Document:

EX-10.3 Corporate Integrity Agreement

 

Exhibit 10.3

CORPORATE INTEGRITY AGREEMENT

 between the 

Office of Inspector General

 of the 

Department of Health and Human Services

and

 Pediatrix Medical Group, Inc.

I.
Preamble

     Pediatrix Medical Group, Inc. (Pediatrix) hereby enters into this Corporate Integrity
Agreement (CIA) with the Office of Inspector General (OIG) of the United States Department of
Health and Human Services (HHS) to promote compliance with the statutes, regulations, and written
directives of Medicare, Medicaid, TRICARE, and all other Federal health care programs (as defined
in 42 U.S.C. § 1320a-7b(f)) (Federal health care program requirements). Contemporaneously with
this CIA, Pediatrix is entering into a Settlement Agreement with the United States.

     Pediatrix represents that in 1998, Pediatrix established a compliance program (the “Compliance
Program”) that provides for policies and procedures aimed at ensuring Pediatrix’s adherence with
Federal health care program requirements. All of Pediatrix’s employees participate in the
Compliance Program. The Compliance Program includes, among other things, a Code of Conduct, a
Compliance Committee and a Compliance Officer, policies and procedures for implementing the
Compliance Program, training and education requirements, a mechanism for individuals to report
incidents of non-compliance in an anonymous manner, disciplinary actions for individuals violating
compliance policies and procedures, and mechanisms for the ongoing monitoring and auditing of
Pediatrix’s operations as they relate to coding and billing. Pediatrix agrees to maintain the
Compliance Program in full operation for the term of the CIA. The Compliance Program may be
modified as necessary and as appropriate but, at a minimum, shall comply with the integrity
obligations enumerated in this CIA.

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II.
Term and Scope of
the CIA

     A. The period of the compliance obligations assumed by Pediatrix under this CIA shall be five
years from the effective date of this CIA, unless otherwise specified. The effective date shall be
the date on which the final signatory of this CIA executes this CIA (Effective Date). Each
one-year period, beginning with the one-year period following the Effective Date, shall be referred
to as a “Reporting Period.”

     B. Sections VII, IX, X, and XI shall expire no later than 120 days after the OIG’s receipt
of: (1) Pediatrix’s final annual report; or (2) any additional materials submitted by Pediatrix
pursuant to the OIG’s request, whichever is later.

     C. The scope of this CIA shall be governed by the following definitions:

1. “Pediatrix” or the “Company” includes: (1) Pediatrix Medical Group, Inc. and its
wholly-owned subsidiaries; and (2) any affiliated professional associations,
corporations and partnerships (“affiliated professional contractors”) over which the
Company has established a controlling financial interest in their operations, as
defined by the Financial Accounting Standards Board (“FASB”).

2. “Covered Persons” includes:

a. all officers, directors, and employees of Pediatrix and

b. all contractors, subcontractors, agents, and other persons who provide
patient care items or services or who perform coding or billing functions on
behalf of Pediatrix.

Notwithstanding the above, this term does not include part-time or per diem
employees, contractors, subcontractors, agents, and other persons who are not
reasonably expected to work more than 160 hours per year, except that any such
individuals shall become “Covered Persons” at the point when they work more than 160
hours during the calendar year.

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3. “Relevant Covered Persons” includes Covered Persons who deliver
and participate in coding for patient care items or services, specifically
physicians and advanced practice nurses, and those who perform coding functions
as part of the preparation or submission of claims for reimbursement from any
Federal health care program.

III.
Corporate Integrity
Obligations 

     Pediatrix currently has in effect, and hereby agrees to maintain throughout the term of the
CIA, a Compliance Program that includes the following elements:

     A. Compliance Officer and Committee.

          1. Compliance Officer. Pediatrix certifies that it has appointed an individual to serve as
its Compliance Officer and that it shall maintain a Compliance Officer for the term of the CIA.
The Compliance Officer shall be responsible for developing and implementing policies, procedures,
and practices designed to ensure compliance with the requirements set forth in this CIA and with
Federal health care program requirements. The Compliance Officer shall be a member of senior
management of Pediatrix, shall make periodic (at least quarterly) reports regarding compliance
matters directly to the Board of Directors of Pediatrix, and shall be authorized to report on such
matters to the Board of Directors at any time. The Compliance Officer shall not be the General
Counsel or Chief Financial Officer, or be subordinate to the General Counsel or Chief Financial
Officer. The Compliance Officer shall be responsible for monitoring the day-to-day compliance
activities engaged in by Pediatrix as well as for any reporting obligations created under this CIA.

     Pediatrix shall report to the OIG, in writing, any changes in the identity or position
description of the Compliance Officer, or any actions or changes that would affect the Compliance
Officer’s ability to perform the duties necessary to meet the obligations in this CIA, within 15
days after such a change.

          2. Compliance Committee. Pediatrix certifies that it has a Compliance Committee and shall
maintain such committee during the term of the CIA. The Compliance Committee includes the
Compliance Officer and other members of Pediatrix’s management necessary to meet the requirements
of this CIA. The

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Compliance Officer shall chair the Compliance Committee, and the Compliance Committee shall
support the Compliance Officer in fulfilling his/her responsibilities (e.g., shall assist
in the analysis of the organization’s risk areas and shall oversee monitoring of internal and
external audits and investigations). Pediatrix shall report to the OIG, in writing, any changes in
the composition of the Compliance Committee, or any actions or changes that would affect the
Compliance Committee’s ability to perform the duties necessary to meet the obligations in this CIA,
within 15 days after such a change.

     B. Written Standards.

          1. Code of Conduct. Pediatrix certifies that it has developed, implemented, and distributed
a written Code of Conduct to all Covered Persons. For the duration of this CIA, Pediatrix shall
continue to maintain the Code of Conduct. Pediatrix shall amend the Code of Conduct, as necessary,
to ensure that the Code of Conduct meets the requirements set forth below. In the event the Code
of Conduct must be revised to meet the requirements set forth below, the revised Code of Conduct
shall be made available to all Covered Persons within 120 days after the Effective Date. Pediatrix
shall make the promotion of, and adherence to, the Code of Conduct an element in evaluating the
performance of all employees. The Code of Conduct shall, at a minimum, continue to address:

a. Pediatrix’s commitment to full compliance with all Federal health care
program requirements, including its commitment to prepare and submit
accurate claims consistent with such requirements;

b. Pediatrix’s requirement that all of its Covered Persons shall be
expected to comply with all Federal health care program requirements and
with Pediatrix’s own Policies and Procedures as implemented pursuant to
Section III.B (including the requirements of this CIA);

c. the requirement that all of Pediatrix’s Covered Persons shall be
expected to report to the Compliance Officer or other appropriate individual
designated by Pediatrix suspected violations of any Federal health care
program requirements or of Pediatrix’s own Policies and Procedures;

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d. the possible consequences to both Pediatrix and Covered Persons of
failure to comply with Federal health care program requirements and with
Pediatrix’s own Policies and Procedures and the failure to report such
noncompliance; and

e. the right of all individuals to use the Disclosure Program described in
Section III.E, and Pediatrix’s commitment to nonretaliation and to maintain,
as appropriate, confidentiality and anonymity with respect to such
disclosures.

     Within 120 days after the Effective Date, each Covered Person shall certify, in writing, that
he or she has received, read, understood, and shall abide by Pediatrix’s Code of Conduct. New
Covered Persons shall receive the Code of Conduct and shall complete the required certification
within 30 days after becoming a Covered Person or within 90 days after the Effective Date,
whichever is later.

     Pediatrix shall periodically review the Code of Conduct to determine if revisions are
appropriate and shall make any necessary revisions based on such review. Any revised Code of
Conduct shall be distributed within 30 days after any revisions are finalized. Each Covered Person
shall certify, in writing, that he or she has received, read, understood, and shall abide by the
revised Code of Conduct within 30 days after the distribution of the revised Code of Conduct.

     Pediatrix shall have the option of distributing the Code of Conduct through electronic means
(e.g., Company-wide e-mail or distribution through the Internet or Company’s Intranet site). Such
electronic means of distribution shall include an electronic acknowledgement for Covered Persons to
indicate that they have received, read, understood, and agree to abide by the Code of Conduct. If
Pediatrix utilizes such electronic methods of distribution, it shall notify the Covered Persons
that the Code of Conduct shall be distributed in such a manner and it shall track the distribution
to ensure that all Covered Persons have received the Code of Conduct. Appropriate and
knowledgeable staff shall be available to explain the Code of Conduct.

          2. Policies and Procedures. Pediatrix certifies that it has implemented written Policies and
Procedures regarding the operation of Pediatrix’s Compliance Program and its compliance with
Federal health care program requirements and that it

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shall maintain such written Policies and Procedures throughout the term of this CIA. At a
minimum, the Policies and Procedures shall address:

a. the subjects relating to the Code of Conduct identified in Section
III.B.1;

b. measures designed to ensure that Pediatrix fully complies with all
Medicaid and other Federal health care program, statutes, regulations, and
guidelines applicable to Pediatrix.

     Within 120 days after the Effective Date, the relevant portions of the Policies and Procedures
shall be distributed to all Covered Persons whose job functions relate to those Policies and
Procedures. Pediatrix shall make appropriate and knowledgeable staff available to Covered Persons
to explain the Policies and Procedures, as necessary.

     At least annually (and more frequently, if appropriate), Pediatrix shall assess and update the
Policies and Procedures, as necessary. Within 30 days after any revisions are finalized, the
relevant portions of any such revised Policies and Procedures shall be distributed to all Covered
Persons whose job functions relate to those Policies and Procedures.

     Pediatrix shall have the option of distributing any Policies and Procedures through electronic
means (e.g., Company-wide e-mail or distribution through the Internet or Company’s Intranet site).
If Pediatrix utilizes such electronic methods of distribution, it shall notify the Covered Persons
that the Policies and Procedures shall be distributed in such a manner. Appropriate and
knowledgeable staff shall be available to explain the Policies and Procedures.

     C. Training and Education.

          1. General Training. Within 120 days after the Effective Date, Pediatrix shall provide at
least one hour of General Training to each Covered Person. This training, at a minimum, shall
explain Pediatrix’s:

a. CIA requirements; and

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b. Pediatrix’s Compliance Program (including the
Code of Conduct and the Policies and Procedures as they pertain to
general compliance issues).

     New Covered Persons shall receive the General Training described above within 30 days after
becoming a Covered Person or within 120 days after the Effective Date, whichever is later. After
receiving the initial General Training described above, each Covered Person shall receive at least
one hour of General Training annually during the term of the CIA.

          2. Specific Training. Within 120 days after the Effective Date, each Relevant Covered Person
shall receive at least two hours of Specific Training in addition to the General Training required
above. This Specific Training shall include a discussion of:

a. the Federal health care program and FEHBP requirements regarding the
accurate coding and submission of claims;

b. policies, procedures, and other requirements applicable to the
documentation of medical records;

c. the personal obligation of each individual involved in the claims
submission process to ensure that such claims are accurate;

d. applicable reimbursement statutes, regulations, and program requirements
and directives;

e. the legal sanctions for violations of the Federal health care program
requirements; and

f. examples of proper and improper claims submission practices.

