

     Diluted  earnings per share,  excluding  the $9.0 million in  non-recurring
charges and the $0.5 million  write-down of an  investment,  increased 2.1% from
$1.45 in 2000 to $1.48 in 2001.

                                       28
<PAGE>

Liquidity and Capital Resources

     As of December 31, 2002, we had $9.6 million in cash and current marketable
securities and a current ratio,  the amount of current assets divided by current
liabilities,  of 2.8 to 1.  Working  capital  decreased by $9.7 million to $67.8
million as of December  31, 2002,  compared to $77.5  million as of December 31,
2001. The decrease in working  capital is primarily due to the repurchase of 1.7
million  shares of common  stock in the  third  quarter  2002 at a cost of $36.9
million, partially offset by working capital generated from operations.

     Net accounts  receivable were $87.2 million at December 31, 2002,  compared
to $91.4 million at December 31, 2001. The number of days average net revenue in
net receivables was 57.7 and 63.8 at December 31, 2002 and 2001, respectively.

     Our operating  cash flows  constitute  our primary  source of liquidity and
historically  have  been  sufficient  to  fund  our  working  capital,   capital
expenditures,  internal  business  expansion and debt service  requirements.  We
expect to meet our future working capital,  capital  expenditures,  internal and
external business expansion and debt service  requirements from a combination of
internal sources and outside financing.  We have a $125.0 million revolving line
of credit with no balance  outstanding as of December 31, 2002.  During 2001, we
retired all  outstanding  balances on debt  obligations,  primarily from the net
proceeds of the sale of 1,455,000  shares of common stock in a March 2001 equity
sale of common stock and cash generated from operations.  The Company also has a
$1.5 million letter of credit and a $3.1 million  promissory  note issued to our
worker's  compensation  carrier as collateral for reimbursement of claims.  This
letter of credit  reduces the amount the  Company  may borrow  under the line of
credit.  The promissory  note would become payable only upon an event of default
as described in the security agreement with the worker's compensation carrier.

     In  connection  with  the  development  and  implementation  of  additional
programs,  we may incur capital  expenditures  for equipment and deferred  costs
arising from advances  made to hospitals  for a portion of capital  improvements
needed to begin a program's operation.

Inflation

     Although  inflation has abated during the last several  years,  the rate of
inflation  in  healthcare   related  services   continued  to  exceed  the  rate
experienced  by the  economy  as a whole.  Our  management  contracts  typically
provide for an annual  increase  in the fees paid to us by our clients  based on
increases in various inflation indices.

Effect of Recent Accounting Pronouncements

     In June 2001,  the FASB issued  Statement  No. 143,  "Accounting  for Asset
Retirement  Obligations."  Statement  No. 143 requires  that the fair value of a
liability for an asset retirement obligation be recognized in the period that it
is incurred if a reasonable  estimate of fair value can be made.  The associated
asset  retirement  costs are  capitalized as part of the carrying  amount of the
long-lived  asset.  Statement  No. 143 is effective  for fiscal years  beginning
after  June 15,  2002.  Management  does not  expect  this  statement  to have a
material impact on its consolidated financial position or results of operations.

                                       29
<PAGE>

     In April  2002,  the FASB  issued  Statement  No. 145  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections."  This  statement  eliminates  the  provisions  of Statement  No. 4
"Reporting  Gains  and  Losses  from  Extinguishment  of Debt",  which  required
classification  of gain or loss on  extinguishment  of debt as an  extraordinary
item of income, net of related income tax effect.  Statement No. 145 states that
such  gain or loss be  evaluated  for  extraordinary  classification  under  the
criteria  of  Accounting   Principles   Board  No.  30  "Reporting   Results  of
Operations."  Statement No. 145 is effective for fiscal periods  beginning after
May 15, 2002,  although early adoption is permitted.  Management does not expect
this statement to have a material impact on its consolidated  financial position
or results of operations.

     In June 2002,  the FASB  issued  Statement  No. 146  "Accounting  for Costs
Associated with Exit or Disposal  Activities." This statement nullifies Emerging
Issues Task Force Issue No. 94-3,  "Liability  Recognition for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a  Restructuring)."  This statement  requires that a liability
for a cost associated  with an exit or disposal  activity be recognized when the
liability is incurred rather than the date of an entity's  commitment to an exit
plan. We implemented  Statement No. 146 on January 1, 2003.  Management does not
expect that this  statement  will have an impact on its  consolidated  financial
position or results of operations.

     In December  2002,  the FASB issued  Statement  No.  148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure - an amendment of FASB
Statement No. 123." Statement No. 148 amends Statement No. 123,  "Accounting for
Stock-Based  Compensation," to provide  alternative  methods of transition for a
voluntary  change to the fair value based method of accounting  for  stock-based
employee  compensation.  In addition,  Statement  No. 148 amends the  disclosure
requirements  of  Statement  No. 123 to require  prominent  disclosures  in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee compensation and the effect on the methods used on reported
results.  The  disclosure  requirements  apply to all companies for fiscal years
ending  after  December  15,  2002.  See  note 7  "Stockholders  Equity"  in the
accompanying  consolidated  financial statements for the required disclosures of
Statement No. 148 at December 31, 2002.

Critical Accounting Policies and Estimates

     The preparation of our consolidated financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States  of  America
requires us to make estimates and assumptions  that affect the reported  amounts
of assets and liabilities and 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.  Our estimates,  judgments and assumptions
are continually evaluated based on available information and experience. Because
of the use of estimates  inherent in the  financial  reporting  process,  actual
results could differ from those estimates.

     Certain of our accounting  policies require higher degrees of judgment than
others in their application. These include estimating the allowance for doubtful
accounts and impairment of goodwill and other  intangible  assets.  In addition,
note 1 to the consolidated  financial  statements includes further discussion of
our significant accounting policies.

     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.

     Allowance for Doubtful Accounts.  We make estimates of the uncollectability
of our accounts  receivable  balances.  We  determine an allowance  for doubtful
accounts  based upon an analysis  of the  collectibility  of specific  accounts,
historical experience and the aging of the accounts receivable.  We specifically
analyze  customers  with  historical  poor payment  history and customer  credit
worthiness when evaluating the adequacy of the allowance for doubtful  accounts.
Our accounts  receivable balance as of December 31, 2002 was $87.2 million,  net
of allowance for doubtful accounts of $5.2 million.  If the financial  condition
of our  customers  were to  deteriorate,  resulting  in an  impairment  of their
ability to make payments,  additional allowances may be required. We continually
evaluate the adequacy of our allowance for doubtful accounts.

                                       30
<PAGE>

     Goodwill and Other Intangibles. The cost of acquired companies is allocated
first  to their  identifiable  assets  based on  estimated  fair  values.  Costs
allocated  to  identifiable  intangible  assets  are  generally  amortized  on a
straight-line basis over the remaining estimated useful lives of the assets. The
excess  of the  purchase  price  over the  fair  value  of  identifiable  assets
acquired, net of liabilities assumed, is recorded as goodwill.  Prior to January
1, 2002,  goodwill  relating to  acquisitions  was amortized on a  straight-line
basis  over  its  estimated  useful  life.  The  amortization  periods  differed
depending  on whether the  acquired  entity was  national in scope or a regional
provider.  Goodwill  related  to the  acquisition  of a  national  provider  was
amortized  over 40 years,  while  goodwill  related to a regional  provider  was
amortized over 25 years.

     On January 1, 2002,  we adopted the  provisions  of  Statement of Financial
Accounting  Standards  ("Statement")  No.  142  "Goodwill  and Other  Intangible
Assets." Under Statement No. 142, goodwill and intangible assets with indefinite
lives  are no  longer  amortized  and must be  reviewed  at least  annually  for
impairment.  If the  impairment  test  indicates  that the carrying  value of an
intangible  asset  exceeds  its fair  value,  then an  impairment  loss would be
recognized  in the  statement  of  earnings  in an  amount  equal to the  excess
carrying  value.  There were no such  impairments  of  goodwill  and  identified
intangible  assets during the periods  presented.  If an impairment  loss should
occur  in the  future,  it  could  have an  adverse  impact  on our  results  of
operations.

     Health, Workers Compensation, and Professional Liability Insurance Accrual.
We maintain an accrual for our health,  workers  compensation  and  professional
liability  insurances  that are  partially  self-insured  and are  classified in
accrued  salaries and wages (health  insurance)  and accrued  expenses  (workers
compensation and professional  liability) in our consolidated balance sheets. We
determine  the  adequacy  of  these  accruals  by  periodically  evaluating  our
historical experience and trends related to health,  workers  compensation,  and
professional liability claims and payments,  based on actuarial computations and
industry experience and trends. If such information  indicates that our accruals
are overstated or understated,  we will adjust the  assumptions  utilized in our
methodologies and reduce or provide for additional accruals as appropriate.

     We are subject to various  claims and legal actions in the ordinary  course
of our  business.  Some of these  matters  include  professional  liability  and
employee-related matters. Our hospitals and healthcare facility clients may also
become subject to claims,  governmental  inquiries and  investigations and legal
actions to which we may become a party  relating  to  services  provided  by our
professionals.  From time to time, and depending  upon the particular  facts and
circumstances,  we may be  subject  to  indemnification  obligations  under  our
contracts with our hospital and healthcare  facility  clients  relating to these
matters.  Although we are  currently not aware of any such pending or threatened
litigation  that we believe  is  reasonably  likely to have a  material  adverse
effect on us, if we become aware of such claims against us, we will evaluate the
probability of an adverse outcome and provide accruals for such contingencies as
necessary.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our borrowing  capacity  consists of a line of credit with  interest  rates
that fluctuate  based upon market  indexes.  As of December 31, 2002, we did not
have any  outstanding  borrowings  under  this  line of  credit.  As such,  risk
relating to interest fluctuation is considered minimal.

