Preferred Provider Agreement Dated July 29, 1998

EXHIBIT 10-10


PREFERRED PROVIDER AGREEMENT


This Preferred Provider Agreement ("Agreement") dated as of December 24, 1998, is by and between Omnicare, Inc., a Delaware corporation ("Omnicare") and Extendicare Health Services, Inc., a Delaware corporation ("Extendicare").


RECITALS:


WHEREAS, Extendicare, through its Affiliates (as hereinafter defined), owns and operates Extendicare Facilities (as hereinafter defined) throughout the United States, and may build, acquire or operate additional Extendicare Facilities in the United States, and is authorized to act on behalf of all such Extendicare Facilities;


WHEREAS, Extendicare desires to make available quality and cost-effective Pharmacy Services (as hereinafter defined) to residents of the Extendicare Facilities located in the United States;


WHEREAS, Omnicare is engaged in the business of providing Pharmacy Services through duly licensed pharmacies located throughout the United States, and has developed specialized expertise in providing such Pharmacy Services to Facilities (as hereinafter defined) and their residents;


WHEREAS, certain of the Extendicare Facilities have in effect on the date of this Agreement one or more Existing Pharmacy Agreements (as hereinafter defined) with various pharmacies, relating to the provision of some or all Pharmacy Services to such Extendicare Facilities and their residents;


WHEREAS, Extendicare has determined that it may be possible to enhance the efficiency and quality of Pharmacy Services by utilizing one pharmacy provider;


WHEREAS, recent reports make clear that misprescription or improper administration of drugs can undermine patient care and adversely affect survey and certification results;


WHEREAS, Omnicare provides to many of its Facility customers a variety of service enhancements to assist Facilities in assessing and managing patients' care needs and improving outcomes of care, including a clinically-based formulary management program, disease management programs, and state-of-the-art information and drug management systems which reduce errors in drug prescription and administration to long-term care patients;


WHEREAS, the Medicare prospective payment system, with all-inclusive rates, has created revenue uncertainties and a need for the Extendicare Facilities to contract with a cost-effective pharmacy provider;


WHEREAS, managed care organizations are continually seeking pricing concessions and capitated or other non-traditional service arrangements as conditions to contracting with Extendicare Facilities for patient care services;


WHEREAS, due to Omnicare's volume purchasing arrangements, Omnicare is capable of offering Pharmacy Services at competitive prices which are typically at or below those charged by other providers for comparable products and services;


WHEREAS, because of Omnicare's experience, quality of operations and cost-effective pricing, Extendicare desires to designate Omnicare as the preferred provider of Pharmacy Services to the Extendicare Facilities located in the united States, and to retain Omnicare's pharmacy Affiliates to provide Pharmacy Services to such Facilities;


WHEREAS, in consideration of its designation as the preferred provider of Pharmacy Services to the Extendicare Facilities located throughout the United States, Omnicare is willing to make certain long-term commitments to the Extendicare Facilities and their


residents, to offer certain favorable pricing arrangements, and to make certain expenditures for installation and operation of equipment, systems and programs, and training of personnel;


NOW, THEREFORE, in consideration of the mutual agreements and promises hereinafter set forth, the sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree and covenant as follows:


1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings:


"Affiliate" shall mean, as to any Person, any other Person controlling, controlled by or under common control with such Person. For purposes of the foregoing definition, a Person shall be deemed to "control" another Person if that Person has the direct or indirect ability to direct or cause the direction of the management and polices of the "controlled" Person, through ownership of equity securities, by contract, or otherwise.


"Ancillary Supplies" shall mean (i) oxygen, (ii) nonprescription medications which a Facility purchases in bulk, not for nay particular resident, and (iii) enteral and parenteral nutritional products which Extendicare or one of its Affiliates provides at its expense.


"Bankruptcy Event" shall be deemed to have occurred with respect to a Person if it shall apply for or consent to the appointment of a receiver, trustee, or liquidator of all or a substantial part of its assets, file a voluntary petition in bankruptcy, make a general assignment for the benefit of creditors, file a petition or an answer seeking reorganization or arrangement with creditors to take advantage of any insolvency law, or if an order, judgment or decree shall be entered by any court of competent jurisdiction, on the application of a creditor, adjudicating it as bankrupt or insolvent or approving a petition seeking reorganization or appointing a receiver, trustee, or liquidator of all or a substantial part of its assets, or if an involuntary petition in bankruptcy shall have been filed against it and shall continue undismissed for any period of ninety (90) days.