     New Relevant Covered Persons shall receive this training within 30 days after the beginning of
their employment or becoming Relevant Covered Persons, or within 120 days after the Effective Date,
whichever is later. A Pediatrix employee who has completed the Specific Training shall supervise a
new Relevant Covered Person’s work,

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to the extent that the work relates to coding for patient care items or services or the
performance of coding functions that relate to the preparation or submission of claims for
reimbursement from any Federal health care program, until such time as the new Relevant Covered
Person completes his or her Specific Training.

     After receiving the initial Specific Training described in this Section, each Relevant Covered
Person shall receive at least two hours of Specific Training annually during the term of the CIA.

          3. Certification. Each individual who is required to attend training shall certify, in
writing, or in electronic form, if applicable, that he or she has received the required training.
The certification shall specify the type of training received and the date received. The
Compliance Officer (or designee) shall retain the certifications, along with all course materials.
These shall be made available to OIG, upon request.

          4. Qualifications of Trainer. Persons providing the training shall be knowledgeable about
the subject area.

          5. Update of Training. Pediatrix shall review the training annually, and, where appropriate,
update the training to reflect changes in Federal health care program requirements, any issues
discovered during internal audits and any other review, including but not limited to any review
conducted by the IRO, and any other relevant information.

          6. Computer-Based Training. Pediatrix may provide the training required under this CIA
through appropriate computer-based training approaches. If Pediatrix chooses to provide
computer-based training, it shall make available appropriately qualified and knowledgeable staff or
trainers to answer questions or provide additional information to the individuals receiving such
training.

          7. Credit for Prior Training. General Training or Specific Training that meets the
requirements of this Section III.C and that was provided during the six months immediately
preceding the execution of this CIA may be credited towards the training time requirements of this
Section, provided that Pediatrix shall update such training with respect to any new requirements
imposed by this CIA.

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     D. Review Procedures.

          1. General Description.

a. Engagement of Independent Review Organization. Within 120 days after
the Effective Date, Pediatrix shall engage an entity (or entities), such as
an accounting, auditing, or consulting firm (hereinafter “Independent Review
Organization” or “IRO”), to perform reviews to assist Pediatrix in assessing
and evaluating its coding and billing practices with respect to neonatal
critical and intensive care services and certain other obligations pursuant
to this Agreement and the Settlement Agreement. The applicable requirements
relating to the IRO are outlined in Appendix A to this Agreement, which is
incorporated by reference.

Each IRO engaged by Pediatrix shall have expertise in the coding, billing,
reporting, and other requirements of Medicaid and TRICARE, and in the
general requirements of the Federal health care program(s) from which
Pediatrix seeks reimbursement. Each IRO shall assess, along with Pediatrix,
whether it can perform the IRO review in a professionally independent and/or
objective fashion, as appropriate to the nature of the engagement, taking
into account any other business relationships or other engagements that may
exist between it and Pediatrix.

The IRO(s) review shall evaluate and analyze Pediatrix’s billing, coding,
and claims submission to the Federal health care programs and the
reimbursement received (Claims Review), and shall analyze whether Pediatrix
sought payment for certain unallowable costs (Unallowable Cost Review).

b. Frequency of Claims Review. The Claims Review shall be performed
annually and shall cover the 12-month period ending on March 31 of each of
the Reporting Periods. The IRO(s) shall perform all components of each
annual Claims Review.

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c. Frequency of Unallowable Cost Review. If applicable, the IRO shall
perform the Unallowable Cost Review for the first Reporting Period.

d. Retention of Records. The IRO and Pediatrix shall retain and make
available to OIG, upon request, all work papers, supporting documentation,
correspondence, and draft reports (those exchanged between the IRO and
Pediatrix) related to the reviews.

          2. Claims Review. The Claims Review shall include Discovery Samples of claims from multiple
hospital units and, if necessary, Full Samples from those units. The applicable definitions,
procedures, and reporting requirements are outlined in Appendix B to this Agreement, which is
incorporated by reference.

a. Discovery Samples. The IRO shall randomly
select eight (8) hospital units where Pediatrix provides neonatal
critical and intensive care services. For each of the eight (8) units
selected, the IRO shall randomly select thirty (30) Paid Claims for
each unit. The IRO shall review the 240 Paid Claims selected for
review (30 per unit) to determine whether the claim was correctly
coded, submitted, and reimbursed based on the supporting documentation
and applicable billing and coding regulations and guidance.

i. If the Error Rate (as defined in
Appendix B) for the Discovery Sample for any hospital unit is
less than 5%, no additional sampling is required for that
hospital unit, nor is the Systems Review required. (Note: The
guidelines listed above do not imply that this is an acceptable
error rate. Accordingly, Pediatrix should, as appropriate,
further analyze any errors identified in the Discovery Sample.
Pediatrix recognizes that OIG or other HHS component, in its
discretion and as authorized by statute, regulation, or other
appropriate authority may also analyze or review Paid Claims
included, or errors identified, in the Discovery Sample or any
other segment of the universe.)

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ii. If the Discovery Sample indicates
that the Error Rate is 5% or greater for any one hospital unit,
the IRO shall perform a Full Sample and a Systems Review for
that hospital unit, as described below.

b. Full Sample. If necessary, as determined by
procedures set forth in Section III.D.2.a, the IRO shall select an
additional sample of Paid Claims using commonly accepted sampling
methods and in accordance with Appendix B. The Full Sample shall be
designed to: (1) estimate the actual Overpayment in the population with
a 90% confidence level and with a maximum relative precision of 25% of
the point estimate and (2) conform with the Centers for Medicare and
Medicaid Services’ statistical sampling for overpayment estimation
guidelines.

     The Paid Claims selected for the Full Sample shall be reviewed based on supporting
documentation and applicable coding and billing regulations and guidance to determine whether the
claim was correctly coded, submitted, and reimbursed. For purposes of calculating the size of the
Full Sample, the Discovery Sample may serve as the probe sample, if statistically appropriate.

     Additionally, Pediatrix may use the items sampled as part of the Discovery Sample, and the
corresponding findings for those 30 Items as part of its Full Sample, if: (1) statistically
appropriate and (2) Pediatrix selects the Full Sample Items using the seed number generated by the
Discovery Sample. OIG, in its sole discretion, may refer the findings of the Full Sample (and any
related workpapers) received from Pediatrix to the appropriate Federal health care program payor,
including Medicaid State Agencies, for appropriate follow-up by that payor.

c. Systems Review. If Pediatrix’s Discovery Sample for any one hospital
unit identifies an Error Rate of 5% or greater, Pediatrix’s IRO shall also
conduct a Systems Review pertaining to that hospital unit. Specifically,
for each claim in the Discovery Sample and Full Sample that resulted in an
Overpayment, the IRO shall perform a “walk through” of the system(s) and
process(es) that generated the claim to identify any problems or weaknesses
that may have resulted

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in the identified Overpayments. The IRO shall provide its observations and
recommendations on suggested improvements to the system(s) and the
process(es) that generated the claim.

d. Repayment of Identified Overpayments. In accordance with Section III.H.1
of this Agreement, Pediatrix shall repay within 30 days any Overpayment(s)
identified in the Discovery Sample or the Full Sample (if applicable),
regardless of the Error Rate, to the appropriate payor and in accordance
with payor refund policies. Pediatrix shall make available to OIG all
documentation that reflects the refund of the Overpayment(s) to the payor.

          3. Claims Review Report. The IRO shall prepare a report based upon the Claims Review
performed (Claims Review Report). Information to be included in the Claims Review Report is
described in Appendix B.

          4. Unallowable Cost Review. If applicable, the IRO shall conduct a review of Pediatrix’s
compliance with the unallowable cost provisions of the Settlement Agreement. The IRO shall
determine whether Pediatrix has complied with its obligations not to charge to, or otherwise seek
payment from, federal or state payors for unallowable costs (as defined in the Settlement
Agreement) and its obligation to identify to applicable federal or state payors any unallowable
costs included in payments previously sought from the United States, or any state Medicaid program.
This unallowable cost analysis shall include, but not be limited to, payments sought in any cost
reports, cost statements, information reports, or payment requests already submitted by Pediatrix
or any affiliates. To the extent that such cost reports, cost statements, information reports, or
payment requests, even if already settled, have been adjusted to account for the effect of the
inclusion of the unallowable costs, the IRO shall determine if such adjustments were proper. In
making this determination, the IRO may need to review cost reports and/or financial statements from
the year in which the Settlement Agreement was executed, as well as from previous years.

          5. Unallowable Cost Review Report. If applicable, the IRO shall prepare a report based upon
the Unallowable Cost Review performed. The Unallowable Cost Review Report shall include the IRO’s
findings and supporting rationale regarding the Unallowable Cost Review and whether Pediatrix has
complied with its obligation not to

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charge to, or otherwise seek payment from, federal or state payors for unallowable costs (as
defined in the Settlement Agreement) and its obligation to identify to applicable federal or state
payors any unallowable costs included in payments previously sought from such payor.

          6. Validation Review. In the event OIG has reason to believe that: (a) any of Pediatrix’s
Claims Reviews or an Unallowable Cost Review fails to conform to the requirements of this
Agreement; or (b) the IRO’s findings or Claims Review results or Unallowable Cost Review results
are inaccurate, OIG may, at its sole discretion, conduct its own review to determine whether the
Claims Review and/or Unallowable Cost Review complied with the requirements of the Agreement and/or
the findings or Claims Review results or Unallowable Cost Review results are inaccurate (Validation
Review). Pediatrix shall pay for the reasonable cost of any such review performed by OIG or any of
its designated agents. Any Validation Review of Reports submitted as part of Pediatrix’s final
Annual Report must be initiated no later than one year after Pediatrix’s final submission (as
described in Section II) is received by OIG.

     Prior to initiating a Validation Review, OIG shall notify Pediatrix of its intent to do so and
provide a written explanation of why OIG believes such a review is necessary. To resolve any
concerns raised by OIG, Pediatrix may request a meeting with OIG to: (a) discuss the results of
any Claims Review or Unallowable Cost Review submissions or findings; (b) present any additional
information to clarify the results of the Claims Review or Unallowable Cost Review or to correct
the inaccuracy of the Claims Review or Unallowable Cost Review; and/or (c) propose alternatives to
the proposed Validation Review. Pediatrix agrees to provide any additional information as may be
requested by OIG under this Section in an expedited manner. OIG will attempt in good faith to
resolve any Claims Review or Unallowable Cost Review issues with Pediatrix prior to conducting a
Validation Review. However, the final determination as to whether or not to proceed with a
Validation Review shall be made at the sole discretion of OIG.

          7. Independence/Objectivity Certification. The IRO shall include in its report(s) to
Pediatrix a certification or sworn affidavit that it has evaluated its professional independence
and/or objectivity, as appropriate to the nature of the engagement, with regard to the Claims
Review or Unallowable Cost Review and that it has concluded that it is, in fact, independent and/or
objective.

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     E. Disclosure Program.

