|   | Delaware                      |   | 51-0265872                                |
|--------|-------------------------------|--------|-------------------------------------------|
|   | (State      of Incorporation) |   | (I.R.S.      Employer Identification No.) |

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

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|  | · | Improve Clinical      Quality. Program managers focused      on rehabilitation are able to develop and employ best practices, which      benefit client facilities and their  patients. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Increase Volumes.      Through the addition of specialty services such as acute      rehabilitation units, patients who were being discharged 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,      creating added revenues for the provider. New services also help hospitals      attract new patients. The addition of a managed rehabilitation program      helps skilled nursing facilities attract residents by broadening their      scope of services. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Optimize Utilization of Space.      Inpatient services help hospitals optimize physical plant space to      treat patients who have specific diagnoses within the particular      hospital’s targeted service lines. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Increase Cost Control.      Because of their extensive experience in the service line, contract      management companies 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Establish Agreements with      Managed Care Organizations. Program managers often have the ability      to improve clinical care by capturing and analyzing patient information      from a large number of acute rehabilitation and skilled nursing units,      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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Provide Access to      Capital.  Contract management companies, particularly      those which have access to public markets, can in certain circumstances      make capital available to their clients for adding programs and services      like physical rehabilitative services or expanding existing programs when      community needs dictate. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Obtain Reimbursement Advice.      Contract management companies, like RehabCare, employ reimbursement      specialists who are available to assist client facilities in interpreting      complicated regulations within a given specialty — a highly valued service      in the changing healthcareenvironment. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Obtain Clinical Resources and      Expertise. Rehabilitation service providers have the ability to      develop and implement clinical training and development programs that can      provide best practices for clients. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Ensure Appropriate Levels of      Staffing for Rehabilitation Professionals.      Therapy staffing in both hospitals and skilled nursing settings presents      unique challenges that can be better managed by a provider with a national      recruiting presence. Program managers have the ability to more sharply      focus on staffing levels in order to address the fluctuating clinical      needs of the host facility. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Business      Segments                                                                | Description of      Service                                                                                                                                                                                                                                                                                        | Benefits to      Client                                                                                                                                                                                                                                                        |
|---------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Program Management      Services:                                               |                                                                                                                                                                                                                                                                                                               |
| Hospital      Rehabilitation Services:                                                |                                                                                                                                                                                                                                                                                                               |
| InpatientAcute      RehabilitationUnits: Skilled      Nursing Units:   |  High      acuity rehabilitation for conditions such as strokes, orthopedic      conditions and head injuries. Lower      acuity rehabilitation but often more medically complex than acute      rehabilitation units for conditions such as stroke, cancer, heart failure,      burns and wounds.  |  Affords      the client opportunities to retain and expand market share in the      post-acute market by offering specialized clinical rehabilitation services      to patients who might otherwise be discharged to a setting outside the      client’s facility. |
| Outpatient                                                                            | Outpatient      therapy programs for hospital-based and satellite programs (primarily      sports and work-related injuries).                                                                                                                                                                                      | Helps      bring patients into the client’s facility by providing specialized      clinical programs and helps the client compete with freestanding      clinics.                                                                                                        |
|                                                                                  |                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                           |
| Contract      Therapy                                                                 | Rehabilitation      services in freestanding      skilled nursing,long-term      care and assisted living      facilities for neurological, orthopedic and other medical      conditions.                                                                                                                          | Affords      the client the ability to fulfill the continuing need for therapists on a      full-time or part-time basis. Offers the client a better opportunity to      improve the quality of the programs.                                                                  |
|                                                                                  |                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                           |
| Hospitals: Rehabilitation      Hospitals  LTACHs             |   Provide      intense interdisciplinary rehabilitation services to patients on an      inpatient and outpatient basis. Provide      high-level therapeutic and clinical care to patients with medically      complex diagnoses requiring a longer length of stay than 25      days.           |                                                                                                                                                                                                                                                                           |
| Other Healthcare      Services                                                        | Strategic      and financial consulting services and therapist and nurse staffing      services for healthcare providers.                                                                                                                                                                                          | Provides      management advisory services and solutions to healthcare      providers.                                                                                                                                                                                         |
|                                                                                  |

----

|                      |   | Acute           |   |       |   |     |   |      |
|---------------------------|--------|-----------------|--------|------------|--------|----------|--------|-----------|
|                      |   | Rehabilitation/ |   |       |   |     |   |      |
|                      |   | Skilled         |   | Outpatient |   | Contract |   |      |
|                      |   | Nursing         |   | Therapy    |   | Therapy  |   |      |
| Geographic      Region    |   | Units           |   | Programs   |   | Programs |   | Hospitals |
| Northeast      Region     |   | 14/1            |   | 5          |   | 102      |   | 0         |
| Southeast      Region     |   | 16/2            |   | 7          |   | 140      |   | 1         |
| North      Central Region |   | 29/0            |   | 8          |   | 302      |   | 0         |
| Mountain      Region      |   | 2/1             |   | 1          |   | 86       |   | 0         |
| South      Central Region |   | 40/0            |   | 11         |   | 397      |   | 8         |
| Western      Region       |   | 6/10            |   | 1          |   | 37       |   | 0         |
| Total                     |   | 107/14          |   | 33         |   | 1,064    |   | 9         |

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|   | · | facility      and professional licensure; |
|--------|--------|-------------------------------------------|

|   | · | conduct      of operations; |
|--------|--------|-----------------------------|

|   | · | certain      clinical procedures; |
|--------|--------|-----------------------------------|

|   | · | addition      of facilities and services, including certificates of need;      and |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | payment      for services. |
|--------|--------|----------------------------|

----

|   | · | difficulties      integrating acquired personnel and distinct cultures into our      business; |
|--------|--------|------------------------------------------------------------------------------------------------|

|   | · | incomplete      due diligence or misunderstanding as to the target company’s liabilities      or future prospects; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | diversion      of management attention and capital resources from existing      operations; |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | short      term (or longer lasting) dilution in the value of our    shares; |
|--------|--------|-----------------------------------------------------------------------------|

|   | · | over-paying      for an acquired company due to incorrect analysis or because of      competition from other companies for the same  target; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | inability      to achieve forecasted revenues, cost savings or other      synergies; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | potential      loss of key employees or customers of acquired companies;    and |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | assumption      of liabilities and exposure to unforeseen liabilities of acquired      companies, including liabilities for failure to comply with healthcare      regulations. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  ITEM 1B.  |  UNRESOLVED STAFF      COMMENTS |
|----------------------|--------------------------------------|

|  ITEM 2. |  PROPERTIES |
|---------------|------------------|

|   |                 | Approximate         | Lease      |
|--------|----------------------|---------------------|------------|
|   |   Location | Square      Footage | Expiration |
|   |                 |                |       |
|   | Midland,      TX     | 62,000              | 2013       |
|   | West      Gables, FL | 60,000              | 2017       |
|   | Tulsa,      OK       | 58,000              | 2017       |
|   | Lafayette,      LA   | 53,000              | 2017       |
|   | Webster,      TX     | 53,000              | 2017       |
|   | Amarillo,      TX    | 40,000              | 2020       |
|   | Arlington,      TX   | 18,000              | 2018       |
|   | Marrero,      LA     | 14,000              | 2018       |
|   | Austin,      TX      | 13,000              | 2009       |
|   | Lafayette,      LA   | 9,000               | 2009       |
|   | New      Orleans, LA | 6,000               | 2010       |
|   | Birmingham,      AL  | 6,000               | 2009       |
|   | Marrero,      LA     | 5,000               | 2010       |
|   | Marrero,      LA     | 3,000               | 2008       |

----

|   |                    | Approximate         | Lease      |
|--------|-------------------------|---------------------|------------|
|   |   Location    | Square      Footage | Expiration |
|   |                    |                |       |
|   | Hunt      Valley, MD    | 35,000              | 2010       |
|   | Salt      Lake City, UT | 16,000              | 2012       |
|   | Shreveport,      LA     | 8,000               | 2011       |
|   | Salt      Lake City, UT | 6,000               | 2012       |
|   | Tampa,      FL          | 5,000               | 2011       |

|  ITEM 3. |  LEGAL    PROCEEDINGS |
|---------------|----------------------------|

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

----

| ITEM      5. | MARKET      FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER      PURCHASES OF EQUITY SECURITIES |
|--------------|---------------------------------------------------------------------------------------------------------------------------------|

|                   |   | 12/31/02 |   | 12/31/03 |   | 12/31/04 |   | 12/31/05 |   | 12/31/06 |   | 12/31/07 |
|------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|
| RehabCare      Group   |   | $100     |   | $111.43  |   | $146.70  |   | $105.87  |   | $77.83   |   | $118.24  |
| NYSE      Market Index |   | $100     |   | $129.55  |   | $146.29  |   | $158.37  |   | $185.55  |   | $195.46  |
| Peer      Group Index  |   | $100     |   | $134.65  |   | $176.22  |   | $237.10  |   | $233.37  |   | $278.18  |

----

| ITEM 6.  |  SELECTED FINANCIAL      DATA |
|---------------|------------------------------------|

----

| ITEM 7.  |  MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS |
|---------------|-------------------------------------------------------------------------------------------------------------|

|                                         | Year      Ended December 31, |
|----------------------------------------------|-----------------------------------|
|                                         |                              | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                         | (in      thousands)               |
| Revenues:                                    |                              |   |   |   |   |   |   |   |   |
| Program      management:                     |                              |   |   |   |   |   |   |   |   |
| Contract      therapy                        | $                                 | 400,761 |   | $ | 331,603 |   | $ | 232,193 |   |
| Hospital      rehabilitation services        |                              | 164,102 |   |   | 179,798 |   |   | 189,832 |   |
| Program      management total                |                              | 564,863 |   |   | 511,401 |   |   | 422,025 |   |
| Hospitals                                    |                              | 103,126 |   |   | 77,101 |   |   | 21,706 |   |
| Other      healthcare services               |                              | 44,629 |   |   | 26,859 |   |   | 10,891 |   |
| Less      intercompany revenues (1)          |                              | (944 | ) |   | (568 | ) |   | (356 | ) |
| Total                                        | $                                 | 711,674 |   | $ | 614,793 |   | $ | 454,266 |   |
|                                         |                              |   |   |   |   |   |   |   |   |
| Operating      Earnings (Loss):              |                              |   |   |   |   |   |   |   |   |
| Program      management:                     |                              |   |   |   |   |   |   |   |   |
| Contract      therapy                        | $                                 | 6,018 |   | $ | (2,567 | ) | $ | 12,661 |   |
| Hospital      rehabilitation services (2)    |                              | 22,893 |   |   | 23,661 |   |   | 22,538 |   |
| Program management      total                |                              | 28,911 |   |   | 21,094 |   |   | 35,199 |   |
| Hospitals      (3)                           |                              | (3,638 | ) |   | 643 |   |   | (654 | ) |
| Other      healthcare services               |                              | 1,696 |   |   | 1,400 |   |   | (58 | ) |
| Unallocated      asset impairment charge (4) |                              | — |   |   | (2,351 | ) |   | — |   |
| Unallocated      corporate expenses (5)      |                              | — |   |   | (22 | ) |   | (1,220 | ) |
| Restructuring                                |                              | — |   |   | 191 |   |   | — |   |
| Total                                        | $                                 | 26,969 |   | $ | 20,955 |   | $ | 33,267 |   |

