10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

(X)	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2002
	or
( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ________________

Commission file number 0-27640

RENAL CARE GROUP, INC.

(Exact Name of Company as Specified in its Charter)

Delaware
(State or other Jurisdiction of
Incorporation or Organization) 62-1622383
(I.R.S. Employer
Identification No.)

2525 West End Avenue, Suite 600
Nashville, Tennessee 37203
(Address, Including Zip Code, of Principal Executive Offices)

Registrant’s Telephone Number, Including Area Code: (615) 345-5500

Securities Registered Pursuant to Section 12(B) of the Act:

Title of Each Class	Name of Exchange on Which Registered
Common Stock, $0.01 par value	New York Stock Exchange
Series A Junior Participating Preferred Stock Purchase Rights	New York Stock Exchange

Securities Registered Pursuant to Section 12(G) of the Act: None

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Company’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No o

     The aggregate market value of the voting stock held by non-affiliates of the Company was $1,507,283,864 as of June 28, 2002, based upon the closing price of such stock as reported on the New York Stock Exchange (“New York Stock Exchange”) on that day (assuming for purposes of this calculation, without conceding, that all executive officers and directors are affiliates), the last business day of the registrant’s most recently completed second fiscal quarter. There were 48,185,928 shares of common stock, $0.01 par value, issued and outstanding at March 11, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s Proxy Statement for its 2003 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report.

TABLE OF CONTENTS

DIALYSIS CENTER MANAGEMENT AGREEMENT

RENAL CARE GROUP & AMGEN AGREEMENT

MEDICAL DIRECTOR SERVICES AGREEMENT 07/11/02

MEDICAL DIRECTOR SERVICES AGREEMENT 05/01/02

A#1 TO MEDICAL SERVICES AGREEMENT 05/01/02

LIST OF SUBSIDIARIES

CONSENT OF ERNST & YOUNG LLP

PART I

FORWARD LOOKING STATEMENTS

     Some of the information in this annual report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. In many instances you can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate” and “continue” or similar words. You should read these statements carefully for the following reasons:

     • the statements discuss our future expectations;

     • the statements contain projections of our future earnings or of our financial condition; and

     • the statements state other “forward-looking” information.

     We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we cannot accurately predict or over which we have no control. The risk factors discussed on pages 18 to 24 of this annual report, as well as any cautionary language in or incorporated by reference into this annual report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The SEC allows us to “incorporate by reference” the information we file with them, which means we can disclose important information to you by referring you to those documents. Before you invest in our common stock, you should be aware that the occurrence of any of the events described in the risk factors, elsewhere in or incorporated by reference into this annual report on Form 10-K and other events that we have not predicted or assessed could have a material adverse effect on our earnings, financial condition and business. If the events described in the risk factors or other unpredicted events occur, then the trading price of our common stock could decline and you may lose all or part of your investment.

Item 1. Business

GENERAL

     Renal Care Group, Inc. provides dialysis services to patients with chronic kidney failure, also known as end-stage renal disease (ESRD). As of December 31, 2002, Renal Care Group provided dialysis and ancillary services to approximately 20,500 patients through 268 outpatient dialysis centers in 27 states, in addition to providing acute dialysis services to approximately 120 hospitals. Renal Care Group was formed in 1996 by leading nephrologists with the objective of creating a company with the clinical and financial capability to manage the full range of care for ESRD patients on a cost-effective basis. As of December 31, 2002, there were 558 nephrologists with privileges to practice at one or more of the Company’s outpatient dialysis centers.

     In Renal Care Group’s dialysis facilities, ESRD patients receive dialysis treatments, generally three times a week, in a technologically advanced outpatient setting. According to the Centers for Medicare & Medicaid Services (CMS), there were more than 4,000 facilities providing outpatient dialysis services in the United States at the end of 2001. In the past, many outpatient dialysis facilities were owned by practicing nephrologists and comprised an integral component of their practice, because of the critical role that dialysis plays in the treatment of ESRD patients. The dialysis services industry has been consolidating since before the Company was formed. As a result, Renal Care Group believes that approximately 65% of outpatient dialysis centers are now owned by multi-center dialysis companies, approximately 17% are owned by independent physicians, small chains and other small operators, and approximately 18% are hospital-based centers.

     Renal Care Group is a Delaware corporation; its principal executive offices are located at 2525 West End Avenue, Suite 600, Nashville, Tennessee 37203; and its telephone number is (615) 345-5500.

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INDUSTRY OVERVIEW

End-Stage Renal Disease

     ESRD is a state of advanced kidney failure. ESRD is irreversible and, without a kidney transplant, ultimately lethal. It is most commonly a result of complications associated with diabetes, hypertension, certain renal and hereditary diseases, aging and other factors. In order to sustain life, ESRD patients require either dialysis for the remainder of their lives or a successful kidney transplant. By the end of 1998, dialysis was the primary treatment for approximately 71% of all ESRD patients in the United States, and the remaining 29% of ESRD patients had a functioning kidney transplant.

     According to the United States Renal Data System, the total direct medical payments for ESRD exceeded $17.8 billion during 1999. Of the total direct medical payments for ESRD, approximately $12.6 billion was paid by the federal government through the Medicare program. As a result of legislation enacted in 1972, the federal government provides Medicare benefits to patients who are diagnosed with ESRD regardless of their age or financial circumstances, if they are eligible for Social Security.

     According to CMS data, the number of ESRD patients in the United States who need dialysis grew from approximately 66,000 in 1982 to approximately 273,000 in 2000. Based on data from the United States Renal Data System, the ESRD incidence rate among Medicare-eligible patients was approximately 315 patients per million in 1999 as compared to 111 patients per million in 1984.

     Based on these trends, United States Renal Data System forecasts indicate that the total number of ESRD patients, including those with functioning transplants, will grow from approximately 343,000 in 2000 to 661,000 in 2010. The growth in the number of ESRD patients results principally from the aging of the population along with better treatment of, and better survival rates for, diabetes and other illnesses that lead to chronic kidney disease, reduced somewhat by declines in incidence among patients with high blood pressure as a result of better treatments for high blood pressure. In addition, as a result of improved technology, older patients and patients who could not previously tolerate dialysis due to other illnesses can now receive life-sustaining dialysis treatment.

Treatment Options for End-Stage Renal Disease

     Currently, there are three treatment options for patients with ESRD:

     • hemodialysis performed in a hospital setting, an outpatient facility or a patient’s home,

     • peritoneal dialysis, which is generally performed in the patient’s home, and

     • kidney transplant surgery.

     According to CMS data, in 1998 approximately 90% of patients on dialysis in the United States received hemodialysis in an outpatient setting, and approximately 10% received hemodialysis or peritoneal dialysis in their homes.

     Hemodialysis is the most common form of ESRD treatment. It is generally performed either in a freestanding center or in a hospital. The process of hemodialysis uses a dialyzer, essentially an artificial kidney, to remove certain toxins, fluid and chemicals from the patient’s blood and another device that controls external blood flow and monitors the patient’s vital signs. The dialysis process occurs across a semi-permeable membrane that divides the dialyzer into two chambers. While the blood is circulated through one chamber, a pre-mixed dialysis fluid is circulated through the adjacent chamber. The toxins and excess fluid contained in the patient’s blood cross the membrane into the dialysis fluid. Hemodialysis usually takes about four hours and is usually administered three times per week for the life of the patient or until the patient receives a transplant.

     Peritoneal dialysis is typically performed by the patient at home and uses the patient’s abdominal cavity to eliminate fluids and toxins in the patient’s blood. There are several forms of peritoneal dialysis. Continuous ambulatory peritoneal dialysis

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and continuous cycling peritoneal dialysis are the most common. Under each method, the patient’s blood is circulated across the peritoneal membrane into the dialysis solution, which removes toxins and excess fluid from the patient’s blood. Patients treated at home are monitored monthly either by a visit from a staff person from a designated outpatient dialysis center or by a visit by the patient to a dialysis center.

     Kidney transplants, when successful, are the most desirable form of therapy for ESRD patients. However, there is a shortage of suitable donors that severely limits the availability of this procedure as a treatment option. Only about 6% of ESRD patients receive kidney transplants each year.

Nephrology Practice

     Caring for ESRD patients is typically the primary clinical activity of a physician specializing in nephrology (a nephrologist). Other clinical activities of a nephrologist include the post-surgical care of kidney transplant patients, the diagnosis and treatment of kidney diseases in patients who are at risk for developing ESRD, and the diagnosis, treatment and management of clinical disorders including hypertension, kidney stones and autoimmune diseases. Because of the complexity involved in treating patients with chronic kidney disease, the nephrologist typically assumes the role of primary care physician for the ESRD patient. While some nephrologists practice independently or are members of multi-specialty groups, most nephrologists practice in small single-specialty groups. A nephrology group’s practice often covers a relatively large geographic service area. Outside metropolitan areas, a large geographic area may be served by only one nephrology group. Most nephrologists also have a significant office practice, consult on numerous hospitalized patients who are not on dialysis and follow the clinical outcomes of kidney transplant patients.

OPERATIONS

Location, Capacity and Use of Facilities

     As of December 31, 2002, Renal Care Group operated 268 outpatient dialysis centers in 27 states with 4,651 certified dialysis stations and provided inpatient dialysis services to approximately 120 acute care hospitals. During 2002, Renal Care Group provided 3,019,675 hemodialysis treatments. Renal Care Group estimates that on average its centers were operating at approximately 60% of capacity as of December 31, 2002, based on the assumption that a dialysis center is able to provide up to three treatments a day per station, six days a week.

Operation of Facilities

     Renal Care Group’s dialysis centers provide outpatient hemodialysis and related services to ESRD patients. Renal Care Group’s centers use technologically advanced dialysis equipment to provide effective and efficient dialysis. The Company’s centers generally contain between 10 and 30 dialysis stations, one or more nurses’ stations, a patient waiting area, examination rooms, a supply room, a water treatment space to purify water used in hemodialysis treatments, a dialyzer reprocessing room, staff work areas, offices and a staff lounge. Many of Renal Care Group’s centers are adjacent to areas used for training patients in home dialysis.

     For each of Renal Care Group’s dialysis centers to be eligible to participate in the Medicare ESRD program, a qualified physician or group of physicians must act as medical director for the center and must supervise medical aspects of the center’s operations. An administrator or manager manages each center. The administrator or manager is typically a registered nurse who is responsible for the day-to-day operations of the center and oversight of the staff. The staff of each center typically includes registered nurses, licensed practical or vocational nurses, patient care technicians, social workers, registered dietitians, a unit clerk and biomedical equipment technicians. Renal Care Group works to staff each center in a manner that allows the scheduling of personnel to be adjusted according to the number of patients receiving treatments.

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Home Dialysis

     All of Renal Care Group’s markets offer home dialysis, either home hemodialysis, peritoneal dialysis or both. As of December 31, 2002, about 11% of Renal Care Group’s patients received home dialysis. In its home dialysis services Renal Care Group provides equipment and supplies, training, patient monitoring and follow-up assistance to patients who receive dialysis treatments in their homes. The Company believes that home dialysis is important to providing a full range of dialysis care and continues to work to expand its home dialysis program.

Inpatient Care

     Renal Care Group also provides inpatient dialysis services to hospitals in most of its markets. As of December 31, 2002, Renal Care Group provided inpatient services to approximately 120 hospitals. Under these arrangements, Renal Care Group typically provides equipment, supplies and personnel to perform hemodialysis and peritoneal dialysis in connection with a hospital’s inpatient services. These inpatient dialysis services are typically required for patients with acute renal failure resulting from accidents, medical and surgical complications, for patients in the early stage of renal failure and for ESRD patients who need to be in the hospital for other reasons. Most of Renal Care Group’s hospital contracts specify predetermined fees per dialysis treatment. The Company believes that these fees will be subject to re-negotiation in the future as competition increases among dialysis providers and as the health care industry becomes more influenced by managed care and subject to capitated arrangements.

University Division

     Renal Care Group currently manages the dialysis programs at Vanderbilt University Medical Center and is the owner or managing partner of programs at the Cleveland Clinic Foundation, MetroHealth (a hospital affiliated with Case Western Reserve University), St. Louis University Hospital, Oregon Health Sciences University, the University of Louisville, Froedtert Hospital (a hospital affiliated with Medical College of Wisconsin), Northwestern Memorial Hospital of Chicago, Elmhurst Memorial Hospital and the University of Colorado. Renal Care Group expects these affiliations will expand its patient base and provide opportunities for the development of new centers. Renal Care Group also expects these affiliations to provide access to outcomes research and trained nephrologists who may become medical directors at Renal Care Group’s centers or who may join the practices of current medical directors and attending physicians.

Nephrologists

     A key factor in the success of a dialysis center is the local nephrologist. An ESRD patient generally seeks treatment at a center where his or her nephrologist has privileges to admit patients. Consequently, the Company relies on its ability to satisfy the needs of patients of local nephrologists in order to gain new patients and to retain existing patients. As of December 31, 2002, there were 558 nephrologists with privileges to practice at the Company’s outpatient dialysis centers.

Medical Directors

     To satisfy the requirements of the Medicare ESRD program, Renal Care Group must engage a medical director for each of its facilities. The Company generally engages practicing, board-certified or board-eligible nephrologists to serve as medical directors for its centers. The medical director is an independent contractor and provides services under an agreement with the Company. Medical directors are responsible for administering and monitoring the Company’s patient care policies, including patient education, administration of dialysis treatment, development and training programs, and assessment of all patients. Medical directors play an important role in quality assurance activities and in coordinating the delivery of care to maintain dialysis patients’ general level of health and to avoid medical complications that might require hospitalization.

     Renal Care Group’s typical medical director agreement has a term of between five and ten years with renewal options. Renal Care Group pays medical directors fees that are consistent with the fair market value of the required services. These medical director fees are the result of arms-length negotiations. Most of the Company’s medical director agreements also include non-competition clauses with specific limitations on the medical director’s ability to compete with Renal Care Group by owning or providing medical director services for another dialysis facility for certain specified periods of time and in specified geographic areas.

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Ancillary Services

     Renal Care Group provides a variety of ancillary services to treat its patients. The most significant ancillary service is the administration of erythropoietin (also known as Epogen® or EPO). EPO is a bio-engineered protein that stimulates the production of red blood cells. It is used in connection with all forms of dialysis to treat anemia, a complication experienced by almost all ESRD patients. EPO is manufactured by a single supplier, Amgen Inc., and there are no substitute products available to dialysis providers in the United States. Renal Care Group, through its RenaLab subsidiary, provides clinical laboratory services for its dialysis operations. Other ancillary services offered by Renal Care Group, depending on medical appropriateness, include the administration of other drugs, tests for bone deterioration, electrocardiograms, nerve conduction studies to test for deterioration of a patient’s nerves, Doppler flow testing for the effectiveness of the patient’s vascular access for dialysis, and blood transfusions.

QUALITY ASSURANCE

     Integral to Renal Care Group’s operating philosophy is the belief that providing quality care is in the best interest not only of patients but also of Renal Care Group’s shareholders. Better patient care results in improved mortality and morbidity and a greater number of treatments, as patients’ life spans increase and the number of days patients spend in hospitals declines. In order to optimize therapy and improve outcomes, Renal Care Group maintains a quality assurance program. Renal Care Group establishes, maintains and monitors quality criteria for its clinical operations and monitors patient outcomes in all of its centers.

Medical Advisory Board

     Renal Care Group’s Medical Advisory Board oversees the review of patient outcomes and development and communication of clinical protocols. The Medical Advisory Board is chaired by Raymond Hakim, M.D., Ph.D., the Company’s Chief Medical Officer, and is composed of 12 nephrologists who are medical directors of one or more of the Company’s centers. The Medical Advisory Board is responsible for establishing, implementing and monitoring the Company’s quality assurance policies and procedures and for reviewing and recommending protocols, policies and procedures for clinical treatment. The Medical Advisory Board also works to identify deficiencies in treatment practices and to evaluate technological changes. The Medical Advisory Board’s ultimate objective is to assist Renal Care Group in developing and communicating a protocol-driven clinical management model that will assist the Company in continuously improving the care to its patients, with the goal of providing optimal care to all patients.

Quality Criteria

     Continuous quality improvement is Renal Care Group’s primary clinical objective. Working to achieve this objective, Renal Care Group regularly evaluates dialysis treatments and patients’ key physiological parameters. The Company’s Quality Assurance Coordinator is a registered nurse who oversees Renal Care Group’s quality assurance program. In addition, each center has a quality assurance committee that typically includes the medical director, the center administrator, nurses and other technical personnel. These committees monitor the quality of care in the centers and oversee compliance with applicable regulations.

Outcomes Data

     Renal Care Group believes that an important factor in managing ESRD successfully is the development and implementation of clinical pathways and treatment protocols. To develop, review and maintain these pathways and protocols, Renal Care Group maintains a broad database of treatment-specific patient outcomes information. The Quality Assurance Coordinator oversees the collection of patient outcomes and cost data in the Company’s centers. Renal Care Group makes these data available to the Medical Advisory Board and affiliated physicians to assist in developing, implementing and evaluating clinical pathways to enhance patient outcomes while working to control the cost of care. The Company believes that the implementation of such clinical pathways will assist in improving the overall quality, while resulting in operating efficiencies at its dialysis centers.