     Pediatrix certifies that it has established a Disclosure Program that includes a mechanism
(e.g., a toll-free compliance telephone line) to enable individuals to disclose, to the
Compliance Officer or some other person who is not in the disclosing individual’s chain of command,
any identified issues or questions associated with Pediatrix’s policies, conduct, practices, or
procedures with respect to a Federal health care program believed by the individual to be a
potential violation of criminal, civil, or administrative law. Pediatrix shall appropriately
publicize the existence of the disclosure mechanism (e.g., through compliance training or
by posting the information in prominent common areas). Pediatrix hereby agrees to maintain such a
Disclosure Program during the term of this CIA

     The Disclosure Program shall emphasize a nonretribution, nonretaliation policy, and shall
include a reporting mechanism for anonymous communications for which appropriate confidentiality
shall be maintained. Upon receipt of a disclosure, the Compliance Officer (or designee) shall
gather all relevant information. The Compliance Officer (or designee) shall make a preliminary,
good faith inquiry into the allegations set forth in every disclosure to ensure that he or she has
obtained all of the information necessary to determine whether a further review should be
conducted. For any disclosure that is sufficiently specific so that it reasonably: (1) permits a
determination of the appropriateness of the alleged improper practice; and (2) provides an
opportunity for taking corrective action, Pediatrix shall conduct an internal review of the
allegations set forth in the disclosure and ensure that proper follow-up is conducted.

     Pediatrix certifies that its Compliance Officer (or designee) maintains, and shall continue
to maintain during the term of the CIA, a disclosure log, which includes a record and summary of
each disclosure received (whether anonymous or not). As of the Effective Date, the disclosure log
shall also include the status of the respective internal reviews, and any corrective action taken
in response to the internal reviews. The disclosure log shall be made available to the OIG upon
request.

     F. Ineligible Persons.

1. Definitions. For purposes of this CIA:

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a. an “Ineligible Person” shall include an individual or entity who:

i. is currently excluded, debarred, suspended, or otherwise
ineligible to participate in the Federal health care programs or in
Federal procurement or nonprocurement programs; or

ii. has been convicted of a criminal offense that falls within the
ambit of 42 U.S.C. § 1320a-7(a), but has not yet been excluded,
debarred, suspended, or otherwise declared ineligible.

b. “Exclusion Lists” include:

i. the HHS/OIG List of Excluded Individuals/Entities (available
through the Internet at http://www.oig.hhs.gov); and

ii. the General Services Administration’s List of Parties Excluded
from Federal Programs (available through the Internet at
http://www.epls.gov).

c. “Screened Persons” include Pediatrix’s prospective and current: (1)
owners (other than shareholders who: (i) have an ownership interest of less
than 5%; and (ii) acquired the ownership interest through public trading),
(2) officers, (3) directors, (4) employees, and (5) physicians, contractors,
and agents who furnish health care items or services for any Pediatrix
entity that participates in a Federal health care program or that perform
billing or coding functions with respect to such items or services.

          2. Screening Requirements. Pediatrix shall ensure that all Screened Persons are not
Ineligible Persons, by implementing the following screening requirements.

a. Pediatrix shall screen all Screened Persons against the Exclusion Lists
prior to engaging their services and, as part of the hiring or

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contracting process, shall require such persons to disclose whether they are
an Ineligible Person.

b. Pediatrix shall screen all Screened Persons against the Exclusion Lists
within 120 days after the Effective Date and on an annual basis thereafter.

c. Pediatrix shall implement a policy requiring all Screened Persons to
disclose immediately any debarment, exclusion, suspension, or other event
that makes that person an Ineligible Person.

     Nothing in this Section affects the responsibility of (or liability for) Pediatrix to refrain
from billing Federal health care programs for items or services furnished, ordered, or prescribed
by an Ineligible Person. Pediatrix understands that items or services furnished by excluded
persons are not payable by Federal health care programs and that Pediatrix may be liable for
overpayments and/or criminal, civil, and administrative sanctions for employing or contracting with
an excluded person regardless of whether Pediatrix meets the requirements of this section III.F.

          3. Removal Requirement. If Pediatrix has actual notice that a Screened Person has become an
Ineligible Person, Pediatrix shall remove such person from responsibility for, or involvement with,
Pediatrix’s business operations related to the Federal health care programs and shall remove such
person from any position for which the person’s compensation or the items or services furnished,
ordered, or prescribed by the person are paid in whole or part, directly or indirectly, by Federal
health care programs or otherwise with Federal funds at least until such time as the person is
reinstated into participation in the Federal health care programs.

          4. Pending Charges and Proposed Exclusions. If Pediatrix has actual notice that a Screened
Person is charged with a criminal offense that falls within the ambit of 42 U.S.C. §§ 1320a-7(a),
1320a-7(b)(1)-(3), or is proposed for exclusion during his or her employment or contract term,
Pediatrix shall take all appropriate actions to ensure that the responsibilities of that person
have not and shall not adversely affect the quality of care rendered to any beneficiary, patient,
or resident, or the accuracy of any claims submitted to any Federal health care program.

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     G. Notification of Government Investigation or Legal Proceedings.

Within 30 days after discovery, Pediatrix shall notify the OIG, in writing, of any ongoing
investigation or legal proceeding known to Pediatrix conducted or brought by a governmental entity
or its agents involving an allegation that Pediatrix has committed a crime or has engaged in
fraudulent activities. This notification shall include a description of the allegation, the
identity of the investigating or prosecuting agency, and the status of such investigation or legal
proceeding. Pediatrix shall also provide written notice to the OIG within 30 days after the
resolution of the matter, and shall provide the OIG with a description of the findings and/or
results of the investigation or proceedings, if any.

     H. Reporting.

          1. Overpayments.

a. Definition of Overpayments. For purposes of this CIA, an
“Overpayment” shall mean the amount of money Pediatrix has received in
excess of the amount due and payable under any Federal health care program
requirements.

b. Reporting of Overpayments. If, at any time, Pediatrix
identifies or learns of any Overpayment, Pediatrix shall notify the payor
(e.g., Medicare fiscal intermediary or carrier) within 30 days after
identification of the Overpayment and take remedial steps within 60 days
after identification (or such additional time as may be agreed to by the
payor) to correct the problem, including preventing the underlying problem
and the Overpayment from recurring. Also, within 30 days after
identification of the Overpayment, Pediatrix shall repay the Overpayment to
the appropriate payor to the extent such Overpayment has been quantified.
If not yet quantified, within 30 days after identification, Pediatrix shall
notify the payor of its efforts to quantify the Overpayment amount along
with a schedule of when such work is expected to be completed. Notification
and repayment to the payor shall be done in accordance with the payor’s
policies, and, for Medicare contractors, shall include the information
contained on the Overpayment Refund Form, provided as Appendix

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C to this CIA. Notwithstanding the above, notification and repayment of any
Overpayment amount that routinely is reconciled or adjusted pursuant to
policies and procedures established by the payor should be handled in
accordance with such policies and procedures.

          2. Reportable Events.

a. Definition of Reportable Event. For purposes of this CIA, a
“Reportable Event” means anything that involves:

i. a substantial Overpayment; or

ii. a matter that a reasonable person would consider a probable
violation of criminal, civil, or administrative laws applicable to
any Federal health care program for which penalties or exclusion may
be authorized.

A Reportable Event may be the result of an isolated event or a series of
occurrences.

b. Reporting of Reportable Events. If Pediatrix determines (after
a reasonable opportunity to conduct an appropriate review or investigation
of the allegations) through any means that there is a Reportable Event,
Pediatrix shall notify the OIG, in writing, within 30 days after making the
determination that the Reportable Event exists. The report to the OIG shall
include the following information:

i. If the Reportable Event results in an Overpayment, the report to
the OIG shall be made at the same time as the notification to the
payor required in Section III.H.1, and shall include all of the
information on the Overpayment Refund Form, as well as:

(A) the payor’s name, address, and contact person to
whom the Overpayment was sent; and

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(B) the date of the check and identification number (or
electronic transaction number) by which the Overpayment was
repaid/refunded;

ii. a complete description of the Reportable Event, including the
relevant facts, persons involved, and legal and Federal health care
program authorities implicated;

iii. a description of Pediatrix’s actions taken to correct the
Reportable Event; and

iv. any further steps Pediatrix plans to take to address the
Reportable Event and prevent it from recurring.

IV.
New Business Units
or Locations

     In the event that, after the Effective Date, Pediatrix changes locations or sells, closes,
purchases, or establishes a new business unit or location related to the furnishing of items or
services that may be reimbursed by Federal health care programs, Pediatrix shall notify OIG of this
fact as soon as possible, but no later than within 30 days after the date of change of location,
sale, closure, purchase, or establishment. This notification shall include the address of the new
business unit or location, phone number, fax number, Medicaid Provider number, provider
identification number and/or supplier number, and the corresponding contractor’s name and address
that has issued each Medicaid number. Each new business unit or location shall be subject to all
the requirements of this CIA.

V. Implementation and Annual Reports

     A. Implementation Report. Within 150 days after the Effective Date, Pediatrix
shall submit a written report to the OIG summarizing the status of its implementation of the
requirements of this CIA (Implementation Report). The Implementation Report shall, at a minimum,
include:

          1. the name, address, phone number, and position description of the Compliance Officer
required by Section III.A, and a summary of other noncompliance job responsibilities the Compliance
Officer may have;

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          2. the names and positions of the members of the Compliance Committee required by Section
III.A;

          3. a copy of Pediatrix’s Code of Conduct required by Section III.B.1;

          4. a summary of all Policies and Procedures required by Section
III.B.2;

          5. the number of individuals required to complete the Code of Conduct certification required
by Section III.B.1, the percentage of individuals who have completed such certification, and an
explanation of any exceptions (the documentation supporting this information shall be available to
the OIG, upon request);

          6. the following information regarding each type of training required by Section III.C:

a. a description of such training, including a summary of the topics
covered, the length of sessions and a schedule of training sessions;

b. the number of individuals required to be trained, percentage of
individuals actually trained, and an explanation of any exceptions.

A copy of all training materials and the documentation supporting this information shall be
available to OIG, upon request.

          7. a description of the Disclosure Program required by Section III.E;

          8. the following information regarding the IRO(s): (a) identity, address, and phone number;
(b) a copy of the engagement letter; (c) a summary and description of any and all current and prior
engagements and agreements between Pediatrix and the IRO; and (d) the proposed start and completion
dates of the Claims Review and Unallowable Cost Review;

          9. a certification from the IRO regarding its professional independence and/or objectivity
with respect to Pediatrix;

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          10. a description of the process by which Pediatrix fulfills the requirements of Section
III.F regarding Ineligible Persons;

          11. the name, title, and responsibilities of any person who is determined to be an Ineligible
Person under Section III.F; the actions taken in response to the screening and removal obligations
set forth in Section III.F; and the actions taken to identify, quantify, and repay any overpayments
to Federal health care programs relating to items or services furnished, ordered or prescribed by
an Ineligible Person;

          12. a list of all of Pediatrix’s locations (including locations and mailing addresses); the
corresponding name under which each location is doing business; the corresponding phone numbers and
fax numbers; each location’s Medicaid Provider number(s), provider identification number(s), and/or
supplier number(s); and the name and address of each Medicaid state agency to which Pediatrix
currently submits claims;

          13. a description of Pediatrix’s corporate structure, including identification of any parent
and sister companies, subsidiaries, and their respective lines of business; and

          14. the certifications required by Section V.C.