|   | (1) | Intercompany      revenues represent sales of services, at market rates, between our      operating divisions. |
|--------|-----|----------------------------------------------------------------------------------------------------------------|

|   | (2) | The      2005 operating earnings of hospital rehabilitation services include a $4.2      million impairment loss on certain separately identifiable intangible      assets. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | The      2007 operating earnings of hospitals include a $4.9 million impairment      loss on a separately identifiable intangible asset.  See Note 7      to the consolidated financial statements for additional      information. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Represents      an impairment charge associated with the abandonment of internally      developed software that was never placed in service.   See      Note 5 to the consolidated financial statements for additional      information. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Represents      certain expenses associated with our StarMed staffing business, which was      sold on February 2, 2004. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                     | Year      Ended December 31, |
|----------------------------------------------------------------------------------------------------------|-----------------------------------|
|                                                                                                     | 2007                              |   | 2006 |   | 2005 |
| Operating      revenues                                                                                  |                              | 100.0 | % |   | 100.0 | % |   | 100.0 | % |
| Cost      and expenses:                                                                                  |                              |   |   |   |   |   |   |   |   |
| Operating                                                                                                |                              | 81.2 |   |   | 81.0 |   |   | 75.6 |   |
| Selling,      general and administrative:                                                                |                              |   |   |   |   |   |   |   |   |
| Divisions                                                                                                |                              | 6.4 |   |   | 6.9 |   |   | 7.9 |   |
| Corporate                                                                                                |                              | 5.5 |   |   | 6.0 |   |   | 6.0 |   |
| Impairment      of assets                                                                                |                              | 0.7 |   |   | 0.4 |   |   | 0.9 |   |
| Depreciation      and amortization                                                                       |                              | 2.4 |   |   | 2.3 |   |   | 2.3 |   |
| Operating      earnings                                                                                  |                              | 3.8 |   |   | 3.4 |   |   | 7.3 |   |
| Interest      income                                                                                     |                              | 0.1 |   |   | 0.1 |   |   | 0.2 |   |
| Interest      expense                                                                                    |                              | (1.2 | ) |   | (0.9 | ) |   | (0.2 | ) |
| Earnings      before income taxes, equity in net income (loss) of affiliates and      minority interests |                              | 2.7 |   |   | 2.6 |   |   | 7.3 |   |
| Income      taxes                                                                                        |                              | (1.0 | ) |   | (0.9 | ) |   | (2.9 | ) |
| Equity      in net income (loss) of affiliates                                                           |                              | — |   |   | (0.5 | ) |   | (8.1 | ) |
| Minority      interests                                                                                  |                              | 0.1 |   |   | — |   |   | — |   |
| Net      earnings (loss)                                                                                 |                              | 1.8 | % |   | 1.2 | % |   | (3.7 | )% |

----

| Revenues                              |   |                        |   |   |          |   |   |   |   |
|---------------------------------------|--------|-----------------------------|--------|--------|---------------|--------|--------|--------|--------|
|                                  | 2007   |                        | 2006   |   | %      Change |
|                                  |   | (dollars      in thousands) |   |
| Contract      therapy                 | $      | 400,761                     |   | $      | 331,603       |   | 20.9   | %      |   |
| Hospital      rehabilitation services |   | 164,102                     |   |   | 179,798       |   | (8.7   | )      |   |
| Hospitals                             |   | 103,126                     |   |   | 77,101        |   | 33.8   |   |   |
| Other      healthcare services        |   | 44,629                      |   |   | 26,859        |   | 66.2   |   |   |
| Less      intercompany revenues       |   | (944                        | )      |   | (568          | )      | 66.2   |   |   |
| Consolidated      revenues            | $      | 711,674                     |   | $      | 614,793       |   | 15.8   | %      |   |

----

| Cost      and Expenses                             |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
|----------------------------------------------------|-----------------------------|---------|--------|---------|-----------|--------|--------|--------|---------|---------|--------|--------|-----------|--------|
|                                               |                        |    |   |    | %      of |   |   |   |    |    |   |   | %      of |   |
|                                               |                        | 2007    |   | Revenue |      |   | 2006   |   |    | Revenue |
|                                               | (dollars      in thousands) |
| Consolidated      costs and expenses:              |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating      expenses                            | $                           | 578,180 |   |    | 81.2      | %      |   | $      | 497,694 |    |   |   | 81.0      | %      |
| Division      selling, general and administrative  |                        | 45,520  |   |    | 6.4       |   |   |   | 42,413  |    |   |   | 6.9       |   |
| Corporate      selling, general and administrative |                        | 39,078  |   |    | 5.5       |   |   |   | 37,034  |    |   |   | 6.0       |   |
| Impairment      of assets                          |                        | 4,906   |   |    | 0.7       |   |   |   | 2,351   |    |   |   | 0.4       |   |
| Restructuring                                      |                        | — |   |    | —   |   |   |   | (191    | )       |   |   | —   |   |
| Depreciation      and amortization                 |                        | 17,021  |   |    | 2.4       |   |   |   | 14,537  |    |   |   | 2.3       |   |
| Total      costs and expenses                      | $                           | 684,705 |   |    | 96.2      | %      |   | $      | 593,838 |    |   |   | 96.6      | %      |

----

|                                               |                        |    |   |    | %      of |   |   |   |    |    |   |   | %      of |   |
|----------------------------------------------------|-----------------------------|---------|--------|---------|-----------|--------|--------|--------|---------|---------|--------|--------|-----------|--------|
|                                               |                        |    |   | Unit    |      |   |   |   |    | Unit    |
|                                               |                        | 2007    |   | Revenue |      |   | 2006   |   |    | Revenue |
|                                               | (dollars      in thousands) |
| Contract      Therapy:                             |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating      expenses                            | $                           | 338,377 |   |    | 84.4      | %      |   | $      | 282,871 |    |   |   | 85.3      | %      |
| Division      selling, general and administrative  |                        | 23,308  |   |    | 5.8       |   |   |   | 21,826  |    |   |   | 6.6       |   |
| Corporate      selling, general and administrative |                        | 24,754  |   |    | 6.2       |   |   |   | 22,812  |    |   |   | 6.9       |   |
| Depreciation      and amortization                 |                        | 8,304   |   |    | 2.1       |   |   |   | 6,661   |    |   |   | 2.0       |   |
| Total      costs and expenses                      | $                           | 394,743 |   |    | 98.5      | %      |   | $      | 334,170 |    |   |   | 100.8     | %      |
| Hospital      Rehabilitation Services:             |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating      expenses                            | $                           | 115,706 |   |    | 70.5      | %      |   | $      | 126,604 |    |   |   | 70.4      | %      |
| Division      selling, general and administrative  |                        | 13,552  |   |    | 8.2       |   |   |   | 15,125  |    |   |   | 8.4       |   |
| Corporate      selling, general and administrative |                        | 7,847   |   |    | 4.8       |   |   |   | 9,668   |    |   |   | 5.4       |   |
| Depreciation      and amortization                 |                        | 4,104   |   |    | 2.5       |   |   |   | 4,740   |    |   |   | 2.6       |   |
| Total      costs and expenses                      | $                           | 141,209 |   |    | 86.0      | %      |   | $      | 156,137 |    |   |   | 86.8      | %      |
| Hospitals:                                         |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating      expenses                            | $                           | 89,970  |   |    | 87.2      | %      |   | $      | 67,955  |    |   |   | 88.1      | %      |
| Division      selling, general and administrative  |                        | 2,959   |   |    | 2.9       |   |   |   | 1,983   |    |   |   | 2.6       |   |
| Corporate      selling, general and administrative |                        | 4,833   |   |    | 4.7       |   |   |   | 3,676   |    |   |   | 4.8       |   |
| Impairment      of intangible assets               |                        | 4,906   |   |    | 4.7       |   |   |   | — |    |   |   | —   |   |
| Depreciation      and amortization                 |                        | 4,096   |   |    | 4.0       |   |   |   | 2,844   |    |   |   | 3.7       |   |
| Total      costs and expenses                      | $                           | 106,764 |   |    | 103.5     | %      |   | $      | 76,458  |    |   |   | 99.2      | %      |
| Other      Healthcare Services:                    |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating      expenses                            | $                           | 35,071  |   |    | 78.6      | %      |   | $      | 20,810  |    |   |   | 77.5      | %      |
| Division      selling, general and administrative  |                        | 5,701   |   |    | 12.8      |   |   |   | 3,479   |    |   |   | 13.0      |   |
| Corporate      selling, general and administrative |                        | 1,644   |   |    | 3.7       |   |   |   | 878     |    |   |   | 3.2       |   |
| Depreciation      and amortization                 |                        | 517     |   |    | 1.1       |   |   |   | 292     |    |   |   | 1.1       |   |
| Total      costs and expenses                      | $                           | 42,933  |   |    | 96.2      | %      |   | $      | 25,459  |    |   |   | 94.8      | %      |

----

----

| Revenues                              |   |                        |   |   |          |   |   |   |   |
|---------------------------------------|--------|-----------------------------|--------|--------|---------------|--------|--------|--------|--------|
|                                  | 2006   |                        | 2005   |   | %      Change |
|                                  |   | (dollars      in thousands) |   |
|                                  |   |                        |   |   |          |   |   |   |   |
| Contract      therapy                 | $      | 331,603                     |   | $      | 232,193       |   | 42.8   | %      |   |
| Hospital      rehabilitation services |   | 179,798                     |   |   | 189,832       |   | (5.3   | )      |   |
| Hospitals                             |   | 77,101                      |   |   | 21,706        |   | 255.2  |   |   |
| Other      healthcare services        |   | 26,859                      |   |   | 10,891        |   | 146.6  |   |   |
| Less      intercompany revenues       |   | (568                        | )      |   | (356          | )      | 59.6   |   |   |
| Consolidated    revenues              | $      | 614,793                     |   | $      | 454,266       |   | 35.3   | %      |   |