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CORPORATE COMPLIANCE PROGRAM

     Renal Care Group has developed and maintains a company-wide corporate compliance program as part of its commitment to comply fully with all laws and regulations applicable to its business and to maintain high standards of conduct by Renal Care Group’s associates. A purpose of the program is to heighten associates’ and affiliated professionals’ awareness of the importance of complying with all applicable laws and regulations in an increasingly complicated regulatory environment and to take steps promptly to identify and resolve instances of non-compliance.

     The compliance program has been approved by Renal Care Group’s Board of Directors. It addresses general compliance issues and areas of particular sensitivity. Among the areas of particular sensitivity covered by the compliance program are health care fraud and abuse issues, financial reporting, conflicts of interest and antitrust. As part of the program Renal Care Group has published a code of conduct setting forth standards of conduct and principles of business ethics to be followed by the Company and each employee and affiliated professional. The code of conduct is regularly reviewed and updated. A Compliance Committee comprised of officers and senior managers of Renal Care Group and a full-time Compliance Officer administer the corporate compliance program. The Compliance Committee and Compliance Officer are authorized to report compliance issues directly to the Audit and Compliance Committee of the Company’s Board of Directors.

     Renal Care Group also maintains a compliance program specific to RenaLab, its laboratory subsidiary. This program mandates laboratory-specific compliance standards, policies and procedures. The laboratory compliance program is administered by a laboratory compliance committee, composed of officers and senior managers of Renal Care Group and RenaLab. This committee includes the Renal Care Group Compliance Officer and a part-time RenaLab Compliance Officer. This committee and the RenaLab Compliance Officer are authorized to report compliance issues directly to the RenaLab Board of Directors and to the Audit and Compliance Committee of Renal Care Group’s Board of Directors.

REIMBURSEMENT

Sources of Net Patient Revenue

     The following table sets forth information regarding the sources of Renal Care Group’s net patient revenue:

		Year Ended December 31,
		2000			2001			2002
Medicare			53	%		49	%		50	%
Medicaid			5			6			7
Commercial and other payors			36			40			38
Hospital inpatient dialysis services			6			5			5
	Total		100	%		100	%		100	%

Medicare

     The Social Security Act provides that most U.S. citizens and resident aliens with ESRD are entitled to Medicare coverage. If a physician finds that an eligible person has ESRD, then he or she will be entitled to Medicare coverage (1) beginning the third month after the month in which a regular course of dialysis is initiated; or (2) as early as the month in which a kidney transplant candidate is hospitalized for the transplant if certain conditions are met.

     For Medicare purposes, ESRD is defined as kidney impairment that appears irreversible and permanent and that requires a regular course of dialysis or a kidney transplant to maintain life. For a period of 30 months, Medicare coverage is generally secondary for patients who have qualifying health insurance. After this 30-month period, Medicare becomes the primary coverage for patients, and the patient’s other health insurance generally pays applicable Medicare coinsurance payments and deductibles.

     Under the Medicare ESRD program, Medicare reimbursement rates per outpatient dialysis treatment are fixed under a composite rate structure. The Medicare ESRD composite rate may be changed by legislation or rulemaking. Congress increased

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the Medicare composite rate in 2000 by 1.2%. Congress also increased the Medicare composite rate in 2001 by 2.4%. Neither Congress nor CMS approved an increase in the composite rate for 2002 or 2003. Although Medicare reimbursement limits the allowable charge per treatment, it provides Renal Care Group with predictable and recurring treatment revenue for its outpatient dialysis services that are covered by the composite rate.

     The Medicare ESRD composite rate for outpatient dialysis services averaged $131 per treatment in freestanding facilities during 2002. The Medicare ESRD composite rate is subject to regional differences based on certain factors, including labor costs. CMS or Congress may periodically adjust Medicare reimbursement rates, including the ESRD composite rate, based on certain factors, including legislation, executive and congressional budget reduction and control processes, inflation and costs incurred in rendering the services. Historically, adjustments in the Medicare ESRD composite rate have had little relationship to the cost of conducting business.

     The Medicare ESRD composite rate applies to a designated group of outpatient dialysis services, including the dialysis treatment, supplies used for such treatment, certain laboratory tests and certain medications, and most of the home dialysis services provided by Renal Care Group. Some other services, laboratory tests and drugs are eligible for separate reimbursement under Medicare and are not part of the composite rate. These separately reimbursed items include specific drugs such as EPO, some physician-ordered tests provided to dialysis patients and some home dialysis services. Renal Care Group generally submits Medicare claims monthly and is usually paid within 30 days of the submission.

Changes in the Medicare ESRD Composite Rate

     Congress increased the Medicare ESRD composite rate by 1.2% in 2000 and by 2.4% in 2001. Previously, the Medicare ESRD composite rate was unchanged from commencement of the program in 1972 until 1983. From 1983 through December 1990, numerous congressional actions resulted in net reductions of the average Medicare ESRD composite rate from approximately $138 per treatment in 1983 to approximately $125 per treatment in 1986. As a result of the 2001 increase in the Medicare ESRD composite rate, the Company’s average rate per dialysis treatment was $131 during 2002.

     The Medicare ESRD composite rate has been the subject of a number of reports and studies. During 2000, Congress directed a study of the ESRD composite rate structure, which was due in June 2002. This study has not yet been delivered. Congress mandated that this study (1) review items included in the composite rate and items that are currently separately billable (such as EPO and certain laboratory services), and (2) analyze whether the composite rate should be subject to an annual inflationary update. Pending this study, the Prospective Payment Assessment Commission, also known as PROPAC, recommended that the ESRD composite rate for 2003 be increased by 2.6%. Congress did not approve an increase for 2003. PROPAC is a body that makes recommendations to Congress concerning Medicare reimbursement rates. Congress is not required to implement any of these recommendations and could either raise or lower the reimbursement rate or change the items covered by the composite rate.

     During recent congressional sessions, there have been various proposals to change numerous aspects of Medicare. Renal Care Group is unable to predict what, if any, future changes may occur in the Medicare ESRD composite rate. Any reductions in the Medicare ESRD composite rate or change in the items covered by the composite rate (such as EPO or certain laboratory services) could have a material adverse effect on Renal Care Group’s earnings, financial condition and business.

Medicare Reimbursement for EPO

     Renal Care Group also derives a significant portion of its revenue and earnings from the administration of EPO. Medicare reimbursement for EPO has been fixed at $10 per 1,000 units since 1994. The Secretary of the Department of Health and Human Services has the authority to determine the Medicare reimbursement rate for EPO. In the past there have been proposals to reduce Medicare reimbursement for EPO, but none of these proposals has been adopted. Renal Care Group is unable to predict whether any changes in EPO reimbursement will occur. Approximately 23% of Renal Care Group’s revenue in 2002 was generated from the administration of EPO; therefore, any reduction in Medicare reimbursement for EPO could have a material adverse effect on Renal Care Group’s earnings, financial condition and business.

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     CMS also places limits on EPO reimbursement based on patients’ hematocrit levels. Hematocrit is a measure of a patient’s anemia. Currently, if a patient’s hematocrit is below 36%, CMS approves Medicare reimbursement for EPO without specific documentation of medical necessity. If a patient’s average hematocrit over a three-month period is higher than 36%, Medicare reimbursement is contingent on medical necessity. Medicare’s contractors often review claims in these instances. Renal Care Group is unable to predict whether any changes in EPO reimbursement based on hematocrit levels will occur. Any reduction in Medicare reimbursement for EPO could have a material adverse effect on Renal Care Group’s earnings, financial condition and business.

Medicaid Reimbursement

     Medicaid programs are health care programs partially funded by the federal government that are administered by the states. These programs generally provide coverage for uninsured patients whose income and assets fall below levels determined by the states. The programs also serve as supplemental insurance programs for the Medicare co-insurance portion and provide coverage for certain items (for example, oral medications) that are not covered by Medicare. State regulations generally follow Medicare reimbursement levels and coverage without any coinsurance amounts. Some states, however, require beneficiaries to pay a share of the cost based upon their income or assets. Renal Care Group is a licensed ESRD Medicaid provider in all of the states in which it does business.

     Some of the states in which Renal Care Group does business have dialysis reimbursement rates for Medicaid patients that are higher than Medicare rates. Representatives of CMS and some of these states have indicated that the states should consider reducing these higher reimbursement levels, and at least one of these states, Washington, has implemented, a reduction in Medicaid reimbursement. In addition, finance department officials in Wisconsin have proposed, but not implemented, a reduction in Medicaid reimbursement. Reductions in Medicaid reimbursement could have a material adverse effect on Renal Care Group’s earnings, financial condition and business.

Private Reimbursement/Acute Care Contracts

     Before Medicare becomes a patient’s primary payor, the patient’s own insurance plan or other health care coverage, if any, pays for his or her ESRD treatments. Reimbursement rates from these private payors are generally significantly higher than the rates paid by Medicare. Renal Care Group has negotiated managed care contracts with most of its managed care payors at rates that are higher than the Medicare ESRD composite rate. Rates under these managed care contracts are, however, generally lower than those Renal Care Group charges other private payors. After Medicare becomes a patient’s primary payor, private secondary payors generally reimburse Renal Care Group for the patient’s copayment of 20% of the applicable Medicare rate. Renal Care Group also receives payments from hospitals under its acute care contracts. The rates under these contracts are generally higher than the Medicare ESRD composite rate. Rates under these acute care contracts are the result of arms-length negotiations between the hospital and Renal Care Group and approximate fair market value of the services provided by the Company.

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GOVERNMENT REGULATION

General

     Federal, state, and local governments extensively regulate Renal Care Group’s operations, including the operation of the dialysis centers and laboratory owned by Renal Care Group. Applicable federal and state statutes and regulations require Renal Care Group to meet various standards relating, among other things, to licensure, billing and reimbursement, management of dialysis centers, patient care personnel, maintenance of proper records, confidentiality of medical records, equipment and quality assurance programs, and the treatment and disposal of biomedical waste. In addition, Renal Care Group’s laboratory operations are subject, among other laws, to the federal Clinical Laboratory Improvement Amendments of 1988, also known as CLIA. Renal Care Group’s dialysis centers and laboratory are subject to periodic inspection by state and federal agencies to determine if they satisfy applicable requirements. In addition, through certificate of need, or CON, programs, some states regulate the development or expansion of health care facilities and services, including dialysis centers. Renal Care Group’s operations also are subject to regulations of the Occupational Safety and Health Administration, also known as OSHA, concerning workplace safety and employee exposure to blood and other potentially infectious materials.

     Renal Care Group is subject to federal and state laws governing, among other things, the relationships between Renal Care Group and physicians and other health care providers, patient referrals, and false claims. See “Government Regulation—Anti-Kickback Statute,” “Government Regulation—Stark Law” and “Government Regulation—Civil Monetary Penalties.” The federal government, many states, and private third-party payors have made combating fraud and abuse in the health care industry a high priority. As a result, scrutiny and investigation of health care providers and their relationships with physicians and other referral sources has increased significantly.

     Renal Care Group believes it substantially complies with applicable federal and state laws. However, if a state or the federal government finds that Renal Care Group has not complied with these laws, then Renal Care Group could be required to change its way of operating. Any changes could have a negative impact on the Company. To date, the dialysis centers owned by Renal Care Group have maintained their licenses and Medicare and Medicaid certifications. Any loss of certification to participate in the Medicare and Medicaid programs or loss of any required state or federal licenses or certifications would have a negative effect on Renal Care Group. Renal Care Group believes that the health care services industry will continue to be subject to extensive regulation at the federal, state, and local levels. Renal Care Group cannot predict the scope and effect of future regulation of its business and cannot predict whether health care reform will require Renal Care Group to change its operations or whether such reform will have a negative impact on Renal Care Group.

     Renal Care Group cannot predict whether it will be held responsible for actions previously taken by acquired companies or facilities before it purchased them. Renal Care Group also cannot predict whether its operations, or the previous operations of acquired companies or facilities, will be reviewed or challenged by the government. Any review or challenge of its operations could have a negative impact on Renal Care Group.

Medicare and Medicaid Certification and Reimbursement

     To receive reimbursement from federal health care programs for dialysis and laboratory services, the dialysis centers and laboratory operated by Renal Care Group must be certified as meeting certain requirements. For example, to receive Medicare reimbursement, Renal Care Group’s dialysis centers and laboratory must be certified by the Centers for Medicare and Medicaid Services. All of the dialysis centers operated by Renal Care Group and its laboratory operations are certified under the Medicare program and many state Medicaid programs. In connection with its participation in Medicare, Renal Care Group must comply with conditions for coverage, including requirements concerning personnel, management, patient care, patient rights, medical records and physical environment. Renal Care Group must also comply with extensive billing rules governing, among other things, medical necessity and documentation. See “Government Regulation—False Claims Act” and “Government Regulation—Civil Monetary Penalties.”

     CMS has announced that it is in the process of revising the current Medicare conditions for coverage for ESRD services. Proposed revisions have not been published. Renal Care Group cannot predict when proposed rules will be published or finalized or what, if any, changes CMS might make to the current conditions for coverage. Renal Care Group also cannot predict whether

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it will be able to meet any new or revised conditions for coverage. Any changes to the Medicare conditions for coverage for ESRD facilities could require Renal Care Group to change its operations and could have a negative effect on the business and profitability of Renal Care Group. Any reduction in governmental payments for dialysis services or any reduction or elimination of coverage of dialysis services by a governmental party would have a negative impact on Renal Care Group’s business.

     The HHS Office of Inspector General, also known as the OIG, issued reports in the summer of 2000 recommending greater oversight of the quality of care in dialysis facilities. In January of 2003, the United States General Accounting Office, known as the GAO, issued a report finding that efforts by CMS to ensure quality care at certain facilities including kidney dialysis facilities continue to be jeopardized by problems in the performance of state inspections, complaint investigations, and enforcement of federal standards. Any increased oversight could lead to increased requirements and greater scrutiny of dialysis facilities, including those owned by Renal Care Group.

The Anti-Kickback Statute

     Under Medicare, Medicaid, and other government-funded health care programs such as the CHAMPUS program, federal and state governments enforce a federal law called the Anti-Kickback Statute. The Anti-Kickback Statute prohibits any person from offering, paying, soliciting or receiving any type of benefit (1) in exchange for the referral of a patient covered by Medicare, Medicaid or other federally-subsidized program or (2) for the leasing, purchasing, ordering or arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by the programs. Remuneration prohibited by the Anti-Kickback Statute includes the payment or transfer of anything of value. Many states have similar anti-kickback statutes that are not necessarily limited to items or services for which payment is made by a federal or state health care program.

     Any person or entity that violates the Anti-Kickback Statute may be penalized. These penalties include criminal fines of up to $25,000 per violation and imprisonment. In addition, the government may impose civil penalties of up to $50,000 per violation, plus three times total remuneration offered, paid, solicited or received. Further, the Secretary of the Department of Health and Human Services, HHS, has the authority to exclude or bar individuals or entities who violate the Anti-Kickback Statute from participating in Medicare and Medicaid.

     The Anti-Kickback Statute is a broad law. Courts have stated that, under certain circumstances, the Anti-Kickback Statute is violated when just one purpose, as opposed to the primary purpose, of a payment is to induce referrals. To clarify what acts or arrangements will not be subject to prosecution by the Office of Inspector General of HHS or the United States Attorney, HHS adopted a set of safe harbor regulations and continues to publish clarifications to these safe harbors. If an arrangement meets all of the requirements of a safe harbor, it will not be considered to violate the Anti-Kickback Statute.

     The types of arrangements covered by safe harbors include certain investments in companies whose stock is traded on a national exchange, certain small company investments in which physician ownership is limited, rental of space, rental of equipment, personal services and management contracts, sales of physician practices, physician referral services, warranties, discounts, payments to employees, group purchasing organizations, and waivers of beneficiary deductibles and co-payments. Each type of arrangement must meet a number of specific requirements in order to enjoy the benefits of the applicable safe harbor. Meeting the requirements of a safe harbor will protect an arrangement from enforcement action by the government. However, the fact that an arrangement does not meet the requirements of a safe harbor does not mean that the arrangement is necessarily illegal or will be prosecuted under the Anti-Kickback Statute.

     The OIG has issued a Special Fraud Alert concerning the pricing of laboratory testing at ESRD centers. Medicare pays for laboratory tests provided to ESRD patients in two different ways. Some laboratory tests are considered routine, and Medicare includes payment for those tests in the ESRD composite rate paid to the dialysis center. Some laboratory testing is not included in the composite rate, and these tests are billed by the laboratory directly to Medicare. In the Special Fraud Alert, the OIG stated it is aware of cases where a laboratory offers to perform tests included in the composite rate at a price below fair market value. In exchange, the ESRD facility agrees to refer all or most of its non-composite rate tests to the laboratory. The OIG identified such an arrangement as raising issues under the Anti-Kickback Statute. Renal Care Group believes that its arrangements with laboratories reflect fair market value and comply with the Anti-Kickback Statute.