     B. Annual Reports. Pediatrix shall submit to the OIG annually a report with respect
to the status of, and findings regarding, Pediatrix’s compliance activities for each of the five
Reporting Periods (Annual Report).

Each Annual Report shall include, at a minimum:

          1. any change in the identity, position description, or other noncompliance job
responsibilities of the Compliance Officer and any change in the membership of the Compliance
Committee described in Section III.A;

          2. a summary of any significant changes or amendments to the Policies and Procedures required
by Section III.B and the reasons for such changes (e.g., change in contractor policy) and
copies of any compliance-related Policies and Procedures;

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          3. the number of individuals required to complete the Code of Conduct certification required
by Section III.B.1, the percentage of individuals who have completed such certification, and an
explanation of any exceptions (the documentation supporting this information shall be available to
the OIG, upon request);

          4. the following information regarding each type of training required by Section III.C:

a. a description of such training, including a summary of the topics
covered, the length of sessions and a schedule of training sessions;

b. the number of individuals required to be trained, percentage of
individuals actually trained, and an explanation of any exceptions.

A copy of all training materials and the documentation supporting this information shall be
available to the OIG, upon request.

          5. a complete copy of all reports prepared pursuant to Section III.D, along with a copy of
the IRO’s engagement letter (if applicable);

          6. Pediatrix’s response and corrective action plan(s) related to any issues raised by the
reports prepared pursuant to Section III.D;

          7. summary and description of any and all current and prior engagements and agreements
between Pediatrix and the IRO, if different from what was submitted as part of the Implementation
Report;

          8. a certification from the IRO regarding its professional independence and/or objectivity
with respect to Pediatrix;

          9. a summary of Reportable Events (as defined in Section III.H) identified during the
Reporting Period and the status of any corrective and preventative action relating to all such
Reportable Events;

          10. a report of the aggregate Overpayments that have been returned to the Federal health care
programs. Overpayment amounts shall be broken down into the

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following categories: Medicaid (report each applicable state separately, if applicable),
TRICARE, and other Federal health care programs. Overpayment amounts that are routinely reconciled
or adjusted pursuant to policies and procedures established by the payor do not need to be included
in this aggregate Overpayment report;

          11. a summary of the disclosures in the disclosure log required by Section III.E that: (a)
relate to Federal health care programs; or (b) allege abuse or neglect of patients;

          12. any changes to the process by which Pediatrix fulfills the requirements of Section III.F
regarding Ineligible Persons;

          13. the name, title, and responsibilities of any person who is determined to be an Ineligible
Person under Section III.F; the actions taken by Pediatrix in response to the screening and removal
obligations set forth in Section III.F; and the actions taken to identify, quantify, and repay any
overpayments to Federal health care programs relating to items or services furnished, ordered or
prescribed by an Ineligible Person;

          14. a summary describing any ongoing investigation or legal proceeding required to
have been reported pursuant to Section III.G. The summary shall include a description of the
allegation, the identity of the investigating or prosecuting agency, and the status of such
investigation or legal proceeding;

          15. a description of all changes to the most recently provided list of Pediatrix’s locations
(including addresses) as required by Section V.A.12; the corresponding name under which each
location is doing business; the corresponding phone numbers and fax numbers; each location’s
Medicaid provider number(s), provider identification number(s), and/or supplier number(s); and the
name and address of each Medicaid state agency to which Pediatrix currently submits claims; and

          16. the certifications required by Section V.C.

     The first Annual Report shall be received by the OIG no later than 90 days after the end of
the first Reporting Period. Subsequent Annual Reports shall be received by the OIG no later than
the anniversary date of the due date of the first Annual Report.

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     C. Certifications. The Implementation Report and Annual Reports shall include a
certification by the Compliance Officer that:

          1. to the best of his or her knowledge, except as otherwise described in the applicable
report, Pediatrix is in compliance with all of the requirements of this CIA;

          2. he or she has reviewed the Report and has made reasonable inquiry regarding its content
and believes that the information in the Report is accurate and truthful; and

          3. Pediatrix has complied with its obligations under the Settlement Agreement: (a)
not to resubmit to any Federal health care program payors any previously denied claims related to
the Covered Conduct addressed in the Settlement Agreement, and not to appeal any such denials of
claims; (b) not to charge to or otherwise seek payment from Federal or State payors for unallowable
costs (as defined in the Settlement Agreement); and (c) to identify and adjust any past charges or
claims for unallowable costs;

     D. Designation of Information. Pediatrix shall clearly identify any portions of its
submissions that it believes are trade secrets, or information that is commercial or financial and
privileged or confidential, and therefore potentially exempt from disclosure under the Freedom of
Information Act (FOIA), 5 U.S.C. § 552. Pediatrix shall refrain from identifying any information
as exempt from disclosure if that information does not meet the criteria for exemption from
disclosure under FOIA.

VI.
Notifications and
Submission of Reports

     Unless otherwise stated in writing after the Effective Date, all notifications and reports
required under this CIA shall be submitted to the following entities:

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OIG:

Administrative and Civil Remedies Branch

Office of Counsel to the Inspector General

Office of Inspector General

U.S. Department of Health and Human Services

Cohen Building, Room 5527

330 Independence Avenue, S.W.

Washington, DC 20201

Telephone: 202.619.2078

Facsimile: 202.205.0604

Pediatrix:

Pediatrix Medical Group, Inc.

ATTN: James P. Evans, VP,

Chief Compliance Officer

1301 Concord Terrace

Sunrise, FL 33323

Telephone: 954-384-0175

Facsimile: 954-233-3216

Unless otherwise specified, all notifications and reports required by this CIA may be made by
certified mail, overnight mail, hand delivery, or other means, provided that there is proof that
such notification was received. For purposes of this requirement, internal facsimile confirmation
sheets do not constitute proof of receipt.

VII.
OIG Inspection,
Audit, and Review Rights

     In addition to any other rights the OIG may have by statute, regulation, or contract, the OIG
or its duly authorized representative(s) may examine or request copies of Pediatrix’s books,
records, and other documents and supporting materials and/or conduct on-site reviews of any of
Pediatrix’s locations for the purpose of verifying and evaluating: (a) Pediatrix’s compliance with
the terms of this CIA; and (b) Pediatrix’s compliance with the requirements of the Federal health
care programs in which it participates. The documentation described above shall be made available
by Pediatrix to the OIG or its duly authorized representative(s) at all reasonable times for
inspection, audit, or reproduction. Furthermore, for purposes of this provision, the OIG or its
duly authorized

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representative(s) may interview any of Pediatrix’s employees, contractors, or agents who consent to
be interviewed at the individual’s place of business during normal business hours or at such other
place and time as may be mutually agreed upon between the individual and the OIG. Pediatrix shall
assist the OIG or its duly authorized representative(s) in contacting and arranging interviews with
such individuals upon the OIG’s request. Pediatrix’s employees may elect to be interviewed with or
without a representative of Pediatrix present.

VIII. Document and Record Retention

     Pediatrix shall maintain for inspection all documents and records relating to reimbursement
from the Federal health care programs, or to compliance with this CIA, for six years (or longer if
otherwise required by law) from the effective date.

IX. Disclosures

     Consistent with HHS’s FOIA procedures, set forth in 45 C.F.R. Part 5, the OIG shall make a
reasonable effort to notify Pediatrix prior to any release by the OIG of information submitted by
Pediatrix pursuant to its obligations under this CIA and identified upon submission by Pediatrix as
trade secrets, or information that is commercial or financial and privileged or confidential, under
the FOIA rules. With respect to such releases, Pediatrix shall have the rights set forth at 45
C.F.R. § 5.65(d).

X. Breach and Default Provisions

     Pediatrix is expected to fully and timely comply with all of its CIA obligations.

     A. Stipulated Penalties for Failure to Comply with Certain Obligations. As a
contractual remedy, Pediatrix and the OIG hereby agree that failure to comply with certain
obligations as set forth in this CIA may lead to the imposition of the following monetary penalties
(hereinafter referred to as “Stipulated Penalties”) in accordance with the following provisions.

          1. A Stipulated Penalty of $2,500 (which shall begin to accrue on the day after the date the
obligation became due) for each day Pediatrix fails to establish and implement any of the following
obligations as described in Section III:

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a. a Compliance Officer;

b. a Compliance Committee;

c. a written Code of Conduct;

d. written Policies and Procedures;

e. the training of Covered Persons;

f. a Disclosure Program;

g. Ineligible Persons screening and removal requirements; and

h. Notification of Government investigations or legal proceedings.

          2. A Stipulated Penalty of $2,500 (which shall begin to accrue on the day after the
date the obligation became due) for each day Pediatrix fails to engage an IRO, as required in
Section III.D and Appendix A.

          3. A Stipulated Penalty of $2,500 (which shall begin to accrue on the day after the date the
obligation became due) for each day Pediatrix fails to submit the Implementation Report or the
Annual Reports to the OIG in accordance with the requirements of Section V by the deadlines for
submission.

          4. A Stipulated Penalty of $2,500 (which shall begin to accrue on the day after the date the
obligation became due) for each day Pediatrix fails to submit the annual Claims Review Report and
any other required Review in accordance with the requirements of Section III.D and Appendix B.

          5. A Stipulated Penalty of $1,500 for each day Pediatrix fails to grant access to the
information or documentation as required in Section VII. (This Stipulated Penalty shall begin to
accrue on the date Pediatrix fails to grant access.)

          6. A Stipulated Penalty of $5,000 for each false certification submitted by or on behalf of
Pediatrix as part of its Implementation Report, Annual Report, additional
documentation to a report (as requested by the OIG), or otherwise required by this CIA.

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          7. A Stipulated Penalty of $1,000 for each day Pediatrix fails to comply fully and adequately
with any obligation of this CIA. The OIG shall provide notice to Pediatrix, stating the specific
grounds for its determination that Pediatrix has failed to comply fully and adequately with the CIA
obligation(s) at issue and steps Pediatrix shall take to comply with the CIA. (This Stipulated
Penalty shall begin to accrue 10 days after Pediatrix receives this notice from the OIG of the
failure to comply.) A Stipulated Penalty as described in this Subsection shall not be demanded for
any violation for which the OIG has sought a Stipulated Penalty under Subsections 1-6 of this
Section.

     B. Timely Written Requests for Extensions. Pediatrix may, in advance of the due
date, submit a timely written request for an extension of time to perform any act or file any
notification or report required by this CIA. Notwithstanding any other provision in this Section,
if the OIG grants the timely written request with respect to an act, notification, or report,
Stipulated Penalties for failure to perform the act or file the notification or report shall not
begin to accrue until one day after Pediatrix fails to meet the revised deadline set by the OIG.
Notwithstanding any other provision in this Section, if the OIG denies such a timely written
request, Stipulated Penalties for failure to perform the act or file the notification or report
shall not begin to accrue until three business days after Pediatrix receives the OIG’s written
denial of such request or the original due date, whichever is later. A “timely written request” is
defined as a request in writing received by the OIG at least five business days prior to the date
by which any act is due to be performed or any notification or report is due to be filed.