----

| Cost      and Expenses                                 |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
|--------------------------------------------------------|-----------------------------|---------|--------|---------|-----------|--------|--------|--------|---------|---------|--------|--------|-----------|--------|
|                                                   |                        |    |   |    | %      of |   |   |   |    |    |   |   | %      of |   |
|                                                   |                        | 2006    |   | Revenue |      |   | 2005   |   |    | Revenue |
|                                                   | (dollars      in thousands) |
| Consolidated      costs and expenses:                  |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating      expenses                                | $                           | 497,694 |   |    | 81.0      | %      |   | $      | 343,230 |    |   |   | 75.6      | %      |
| Division      selling, general and administrative      |                        | 42,413  |   |    | 6.9       |   |   |   | 35,852  |    |   |   | 7.9       |   |
| Corporate      selling, general and administrative (1) |                        | 37,034  |   |    | 6.0       |   |   |   | 27,051  |    |   |   | 6.0       |   |
| Impairment      of assets                              |                        | 2,351   |   |    | 0.4       |   |   |   | 4,211   |    |   |   | 0.9       |   |
| Restructuring                                          |                        | (191    | )      |    | —   |   |   |   | — |    |   |   | —   |   |
| Depreciation      and amortization                     |                        | 14,537  |   |    | 2.3       |   |   |   | 10,655  |    |   |   | 2.3       |   |
| Total costs and      expenses                          | $                           | 593,838 |   |    | 96.6      | %      |   | $      | 420,999 |    |   |   | 92.7      | %      |

|   | (1) | In      2005, certain expenses associated with the indemnification of pre-sale      liabilities related to our former StarMed staffing business, in excess of      the amount accrued upon the sale of the business on February 2, 2004, have      not been allocated against our current business segments’ operating      profits.  See the following table for detail of costs and      expenses by business segment. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                               |                        |    |   |    | %      of |   |   |   |    |    |   |   | %      of |   |
|----------------------------------------------------|-----------------------------|---------|--------|---------|-----------|--------|--------|--------|---------|---------|--------|--------|-----------|--------|
|                                               |                        |    |   | Unit    |      |   |   |   |    | Unit    |
|                                               |                        | 2006    |   | Revenue |      |   | 2005   |   |    | Revenue |
|                                               | (dollars      in thousands) |
| Contract      Therapy:                             |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating    expenses                              | $                           | 282,871 |   |    | 85.3      | %      |   | $      | 185,268 |    |   |   | 79.8      | %      |
| Division selling, general and      administrative  |                        | 21,826  |   |    | 6.6       |   |   |   | 16,121  |    |   |   | 6.9       |   |
| Corporate selling, general and      administrative |                        | 22,812  |   |    | 6.9       |   |   |   | 13,953  |    |   |   | 6.0       |   |
| Depreciation and      amortization                 |                        | 6,661   |   |    | 2.0       |   |   |   | 4,190   |    |   |   | 1.8       |   |
| Total costs and      expenses                      | $                           | 334,170 |   |    | 100.8     | %      |   | $      | 219,532 |    |   |   | 94.5      | %      |
| Hospital      Rehabilitation Services:             |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating    expenses                              | $                           | 126,604 |   |    | 70.4      | %      |   | $      | 129,921 |    |   |   | 68.4      | %      |
| Division selling, general and      administrative  |                        | 15,125  |   |    | 8.4       |   |   |   | 16,227  |    |   |   | 8.5       |   |
| Corporate selling, general and      administrative |                        | 9,668   |   |    | 5.4       |   |   |   | 11,304  |    |   |   | 6.0       |   |
| Impairment of intangible      assets               |                        | — |   |    | —   |   |   |   | 4,211   |    |   |   | 2.2       |   |
| Depreciation and      amortization                 |                        | 4,740   |   |    | 2.6       |   |   |   | 5,631   |    |   |   | 3.0       |   |
| Total costs and      expenses                      | $                           | 156,137 |   |    | 86.8      | %      |   | $      | 167,294 |    |   |   | 88.1      | %      |
| Hospitals:                                         |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating    expenses                              | $                           | 67,955  |   |    | 88.1      | %      |   | $      | 19,944  |    |   |   | 91.9      | %      |
| Division selling, general and      administrative  |                        | 1,983   |   |    | 2.6       |   |   |   | 1,380   |    |   |   | 6.4       |   |
| Corporate selling, general and      administrative |                        | 3,676   |   |    | 4.8       |   |   |   | 243     |    |   |   | 1.1       |   |
| Depreciation and      amortization                 |                        | 2,844   |   |    | 3.7       |   |   |   | 793     |    |   |   | 3.6       |   |
| Total costs and      expenses                      | $                           | 76,458  |   |    | 99.2      | %      |   | $      | 22,360  |    |   |   | 103.0     | %      |
| Other      Healthcare Services:                    |                        |    |   |    |      |   |   |   |    |    |   |   |      |   |
| Operating    expenses                              | $                           | 20,810  |   |    | 77.5      | %      |   | $      | 8,453   |    |   |   | 77.6      | %      |
| Division selling, general and      administrative  |                        | 3,479   |   |    | 13.0      |   |   |   | 2,124   |    |   |   | 19.5      |   |
| Corporate selling, general and      administrative |                        | 878     |   |    | 3.2       |   |   |   | 331     |    |   |   | 3.0       |   |
| Depreciation and      amortization                 |                        | 292     |   |    | 1.1       |   |   |   | 41      |    |   |   | 0.4       |   |
| Total costs and      expenses                      | $                           | 25,459  |   |    | 94.8      | %      |   | $      | 10,949  |    |   |   | 100.5     | %      |

----

----

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|                                 |   |   |    |        | Less      than |    | 2-3    |   | 4-5     |         | More      than |    |   |   |
|--------------------------------------|--------|--------|---------|-------------|----------------|---------|--------|--------|---------|--------------|----------------|---------|--------|--------|
|                                 |   | Total  |    | 1      year |           | years   |   | years  |    | 5      years |           | Other   |
| Operating      leases (1)            |   | $      | 143,836 |        | $              | 10,752  |   | $      | 23,966  |         | $              | 21,848  |   | $      | 87,270 |   | $ | — |
| Purchase      obligations (2)        |   |   | 11,248  |        |           | 10,816  |   |   | 426     |         |           | 6       |   |   | — |   |   | — |
| Long-term      debt                  |   |   | 74,500  |        |           | 9,500   |   |   | — |         |           | 65,000  |   |   | — |   |   | — |
| Interest      on long-term debt (3)  |   |   | 14,112  |        |           | 4,225   |   |   | 8,047   |         |           | 1,840   |   |   | — |   |   | — |
| FIN      48 liability (4)            |   |   | 308     |        |           | — |   |   | — |         |           | — |   |   | — |   |   | 308 |
| Other      long-term liabilities (5) |   |   | 3,552   |        |           | — |   |   | — |         |           | — |   |   | — |   |   | 3,552 |
| Total                                |   | $      | 247,556 |        | $              | 35,293  |   | $      | 32,439  |         | $              | 88,694  |   | $      | 87,270 |   | $ | 3,860 |

| (1) | We      lease many of our facilities under non-cancelable operating leases in the      normal course of business.  Some lease agreements provide us      with the option to renew the lease. Our future operating lease obligations      would change if we exercised these renewal options and if we entered into      additional operating lease agreements. For more information, see Note 12      to our accompanying consolidated financial  statements. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Purchase      obligations include agreements to purchase goods or services that are      enforceable and legally binding on us and that specify all significant      terms. Purchase obligations exclude agreements that are cancelable without      penalty.  Approximately $9.6 million of the amounts included on      this line represent commitments related to the construction of a      rehabilitation hospital in Chesterfield, Missouri and leasehold      improvements for an LTACH in Kokomo,Indiana. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | For      the purpose of computing the interest payments shown here, we have assumed      a constant balance outstanding under our revolving credit facility of      $65.0 million through June 16, 2011, which is the date on which our credit      facility expires.  This also assumes our contracts under the      revolving credit facility are renewed at the currently existing rates of      interest. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | This      represents our total liability for unrecognized tax benefits based on the      guidance in FASB Interpretation No. 48, “Accounting for Uncertainty in      Income Taxes” (“FIN 48”).  There is a high degree of uncertainty      regarding the timing of future cash outflows associated with our FIN 48      liabilities, which involve various taxing authorities.  As a      result, we are unable to predict the timing of payments against this      obligation. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | We      maintain a nonqualified deferred compensation plan for certain employees.      Under the plan, participants may defer up to 70% of their salary and cash      incentive compensation. The amounts are held in trust in designated      investments and remain our property until distribution.      Because |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | most      distributions of funds are tied to the termination of employment or      retirement of participants, we are not able to predict the timing of      payments against this obligation.  At December 31, 2007, we      owned trust assets with a value approximately equal to the total amount of      this obligation. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ITEM 7A.  |  QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK |
|----------------|------------------------------------------------------------------------|

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| ITEM 8. | FINANCIAL      STATEMENTS AND SUPPLEMENTARY DATA |
|---------|--------------------------------------------------|

|                                                                     |   |
|--------------------------------------------------------------------------|--------|
| Report      of Independent Registered Public Accounting Firm             | 42     |
|                                                                     |   |
| Consolidated      Balance Sheets as of December 31, 2007 and 2006        | 44     |
|                                                                     |   |
| Consolidated      Statements of Earnings for the years                   |   |
| ended December 31, 2007, 2006 and      2005                              | 45     |
|                                                                     |   |
| Consolidated      Statements of Stockholders’ Equity for the years |   |
| ended December 31, 2007, 2006      and 2005                              | 46     |
|                                                                     |   |
| Consolidated      Statements of Cash Flows for the years                 |   |
| ended December 31, 2007, 2006 and      2005                              | 47     |
|                                                                     |   |
| Notes      to the Consolidated Financial Statements                      | 48     |

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Report 

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|                                                                                                                                                                     |   | December      31, |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
| Assets                                                                                                                                                                   |   | 2007              |    | 2006 |   |
| Current      assets:                                                                                                                                                     |   |              |    |   |   |   |   |
| Cash      and cash equivalents                                                                                                                                           |   | $                 | 10,265  |   | $ | 9,430 |   |
| Accounts      receivable, net of allowance for doubtful accounts of $16,266 and $14,355,      respectively                                                               |   |              | 135,194 |   |   | 153,688 |   |
| Deferred      tax assets                                                                                                                                                 |   |              | 15,863  |   |   | 6,065 |   |
| Income      taxes receivable                                                                                                                                             |   |              | — |   |   | 141 |   |
| Other      current assets                                                                                                                                                |   |              | 7,892   |   |   | 8,791 |   |
| Total      current assets                                                                                                                                                |   |              | 169,214 |   |   | 178,115 |   |
| Marketable      securities, trading                                                                                                                                      |   |              | 3,547   |   |   | 4,410 |   |
| Property      and equipment, net                                                                                                                                         |   |              | 29,705  |   |   | 31,833 |   |
| Goodwill                                                                                                                                                                 |   |              | 168,517 |   |   | 167,440 |   |
| Intangible      assets, net                                                                                                                                              |   |              | 28,027  |   |   | 36,950 |   |
| Investment      in unconsolidated affiliate                                                                                                                              |   |              | 4,701   |   |   | 3,295 |   |
| Deferred      tax assets                                                                                                                                                 |   |              | — |   |   | 1,185 |   |
| Other                                                                                                                                                                    |   |              | 4,849   |   |   | 5,068 |   |
| Total      assets                                                                                                                                                        |   | $                 | 408,560 |   | $ | 428,296 |   |
|                                                                                                                                                                     |   |              |    |   |   |   |   |
| Liabilities and      Stockholders’ Equity                                                                                                                          |   |              |    |   |   |   |   |
| Current      liabilities:                                                                                                                                                |   |              |    |   |   |   |   |
| Current      portion of long-term debt                                                                                                                                   |   | $                 | 9,500   |   | $ | 5,559 |   |
| Accounts      payable                                                                                                                                                    |   |              | 5,825   |   |   | 9,755 |   |
| Accrued      salaries and wages                                                                                                                                          |   |              | 49,886  |   |   | 50,525 |   |
| Income      taxes payable                                                                                                                                                |   |              | 192     |   |   | — |   |
| Accrued      expenses                                                                                                                                                    |   |              | 23,526  |   |   | 26,294 |   |
| Total      current liabilities                                                                                                                                           |   |              | 88,929  |   |   | 92,133 |   |
| Long-term      debt, less current portion                                                                                                                                |   |              | 65,000  |   |   | 115,000 |   |
| Deferred      compensation                                                                                                                                               |   |              | 3,552   |   |   | 4,432 |   |
| Deferred      tax liabilities                                                                                                                                            |   |              | 5,375   |   |   | — |   |
| Other                                                                                                                                                                    |   |              | 415     |   |   | 5,866 |   |
| Total      liabilities                                                                                                                                                   |   |              | 163,271 |   |   | 217,431 |   |
| Minority      interests                                                                                                                                                  |   |              | 1,267   |   |   | 86 |   |
|                                                                                                                                                                     |   |              |    |   |   |   |   |
| 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 21,466,994      shares and 21,131,640 shares as of December 31, 2007 and 2006,      respectively |   |              | 215     |   |   | 211 |   |
| Additional      paid-in capital                                                                                                                                          |   |              | 140,246 |   |   | 134,040 |   |
| Retained      earnings                                                                                                                                                   |   |              | 158,331 |   |   | 131,232 |   |
| Accumulated      other comprehensive loss                                                                                                                                |   |              | (66     | ) |   | — |   |
| Less      common stock held in treasury at cost; 4,002,898 shares as of December 31,      2007 and 2006                                                                  |   |              | (54,704 | ) |   | (54,704 | ) |
| Total      stockholders’ equity                                                                                                                                    |   |              | 244,022 |   |   | 210,779 |   |
| Total      liabilities and stockholders’ equity                                                                                                                    |   | $                 | 408,560 |   | $ | 428,296 |   |