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     Renal Care Group seeks to satisfy as many safe harbor requirements as possible when it is structuring its business arrangements. However, not all of Renal Care Group’s arrangements satisfy all elements of a safe harbor. Management believes that Renal Care Group has a reasonable basis for concluding that it substantially complies with the Anti-Kickback Statute and other applicable related federal and state laws and regulations. The Company believes that its current arrangements with physicians including nephrologists owning Renal Care Group’s common stock, medical directors, laboratories, suppliers, hospitals, and other sources of referrals to its dialysis centers and its acute dialysis services agreements with hospitals materially comply with the Anti-Kickback Statute. However, a government agency might take a position contrary to the interpretations made by Renal Care Group or may require the Company to change its practices. If an agency were to take such a position, it could adversely affect Renal Care Group.

The Stark Law

     Congress has also passed significant prohibitions against certain physician referrals of patients for health care services. These prohibitions are commonly known as the Stark Law. The Stark Law prohibits a physician from making referrals for particular health care services (called designated health services) to entities with which the physician, or an immediate family member of the physician, has a financial relationship. If an arrangement is covered by the Stark Law, the requirements of a Stark Law exception must be met for the physician to be able to make referrals to the entity for designated health services.

     The term “financial relationship” is defined very broadly to include most types of ownership or compensation relationships. The Stark Law also prohibits the entity receiving the referral from seeking payment under the Medicare and Medicaid programs for services rendered pursuant to a prohibited referral. If an entity is paid for services rendered pursuant to a prohibited referral, it may incur civil penalties and could be excluded from participating in Medicare or Medicaid.

     As originally enacted, the Stark Law restricted referrals for clinical laboratory services. This version of the Stark Law is also called Stark I. Effective January 1, 1995, the Stark Law was expanded to include physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging (MRI), computerized axial tomography (CAT) scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. This version of the Stark Law is also known as Stark II.

     The Stark Law defines a financial relationship to include (1) a physician’s ownership or investment interest in an entity and (2) a compensation relationship between a physician and an entity. Under the Stark Law, financial relationships include both direct and indirect relationships. Renal Care Group has compensation arrangements with its medical directors or the professional practices of the medical directors. The medical directors or their practices may also own shares, and options to purchase shares, of common stock of Renal Care Group. In addition, other physicians who refer patients to Renal Care Group’s centers may own stock of Renal Care Group. If so, the medical directors and other physicians would have a financial relationship with Renal Care Group. Accordingly, these physicians would not be able to refer patients to Renal Care Group’s dialysis centers for designated health services unless a Stark Law exception applies.

     Dialysis is not listed as a designated health service under the Stark Law. However, the definition of “designated health services” includes some items and services that are components of dialysis or which may be provided to patients by Renal Care Group in connection with their dialysis services. On January 4, 2001, HHS issued final regulations to the Stark II provisions of the Stark Law for some provisions of the Stark Law. These regulations became effective on January 4, 2002. The final regulations exclude from the definition of covered designated health services those services that are reimbursed by Medicare as part of a composite rate. The final regulations also contain an exception under the Stark Law for clinical laboratory services that are included in the Medicare ESRD composite rate. Therefore, services that are included in the Medicare ESRD composite rate are not covered by the Stark Law.

     Further, the Stark II final regulations exclude from the referral prohibition EPO and other drugs required as part of dialysis if certain requirements are met. If the requirements are met, this exception applies whether or not these drugs are included in the Medicare ESRD composite rate.

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     The final regulations also exclude from the definition of “inpatient hospital services” any dialysis services provided by a hospital that is not certified by CMS to provide outpatient dialysis services. This rule would have the effect of excluding from the Stark Law prohibition, any dialysis services provided by Renal Care Group under an acute dialysis contract with a hospital, if that hospital is not certified to provide outpatient dialysis. The final Stark II regulations exclude from the definition of “durable medical equipment” all equipment and supplies used in connection with home dialysis. These Stark II regulations exclude most of the items and services connected with dialysis from the Stark Law prohibitions.

     HHS has accepted comments to the Stark II final rules and has stated that it will issue further regulations to the Stark Law in the future. HHS has stated that it will issue additional Stark II final regulations in the future, but proposed regulations have not been published. Renal Care Group cannot predict whether HHS will revise the final regulations or will adopt additional regulations that affect Renal Care Group’s business.

     If the Stark Law applies to the relationships between Renal Care Group and its referring physicians, there are exceptions to the Stark Law which, if certain requirements are met, would permit such physicians to refer patients to Renal Care Group for designated health services. The Stark Law contains exceptions for certain physician ownership or investment interests in entities and certain physician compensation arrangements with entities. The exceptions for compensation arrangements include employment relationships, personal services contracts, and space and equipment leases. If a compensation arrangement between a physician, or immediate family member, and an entity satisfies all requirements for a Stark Law exception, then the Stark Law will not prohibit the physician from referring patients to the entity for designated health services. Renal Care Group believes its compensation arrangements with physicians who refer to Renal Care Group meet the requirements for an exception under the Stark Law. For example, the Company believes that its agreements with medical directors or their professional practices materially satisfy the Stark Law exception for personal services agreements.

     The Stark Law also includes an exception for a physician’s ownership or investment interest in certain entities through the ownership of stock. If a physician owns stock in an entity, and the stock is listed on a national exchange or is quoted on the Nasdaq Stock Market and the ownership meets certain other requirements, then the Stark Law will not apply to prohibit the physician from referring to the entity for designated health services. The requirements for this Stark Law exception include a requirement that the entity issuing the stock have at least $75.0 million in stockholders’ equity at the end of its most recent fiscal year or on average during the previous three fiscal years. As of March 11, 2003, Renal Care Group had stockholders’ equity of more than $562.0 million. Renal Care Group believes that physician ownership of Renal Care Group stock satisfies this Stark Law exception.

     If an entity violates the Stark Law, it could be subject to civil penalties of up to $15,000 per prohibited claim and may be excluded from Medicare and Medicaid. If the Stark Law applies to the relationships between Renal Care Group and its referring physicians and no exceptions under the Stark Law are available, then Renal Care Group will be required to restructure these relationships or refuse to accept referrals for designated health services from these physicians. If Renal Care Group were found to have submitted claims to Medicare for services provided pursuant to a referral prohibited by the Stark Law, then Renal Care Group would be required to repay amounts it received from Medicare for those services and could be subject to civil monetary penalties. If Renal Care Group is required to repay amounts to Medicare or is subject to fines, the Company could be harmed.

     Many states have physician relationship and referral statutes that are similar to the Stark Law. Renal Care Group believes it is in substantial compliance with applicable state laws on physician relationships and referrals. However, any finding that Renal Care Group is not in compliance with these state laws could require the Company to change its operations and could have a negative impact on Renal Care Group.

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The Health Insurance Portability and Accountability Act of 1996

     In an effort to combat health care fraud, Congress included several anti-fraud measures in the Health Insurance Portability and Accountability Act of 1996, also called HIPAA. Among other things, HIPAA broadened the scope of certain fraud and abuse laws, extended criminal penalties for Medicare and Medicaid fraud to other federal health care programs, and expanded the authority of the OIG, to exclude persons and entities from participating in the Medicare and Medicaid programs. HIPAA also extended the Medicare and Medicaid civil monetary penalty provisions to other federal health care programs, increased the amounts of civil monetary penalties, and established a criminal health care fraud statute.

     Federal health care offenses under HIPAA include health care fraud and making false statements relating to health care matters. Under HIPAA, among other things, any person or entity that knowingly and willfully defrauds or attempts to defraud a health care benefit program is subject to a fine, imprisonment or both. Also under HIPAA, any person or entity that knowingly and willfully falsifies or conceals or covers up a material fact or makes any materially false or fraudulent statements in connection with the delivery of or payment of health care services by a health care benefit plan is subject to a fine, imprisonment or both.

     HIPAA also required the OIG, to issue advisory opinions to outside parties regarding the interpretation and applicability of the Anti-Kickback Statute and other OIG health care fraud and abuse sanctions. An OIG advisory opinion only applies to the people or entities that requested it. However, advisory opinions are published and made available to the public, and they provide guidance on those practices the OIG believes may violate federal law. Renal Care Group has not requested any advisory opinions from the OIG. However, the OIG has issued several advisory opinions addressing practices of companies owning ESRD centers.

     In advisory opinions addressing practices of companies owning ESRD centers, the OIG has advised ESRD companies that they may not pay policy premiums for Medicare supplemental insurance for patients, even patients with proven financial hardship. Prior to the adoption of HIPAA and the issuance of these OIG opinions, Renal Care Group had paid premiums for Medicare supplemental insurance for some patients with demonstrated financial need. The Company stopped making such payments following the adoption of HIPAA. Consistent with the advisory opinions, the Company has made grants to charitable foundations that may, but are not required to, make premium payments on behalf of ESRD patients. Renal Care Group believes, but cannot promise, that its current practices regarding supplemental insurance substantially comply with the general principles expressed by the OIG in these advisory opinions. In 2000, HHS issued proposed regulations that would permit dialysis facilities to pay for supplemental insurance premiums on behalf of ESRD patients if certain requirements are satisfied. However, in December of 2002, the OIG withdrew this proposed exception.

     On August 17, 2000, HHS published final regulations governing electronic transactions involving health information. These regulations are part of the administrative simplification provisions of HIPAA. These regulations are commonly referred to as the Transaction Standards rule. The rule establishes standards for eight of the most common health care transactions by reference to technical standards promulgated by recognized standards publishing organizations. Under the new standards, any party transmitting or receiving health transactions electronically must send and receive data in a single format, rather than the large number of different data formats currently used. Health care providers, health care clearinghouses and large health plans who submitted a compliance extension plan to HHS by October 15, 2002 have until October 16, 2003 to comply with the Transaction Standards rule. Health care providers, health care clearinghouses and large health plans who did not submit a compliance extension plan to HHS by the deadline were required to comply with these requirements as of October 16, 2002. The Transaction Standards rule applies to Renal Care Group in connection with submitting and processing health claims. The Transaction Standards rule also applies to many of our payors and to our relationships with those payors. Since many of our payors might not have been able to accept transactions in the format required by the Transaction Standards rule by the original compliance date, Renal Care Group filed a timely compliance extension plan with HHS. Renal Care Group intends to comply with the Transaction Standards rule by the required compliance date.

     On December 28, 2000, HHS published final regulations implementing HIPAA that adopted standards for privacy of individually identifiable health information. The regulations cover health care providers, health care clearinghouses and health plans. The privacy regulations, among other things, require companies covered by the regulations:

• to obtain patient authorization prior to certain uses or disclosures of protected health information,

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• to provide notice of privacy practices to patients and obtain an acknowledgement that the patient has received the notice,

• to respond to requests from patients for access to or to obtain a copy of their information,

• to respond to patient requests for amendments of their information,

• to designate a privacy officer,

• to use and disclose only the minimum necessary information to accomplish a particular purpose, and

• to establish policies and procedures with respect to uses and disclosures of protected health information.

     These regulatory requirements impose significant administrative and financial obligations on companies that use or disclose individually identifiable information relating to the health of a patient. Renal Care Group’s current processes for receiving, using and disclosing patient information were designed to maintain patient privacy and therefore already include many of the HIPAA-required privacy elements. The privacy regulations are extensive, and Renal Care Group will need to change some of its practices to comply with them.

     The effective date of these privacy regulations is April 14, 2001, and most covered entities, including Renal Care Group, are required to comply with the regulatory requirements by April 14, 2003. Renal Care Group intends to comply with the privacy regulations by the required compliance date.

     On August 12, 1998, HHS published proposed regulations implementing HIPAA that governs the security of health information. HHS recently published the final security regulations. Most covered entities will be required to comply with these regulations by April 21, 2005. Renal Care Group is studying the new regulations and may be required to change some of its practices to comply with them.

The False Claims Act

     The federal False Claims Act gives the federal government an additional way to police false bills or requests for payment for health care services. Under the False Claims Act, the government may fine any person who knowingly submits, or participates in submitting, claims for payment to the federal government that are false or fraudulent, or that contain false or misleading information. Any person who knowingly makes or uses a false record or statement to avoid paying the federal government may also be subject to fines under the False Claims Act. Under the False Claims Act, the term “person” means an individual, company, or corporation. The federal government has used the False Claims Act widely to prosecute fraud against Medicare and other governmental programs in areas such as coding errors, billing for services not provided and submitting false cost reports. The False Claims Act has also been used to prosecute people or entities that bill services at a higher reimbursement rate than is allowed and billing for care that is not medically necessary.

     The penalty for violation of the False Claims Act ranges from $5,500 to $11,000 for each fraudulent claim plus up to three times the amount of damages caused to the government as a result of each fraudulent claim. In addition to the False Claims Act, the federal government may use several criminal statutes to prosecute the submission of false or fraudulent claims for payment to the federal government. Many states have similar false claims statutes that impose liability for the types of acts prohibited by the False Claims Act.

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Civil Monetary Penalties

     The Secretary of HHS may impose civil monetary penalties on any person or entity that presents or causes to be presented certain ineligible claims for medical items or services. The amount of penalties varies, depending on the offense, from $2,000 to $50,000 per violation. HHS can impose penalties for false or fraudulent claims and those that include services not provided as claimed. In addition, HHS may impose penalties on claims:

• for physician services the person or entity knew or should have known were rendered by a person who was unlicensed, or misrepresented either (1) his or her qualifications in obtaining his or her license or (2) his or her certification in a medical specialty;

• that were furnished by a person who was, at the time the claim was made, excluded from the program to which the claim was made; or

• that show a pattern of medically unnecessary items or services.

     Penalties also may be imposed on a person or entity that violates rules regarding the assignment of payments, that knowingly gives false or misleading information that could reasonably influence the discharge of patients from a hospital, or that offers inducements to beneficiaries for program services. Persons who have been excluded from the program and who retain ownership in a participating entity, or who contract with excluded persons, may be penalized. Penalties also are applicable in certain other cases, including violations of the federal Anti-Kickback Statute, payments to limit certain patient services and improper execution of statements of medical necessity.

Government Investigations

     Last year, the federal government continued to investigate practices of health care providers, including providers of dialysis. Renal Care Group expects that the number of government investigations of dialysis providers will continue to increase in 2003. The OIG has indicated in its 2003 Work Plan that it will be focusing this year on a number of areas of ESRD services, including home dialysis billing and transportation services for dialysis patients.

     The federal government also continues to investigate practices of laboratories. Each of the laboratories owned and operated by the major dialysis providers, including the laboratory owned and operated by Renal Care Group, has been the subject of a government investigation. These laboratories, including our laboratory, could be the subject of future investigations.

     Renal Care Group has developed and implemented a compliance program that is designed to prevent violations of the law. The existence of an effective compliance program may reduce the severity of civil and criminal penalties for certain offenses. Renal Care Group believes its compliance program is effective.

Health Care Legislation

     Congress may enact legislation in the future which may significantly change the Medicare ESRD program or reduce the amount that Medicare and Medicaid will pay for services offered by Renal Care Group. Federal and state statutes or regulations may be enacted to impose additional requirements on Renal Care Group to continue to provide services to ESRD patients, to provide new services, or to maintain eligibility to participate in federal and state payment programs. Any new legislation or regulations, or new interpretations of existing statutes and regulations, governing reimbursement to Renal Care Group or the manner in which Renal Care Group provides services to patients could have a material impact on Renal Care Group and could adversely affect its profitability.

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COMPETITION

     The dialysis industry is highly competitive. Competition for qualified physicians to act as medical directors is also intense. According to CMS, there were more than 4,000 outpatient facilities providing dialysis in the United States at the end of 2001. Renal Care Group believes that approximately 65% of these facilities are currently owned by multi-center dialysis companies, approximately 17% are owned by independent physicians, small chains and other small operators, and approximately 18% are hospital-affiliated centers. The largest multi-center dialysis company is Fresenius Medical Care, Inc. A.G. Other large competitors include DaVita, Inc. and Gambro Healthcare, Inc.

     Fresenius and Gambro are both vertically integrated providers that manufacture and sell dialysis equipment and supplies, which may give them certain competitive advantages. There are also a number of health care providers that have entered or may decide to enter the dialysis business. Some of Renal Care Group’s competitors have substantially greater financial resources than Renal Care Group and may compete with the Company for acquisitions, development and/or management of dialysis centers and nephrology practices. Renal Care Group believes that competition for acquisitions has, over time, increased the cost of acquiring dialysis centers. Renal Care Group may also experience competition from centers established by former medical directors or other referring physicians. There can be no assurance that Renal Care Group will compete effectively with any of its competitors.

INSURANCE

     Renal Care Group maintains professional liability insurance and general liability insurance policies for all of its operations. Renal Care Group also maintains insurance in amounts it deems adequate to cover property and casualty risks, workers’ compensation, and directors and officers liability. During 2002 the cost to Renal Care Group of most types of insurance, particularly professional liability insurance, directors and officers liability insurance, and employee health insurance, increased substantially, both in terms of premiums and deductibles. In addition, the availability of insurance diminished in 2001 and 2002. Management expects that these trends will continue in the future and that Renal Care Group will be required to take more risk in its insurance program. There can be no assurance that the aggregate amount and types of Renal Care Group’s insurance are adequate to cover all risks it may incur or that insurance will be available in the future.