     C. Payment of Stipulated Penalties.

          1. Demand Letter. Upon a finding that Pediatrix has failed to comply with any of the
obligations described in Section X.A and after determining that Stipulated Penalties are
appropriate, the OIG shall notify Pediatrix of: (a) Pediatrix’s failure to comply; and (b) the
OIG’s exercise of its contractual right to demand payment of the Stipulated Penalties (this
notification is referred to as the “Demand Letter”).

          2. Response to Demand Letter. Within 10 days after the receipt of the Demand Letter,
Pediatrix shall either: (a) cure the breach to the OIG’s satisfaction and pay the applicable
Stipulated Penalties; or (b) request a hearing before an HHS

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administrative law judge (ALJ) to dispute the OIG’s determination of noncompliance, pursuant
to the agreed upon provisions set forth below in Section X.E. In the event Pediatrix elects to
request an ALJ hearing, the Stipulated Penalties shall continue to accrue until Pediatrix cures, to
the OIG’s satisfaction, the alleged breach in dispute, or until an ALJ has determined there is no
breach of the CIA. Failure to respond to the Demand Letter in one of these two manners within the
allowed time period shall be considered a material breach of this CIA and shall be grounds for
exclusion under Section X.D.

          3. Form of Payment. Payment of the Stipulated Penalties shall be made by certified or
cashier’s check, payable to: “Secretary of the Department of Health and Human Services,” and
submitted to the OIG at the address set forth in Section VI.

          4. Independence from Material Breach Determination. Except as set forth in Section X.D.1.c,
these provisions for payment of Stipulated Penalties shall not affect or otherwise set a standard
for the OIG’s decision that Pediatrix has materially breached this CIA, which decision shall be
made at the OIG’s discretion and shall be governed by the provisions in Section X.D, below.

     D. Exclusion for Material Breach of this CIA.

          1. Definition of Material Breach. A material breach of this CIA means:

a. a failure by Pediatrix to report a Reportable Event, take corrective
action, and make the appropriate refunds, as required in Section III.H;

b. a repeated or flagrant violation of the obligations under this CIA,
including, but not limited to, the obligations addressed in Section X.A;

c. a failure to respond to a Demand Letter concerning the payment of
Stipulated Penalties in accordance with Section X.C; or

d. a failure to engage and use an IRO in accordance with Section III.D.

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          2. Notice of Material Breach and Intent to Exclude. The parties agree that a material breach
of this CIA by Pediatrix constitutes an independent basis for Pediatrix’s exclusion from
participation in the Federal health care programs. Upon a determination by the OIG that Pediatrix
has materially breached this CIA and that exclusion is the appropriate remedy, the OIG shall notify
Pediatrix of: (a) Pediatrix’s material breach; and (b) the OIG’s intent to exercise its
contractual right to impose exclusion (this notification is hereinafter referred to as the “Notice
of Material Breach and Intent to Exclude”).

          3. Opportunity to Cure. Pediatrix shall have 30 days from the date of receipt of the Notice
of Material Breach and Intent to Exclude to demonstrate to the OIG’s satisfaction that:

a. Pediatrix is in compliance with the obligations of the CIA cited by the
OIG as being the basis for the material breach;

b. the alleged material breach has been cured; or

c. the alleged material breach cannot be cured within the 30-day period,
but that: (i) Pediatrix has begun to take action to cure the material
breach; (ii) Pediatrix is pursuing such action with due diligence; and (iii)
Pediatrix has provided to the OIG a reasonable timetable for curing the
material breach.

          4. Exclusion Letter. If, at the conclusion of the 30-day period, Pediatrix fails to satisfy
the requirements of Section X.D.3, the OIG may exclude Pediatrix from participation in the Federal
health care programs. The OIG shall notify Pediatrix in writing of its determination to exclude
Pediatrix (this letter shall be referred to hereinafter as the “Exclusion Letter”). Subject to the
Dispute Resolution provisions in Section X.E, below, the exclusion shall go into effect 30 days
after the date of Pediatrix’s receipt of the Exclusion Letter. The exclusion shall have national
effect and shall also apply to all other Federal procurement and nonprocurement programs.
Reinstatement to program participation is not automatic. After the end of the period of exclusion,
Pediatrix may apply for reinstatement by submitting a written request for reinstatement in
accordance with the provisions at 42 C.F.R. §§ 1001.3001-.3004.

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E. Dispute Resolution

          1. Review Rights. Upon the OIG’s delivery to Pediatrix of its Demand Letter or of its
Exclusion Letter, and as an agreed-upon contractual remedy for the resolution of disputes arising
under this CIA, Pediatrix shall be afforded certain review rights comparable to the ones that are
provided in 42 U.S.C. § 1320a-7(f) and 42 C.F.R. Part 1005 as if they applied to the Stipulated
Penalties or exclusion sought pursuant to this CIA. Specifically, the OIG’s determination to
demand payment of Stipulated Penalties or to seek exclusion shall be subject to review by an HHS
ALJ and, in the event of an appeal, the HHS Departmental Appeals Board (DAB), in a manner
consistent with the provisions in 42 C.F.R. § 1005.2-1005.21. Notwithstanding the language in 42
C.F.R. § 1005.2(c), the request for a hearing involving Stipulated Penalties shall be made within
10 days after receipt of the Demand Letter and the request for a hearing involving exclusion shall
be made within 25 days after receipt of the Exclusion Letter.

          2. Stipulated Penalties Review. Notwithstanding any provision of Title 42 of the United
States Code or Title 42 of the Code of Federal Regulations, the only issues in a proceeding for
Stipulated Penalties under this CIA shall be: (a) whether Pediatrix was in full and timely
compliance with the obligations of this CIA for which the OIG demands payment; and (b) the period
of noncompliance. Pediatrix shall have the burden of proving its full and timely compliance and
the steps taken to cure the noncompliance, if any. The OIG shall not have the right to appeal to
the DAB an adverse ALJ decision related to Stipulated Penalties. If the ALJ agrees with the OIG
with regard to a finding of a breach of this CIA and orders Pediatrix to pay Stipulated Penalties,
such Stipulated Penalties shall become due and payable 20 days after the ALJ issues such a decision
unless Pediatrix requests review of the ALJ decision by the DAB. If the ALJ decision is properly
appealed to the DAB and the DAB upholds the determination of the OIG, the Stipulated Penalties
shall become due and payable 20 days after the DAB issues its decision.

          3. Exclusion Review. Notwithstanding any provision of Title 42 of the United States
Code or Title 42 of the Code of Federal Regulations, the only issues in a proceeding for exclusion
based on a material breach of this CIA shall be:

a. whether Pediatrix was in material breach of this CIA;

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b. whether such breach was continuing on the date of the Exclusion Letter;
and

c. whether the alleged material breach could not have been cured within the
30-day period, but that: (i) Pediatrix had begun to take action to cure the
material breach within that period; (ii) Pediatrix has pursued and is
pursuing such action with due diligence; and (iii) Pediatrix provided to
the OIG within that period a reasonable timetable for curing the material
breach and has followed the timetable.

          For purposes of the exclusion herein, exclusion shall take effect only after an ALJ decision
favorable to the OIG, or, if the ALJ rules for Pediatrix, only after a DAB decision in favor of the
OIG. Pediatrix’s election of its contractual right to appeal to the DAB shall not abrogate the
OIG’s authority to exclude Pediatrix upon the issuance of an ALJ’s decision in favor of the OIG.
If the ALJ sustains the determination of the OIG and determines that exclusion is authorized, such
exclusion shall take effect 20 days after the ALJ issues such a decision, notwithstanding that
Pediatrix may request review of the ALJ decision by the DAB. If the DAB finds in favor of the OIG
after an ALJ decision adverse to the OIG, the exclusion shall take effect 20 days after the DAB
decision. Pediatrix shall waive its right to any notice of such an exclusion if a decision
upholding the exclusion is rendered by the ALJ or DAB. If the DAB finds in favor of Pediatrix,
Pediatrix shall be reinstated effective on the date of the original exclusion.

          4. Finality of Decision. The review by an ALJ or DAB provided for above shall not be
considered to be an appeal right arising under any statutes or regulations. Consequently, the
parties to this CIA agree that the DAB’s decision (or the ALJ’s decision if not appealed) shall be
considered final for all purposes under this CIA.

XI. Effective and Binding Agreement

     Consistent with the provisions in the Settlement Agreement pursuant to which this CIA is
entered, Pediatrix and the OIG agree as follows:

     A. This CIA shall be binding on the successors, assigns, and transferees of Pediatrix;

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     B. This CIA shall become final and binding on the date the final signature is obtained on the
CIA;

     C. Any modifications to this CIA shall be made with the prior written consent of the parties
to this CIA;

     D. The OIG may agree to a suspension of Pediatrix’s obligations under the CIA in the event of
Pediatrix’s cessation of participation in Federal health care programs. If Pediatrix withdraws
from participation in Federal health care programs and is relieved of its CIA obligations by the
OIG, Pediatrix shall notify the OIG at least 30 days in advance of Pediatrix’s intent to reapply as
a participating provider or supplier with any Federal health care program. Upon receipt of such
notification, the OIG shall evaluate whether the CIA should be reactivated or modified.

     E. The undersigned Pediatrix signatories represent and warrant that they are authorized to
execute this CIA. The undersigned OIG signatory represents that he is signing this CIA in his
official capacity and that he is authorized to execute this CIA.

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On Behalf of Pediatrix Medical Group, Inc. 

	 	 	 
	/s/ Thomas W. Hawkins
 

THOMAS W. HAWKINS

Senior Vice President

and General Counsel	 	
9/19/06 
 

DATE
	/s/ Ronald L. Wisor, Jr.
 

STEPHEN J. IMMELT

RONALD L. WISOR JR.

Hogan & Hartson L.L.P.

Counsel for Pediatrix	 	
9/20/06 
 
 

DATE

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 On behalf of the Office of Inspector General 

of the Department of Health and Human Services

	 	 	 
	/s/ Gregory E. Demske
 

GREGORY E. DEMSKE

Assistant Inspector General for Legal Affairs

Office of Inspector General

U. S. Department of Health and Human Services	 	
9/18/06 
 

DATE

Pediatrix Medical Group, Inc.

Corporate Integrity Agreement

35

 

APPENDIX A

INDEPENDENT REVIEW ORGANIZATION

This Appendix contains the requirements relating to the Independent Review Organization (IRO)
required by Section III.D of the CIA.

A. IRO Engagement.

     Pediatrix shall engage an IRO that possesses the qualifications set forth in Paragraph B,
below, to perform the responsibilities in Paragraph C, below. The IRO shall conduct the review in
a professionally independent and/or objective fashion, as set forth in Paragraph D. Within 30 days
after OIG receives written notice of the identity of the selected IRO, OIG will notify Pediatrix if
the IRO is unacceptable. Absent notification from OIG that the IRO is unacceptable, Pediatrix may
continue to engage the IRO.