                                       31
<PAGE>

ITEM 8A. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Independent Auditors' Report                                      33

Consolidated Balance Sheets as of  December 31, 2002 and 2001     34

Consolidated Statements of Earnings for the years
      ended December 31, 2002, 2001 and 2000                      35

Consolidated Statements of Stockholders' Equity for the years
      ended December 31, 2002, 2001 and 2000                      36

Consolidated Statements of Cash Flows for the years
      ended December 31, 2002, 2001 and 2000                      37

Consolidated Statements of Comprehensive Earnings for the years
      ended December 31, 2002, 2001 and 2000                      38

Notes to the Consolidated Financial Statements                    39

                                       32
<PAGE>

                          Independent Auditors' Report


The Board of Directors
RehabCare Group, Inc.:

     We have audited the accompanying  consolidated  balance sheets of RehabCare
Group,  Inc. and subsidiaries  (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of earnings,  stockholders' equity, cash
flows and comprehensive  earnings for each of the years in the three-year period
ended  December  31,  2002.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  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 consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial  position of RehabCare
Group,  Inc. and  subsidiaries as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period  ended  December  31,  2002  in  conformity  with  accounting  principles
generally accepted in the United States of America.

     As discussed in note 5 to the consolidated financial statements,  effective
January 1, 2002 the Company adopted Statement of Financial  Accounting Standards
No. 142 "Goodwill and Other Intangible Assets."

/s/ KPMG LLP


St. Louis, Missouri
February 1, 2003


                                       33
<PAGE>

                              REHABCARE GROUP, INC.
                           Consolidated Balance Sheets
                  (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ----------------
                                                            2002        2001
                                                            ----        ----
                                Assets
                                ------
<S>                                                      <C>         <C>
Current assets:
    Cash and cash equivalents                            $  9,580    $ 18,534
    Marketable securities, available-for-sale                   4       1,025
    Accounts receivable, net of allowance for doubtful
       accounts of $5,181 and $5,902 respectively          87,221      91,634
    Income taxes receivable                                 2,497       2,055
    Deferred tax assets                                     2,529       7,658
    Other current assets                                    3,625       2,140
                                                          -------     -------
       Total current assets                               105,456     123,046
Marketable securities, trading                              4,252       2,870
Equipment and leasehold improvements, net                  19,844      18,373
Goodwill, net                                             101,685     101,685
Other                                                       4,293       4,687
                                                          -------     -------
       Total assets                                      $235,530    $250,661
                                                         ========    ========
</TABLE>
<TABLE>
<CAPTION>
                 Liabilities and Stockholders' Equity
                 ------------------------------------
<S>                                                      <C>         <C>
Current liabilities:
    Accounts payable                                     $  1,959    $  3,567
    Accrued salaries and wages                             28,579      27,141
    Accrued expenses                                        7,072      14,814
                                                           ------      ------
       Total current liabilities                           37,610      45,522
Deferred compensation                                       4,266       3,043
Deferred tax liabilities                                    5,040       3,060
                                                           ------      ------
       Total liabilities                                   46,916      51,625
                                                           ------      ------

Stockholders' equity:
    Preferred stock, $.10 par value; authorized
       10,000,000 shares, none issued and outstanding          --          --
    Common stock, $.01 par value; authorized
       60,000,000 shares, issued 19,846,416 shares
       and 19,631,789 shares as of December 31,
       2002 and 2001, respectively                            198         196
    Additional paid-in capital                            111,671     109,522
    Retained earnings                                     131,452     107,057
    Less common stock held in treasury at cost,
       4,002,898 shares and 2,302,898 shares as of
       December 31, 2002 and 2001, respectively           (54,704)    (17,757)
    Accumulated other comprehensive earnings                   (3)         18
                                                           -------    -------
       Total stockholders' equity                          188,614    199,036
                                                           -------    -------
                                                          $235,530   $250,661
                                                          ========   ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       34
<PAGE>
                              REHABCARE GROUP, INC.
                       Consolidated Statements of Earnings
                      (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                  2002        2001        2000
                                                  ----        ----        ----
<S>                                            <C>         <C>         <C>
Operating revenues                             $562,565    $542,265    $452,374
Costs and expenses:
    Operating                                   413,081     394,651     321,192
    General and administrative                  101,453     101,085      80,120
    Depreciation and amortization                 8,334       9,562       6,873
                                                -------     -------     -------
        Total costs and expenses                522,868     505,298     408,185
                                                -------     -------     -------
        Operating earnings                       39,697      36,967      44,189
Interest income                                     319         385         232
Interest expense                                   (676)     (1,859)     (5,348)
Other income (expense), net                           9        (542)         24
                                                -------     -------     -------
        Earnings before income taxes             39,349      34,951      39,097
Income taxes                                     14,954      13,916      15,563
                                                -------     -------     -------
        Net earnings                            $24,395     $21,035     $23,534
                                                =======     =======     =======
Net earnings per common share:
    Basic                                      $   1.45    $   1.25    $   1.62
                                                =======     =======     =======
    Diluted                                    $   1.38    $   1.16    $   1.45
                                                =======     =======     =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                       35
<PAGE>

                              REHABCARE GROUP, INC.
                 Consolidated Statements of Stockholders' Equity
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                Accumu-
                                                                lated
                Common Stock   Addi-                            other    Total
                ------------   tional               Treasury    compre-  stock
                Issued         paid-in Retained  -------------- hensive holder's
                shares Amount  capital earnings  Shares  Amount earnings equity
                ------ ------  ------- --------  ------  ------ -------- -------
<S>             <C>     <C>    <C>      <C>      <C>   <C>       <C>    <C>
Balance,
  December 31,
  1999          15,700  $157   $33,101  $62,488  2,331 $(17,975) $ 12   $77,783

Net earnings        --    --        --   23,534     --       --    --    23,534

Conversion
  of debt          847     8     5,992       --     --       --    --     6,000

Exercise of
  stock options
  (including
  tax benefit)     862     9    10,410       --    (28)     218    --    10,637

Change in
  unrealized gain
  on marketable
  securities,
  net of tax        --    --        --       --     --       --     6         6
                ------  ----  -------- -------- ------ --------   ---  --------

Balance,
  December 31,
  2000          17,409   174    49,503   86,022  2,303  (17,757)   18   117,960

Net earnings        --    --        --   21,035     --       --    --    21,035
Issuance of
  common stock
  in connection
  with secondary
  offering       1,455    14    49,429       --     --       --    --    49,443

Exercise of
  stock options
  (including
  tax benefit)     767     8    10,590       --     --       --    --    10,598
                ------  ----  -------- -------- ------ --------   ---  --------

Balance,
  December 31,
  2001          19,631   196   109,522  107,057  2,303  (17,757)   18   199,036

Net earnings        --    --        --   24,395     --       --    --    24,395

Purchase of
  treasury stock    --    --        --       --  1,700  (36,947)   --   (36,947)

Exercise of
  stock options
  (including
  tax benefit)     215     2     2,149       --     --       --    --     2,151

Change in
  unrealized loss
  on marketable
  securities,
  net of tax        --    --        --       --     --       --   (21)      (21)
                ------  ----  -------- -------- ------ --------   ---  --------
Balance,
  December 31,
  2002          19,846  $198  $111,671 $131,452 14,003 $(54,704)  $(3) $188,614
                ======  ====  ======== ======== ====== ========   ===  ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       36
<PAGE>

                              REHABCARE GROUP, INC.
                      Consolidated Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                      -----------------------
                                                      2002     2001     2000
                                                      ----     ----     ----
<S>                                                 <C>      <C>      <C>
 Cash flows from operating activities:
   Net earnings                                     $24,395  $21,035  $23,534
   Adjustments to reconcile net earnings to net
     cash provided by operating activities:
      Depreciation and amortization                   8,334    9,562    6,873
      Provision for doubtful accounts                 4,511    4,594    3,466
      Write-down of investments                          --      500       --
      Income tax benefit realized on exercise
         of employee stock options                      770    6,386    5,505
      Change in assets and liabilities:
         Deferred compensation                          407      364      178
         Accounts receivable, net                       (98) (12,195) (20,249)
         Prepaid expenses and other current assets   (1,485)    (982)     (70)
         Other assets                                   464     (235)    (955)
         Accounts payable and accrued expenses       (9,350)   5,579   (3,458)
         Accrued salaries and wages                   1,438    2,295    7,511
         Income taxes                                 6,667     (613)  (6,197)
                                                    -------  -------  -------
               Net cash provided by operating
                activities                           36,053   36,290   16,138
                                                    -------  -------  -------
 Cash flows from investing activities:
   Additions to equipment and leasehold
     improvements, net                               (8,546) (10,613)  (7,899)
   Purchase of marketable securities                   (596)    (922)    (778)
   Proceeds from sale/maturities of
     marketable securities                            1,030    2,435      166
   Cash paid in acquisition of businesses,
     net of cash received                                --       --   (8,949)
   Other, net                                        (1,329)  (1,951)  (1,513)
                                                    -------  -------  -------
               Net cash used in investing
                activities                           (9,441) (11,051) (18,973)
                                                    -------  -------  -------

 Cash flows from financing activities:
   Proceeds from (repayments on) revolving
     credit facility, net                                --  (63,800)  51,800
   Repayments on long-term debt                          --   (4,502) (47,893)
   Proceeds from issuance of notes payable               --       --    1,000
   Purchase of treasury stock                       (36,947)      --       --
   Proceeds from sale of common stock, net               --   49,443       --
   Exercise of stock options                          1,381    4,212    5,132
                                                    -------  -------  -------
               Net cash provided by (used in)
                 financing activities               (35,566) (14,647)  10,039
                                                    -------  -------  -------
               Net increase (decrease) in
                 cash and cash equivalents           (8,954)  10,592    7,204
 Cash and cash equivalents at beginning of year      18,534    7,942      738
                                                    -------  -------  -------
 Cash and cash equivalents at end of year           $ 9,580  $18,534  $ 7,942
                                                    =======  =======  =======

</TABLE>

 See accompanying notes to consolidated financial statements.