EMPLOYEES

     At December 31, 2002 Renal Care Group employed 5,447 full-time employees and 866 part-time employees. Of the total employees, 53 were employed at the Company’s headquarters and 6,260 were employed at the Company’s facilities or regional business offices. In management’s opinion, employee relations are good.

INTERNET WEBSITE

     The Company’s internet website can be found at www.renalcaregroup.com. The Company makes available free of charge on or through our internet website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is filed, or furnished, to the Securities and Exchange Commission.

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RISK FACTORS

     You should carefully consider the risks described below before investing in Renal Care Group. The risks and uncertainties described below are not the only ones facing Renal Care Group. Other risks and uncertainties that we have not predicted or assessed may also adversely affect our company.

     If any of the following risks occur, our earnings, financial condition or business could be materially harmed, and the trading price of our common stock could decline, resulting in the loss of all or part of your investment.

If Congress or CMS Changes the Medicare or Medicaid Programs for Dialysis, Then Our Revenue and Earnings Could Decrease

     If the government changes the Medicare, Medicaid or similar government programs or the rates those programs pay for our services, then our revenue and earnings may decline. We estimate that approximately 53% of our net revenue for 2000, 49% of our net revenue for 2001 and 50% of our net revenue for 2002 consisted of reimbursements from Medicare, including the administration of EPO to treat anemia. We also estimate that approximately 5% of our net revenue for 2000, 6% of our net revenue for 2001 and 7% of our net revenue for 2002, consisted of reimbursements from Medicaid or comparable state programs. Any of the following actions in connection with government programs could cause our revenue and earnings to decline:

• a reduction of the amount paid to us under government programs;

• an increase in the costs associated with performing our services that are subject to inflation, such as labor and supply costs, without a corresponding increase in reimbursement rates;

• the inclusion of some or all ancillary services, for which we are now reimbursed separately, in the flat composite rate for a dialysis treatment; or

• changes in laws, or the interpretations of laws, which could cause us to modify our operations.

     Specifically, Congress and CMS have proposed reviewing and potentially recalculating the average wholesale prices of certain drugs, including some drugs that we bill for outside of the flat composite rate. CMS has indicated that it believes the average wholesale prices on which it currently bases reimbursement are too high and that Medicare reimbursement for these drugs is, therefore, too high. Because we are unable to predict accurately whether reimbursement will be changed and, if so, by how much, we are unable to quantify what the net effect of changes in reimbursement for these drugs would have on our revenue and earnings.

If States Lower Medicaid Reimbursement, Then We Would be Less Profitable

     The Medicaid programs in some of the states in which we operate reimburse us at rates higher than those paid by Medicare. Some of these programs, like Washington’s, have approved reductions in reimbursement. Other programs, like Wisconsin’s, have proposed reductions or have announced that they are considering reductions. In addition, a number of the states where we operate are experiencing budget shortfalls, and some of these states may consider reducing Medicaid reimbursement or changing their Medicaid programs to cut costs. Actions to reduce Medicaid reimbursement rates would adversely affect our revenue and earnings.

If Reimbursement for EPO Decreases, Then We Could Be Less Profitable

     If government or private payors decrease reimbursement rates for EPO, for which we are currently reimbursed separately outside of the flat composite rate, our revenue and earnings will decline. EPO is a bio-engineered hormone that is used to treat anemia. Revenues from the administration of EPO were approximately 26% of our net revenue for 2000, 25% of our net revenue for 2001 and 23% of our net revenue for 2002. Most of our payments for EPO come from government programs. For the year ended December 31, 2002, Medicare and Medicaid reimbursement represented approximately 57% of the total revenue we

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derived from EPO. A reduction in the reimbursement rate for EPO could materially and adversely affect our revenue and earnings.

If Amgen Raises the Price for EPO or if EPO Becomes in Short Supply, Then We Could Be Less Profitable

     EPO is produced by a single manufacturer, Amgen Inc., and there are no substitute products currently marketed to dialysis providers in the United States. In April 2002, Amgen announced a 3.9% increase in the price of EPO. This price increase did not affect our earnings in 2002 because our contract with Amgen had pricing protection through 2002, but it will adversely affect our earnings in 2003. In addition, Amgen implemented a 3.9% increase in the price of EPO in May 2001. That price increase did adversely affect our earnings in 2002. If Amgen imposes additional EPO price increases or if Amgen or other factors interrupt the supply of EPO, then our revenue and earnings will decline.

If Amgen Markets Aranesp for ESRD Patients, then We Could Be Less Profitable

     Amgen has developed and obtained FDA approval for a new drug to treat anemia marketed as Aranesp® (darbepoetin alfa). Aranesp® is a longer acting form of bio-engineered protein that, like EPO, can be used to treat anemia. EPO is usually administered in conjunction with each dialysis treatment. Aranesp® can remain effective for between two and three weeks. If Amgen markets Aranesp® for the treatment of dialysis patients, then our earnings could be materially and adversely affected by either of the following factors:

• Our margins realized from the administration of Aranesp® could be lower than the margin realized on the administration of EPO; or

• Physicians could decide to administer Aranesp® in their offices, and we would not recognize revenue or profit from the administration of EPO or Aranesp® .

If Payments by Private Insurers, Hospitals or Managed Care Organizations Decrease, Then Our Revenue and Earnings Could Decrease

     If private insurers, managed care organizations or hospitals reduce their rates or if we experience a significant shift in our revenue mix toward additional Medicare or Medicaid reimbursement, then our revenue and earnings will decline. We estimate that approximately 42% of our net revenue for 2000, 45% of our net revenue for 2001 and 43% of our net revenue for 2002, were derived from sources other than Medicare and Medicaid. In general, payments we receive from private insurers and hospitals for our services are at rates significantly higher than the Medicare or Medicaid rates. Payments we receive from managed care organizations are also at rates higher than Medicare and Medicaid rates but lower than those paid by private insurers. In addition, we have been able to implement annual price increases for these private payors that we have not been able to implement for federal programs. As a result, any of the following events could have a material adverse effect on our revenue and earnings:

• any number of economic or demographic factors could cause private insurers, hospitals or managed care companies to reduce the rates they pay us or to refuse to pay price increases or work to reduce the rate of our price increases;

• a portion of our business that is currently reimbursed by private insurers or hospitals may become reimbursed by managed care organizations, which generally have lower rates for our services; or

• the scope of coverage by Medicare or Medicaid under the flat composite rate could expand and, as a result, reduce the extent of our services being reimbursed at the higher private-insurance rates.

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If Local Physicians Stop Sending Patients To Our Centers or Were Prohibited From Doing So for Regulatory Reasons, Then Our Revenue and Earnings Would Decline

     Our dialysis centers depend on local nephrologists sending patients to the centers. Typically, one or a few physicians’ patients make up all or a significant portion of the patient base at each of our dialysis centers, and the loss of the patient base of one or more of these physicians could have a material adverse effect on the operations of that center. The loss of the patient base of a significant number of local physicians could cause our revenue and earnings to decline. In many instances, the primary referral sources for our centers are physicians who also serve as medical directors of our centers and may be shareholders. If the medical director relationship or stock ownership were deemed to violate applicable federal or state law, including fraud and abuse laws and laws prohibiting self-referrals, then the physicians acting as medical directors or owning our stock could be forced to stop referring patients to our centers. Further, we may not be able to renew or renegotiate our medical director agreements successfully, which could result in a loss of patients since dialysis patients are typically treated at a center where their physician or a member of his or her practice group serves as a medical director. We believe that our future success will depend in part on our ability to attract and retain qualified physicians to serve as medical directors of our dialysis centers.

If Our Business Is Alleged or Found To Violate Heath Care or Other Applicable Laws, Our Revenue and Earnings Could Decrease

     We are subject to extensive federal, state and local regulation. The laws that apply to our operations include, but are not limited to, the following:

• fraud and abuse prohibitions under state and federal health care laws;

• prohibitions and limitations on patient referrals;

• billing and reimbursement rules, including false claims prohibitions under health care reimbursement laws;

• rules regarding the collection, use, storage and disclosure of patient health information, including the federal Health Insurance Portability and Accountability Act of 1996, referred to as HIPAA, and state law equivalents of HIPAA;

• facility licensure;

• health and safety requirements;

• environmental compliance; and

• medical and toxic waste disposal.

     Much of the regulation of our business, particularly in the areas of fraud and abuse and patient referral, is complex and open to differing interpretations. Due to the broad application of the statutory provisions and the absence in many instances of regulations or court decisions addressing the specific arrangements by which we conduct our business, including our arrangements with medical directors, physician stockholders and physician joint venture partners, governmental agencies could challenge some of our practices under these laws.

     New regulations governing electronic transactions and the collection, use, storage, and disclosure of health information impose significant administrative and financial obligations on our business. If, after the required compliance date, we are found to have violated these regulations, we could be subject to:

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• criminal or civil penalties, including significant fines;

• claims by people who believe their health information has been improperly used or disclosed; and

• administrative penalties by payors.

     Government investigations of health care providers, including dialysis providers, have continued to increase. We have been the subject of investigations in the past, and the government may investigate our business in the future. One of our competitors, DaVita, Inc., has announced that it is the subject of an investigation by the U.S. Attorney for the Eastern District of Pennsylvania, and another competitor, Gambro Healthcare, Inc., has announced that it is the subject of an investigation by the U.S. Attorney’s Office in St. Louis, Missouri. If any of our operations are found to violate applicable laws, we may be subject to severe sanctions, or we could be required to alter or discontinue the challenged conduct or both. If we are required to alter our practices, we may not be able to do so successfully. If any of these events occurs, our revenue and earnings could decline.

Changes In the Health Care Delivery, Financing or Reimbursement Systems Could Adversely Affect Our Business

     The health care industry in the United States may be entering a period of change and uncertainty. Health care organizations, public or private, may dramatically change the way they operate and pay for services. Our business is designed to function within the current health care financing and reimbursement system. During the past several years, the health care industry has been subject to increasing levels of government regulation of, among other things, reimbursement rates and relationships with referring physicians. In addition, proposals to reform the health care system have been considered by Congress. In light of the continued increases in the cost of health care and the current economic weakness, there may be new proposals to change the health care system and control costs. These proposals, if enacted, could further increase the government’s oversight role and involvement in health care, lower reimbursement rates and otherwise change the operating environment for health care companies. We cannot predict the likelihood of those events or what impact they may have on our business.

The Dialysis Business Is Highly Competitive. If We Do Not Compete Effectively in Our Markets, Then We Could Lose Market Share and Our Rate of Growth Could Slow

     The dialysis industry is largely consolidated, and the consolidation trend continues as large providers acquire smaller providers. There is a small number of large dialysis companies that compete for the acquisition of outpatient dialysis centers and the development of relationships with referring physicians. Two of our major competitors are part of larger companies that also manufacture dialysis equipment, which allows them to benefit from lower equipment costs. Several of our competitors, including these equipment manufacturers, are significantly larger than we are and have greater financial resources and more established operations. We cannot assure you that we will be able to compete effectively with any of our competitors.

21

If We Lose Any of Our Executive Officers, or Are Unable To Attract and Retain Qualified Nurses, Then Our Ability To Run Our Business Could Be Adversely Affected, and Our Revenue and Earnings Could Decline

     We depend on the services of our executive officers Sam A. Brooks, Jr., our Chairman, Chief Executive Officer and President, Raymond Hakim, M.D., Ph.D., R. Dirk Allison and Gary Brukardt, each an Executive Vice President. Mr. Brooks, Dr. Hakim and Mr. Brukardt have each been with Renal Care Group since its formation. The services of our executive officers would be difficult to replace. We recently announced that we are searching for a new Chief Executive Officer to replace Mr. Brooks. Further, our growth will depend in part upon our ability to attract and retain skilled nurses to provide services in our facilities, for whom competition is intense.

If We are Unable to Make Acquisitions in the Future, Then Our Rate of Growth Will Slow

     Much of our historical growth has come from acquisitions. Although we intend to continue to pursue growth through the acquisition of dialysis centers, we may be unable to identify and complete suitable acquisitions at prices we are willing to pay, or we may be unable to obtain the necessary financing. Further, due to the increased size of our Company since its formation, the amount that acquired businesses contribute to our revenue and profits will continue to be smaller on a percentage basis. Also, as a result of consolidation in the dialysis industry, the four largest providers of outpatient dialysis services own approximately 65% of the outpatient dialysis facilities in the United States. We compete with these other companies to identify and complete suitable acquisitions. We expect this competition to intensify in light of the smaller pool of available acquisition candidates and other market forces. As a result, we believe it will be more difficult for us to acquire suitable companies on favorable terms. Further, the businesses we acquire may not perform well enough to justify our investment. If we are unable to make additional acquisitions on suitable terms, then we may not meet our growth expectations.

If We Complete Future Acquisitions, We May Dilute Existing Stockholders by Issuing More of Our Common Stock or We May Incur Expenses Related to Debt and Goodwill, Which Could Reduce Our Earnings

     We may issue equity securities in future acquisitions that could be dilutive to our shareholders. We also may incur additional debt in future acquisitions. Interest expense on debt incurred to fund our acquisitions may significantly reduce our profitability. While goodwill and other intangible assets with indefinite lives are not amortized to expense under recently adopted accounting rules, we are required to review all of these assets at regular intervals for impairment and to charge an appropriate amount to expense when impairment is identified. If impairment is identified and we are required to write off a significant portion of our intangible assets at one time, then there could be a material adverse impact on our stock price.

If We Fail to Integrate Acquired Companies, Then We Will Be Less Profitable

     We have grown significantly by acquisitions of other dialysis providers since our formation. We intend to pursue acquisitions of more dialysis businesses in the future. We are unable to predict the number and size of any future acquisitions. We face significant challenges in integrating an acquired company’s management and other personnel, clinical operations, and financial and operating systems with ours, often without the benefit of continued services from key personnel of the acquired company. We face these challenges particularly in larger acquisitions. We may be unable to integrate the businesses we acquire successfully or to achieve anticipated benefits from an acquisition in a timely manner, which could lead to substantial costs and delays or other operational, technical or financial problems, including diverting management’s attention from our existing business. Any of these results could damage our profitability and our prospects for future growth.

22

If Acquired Businesses Have Unknown Liabilities, Then We Could Be Exposed to Liabilities That Could Harm Our Business and Profitability

     Businesses we acquire may have unknown or contingent liabilities, including liabilities for failure to comply with health care laws. Although we generally attempt to identify practices that may give rise to unknown or contingent liabilities and conform them to our standards after the acquisition, private plaintiffs or governmental agencies may still assert claims. Even though we generally seek to obtain indemnification from the sellers of businesses we buy, unknown and contingent liabilities may not be covered by indemnification or may exceed contractual limits or the financial capacity of the indemnifying party.

If Our Costs of Insurance and Claims Increase, Then Our Earnings Could Decrease

     Renal Care Group currently maintains programs of general and professional liability insurance and directors’ and officers’ insurance with significant deductible amounts on each claim. In addition, we generally self-insure our employee health plan and workers’ compensation program, while maintaining excess insurance for some very large claims. We have accepted higher deductibles and self-insurance exposure in each of the last several years to offset in part increases in premiums for the programs. These deductibles and premiums increased substantially in 2002, and we believe they are likely to increase substantially again in 2003. Our earnings could be materially and adversely affected by any of the following:

• further increases in premiums and deductibles;

• increases in the number of liability claims against us or the cost of settling or trying cases related to those claims; and

• an inability to obtain one or more types of insurance on acceptable terms.

If Our Board of Directors Does Not Approve an Acquisition or Change in Control of Renal Care Group, Then Our Shareholders May Not Realize the Full Value of Their Stock

     Our certificate of incorporation and bylaws contain a number of provisions that may delay, deter or inhibit a future acquisition or change in control of Renal Care Group that is not first approved by our board of directors. This could occur even if our shareholders receive an attractive offer for their shares or if a substantial number or even a majority of our shareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring Renal Care Group to negotiate with and obtain approval from our board of directors before pursuing a transaction. Provisions that could delay, deter or inhibit a future acquisition or change in control of Renal Care Group include the following:

• a staggered board of directors that would require two annual meetings to replace a majority of the board of directors;

• restrictions on calling special meetings at which an acquisition or change in control might be brought to a vote of the shareholders;

• blank check preferred stock that may be issued by our board of directors without shareholder approval and that may be substantially dilutive or contain preferences or rights objectionable to an acquiror; and

• a poison pill that would substantially dilute the interest sought by an acquiror.

     These provisions could also discourage bids for our common stock at a premium and cause the market price of our common stock to decline.