----

|                                                                                                     |   |   | Year      Ended December 31, |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|------------------------------|--------|
|                                                                                                     |   |   | 2007                         |   |   |   | 2006 |   |   |   | 2005 |   |
|                                                                                                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| Operating      revenues                                                                                  |   | $      | 711,674                      |   |   | $ | 614,793 |   |   | $ | 454,266 |   |
| Costs      and expenses:                                                                                 |   |   |                         |   |   |   |   |   |   |   |   |   |
| Operating                                                                                                |   |   | 578,180                      |   |   |   | 497,694 |   |   |   | 343,230 |   |
| Selling,      general and administrative:                                                                |   |   |                         |   |   |   |   |   |   |   |   |   |
| Divisions                                                                                                |   |   | 45,520                       |   |   |   | 42,413 |   |   |   | 35,852 |   |
| Corporate                                                                                                |   |   | 39,078                       |   |   |   | 37,034 |   |   |   | 27,051 |   |
| Impairment      of assets                                                                                |   |   | 4,906                        |   |   |   | 2,351 |   |   |   | 4,211 |   |
| Restructuring                                                                                            |   |   | —                      |   |   |   | (191 | ) |   |   | — |   |
| Depreciation      and amortization                                                                       |   |   | 17,021                       |   |   |   | 14,537 |   |   |   | 10,655 |   |
| Total      costs and expenses                                                                            |   |   | 684,705                      |   |   |   | 593,838 |   |   |   | 420,999 |   |
|                                                                                                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| Operating      earnings                                                                                  |   |   | 26,969                       |   |   |   | 20,955 |   |   |   | 33,267 |   |
|                                                                                                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| Interest      income                                                                                     |   |   | 830                          |   |   |   | 468 |   |   |   | 794 |   |
| Interest      expense                                                                                    |   |   | (8,362                       | )      |   |   | (5,499 | ) |   |   | (1,169 | ) |
| Other      income (expense), net                                                                         |   |   | 37                           |   |   |   | (50 | ) |   |   | 59 |   |
|                                                                                                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| Earnings      before income taxes, equity in net income (loss) of affiliates and      minority interests |   |   | 19,474                       |   |   |   | 15,874 |   |   |   | 32,951 |   |
|                                                                                                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| Income      taxes                                                                                        |   |   | (7,479                       | )      |   |   | (5,589 | ) |   |   | (13,345 | ) |
| Equity      in net income (loss) of affiliates                                                           |   |   | 287                          |   |   |   | (3,029 | ) |   |   | (36,588 | ) |
| Minority      interests                                                                                  |   |   | 377                          |   |   |   | 24 |   |   |   | — |   |
|                                                                                                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| Net      earnings (loss)                                                                                 |   | $      | 12,659                       |   |   | $ | 7,280 |   |   | $ | (16,982 | ) |
|                                                                                                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| Net      earnings (loss) per common share:                                                               |   |   |                         |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                    |   | $      | 0.73                         |   |   | $ | 0.43 |   |   | $ | (1.01 | ) |
| Diluted                                                                                                  |   | $      | 0.73                         |   |   | $ | 0.42 |   |   | $ | (1.01 | ) |

----

|                                                               |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 | Accumulated |                            |    |   |   |
|--------------------------------------------------------------------|--------|--------------------|--------|------------|--------|---------|--------|----------------------|--------|---------|--------|------------------------|---------|---------|--------|----------|--------------------|---------|----------------------|-------------|---------------------------------|---------|--------|--------|
|                                                               |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     | other      compre- |    |                 |        |                            |
|                                                               |   | Common      Stock  |   | Additional |   |    |   |                 |   |    |   |                   | hensive | Total   |
|                                                               |   | Issued      shares |   |       | Amount |    |   | Paid-in      capital |   |    |   | Retained      earnings |    |    |   | Treasury |               |    | earnings      (loss) |        | stockholders’      equity |
| Shares                                                             |   |               |   | Amount     |
|                                                               |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   |   |   |   |
| Balance,      December 31, 2004                                    |   | 20,553             |   |       | $      | 206     |   |                 | $      | 120,592 |   |                   | $       | 140,934 |   |     |               | 4,003   |                 |        | $                               | (54,704 | )      |   | $ | — |   |   | $ | 207,028 |   |   |
| Components      of comprehensive earnings (loss):                  |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                      |   | —            |   |       |   | — |   |                 |   | — |   |                   |    | (16,982 | )      |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | (16,982 | ) |   |
| Total      comprehensive loss                                      |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   | (16,982 | ) |   |
|                                                               |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   |   |   |   |
| Shares      issued under stock plans                               |   | 277                |   |       |   | 2       |   |                 |   | 8,200   |   |                   |    | — |   |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | 8,202 |   |   |
| Balance,      December 31, 2005                                    |   | 20,830             |   |       |   | 208     |   |                 |   | 128,792 |   |                   |    | 123,952 |   |     |               | 4,003   |                 |        |                            | (54,704 | )      |   |   | — |   |   |   | 198,248 |   |   |
| Components      of comprehensive earnings:                         |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   |   |   |   |
| Net      earnings                                                  |   | —            |   |       |   | — |   |                 |   | — |   |                   |    | 7,280   |   |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | 7,280 |   |   |
| Total      comprehensive earnings                                  |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   | 7,280 |   |   |
|                                                               |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   |   |   |   |
| Stock-based      compensation                                      |   | —            |   |       |   | — |   |                 |   | 1,697   |   |                   |    | — |   |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | 1,697 |   |   |
| Shares      issued under stock plans                               |   | 302                |   |       |   | 3       |   |                 |   | 3,551   |   |                   |    | — |   |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | 3,554 |   |   |
| Balance,      December 31, 2006                                    |   | 21,132             |   |       |   | 211     |   |                 |   | 134,040 |   |                   |    | 131,232 |   |     |               | 4,003   |                 |        |                            | (54,704 | )      |   |   | — |   |   |   | 210,779 |   |   |
| Components      of comprehensive earnings:                         |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   |   |   |   |
| Net      earnings                                                  |   | —            |   |       |   | — |   |                 |   | — |   |                   |    | 12,659  |   |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | 12,659 |   |   |
| Change      in fair value of interest rate swap, net of tax of $41 |   | —            |   |       |   | — |   |                 |   | — |   |                   |    | — |   |     |               | — |                 |        |                            | — |   |   |   | (66 |  ) |   |   | (66 |  ) |   |
| Total      comprehensive earnings                                  |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   | 12,593 |   |   |
|                                                               |   |               |   |       |   |    |   |                 |   |    |   |                   |    |    |   |     |               |    |                 |        |                            |    |   |   |   |   |   |   |   |   |   |   |
| Adjustment      to initially apply FIN 48                          |   | —            |   |       |   | — |   |                 |   | — |   |                   |    | 14,440  |   |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | 14,440 |   |   |
| Stock-based      compensation                                      |   | —            |   |       |   | — |   |                 |   | 1,726   |   |                   |    | — |   |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | 1,726 |   |   |
| Shares      issued under stock plans                               |   | 335                |   |       |   | 4       |   |                 |   | 4,480   |   |                   |    | — |   |     |               | — |                 |        |                            | — |   |   |   | — |   |   |   | 4,484 |   |   |
| Balance,      December 31, 2007                                    |   | 21,467             |   |       | $      | 215     |   |                 | $      | 140,246 |   |                   | $       | 158,331 |   |     |               | 4,003   |                 |        | $                               | (54,704 | )      |   | $ | (66 | ) |   | $ | 244,022 |   |   |