                                       37
<PAGE>
                              REHABCARE GROUP, INC.
                Consolidated Statements of Comprehensive Earnings
                                 (in thousands)
<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                      -----------------------
                                                      2002     2001     2000
                                                      ----     ----     ----

<S>                                                 <C>      <C>      <C>
 Net earnings                                       $24,395  $21,035  $23,534

 Other comprehensive earnings, net of tax -

      Unrealized holding gains (losses) arising
         during period                                  (21)      --        6
                                                    -------  -------  -------
 Comprehensive earnings                             $24,374  $21,035  $23,540
                                                    =======  =======  =======

</TABLE>

 See accompanying notes to consolidated financial statements.

                                       38
<PAGE>

                              REHABCARE GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2002, 2001 and 2000


(1)  Overview of Company and Summary of Significant Accounting Policies

     Overview of Company

     RehabCare  Group,  Inc. (the  Company) is a leading  provider of healthcare
staffing and program management services of inpatient rehabilitation and skilled
nursing units,  outpatient  therapy  programs and contract  therapy  services in
conjunction with over 7,000 hospitals and skilled nursing facilities  throughout
the United States.

     Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
and its wholly owned subsidiaries.  All significant  inter-company  balances and
transactions have been eliminated in consolidation.

     Common Stock Split

     During May 2000,  the Company's  Board of Directors  approved a two-for-one
split of the Company's  common stock in the form of a stock dividend,  which was
distributed  on June 19,  2000,  to  stockholders  of record as of May 31, 2000.
Share  and per  share  amounts  in the  consolidated  financial  statements  and
accompanying notes have been restated to reflect the split.

     Cash Equivalents and Marketable Securities

     Cash in excess of daily requirements is invested in short-term  investments
with original maturities of three months or less. Such investments are deemed to
be cash equivalents for purposes of the consolidated statements of cash flows.

     The Company  classifies  its debt and equity  securities  into one of three
categories:   held-to-maturity,   trading,  or  available-for-sale.   Management
determines  the  appropriate  classification  of its  investments at the time of
purchase  and  reevaluates  such  determination  at  each  balance  sheet  date.
Investments  at  December  31,  2002  and  2001  consist  of  marketable  equity
securities.  All marketable securities included in current assets are classified
as  available-for-sale  and as such, the difference between cost and market, net
of taxes, is recorded as other accumulated  comprehensive  earnings.  Unrealized
gains or  losses  on such  securities  are not  recognized  in the  consolidated
statements of earnings until the securities are sold. All marketable  securities
in  non-current  assets are classified as trading,  with all investment  income,
including  unrealized gains or losses recognized in the consolidated  statements
of earnings.

     Credit Risk

     The Company  provides  services to a  geographically  diverse  clientele of
healthcare  providers throughout the United States. The Company performs ongoing
credit  evaluations  of its  clientele  and  does  not  require  collateral.  An
allowance  for  doubtful  accounts is  maintained  at a level  which  management
believes is sufficient to cover anticipated credit losses.

                                       39
<PAGE>

                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


     Equipment and Leasehold Improvements

     Depreciation and  amortization of equipment and leasehold  improvements are
computed using the  straight-line  method over the estimated useful lives of the
related  assets,  principally:  equipment - three to seven  years and  leasehold
improvements  - life  of  lease  or life  of  asset,  whichever  is  less.  Upon
retirement or disposition,  the cost and related  accumulated  depreciation  are
removed  from the  accounts  and any gain or loss is  included in the results of
operation. Repairs and maintenance are expensed as incurred.

     Acquisitions

     On July 1, 2001,  the Company  adopted  Statement of  Financial  Accounting
Standards  ("Statement")  No. 141,  "Business  Combinations".  Statement No. 141
eliminates   the   pooling-of-interests   method  of  accounting   for  business
combinations  completed after June 30, 2001. All of the Company's  acquisitions,
including  those prior to the adoption of Statement No. 141, were  accounted for
using the purchase method of accounting,  and as such the assets and liabilities
acquired  were  recorded  at  their  estimated  fair  values  on  the  dates  of
acquisition.  Operating  results of the acquired  companies were included in the
Company's consolidated financial statements from the dates of acquisition.

     Goodwill and Other Identifiable Intangible Assets

     Goodwill,  which  represents  the excess of cost over net assets  acquired,
relates to acquisitions.  Prior to January 1, 2002,  goodwill was amortized on a
straight-line basis over 25 to 40 years.  Effective January 1, 2002, the Company
adopted  Statement  No.  142,  "Goodwill  and Other  Intangible  Assets".  Under
Statement No. 142,  goodwill and intangible  assets with indefinite lives are no
longer amortized to expense, but instead tested for impairment at least annually
and any related  losses  recognized in earnings when  identified.  There were no
such impairments of goodwill and intangible assets during the periods presented.
See note 5 "Goodwill and Other Identifiable Intangible Assets."

     Long-Lived Assets

     The Company has adopted Statement No. 144 "Accounting for the Impairment or
Disposal of  Long-Lived  Assets"  effective  January 1, 2002.  Statement No. 144
addresses  financial  accounting  and reporting for the impairment of long-lived
assets to be disposed of, and  supersedes  Statement No. 121 and APB Opinion No.
30. The Company reviews  identified  intangible and other long-lived  assets for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying value of the asset may not be recoverable. If such events or changes in
circumstances are present,  an impairment loss would be recognized if the sum of
the  expected  future  net cash flows was less than the  carrying  amount of the
asset.  There were no such  impairment  losses of  long-lived  assets during the
periods presented.

     Disclosure About Fair Value of Financial Instruments

     The carrying  amounts of cash and cash  equivalents,  receivables,  prepaid
expenses and other current assets, accounts payable,  accrued salaries and wages
and accrued  expenses  approximate  fair value because of the short  maturity of
these items.

                                       40
<PAGE>

                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000

     Revenues and Costs

     The Company recognizes revenues and related costs from temporary healthcare
staffing  assignments and therapy program  management  services in the period in
which services are  performed.  Costs related to marketing and  development  are
expensed as incurred.

     Stock-Based Compensation

     The Company  accounts for stock options using the intrinsic value method of
Accounting  Principles  Board  Option  No. 25  "Accounting  for Stock  Issued to
Employees"  as  permitted  by  Statement  No. 123  "Accounting  for  Stock-Based
Compensation." The intrinsic value method recognizes  compensation expense equal
to the excess,  if any, of the fair market value of the  Company's  stock on the
grant  date over the  exercise  price.  Statement  No.  123  requires  pro forma
disclosure of net earnings  (loss) and earnings  (loss) per share as if the fair
value method of Statement  No. 123 had been  applied.  The  Black-Scholes  stock
option pricing model was used to estimate the fair value of options  granted for
the pro forma disclosure.

     Income Taxes

     Deferred  tax  assets  and   liabilities   are   recognized  for  temporary
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards.  Deferred tax assets and  liabilities  are measured using enacted
tax rates in effect for the year in which those  differences  are expected to be
recovered or settled.

     Treasury Stock

     The  purchase of the  Company's  common  stock is  recorded  at cost.  Upon
subsequent reissuance, the treasury stock account is reduced by the average cost
basis of such stock.

     Use of Estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally  accepted  in  the  United  States  of  America,  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the  consolidated  financial  statements.  Estimates also affect the
reported amounts of revenues and expenses during the period.  Actual results may
differ from those estimates.

     Reclassifications

     Certain  prior years'  amounts have been  reclassified  to conform with the
current year presentation.

                                       41
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


(2)  Marketable Securities

     Current  marketable  securities  at December 31, 2002 consist  primarily of
marketable equity and debt securities.  Noncurrent marketable securities consist
primarily of  marketable  equity  securities  ($2.2  million and $1.1 million at
December  31, 2002 and 2001,  respectively)  and money market  securities  ($2.1
million and $1.8  million at December 31, 2002 and 2001,  respectively)  held in
trust under the Company's deferred compensation plan.

(3)  Allowance for Doubtful Accounts

     Activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                    -----------------------
                                                 2002        2001        2000
                                                 ----        ----        ----
                                                        (in thousands)

<S>                                            <C>         <C>         <C>
         Balance at beginning of year          $5,902      $5,347      $4,577
         Provisions for doubtful accounts       4,511       4,594       3,466
         Allowance related to acquisitions         --          --         471
         Accounts written off                  (5,232)     (4,039)     (3,167)
                                               ------      ------      ------
         Balance at end of year                $5,181      $5,902      $5,347
                                               ======      ======      ======
</TABLE>

(4)  Equipment and Leasehold Improvements

     Equipment and leasehold improvements, at cost, consist of the following:
<TABLE>
<CAPTION>
                                                              December 31,
                                                              ------------
                                                            2002        2001
                                                            ----        ----
                                                             (in thousands)

<S>                                                       <C>         <C>
         Equipment                                        $35,064     $29,687
         Leasehold improvements                             3,881       2,374
                                                          -------     -------
                                                           38,945      32,061
         Less accumulated depreciation and amortization    19,101      13,688
                                                          -------     -------
                                                          $19,844     $18,373
                                                          =======     =======
</TABLE>

(5)  Goodwill and Other Identifiable Intangible Assets

     Under Statement No. 142, the Company completed the transitional  impairment
tests of goodwill during the first quarter of 2002 and  subsequently  tested for
impairment  during  the  fourth  quarter of 2002.  The  results  of these  tests
indicated that there was no impairment of goodwill as of the date of adoption of
Statement No. 142 on January 1, 2002 and  subsequently  on December 31, 2002. As
of the date of  adoption of  Statement  No.  142,  the  Company had  unamortized
goodwill in the amount of $101.7 million and  unamortized  intangible  assets in
the  amount  of  $0.1  million,  all of  which  are  subject  to the  transition
provisions of Statement No. 142.