23

Our Stock Price Is Volatile and as a Result, the Value of Your Investment May Go Down for Reasons Unrelated To the Performance of Our Business

     Our common stock is traded on the New York Stock Exchange. The market price of our common stock has been volatile, ranging from a low closing price of $27.72 per share to a high closing price of $35.80 per share during the year ended December 31, 2002. The market price for our common stock could fluctuate substantially based on a variety of factors, including the following:

• future announcements concerning us, our competitors or the health care market;

• the threat of litigation or government investigation;

• changes in government regulations; and

• changes in earnings estimates by analysts.

     Furthermore, stock prices for many companies fluctuate widely for reasons that may be unrelated to their operating results. These fluctuations, coupled with changes in demand or reimbursement levels for our services and general economic, political and market conditions, could cause the market price of our common stock to decline.

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Item 2. Properties

PROPERTIES

     As of December 31, 2002, Renal Care Group operated dialysis centers in 27 states, of which 235 are located in leased facilities and 33 are owned. The following is a summary of Renal Care Group’s outpatient dialysis centers by state.

OUTPATIENT FACILITIES BY STATE

Alabama	4
Alaska	2
Arizona	28
Arkansas	10
Colorado	2
Florida	7
Idaho	1
Illinois	18
Indiana	25
Kansas	12
Kentucky	1
Louisiana	1
Michigan	5
Mississippi	33
Missouri	9
Nebraska	1
New Jersey	3
New Mexico	3
Ohio	19
Oklahoma	4
Oregon	10
Pennsylvania	11
South Carolina	3
Tennessee	5
Texas	39
Washington	10
Wisconsin	2
TOTAL	268

     Some of Renal Care Group’s centers are leased from physicians who practice at the center and who are stockholders of the Company. Renal Care Group’s leases generally have terms ranging from one to 15 years and typically contain renewal options. The size of Renal Care Group’s centers ranges from approximately 1,000 to 25,000 square feet. Renal Care Group leases office space in Nashville, Tennessee for its corporate headquarters under a lease that expires in 2009. The Company leases other office space in and around Nashville, Tennessee for certain billing and computer operations. Renal Care Group considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used.

     Expansion or relocation of Renal Care Group’s dialysis centers is subject to compliance with conditions relating to participation in the Medicare ESRD program. In states that require a certificate of need, approval of an application submitted by the Company is usually necessary for expansion of an existing dialysis center or development of a new center.

     Renal Care Group generally owns the equipment used in its outpatient centers. Renal Care Group considers its equipment generally to be in good operating condition and suitable for the purposes for which it is being used.

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Item 3. Legal Proceedings

     On August 30, 2000, 19 patients were hospitalized and one patient died shortly after becoming ill while receiving treatment at one of Renal Care Group’s dialysis centers in Youngstown, Ohio. One of the 19 hospitalized patients also died some time later.

     In March 2001, Renal Care Group was sued in Mahoning County, Ohio by one of the affected patients for injuries related to the August 30, 2000 illnesses. Additional suits have been filed, and as of December 31, 2002, a total of 11 suits were pending. The suits allege negligence, medical malpractice and product liability. Additional defendants are named in each of the suits. Additional defendants in some of the suits include the water system vendors who installed and maintained the water system in the dialysis center. Renal Care Group has denied the allegations and has filed cross-claims against the water system vendors. Renal Care Group intends to pursue these cross-claims vigorously.

These suits are styled:	Mary E. Beaumier v. Physicians Dialysis Centers, Inc., et al.
	Renee Chesney, et al. v. Physicians Dialysis Centers, Inc., et al.
	Lonnie M. Dukes v. Physicians Dialysis Centers, Inc., et al.
	Clifford Hickson v. Physicians Dialysis Centers, Inc., et al.
	Joanne Hight, et al. v. Physicians Dialysis Centers, Inc., et al.
	Andrew Kraynack, et al. v. Physicians Dialysis Centers, Inc., et al.
	Kay F. Lingo v. Physicians Dialysis Centers, Inc., et al.
	Charles J. Lowry, Sr. v. Physicians Dialysis Centers, Inc., et al.
	Lawrence Payne v. Physicians Dialysis Centers, Inc., et al.
	William E. Repasky, et al. v. Physicians Dialysis Centers, Inc., et al.
	James Thomas v. Physicians Dialysis Centers, Inc., et al.

     Additional suits arising out of these illnesses may be filed in the future. Management believes that Renal Care Group’s insurance should be adequate to cover these illnesses and does not anticipate a material adverse effect on the Company’s consolidated financial position or results of operation.

     In addition, the Company is subject to claims and suits in the ordinary course of business, including those arising from patient treatment, which claims and suits the Company believes will be covered by its liability insurance.

Item 4. Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of stockholders during the fourth quarter of 2002.

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PART II

Item 5. Market for Company’s Common Equity and Related Stockholder Matters.

PRICE RANGE OF COMMON STOCK

     The Company’s common stock was traded on the Nasdaq National Market System under the symbol “RCGI” from February 7, 1996 until November 11, 2001, at which time the Company’s common stock began trading on the New York Stock Exchange under the symbol “RCI”. The following table sets forth the quarterly high and low closing sales prices as reported on the Nasdaq National Market System and the New York Stock Exchange for the last two fiscal years.

2001	High		Low
First quarter	$	27.438	$	23.813
Second quarter	$	32.890	$	23.430
Third quarter	$	33.890	$	26.800
Fourth quarter	$	33.110	$	29.000

2002	High		Low
First quarter	$	33.650	$	28.300
Second quarter	$	35.800	$	31.150
Third quarter	$	33.650	$	27.720
Fourth quarter	$	34.010	$	30.350

HOLDERS

     As of March 1, 2003, the approximate number of registered stockholders was 183, and the Company had approximately 14,100 beneficial owners.

DIVIDEND POLICY

     Renal Care Group has never paid any cash dividend on its capital stock. Renal Care Group currently anticipates that all of its earnings will be retained to finance the growth and development of its business or to repurchase common stock. Unless there are changes in United States income tax law, Renal Care Group does not anticipate that any cash dividend will be declared or paid on the common stock in the foreseeable future. Any future declaration of dividends will be subject to the discretion of Renal Care Group’s Board of Directors and its review of Renal Care Group’s earnings, financial condition, capital requirements and surplus, contractual restrictions to pay such dividends and other factors the Board of Directors deems relevant.

SALES OF UNREGISTERED SECURITIES

     There were no sales of unregistered securities during the year ended December 31, 2002.

Securities Authorized for Issuance Under Equity Compensation Plans (share amounts in thousands)

     The following table summarizes our equity compensation plans as of December 31, 2002:

					Number of Shares
					Remaining Available
	Number of Shares to		Weighted-Average		For Future Issuance
	Be Issued Upon		Exercise Price of		Under Equity
	Exercise of		Outstanding		Compensation Plans
	Outstanding		Options,		(Excluding
	Options, Warrants		Warrants and		Securities Reflected
	And Rights		Rights		In Column (a))
Plan Category(1)	(a)		(b)		(c)
Equity compensation plans approved by Stockholders		6,404	$	22.43		577
Equity compensation plans not approved by Stockholders(2)		617	$	13.85		—
Total		7,021	$	21.54		577

     (1) Renal Care Group currently has three option plans that were assumed in connection with a merger, acquisition or other transaction. The first such plan was adopted by Renal Disease Management by Physicians, Inc. (“RDM”) in 1997 under which there are 14 options issued and outstanding to purchase shares at a weighted average exercise price of $18.18. The second plan was adopted by Dialysis Centers of America, Inc. (“DCA”) in 1995 under which there are 17 options issued and outstanding to purchase shares at a weighted average exercise price of $25.58. The third plan was adopted in 1994 and there are 8 options issued and outstanding under such plan to purchase shares at a weighted average exercise price of $3.33.

     (2) These options were issued outside of our existing stock option plans to certain employees, officers, directors, and other key persons. These options vest over various periods of up to five years and have a term of ten years from the date of issuance.

27

Item 6. Selected Financial Data

     The selected financial data for the years ended December 31, 1998, 1999, 2000, 2001 and 2002 are derived from the audited consolidated financial statements of the Company and its subsidiaries. The consolidated financial statements and related notes to Consolidated Financial Statements for the years ended December 31, 2000, 2001 and 2002, together with the related Report of Independent Auditors are included elsewhere in this annual report on Form 10-K. Please read the following data in conjunction with the financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that appear elsewhere in this annual report on Form 10-K.

Selected Financial Data
(in thousands, except per share data)

	Year Ended December 31,
	1998		1999		2000		2001		2002
INCOME STATEMENT DATA:
Net revenue	$	441,063	$	541,895	$	622,575	$	755,082	$	903,387
Patient care costs		292,113		351,367		402,009		489,271		589,696
General and administrative expenses		43,894		51,315		57,104		64,530		78,079
Provision for doubtful accounts		13,484		14,632		16,949		20,290		23,501
Depreciation and amortization		22,241		27,835		32,321		38,945		40,432
Restructuring charge		—		—		9,235		—		—
Merger expenses		1,000		4,300		3,766		—		—
Total operating costs and expenses		372,732		449,449		521,384		613,036		731,708
Income from operations		68,331		92,446		101,191		142,046		171,679
Interest expense, net		6,558		6,224		5,015		2,636		1,140
Income before income taxes and minority interest		61,773		86,222		96,176		139,410		170,539
Minority interest		3,492		7,768		10,011		15,478		21,410
Income before income taxes		58,281		78,454		86,165		123,932		149,129
Provision for income taxes		21,601		31,367		34,706		47,331		56,669
Net income	$	36,680	$	47,087	$	51,459	$	76,601	$	92,460
Basic net income per share	$	0.84	$	1.05	$	1.12	$	1.59	$	1.89
Basic weighted average shares outstanding		43,740		45,015		46,048		48,113		48,978
Diluted net income per share	$	0.79	$	1.00	$	1.07	$	1.52	$	1.82
Diluted weighted average shares outstanding		46,367		47,052		47,948		50,433		50,767

	December 31,
	1998		1999		2000		2001		2002
BALANCE SHEET DATA:
Working capital	$	47,851	$	73,651	$	108,915	$	104,047	$	110,481
Total assets		433,687		500,906		582,672		651,049		740,123
Long-term debt		90,928		79,690		58,316		3,776		10,161
Stockholders’ equity		248,180		311,839		394,122		510,251		543,888

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed on pages 19-25 under the heading “Risk Factors.” See also the cautionary notice regarding forward-looking statements set forth at the beginning of this report.

     Please read the following discussion in conjunction with the Company’s consolidated financial statements and the related notes contained elsewhere in this annual report on Form 10-K.

Overview

     Renal Care Group provides dialysis services to patients with chronic kidney failure. As of December 31, 2002, the Company provided dialysis and ancillary services to approximately 20,500 patients through 268 outpatient dialysis centers in 27 states, in addition to providing acute dialysis services to approximately 120 hospitals.

     Renal Care Group’s net revenue has been derived primarily from the following sources:

• outpatient hemodialysis services;

• ancillary services associated with outpatient dialysis, primarily the administration of erythropoietin (also known as Epogen® or EPO) and other drugs;

• home dialysis services;

• inpatient hemodialysis services provided to acute care hospitals and skilled nursing facilities;

• laboratory services; and

• management contracts with hospital-based medical university dialysis programs.

     Most patients with end-stage renal disease receive three dialysis treatments each week in an outpatient setting. Reimbursement for these services is provided primarily by the Medicare ESRD program based on rates established by the Centers for Medicare and Medicaid Services. For the year ended December 31, 2002, approximately 57% of the Company’s net revenue was derived from reimbursement under the Medicare and Medicaid programs. Medicare reimbursement is subject to rate and other legislative changes by Congress and periodic changes in regulations, including changes that may reduce payments under the ESRD program. Congress increased the Medicare composite rate in 2000 by 1.2% and by 2.4% in 2001. Neither Congress nor CMS approved an increase in the composite rate for either 2002 or 2003.

     The Medicare composite rate applies to a designated group of outpatient dialysis services, including the dialysis treatment, supplies used for the treatment, certain laboratory tests and medications, and most of the home dialysis services provided by Renal Care Group. The Company receives separate reimbursement outside the composite rate for some other services, laboratory tests, and drugs, including specific drugs such as EPO and some physician-ordered tests provided to dialysis patients.

     If a patient has private health insurance, that patient’s dialysis is typically reimbursed at rates significantly higher than Medicare during the first 30 months of treatment. After that period Medicare becomes the primary payor. Reimbursement for dialysis services provided pursuant to a hospital contract is negotiated with the individual hospital and is usually higher than the Medicare composite rate. Because dialysis is a life-sustaining therapy to treat a chronic disease, utilization is predictable and is not subject to seasonal fluctuations.

     Renal Care Group derives a significant portion of its net revenue and net income from the administration of EPO. EPO is manufactured by a single company, Amgen Inc. In April 2002, Amgen implemented its third EPO price increase of 3.9% in as many years. This increase did not affect Renal Care Group’s results of operations in 2002 because Renal Care Group’s contract with Amgen included price protection for all of 2002. The Company’s contract with Amgen for 2003 generally provides that the Company’s 2002 pricing formula will remain in effect for 2003. As a result, the Company believes, although it can give no assurances, that it will be able to mitigate a substantial portion of the 2002 price increase in 2003.

29

Critical Accounting Policies

     The Securities and Exchange Commission has issued a financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies. In accordance with that release, management has identified the following accounting policies that it considers critical to the business of Renal Care Group. Management identified these policies based on their importance to the Consolidated Financial Statements and on the degrees of subjectivity and complexity involved in these policies. In addition to these critical policies, a summary of significant accounting policies is included in the Company’s consolidated financial statements and related notes, contained elsewhere in this annual report on Form 10-K.

Net Revenue and Contractual Provisions

     Renal Care Group recognizes revenue net of contractual provisions as services are provided. Contractual provisions represent the difference between Renal Care Group’s gross billed charges and the amount the Company expects to receive. Under the Medicare ESRD program, Medicare reimbursement rates for outpatient dialysis treatments are fixed under a composite rate structure. The composite rate applies to a designated group of outpatient dialysis services, including the dialysis treatment, supplies for the treatment, some laboratory tests and some medications. There are other drugs, laboratory tests and services that are eligible for separate reimbursement outside the composite rate. Most state Medicaid plans follow reimbursement methodologies that are similar to the Medicare program, but other payors, particularly private insurance plans and managed care payors, reimburse Renal Care Group under contractual arrangements. Each of these payor sources provides unique challenges to the process of recording contractual provisions.

     Renal Care Group has made significant investments in human resources and information systems to enable it to estimate the appropriate amount of contractual provisions as services are provided. Actual levels of reimbursement, however, are sometimes difficult to determine due to the complexity of the applicable regulations or contracts. As a result, Renal Care Group may in fact collect more or less than the amount it expects when the services are provided. In addition, regulations and contracts may be changed, making system updates and maintenance necessary for estimating net revenue accurately. As a result, management may make adjustments to the contractual provisions estimated by the system based on actual collection experience and other factors.

Provision for Doubtful Accounts

     Collecting outstanding accounts receivable is critical to Renal Care Group’s success. Renal Care Group’s primary source of collection risk is related to the portion of its gross charges for which the patient is responsible. The patients’ responsibility is typically between 15% and 20% of gross charges. The Company records its estimate of the provision for doubtful accounts in the period in which the revenue is recognized based on management’s estimate of the net collectibility of the accounts receivable. Management estimates and monitors the net collectibility of accounts receivable based upon a variety of factors, including the analysis of payor mix, subsequent collection analysis and review of detailed agings of accounts receivable. Significant changes in payor mix or business office operations of Renal Care Group could have a significant impact on Renal Care Group’s results of operations and cash flows.

30

Self-Insurance Accruals

     From time to time, Renal Care Group is subject to medical malpractice or workers compensation claims or lawsuits in the ordinary course of business. To mitigate a portion of this risk, the Company maintains insurance for malpractice claims exceeding certain individual amounts and workers compensation claims exceeding certain individual and aggregate amounts. The Company estimates the self-insured retention portion of the malpractice risks using third-party actuarial calculations that include historical claims data, demographic factors and other assumptions. Workers compensation risks are estimated by the Company using historical claims data and other assumptions. The estimated accrual for malpractice and workers compensation claims could be significantly affected if current and future occurrences differ from historical claims trends. While management monitors current claims closely and considers outcomes when estimating its insurance accruals, the complexity of the claims, the wide range of potential outcomes and changes in the legal climate often complicate the Company’s ability to make precise estimates.

Impairment of Goodwill and Long-Lived Assets

     Renal Care Group reviews goodwill, long-lived assets and identifiable intangibles for impairment at least once a year and at any other time management identifies events or changes in circumstances that indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the discounted present value of future net cash flows management expects the asset to generate. The computation of future net cash flows is often complex and includes subjective assumptions. If management determines that assets are impaired, then the impairment is equal to the amount by which the carrying amount of the assets exceeds the fair value of the assets, as determined by independent appraisals or estimates of discounted future cash flows.