----

|                                                              |   |   | Year      Ended December 31, |   |   |
|-------------------------------------------------------------------|--------|--------|------------------------------|--------|--------|
|                                                              |   |   | 2007                         |   |   |   | 2006 |   |   |   | 2005 |   |   |
| Cash      flows from operating activities:                        |   |   |                         |   |   |   |   |   |   |   |   |   |   |
| Net      earnings (loss)                                          |   | $      | 12,659                       |   |   | $ | 7,280 |   |   | $ | (16,982 | ) |   |
| Reconciliation      to net cash provided by operating activities: |   |   |                         |   |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                |   |   | 17,021                       |   |   |   | 14,537 |   |   |   | 10,655 |   |   |
| Provision      for doubtful accounts                              |   |   | 9,194                        |   |   |   | 5,937 |   |   |   | 3,597 |   |   |
| Equity      in net (income) loss of affiliates                    |   |   | (287                         | )      |   |   | 3,029 |   |   |   | 36,588 |   |   |
| Minority      interests                                           |   |   | (377                         | )      |   |   | (24 | ) |   |   | — |   |   |
| Impairment      of assets                                         |   |   | 4,906                        |   |   |   | 2,351 |   |   |   | 4,211 |   |   |
| Stock-based      compensation                                     |   |   | 1,726                        |   |   |   | 1,697 |   |   |   | — |   |   |
| Income      tax benefit related to stock options exercised        |   |   | 1,122                        |   |   |   | 896 |   |   |   | 5,577 |   |   |
| Excess      tax benefit related to stock options exercised        |   |   | (973                         | )      |   |   | (895 | ) |   |   | — |   |   |
| Restructuring                                                     |   |   | —                      |   |   |   | (191 | ) |   |   | — |   |   |
| (Gain)      loss on disposal of property and equipment            |   |   | (37                          | )      |   |   | 50 |   |   |   | — |   |   |
| Changes      in assets and liabilities:                           |   |   |                         |   |   |   |   |   |   |   |   |   |   |
| Accounts      receivable, net                                     |   |   | 7,883                        |   |   |   | (19,059 | ) |   |   | (13,893 | ) |   |
| Other      current assets                                         |   |   | 925                          |   |   |   | (274 | ) |   |   | (4,734 | ) |   |
| Other      assets                                                 |   |   | 333                          |   |   |   | 332 |   |   |   | (166 | ) |   |
| Accounts      payable                                             |   |   | (3,895                       | )      |   |   | 1,472 |   |   |   | (1,244 | ) |   |
| Accrued      salaries and wages                                   |   |   | (523                         | )      |   |   | 103 |   |   |   | 3,935 |   |   |
| Income      taxes payable and deferred taxes                      |   |   | 5,871                        |   |   |   | 2,330 |   |   |   | (4,018 | ) |   |
| Accrued      expenses                                             |   |   | (2,486                       | )      |   |   | 247 |   |   |   | 2,742 |   |   |
| Deferred      compensation                                        |   |   | (1,053                       | )      |   |   | (326 | ) |   |   | (64 | ) |   |
| Net      cash provided by operating activities                    |   |   | 52,009                       |   |   |   | 19,492 |   |   |   | 26,204 |   |   |
| Cash      flows from investing activities:                        |   |   |                         |   |   |   |   |   |   |   |   |   |   |
| Additions      to property and equipment                          |   |   | (9,989                       | )      |   |   | (14,854 | ) |   |   | (13,301 | ) |   |
| Purchase      of marketable securities                            |   |   | (354                         | )      |   |   | (372 | ) |   |   | (53,386 | ) |   |
| Proceeds      from sale/maturities of marketable securities       |   |   | 1,390                        |   |   |   | 710 |   |   |   | 53,448 |   |   |
| Change      in restricted cash                                    |   |   | —                      |   |   |   | — |   |   |   | 3,073 |   |   |
| Investment      in unconsolidated affiliate                       |   |   | (1,119                       | )      |   |   | — |   |   |   | (3,643 | ) |   |
| Disposition      of business                                      |   |   | —                      |   |   |   | — |   |   |   | (443 | ) |   |
| Purchase      of businesses, net of cash acquired                 |   |   | (1                           | )      |   |   | (136,026 | ) |   |   | (29,687 | ) |   |
| Other,      net                                                   |   |   | (871                         | )      |   |   | (486 | ) |   |   | (1,242 | ) |   |
| Net      cash used in investing activities                        |   |   | (10,944                      | )      |   |   | (151,028 | ) |   |   | (45,181 | ) |   |
| Cash      flows from financing activities:                        |   |   |                         |   |   |   |   |   |   |   |   |   |   |
| Net      change in revolving credit facility                      |   |   | (45,000                      | )      |   |   | 113,500 |   |   |   | — |   |   |
| Principal      payments on long-term debt                         |   |   | (1,059                       | )      |   |   | (3,408 | ) |   |   | (5,950 | ) |   |
| Debt      issuance costs                                          |   |   | —                      |   |   |   | (892 | ) |   |   | — |   |   |
| Cash      contributed by minority interests                       |   |   | 1,373                        |   |   |   | 110 |   |   |   | — |   |   |
| Exercise      of employee stock options                           |   |   | 3,483                        |   |   |   | 2,658 |   |   |   | 2,625 |   |   |
| Excess      tax benefit related to stock options exercised        |   |   | 973                          |   |   |   | 895 |   |   |   | — |   |   |
| Net      cash provided by (used in) financing activities          |   |   | (40,230                      | )      |   |   | 112,863 |   |   |   | (3,325 | ) |   |
| Net      increase (decrease) in cash and cash equivalents         |   |   | 835                          |   |   |   | (18,673 | ) |   |   | (22,302 | ) |   |
| Cash      and cash equivalents at beginning of year               |   |   | 9,430                        |   |   |   | 28,103 |   |   |   | 50,405 |   |   |
| Cash      and cash equivalents at end of year                     |   | $      | 10,265                       |   |   | $ | 9,430 |   |   | $ | 28,103 |   |   |

----

----

----

----

----

----

----

|                                                                                                                                                                                                                                                                                                           |   |   | Year      Ended December 31,2005 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                           |   |   |                             |   |
| Net      loss, as reported                                                                                                                                                                                                                                                                                     |   | $      | (16,982                          | )      |
| Deduct:      Total stock-based employee compensation expense determined under fair      value based method for all awards, net of related tax    effects                                                                                                                                                       |   |   | (2,622                           | )      |
|                                                                                                                                                                                                                                                                                                           |   |   |                             |   |
| Pro      forma net loss                                                                                                                                                                                                                                                                                        |   | $      | (19,604                          | )      |
|                                                                                                                                                                                                                                                                                                           |   |   |                             |   |
| Basic      loss per share:                                   As reported                                                        |   | $      | (1.01                            | )      |
|                                                 Pro      forma |   | $      | (1.17                            | )      |
| Diluted      loss per share:                                   As      reported                                                      |   | $      | (1.01                            | )      |
|                                                 Pro      forma |   | $      | (1.17                            | )      |
|                                                                                                                                                                                                                                                                                                           |   |   |                             |   |

----

|                          | Year      Ended December 31, |
|-------------------------------|------------------------------|
|                          | 2007                         |   | 2006 |   | 2005 |
|                          |                         |   |   |   |   |   |   |   |
| Expected      volatility      | N/A                          |   |   | 33% |   |   | 32%-35% |   |
| Expected      dividends       | N/A                          |   |   | 0% |   |   | 0% |   |
| Expected      term (in years) | N/A                          |   |   | 6-8 |   |   | 5-8 |   |
| Risk-free      rate           | N/A                          |   |   | 4.3%-4.7% |   |   | 3.7%-4.4% |   |

|                                  |      |   |   | Weighted- |   | Weighted-Average |   | Aggregate  |
|---------------------------------------|-----------|--------|--------|-----------|--------|------------------|--------|------------|
|                                  |      |   |   | Average   |   | Remaining        |   | Intrinsic  |
|                                  |      |   |   | Exercise  |   | Contractual      |   | Value      |
| Stock      Options                    | Shares    |   |   | Price     |   | Life      (yrs)  |   | (millions) |
|                                  |      |   |   |      |   |             |   |       |
| Outstanding      at January 1, 2007   | 1,890,464 |   |   | $21.31    |   |             |   |       |
| Granted                               | —   |   |   | —   |   |             |   |       |
| Exercised                             | (311,604  | )      |   | 11.18     |   |             |   |       |
| Forfeited      or expired             | (95,250   | )      |   | 25.73     |   |             |   |       |
| Outstanding      at December 31, 2007 | 1,483,610 |   |   | $23.15    |   | 4.5              |   | $3.5       |
| Exercisable      at December 31, 2007 | 1,307,073 |   |   | $22.78    |   | 4.2              |   | $3.4       |

|                                |    |   |   | Weighted-               |   |
|-------------------------------------|---------|--------|--------|-------------------------|--------|
|                                |    |   |   | Average                 |   |
|                                |    |   |   | Grant-Date              |   |
| Nonvested Stock      Options        | Shares  |   |   | Fair      Value         |   |
|                                |    |   |   |                    |   |
| Nonvested      at January 1, 2007   | 305,661 |   |   | $   9.77 |   |
| Granted                             | — |   |   | —                 |   |
| Vested                              | (90,374 | )      |   | 9.01                    |   |
| Forfeited                           | (38,750 | )      |   | 10.35                   |   |
| Nonvested      at December 31, 2007 | 176,537 |   |   | $      10.02            |   |

----

|                                   |    |   |   | Weighted-       |   |
|----------------------------------------|---------|--------|--------|-----------------|--------|
|                                   |    |   |   | Average         |   |
|                                   |    |   |   | Grant-Date      |   |
| Nonvested Restricted      Stock Awards | Shares  |   |   | Fair      Value |   |
|                                   |    |   |   |            |   |
| Nonvested      at January 1, 2007      | 87,750  |   |   | $18.33          |   |
| Granted                                | 238,820 |   |   | 15.20           |   |
| Vested                                 | (23,750 | )      |   | 14.55           |   |
| Forfeited                              | (48,060 | )      |   | 16.29           |   |
| Nonvested      at December 31, 2007    | 254,760 |   |   | $16.14          |   |
|                                   |    |   |   |            |   |

----

|                                         |   | Year      Ended December 31, |   |
|----------------------------------------------|--------|------------------------------|--------|
|                                         |   | 2007                         |   |   | 2006 |   |   |   | 2005 |   |
|                                         |   |                         |   |   |   |   |   |   |   |   |
| Balance      at beginning of year            | $      | 14,355                       |   | $ | 7,936 |   |   | $ | 5,074 |   |
| Provisions      for doubtful accounts        |   | 9,194                        |   |   | 5,937 |   |   |   | 3,597 |   |
| Acquisitions                                 |   | 1,472                        |   |   | 4,025 |   |   |   | 839 |   |
| Accounts      written off, net of recoveries |   | (8,755                       | )      |   | (3,543 | ) |   |   | (1,574 | ) |
| Balance      at end of year                  | $      | 16,266                       |   | $ | 14,355 |   |   | $ | 7,936 |   |
|                                         |   |                         |   |   |   |   |   |   |   |   |

|                               |   | December      31, |   |
|------------------------------------|--------|-------------------|--------|
|                               |   |              | 2007   |   |   | 2006 |   |
|                               |   |              |   |   |   |   |   |
| Equipment                          |   | $                 | 48,822 |   | $ | 45,435 |   |
| Land                               |   |              | 1,046  |   |   | 1,046 |   |
| Leasehold      improvements        |   |              | 19,092 |   |   | 13,828 |   |
|                               |   |              | 68,960 |   |   | 60,309 |   |
| Less      accumulated depreciation |   |              | 39,255 |   |   | 28,476 |   |
|                               |   | $                 | 29,705 |   | $ | 31,833 |   |
|                               |   |              |   |   |   |   |   |

----

|                                     | Employee    |   | Lease   |   | Total  |   |
|------------------------------------------|-------------|--------|---------|--------|--------|--------|
|                                     | Termination |   | Exit    |   | Exit   |   |
|                                     | Costs       |   | Costs   |   | Costs  |   |
| Balance,      July 1, 2006               |        | $      | 4.2     |   | $      | 1.6    |   | $ | 5.8 |   |
| Payments                                 |        |   | (1.8    | )      |   | (0.4   | ) |   | (2.2 | ) |
| Balance,      December 31, 2006          |        |   | 2.4     |   |   | 1.2    |   |   | 3.6 |   |
| Change      in purchase price allocation |        |   | (0.2    | )      |   | 0.1    |   |   | (0.1 | ) |
| Payments                                 |        |   | (2.2    | )      |   | (0.8   | ) |   | (3.0 | ) |
| Balance,      December 31, 2007          |        | $      | — |   | $      | 0.5    |   | $ | 0.5 |   |
|                                     |        |   |    |   |   |   |   |   |   |   |

|                                       |   | Year      ended        |   | Year      ended        |   |
|--------------------------------------------|--------|------------------------|--------|------------------------|--------|
|                                       |   | December      31, 2006 |   | December      31, 2005 |   |
|                                       |   | As      Reported       |   | Pro      Forma         |   | As      Reported |   | Pro      Forma |   |
|                                       |   |                   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      revenues                    |   | $                      | 614.8  |                   |   | $ | 725.2 |   |   | $ | 454.3 |   |   | $ | 687.2 |   |   |
| Net      earnings (loss)                   |   | $                      | 7.3    |                   |   | $ | 4.8 |   |   | $ | (17.0 | ) |   | $ | (19.8 | ) |   |
| Diluted      net earnings (loss) per share |   | $                      | 0.42   |                   |   | $ | 0.28 |   |   | $ | (1.01 | ) |   | $ | (1.18 | ) |   |
|                                       |   |                   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