                                       42
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000

     The  following  table  indicates the effect on net earnings and diluted net
earnings  per share if  Statement  No.  142 had been in  effect  for each of the
periods presented in the consolidated statements of earnings:
<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                                -----------------------
                                               2002       2001       2000
                                               ----       ----       ----
                                         (in thousands, except per share data)

<S>                                          <C>        <C>        <C>
Reported net earnings                        $24,395    $21,035    $23,534
 Add back: goodwill amortization,
    net of taxes                                  --      2,844      2,151
                                             -------    -------    -------
Adjusted net earnings                        $24,395    $23,879    $25,685
                                             =======    =======    =======

Basic net earnings per share:
As reported                                  $  1.45    $  1.25    $  1.62
Add back: goodwill amortization,
   net of taxes                                   --       0.17       0.14
                                             -------    -------    -------
Adjusted basic net earnings per share        $  1.45    $  1.42    $  1.76
                                             =======    =======    =======

Diluted net earnings per share:
As reported                                  $  1.38    $  1.16    $  1.45
Add back: goodwill amortization,
   net of taxes                                   --       0.16       0.13
                                             -------    -------    -------
Adjusted diluted net earnings per share      $  1.38    $  1.32    $  1.58
                                             =======    =======    =======
</TABLE>

(6)  Long-Term Debt

     Effective  August  29,  2000,  the  Company  consummated  a $125.0  million
five-year  revolving credit facility,  replacing its then existing $90.0 million
term and revolving credit facility. The interest rates are set based on either a
base rate  plus  from  0.50% to 1.75% or a  Eurodollar  rate plus from  1.50% to
2.75%.  The base rate is the higher of the  Federal  Funds Rate plus .50% or the
prime rate.  The  Eurodollar  rate is defined as (a) the Interbank  Offered Rate
divided by (b) 1 minus the Eurodollar  Reserve  Requirement.  The Company pays a
fee on the unused portion of the commitment  from 0.375% to 0.50%.  The interest
rates  and  commitment  fees  vary  depending  on the  ratio  of  the  Company's
indebtedness,  net of cash and marketable  securities,  to cash flow. Borrowings
under the credit  facility  are secured  primarily by the  Company's  assets and
future  income and  profits.  The credit  facility  requires the Company to meet
certain financial  covenants  including  maintaining minimum net worth and fixed
charge coverage ratios. The average  outstanding  borrowings under the revolving
credit  facilities for 2002, 2001 and 2000 were $0.2 million,  $12.4 million and
$20.0  million at  weighted-average  interest  rates of 5.4%,  8.1% and 8.6% per
annum, respectively. As of December 31, 2002 there was no balance outstanding on
the revolving  credit  facility.  Interest paid for 2002, 2001 and 2000 was $0.8
million, $2.2 million and $5.3 million,  respectively.  Included in the interest
paid amounts are commitment fees on the unused portion of the commitment of $0.6
million, $0.3 million and $0.1 million for 2002, 2001 and 2000, respectively.

                                       43
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


     The Company  also has a $1.5  million  letter of credit and a $3.1  million
promissory  note issued to our worker's  compensation  carrier as collateral for
reimbursement  of claims.  This letter of credit  reduces the amount the Company
may borrow under the line of credit.  The  promissory  note would become payable
only upon an event of default as described in the  security  agreement  with the
worker's compensation carrier.

(7)  Stockholders' Equity

     During the third quarter of 2002, the Company repurchased  1,700,000 shares
of its common stock at a cost of $36.9  million.  These shares are  presented as
treasury stock in the Company's consolidated balance sheet.

     During  March 2001,  the Company  issued and sold  1,455,000  shares of its
common stock in an underwritten  public equity  offering.  The net proceeds from
this  transaction  of $49.4  million  were used to  reduce  the  Company's  then
outstanding balance on its revolving credit facility.

     The  Company  has various  long-term  performance  plans for the benefit of
employees and nonemployee  directors.  Under the plans, employees may be granted
incentive stock options or nonqualified stock options and nonemployee  directors
may be granted nonqualified stock options. Certain of the plans also provide for
the granting of stock appreciation rights, restricted stock, performance awards,
or stock units.  Stock  options may be granted for a term not to exceed 10 years
(five years with respect to a person receiving  incentive stock options who owns
more than 10% of the capital stock of the Company) and must be granted within 10
years from the adoption of the respective  plan. The exercise price of all stock
options  must be at least  equal to the fair  market  value (110% of fair market
value for a person receiving an incentive stock option who owns more than 10% of
the capital stock of the Company) of the shares on the date of grant. Except for
options granted to nonemployee directors that become fully exercisable after six
months, substantially all remaining stock options become fully exercisable after
four years from date of grant.  At December 31, 2002,  2001 and 2000, a total of
1,058,270,  1,549,594 and 1,841,116  shares,  respectively,  were  available for
future issuance under the plans.

     The per share  weighted-average  fair value of stock options granted during
2002,  2001 and 2000 was  $13.49,  $24.78 and $15.20 on the dates of grant using
the Black  Scholes  option-pricing  model  with the  following  weighted-average
assumptions:  2002 - expected  dividend  yield 0%,  volatility of 55%, risk free
interest  rate of 3.8% and an  expected  life of 6 to 8 years;  2001 -  expected
dividend  yield 0%,  volatility  of 56%,  risk free interest rate of 4.5% and an
expected life of 7 to 9 years;  2000 - expected dividend yield 0%, volatility of
55%, risk free interest rate of 5.0% and an expected life of 4 to 6 years.

     The Company  continues  to account for  stock-based  employee  compensation
plans using the intrinsic value method under Accounting Principles Board Opinion
No.  25  and  related   Interpretations.   Accordingly,   stock-based   employee
compensation cost is not reflected in net earnings, as all stock options granted
under  the  plans  had an  exercise  price  equal  to the  market  value  of the
underlying  common  stock on the date of grant.  Had  compensation  cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards  under those plans  consistent  with the method of
Statement No. 123, "Accounting for Stock Based Compensation",  the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below:

                                       44
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                                -----------------------
                                              2002        2001        2000
                                              ----        ----        ----
                                          (in thousands, except per share data)
<S>                                         <C>         <C>         <C>
  Net earnings, as reported                 $24,395     $21,035     $23,534
  Deduct: Total stock-based employee
    compensation expense determined under
    fair value based method for all awards,
    net of related tax effects               (5,130)     (4,390)     (2,155)
                                            -------     -------     -------

  Proforma net earnings                     $19,265     $16,645     $21,379
                                            =======     =======     =======

  Basic earnings per share:   As reported     $1.45       $1.25       $1.62
                                              =====       =====       =====
                              Pro forma       $1.15       $0.99       $1.47
                                              =====       =====       =====

  Diluted earnings per share: As reported     $1.38       $1.16       $1.45
                                              =====       =====       =====
                              Pro forma       $1.09       $0.92       $1.32
                                              =====       =====       =====
</TABLE>

     A summary of the status of the Company's  stock option plans as of December
31, 2002,  2001 and 2000,  and changes  during the years then ended is presented
below:
<TABLE>
<CAPTION>
                            2002                2001                2000
                            ----                ----                ----
                              Weighted-           Weighted-           Weighted-
                               Average             Average             Average
                              Exercise            Exercise            Exercise
                      Shares    Price     Shares    Price     Shares    Price
                      ------  ---------   ------  ---------   ------  ---------
<S>                <C>         <C>     <C>         <C>     <C>         <C>
Outstanding at
   beginning
   of year         2,935,575   $16.99  3,262,975   $10.62  3,890,698   $ 7.30
Granted              664,700    22.66    539,373    39.97    457,600    28.76
Exercised           (214,565)    6.49   (766,753)    6.12   (869,019)    5.70
Forfeited           (217,876)   25.66   (100,020)   15.08   (216,304)    8.81
                   ---------   ------  ---------   ------  ---------   ------
Outstanding at
   end of year     3,167,834   $18.31  2,935,575   $16.99  3,262,975   $10.62
                   =========           =========           =========
Options exercis-
   able at
   end of year     2,011,184           1,873,702           2,199,037
                   =========           =========           =========

</TABLE>

                                       45
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


      The following table summarizes information about stock options outstanding
at December 31, 2002:
<TABLE>
<CAPTION>
                        Options Outstanding              Options Exercisable
               --------------------------------------  -----------------------
                         Weighted-Average
                                            Weighted-    Weighted-
    Range of                   Remaining     Average      Average
    Exercise       Number     Contractual   Exercise      Number      Exercise
     Prices     Outstanding      Life         Price     Exercisable    Price
     ------     -----------      ----         -----     -----------    -----
<C>              <C>           <C>           <C>        <C>           <C>
$ 0.00 -  4.70     143,543      1.7 years    $ 4.24       143,543     $ 4.24
  4.70 -  9.40   1,196,318      5.2            8.07     1,104,418       7.98
  9.40 - 14.10     476,800      5.7           11.55       466,800      11.54
 18.80 - 23.50     532,950      9.6           22.23         3,200      21.86
 23.50 - 28.20     105,000      9.0           25.66        53,250      25.36
 28.20 - 32.90      12,500      7.3           30.18         2,500      32.38
 32.90 - 37.60     209,600      7.7           34.00       108,600      34.00
 37.60 - 42.30     318,916      8.5           39.65        97,916      39.71
 42.30 - 47.00     172,207      8.2           43.77        30,957      43.84
                 ---------      ---          ------     ---------     ------
                 3,167,834      6.6          $18.31     2,011,184     $12.55

</TABLE>

     On  October  1,  2002,  the  Company's  stockholder  rights  plan  that was
originally  adopted in 1992 expired in accordance  with its terms.  The board of
directors of the Company adopted a new stockholder rights plan pursuant to which
preferred stock purchase rights were  distributed as a dividend on each share of
the Company's outstanding common stock as of the close of business on October 1,
2002.  Each right,  when  exercisable,  will entitle the holders to purchase one
one-hundredth  of a share of a newly  designated  series B junior  participating
preferred  stock of the Company at an initial  exercise price of $150.00 per one
one-hundredth of a share.

     The rights are not exercisable or transferable until a person or affiliated
group acquires beneficial ownership of 20% or more of the Company's common stock
or  commences a tender or exchange  offer for 20% or more of the stock,  without
the  approval  of the board of  directors.  In the event  that a person or group
acquires 20% or more of the  Company's  stock or if the Company or a substantial
portion of the Company's  assets or earning power is acquired by another entity,
each right will covert into the right to purchase shares of the Company's or the
acquiring  entity's  stock,  at the  then-current  exercise  price of the right,
having a value at the time equal to twice the exercise price.