Results of Operations

     The following table sets forth results of operations (in thousands) for the periods indicated and the percentage of net revenue represented by the respective financial line items:

	Year Ended December 31,
	2000				2001				2002
Net revenue	$	622,575	100.0	%	$	755,082	100.0	%	$	903,387	100.0	%
Patient care costs		402,009	64.6			489,271	64.8			589,696	65.3
General and administrative expenses		57,104	9.2			64,530	8.5			78,079	8.6
Provision for doubtful accounts		16,949	2.7			20,290	2.7			23,501	2.6
Depreciation and amortization		32,321	5.2			38,945	5.2			40,432	4.5
Restructuring charge		9,235	1.5			—	—			—	—
Merger expenses		3,766	0.6			—	—			—	—
Total operating costs and expenses		521,384	83.7			613,036	81.2			731,708	81.0
Income from operations		101,191	16.3			142,046	18.8			171,679	19.0
Interest expense, net		5,015	0.8			2,636	0.3			1,140	0.1
Minority interest		10,011	1.6			15,478	2.0			21,410	2.4
Income before income taxes		86,165	13.8			123,932	16.4			149,129	16.5
Provision for income taxes		34,706	5.6			47,331	6.3			56,669	6.3
Net income	$	51,459	8.3	%	$	76,601	10.1	%	$	92,460	10.2	%

31

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

     Net Revenue. Net revenue increased from $755.1 million for the year ended December 31, 2001 to $903.4 million for the year ended December 31, 2002, an increase of $148.3 million, or 19.6%. This increase resulted primarily from a 12.4% increase in the number of treatments performed by Renal Care Group from 2,686,181 in 2001 to 3,019,675 in 2002 and a 6.8% increase in the average patient revenue per dialysis treatment from $278 in 2001 to $297 in 2002. The growth in treatments was the result of the acquisition and development of various dialysis facilities and a 5.8% increase in same-market treatments for 2002 over 2001. The increase in revenue per treatment was largely due to a rate increase to private payors that Renal Care Group implemented in the fourth quarter of 2001 and, to a lesser extent, an increase in utilization of certain ancillary drugs.

     Patient Care Costs. Patient care costs consist of costs directly related to the care of patients, including direct labor, drugs and other medical supplies, and operational costs of facilities. Patient care costs increased from $489.3 million for the year ended December 31, 2001 to $589.7 million for the year ended December 31, 2002, an increase of 20.5%. This increase was due principally to the increase in the number of treatments performed during the period, which was reflected in corresponding increases in the use of labor, drugs and supplies. Patient care costs as a percentage of net revenue increased from 64.8% in 2001 to 65.3% in 2002. Patient care costs per treatment increased 7.1% from $182 in 2001 to $195 in 2002. The increases in patient care costs as a percentage of net revenue and patient care costs per treatment were due to increases in the price of EPO, increased labor costs to address wage pressures in many of the Company’s markets, increases in the cost of insurance, increases in self-insurance accruals, the increase in utilization of certain ancillary drugs and the increased cost of the drug Heparin following a recall by its manufacturer. Management believes that the Company will continue to face increases in the cost of EPO, insurance and self-insurance, and labor throughout 2003.

     General and Administrative Expenses. General and administrative expenses include corporate office costs and other costs not directly related to the care of patients, including facility administration, accounting, billing and information systems. General and administrative expenses increased from $64.5 million for the year ended December 31, 2001 to $78.1 million for the year ended December 31, 2002, an increase of 21.0%. General and administrative expenses as a percentage of net revenue increased from 8.5% in 2001 to 8.6% in 2002 primarily as a result of expenses incurred in connection with closing two dialysis facilities (one in Texas and one in Alabama) in 2002.

     Provision for Doubtful Accounts. Management determines the provision for doubtful accounts as a function of payor mix, billing practices and other factors. Renal Care Group reserves for doubtful accounts in the period when the revenue is recognized based on management’s estimate of the net collectibility of the accounts receivable. Management estimates the net collectibility of accounts receivable based upon a variety of factors. These factors include, but are not limited to, analyzing revenues generated from payor sources, performing subsequent collection testing and regularly reviewing detailed accounts receivable agings. Management makes adjustments to the allowance for doubtful accounts as necessary based on the results of management’s reviews of the net collectibility of accounts receivable. The provision for doubtful accounts increased from $20.3 million in 2001 to $23.5 million in 2002, an increase of $3.2 million, or 15.8%. The provision for doubtful accounts as a percentage of net revenue decreased slightly from 2.7% in 2001 to 2.6% in 2002 as a result of improved collection efforts.

     Depreciation and Amortization. Depreciation and amortization increased from $38.9 million for the year ended December 31, 2001 to $40.4 million for the year ended December 31, 2002, an increase of 3.8%. This increase was due to the start-up of dialysis facilities, the normal replacement costs of dialysis facilities and equipment, the purchase of information systems and the amortization of separately identifiable intangible assets associated with acquisitions. Depreciation and amortization as a percentage of net revenue decreased from 5.2% in 2001 to 4.5% in 2002, primarily as a result of the implementation of SFAS No. 142, under which the Company stopped amortizing goodwill effective January 1, 2002. For 2001, the Company recorded goodwill amortization of $6.4 million.

     Income from Operations. Income from operations increased from $142.0 million for the year ended December 31, 2001 to $171.7 million for the year ended December 31, 2002, an increase of 20.9%. Income from operations as a percentage of net revenue increased from 18.8% in 2001 to 19.0% in 2002 principally as a result of the factors discussed above.

32

     Interest Expense, Net. Interest expense decreased from $2.6 million for the year-ended December 31, 2001 to $1.1 million for the year ended December 31, 2002. This decrease was principally the result of lower average borrowings in 2002, partially offset by costs incurred when the Company restructured its lines of credit in 2002.

     Minority Interest. Minority interest represents the proportionate equity interest of other owners of the Company’s consolidated entities that are not wholly owned whose financial results are included in the Company’s consolidated results. Minority interest as a percentage of net revenue increased to 2.4% in 2002 from 2.0% in 2001. This increase was the result of continued financial improvements of Renal Care Group’s larger joint ventures, primarily those in Ohio, Oregon and Washington, as well as an increase in the number of facilities operated as joint ventures.

     Provision for Income Taxes. Income tax expense increased from $47.3 million in 2001 to $56.7 million in 2002, an increase of $9.3 million or 19.7%. The increase is a result of pre-tax earnings increasing by 20.3%. The Company’s effective tax rate decreased from 38.2% in 2001 to 38.0% in 2002. This decrease was primarily the result of eliminating goodwill amortization for financial reporting purposes as required by SFAS No. 142 while goodwill continued to be amortized for income tax purposes.

     Net Income. Net income increased from $76.6 million in 2001 to $92.5 million in 2002, an increase of $15.9 million or 20.7%. This increase was a result of the items discussed above.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Net Revenue. Net revenue increased from $622.6 million for the year ended December 31, 2000 to $755.1 million for the year ended December 31, 2001, an increase of $132.5 million, or 21.3%. This increase resulted primarily from an 11.1% increase in the number of treatments from 2,418,619 in 2000 to 2,686,181 in 2001 and a 10.8% increase in the average patient revenue per dialysis treatment from $251 in 2000 to $278 in 2001. The growth in treatments was the result of the acquisition and development of various dialysis facilities and a 5.4% increase in same-center treatments for 2001 over 2000. The increase in revenue per treatment was generally due to the implementation of price increases to commercial payors implemented beginning in the fourth quarter of 2000, a stronger payor mix in two businesses acquired in the fourth quarter of 2000, the effect of the 2.4% increase in the Medicare ESRD composite rate and increases in the utilization of certain drugs.

     Patient Care Costs. Patient care costs consist of costs directly related to the care of patients, including direct labor, drugs and other medical supplies, and operational costs of facilities. Patient care costs increased from $402.0 million for the year ended December 31, 2000 to $489.3 million for the year ended December 31, 2001, an increase of 21.7%. This increase was due principally to the increase in the number of treatments performed during the period, which was reflected in corresponding increases in the use of labor, drugs and supplies. Patient care costs as a percentage of net revenue increased from 64.6% in 2000 to 64.8% in 2001. Patient care costs per treatment increased 9.6% from $166 in 2000 to $182 in 2001. The increases in patient care costs as a percentage of net revenue and patient care costs per treatment were due to increased labor costs to address wage pressures in many of the Company’s markets, the increase in the cost of EPO, the increase in the utilization of certain drugs and generally higher patient care costs in two businesses acquired in the fourth quarter of 2000.

     General and Administrative Expenses. General and administrative expenses include corporate office costs and other costs not directly related to the care of patients, including facility administration, accounting, billing and information systems. General and administrative expenses increased from $57.1 million for the year ended December 31, 2000 to $64.5 million for the year ended December 31, 2001, an increase of 13.0%. General and administrative expenses as a percentage of net revenue decreased from 9.2% in 2000 to 8.5% in 2001, primarily as the result of leveraging general and administrative costs over a larger base of business as acquisitions have been integrated without a corresponding increase in general and administrative expense.

     Provision for Doubtful Accounts. Management determines the provision for doubtful accounts as a function of payor mix, billing practices and other factors. Renal Care Group reserves for doubtful accounts in the period when the revenue is recognized based on management’s estimate of the net collectibility of the accounts receivable. Management estimates the net collectibility of accounts receivable based upon a variety of factors. These factors include, but are not limited to, analyzing revenues generated from payor sources, performing subsequent collection testing and regularly reviewing detailed accounts receivable agings. The provision for doubtful accounts increased from $16.9 million in 2000 to $20.3 million in 2001, an increase

33

of $3.3 million, or 19.7%. The provision for doubtful accounts as a percentage of net revenue remained consistent at 2.7% in both 2000 and 2001.

     Depreciation and Amortization. Depreciation and amortization increased from $32.3 million for the year ended December 31, 2000 to $38.9 million for the year ended December 31, 2001, an increase of 20.5%. This increase was due to the start-up of dialysis facilities, the normal replacement costs of dialysis facilities and equipment, the purchase of information systems and the amortization of the goodwill and other intangible assets associated with acquisitions closed prior to June 30, 2001, that were accounted for as purchases.

     Restructuring Charge. The Company recorded a restructuring charge of $9.2 million during 2000. The charge resulted from the Company’s decision to cease providing wound care services and to focus on its core dialysis business. The restructuring charge principally represented impairment charges for goodwill and property and equipment associated with the wound care business along with anticipated severance costs, contract termination costs and other associated charges. During the second quarter of 2001, the Company sold some of the assets and transferred some of the liabilities associated with the wound care business in a transaction with a third party. Proceeds from this transaction equaled the net book value of the assets sold less liabilities transferred; accordingly, no gain or loss was recognized in 2001.

     Merger Expenses. Merger expenses of $3.8 million for the year ended December 31, 2000, represent legal, accounting and employee severance costs and related benefits and other costs associated with the assimilation and transition of the merger with Renal Disease Management by Physicians, Inc.

     Income from Operations. Income from operations increased from $101.2 million for the year ended December 31, 2000 to $142.0 million for the year ended December 31, 2001, an increase of 40.4%. Income from operations as a percentage of net revenue increased from 16.3% in 2000 to 18.8% in 2001 principally as a result of the factors discussed above.

     Interest Expense, Net. Interest expense of $2.6 million for the year-ended December 31, 2001 decreased $2.4 million compared to $5.0 million for the year ended December 31, 2000. The decrease was the result of lower average borrowings as the Company successfully repaid all amounts due under its outstanding line of credit, which amounts were $54.0 million at the beginning of the year.

     Minority Interest. Minority interest represents the proportionate equity interest of other owners of the Company’s consolidated entities that are not wholly owned whose financial results are included in the Company’s consolidated results. Minority interest as a percentage of net revenue increased to 2.0% in 2001 from 1.6% in 2000. This increase was the result of the continued expansion of the operations of Renal Care Group’s joint ventures, primarily those in Ohio, Washington and Oregon, as well as an increase in the number of facilities operated as joint ventures.

     Provision for Income Taxes. Income tax expense increased from $34.7 million in 2000 to $47.3 million in 2001, an increase of $12.6 million or 36.4%. The increase is a result of pre-tax earnings increasing by 43.8%. The Company’s effective tax rate decreased from 40.3% in 2000 to 38.2% in the current year. This decrease is primarily the result of certain non-deductible costs in 2000 that resulted from the restructuring charge described above and certain non-deductible merger costs incurred in 2000.

     Net Income. Net income increased from $51.5 million in 2000 to $76.6 million in 2001, an increase of $25.1 million or 48.9%. This increase was a result of the items discussed above.

Liquidity and Capital Resources

     Renal Care Group requires capital primarily to acquire and develop dialysis centers, to purchase property and equipment for existing centers, to repurchase shares of its common stock and to finance working capital needs. At December 31, 2002, the Company’s working capital was $110.5 million; cash and cash equivalents were $38.4 million; and the Company’s current ratio was 1.8 to 1.0. Renal Care Group’s working capital increased during the year primarily as a result of the increase in operating cash flows.

34

     Net cash provided by operating activities was $168.6 million for the year ended December 31, 2002. Cash provided by operating activities consists of net income before depreciation and amortization expense, adjusted for changes in components of working capital, primarily accounts receivable. Cash provided by operating activities was favorably affected in 2002 by the resolution of Medicare provider number issues related to certain facilities acquired in 2001. Net cash used in investing activities was $97.4 million for the year ended December 31, 2002. Cash used in investing activities consisted primarily of $61.6 million of purchases of property and equipment and $40.5 million of cash paid for acquisitions, net of cash acquired. Net cash used in financing activities was $60.3 million for the year ended December 31, 2002. Cash used in financing activities primarily reflects repurchases of Renal Care Group common stock of $90.9 million, partially offset by $7.4 million in net borrowings under the Company’s line of credit and $22.2 million in net proceeds from the issuance of common stock as stock options were exercised.

     Effective July 1, 2002, Renal Care Group entered into two credit agreements with a group of banks totaling $150.0 million and consisting of a $100.0 million Second Amended and Restated Loan Agreement (the “Multi-Year Facility”) and a $50.0 Loan Agreement (the “364-day Facility”). The Multi-Year Facility has a final maturity of July 1, 2005 and the 364-day Facility has a final maturity of June 30, 2003. The Multi-Year Facility replaced the Company’s First Amended and Restated Loan Agreement. Borrowings under the credit agreements may be used for acquisitions, capital expenditures, working capital and general corporate purposes. These variable rate debt instruments carry a degree of interest rate risk. Specifically, variable rate debt may result in higher costs to the Company if interest rates rise.

     Each of Renal Care Group’s wholly-owned subsidiaries has guaranteed all of Renal Care Group’s obligations under the loan agreements. Further, Renal Care Group’s obligations under the loan agreements, and the obligations of each of its subsidiaries under its guaranty, are secured by a pledge of the equity interests held by Renal Care Group in each of the subsidiaries. Financial covenants are customary based on the amount and duration of these commitments.

     A significant component of Renal Care Group’s growth strategy is the acquisition and development of dialysis facilities. There can be no assurance that Renal Care Group will be able to identify suitable acquisition candidates or to close acquisition transactions with them on acceptable terms. Management believes that existing cash and funds from operations, together with funds available under existing credit facilities, will be sufficient to meet Renal Care Group’s acquisition, expansion, capital expenditure and working capital needs for the foreseeable future. However, in order to finance large strategic acquisition opportunities, Renal Care Group may need to incur additional short and long-term bank indebtedness or to issue equity or debt securities. The availability and terms of any future financing will depend on market and other conditions. There can be no assurance that any additional financing, if needed, will be available on terms acceptable to Renal Care Group.

     Capital expenditures of between $65.0 million and $75.0 million, primarily for equipment replacement, expansion of existing dialysis facilities and construction of de novo facilities are planned in 2003. The Company expects that these capital expenditures will be funded with cash provided by operating activities and the Company’s existing credit facilities. Management believes that capital resources available to Renal Care Group will be sufficient to meet the needs of its business, both on a short- and long-term basis.

     Management, from time to time, determines the appropriateness of repurchasing its common stock in accordance with a repurchase plan initially authorized by the Board of Directors in October 2000. In the fourth quarter of 2001, Renal Care Group began repurchasing shares of its common stock by purchasing 100,000 shares of common stock for approximately $3.1 million. In the first and second quarters of 2002, Renal Care Group repurchased 700,000 shares of common stock for approximately $22.2 million. In November 2002, the Company announced that its Board of Directors had approved an increase in the repurchase plan to allow the purchase of up to a total of $200.0 million. In the third and fourth quarters of 2002, the Company repurchased 2.2 million shares of common stock for approximately $68.7 million. Through December 31, 2002, the Company had repurchased an aggregate of 3.0 million shares under the plan, for a total of approximately $94.0 million. As of March 11, 2003, the Company had repurchased approximately 152,000 additional shares of common stock for approximately $4.4 million subsequent to year end.

     The Securities and Exchange Commission has issued a financial reporting release, FR-61, Commission Statement about Management’s Discussion and Analysis of Financial Condition and Results of Operations. This release encourages public companies to give investors additional information about funds that will be required to operate its business in the future under agreements that are in place today. In accordance with FR-61, the following table gives information about the Company’s existing contractual obligations. At December 31, 2002, Renal Care Group had no significant contingent commitments.