----

----

|                                      |   | December 31,      2007 |    | December 31,      2006 |   |
|-------------------------------------------|--------|------------------------|---------|------------------------|--------|
|                                      |   | Gross                  |    |                   |   | Gross |   |   |   |
|                                      |   | Carrying               |    | Accumulated            |   | Carrying |   | Accumulated |   |
|                                      |   | Amount                 |    | Amortization           |   | Amount |   | Amortization |   |
| Amortizing      Intangible Assets:        |   |                   |    |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noncompete      agreements                |   | $                      | 4,460   |                   |   | $ | (1,449 | ) |   | $ | 4,514 |   |   | $ | (851 | ) |   |
| Customer      contracts and relationships |   |                   | 23,096  |                   |   |   | (7,508 | ) |   |   | 23,066 |   |   |   | (4,936 | ) |   |
| Trade      names                          |   |                   | 8,773   |                   |   |   | (1,276 | ) |   |   | 8,773 |   |   |   | (645 | ) |   |
| Medicare      exemption                   |   |                   | 454     |                   |   |   | (113 | ) |   |   | — |   |   |   | — |   |   |
| Lease      arrangements                   |   |                   | 905     |                   |   |   | (125 | ) |   |   | 905 |   |   |   | (46 | ) |   |
| Total                                     |   | $                      | 37,688  |                   |   | $ | (10,471 | ) |   | $ | 37,258 |   |   | $ | (6,478 | ) |   |
|                                      |   |                   |    |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-amortizing      Intangible Assets:    |   |                   |    |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Trade      names                          |   | $                      | 810     |                   |   |   |   |   |   | $ | 810 |   |   |   |   |   |   |
| Medicare      exemption                   |   |                   | — |                   |   |   |   |   |   |   | 5,360 |   |   |   |   |   |   |
| Total                                     |   | $                      | 810     |                   |   |   |   |   |   | $ | 6,170 |   |   |   |   |   |   |

|                              | Contract |    |   |         |   |      |   | Other      Healthcare |   |   |   |
|-----------------------------------|----------|---------|--------|--------------|--------|-----------|--------|-----------------------|--------|--------|--------|
|                              | Therapy  |    |   | HRS      (a) |   | Hospitals |   | Services              |   | Total  |   |
| Balance      at December 31, 2005 | $        | 21,795  |   |         | $      | 39,669    |   |                  | $      | 29,352 |   |   | $ | 4,144 |   |   | $ | 94,960 |   |
| Acquisitions                      |     | 44,116  |   |         |   | —   |   |                  |   | 16,354 |   |   |   | 12,443 |   |   |   | 72,913 |   |
| Purchase      price adjustments   |     |    |   |         |   |      |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| andallocations                    |     | — |   |         |   | 46        |   |                  |   | (479   | )      |   |   | — |   |   |   | (433 | ) |
| Balance      at December 31, 2006 |     | 65,911  |   |         |   | 39,715    |   |                  |   | 45,227 |   |   |   | 16,587 |   |   |   | 167,440 |   |
| Purchase      price adjustments   |     |    |   |         |   |      |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| andallocations                    |     | 2,548   |   |         |   | —   |   |                  |   | 12     |   |   |   | (1,483 | ) |   |   | 1,077 |   |
| Balance      at December 31, 2007 | $        | 68,459  |   |         | $      | 39,715    |   |                  | $      | 45,239 |   |   | $ | 15,104 |   |   | $ | 168,517 |   |

|   | (a) | Hospital      Rehabilitation Services (HRS). |
|--------|-----|----------------------------------------------|

----

|                                                                                                                                                                                         |   | December      31, |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                                         |   |              | 2007    |   |   | 2006 |   |
|                                                                                                                                                                                         |   |              |    |   |   |   |   |
| Borrowings      under revolving credit facility; maturity date of June 16,      2011                                                                                                         |   |   $     | 68,500  |   |   $ | 113,500 |   |
|                                                                                                                                                                                         |   |              |    |   |   |   |   |
| Promissory      notes issued to sellers of CPR Therapies; stated interest rate of 8%;      principal payments due monthly through January 31, 2007                                           |   |              | — |   |   | 59 |   |
|                                                                                                                                                                                         |   |              |    |   |   |   |   |
| Promissory      note issued to sellers of Louisiana Specialty Hospital; stated interest      rate of 7.5%; principal balance due on May 31, 2008                                             |   |              | 3,000   |   |   | 3,000 |   |
|                                                                                                                                                                                         |   |              |    |   |   |   |   |
| Promissory      note issued to sellers of MeadowBrook; stated interest rate of 6%;      principal payments due in semi-annual installments with the final payment      due on August 1, 2008 |   |              | 3,000   |   |   | 4,000 |   |
|                                                                                                                                                                                         |   |              | 74,500  |   |   | 120,559 |   |
| Less:  current      portion                                                                                                                                                        |   |              | (9,500  | ) |   | (5,559 | ) |
|                                                                                                                                                                                         |   | $                 | 65,000  |   | $ | 115,000 |   |
|                                                                                                                                                                                         |   |              |    |   |   |   |   |

----

| 2008  | $      | 9,500   |
|-------|--------|---------|
| 2009  |   | — |
| 2010  |   | — |
| 2011  |   | 65,000  |
| 2012  |   | — |
| Total | $      | 74,500  |

----

|                                                            |   |   | Year      Ended December 31,               |   |
|-----------------------------------------------------------------|--------|--------|--------------------------------------------|--------|
|                                                            |   |   | 2007                                       |   |   | 2006 |   |   |   | 2005 |   |
|                                                            |   |   | (in      thousands, except per share data) |   |
| Numerator:                                                      |   |   |                                       |   |   |   |   |   |   |   |   |
| Numerator      for basic and diluted earnings per share – |   |   |                                       |   |   |   |   |   |   |   |   |
| net      earnings (loss)                                        |   | $      | 12,659                                     |   | $ | 7,280 |   |   | $ | (16,982 | ) |
|                                                            |   |   |                                       |   |   |   |   |   |   |   |   |
| Denominator:                                                    |   |   |                                       |   |   |   |   |   |   |   |   |
| Denominator      for basic earnings (loss) per share –    |   |   |                                       |   |   |   |   |   |   |   |   |
| weighted-average      shares outstanding                        |   |   | 17,226                                     |   |   | 17,008 |   |   |   | 16,751 |   |
| Effect      of dilutive securities:                             |   |   |                                       |   |   |   |   |   |   |   |   |
| stock      options and restricted stock                         |   |   | 233                                        |   |   | 235 |   |   |   | — |   |
| Denominator      for diluted earnings (loss) per share –  |   |   |                                       |   |   |   |   |   |   |   |   |
| adjusted      weighted-average shares and assumed               |   |   |                                       |   |   |   |   |   |   |   |   |
| conversions                                                     |   |   | 17,459                                     |   |   | 17,243 |   |   |   | 16,751 |   |
|                                                            |   |   |                                       |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per share                            |   | $      | 0.73                                       |   | $ | 0.43 |   |   | $ | (1.01 | ) |
|                                                            |   |   |                                       |   |   |   |   |   |   |   |   |
| Diluted      earnings (loss) per share                          |   | $      | 0.73                                       |   | $ | 0.42 |   |   | $ | (1.01 | ) |

----

| 2008       | $      | 10,752  |
|------------|--------|---------|
| 2009       |   | 12,478  |
| 2010       |   | 11,488  |
| 2011       |   | 11,035  |
| 2012       |   | 10,813  |
| Thereafter |   | 87,270  |
| Total      | $      | 143,836 |

----

|   |                          |   | Year      Ended December 31, |   |
|--------|-------------------------------|--------|------------------------------|--------|
|   |                          |   | 2007                         |   |   | 2006 |   |   |   | 2005 |   |
|   |                          |   | (in      thousands)          |   |
|   | Federal      – current  | $      | 1,449                        |   | $ | 6,217 |   |   | $ | 14,715 |   |
|   | Federal      – deferred |   | 5,970                        |   |   | (964 | ) |   |   | (3,191 | ) |
|   | State                         |   | 60                           |   |   | 336 |   |   |   | 1,821 |   |
|   |                          | $      | 7,479                        |   | $ | 5,589 |   |   | $ | 13,345 |   |

|   |   |   | Year      Ended December 31, |   |
|--------|--------|--------|------------------------------|--------|
|   |   |   | 2007                         |   |   | 2006 |   |   |   | 2005 |   |
|   |   |   | (in      thousands)          |   |

| Expected      income taxes                                                                           |   | $      | 6,816 |   | $      | 5,556 |   |   | $      | 11,533     |    |
|------------------------------------------------------------------------------------------------------|--------|--------|-------|--------|--------|-------|--------|--------|--------|------------|---------|
| Tax      effect of interest income from municipal bond obligations exempt from      federal taxation |   |   | (8    | )      |   | (72   | )      |   |   |  (201 |  ) |
| State      income taxes, net of federal income tax benefit                                           |   |   | 124   |   |   | 83    |   |   |   | 1,184      |    |
| Income      tax benefit attributable to minority interests                                           |   |   | 132   |   |   | 8     |   |   |   | —    |    |
| Income      tax expense attributable to income from equity investments                               |   |   | 101   |   |   | (72   | )      |   |   | (50        | )       |
| Other,      net                                                                                      |   |   | 314   |   |   | 86    |   |   |   | 879        |    |
|                                                                                                 |   | $      | 7,479 |   | $      | 5,589 |   |   | $      | 13,345     |    |

----

|                                                              |   | December      31,   |   |
|-------------------------------------------------------------------|--------|---------------------|--------|
|                                                              |   | 2007                |   | 2006 |   |
|                                                              |   | (in      thousands) |
| Deferred      tax assets:                                         |   |                |   |   |   |   |   |
| Allowance      for doubtful accounts                              |   | $                   | 3,838  |   | $ | 3,668 |   |
| Accrued      insurance, vacation, bonus and deferred compensation |   |                | 9,890  |   |   | 11,505 |   |
| Net      operating loss carryforward/capital loss carryforward    |   |                | 2,405  |   |   | 15,460 |   |
| Stock      based compensation                                     |   |                | 1,176  |   |   | 656 |   |
| Other                                                             |   |                | 3,843  |   |   | 2,262 |   |
| Total      gross deferred tax assets                              |   |                | 21,152 |   |   | 33,551 |   |
| Valuation      allowance                                          |   |                | (350   | ) |   | (15,814 | ) |
| Net      deferred tax assets                                      |   |                | 20,802 |   |   | 17,737 |   |
|                                                              |   |                |   |   |   |   |   |
| Deferred      tax liabilities:                                    |   |                |   |   |   |   |   |
| Acquired      goodwill and intangibles                            |   |                | 6,971  |   |   | 6,012 |   |
| Depreciation      and amortization                                |   |                | 1,807  |   |   | 2,693 |   |
| Other                                                             |   |                | 1,536  |   |   | 1,782 |   |
| Total      deferred tax liabilities                               |   |                | 10,314 |   |   | 10,487 |   |
| Net      deferred tax asset                                       |   | $                   | 10,488 |   | $ | 7,250 |   |