     If Pediatrix engages a new IRO during the term of the CIA, this IRO shall also meet the
requirements of this Appendix. If a new IRO is engaged, Pediatrix shall submit the information
identified in Section V.A.8 to OIG within 30 days of engagement of the IRO. Within 30 days after
OIG receives written notice of the identity of the selected IRO, OIG will notify Pediatrix if the
IRO is unacceptable. Absent notification from OIG that the IRO is unacceptable, Pediatrix may
continue to engage the IRO.

B. IRO Qualifications.

The IRO shall:

     1. assign individuals to conduct the Claims Review and, if applicable, Unallowable Cost
Review who have expertise in the billing, coding, reporting, and other requirements of Medicaid and
TRICARE applicable to claims for neonatal and other physician services and in the general
requirements of the Federal health care program(s) from which Pediatrix seeks reimbursement;

     2. assign individuals to design and select the Claims Review sample who are knowledgeable
about the appropriate statistical sampling techniques;

     3. assign individuals to conduct the coding review portions of the Claims Review who have a
nationally recognized coding certification (e.g., CCA, CCS, CCS-P, CPC, RRA, etc.) and who
have maintained this certification (e.g., completed applicable continuing education
requirements); and

Pediatrix Appendix A

Page 1

 

 

     4. have sufficient staff and resources to conduct the reviews required by the CIA on a timely
basis.

C. IRO Responsibilities.

The IRO shall:

     1. perform each Claim Review and, if applicable, Unallowable Cost Review in accordance with
the specific requirements of the CIA;

     2. follow all applicable Medicaid and TRICARE rules, and other applicable rules and
reimbursement guidelines in making assessments in the Claims Review;

     3. if in doubt of the application of a particular Medicaid, TRICARE or other applicable
policy or regulation, request clarification from the appropriate authority (e.g., Medicaid
State Agency);

     4. respond to all OIG inquires in a prompt, objective, and factual manner; and

     5. prepare timely, clear, well-written reports that include all the information required by
Appendix B of the CIA.

D. IRO Independence/Objectivity.

The IRO must perform the Claims Review and, if applicable, Unallowable Cost Review, in a
professionally independent and/or objective fashion, as appropriate to the nature of the
engagement, taking into account any other business relationships or engagements that may exist
between the IRO and Pediatrix.

E. IRO Removal/Termination.

     1. Provider. If Pediatrix terminates its IRO during the course of the engagement, Pediatrix
must submit a notice explaining its reasons to OIG no later than 30 days after termination.
Pediatrix must engage a new IRO in accordance with Paragraph A of this Appendix.

     2. OIG Removal of IRO. In the event OIG has reason to believe that the IRO does not possess
the qualifications described in Paragraph B, is not independent and/or objective as set forth in
Paragraph D, or has failed to carry out its responsibilities as described in Paragraph C, OIG may,
at its sole discretion, require Pediatrix to engage a new IRO in accordance with Paragraph A of
this Appendix.

Pediatrix Appendix A

Page 2

 

 

     Prior to requiring Pediatrix to engage a new IRO, OIG shall notify Pediatrix of its intent to
do so and provide a written explanation of why OIG believes such a step is necessary. To resolve
any concerns raised by OIG, Pediatrix may request a meeting with OIG to discuss any aspect of the
IRO’s qualifications, independence or performance of its responsibilities and to present additional
information regarding these matters. Pediatrix shall provide any additional information as may be
requested by OIG under this Paragraph in an expedited manner. OIG will attempt in good faith to
resolve any differences regarding the IRO with Pediatrix prior to requiring Pediatrix to terminate
the IRO. However, the final determination as to whether or not to require Pediatrix to engage a
new IRO shall be made at the sole discretion of OIG.

Pediatrix Appendix A

Page 3

 

 

APPENDIX B

CLAIMS REVIEW

	A.	 	Claims Review.

     1. Definitions. For the purposes of the Claims Review, the following definitions shall be
used:

a. Overpayment: The amount of money Pediatrix has received in excess of the
amount due and payable under any Federal health care program requirements.

b. Item: Any discrete unit that can be sampled (e.g., CPT code for
global neonatal critical and intensive care services, line item, beneficiary, patient
encounter, etc.).

c. Paid Claim: A code or line item submitted by Pediatrix and for which
Pediatrix has received reimbursement from the Medicaid or TRICARE programs.

d. Population: For the first Reporting Period, the Population shall be defined
as all Items for which a code or line item has been submitted by or on behalf of
Pediatrix and for which Pediatrix has received reimbursement from the Medicaid or
TRICARE programs (i.e., Paid Claim) during the 12-month period covered by the
first Claims Review.

For the remaining Reporting Periods, the Population shall be defined as all Items for
which Pediatrix has received reimbursement from the Medicaid and TRICARE programs
(i.e., Paid Claim) during the 12-month period covered by the Claims Review.

To be included in the Population, an Item must have resulted in at least one Paid Claim.

e. Error Rate: The Error Rate shall be the percentage of net Overpayments
identified in the sample. The net Overpayments shall be calculated by subtracting all
underpayments identified in the sample from all gross Overpayments identified in the
sample. (Note: Any potential cost settlements or other supplemental payments should
not be included in the net Overpayment calculation. Rather, only underpayments
identified as part of the Discovery Sample shall be included as part of the net
Overpayment calculation.)

Pediatrix
Appendix B

Page 1

 

 

The Error Rate is calculated by dividing the net Overpayment identified in the sample by
the total dollar amount associated with the Items in the sample.

     2. Other Requirements.

a. Paid Claims without Supporting Documentation. For the purpose of
appraising Items included in the Claims Review, any Paid Claim for which Pediatrix
cannot produce documentation sufficient to support the Paid Claim shall be
considered an error and the total reimbursement received by Pediatrix for such Paid
Claim shall be deemed an Overpayment. Replacement sampling for Paid Claims with
missing documentation is not permitted.

b. Replacement Sampling. Considering the Population shall consist only of
Paid Claims and that Items with missing documentation cannot be replaced, there is
no need to utilize alternate or replacement sampling units.

c. Use of First Samples Drawn. For the purposes of all samples (Discovery
Sample(s) and Full Sample(s)) discussed in this Appendix, the Paid Claims associated
with the Items selected in each first sample (or first sample for each strata, if
applicable) shall be used (i.e., it is not permissible to generate more than
one list of random samples and then select one for use with the Discovery Sample or
Full Sample).

	B.	 	Claims Review Report. The following information shall be included in the
Claims Review Report for each 30-claim Discovery Sample and each Full Sample (if
applicable).

     1. Claims Review Methodology.

a. Sampling Unit. A description of the Item as that term is utilized for
the Claims Review.

b. Claims Review Population. A description of the Population subject to
the Claims Review.

c. Claims Review Objective. A clear statement of the objective intended to
be achieved by the Claims Review.

d. Sampling Frame. A description of the sampling frame, which is the
totality of Items from which each 30-claim Discovery Sample and, if any, each Full
Sample has been selected and an explanation of the methodology

Pediatrix Appendix B

Page 2

 

 

used to identify the sampling frame. In most circumstances, the sampling frame will
be identical to the Population.

e. Source of Data. A description of the specific documentation relied upon
by the IRO when performing the Claims Review (e.g., medical records,
physician orders, certificates of medical necessity, requisition forms, local
medical review policies (including title and policy number), CMS program memoranda
(including title and issuance number), Medicare carrier or intermediary manual or
bulletins (including issue and date), other policies, regulations, or directives).

f. Review Protocol. A narrative description of how the Claims Review was
conducted and what was evaluated.

     2. Statistical Sampling Documentation.

a. The number of Items appraised in each 30-claim Discovery Sample and, if
applicable, in each Full Sample.

b. A copy of the printout of the random numbers generated by the “Random Numbers”
function of the statistical sampling software used by the IRO.

c. A copy of the statistical software printout(s) estimating how many Items are to
be included in each Full Sample, if applicable.

d. A description or identification of the statistical sampling software package
used to select the sample and determine the Full Sample size, if applicable.

     3. Claims Review Findings.

a. Narrative Results.

i. A description of Pediatrix’s billing and coding system(s), including the
identification, by position description, of the personnel involved in coding
and billing.

ii. A narrative explanation of the IRO’s findings and supporting rationale
(including reasons for errors, patterns noted, etc.) regarding the Claims
Review, including the results of each 30-claim Discovery Sample, and the
results of each Full Sample (if any).

Pediatrix
Appendix B

Page 3

 

 

b. Quantitative Results.

i. Total number and percentage of instances in which the IRO determined that
the Paid Claims submitted by Pediatrix (Claim Submitted) differed from what
should have been the correct claim (Correct Claim), regardless of the effect
on the payment.

ii. Total number and percentage of instances in which the Claim Submitted
differed from the Correct Claim and in which such difference resulted in an
Overpayment to Pediatrix.

iii. Total dollar amount of all Overpayments in the sample.

iv. Total dollar amount of paid Items included in the sample and the net
Overpayment associated with the sample.

v. Error Rate in the sample.

vi. A spreadsheet of the Claims Review results that includes the following
information for each Paid Claim appraised: Federal health care program
billed, beneficiary health insurance claim number, date of service, procedure
code submitted, procedure code reimbursed, allowed amount reimbursed by payor,
correct procedure code (as determined by the IRO), correct allowed amount (as
determined by the IRO), dollar difference between allowed amount reimbursed by
payor and the correct allowed amount. (See Attachment 1 to this Appendix.)

     4. Systems Review. Observations, findings, and recommendations on possible improvements to
the system(s) and process(es) that generated the Overpayment(s).

     5. Credentials. The names and credentials of the individuals who: (1) designed the
statistical sampling procedures and the review methodology utilized for the Claims Review; and (2)
performed the Claims Review.

Pediatrix Appendix B

Page 4

 

 

Attachment 1

Claim Review Results

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Dollar Difference	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Correct Procedure	 	 	Correct Allowed Amt	 	 	between Amt	 
	 	Federal Health Care	 	 	Bene	 	 	 	 	 	Procedure Code	 	 	Procedure Code	 		Allowed Amount	 	 	Code (IRO	 	 	Reimbursed	 	 	Reimbursed and	 
	 	Program Billed	 	 	HIC #	 	 	Date of Service	 	 	Submitted	 	 	Reimbursed	 	 	Reimbursed	 	 	determined)	 	 	(IRO determined)	 	 	Correct Allowed Amt	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

Pediatrix — Attachment 1

 

APPENDIX C

OVERPAYMENT REFUND

TO
BE COMPLETED BY MEDICARE CONTRACTOR

Date: ____________

Contractor
Deposit Control #_________ Date of Deposit: _________

Contractor
Contact Name:
____________ Phone # _________

Contractor
Address: ______________________________

Contractor
Fax: ______________________________

TO BE COMPLETED BY PROVIDER/PHYSICIAN/SUPPLIER

Please complete and forward to Medicare Contractor. This form, or a similar document containing
the following information, should accompany every voluntary refund so that receipt of check is
properly recorded and applied.