"Extendicare Facility" shall mean any Facility located in the United States now or hereafter owned or operated by Extendicare or any Affiliate of Extendicare, or which Extendicare or any of its Affiliates manages under a management contract (if, under such management agreement, Extendicare or its Affiliate is entitled to contract for and designate the provider of Pharmacy Services), in each case during the term of this Agreement; provided that "Extendicare Facility" shall not include and Facility which Extendicare or one of its Affiliates leases from a hospital and which is located in such hospital or on its campus if Extendicare or such Affiliate is not entitled to contract for and designate the provider of Pharmacy Services for such Facility.


"Existing Pharmacy Agreement" shall mean (i) any agreement to provide Pharmacy Services to an Extendicare Facility that is in effect as of the date of this Agreement, (ii) any then-existing agreement to provide Pharmacy Services to a Facility which becomes an Extendicare Facility after the date of this Agreement, and (iii) any Out of Area Agreement (as defined in Section 2 below) entered into by an Extendicare Facility after the date of this Agreement.


"Facility" shall mean any nursing care facility, assisted living facility, residential care facility, long-term care hospital, and/or other provider of inpatient institutional health care services.


"Omnicare Geographic Service Area" shall mean the combined geographic service areas of all Omnicare pharmacy Affiliates, as modified from time to time based upon Omnicare's acquisition or disposition of pharmacy Affiliates, the establishment of new Omnicare pharmacy Affiliates, and/or expansion or contraction of the geographic areas which Omnicare's pharmacy Affiliates are capable or reasonably should be capable of servicing at any given time.


"Omnicare Pharmacy" shall have the meaning assigned to such term in Section 3.a.below.


"Person" shall mean any individual, corporation, partnership, limited liability company, governmental authority, or other legal entity of any nature whatsoever.


"Pharmacy Services" means pharmaceutical dispensing and distribution services and pharmaceutical products (prescription and nonprescription), including, without limitation, intravenous products, supplies and services, and related equipment (including, without limitation, medical carts, fax machines, treatment carts, emergency boxes, convenient boxes, automated dispensing cabinets, and automated medical supply cabinets), enteral and parenteral nutritional products, and scheduled training and education programs, pharmacy consulting services, medical records, a clinically-based drug formulary, and disease management programs; provided, however, that "Pharmacy Services" shall not include (i) oxygen; (ii) nonprescription medications which a Facility purchases in bulk, not for any particular resident, or (iii) enteral and parenteral nutritional products which Extendicare or one of its Affiliates provides at it expense.


"Standard Facility Pharmacy Services Contract" shall mean, collectively, (i) the pharmacy services agreement and (ii) the pharmacy consultant agreement, in the forms attached hereto as Exhibits A-1 and A-2, respectively, to be entered into between Omnicare Pharmacies and Extendicare Facilities as set forth below. Each reference in this Agreement to a Standard Facility Pharmacy Services Contract shall mean both a pharmacy services and pharmacy consultant agreement, in the forms attached hereto, and consequently all references to entering into a Standard Facility Pharmacy Services Contract shall mean entering into both such pharmacy services and pharmacy consultant agreements.


2. OMNICARE DESIGNATED PREFERRED PROVIDER


During the term of this Agreement, Extendicare, on behalf of itself and each of the Extendicare Facilities, designates Omnicare as its pharmacy of choice and as the preferred provider of Pharmacy Services and Ancillary Supplies ("Preferred Provider") for all current and future Extendicare Facilities located in the United States. Omnicare accepts such designation and agrees to provide Pharmacy Services and Ancillary Supplies to such Extendicare Facilities and their residents in accordance with the terms, conditions and procedures set forth in this Agreement and the Standard Facility Pharmacy Services Contracts to be entered into hereunder.