----

| Balance      at January 1, 2007                                      |   | $      | 396  |   |
|----------------------------------------------------------------------|--------|--------|------|--------|
| Increase      as a result of tax positions taken in prior years      |   |   | 136  |   |
| Increase      as a result of tax positions taken in the current year |   |   | 20   |   |
| Lapse      of applicable statute of limitations                      |   |   | (244 | )      |
| Balance      at December 31, 2007                                    |   | $      | 308  |   |

----

|                        |   | January      1 to |   | Year      Ended   |   |
|-----------------------------|--------|-------------------|--------|-------------------|--------|
|                        |   | February      28, |   | December      31, |   |
|                        |   | 2006(1)           |   | 2005              |   |
|                        |   | (unaudited)       |   |              |   |   |   |
| Net      operating revenues |   | $                 | 43,113 |              |   | $ | 274,215 |   |   |
| Operating      loss         |   |              | (727   | )                 |   |   | (34,709 | ) |   |
| Net      loss               |   |              | (1,465 | )                 |   |   | (41,324 | ) |   |

|   | (1) | The      Company abandoned its shares in InteliStaf on March 3,      2006.  Financial statements as of that date were not readily      available.  Accordingly, the Company has presented financial      information through February 28, 2006.  The Company does not      believe that financial information for InteliStaf through March 3, 2006      would be materially different than the information reported      above. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                    |   | Operating      Revenues |   |   |    | Operating      Earnings (Loss) |   |
|-----------------------------------------|--------|-------------------------|--------|--------|---------|--------------------------------|--------|
|                                    |   | 2007                    |   |   | 2006    |                           |   | 2005 |   |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Program      management:                |   |                    |   |   |    |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      therapy                   | $      | 400,761                 |   | $      | 331,603 |                           | $      | 232,193 |   |   | $ | 6,018 |   | $ | (2,567 | ) | $ | 12,661 |   |
| Hospital      rehabilitation services   |   | 164,102                 |   |   | 179,798 |                           |   | 189,832 |   |   |   | 22,893 |   |   | 23,661 |   |   | 22,538 |   |
| Program      management total           |   | 564,863                 |   |   | 511,401 |                           |   | 422,025 |   |   |   | 28,911 |   |   | 21,094 |   |   | 35,199 |   |
| Hospitals                               |   | 103,126                 |   |   | 77,101  |                           |   | 21,706 |   |   |   | (3,638 | ) |   | 643 |   |   | (654 | ) |
| Other      healthcare services          |   | 44,629                  |   |   | 26,859  |                           |   | 10,891 |   |   |   | 1,696 |   |   | 1,400 |   |   | (58 | ) |
| Less      intercompany revenues (1)     |   | (944                    | )      |   | (568    | )                              |   | (356 | ) |   |   | N/A |   |   | N/A |   |   | N/A |   |
| Unallocated      asset impairment (2)   |   | N/A                     |   |   | N/A     |                           |   | N/A |   |   |   | — |   |   | (2,351 | ) |   | — |   |
| Unallocated      corporate expenses (3) |   | N/A                     |   |   | N/A     |                           |   | N/A |   |   |   | — |   |   | (22 | ) |   | (1,220 | ) |
| Restructuring      charge               |   | N/A                     |   |   | N/A     |                           |   | N/A |   |   |   | — |   |   | 191 |   |   | — |   |
| Total                                   | $      | 711,674                 |   | $      | 614,793 |                           | $      | 454,266 |   |   | $ | 26,969 |   | $ | 20,955 |   | $ | 33,267 |   |

|                                  |   | Depreciation      and Amortization |   |   |   | Capital      Expenditures |   |
|---------------------------------------|--------|------------------------------------|--------|--------|--------|---------------------------|--------|
|                                  |   | 2007                               |   |   | 2006   |                      |   | 2005 |   |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Program      management:              |   |                               |   |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      therapy                 | $      | 8,304                              |   | $      | 6,661  |                      | $      | 4,190 |   |   | $ | 2,509 |   | $ | 4,675 |   | $ | 4,545 |   |
| Hospital      rehabilitation services |   | 4,104                              |   |   | 4,740  |                      |   | 5,631 |   |   |   | 442 |   |   | 1,403 |   |   | 4,019 |   |
| Program      management total         |   | 12,408                             |   |   | 11,401 |                      |   | 9,821 |   |   |   | 2,951 |   |   | 6,078 |   |   | 8,564 |   |
| Hospitals                             |   | 4,096                              |   |   | 2,844  |                      |   | 793 |   |   |   | 6,824 |   |   | 8,686 |   |   | 4,688 |   |
| Other      healthcare services        |   | 517                                |   |   | 292    |                      |   | 41 |   |   |   | 214 |   |   | 90 |   |   | 49 |   |
| Total                                 | $      | 17,021                             |   | $      | 14,537 |                      | $      | 10,655 |   |   | $ | 9,989 |   | $ | 14,854 |   | $ | 13,301 |   |

|                                            |   | Total      Assets       |   |   |    | Unamortized      Goodwill |   |
|-------------------------------------------------|--------|-------------------------|--------|--------|---------|---------------------------|--------|
|                                            |   | as      of December 31, |   |   |    | as      of December 31,   |   |
|                                            |   | 2007                    |   |   | 2006    |                      |   | 2005 |   |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Program      management:                        |   |                    |   |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contract      therapy                           | $      | 175,589                 |   | $      | 189,338 |                      | $      | 81,712 |   |   | $ | 68,459 |   | $ | 65,911 |   | $ | 21,795 |   |
| Hospital      rehabilitation services           |   | 105,292                 |   |   | 110,800 |                      |   | 129,408 |   |   |   | 39,715 |   |   | 39,715 |   |   | 39,669 |   |
| Program      management total                   |   | 280,881                 |   |   | 300,138 |                      |   | 211,120 |   |   |   | 108,174 |   |   | 105,626 |   |   | 61,464 |   |
| Hospitals      (4)                              |   | 93,659                  |   |   | 92,681  |                      |   | 52,381 |   |   |   | 45,239 |   |   | 45,227 |   |   | 29,352 |   |
| Other      healthcare services                  |   | 34,020                  |   |   | 35,477  |                      |   | 6,600 |   |   |   | 15,104 |   |   | 16,587 |   |   | 4,144 |   |
| Corporate      – investment in InteliStaf |   | —                 |   |   | — |                      |   | 2,824 |   |   |   | N/A |   |   | N/A |   |   | N/A |   |
| Total                                           | $      | 408,560                 |   | $      | 428,296 |                      | $      | 272,925 |   |   | $ | 168,517 |   | $ | 167,440 |   | $ | 94,960 |   |

|   | (1) | Intercompany      revenues represent sales of services, at market rates, between the      Company’s operating segments. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Represents      an impairment charge associated with the abandonment of a fixed asset that      was never placed in service.  This fixed asset relates to an      internal software development project.  See Note 5 for      additional information. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (3) | Represents      certain expenses associated with the StarMed staffing business, which was      sold on February 2, 2004. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Hospitals      segment total assets include the carrying value of the Company’s      investment in HRSC. |
|--------|-----|----------------------------------------------------------------------------------------------------------------|

|                                                                                                     |   | Quarter      Ended |                                       |
|----------------------------------------------------------------------------------------------------------|--------|--------------------|--------------------------------------------|
| 2007                                                                                                     |   | December      31   |                                       | September      30 |   | June      30 |   | March      31 |
|                                                                                                     |   |               | (in      thousands, except per share data) |   |
|                                                                                                     |   |               |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      revenues                                                                                  |   | $                  | 173,635                                    |   |   | $ | 172,943 |   |   | $ | 181,086 |   |   | $ | 184,010 |   |
| Operating      earnings                                                                                  |   |               | 8,998                                      |   |   |   | 8,188 |   |   |   | 4,249 |   |   |   | 5,534 |   |
| Earnings      before income taxes, equity in net income (loss) of affiliates and      minority interests |   |               | 7,419                                      |   |   |   | 6,167 |   |   |   | 2,642 |   |   |   | 3,246 |   |
| Net      earnings                                                                                        |   |               | 5,101                                      |   |   |   | 3,910 |   |   |   | 1,651 |   |   |   | 1,997 |   |
| Net      earnings per common share:                                                                      |   |               |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                    |   |               | 0.29                                       |   |   |   | 0.23 |   |   |   | 0.10 |   |   |   | 0.12 |   |
| Diluted                                                                                                  |   |               | 0.29                                       |   |   |   | 0.22 |   |   |   | 0.09 |   |   |   | 0.12 |   |

|                                                                                            |   | Quarter      Ended |                                       |
|-------------------------------------------------------------------------------------------------|--------|--------------------|--------------------------------------------|
| 2006                                                                                            |   | December      31   |                                       | September      30 |   | June      30 |   | March      31 |
|                                                                                            |   |               | (in      thousands, except per share data) |   |
|                                                                                            |   |               |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      revenues                                                                         |   | $                  | 182,247                                    |   |   | $ | 183,162 |   |   | $ | 127,666 |   |   | $ | 121,718 |   |
| Operating      earnings                                                                         |   |               | 4,704                                      |   |   |   | 6,326 |   |   |   | 6,056 |   |   |   | 3,869 |   |
| Earnings      before income taxes, equity in net loss of affiliates and minority      interests |   |               | 2,294                                      |   |   |   | 3,902 |   |   |   | 5,916 |   |   |   | 3,762 |   |
| Net      earnings (loss)                                                                        |   |               | 2,063                                      |   |   |   | 2,302 |   |   |   | 3,480 |   |   |   | (565 | ) |
| Net      earnings (loss) per common share:                                                      |   |               |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                           |   |               | 0.12                                       |   |   |   | 0.13 |   |   |   | 0.21 |   |   |   | (0.03 | ) |
| Diluted                                                                                         |   |               | 0.12                                       |   |   |   | 0.13 |   |   |   | 0.20 |   |   |   | (0.03 | ) |

----

----

| ITEM 9. | CHANGES      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON      ACCOUNTING AND FINANCIALDISCLOSURE |
|---------|-----------------------------------------------------------------------------------------------|

| ITEM 9A. | CONTROLS      AND PROCEDURES |
|----------|------------------------------|

| ITEM 9B. | OTHER  INFORMATION |
|----------|------------------------------|

----

| ITEM 10. | DIRECTORS      AND EXECUTIVE OFFICERS OF THEREGISTRANT |
|----------|--------------------------------------------------------|

|   | · | Information      regarding directors who are standing for reelection and any persons      nominated to become directors is set forth under the caption "Election of      Directors." |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Information      regarding the Company’s audit committee and designated "audit committee      financial experts" is set forth under the caption "Audit      Committee." |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Information      regarding Section 16(a) beneficial ownership reporting compliance is set      forth under the caption "Section 16(a) Beneficial Ownership Reporting      Compliance." |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name                      |   | Age |   | Position                                                  |
|---------------------------|--------|-----|--------|-----------------------------------------------------------|
| John      H. Short, Ph.D. |   | 63  |   | President      and Chief Executive Officer                |
| Jay      W. Shreiner      |   | 57  |   | Executive      Vice President, Chief Financial Officer    |
| Patricia      S. Williams |   | 40  |   | Senior      Vice President, General Counsel and Secretary |
| Patricia      M. Henry    |   | 55  |   | Executive      Vice President, Operations                 |
| Mary      Pat Welc        |   | 53  |   | Senior      Vice President, Operations                    |
| Michael      R. Garcia    |   | 47  |   | Senior      Vice President, Chief Human Resources Officer |
| Jeff      A. Zadoks       |   | 42  |   | Vice      President, Chief Accounting Officer             |