     The  series B  preferred  stock is  non-redeemable  and junior of any other
series of preferred  stock that the Company may issue in the future.  Each share
of series B preferred stock, upon issuance, will have a preferential dividend in
the amount  equal to the  greater  of $1.00 per share or 100 times the  dividend
declared per share on the Company's  common stock. In the event of a liquidation
of  the  Company,  the  series  B  preferred  stock  will  receive  a  preferred
liquidation  payment  equal to the greater of $100 or 100 times the payment made
on each share of the Company's common stock.  Each one  one-hundredth of a share
of series B preferred  stock will have one vote on all matters  submitted to the
stockholders  and will vote together as a single class with the Company's common
stock.

                                       46
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


(8)  Earnings per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share:
<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                    -----------------------
   Numerator:                                     2002        2001        2000
   ----------                                     ----        ----        ----
                                                        (in thousands,
                                                    except per share data)
<S>                                              <C>        <C>         <C>
   Numerator for basic earnings per share -
      earnings available to common
      stockholders (net earnings)                $24,395    $21,035     $23,534

   Effect of dilutive securities - after-tax
      interest on convertible subordinated
      promissory notes                                --         --          28
                                                 -------    -------     -------
   Numerator for diluted earnings per share -
      earnings available to common
      stockholdersafter assumed conversions      $24,395    $21,035     $23,562

   Denominator:

   Denominator for basic earnings per share -
      weighted-average shares outstanding         16,833     16,775      14,563

   Effect of dilutive securities:
      Stock options                                  809      1,302       1,705
                                                 -------    -------     -------

   Denominator for diluted earnings per share -
      adjusted weighted-average shares and
      assumed conversions                         17,642     18,077      16,268
                                                 =======    =======     =======

   Basic earnings per share                      $  1.45    $  1.25     $  1.62
                                                 =======    =======     =======

   Diluted earnings per share                    $  1.38    $  1.16     $  1.45
                                                 =======    =======     =======

</TABLE>

(9)  Employee Benefits

     The Company has an Employee Savings Plan,  which is a defined  contribution
plan  qualified  under  Section  401(k) of the Internal  Revenue  Code,  for the
benefit  of its  eligible  employees.  Employees  who  attain  the age of 21 and
complete  12  consecutive  months of  employment  with a minimum of 1,000  hours
worked are eligible to participate in the plan. Each  participant may contribute
from  2% to 20%  of  his or her  annual  compensation  to the  plan  subject  to
limitations  on  the  highly  compensated   employees  to  ensure  the  plan  is
nondiscriminatory.  Contributions  made by the Company to the  Employee  Savings
Plan  are at  rates  of up to 50% of the  first  4% of  employee  contributions.
Expense in  connection  with the Employee  Savings Plan for 2002,  2001 and 2000
totaled $1.9 million, $1.7 million and $1.1 million, respectively.

     The Company maintains a nonqualified deferred compensation plan for certain
employees.  Under the plan, participants may defer up to 100% of their base cash
compensation.  The amounts  are held by a trust in  designated  investments  and
remain the property of the Company until distribution.  At December 31, 2002 and
2001,  $4.3  million and $2.6  million,  respectively,  were  payable  under the
nonqualified  deferred compensation plan and approximated the value of the trust
assets owned by the Company.

                                       47
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


(10) Lease Commitments

     The  Company  leases  office  space  and  certain  office  equipment  under
noncancellable   operating   leases.   Future   minimum  lease   payments  under
noncancellable  operating  leases, as of December 31, 2002, that have initial or
remaining lease terms in excess of one year total approximately $4.8 million for
2003,  $4.5 million for 2004,  $4.1 million for 2005,  $3.3 million for 2006 and
$2.5 million for 2007.  Rent expense for 2002,  2001 and 2000 was  approximately
$5.5 million, $4.8 million and $3.7 million, respectively.

(11) Income Taxes

      Income taxes consist of the following:
<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                     -----------------------
                                                 2002        2001        2000
                                                 ----        ----        ----
                                                         (in thousands)
<S>                                             <C>        <C>         <C>
       Federal - current                        $6,918     $14,232     $12,675
       Federal - deferred                        6,265      (1,964)      1,045
       State                                     1,771       1,648       1,843
                                               ------      -------     -------
                                               $14,954     $13,916     $15,563
                                               =======     =======     =======
</TABLE>

     A reconciliation  between  expected income taxes,  computed by applying the
statutory  Federal income tax rate of 35% to earnings  before income taxes,  and
actual income tax is as follows:
<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                    -----------------------
                                                 2002        2001        2000
                                                 ----        ----        ----
                                                        (in thousands)
<S>                                            <C>         <C>         <C>
       Expected income taxes                   $13,773     $12,233     $13,684
       Tax effect of interest income from
           municipal bond obligations exempt
           from Federal taxation                   (29)        (56)        (47)
       State income taxes, net of Federal
           income tax benefit                      790       1,071       1,198
       Tax effect of goodwill amortization
           expense not deductible for
           tax purposes                             --         599         398
       Other, net                                  420          69         330
                                               -------     -------     -------
                                               $14,954     $13,916     $15,563
                                               =======     =======     =======
</TABLE>

                                       48
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


      The tax effects of temporary differences that give rise to the deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
                                                             December 31,
                                                             ------------
                                                          2002         2001
                                                          ----         ----
                                                           (in thousands)
<S>                                                      <C>         <C>
         Deferred tax assets:
            Provision for doubtful accounts              $1,476      $1,698
            Accrued insurance, bonus and
               vacation expense                           3,311       4,465
            Other                                         1,069       3,645
                                                         ------      ------
                                                          5,856       9,808
                                                         ------      ------
         Deferred tax liabilities:
            Goodwill amortization                         5,596       4,120
            Other                                         2,771       1,090
                                                         ------      ------
                                                          8,367       5,210
                                                         ------      ------
            Net deferred tax asset (liability)          $(2,511)     $4,598
                                                         ======      ======
</TABLE>

     The Company is required to establish a valuation allowance for deferred tax
assets if, based on the weight of available evidence, it is more likely than not
that some portion or all of the  deferred  tax assets will not be realized.  The
ultimate  realization of deferred tax assets is dependent upon the generation of
future  taxable income during the periods in which those  temporary  differences
become deductible.  Management  considers the scheduled reversal of deferred tax
liabilities,  projected  future  taxable  income and tax planning  strategies in
making this  assessment.  Based upon the level of historical  taxable income and
projections  for future  taxable  income in the periods  which the  deferred tax
assets are  deductible,  management  believes that a valuation  allowance is not
required,  as it is more likely  than not that the results of future  operations
will generate sufficient taxable income to realize the deferred tax assets.

     Income taxes paid by the Company for 2002, 2001 and 2000 were $7.5 million,
$8.5 million and $13.0 million, respectively.

(12) Industry Segment Information

     The Company operates in two business  segments that are managed  separately
based on fundamental differences in operations:  healthcare staffing and program
management  services.  Program management includes inpatient programs (including
acute rehabilitation and skilled nursing units), outpatient therapy programs and
contract  therapy  programs.  All of the Company's  services are provided in the
United States.  Summarized  information  about the Company's  operations in each
industry segment is as follows:

                                       49
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                              Revenues from
                          Unaffiliated Customers         Operating Earnings
                       ---------------------------   --------------------------
                             (in thousands)                (in thousands)
                         2002      2001      2000      2002     2001(1)  2000(1)
                         ----      ----      ----      ----     ----     ----
<S>                   <C>       <C>       <C>       <C>       <C>       <C>
Healthcare staffing   $277,543  $304,574  $260,100  $ (1,683) $  1,496  $12,298
Program management:
  Inpatient            130,743   123,276   119,963    28,941    28,606   28,350
  Outpatient            49,003    49,754    42,332     3,315     3,895    4,372
  Contract therapy     105,276    64,661    29,979     9,124     2,970     (831)
                      --------  --------  --------  --------  --------  -------
  Program
   management total    285,022   237,691   192,274    41,380    35,471   31,891
                      --------  --------  --------  --------  --------  -------
     Total            $562,565  $542,265  $452,374  $ 39,697  $ 36,967  $44,189
                      ========  ========  ========  ========  ========  =======

</TABLE>
<TABLE>
<CAPTION>
                       Depreciation and Amortization     Capital Expenditures
                       -----------------------------   ------------------------
                             (in thousands)                (in thousands)
                         2002      2001      2000      2002      2001     2000
                         ----      ----      ----      ----      ----     ----
<S>                   <C>       <C>       <C>        <C>       <C>      <C>
Healthcare staffing   $  1,808  $  3,280  $  2,813  $    567  $  1,424  $ 3,703
Program management:
  Inpatient              4,636     3,674     2,861     3,478     3,864    2,575
  Outpatient               800     1,520       809     1,306     1,695      849
  Contract therapy       1,090     1,088       390     3,195     3,630      772
                      --------  --------  --------  --------  --------  -------
Program
 management total        6,526     6,282     4,060     7,979     9,189    4,196
                      --------  --------  --------  --------  --------  -------
   Total              $  8,334  $  9,562  $  6,873  $  8,546  $ 10,613  $ 7,899
                      ========  ========  ========  ========  ========  =======

</TABLE>
<TABLE>
<CAPTION>
                              Total Assets               Unamortized Goodwill
                         -------------------------   ---------------------------
                             (in thousands)                (in thousands)
                            as of December 31,            as of December 31,
                         2002      2001      2000      2002      2001     2000
                         ----      ----      ----      ----      ----     ----
<S>                   <C>       <C>       <C>       <C>       <C>      <C>
Healthcare staffing   $ 92,551  $102,880  $109,911  $ 52,956  $ 52,956 $ 54,021
Program management:
  Inpatient             80,921    91,135    66,194    17,162    17,162   17,750
  Outpatient            29,433    30,297    30,064    18,577    18,577   19,745
  Contract therapy      32,625    26,349    22,924    12,990    12,990   13,266
                      --------  --------  --------  --------  -------- --------
  Program
   management total    142,979   147,781   119,182    48,729    48,729   50,761
                      --------  --------  --------  --------  -------- --------
     Total            $235,530  $250,661  $229,093  $101,685  $101,685 $104,782
                      ========  ========  ========  ========  ======== ========

</TABLE>

(1)  Operating  earnings  for 2001 and 2000 have been  adjusted  to reflect  the
     corporate expense allocation methodology utilized in 2002.

