Operations Agreement

AGREEMENT BETWEEN THE
OFFICE OF INSPECTOR GENERAL
OF THE
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
AND
BEVERLY ENTERPRISES, INC.
REGARDING THE OPERATIONS OF
BEVERLY ENTERPRISES-CALIFORNIA, INC.
PRIOR TO ITS EXCLUSION PURSUANT TO 42 U.S.C. SECTION 1320a-7(a)(1)


1. This Agreement is entered into between the Office of Inspector General ("OIG") of the United States Department of Health and Human Services ("HHS") and Beverly Enterprises, Inc. ("Beverly") (collectively, the "parties"). This Agreement addresses the arrangement between the parties regarding the operations of certain Beverly nursing facilities and of Beverly Enterprises-California, Inc. ("Beverly-California"), after its conviction and prior to its exclusion, as further described below.


2. Beverly-California will enter a plea of guilty and be convicted in the Northern District of California of one count of wire fraud (18 U.S.C. Section 1343) and 10 counts of false statements (18 U.S.C. Section 1001) (the entry of the Judgment in this matter is hereinafter referred to as the "Conviction"). Beverly, Beverly-California, and the OIG agree that as a result of the Conviction, Beverly-California will be subject to mandatory exclusion from participation in all Federal health care programs pursuant to 42 U.S.C. Section 1320a-7(a)(1).


3. At the time of the Conviction, Beverly-California will be comprised of the 10 nursing facilities listed on Exhibit A (the "Facilities").


4. In order to ensure that the mandatory exclusion of Beverly-California will not result in disruption or harm to the residents of the Facilities, Beverly agrees that the Facilities shall be divested from Beverly-California to unrelated parties in a manner consistent with this Agreement and the OIG agrees to withhold notice of exclusion in a manner consistent with this Agreement.


5. Beverly agrees that to the extent the interests of Beverly-California in any Facilities are not divested to unrelated parties, Beverly must ensure that the only interest in such Facilities held by Beverly-related entities after the time of Conviction will be the interest in the Facilities held by Beverly-California.


6. Beverly shall operate the Facilities in a manner consistent with this Agreement. Beverly shall not attempt to transfer the Facilities to any related entity, subsidiary, or affiliate of Beverly other than Beverly-California. Beverly shall not: close the Facilities


2


prior to any exclusion, convert the Facilities to "private pay," or transfer residents eligible for coverage by Federal health care programs from the Facilities unless such residents request transfers.


7. Within 120 days after the Conviction, Beverly (or Beverly-California) shall be Under Contract (as defined in paragraph 17) with unrelated third parties to divest itself, absolutely and in good faith, of any interest in the Facilities, including such additional ancillary assets it owned within the Facilities as are necessary to assure the operability and marketability of the Facilities. Beverly also shall make all arrangements within its control that are necessary to assure the operability and marketability of the Facilities until such time as Beverly-California divests itself of all interest in the Facilities as required under this Agreement.


8. Until Beverly and Beverly-California have completely divested themselves of ownership of all of the Facilities and new owners are operating all of the Facilities, Beverly shall: (a) ensure that employees provide the legally required quality of care to the Facilities' residents and meet all of the requirements applicable to nursing facilities participating in Medicare and other Federal health care programs, e.g., 42 C.F.R. Part 483; and (b) take such actions as are necessary to maintain the present marketability, viability, and competitiveness of all of the Facilities, and to prevent the destruction, removal, wasting, deterioration, or impairment of any of the Facilities or the assets and businesses ancillary to the Facilities (except for ordinary wear and tear). If a temporary manager appointed pursuant to paragraph 12 is managing a Facility, Beverly is responsible to meet the requirements of this paragraph only to the extent that Beverly has control over the Facility and its employees. Nothing in this Agreement shall limit the ability of the Health Care Financing Administration to take whatever enforcement actions it deems necessary against Beverly facilities should it determine that quality of care has deteriorated in a manner that causes a facility not to be in substantial compliance with Federal certification requirements at 42 C.F.R. Part 483. Nothing in this Agreement shall limit Beverly's rights in any such enforcement proceedings.


9. As soon as possible and prior to entering actively into divestiture negotiations, Beverly shall provide the OIG with written notice of the identity of potential future operators of the Facilities. Beverly agrees that Beverly-California shall only become Under Contract to divest its interest in the Facilities to third-party operators who have been approved by the OIG. The OIG agrees that it will not unreasonably withhold consent to the divestiture of Beverly's (or Beverly-California's) interest in any of the Facilities (or to the transfer of Facilities' provider agreements) to qualified third-party nursing home operators. Once Beverly has provided the identity of potential future operators of a Facility, the time periods applicable to that Facility shall be tolled until the OIG provides Beverly with written notice of: (a) approval of at least one such potential future operator; or (b) disapproval of the proposed future operators and the grounds for such disapproval. The OIG agrees to provide written assurance to any approved potential


3


future operator that, upon divestiture, a Facility will be permitted to operate free from any encumbrances or limitations imposed by this Agreement or the Conviction of Beverly-California.


10. Within 120 days after the Conviction, Beverly may notify the OIG in writing of its inability to find a third party willing or able to enter into a contract to divest Beverly-California of its interest in any Facility and request substitution for such a Facility or appointment of a Trustee. Such a notice shall include a description of Beverly's efforts to identify such a third party for the Facility. After receiving such notification and considering Beverly's report, the OI ...