PROVIDER/PHYSICIAN/SUPPLIER
NAME
_____________________

ADDRESS __________________

PROVIDER/PHYSICIAN/SUPPLIER
#_______________
CHECK NUMBER #_______________

CONTACT
PERSON:____________
PHONE #____________ AMOUNT OF CHECK $_________ CHECK DATE ____________

REFUND INFORMATION

For each Claim, provide the following:

Patient Name
__________________ HIC #____________

Medicare Claim Number ____________ Claim Amount Refunded $__________________

Reason Code for Claim Adjustment:
_________ (Select reason code
from list below. Use one reason per claim)

(Please
list all claim numbers involved. Attach separate sheet, if necessary)

			
	Note:	 	If Specific Patient/HIC/Claim #/Claim Amount data not available for all claims due to
Statistical Sampling, please indicate methodology and formula used to determine amount and
reason for overpayment: _______________________

For Institutional Facilities Only:

Cost Report Year(s) _______________

(If multiple cost report years are involved, provide a breakdown by amount and corresponding cost
report year.)

For OIG Reporting Requirements:

Do you have a Corporate Integrity Agreement with OIG? _______ Yes ________No

Reason Codes:

	 	 	 	 	 
	Billing/Clerical Error

	 	MSP/Other Payer Involvement
	 	Miscellaneous
	 

	 	 
	 	 
	01 — Corrected Date of Service

	 	08 — MSP Group Health Plan Insurance
	 	13 — Insufficient Documentation
	02 — Duplicate

	 	09 — MSP No Fault Insurance
	 	14 — Patient Enrolled in an HMO
	03 — Corrected CPT Code

	 	10 — MSP Liability Insurance
	 	15 — Services Not Rendered
	04 — Not Our Patient(s)

	 	11 — MSP, Workers Comp. (Including
	 	16 — Medical Necessity
	05 — Modifier Added/Removed

	 	            Black Lung
	 	17 — Other (Please Specify)
	06 — Billed in Error

	 	12 — Veterans Administration
	 	_____________________
	07 — Corrected CPT Code
	 	 	 	 

Pediatrix
Appendix CEX-10.1

 

EXHIBIT 10.1

SECOND AMENDMENT TO LOAN AGREEMENT

     This Second Amendment to Loan Agreement (“Second Amendment”) is dated as of September 20,
2006, by and among J. ALEXANDER’S CORPORATION, J. ALEXANDER’S RESTAURANTS, INC., both Tennessee
corporations (collectively referred to as the “Borrower”), and BANK OF AMERICA, N.A., a national
banking association (“Lender”).

WITNESSETH

     WHEREAS, Borrower and Lender entered into that certain Loan Agreement dated May 12, 2003, as
amended by that certain First Amendment to Loan Agreement dated January 20, 2004 (the “Loan
Agreement”); and

     WHEREAS, Borrower has requested and Lender has agreed to provide an additional $5,000,000.00
in availability under Borrower’s existing Revolving Loan; and

     WHEREAS, in connection with the foregoing, Borrower and Lender have agreed to amend the Loan
Agreement as set forth herein.

     NOW, THEREFORE, as an inducement to cause Lender to extend credit to Borrower, and for other
valuable consideration, the receipt and sufficiency of which are acknowledged, it is agreed as
follows:

     1. Capitalized terms not defined herein shall have the meaning contained in the Loan
Agreement.

     2. Section 1(b) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

     “(b) “Applicable Margin” means for any Fiscal Quarter the applicable rate per annum in
excess of the LIBOR Fixed Rate set forth in the table below:

	 	 	 	 	 	 	 	 	 	 	 
	 	 	Ratio of Adjusted Debt to	 	Applicable	 	Unused Commitment
	LEVEL	 	EBITDAR	 	Margin	 	Fee %
	I

	 	Less than or equal to 2.50
	 	 	1.75	%	 	 	0.125	%
	II

	 	Less than or equal to
3.00 but greater than
2.50
	 	 	2.00	%	 	 	0.25	%
	III

	 	Less than or equal to
4.00 but greater than
3.00
	 	 	2.25	%	 	 	0.30	%
	IV

	 	Greater than 4.00
	 	 	3.75	%	 	 	0.75	%

 

 

     3. Section 1(d) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

“(d) “Base Rate” means the LIBOR Fixed Rate plus the Applicable Margin. For
purposes hereof, the Applicable Margin will be that shown as Level II in the table
contained in the definition of Applicable Margin for the period from June 30, 2006
until delivery by Borrower of the quarterly financial statements of the Borrower in
accordance with Section 17(b) for the Fiscal Quarter ending October 1, 2006.
Upon receipt of the Borrower’s quarterly financial statements for such Fiscal
Quarter, Lender shall determine if the results of such financial statements justify
resetting the Applicable Margin to another Level, and if so, then the Applicable
Margin shall be retroactively adjusted as of the first day of the then Fiscal
Quarter to Level I, II, III, or IV, as applicable, and shall continue to the last
day of such Fiscal Quarter. This will continue each Fiscal Quarter thereafter. If
Borrower fails to deliver the quarterly financial statements in accordance with time
limits set forth in Section 17(b), the Applicable Margin shall be retroactively
adjusted as of the first day of the then Fiscal Quarter to Level III.”

     4. Section 1(cc) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

(cc) “LIBOR Fixed Rate” shall mean the rate of interest equal to the rate per annum
equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by
Reuters (or other commercially available source providing quotations of BBA LIBOR as
selected by the Lender from time to time) as determined for each Interest Rate
Change Date at approximately 11:00 a.m. London time two (2) Business Days prior to
the Interest Rate Change Date, for U.S. Dollar deposits (for delivery on the first
day of such interest period) with a term of one month, as adjusted from time to time
in the Lender’s sole discretion for reserve requirements, deposit insurance
assessment rates and other regulatory costs; if such rate is not available at such
time for any reason, then the rate for that interest period will be determined by
such alternate method as reasonably selected by the Lender. For purposes hereof,
“Business Day” shall mean each day other than a Saturday, a Sunday, or any holiday
on which commercial banks are closed for business; and “Interest Rate Change Date”
shall mean the first day of each one month period; provided, however, that if any
such day is not a Business Day, at Lender’s option, the Interest Rate Change Date
shall be the next succeeding Business Day. The interest rate shall change on each
Interest Rate Change Date.”

All references in the Loan Agreement to the defined term “LIBOR Daily Floating Rate” are hereby
deleted and replaced by the new defined term “LIBOR Fixed Rate.”

     5. Section 1(ll) of the Loan Agreement is hereby deleted in its entirety and in lieu

2

 

thereof shall read as follows:

     “(ll) “Revolving Committed Amount” means the lesser of $10,000,000.00; or (ii)
such lesser amount as the Revolving Committed Amount may be reduced as set forth
herein.”

     6. Section 1(mm) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

     “(mm) “Revolving Loan Maturity Date” means July 1, 2009.”

     7. Section 1(pp) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

     “(pp) “Unused Commitment” means, for any period, the amount by which the face
principal amount of the $10,000,000.00 Revolving Loan exceeds the daily average sum
for such period of the outstanding aggregate principal amount of the revolving loans
made by Lender to Borrower under the $10,000,000.00 Revolving Loan.”

     8. Section 2 of the Loan Agreement is hereby deleted in its entirety and in lieu there of
shall read as follows:

     “2. Revolving Loan. Lender agrees to make a $10,000,000.00 revolving
line of credit loan to the Borrower at any time, and from time to time during the
period from the date hereof to, but not including, the Revolving Loan Maturity Date
(the “Revolving Loan”). Borrower may borrow, repay and reborrow the Revolving Loan
at any time, up to a maximum aggregate amount outstanding at any one time equal to
$10,000,000.00, provided that Borrower is not in default under any provision of this
Agreement or the Loan Documents, and provided that the borrowings hereunder do not
exceed the limitation on borrowings by Borrower set forth in Section 2(g) below.

     (a) Use of Proceeds. Advances under the Revolving Loan shall be used
by Borrower to pay or reimburse itself for capital expenditures related to the
development of new restaurants and for general corporate purposes.

     (b) Interest Rate. Prior to maturity, the principal amount outstanding
under the Revolving Loan shall bear interest at the Base Rate.

     (c) Method of Borrowing for Revolving Loan. By no later than 11:00 a.m.
Central Standard Time, on the same day of the requested borrowing under the
Revolving Loan, the Borrower shall notify Lender of Borrower’s desire to borrow
under the Revolving Loan indicating the exact amount requested.

3

 

     (d) Funding of Revolving Loan. Upon Borrower’s notice to Lender of its
intent to borrow under the Revolving Loan pursuant to Section 2(c), the amount of
the requested Revolving Loan will then be made available to the Borrower by the
Lender by crediting the account of the Borrower on the books of such office of the
Lender, to the extent the amount of such request is available for borrowing.

     (e) Payments. Payment of all obligations arising under the Revolving
Loan shall be made as follows:

          (i) Interest and Fees. Interest on the outstanding principal balance
under the Revolving Loan shall be paid in arrears on the 1st day of each
calendar quarter, beginning on October 1, 2006. Also, on the 1st day of
each calendar quarter, an Unused Commitment fee shall be paid in arrears to Lender
in accordance with the per annum Unused Commitment fee percentage set forth in
section 1(b), multiplied by the Unused Commitment beginning on October 1, 2006.

          (ii) Mandatory Prepayment. Borrower must immediately prepay any amount
by which the principal balance of the Revolving Loan exceeds $10,000,000.00 as
reduced by subsection 2(g) below.

          (iii) All Amounts Due. All remaining principal, interest and expenses
outstanding under the Revolving Loan shall become due on the Revolving Loan Maturity
Date.

     (f) Conversion to Term Loan. Subject to the provisions contained
herein, and provided that no Default has occurred and is continuing, , Borrower has
the option to make a written election to convert all or a portion of the then
outstanding balance of the Revolving Loan to a term loan at any time prior to May 1,
2009 (the “Term Loan”) provided, that the minimum outstanding principal amount to be
converted by Borrower shall be no less than $2,500,000.00. The written election must
be delivered to Lender at least thirty (30) days prior to the Revolving Loan
Maturity Date. Upon conversion, there will be a conversion fee equal to one-quarter
(1/4) of one percent (1%) of the then outstanding principal balance so converted.
The then unpaid principal balance so converted will be amortized over 60 months and
be repayable in sixty (60) equal monthly installments of principal with the first
principal payment due thirty (30) days following the conversion date. Interest will
continue to be paid monthly at the same time as the principal payment is due.
Interest shall accrue on the Note at the Base Rate.

     (g) Reductions in Committed Amount. In any calendar year, Borrower may
finance up to $750,000.00 of its capital expenditures through one or more equipment
leases with an affiliate of Lender on terms and conditions to be negotiated between
Borrower and such affiliate. Borrower acknowledges that Lender is not extending any
commitment for financing on behalf of any such affiliates. To the extent the
Borrower utilizes such option, the maximum amount

4

 

of the Revolving Loan from time to time will be reduced dollar for dollar by the
amount then outstanding in respect of such leases.”