                                       50
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


(13) Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                 Quarter Ended
                               ------------------------------------------------
          2002                 December 31  September 30   June 30     March 31
          ----                 -----------  ------------   -------     --------
                                     (in thousands, except per share data)

<S>                             <C>          <C>          <C>          <C>
 Operating revenues             $140,810     $142,690     $140,836     $138,229
 Operating earnings               12,024       11,595        9,526        6,552
 Earnings before income taxes     11,870       11,511        9,472        6,496
 Net earnings                      7,358        7,137        5,872        4,028
 Net earnings per common share:
    Basic                            .46          .43          .34          .23
    Diluted                          .45          .41          .32          .22

</TABLE>
<TABLE>
<CAPTION>
                                                 Quarter Ended
                               ------------------------------------------------
          2001                 December 31  September 30   June 30     March 31
          ----                 -----------  ------------   -------     --------
                                      (in thousands, except per share data)
<S>                             <C>          <C>          <C>          <C>
 Operating revenues             $134,236     $140,434     $136,871     $130,724
 Operating earnings (loss)        (2,787)      13,519       13,193       13,042
 Earnings (loss) before
  income taxes                    (3,356)      13,356       13,024       11,927
 Net earnings (loss)              (2,017)       8,042        7,832        7,178
 Net earnings (loss) per
  common share:
    Basic                           (.12)         .47          .46          .47
    Diluted                         (.12)         .44          .43          .42

</TABLE>

(14) Recently Issued Accounting Pronouncements

     In June 2002,  the FASB  issued  Statement  No. 146  "Accounting  for Costs
Associated with Exit or Disposal  Activities." This statement nullifies Emerging
Issues Task Force  (EITF)  Issue No. 94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain Costs  Incurred in a  Restructuring)."  This  statement  requires that a
liability for a cost associated with an exit or disposal  activity be recognized
when the liability is incurred rather than the date of an entity's commitment to
an exit plan.  The  Company  implemented  Statement  No. 146 on January 1, 2003.
Management  does not  expect  that  this  statement  will  have an impact on its
consolidated financial position or results of operations.

     In December  2002,  the FASB issued  Statement  No.  148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure - an amendment of FASB
Statement No. 123." Statement No. 148 amends Statement No. 123,  "Accounting for
Stock-Based  Compensation," to provide  alternative  methods of transition for a
voluntary  change to the fair value based method of accounting  for  stock-based
employee  compensation.  In addition,  Statement  No. 148 amends the  disclosure
requirements  of  Statement  No. 123 to require  prominent  disclosures  in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee compensation and the effect on the methods used on reported
results.  The  disclosure  requirements  apply to all companies for fiscal years
ending  after  December  15,  2002.  See note 7  "Stockholders  Equity"  for the
required disclosures of Statement No. 148 at December 31, 2002.

                                       51
<PAGE>
                              REHABCARE GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)
                        December 31, 2002, 2001 and 2000


(15) Contingencies

     In May 2002, a lawsuit was filed in the United  States  District  Court for
the Eastern  District of Missouri against the Company and certain of its current
directors  and  officers.  The  plaintiffs  allege  violations  of  the  federal
securities  laws and are  seeking to  certify  the suit as a class  action.  The
proposed class consists of persons that purchased shares of the Company's common
stock between August 10, 2000 and January 21, 2002. The case alleges  weaknesses
in the software systems selected by the Company's  healthcare  staffing services
business,  StarMed  Staffing Group,  and the purported  negative effects of such
systems on the healthcare  staffing  services business  operations.  The Company
recently  filed a motion  to  dismiss  with the  court.  No  discovery  has been
commenced in the case pending the court's ruling on the motion to dismiss.

     In August 2002, a derivative  lawsuit was filed in the Circuit Court of St.
Louis County,  Missouri  against the Company and certain of its  directors.  The
complaint,  which is based upon  substantially  the same facts as are alleged in
the  federal  securities  class  action,  was filed on behalf of the  derivative
plaintiff  by a law firm that had earlier  filed suit against the Company in the
federal case.  The Company has filed a motion to dismiss based  primarily on the
derivative  plaintiff's  failure to make a pre-suit demand. The Company has also
filed a motion to stay the  derivative  suit until the final  resolution  of the
federal  securities  law class action.  The federal court hearing the securities
law class action recently stayed  discovery in the derivative  proceeding  until
discovery commences in the class action.

     In February 2003, a complaint was filed in the United States District Court
for the Northern  District of Illinois  against the Company and the former owner
of eai Healthcare  Staffing  Solutions  ("eai").  The complaint seeks investment
banking fees under a retainer  agreement  executed by the former owner of eai in
February 1997, a company that RehabCare acquired in December 1999. The complaint
asserts fees in connection with three separate  financing  transactions  and two
acquisition  transactions which the Company  understands were consummated by eai
prior to its  acquisition by the Company.  At the time of the  acquisition,  the
Company  had  identified  potential  fees under  this  retainer  agreement  as a
possible contingent liability of eai and had negotiated indemnification from the
former  owner of eai in the stock  purchase  agreement  for any fees and  costs,
including  attorneys' fees and expenses,  arising from such retainer  agreement.
The  Company  has given  notice to the  former  owner of eai of the  demand  for
indemnification in this suit. No definitive  response has been received from the
former owner of eai with respect to the Company's indemnification demand.

     In addition to above matters,  the Company and its subsidiaries are parties
to a number  of other  claims  and  lawsuits.  While  these  actions  are  being
contested,  the outcome of individual matters is not predictable with assurance.
The Company does not believe that any liability  resulting from any of the above
matters,  after taking into  consideration  its  insurance  coverage and amounts
already  provided for, will have a material  adverse effect on its  consolidated
financial position, cash flows or liquidity.  However, such matters could have a
material effect on results of operations in a particular  quarter or fiscal year
as they develop or as new issues are identified.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
        ON ACCOUNTING AND FINANCIAL DISCLOSURE


      Not applicable.

                                       52

<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Certain  information  regarding our  directors  and  executive  officers is
included  in our Proxy  Statement  for the 2003 Annual  Meeting of  Stockholders
under the captions "Item 1 - Election of Directors" and "Compliance with Section
16(a) of the  Securities  Exchange  Act of 1934" and is  incorporated  herein by
reference.

     The  following  table sets forth the name,  age and position of each of our
executive officers. There is no family relationship between any of the following
individuals.

Name                        Age                      Position
----                        ---   ----------------------------------------------
Alan C. Henderson.......    57    President and Chief Executive Officer
Gregory F. Bellomy......    46    President, StarMed Staffing Group
Tom E. Davis............    53    President,  Hospital  Rehabilitation  Services
                                  (Inpatient & Outpatient)
James M. Douthitt.......    40    Senior  Vice   President,   Chief   Accounting
                                  Officer, Treasurer and Assistant Secretary
Vincent L. Germanese....    51    Senior   Vice   President,   Chief   Financial
                                  Officer and Secretary
Patricia M. Henry.......    50    President, Contract Therapy Division

     The  following  paragraphs  contain  biographical   information  about  our
executive officers.

     Alan C.  Henderson  has been  President and Chief  Executive  Officer and a
director  of the  company  since 1998.  Prior to  becoming  President  and Chief
Executive Officer,  Mr. Henderson was Executive Vice President,  Chief Financial
Officer and Secretary of the company from 1991 through May 1998.  Mr.  Henderson
also serves as a director of General American Capital Corp, Angelica Corporation
and Reinsurance Group of America, Inc.

     Gregory F.  Bellomy  has been  President  of our  staffing  division  since
November 2001 and was President of our contract  therapy division from September
1998 to November  2001.  Prior to joining the  company,  Mr.  Bellomy  served in
various capacities,  including Division  President,  Division Vice President and
Area General  Manager at TheraTx  Incorporated  from 1992 to 1997, at which time
TheraTx  Incorporated  was  acquired  by Vencor  Incorporated.  Mr.  Bellomy was
National Director of Vencare Ancillary Services for Vencor Incorporated until he
joined our company.

     Tom E. Davis has been  President of our  inpatient  division  since January
1998.  Mr. Davis  joined the company in January  1997 as Senior Vice  President,
Operations. Prior to joining the company, Mr. Davis was Group Vice President for
Quorum Health Resources, LLC from January 1990 to January 1997.

     James M. Douthitt,  CPA, has been Senior Vice President,  Chief  Accounting
Officer, Treasurer and Assistant Secretary of the company since July 2000. Prior
to his current role,  Mr.  Douthitt  served as Vice President of Finance for our
healthcare  staffing  division from January through June 2000 and Vice President
of Finance for our contract  therapy division from October 1998 through December
1999.  Prior to joining  the company Mr.  Douthitt  was  Director of Finance for
Vencor,  Inc.  from  August  1997 to  September  1998 and Manager of Finance for
Vencor, Inc. from January 1996 to July 1997.

                                       53
<PAGE>

     Vincent L. Germanese, CPA, has been Senior Vice President,  Chief Financial
Officer and Secretary of the company since November  2002.  Prior to joining the
company,  Mr.  Germanese  was Vice  President  of Cap  Gemini  Ernst & Young and
Partner at Ernst & Young.  Mr. Germanese was named a partner at Ernst & Young in
1984 and has held  various  management  positions  during  his tenure at Ernst &
Young and Cap Gemini Ernst & Young.