----

| ITEM      11. | EXECUTIVE      COMPENSATION |
|---------------|-----------------------------|

| ITEM 12. | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT      AND RELATED STOCKHOLDERMATTERS |
|----------|---------------------------------------------------------------------------------------------------------|

----

| Plan      category                                              | Number      ofsecurities      tobe      issueduponexercise      ofoutstandingoptions,warrants      andrights(a) | Weighted-averageexercise      price ofoutstandingoptions,      warrantsand      rights (b) | Number      of securitiesremaining      availablefor      future issuanceunder      equitycompensation      plans(excluding      securitiesreflected      in column (a))  (c) |
|-----------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity      compensation plans approved by security holders     | 1,483,610                                                                                                       | $23.15                                                                                          | 779,790                                                                                                                                                                                 | (1) |
| Equity      compensation plans not approved by security holders | -                                                                                                               | -                                                                                               | -                                                                                                                                                                                       |   |
| Total                                                           | 1,483,610                                                                                                       | $23.15                                                                                          | 779,790                                                                                                                                                                                 |   |

|   | (1) | Represent      the number of shares of common stock available for future issuance under      the Company’s 2006 Equity Incentive Plan.  Permissible awards      under the Company’s plan include stock options, stock appreciation rights,      restricted stock, stock units and other equity-based    awards. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ITEM 13. | CERTAIN      RELATIONSHIPS AND RELATEDTRANSACTIONS |
|----------|----------------------------------------------------|

| ITEM 14. | PRINCIPAL      ACCOUNTANT FEES AND SERVICES |
|----------|---------------------------------------------|

----

| 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: |
|   |                                                                                    |   |   |
|   |                                                                                    |   | Report      of Independent Registered Public Accounting Firm |
|   |                                                                                    |   | Consolidated      Balance Sheets as of December 31, 2007 and 2006 |
|   |                                                                                    |   | Consolidated      Statements of Earnings for the years ended December 31, 2007, 2006 and      2005 |
|   |                                                                                    |   | Consolidated      Statements of Stockholders’ Equity for the years ended December 31, 2007,      2006 and 2005 |
|   |                                                                                    |   | Consolidated      Statements of Cash Flows for the years ended December 31, 2007, 2006 and      2005 |
|   |                                                                                    |   | Notes      to Consolidated Financial Statements |
|   |                                                                                    |   |
|   | (2)                                                                                     | Financial      Statement Schedules: |
|   |                                                                                    |   |   |
|   |                                                                                    |   | As      required by Rule 3-09 of Regulation S-X, the audited consolidated      financial statements of InteliStaf Holdings, Inc. for the year ended      December 31, 2005 were filed as Exhibit 99.1 to Registrant’s Annual Report      on Form 10-K for the year ended December 31, 2005 and incorporated herein      by reference. |
|   |                                                                                    |   |   |
|   | (3)                                                                                     | Exhibits: |
|   |                                                                                    |   |   |
|   |                                                                                    |   | See      Exhibit Index on page 80 of this Annual Report on Form    10-K. |

----

|   | SIGNATURES |
|--------|------------|

|   |                  | REHABCARE      GROUP, INC.(Registrant)                             |
|--------|-----------------------|--------------------------------------------------------------------|
|   |                  |                                                               |
|   | By:    | /s/      John H. Short                                             |
|   |                  |      John      H. Short                   |
|   |                  |           President and Chief ExecutiveOfficer |

| Signature                           |   | Title                             |   | Dated               |
|-------------------------------------|--------|-----------------------------------|--------|---------------------|
|                                |   |                              |   |                |
| /s/      John H. Short              |   | President,      Chief Executive   |   | March      11, 2008 |
| John      H. Short                  |   | Officer      and Director         |   |                |
| (Principal      Executive Officer)  |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Jay W. Shreiner            |   | Executive      Vice President and |   | March      11, 2008 |
| Jay      W. Shreiner                |   | Chief      Financial Officer      |   |                |
| (Principal      Financial Officer)  |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Jeff A. Zadoks             |   | Vice      President and           |   | March      11, 2008 |
| Jeff      A. Zadoks                 |   | Chief      Accounting Officer     |   |                |
| (Principal      Accounting Officer) |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Colleen Conway-Welch       |   | Director                          |   | March      11, 2008 |
| Colleen      Conway-Welch           |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Christopher T. Hjelm       |   | Director                          |   | March      11, 2008 |
| Christopher      T. Hjelm           |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Anthony S. Piszel          |   | Director                          |   | March      11, 2008 |
| Anthony      S. Piszel              |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Suzan L. Rayner            |   | Director                          |   | March      11, 2008 |
| Suzan      L. Rayner                |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Harry E. Rich              |   | Director                          |   | March      11, 2008 |
| Harry      E. Rich                  |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Larry Warren               |   | Director                          |   | March      11, 2008 |
| Larry      Warren                   |   |                              |   |                |
|                                |   |                              |   |                |
| /s/      Theodore M. Wight          |   | Director                          |   | March      11, 2008 |
| Theodore      M. Wight              |   |                              |   |                |
|                                |   |                              |   |                |

----

| 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 byreference) |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 byreference) |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.3 | Amended      and Restated Bylaws, dated October 30, 2007 (filed as Exhibit 3.1 to the      Registrant’s Current Report on Form 8-K dated October 31, 2007 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 for 1987 Incentive Stock Option and 1987      Nonstatutory Stock Option Plans (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 | Termination      Compensation Agreement, dated December 11, 2007 by and between RehabCare      Group, Inc. and John H. Short, Ph.D. (filed as Exhibit 10.1 to      Registrant’s Annual Report on Form 8-K dated December 12, 2007 and      incorporated herein by reference) * |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.4 | Form      of Termination Compensation Agreement dated March 10, 2006 by and between      RehabCare Group, Inc. and Patricia M. Henry (filed as Exhibit 10.4 to      Registrant’s Annual Report on Form 10-K for the year ended December 31,      2005 and incorporated herein by reference)* |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.5 | Termination      Compensation Agreement dated March 29, 2006 by and between RehabCare      Group, Inc. and Jay W. Shreiner (filed as Exhibit 10.2 to Registrant’s      Current Report on Form 8-K dated March 30, 2006 and incorporated herein by      reference) * |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.6 | Change      in Control Termination Agreement dated November 12, 2007 by and between      RehabCare Group, Inc. and Patricia S. Williams (filed herewith)      * |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.7 | Form      of Termination Compensation Agreement dated March 10, 2006 by and between      RehabCare Group, Inc. and other executive officers who are not named      executive officers in the Registrant’s proxy statement for the 2006 annual      meeting of |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | stockholders      (filed as Exhibit 10.5 to Registrant’s Annual Report on Form 10-K for the      year ended December 31, 2005 and incorporated herein by reference)      * |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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      Executive Deferred Compensation Plan effective July 1, 2005 (filed as      Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the year      ended December 31, 2006 and incorporated herein by reference)      * |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.10 | 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) * |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.11 | Second      Amended and Restated 1996 Long-Term Performance Plan (filed as Appendix B      to Registrant’s definitive Proxy Statement for the 2004 Annual Meeting of      Stockholders and incorporated herein by reference) * |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.12 | Form      of Stock Option Agreement for the Second Amended and Restated 1996      Long-Term Performance Plan (filed as Exhibit 10.10 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31, 2005 and      incorporated herein by reference) * |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.13 | Form      of Restricted Stock Agreement for the Second Amended and Restated 1996      Long-Term Performance Plan (filed as Exhibit 10.11 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31, 2005 and      incorporated herein by reference) * |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.14 | RehabCare      Group, Inc. 2006 Equity Incentive Plan (filed as Appendix A to the      Registrant’s Definitive Proxy Statement for the 2006 Annual Meeting of      Shareholders and incorporated herein by reference)  * |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.15 | Amended      and Restated Credit Agreement, dated June 16, 2006, by and among RehabCare      Group, Inc., as borrower, certain subsidiaries and affiliates of the      borrower, as guarantors, and Bank of America, N.A., U.S. Bank National      Association, Harris Trust, N.A., National City Bank, Comerica Bank,      SunTrust Bank, and General Electric Capital Corporation as participating      banks in the lending group (filed as Exhibit 10.1 to the Registrant’s      Current Report on Form 8-K dated June 16, 2006 and incorporated herein by      reference) |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.16 | Pledge      Agreement, dated as of June 16, 2006, by and among RehabCare Group, Inc.      and Subsidiaries, as pledgors, and Bank of America, N.A., as Collateral      Agent (filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K      dated June 16, 2006 and incorporated herein by  reference) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.17 | Security      Agreement, dated as of October 12, 2004, by and among RehabCare Group,      Inc. and Subsidiaries, as grantors, and Bank of America, N.A., as      Collateral Agent (filed as Exhibit 10.3 to Registrant’s Current Report on      Form 8-K dated June 16, 2006 and incorporated herein by      reference) |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 10.18 | Non-Continuous      Aircraft Dry Lease Agreement by and between 55JS Limited, Co. and      RehabCare Group, Inc. (filed as Exhibit 10.1 to Registrant’s Current      Report on Form 8-K dated September 7, 2006 and incorporated herein by      reference) |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.19 | Asset      Purchase Agreement dated June 8, 2005 by and among RehabCare Group East,      Inc., a wholly owned subsidiary of Registrant, MeadowBrook HealthCare,      Inc., MeadowBrook Specialty Hospital of Tulsa LLC, Lafayette Rehab      Associate Limited Partnership, Clear Lake Rehabilitation Hospital, Inc.      and South Dade Rehab Associates Limited Partnership (filed as Exhibit 10.1      to Registrant’s Current Report on Form 8-K dated August 4, 2005 and      incorporated herein by reference) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.20 | Purchase      and Sale Agreement, dated May 3, 2006, by and among LUK-Symphony      Management, LLC, Symphony Health Services, LLC and RehabCare Group, Inc.      (filed as exhibit 10.1 to the Registrant’s Current Report on Form 8-K      dated May 8, 2006 and incorporated herein by  reference) |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 13.1 | Those      portions of the Registrant’s Annual Report to Stockholders for the year      ended December 31, 2007 included in response to Items 5 and 6 of this      Annual Report on Form 10-K (filedherewith) |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21.1 | Subsidiaries      of the Registrant (filed herewith) |
|------|------------------------------------------------------|

| 23.1 | Consent      of KPMG LLP (filed herewith) |
|------|-------------------------------------------|

| 23.2 | Consent      of Ernst & Young LLP (filedherewith) |
|------|-------------------------------------------------------|

| 31.1 | Certification      by Chief Executive Officer in accordance with Rule 13a-14(a) under the      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 (filedherewith) |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.2 | Certification      by Chief Financial Officer in accordance with Rule 13a-14(a) under the      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002 (filedherewith) |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32.1 | Certification      by Chief Executive Officer in accordance with 18 U.S.C. Section 1350, as      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed      herewith) |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32.2 | Certification      by Chief Financial Officer in accordance with 18 U.S.C. Section 1350, as      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed      herewith) |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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