35

	Payments Due by Period (in thousands)
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		After 5 years
Long-Term Obligations:
Capital leases and long-term debt	$	10,294	$	133	$	7,736	$	213	$	2,212
Operating leases		177,657		24,892		43,199		35,953		73,613
Medical director fee obligations		82,919		16,394		26,853		19,141		20,531
Total contractual cash obligations	$	270,870	$	41,419	$	77,788	$	55,307	$	96,356

Newly Issued Accounting Standards

     On June 29, 2001, the Financial Accounting Standards Board (“FASB”) approved the issuance of Statements of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”), and No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). SFAS No. 141 eliminated the pooling-of-interests method of accounting for all business combinations except those initiated prior to July 1, 2001. Additionally, this statement changed the criteria for recognizing intangible assets apart from goodwill. SFAS No. 142 superseded APB Opinion No. 17, Intangible Assets, which previously required goodwill and intangible assets be amortized over a life not to exceed 40 years. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized but reviewed at least annually for impairment. Separable intangible assets with finite lives are amortized over their useful lives. SFAS No. 142 does not impose a limit on the useful lives of separable intangible assets. Following the Company’s adoption of SFAS No. 142 on January 1, 2002, the provisions of SFAS No. 142 apply to all goodwill and intangible assets acquired by the Company. During 2002, the Company completed its transitional impairment test and identified no impairments. The Company also completed its first annual impairment test as of September 30, 2002 and identified no impairments.

     In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (“SFAS No. 121”), and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 removes goodwill from its scope and clarifies other implementation issues related to SFAS No. 121. SFAS No. 144 also provides a single framework for evaluating long-lived assets to be disposed of by sale. Renal Care Group adopted the provisions of SFAS No. 144 during 2002, which did not have a significant effect on our consolidated financial position or results of operations.

     In December 2002, the FASB issued Statement of Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“SFAS No. 148”), which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative methods for Companies electing to implement the fair-value based method of accounting for stock-based employee compensation. The Statement also requires that certain disclosures be made in both annual and interim financial statements about the method of accounting and the related effect of the method used on reported results. The Company has adopted the disclosure requirements of SFAS No. 148 and SFAS No. 123, and accounts for its stock option plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and does not utilize the fair-value method.

Impact of Inflation

     A substantial portion of Renal Care Group’s net revenue is subject to reimbursement rates that are regulated by the federal government and do not automatically adjust for inflation. Renal Care Group is unable to increase the amount it receives for the services provided by its dialysis business that are reimbursed under or by reference to the Medicare composite rate.

36

Increased operating costs due to inflation, such as labor and supply costs (including the cost of EPO), without a corresponding increase in reimbursement rates, may adversely affect Renal Care Group’s results of operations, financial condition and business.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

     Renal Care Group maintains all cash in United States dollars in highly liquid, interest-bearing, investment grade instruments with maturities of less than three months, which the Company considers cash equivalents; therefore, the Company has no “market risk sensitive instruments,” and no disclosure is required under this Item.

Item 8. Financial Statements and Supplementary Data

     The Consolidated Financial Statements and financial statement schedule in Part IV, Item 15(a) (1) and (2) of the report are incorporated by reference into this Item 8.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

37

PART III

Item 10. Directors and Executive Officers of the Company

     The information required by this item will appear in, and is incorporated by reference from, the sections entitled “Proposals for Stockholder Action - Proposal 1. Election of Directors” and “Management — Directors and Executive Officers” included in the Company’s definitive Proxy Statement relating to the 2003 Annual Meeting of Stockholders.

Item 11. Executive Compensation

     The information required by this item will appear in the section entitled “Executive Compensation” included in the Company’s definitive Proxy Statement relating to the 2003 Annual Meeting of Stockholders, which information, other than the Compensation Committee Report and Performance Graph required by Items 402(k) and (l) of Regulation S-K, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information required by this item will appear in, and is incorporated by reference from, the section entitled “Security Ownership of Directors, Officers and Principal Stockholders” included in the Company’s definitive Proxy Statement relating to the 2003 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions

     The information required by this item will appear in, and is incorporated by reference from, the sections entitled “Compensation Committee Interlocks and Insider Participation” and “Certain Relationships and Related Transactions” included in the Company’s definitive Proxy Statement relating to the 2003 Annual Meeting of Stockholders.

Item 14. Evaluation of Disclosure Controls and Procedures

     The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14 (c) and 15d-14 (c) under the Securities Exchange Act of 1934, as amended) within 90 days prior to the filing of this report and concluded, as of the date that evaluation was completed, that the Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

     There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls since the date last evaluated.

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PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)	Documents filed as part of this Report:
		Page
(1)	Consolidated Financial Statements
	Report of Independent Auditors	F-1
	Consolidated Balance Sheets at December 31, 2001 and 2002	F-2
	Consolidated Income Statements for the years ended December 31, 2000, 2001, and 2002	F-4
	Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2000, 2001, and 2002	F-5
	Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001, and 2002	F-6
	Notes to Consolidated Financial Statements	F-8
(2)	Consolidated Financial Statement Schedules
	Schedule II — Consolidated Schedule-Valuation and Qualifying Accounts	F-25
(3)	The Exhibits are listed in the Index of Exhibits Required by Item 601 of Regulation S-K included herewith, which is incorporated herein by reference.
(b)	None.

39

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Renal Care Group, Inc.

We have audited the accompanying consolidated balance sheets of Renal Care Group, Inc. as of December 31, 2001 and 2002, and the related consolidated income statements, statements of stockholders’ equity, and statements of cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Renal Care Group, Inc. at December 31, 2001 and 2002 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets.

/s/ ERNST & YOUNG LLP

Nashville, Tennessee
February 24, 2003

F-1

Renal Care Group, Inc.

Consolidated Balance Sheets

			December 31
			2001		2002
			(in thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	27,423	$	38,359
	Accounts receivable, less allowance for doubtful accounts of $45,260 in 2001 and $43,677 in 2002			127,056		152,440
	Inventories			16,292		23,336
	Prepaid expenses and other current assets			18,584		19,486
	Income taxes receivable			7,058		—
	Deferred income taxes			16,894		12,240
		Total current assets		213,307		245,861
Property, plant and equipment, net				175,925		202,972
Intangible assets, net				10,365		12,110
Goodwill				243,530		275,666
Other assets				7,922		3,514
		Total assets	$	651,049	$	740,123

See accompanying notes to consolidated financial statements.

F-2

Renal Care Group, Inc.

Consolidated Balance Sheets

			December 31
			2001			2002
			(in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	28,198		$	33,655
	Accrued compensation			32,048			32,066
	Due to third-party payors			27,699			32,611
	Income taxes payable			—			1,423
	Accrued expenses and other current liabilities			20,589			35,492
	Current portion of long-term debt			726			133
		Total current liabilities		109,260			135,380
Long-term debt, net of current portion				3,776			10,161
Deferred income taxes				12,728			19,288
Minority interest				15,034			31,406
		Total liabilities		140,798			196,235
Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $0.01 par value, 10,000 shares authorized, none issued			—			—
	Common stock, $0.01 par value, 90,000 shares authorized, 49,597 and 51,176 shares issued at December 31, 2001 and 2002, respectively			496			512
	Treasury stock, 100 and 2,983 shares of common stock at December 31, 2001 and 2002, respectively			(3,059	)		(93,953	)
Additional paid-in capital				277,300			309,355
Retained earnings				235,514			327,974
	Total stockholders’ equity			510,251			543,888
	Total liabilities and stockholders’ equity		$	651,049		$	740,123

See accompanying notes to consolidated financial statements.

F-3

Renal Care Group, Inc.

Consolidated Income Statements

				Year Ended December 31
				2000		2001		2002
				(in thousands, except per share data)
Net revenue				$	622,575	$	755,082	$	903,387
Operating costs and expenses:
	Patient care costs				402,009		489,271		589,696
	General and administrative expenses				57,104		64,530		78,079
	Provision for doubtful accounts				16,949		20,290		23,501
	Depreciation and amortization				32,321		38,945		40,432
	Restructuring charge				9,235		—		—
	Merger expenses				3,766		—		—
			Total operating costs and expenses		521,384		613,036		731,708
Income from operations					101,191		142,046		171,679
Interest expense, net					5,015		2,636		1,140
		Income before income taxes and minority interest			96,176		139,410		170,539
Minority interest					10,011		15,478		21,410
		Income before income taxes			86,165		123,932		149,129
Provision for income taxes					34,706		47,331		56,669
		Net income		$	51,459	$	76,601	$	92,460
Net income per share:
	Basic			$	1.12	$	1.59	$	1.89
	Diluted			$	1.07	$	1.52	$	1.82
Weighted average shares outstanding:
	Basic				46,048		48,113		48,978
	Diluted				47,948		50,433		50,767

See accompanying notes to consolidated financial statements.

F-4

Renal Care Group, Inc.

Consolidated Statements of Stockholders’ Equity
(in thousands)

													Additional				Total
			Common Stock				Treasury Stock						Paid-In		Retained		Stockholders'
			Shares		Amount			Shares		Amount			Capital		Earnings		Equity
Balance at December 31, 1999				45,320	$	453			—	$	—		$	203,932	$	107,454	$	311,839
	Net income			—		—			—		—			—		51,459		51,459
		Common stock issued and related income tax benefit		1,767		18			—		—			30,806		—		30,824
Balance at December 31, 2000				47,087		471			—		—			234,738		158,913		394,122
		Net income		—		—			—		—			—		76,601		76,601
		Common stock issued and related income tax benefit		2,510		25			—		—			42,562		—		42,587
		Repurchase of common stock held in treasury		—		—			100		(3,059	)		—		—		(3,059	)
Balance at December 31, 2001				49,597		496			100		(3,059	)		277,300		235,514		510,251
		Net income		—		—			—		—			—		92,460		92,460
		Common stock issued and related income tax benefit		1,579		16			—		—			32,055		—		32,071
		Repurchase of common stock held in treasury		—		—			2,883		(90,894	)		—		—		(90,894	)
Balance at December 31, 2002				51,176	$	512			2,983	$	(93,953	)	$	309,355	$	327,974	$	543,888

See accompanying notes to consolidated financial statements.

F-5

Renal Care Group, Inc.

Consolidated Statements of Cash Flows

				Year Ended December 31
				2000			2001			2002
							(in thousands)
OPERATING ACTIVITIES
Net income				$	51,459		$	76,601		$	92,460
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				32,321			38,945			40,432
	Loss on sale of property and equipment				567			1,266			1,167
	Income applicable to minority interest				10,011			15,478			21,410
	Distributions to minority shareholders				(7,333	)		(16,446	)		(7,934	)
	Deferred income taxes				2,016			1,488			11,214
	Loss from restructuring				9,235			—			—
	Changes in operating assets and liabilities, net of effects from acquisitions:
		Accounts receivable			(20,863	)		(4,240	)		(23,814	)
		Inventories			113			(2,832	)		(6,587	)
		Prepaid expenses and other current assets			(5,757	)		604			(902	)
		Accounts payable			3,500			2,247			5,369
		Accrued compensation			9,898			2,625			18
		Due to third-party payors			4,773			649			4,712
		Accrued expenses and other current liabilities			(2,749	)		5,168			12,747
		Income taxes			2,510			11,648			18,331
			Net cash provided by operating activities		89,701			133,201			168,623
INVESTING ACTIVITIES
Proceeds from sale of property and equipment					4,390			1,078			218
Purchases of property and equipment					(45,741	)		(65,672	)		(61,551	)
Cash paid for acquisitions, net of cash acquired					(28,063	)		(38,403	)		(40,495	)
(Decrease) increase in other assets					(331	)		(4,415	)		4,408
			Net cash used in investing activities		(69,745	)		(107,412	)		(97,420	)
FINANCING ACTIVITIES
Net (payments) borrowings under line of credit					(20,229	)		(54,000	)		7,394
Payments on long-term debt					(13,207	)		(516	)		(1,884	)
Proceeds from issuance of long-term debt					2,879			—			—
Net proceeds from issuance of common stock					24,399			29,307			22,221
Repurchase of treasury shares					—			(3,059	)		(90,894	)
Proceeds from sale of minority interest investment					—			—			2,896
		Net cash used in financing activities			(6,158	)		(28,268	)		(60,267	)
Increase (decrease) in cash and cash equivalents					13,798			(2,479	)		10,936
Cash and cash equivalents, at beginning of year					16,104			29,902			27,423
Cash and cash equivalents, at end of year				$	29,902		$	27,423		$	38,359

See accompanying notes to consolidated financial statements.

F-6

Renal Care Group, Inc.
Consolidated Statements of Cash Flows

			Year Ended December 31
			2000		2001		2002
					(in thousands)
DISCLOSURES OF CASH FLOW INFORMATION:
	Cash paid during the year for:
		Interest	$	5,237	$	2,520	$	782
		Income taxes	$	32,768	$	48,963	$	27,126
DISCLOSURES OF BUSINESS ACQUISITIONS:
	Fair value of assets acquired		$	29,721	$	39,108	$	41,478
	Liabilities assumed			1,658		705		983
		Cash paid for acquisitions, net of cash acquired	$	28,063	$	38,403	$	40,495

See accompanying notes to consolidated financial statements.

F-7

Renal Care Group, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

December 31, 2002

1.     ORGANIZATION

Renal Care Group, Inc. (the “Company”) provides dialysis services to patients with chronic kidney failure, also known as end-stage renal disease (“ESRD”). As of December 31, 2002, the Company provided dialysis and ancillary services to approximately 20,500 patients through 268 outpatient dialysis centers in 27 states. In addition to its outpatient dialysis center operations, as of December 31, 2002, the Company provided acute dialysis services through contractual relationships with approximately 120 hospitals.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiaries and joint venture entities over which the Company exercises majority-voting control and for which control is other than temporary. All significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. The Company places its cash in financial institutions that are federally insured and limits the amount of credit exposure with any one financial institution.

Inventories

Inventories consist of drugs, supplies and parts consumed in dialysis treatments and are stated at the lower of cost or market. Cost is determined using either the first-in, first-out method or the average cost method.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is calculated on the straight-line method over the useful lives of the related assets, ranging from 3 to 40 years. Leasehold improvements are amortized using the straight-line method over the shorter of the related lease terms or the useful lives.

Goodwill and Other Intangibles

Effective June 29, 2001, the Financial Accounting Standards Board approved Statements of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”) and No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). SFAS No. 141 changed the criteria to recognize intangible assets apart from goodwill. The Company adopted SFAS No. 142 on January 1, 2002. The Company has complied with the transitional requirements of this statement and accordingly during 2001, the Company did not amortize goodwill or intangible assets with indefinite lives acquired after June 30, 2001. During

F-8

2001, the Company did amortize all goodwill and intangibles acquired prior to July 1, 2001 in accordance with APB Opinion No. 16, Business Combinations. During 2002, the Company did not amortize any goodwill or intangibles with indefinite lives in accordance with SFAS No. 142.

As of December 31, 2001 and 2002, the carrying amount of goodwill was $243,530 and $275,666, respectively. Goodwill acquired prior to July 1, 2001, was determined based on the criteria defined in APB Opinion No. 16, Business Combinations. Goodwill acquired after June 30, 2001 was recognized in accordance with criteria established in SFAS No. 141. During 2001, goodwill and non-competition agreements acquired prior to July 1, 2001, were amortized on a straight-line basis over a period of 40 years and the lives of the agreements, respectively. These amortization periods equated to a blended average of 35 years. Also during 2001 separable intangible assets with finite lives, such as non-competition agreements, acquired after June 30, 2001 were amortized over the estimated useful life of such assets. During 2002 separable intangible assets with definite lives, such as non-competition agreements and acute dialysis services agreements were amortized over the estimated useful lives of such assets.

Due to Third-Party Payors

Amounts reflected as due to third-party payors include amounts received in excess of revenue recognized for specific billed charges. These amounts are commonly referred to as overpayments. Overpayments received from federally funded programs are reported to the federal program in accordance with the program’s established procedures. The amounts remain in due to third-party payors until either a refund is made or until the amount is recouped by the federal payor. For overpayments received from non-federally funded payors, the Company uses various procedures to communicate and refund such amounts to the respective payor. Similar to the federally funded overpayments, these amounts remain in due to third-party payors until either a refund is made or the amount is recouped by the payor.

Minority Interest

Minority interest represents the proportionate equity interest of other owners in the Company’s consolidated entities that are not wholly owned. As of December 31, 2002, the Company was the majority and controlling owner in 39 joint ventures.

Stock Based Compensation

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (“SFAS No. 148”), which amended SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. SFAS No. 148 is effective for financial statements issued for fiscal years ending after December 15, 2002, and interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has elected to account for its stock-based compensation plans under the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees, and does not utilize the fair value method. However, the Company has adopted the disclosure requirements of SFAS No. 123, and has adopted the additional disclosure requirements as specified in SFAS No. 148 for the year-ended December 31, 2002.