In connection with Extendicare's designation of Omnicare as its Preferred Provider of Pharmacy Services, Extendicare agrees to cause the Extendicare Facilities which are from time to time party to Standard Facility Pharmacy Services Contracts with an Omnicare Pharmacy (as hereinafter defined) (i) to designate such Omnicare Pharmacy as its provider of Pharmacy Services for regulatory purposes, and to use such Omnicare pharmacy as the provider of those Pharmacy Services which the Extendicare Facility uses itself, (ii) to use such Omnicare Pharmacy as the provider of those Pharmacy Services which the Extendicare Facility provides to its residents at its expense (e.g., under the current Medicare prospective payment system or a capitated managed care arrangement, in accordance with the fee schedules attached hereto as Schedule 1 and Schedule 2, respectively), and (iii) to inform its other residents that the Omnicare Pharmacy is the designated provider of Pharmacy Services for such Facility for regulatory purposes and such Facility's pharmacy of choice, and to recommend to such other residents (other than those residents whose applicable managed care payor will not reimburse the applicable Omnicare Pharmacy for Pharmacy Services provided to such resident) that they use the Omnicare Pharmacy as their provider of Pharmacy Services, in preference to any other pharmacy.


Notwithstanding the previous sentence or anything to the contrary set forth herein, (i) in no event shall this Agreement or any Standard Facility Pharmacy Service Contract be construed to restrict the right of individual residents of the Extendicare Facilities to receive pharmaceuticals from the pharmacy provider of their choice and to be advised of such right, and (ii) any Extendicare Facility which is located outside of the Omnicare Geographic Service Area (an "Out of Area Facility") may contract with one or more other pharmacies for Pharmacy Services, and Omnicare and its Affiliates shall have no responsibility with respect to such Out of Area Facilities; provided, however, that such contracts ("Out of Area Agreements") shall be in accordance with subsection 3.d. below; and provided, further, that if the Omnicare Geographic Service Area expands such that an Extendicare Facility which was an Out of Area Facility immediately prior to such expansion thereafter is located in the Omnicare Geographic Service Area, such Extendicare Facility shall no longer be an Out of Area Facility and the provisions of Section 3.c.(iv) of this Agreement shall apply to such Extendicare Facility accordingly.


In connection with Extendicare's designation of Omnicare as its Preferred Provider of Ancillary Supplies during the term of this Agreement, Extendicare agrees to cause the Extendicare Facilities to use the Omnicare Pharmacies as the providers of Ancillary Supplies to such Extendicare Facilities which an Omnicare Pharmacy is reasonably capable of servicing, except with respect to those Ancillary Supplies which another provider offers in writing to provide at a price lower than that charged by the applicable Omnicare Pharmacy (a "Lower Price Offer") and which the Omnicare Pharmacy declines to sell at such lower price within fifteen (15) days after delivery of the Lower Price Offer to the Omnicare Pharmacy. Notwithstanding the foregoing, the Extendicare Facilities currently serviced by Omnicare Pharmacies shall continue to use such Omnicare Pharmacies as their providers of Ancillary Supplies, and such Omnicare Pharmacies shall continue to provide such Ancillary Supplies to such Extendicare Facilities, at the pricing levels currently in effect, for a period of six (6) months after the date hereof.


3. CONDITION AND PROCEDURES FOR EXECUTION OF STANDARD FACILITY PHARMACY SERVICES CONTRACTS


a. DEVELOPMENT OF SERVICE CAPABILITY. Notwithstanding anything to the contrary et forth herein, the obligation of Omnicare and Extendicare to cause their respective Affiliates to enter into a Standard Facility Pharmacy Services Contract with respect to an Extendicare Facility is expressly conditioned upon Omnicare now having or hereafter acquiring or otherwise establishing a pharmacy Affiliate which is or reasonably should be capable of providing Pharmacy Services to that Extendicare Facility (each such pharmacy Affiliate shall be referred to herein as an "Omnicare Pharmacy").


b. EXISTING PHARMACY AGREEMENTS.


i. List of Extendicare Facilities. Extendicare hereby agrees to deliver to Omnicare, within ten (10) business days after the date of this Agreement, a list which will be, to the best knowledge of Extendicare's executive and elected officers, in all material respects, taken as a whole, accurate, setting forth, with respect to each Extendicare Facility existing as of the date hereof, (1) the name, address and number of licensed beds of such


Extendicare Facility, and (2) a description of each an every Existing Pharmacy Agreement for that Facility, including the parties to such agreement, the date thereof, the name and address of the company currently providing services thereunder, the date such agreement expires (including a description of any terms providing for automatic renewal), and the terms and conditions under which such agreement may be terminated by the Extendicare Facility prior to its expiration. Such list shall be attached hereto as Exhibit B.