     9. Section 6(b) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

     “(b) Representations and Warranties. The representations and
warranties made by the Borrower in any Loan Document are true and correct in all
material respects at and as if made as of such date except for changes permitted by
this Agreement, as amended from time to time.”

     10. Section 33(d) of the Loan Agreement is hereby deleted in its entirety and in lieu
thereof shall read as follows:

     “(d) Reorganization.  Enter into any agreement to merge, consolidate
or otherwise reorganize or recapitalize, or enter into any agreement to acquire
stock or assets having a value in excess of $1,000,000.00, provided, that this
covenant shall not restrict the Borrower’s ability to purchase or lease real
property for construction of a new restaurant(s), nor shall it restrict the
Borrower’s ability to purchase or lease existing buildings and improvements for a
new restaurant(s).”

     11. Section 33(h) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

     “(h) Management Change. Change the Borrower’s chief executive officer
and/or chief financial officer without the prior consent of Lender, which consent
shall not be unreasonably conditioned, withheld, or delayed, provided, that this
covenant shall not restrict Borrower’s ability to terminate the employment of its
chief executive officer and/or chief financial officer for cause and shall not apply
to any change in management that occurs outside the control of the Borrower.”

     12. Section 33 of the Loan Agreement is hereby amended to add a new subsection (k) which shall
read as follows:

     “(k) Negative Pledge. Other than Permitted Liens, create or permit any
lien, encumbrance, charge, or security interest of any kind to exist on that certain
real property described on Schedule 33(k) attached hereto, nor transfer, sell,
assign, or in any manner dispose of such real property or any interest therein,
including, but not limited to, entering into a negative pledge agreement with
another party, except for easements, rights of way and similar rights granted in
connection with the provision of utilities to such real property or in connection
with any construction on such real property.”

     13. Schedule 33(k) attached to this Second Amendment is hereby added as Schedule 33(k)
to the Loan Agreement.

5

 

     14. Section 34(b) of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

     “(b) Maximum Adjusted Debt to EBITDAR Ratio. The Maximum Adjusted Debt
to EBITDAR Ratio measured at the end of each fiscal quarter computed on a trailing
four quarters basis shall be less than 3.50 to 1.00. For purposes hereof, the
Maximum Adjusted Debt to EBITDAR Ratio is defined as the ratio of (i)total Funded
Debt minus Invested Funds plus (rent expense multiplied by 8), to (ii) EBITDAR. For
purposes hereof, Invested Funds is defined as short term, liquid investments such as
money markets with maturities less than one year in length, and cash and cash
equivalents; provided that investments into any joint venture or any endeavor not
consistent with the Borrower’s core restaurant operating business without the
written consent of Lender shall be specifically excluded. For purposes hereof,
EBITDAR is defined as the sum of Net Income for such period (excluding the effect of
any extraordinary or non-recurring gains or losses outside of the ordinary course of
business) plus an amount which, in the determination of net income for such period
has been deducted for (i) interest expense for such period; (ii) total federal,
state, foreign or other income taxes for such period; (iii) all depreciation and
amortization for such period; and (iv) rent expense, all as determined in accordance
with GAAP.”

     15. Section 40 of the Loan Agreement is hereby deleted in its entirety and in lieu thereof
shall read as follows:

“40. Dispute Resolution Provision. This paragraph, including the
subparagraphs below, is referred to as the “Dispute Resolution Provision.” This
Dispute Resolution Provision is a material inducement for the parties entering into
this agreement.

     (a) This Dispute Resolution Provision concerns the resolution of any
controversies or claims between the parties, whether arising in contract, tort or by
statute, including but not limited to controversies or claims that arise out of or
relate to: (i) this agreement (including any renewals, extensions or modifications);
or (ii) any document related to this agreement (collectively a “Claim”). For the
purposes of this Dispute Resolution Provision only, the term “parties” shall include
any parent corporation, subsidiary or affiliate of the Lender involved in the
servicing, management or administration of any obligation described or evidenced by
this agreement.

     (b) At the request of any party to this agreement, any Claim shall be resolved
by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S.
Code) (the “Act”). The Act will apply even though this agreement provides that it
is governed by the law of a specified state.

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     (c) Arbitration proceedings will be determined in accordance with the Act, the
then-current rules and procedures for the arbitration of financial services disputes
of the American Arbitration Association or any successor thereof (“AAA”), and the
terms of this Dispute Resolution Provision. In the event of any inconsistency, the
terms of this Dispute Resolution Provision shall control. If AAA is unwilling or
unable to (i) serve as the provider of arbitration or (ii) enforce any provision of
this arbitration clause, the Lender may designate another arbitration organization
with similar procedures to serve as the provider of arbitration.

     (d) The arbitration shall be administered by AAA and conducted in Nashville,
Tennessee. All Claims shall be determined by one arbitrator; however, if Claims
exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims
shall be decided by three arbitrators. All arbitration hearings shall commence
within ninety (90) days of the demand for arbitration and close within ninety (90)
days of commencement and the award of the arbitrator(s) shall be issued within
thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a
showing of good cause, may extend the commencement of the hearing for up to an
additional sixty (60) days. The arbitrator(s) shall provide a concise written
statement of reasons for the award. The arbitration award may be submitted to any
court having jurisdiction to be confirmed and have judgment entered and enforced.

     (e) The arbitrator(s) will give effect to statutes of limitation in determining
any Claim and may dismiss the arbitration on the basis that the Claim is barred. For
purposes of the application of any statutes of limitation, the service on AAA under
applicable AAA rules of a notice of Claim is the equivalent of the filing of a
lawsuit. Any dispute concerning this arbitration provision or whether a Claim is
arbitrable shall be determined by the arbitrator(s), except as set forth at
subparagraph (h) of this Dispute Resolution Provision. The arbitrator(s) shall have
the power to award legal fees pursuant to the terms of this agreement.

     (f) This paragraph does not limit the right of any party to: (i) exercise
self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or
non-judicial foreclosure against any real or personal property collateral; (iii)
exercise any judicial or power of sale rights, or (iv) act in a court of law to
obtain an interim remedy, such as but not limited to, injunctive relief, writ of
possession or appointment of a receiver, or additional or supplementary remedies.

     (g) The filing of a court action is not intended to constitute a waiver of the
right of any party, including the suing party, thereafter to require submittal of
the Claim to arbitration.

     (h) Any arbitration or trial by a judge of any Claim will take place on an
individual basis without resort to any form of class or representative action (the
“Class Action Waiver”). Regardless of anything else in this Dispute Resolution

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Provision, the validity and effect of the Class Action Waiver may be determined
only by a court and not by an arbitrator. The parties to this Agreement acknowledge
that the Class Action Waiver is material and essential to the arbitration of any
disputes between the parties and is nonseverable from the agreement to arbitrate
Claims. If the Class Action Waiver is limited, voided or found unenforceable, then
the parties’ agreement to arbitrate shall be null and void with respect to such
proceeding, subject to the right to appeal the limitation or invalidation of the
Class Action Waiver. The Parties acknowledge and agree that under no circumstances
will a class action be arbitrated.

     (i) By agreeing to binding arbitration, the parties irrevocably and voluntarily
waive any right they may have to a trial by jury in respect of any Claim.
Furthermore, without intending in any way to limit this agreement to arbitrate, to
the extent any Claim is not arbitrated, the parties irrevocably and voluntarily
waive any right they may have to a trial by jury in respect of such Claim. This
waiver of jury trial shall remain in effect even if the Class Action Waiver is
limited, voided or found unenforceable. WHETHER THE CLAIM IS DECIDED BY ARBITRATION
OR BY TRIAL BY A JUDGE, THE PARTIES AGREE AND UNDERSTAND THAT THE EFFECT OF THIS
AGREEMENT IS THAT THEY ARE GIVING UP THE RIGHT TO TRIAL BY JURY TO THE EXTENT
PERMITTED BY LAW.”

The parties to this Second Amendment agree that the foregoing arbitration provision is
intended to supersede and replace any conflicting arbitration provisions set forth in any
Loan Document executed prior to the date hereof.

     16. Borrower hereby acknowledges that the Revolving Loan is secured by the Lender’s security
interest and liens in certain real property located in Lyndhurst, Ohio and Northbrook, Illinois, as
evidenced by that certain Open End Mortgage Deed, Security Agreement and Assignment of Rents and
Leases made by J. Alexander’s Corporation in favor of Lender dated May 12, 2003 and of record as
instrument no. 200305230500, Cuyahoga County, Ohio Recorder’s Office; and that certain Mortgage
dated May 12, 2003 made by J. Alexander’s Restaurants, Inc. in favor of Lender and of record as
Instrument No. 0317517012, Cook County, Illinois, Recorder of Deeds. Furthermore, concurrent with
the execution of this Second Amendment, Borrower has entered into that certain Negative Pledge
Agreement whereby Borrower has agreed to refrain from granting a security interest or lien in
certain real property owned by Borrower as more particularly set forth therein.

     17. Borrower shall pay all costs incidental to this Second Amendment, including, but not
limited to, the fees and expenses of Lender’s counsel.

     18. Borrower warrants and represents that (a) the Loan Documents are valid, binding and
enforceable against the Borrower according to their terms; (b) all warranties and representations
made by Borrower in the Loan Documents are hereby again warranted and represented to be true as of
the date hereof, except with regard to matters expressed only as of a specific time or which have
been supplemented or superseded by disclosures to Lender in writing and (c) no default presently

8

 

exists under the Loan Documents. Borrower further acknowledges that Borrower’s obligations
evidenced by the Loan Documents are not subject to any counterclaim, defense or right of set-off
and Borrower does hereby release Lender from any claim, known or unknown, that Borrower may have
against Lender as of the execution of this Second Amendment.

     19. As amended hereby, the Loan Agreement remains in full effect, and all agreements among the
parties with respect to the subject hereof are represented fully in this Second Amendment and the
other written documents among the parties. The provisions of the Loan Agreement regarding the
arbitration of disputes and other general matters also govern this Second Amendment. The validity,
construction and enforcement hereof shall be determined according to the substantive laws of the
State of Tennessee.

     IN WITNESS WHEREOF, the parties have executed this Second Amendment to be effective the day
and year first above written.

	 	 	 	 	 	 	 	 	 	 	 
	BANK OF AMERICA, N.A.	 	 	 	J. ALEXANDER’S CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Thomas C. Kilcrease, Jr.
 

	 	 
	 	By:
	 	/s/ R. Gregory Lewis
 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Title:

	 	SVP
	 	 	 	Title:
	 	Vice President and Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	J. ALEXANDER’S RESTAURANTS, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ R. Gregory Lewis
 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title:
	 	Vice President	 	 

9

 

SCHEDULE 33(k)

REAL PROPERTY SUBJECT TO NEGATIVE PLEDGE

	1.	 	913 Dale Mabry Highway, Tampa, Hillsborough County, FL 33609
	 
	2.	 	8550 West Broward Boulevard, Plantation, Broward County, FL 33324
	 
	3.	 	9709 East County Line Road, Inglewood, Arapahoe County, CO 80112
	 
	4.	 	5245 Peach Tree Parkway, Norcross, Gwinnett County, GA 30092

10

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