     Patricia M. Henry has been President of our contract therapy division since
November  2001.  Ms.  Henry  joined the company in October  1998 and served most
recently as Senior Vice  President of  Operations,  Contract  Therapy  Services.
Prior to joining the company, Ms. Henry was Director of Ancillary Operations for
Vencor, Inc. Prior to Vencor's  acquisition of TheraTx, Ms. Henry was a Regional
Vice  President of Operations  from  September  1994 to September  1998.  Before
joining TheraTx, Ms. Henry was Area Vice President for NovaCare, Inc., Southwest
Division from July 1990 to September 1994.


ITEM 11. EXECUTIVE COMPENSATION

     Information  regarding  executive  compensation  is  included  in our Proxy
Statement  for the 2003  Annual  Meeting  of  Stockholders  under  the  captions
"Compensation of Executive  Officers",  and "Section 16(a) Beneficial  Ownership
Reporting Compliance" and is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     Information  regarding  security ownership of certain beneficial owners and
management  is included in our Proxy  Statement  for the 2003 Annual  Meeting of
Stockholders  under  the  captions  "Voting  Securities  and  Principal  Holders
Thereof" and "Security  Ownership by Management" and is  incorporated  herein by
reference.

     The following  table provides  information as of fiscal year ended December
31, 2002 with respect to the shares of common stock that may be issued under our
existing equity compensation plans:
<TABLE>
<CAPTION>
================================================================================
Plan category                     Number of     Weighted-    Number of
                                  securities    average      remaining availabe
                                  to be issued  exercise     for future issuance
                                  upon exer-    price of     under equity
                                  cise of out-  outstanding  compensation plans
                                  standing      options,     (excluding
                                  options,      warrants     securities
                                  warrants      and rights   reflected in
                                  and rights                 column (a))

                                     (a)           (b)             (c)
================================================================================
================================================================================
<S>                               <C>            <C>            <C>
Equity compensation plans         3,167,834      $18.31         1,058,270
approved by security holders
================================================================================
================================================================================
Equity compensation plans not
approved by security holders         -           $  -               -
================================================================================
================================================================================
       Total                      3,167,834      $18.31         1,058,270
================================================================================

</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Not applicable.

                                       54
<PAGE>


ITEM 14. CONTROLS AND PROCEDURES

     Within 90 days of the filing of this report,  our Chief  Executive  Officer
and Chief Financial Officer have conducted an evaluation of the effectiveness of
the design and operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-14 (c) and 15d-14 (c) under the  Securities  Exchange Act of
1934, as amended).  Based on that  evaluation,  our Chief Executive  Officer and
Chief Financial  Officer have concluded that the Company's  disclosure  controls
and  procedures  are  effective  in making  known in a timely  fashion  material
information  required to be filed in this report. There have been no significant
changes in internal controls or in other factors that could significantly affect
these  controls  subsequent  to the  date of  their  evaluation,  including  any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
         FORM 8-K

    (a)  The  following  documents  are filed as part of this Annual  Report on
         Form 10-K:

          (1)Financial Statements
                Independent Auditors' Report
                Consolidated Balance Sheets as of December 31, 2002 and 2001
                Consolidated Statements of Earnings for the years ended
                December 31, 2002, 2001 and 2000
                Consolidated  Statements of Stockholders' Equity for the years
                     ended December 31, 2002, 2001 and 2000
                Consolidated  Statements of Cash Flows for the years ended
                     December  31, 2002, 2001 and 2000
                Consolidated  Statements of Comprehensive Earnings for the
                     years ended December 31, 2002, 2001 and 2000
                Notes to Consolidated Financial Statements

          (2)Financial Statement Schedules:
                None

          (3)Exhibits:
                See Exhibit Index on page 59 of this Annual Report on Form 10-K.

     (b)  Reports on Form 8-K

     The  Registrant  filed the  following  reports on Form 8-K during the three
months ended December 31, 2002:

           October 30, 2002
                  Item 9 Regulation FD Disclosure
                  The script for a conference call held by the Registrant
                  on October 30, 2002

           November 19, 2002
                  Item 5 Press release "RehabCare Group Names
                  Vincent L. Germanese as Chief Financial Officer".

                  Item 5 Press release "RehabCare Group Finalizes Wage
                  and Hour Settlement with U.S. Department of Labor".

           November 20, 2002
                  Item 5 Press release "RehabCare Group Consolidates
                  Operating Divisions".

                                       55
<PAGE>


 SIGNATURES


     Pursuant to the  requirements of Section 13 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.

 Dated: March 14, 2003
                                   REHABCARE GROUP, INC.
                                   (Registrant)

                                   By:/s/ Alan C. Henderson
                                   ------------------------
                                          Alan C. Henderson
                                          President and Chief Executive Officer

     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 date indicated.

 Signature                        Title                         Dated


 /s/ Alan C. Henderson            President, Chief Executive    March 14, 2003
 ---------------------
 Alan C. Henderson                Officer and Director
 (Principal Executive Officer)

 /s/ Vincent L. Germanese         Senior Vice President,        March 14, 2003
 ------------------------
 Vincent L. Germanese             Chief Financial Officer and
 (Principal Financial Officer)    Secretary

 /s/ James M. Douthitt            Senior Vice President and     March 14, 2003
 ---------------------
 James M. Douthitt                Chief Accounting Officer
 (Principal Accounting Officer)

 /s/ William G. Anderson          Director                      March 14, 2003
 -----------------------
 William G. Anderson

 /s/ Richard E. Ragsdale          Director                      March 14, 2003
 -----------------------
 Richard E. Ragsdale

 /s/ John H. Short                Director                      March 14, 2003
 -----------------
 John H. Short

 /s/ H. Edwin Trusheim            Director                      March 14, 2003
 ---------------------
 H. Edwin Trusheim

 /s/ Colleen Conway-Welch         Director                      March 14, 2003
 ------------------------
 Colleen Conway-Welch

 /s/ Theodore M. Wight            Director                      March 14, 2003
 ---------------------
 Theodore M. Wight

                                       56
<PAGE>


CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER

I, Alan C. Henderson, certify that:

1.   I have reviewed this annual  report on Form 10-K of RehabCare  Group,  Inc.
     (the "Registrant"):

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the Registrant as of, and for, the periods presented in this annual report;

4.   The  Registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  Registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the Registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The Registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  Registrant's  auditors  and the audit
     committee of  Registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  Registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  Registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  Registrant's  internal
          controls; and

6.   The  Registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: March 14, 2003                       By: /s/ Alan C. Henderson
                                           -------------------------
                                                   Alan C. Henderson
                                           President and Chief Executive Officer

                                       57
<PAGE>


CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Vincent L. Germanese, certify that:

1.   I have reviewed this annual  report on Form 10-K of RehabCare  Group,  Inc.
     (the "Registrant"):

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the Registrant as of, and for, the periods presented in this annual report;

4.   The  Registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  Registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the Registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The Registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  Registrant's  auditors  and the audit
     committee of  Registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  Registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  Registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  Registrant's  internal
          controls; and

6.   The  Registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  March 14, 2003                      By: /s/    Vincent L. Germanese
                                           -------------------------------
                                                      Vincent L. Germanese
                                                      Senior Vice President,
                                           Chief Financial Officer and Secretary

                                       58
<PAGE>


                                  EXHIBIT INDEX


3.1  Restated  Certificate  of  Incorporation  (filed  as  Exhibit  3.1  to  the
     Registrant's  Registration  Statement  on  Form  S-1,  dated  May  9,  1991
     [Registration No. 33-40467], and incorporated herein by reference)

3.2  Certificate of Amendment of Certificate of Incorporation  (filed as Exhibit
     3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
     May 31, 1995 and incorporated herein by reference)

3.3  Amended  and  Restated  Bylaws  (filed as Exhibit  3.3 to the  Registrant's
     Quarterly  Report on Form 10-Q for the quarter ended September 30, 2002 and
     incorporated herein by reference)

4.1  Rights Agreement,  dated August 28, 2002, by and between the Registrant and
     Computershare  Trust Company,  Inc. (filed as Exhibit 1 to the Registrant's
     Registration Statement on Form 8-A filed September 5, 2002 and incorporated
     herein by reference)

10.1 1987 Incentive Stock Option and 1987 Nonstatutory Stock Option Plans (filed
     as Exhibit  10.1 to the  Registrant's  Registration  Statement on Form S-1,
     dated May 9, 1991 [Registration No. 33-40467],  and incorporated  herein by
     reference) *

10.2 Form of Stock Option  Agreement  (filed as Exhibit 10.2 to the Registrant's
     Registration  Statement on Form S-1,  dated May 9, 1991  [Registration  No.
     33-40467], and incorporated herein by reference) *

10.3 Employment  Agreement with Alan C.  Henderson,  dated May 1, 1991 (filed as
     Exhibit 10.4 to Amendment No. 1 to the Registrant's  Registration Statement
     on  Form  S-1,  dated  June  19,  1991  [Registration  No.  33-40467],  and
     incorporated herein by reference) *

10.4 Form of Termination  Compensation Agreement for Alan C. Henderson (filed as
     Exhibit 10.6 to the Registrant's  Registration Statement on Form S-1, dated
     February 18, 1993 [Registration No. 33-58490],  and incorporated  herein by
     reference) *

10.5 Form of Termination  Compensation  Agreement for other  executive  officers
     (filed as Exhibit 10.5 to the Registrant's Report on Form 10-K, dated March
     15, 2002, and incorporated herein by reference) *

10.6 Supplemental  Bonus  Plan  (filed  as  Exhibit  10.8  to  the  Registrant's
     Registration  Statement on Form S-1, dated February 18, 1993  [Registration
     No. 33-58490], and incorporated herein by reference) *

10.7 Deferred  Profit  Sharing Plan (filed as Exhibit 10.15 to the  Registrant's
     Registration  Statement on Form S-1, dated February 18, 1993  [Registration
     No. 33-58490], and incorporated herein by reference) *

                                       59
<PAGE>


                             EXHIBIT INDEX (CONT'D)

10.8 RehabCare  Executive Deferred  Compensation Plan (filed as Exhibit 10.12 to
     the Registrant's  Report on Form 10-K, dated May 27, 1994, and incorporated
     herein by reference) *