ii. Notice of New Extendicare Facilities. Extendicare agrees that, within ten (10) business days after any Facility becomes an Extendicare Facility (e.g., as a consequence of Extendicare's acquisition thereof), Extendicare shall notify Omnicare in writing of the foregoing information with respect to such Extendicare Facility, which notice shall be deemed to supplement Exhibit B hereto.


iii. Notice of Execution of Out of Area Agreements. Within ten (10) business days after any Out of Area Facility enters into any Out of Area Agreement, Extendicare shall notify Omnicare in writing of the foregoing information with respect to such Out of Area Agreement, which notice shall be deemed to update Exhibit B hereto.


c. PROCEDURE FOR EXECUTION OF STANDARD FACILITY PHARMACY SERVICES CONTRACTS.


i. Contracts to be Executed Promptly After the Date of this Agreement. Omnicare and Extendicare acknowledge that each of the Extendicare Facilities marked with single asterisks (*) on Exhibit B hereto (the "Immediately Serviceable Facilities") (A) is located within the Omnicare Geographic Service Area and (B) is not a party to any existing Pharmacy Agreement with a Person other than an Omnicare Affiliate which would preclude such Extendicare Facility from entering into a Standard Facility Pharmacy Services Contract within Omnicare Pharmacy, effective as of the effective date for such Standard Facility Pharmacy Services Contract set forth on such Exhibit B. The parties further acknowledge that Omnicare has, on or prior to the date hereof, delivered Standard Facility Pharmacy Services Contracts for such Extendicare Facilities to Extendicare, completed with the appropriate


information for the applicable Extendicare Facility (e.g., name, address and effective dates), each of which has been executed by the applicable Omnicare Pharmacy. Each such Standard Facility Pharmacy Services Contract shall have a term of five (5) years from its effective date, with two (2) automatic renewals of five (5) years each, and shall be subject to termination as provided in Exhibit A; provided, however, that in no event shall any term of such contract extend beyond December 31, 2013, or with respect to Facilities which Extendicare or one of its Affiliates leases or manages pursuant to a management agreement, beyond the date specified in Section 3(c)(v) below. Promptly after the date of this Agreement, but in no event later than twenty (20) business days after the date of this Agreement, Extendicare shall cause such Immediately Serviceable Facilities to execute and deliver to Omnicare such Standard Facility Pharmacy Services Contracts. From and after the effective date of each Standard Facility Pharmacy Services Contract, the applicable Omnicare Pharmacy shall provide Pharmacy Services to the applicable Extendicare Facility in accordance with the terms of each such agreement.


ii. Termination of Existing Pharmacy Agreements. Omnicare and Extendicare acknowledge that each of the Extendicare Facilities marked with double asterisks (**) on Exhibit B hereto (the "Later Serviceable Facilities") (A) is located within the Omnicare Geographic Service Area and (B) is currently party to an existing Pharmacy Agreement, with a Person other than an Omnicare Affiliate, which would preclude such Extendicare Facility from entering into a Standard Facility Pharmacy Services Contract with an Omnicare Pharmacy prior to the expiration or termination of such contract. Extendicare shall cause such Later Serviceable Facilities to take such actions as may be necessary to terminate, at the earliest possible time without cost or penalty to such Extendicare Facility, any such Existing Pharmacy Agreement, and to terminate immediately any Existing Pharmacy Agreement which is terminable with a cost or penalty if Omnicare in its discretion agrees to reimburse such Extendicare Facility for such cost or penalty, in which case Omnicare shall make such reimbursement not later than ten (10) business days after Omnicare agrees to make such reimbursement; provided, however, that such termination shall not result, in Extendicare's reasonable opinion, in any injury or harm to any resident of such Facility. Extendicare shall promptly notify Omnicare of all such actions. No sooner than ninety (90) days and no later than forty-five (45) days before the earliest date that a Later Serviceable Facility's Existing Pharmacy Agreement(s) will expire or any termination will


be effective, Omnicare shall deliver a Standard Facility Pharmacy Services Contract for such Extendicare Facility, completed with the appropriate information for the applicable Extendicare Facility (e.g., name, address and effective date (which effective date shall be the first day following the date such Existing Pharmacy Agreement expires or is effectively terminated)), and executed on behalf of t ...