10.9 RehabCare Directors' Stock Option Plan (filed as Appendix A to Registrant's
     definitive  Proxy Statement for the 1994 Annual Meeting of Stockholders and
     incorporated herein by reference) *

10.10Amended and Restated 1996 Long-Term  Performance  Plan (filed as Appendix A
     to Registrant's  definitive  Proxy Statement for the 1999 Annual Meeting of
     Stockholders and incorporated herein by reference) *

10.11RehabCare  Group,  Inc.  1999  Non-Employee  Director  Stock Plan (filed as
     Appendix B to Registrant's  definitive  Proxy Statement for the 1999 Annual
     Meeting of Stockholders and incorporated herein by reference) *

10.12Credit  Agreement,  dated as of August  29,  2000,  by and among  RehabCare
     Group,  Inc.,  as borrower,  certain  subsidiaries  and  affiliates  of the
     borrower, as guarantors,  and First National Bank, Firstar Bank, N.A., Bank
     of  America,  N.A.,  First  Union  Securities,  Inc.,  and Banc of  America
     Securities,  LLC (filed as Exhibit 10.1 to Registrant's Quarterly Report on
     Form 10-Q for the quarter ended September 30, 2000 and incorporated  herein
     by reference)

10.13Pledge  Agreement,  dated as of August  29,  2000,  by and among  RehabCare
     Group, Inc. and Subsidiaries,  as pledgors,  and Bank of America,  N.A., as
     collateral  agent,  for the  holders of the Secured  Obligations  (filed as
     Exhibit 10.1 to Registrant's  Quarterly Report on Form 10-Q for the quarter
     ended September 30, 2000 and incorporated herein by reference)

10.14Security  Agreement,  dated as of August 29, 2000,  by and among  RehabCare
     Group, Inc. and Subsidiaries,  as grantors,  and Bank of America,  N.A., as
     collateral  agent,  for the  holders of the Secured  Obligations  (filed as
     Exhibit 10.1 to Registrant's  Quarterly Report on Form 10-Q for the quarter
     ended September 30, 2000 and incorporated herein by reference)

13.1 Those portions of the  Registrant's  Annual Report to Stockholders  for the
     year ended  December 31, 2002 included in response to Items 5 and 6 of this
     Annual Report on Form 10-K

21.1 Subsidiaries of the Registrant

23.1 Consent of KPMG LLP

99.1 Certification of the Chief Executive Officer

99.2 Certification of the Chief Financial Officer

-------------------------
* Management contract or compensatory plan or arrangement.

                                       60
<PAGE>

                                                                    EXHIBIT 13.1
<TABLE>
<CAPTION>

SIX-YEAR FINANCIAL SUMMARY
Dollars in thousands, except per share data
--------------------------------------------------------------------------------
(Year ended December 31,)    2002     2001      2000     1999     1998      1997
--------------------------------------------------------------------------------
Consolidated statement of
 earnings data:
<S>                      <C>       <C>       <C>      <C>      <C>      <C>
Operating revenues       $562,565  $542,265  $452,374 $309,425 $207,416 $160,780

Operating earnings (1) (2) 39,697    36,967    44,189   29,922   23,331   18,980
Net earnings (1) (2) (3)   24,395    21,035    23,534   15,098   12,198   10,615
Net  earnings  per share
 (EPS): (1) (2) (3) (4)
   Basic                    $1.45     $1.25     $1.62   $ 1.15    $ .99    $ .88
   Diluted                  $1.38     $1.16     $1.45   $ 1.03    $ .86    $ .73
Weighted average shares
 outstanding (000s):(4)
   Basic                   16,833    16,775    14,563   13,144   12,368   11,998
   Diluted                 17,642    18,077    16,268   14,814   14,490   14,750

--------------------------------------------------------------------------------
Consolidated balance
 sheet data:
Working capital          $ 67,846  $ 77,524  $ 64,186 $ 27,069 $ 20,606 $ 12,793
Total assets              235,530   250,661   229,093  187,264  156,870   97,241
Total liabilities          46,916    51,625   111,133  109,481   96,714   57,481
Stockholders' equity      188,614   199,036   117,960   77,783   60,156   39,760

--------------------------------------------------------------------------------
Financial statistics:
Operating margin (2)         7.1%      6.8%      9.8%     9.7%    11.3%    11.8%

Net margin (1) (2) (3)       4.3%      3.9%      5.2%     4.9%     5.9%     6.6%

Current ratio               2.8:1     2.7:1     2.6:1    1.6:1    1.5:1    1.6:1

Diluted EPS growth
 rate (1) (2) (3) (5)       19.0%   (20.0)%     40.8%    19.8%    17.8%    55.3%

Return on equity
 (1) (2) (3) (6)            12.6%     13.3%     24.0%    21.9%    24.4%    23.7%

--------------------------------------------------------------------------------
Operating statistics:
Healthcare staffing:
   Average number of
    branch offices (7)        108       108        89       55       16      N/A
   Number of weeks
    worked (8)            182,552   233,898   223,951  131,110   52,265   29,652
Program management:
Inpatient units (acute
    rehabilitation and
    skilled nursing):
   Average number of programs 135       137       136      132      128      110
   Average admissions
    per program               411       394       373      369      354      321

   Average length of stay
    (days/admission)         13.3      13.8      14.3     14.5     14.7     15.4
   Patient days           737,017   746,583   725,497  706,822  665,403  544,583
Outpatient programs:
   Average number of
    locations                  55        61        53       40       26       18
   Patient visits       1,366,439 1,439,169 1,173,324  785,943  378,108  231,256
Contract therapy:
   Average number of
    locations                 378       250       156       91       50       36
</TABLE>

--------------------------------------------------------------------------------
(1)  The  results for 2002  reflect  the  adoption  of  Statement  of  Financial
     Accounting  Standards  No. 142 "Goodwill  and Other  Intangible  Assets" on
     January 1, 2002.

(2)  The results for 2001 include $9.0 million in non-recurring  charges related
     to our supplemental staffing division.

(3)  The results for 2001 include a pre-tax loss of $0.5 million  ($0.3  million
     after tax or $0.02 per share) on write-down of an  investment.  The results
     for 1999 include a pre-tax loss of $1.0 million  ($0.6 million after tax or
     $0.05 per share) on  write-down  of  investments.  The results for 1998 and
     1997 include pre-tax gains of $1.5 million ($0.9 million after tax or $0.06
     per share) and $1.4 million  ($0.9  million  after tax or $0.06 per share),
     respectively, from sales of marketable securities. In addition, the results
     for 1998 include a $0.8 million ($0.05 per share)  after-tax charge for the
     cumulative effect of change in accounting for start-up costs.

(4)  Share data  adjusted  for 3-for-2  stock split in October  1997 and 2-for-1
     stock split in June 2000.

(5)  For  comparability  purposes,  1997  computed  based  upon 12 months  ended
     December 31, 1996.

(6)  Average of beginning and ending equity.

(7)  We entered the supplemental  staffing business in August 1998 following the
     acquisition of StarMed Staffing, Inc.

(8)  Includes both supplemental and travel weeks worked.

                                       61
<PAGE>

                                                                    EXHIBIT 21.1



                           Subsidiaries of Registrant


      Subsidiary                            Jurisdiction of Organization
      ----------                            ----------------------------


StarMed Management, Inc.                        State of Delaware

RehabCare Group East, Inc.                      State of Delaware

RehabCare Group Management Services, Inc.       State of Delaware

RehabCare Group of California, Inc.             State of Delaware

RehabCare Texas Holdings, Inc.                  State of Delaware

RehabCare Group of Texas, L.P.                  State of Texas

StarMed Health Personnel, Inc.                  State of Delaware

Salt Lake Physical Therapy Associates, Inc.     State of Utah



                                       62
<PAGE>

                                                                    EXHIBIT 23.1




                          Independent Auditors' Consent

The Board of Directors
RehabCare Group, Inc.:

We consent to the  incorporation by reference in the registration  statement No.
33-43236  on  Form  S-8,  registration  statement  No.  33-67944  on  Form  S-8,
registration  statement  No.  33-82106 on Form S-8,  registration  statement No.
33-82048 on Form S-8,  registration  statement  No.  333-11311  on Form S-8, and
registration statement No. 333-86679 on Form S-8 of RehabCare Group, Inc. of our
report dated February 1, 2003, with respect to the  consolidated  balance sheets
of RehabCare Group,  Inc. and subsidiaries as of December 31, 2002 and 2001, and
the related  consolidated  statements of earnings,  stockholders'  equity,  cash
flows, and  comprehensive  earnings for the three-year period ended December 31,
2002,  which report  appears in the December 31, 2002 annual report on Form 10-K
of  RehabCare  Group,  Inc.  Our report  refers to the  adoption of Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets."



/s/ KPMG LLP


St. Louis, Missouri
March 14, 2003


                                       63
<PAGE>

                                                                    EXHIBIT 99.1





                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of RehabCare Group, Inc. (the "Company") on
Form 10-K for the period ending  December 31, 2002 as filed with the  Securities
and Exchange Commission on the date hereof (the "Report"), I, Alan C. Henderson,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:


     (1)  The Report fully  complies with the  requirements  of section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the Company.



                                      /s/       Alan C. Henderson
                                           --------------------------
                                                Alan C. Henderson
                                           Chief Executive Officer of
                                           RehabCare Group, Inc.
                                           March 14, 2003



                                       64
<PAGE>

                                                                    EXHIBIT 99.2





                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of RehabCare Group, Inc. (the "Company") on
Form 10-K for the period ending  December 31, 2002 as filed with the  Securities
and  Exchange  Commission  on the date  hereof  (the  "Report"),  I,  Vincent L.
Germanese,  Senior Vice  President and Chief  Financial  Officer of the Company,
certify,  pursuant to 18 U.S.C.  ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:


     (1)  The Report fully  complies with the  requirements  of section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the Company.



                                      /s/       Vincent L. Germanese
                                           --------------------------
                                                Vincent L. Germanese

                                           Senior Vice President and
                                           Chief Financial Officer of
                                           RehabCare Group, Inc.
                                           March 14, 2003



                                       65