Net Revenue

Net revenue is recognized as services are provided at the estimated net realizable amount from Medicare, Medicaid, commercial insurers and other third-party payors. The Company’s net revenue is largely derived from the following sources:

• Outpatient hemodialysis;

• Ancillary services associated with outpatient dialysis, primarily the administration of erythropoietin (EPO) and other drugs;

F-9

• Home dialysis services;

• Inpatient hemodialysis services provided to acute care hospitals and skilled nursing facilities;

• Laboratory services; and

• Management contracts with hospital-based medical university dialysis programs.

The Medicare and Medicaid programs, along with certain third-party payors, reimburse the Company at amounts that are different from the Company’s established rates. Contractual adjustments represent the difference between the amounts billed for these services and the amounts that are reimbursable by third-party payors. A summary of the basis for reimbursement with these payors follows:

Medicare

The Company is reimbursed by the Medicare program predominantly on a prospective payment system for dialysis services. Under the prospective payment system, each facility receives a composite rate per treatment. The composite rate differs among facilities to account for geographic differences in the cost of labor. Some drugs and other ancillary services are reimbursed on a fee for service basis.

Medicaid

Medicaid is a state-administered program with reimbursements varying by state. The Medicaid programs are separately administered in each state in which the Company operates, and they reimburse the Company predominantly on a prospective payment system for dialysis services rendered.

Other

Payments from commercial insurers, other third-party payors and patients are received pursuant to a variety of reimbursement arrangements. Generally payments from commercial insurers and other third-party payors are greater than those received from the Medicare and Medicaid programs.

Reimbursements from Medicare and Medicaid approximated 58%, 55% and 57% of net revenue for the years ended December 31, 2000, 2001 and 2002, respectively.

Provision for Doubtful Accounts

The provision for doubtful accounts is determined as a function of payor mix, billing practices, and other factors. The Company reserves for doubtful accounts in the period in which the revenue is recognized based on management’s estimate of the net collectibility of the accounts receivable. Management estimates and monitors the net collectibility of accounts receivable based upon a variety of factors. These factors include, but are not limited to, analyzing revenues generated from payor sources, performing subsequent collection testing and regularly reviewing detailed accounts receivable agings.

Income Taxes

The Company accounts for income taxes under the asset and liability method. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date for the change.

F-10

Self Insurance

The Company is subject to medical malpractice and workers compensation claims or lawsuits in the ordinary course of business. Accordingly, the Company maintains insurance for malpractice claims exceeding certain individual amounts. Similarly, the Company maintains workers compensation insurance for claims exceeding certain individual and aggregate amounts. The Company estimates its self-insured retention portion of the malpractice risks using third party actuarial calculations that include historical claims data, demographic factors and other assumptions. Workers compensation risks are estimated by the Company using historical claims data and other assumptions.

Fair Value of Financial Instruments

Cash and Cash Equivalents

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate fair value.

Accounts Receivable, Accounts Payable and Accrued Liabilities

The carrying amounts reported in the consolidated balance sheets for accounts receivable, accounts payable and accrued liabilities approximate fair value. Accounts receivable are generally unsecured.

Long-Term Debt

Based upon the borrowing rates currently available to the Company, the carrying amounts reported in the consolidated balance sheets for long-term debt approximate fair value.

Concentration of Credit Risks

The Company’s primary concentration of credit risk exists within accounts receivable, which consist of amounts owed by various governmental agencies, insurance companies and private patients. Receivables from Medicare and Medicaid represented 45% of gross accounts receivable at December 31, 2001 and 2002. Concentration of credit risk relating to accounts receivable is limited to some extent by the diversity of the number of patients and payors and the geographic dispersion of the Company’s operations.

The Company administers EPO to most of its patients to treat anemia, a medical complication frequently experienced by dialysis patients. Revenue from the administration of EPO was 26% of the net revenue of the Company for the year ended December 31, 2000, 25% of the net revenue of the Company for the year ended December 31, 2001 and 23% of the net revenue of the Company for the year ended December 31, 2002. EPO is produced by a single manufacturer.

Impairment of Goodwill and Long-Lived Assets

The Company reviews goodwill, long-lived assets and identifiable intangible assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the present value of future net cash flows expected to be generated by the assets. If assets are identified as impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets as determined by independent appraisals or estimates of discounted future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2002, in the opinion of management, there has been no impairment of goodwill, long-lived assets or identifiable intangible assets.

F-11

Reclassifications

Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications had no effect on the net results of operations as previously reported.

3.     BUSINESS ACQUISITIONS

2002 Acquisitions

During 2002, the Company completed eight acquisitions, which were accounted for under the purchase method of accounting. The combined purchase price paid in these acquisitions was $40,495 and consisted exclusively of cash. Each of the transactions involved the acquisition of assets of entities that provide care to ESRD patients through owned dialysis facilities. The acquired businesses either strengthened the Company’s existing market share within a specific geographic area or provided the Company with an entrance into a new market.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the acquisitions completed in 2002:

Accounts receivable			$	1,570
Inventory				457
Property, plant and equipment, net				3,329
Intangible assets				3,986
Goodwill				32,136
		Total assets acquired		41,478
		Total liabilities assumed		983
	Net assets acquired		$	40,495

The Company began recording the results of operations for each of these acquired businesses at the effective date of the transaction. Goodwill resulting from these transactions amounted to $32,136 and was not amortized during 2002 in accordance with the requirements of SFAS No. 142. All goodwill is expected to be deductible for tax purposes. Intangible assets typically represent the value assigned to certain contracts such as non-competition agreements and acute dialysis service agreements entered into in the transactions. These amounts are amortized over the lives of the contracts, which generally range from five to ten years.

2001 Acquisitions

During 2001, the Company completed five acquisitions, which were accounted for under the purchase method of accounting. The combined purchase price paid in these acquisitions was $38,403 and consisted exclusively of cash. Each of the transactions involved the acquisition of assets of entities that provide care to ESRD patients through owned dialysis facilities. The acquired businesses either strengthened the Company’s existing market share within a specific geographic area or provided the Company with an entrance into a new market.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all five of the acquisitions completed in 2001:

Inventory			$	579
Property, plant and equipment, net				5,629
Intangible assets				1,675
Goodwill				30,325
Other assets				900
		Total assets acquired		39,108
		Total liabilities assumed		705
	Net assets acquired		$	38,403

The Company began recording the results of operations for each of these acquired businesses at the effective date of the transaction. Three of the five transactions were completed prior to July 1, 2001 and resulted in goodwill and other intangible assets of $6,428. This goodwill and other intangible assets was amortized during 2001 using a 35-year blended useful life. The other two transactions were completed after June 30, 2001. Goodwill resulting from these transactions was $24,077 and was not amortized during 2001 in accordance with the requirements of SFAS No. 142. None of the goodwill from 2001 transactions was amortized during 2002. All goodwill is expected to be deductible for tax purposes. Intangible assets typically represent the value assigned to certain contracts such as non-competition agreements entered into in the transactions. These amounts are amortized over the lives of the contracts, which generally range from five to ten years.

F-12

2000 Acquisitions

During 2000, the Company completed three acquisitions accounted for under the purchase method of accounting. The combined purchase price paid in these transactions was $28,063, and consisted exclusively of cash. All of these transactions involved the acquisition of assets of entities that provided care to ESRD patients through owned dialysis facilities or acute in-patient dialysis services.

The Company’s three acquisitions that were accounted for under the purchase method of accounting in 2000 resulted in goodwill and other intangibles of $27,832. For reporting periods prior to 2002, goodwill and other intangibles were amortized on a straight-line basis over an average of 35 years. The Company began recording the results of operations from these acquired businesses beginning with the effective date of each transaction.

Pro Forma Data (unaudited)

The following summary, prepared on a pro forma basis, combines the results of operations of the Company and the acquired businesses, as if each of the acquisitions had been consummated as of the beginning of the year preceding the year of acquisition, giving effect to adjustments such as amortization of intangibles, interest expense and related income taxes.

		2000		2001		2002
Pro forma net revenue		$	695,952	$	794,409	$	922,091
Pro forma net income		$	55,558	$	77,492	$	92,871
Pro forma net income per share
	Basic	$	1.21	$	1.61	$	1.90
	Diluted	$	1.16	$	1.54	$	1.83

The unaudited pro forma results of operations are not necessarily indicative of what actually would have occurred if the acquisitions had been completed prior to the beginning of the periods presented.

4.     RESTRUCTURING CHARGE

During the third quarter of 2000, the Company recorded a one-time restructuring charge of $9,235 as a result of its plans to exit the wound care business. This charge consisted of early contract termination costs of $1,377, goodwill and property and equipment impairment charges of $5,973, severance costs of $1,200 and other administrative charges of $685. Management made the decision to exit this business as part of a long-term strategy to focus on its core dialysis business. Effective May 31, 2001, the Company sold some of the assets and transferred some of the liabilities associated with the wound care business in a transaction with a third party. Proceeds from this transaction equaled the net book value of the assets sold less the liabilities transferred; accordingly, no gain or loss was recognized. There were no remaining accrued expenses as of December 31, 2001 that related to this restructuring charge.

F-13

5.     PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	December 31,
	2001			2002
Medical equipment	$	102,387		$	124,347
Computer software and equipment		48,249			58,285
Furniture and fixtures		23,380			24,532
Leasehold improvements		67,072			84,807
Buildings		19,990			24,862
Construction-in-progress		12,134			10,437
		273,212			327,270
Less accumulated depreciation		(97,287	)		(124,298	)
	$	175,925		$	202,972

Depreciation expense was $24,673, $30,836 and $38,191 for the years ended December 31, 2000, 2001 and 2002, respectively.

6.     GOODWILL AND INTANGIBLE ASSETS

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which addresses the financial accounting and reporting standards for the acquisition of intangible assets and for goodwill and other intangible assets subsequent to the acquisition. This accounting standard requires the Company to disclose goodwill separately from other intangible assets in the balance sheet and provides that the Company no longer amortize goodwill. Instead, goodwill is tested for impairment on a periodic basis. The provisions of this accounting standard required the Company to complete a transitional impairment test within six months after the Company adopted this standard, with any identified impairments treated as a cumulative effect of a change in accounting principle. The Company completed its transitional and annual impairment tests and identified no impairments.

In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective January 1, 2002. A reconciliation of previously reported net income and earnings per share to the pro forma amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows:

	Year Ended
	December 31,
	2001		2002
Reported net income	$	76,601	$	92,460
Add: goodwill amortization, net of tax		3,956		—
Pro forma adjusted net income	$	80,557	$	92,460
Reported basic earnings per share	$	1.59	$	1.89
Add: goodwill amortization, net of tax		0.08		—
Pro forma adjusted basic earnings per share	$	1.67	$	1.89
Reported diluted earnings per share	$	1.52	$	1.82
Add: goodwill amortization, net of tax		0.08		—
Pro forma adjusted diluted earnings per share	$	1.60	$	1.82

F-14

Changes in the carrying amount of goodwill for the year ended December 31, 2002, are as follows:

Balance as of December 31, 2001	$	243,530
Goodwill acquired during the period		32,136
Balance as of December 31, 2002	$	275,666

     The Company’s separately identifiable intangible assets, which consist of non-competition agreements and acute dialysis services agreements, are as follows:

	December 31,
	2001			2002
Carrying Amount	$	16,090		$	20,076
Accumulated amortization		(5,725	)		(7,966	)
Net	$	10,365		$	12,110

Separately identifiable intangible assets are being amortized over their useful lives, ranging from five to ten years. Amortization expense for the year ended December 31, 2002 was approximately $2,241. Estimated amortization expense for each of the next five fiscal years is as follows:

Year ending December 31,	Amount
2003	$	2,287
2004		2,287
2005		2,287
2006		2,142
2007		1,178

7. LONG-TERM DEBT

Long-term debt consists of the following:

	December 31,
	2001		2002
Line of credit, bearing interest at LIBO rate (3.96% at December 31, 2002)	$	—	$	7,394
Equipment note payable		1,482		—
Other		3,020		2,900
		4,502		10,294
Less current portion		726		133
	$	3,776	$	10,161

Lines of Credit

Effective July 1, 2002, Renal Care Group entered into two credit agreements with a group of banks totaling $150,000 consisting of a $100,000 Second Amended and Restated Loan Agreement (the “Multi-Year Facility”) and a $50,000 Loan Agreement (the “364-day Facility”). The Multi-Year Facility has a final maturity of July 1, 2005 and the 364-day Facility has a final maturity of June 30, 2003. The Multi-Year Facility replaced the Company’s First Amended and Restated Loan Agreement. Borrowings under the credit agreements may be used for acquisitions, capital expenditures, working capital and general corporate purposes. No more than $25,000 of either credit agreement may be used for any single acquisition without the consent of the lenders. These variable rate debt instruments carry a degree of interest rate risk. Specifically, variable rate

F-15

debt may result in higher costs to the Company if interest rates rise. Each of Renal Care Group’s wholly-owned subsidiaries has guaranteed all of Renal Care Group’s obligations under the loan agreements.

Further, Renal Care Group’s obligations under the loan agreements, and the obligations of each of its subsidiaries under its guaranty, are secured by a pledge of the equity interests held by Renal Care Group in each of the subsidiaries. Financial covenants are customary based on the amount and duration of these commitments. The Company was in compliance with all such covenants at December 31, 2002. As of December 31, 2002, there was $7,394 outstanding under the Multi-Year Facility and the 364-Day Facility, and the Company had $142,606 available under these agreements.

Other

The other long-term debt consists of notes maturing at various times through April 2015.

The aggregate maturities of long-term debt at December 31, 2002 are as follows:

2003	$	133
2004		269
2005		7,467
2006		94
2007		119
Thereafter		2,212
	$	10,294

8.     INCOME TAXES

The provision for income taxes consists of the following:

		Year Ended December 31,
		2000		2001		2002
Current:
	Federal	$	30,012	$	42,002	$	40,205
	State and local		2,678		3,841		5,250
			32,690		45,843		45,455
Deferred:
	Federal		1,781		1,364		10,079
	State and local		235		124		1,135
			2,016		1,488		11,214
	Provision for income taxes	$	34,706	$	47,331	$	56,669

At December 31, 2002, the Company has net operating loss carryforwards of approximately $175,000 for state income tax purposes that expire in years 2002 through 2022, and a capital loss carryforward of approximately $2,000, which expires in 2006. The utilization of the state net operating loss carryforwards in future years is dependent upon the profitability of certain subsidiary corporations. The utilization of the capital loss carryforward requires capital gain income in the future. Therefore, the Company has recorded a valuation allowance of $6,041 against the deferred tax asset attributable to the state net operating loss carryforwards and the capital loss carryforward, which represents an increase in the valuation allowance of $2,702 in 2002.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

F-16

Components of the Company’s deferred tax liabilities and assets are as follows:

		December 31,
		2001			2002
Deferred tax assets:
	Net operating loss carryforwards	$	3,414		$	5,282
	Capital loss carryforward		—			759
	Allowance for doubtful accounts		13,745			7,258
	Accrued vacation and other accrued liabilities		6,753			9,367
	Other		—			106
	Less: Valuation allowance		(3,339	)		(6,041	)
			20,573			16,731
Deferred tax liabilities:
	Depreciation		6,128			8,572
	Amortization		8,308			12,788
	Investments in partnerships		1,705			2,419
	Other		266			—
			16,407			23,779
Net deferred tax asset (liability)		$	4,166		$	(7,048	)

The following is a reconciliation of the statutory federal and state income tax rates to the effective rates as a percentage of income before provision for income taxes as reported in the consolidated financial statements:

	Year Ended December 31,
	2000			2001			2002
U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
State income tax, net of federal income tax benefit		3.0			2.5			1.2
Increase in valuation allowances		1.0			0.1			1.8
Other		1.3			0.6			—
Effective income tax rate		40.3	%		38.2	%		38.0	%

F-17

9.     STOCKHOLDERS’ EQUITY (in thousands, except per share amounts)

Stock Option Plans

As of December 31, 2002, the Company had six stock option plans. The Company has also issued options, referred to in these financial statements as Free Standing Options outside of these plans. Options issued as Free Standing are for employees, officers, directors, and other key persons. Free Standing Options vest over various periods up to five years and have a term of ten years from the date of issuance.

Options issued under the 1999 and 1996 Employee Plans have similar terms and purposes. Specifically, options under each of these plans are available for grant to eligible employees and other key persons, the options generally vest over four to five years and have a term of ten years from the date of issuance. These plans were adopted in 1999 and 1996, and have 5,500 and 6,000 shares of common stock reserved for issuance, respectively.

Options issued under the Equity Compensation Plan (“Equity Plan”) are for eligible employees and other key persons. The options vest over periods up to three years and have a term of ten years from the date of issuance. This plan was adopted by Dialysis Centers of America, Inc. (“DCA”) in 1995, and there are 350 shares of common stock reserved for issuance. The Company merged with DCA in a pooling-of-interests transaction in February 1999.

Options issued under the 1994 Stock Option Plan (“1994 Plan”) are for directors, officers and other key persons. These options vest over four years and the options have a term of ten years from the date of issuance. This plan was adopted in 1994 and there are 720 shares of common stock reserved for issuance.

Options issued under the Directors Plan are for non-management directors. These options vest immediately and have a term of ten years from the date of issuance. The plan was adopted in 1996 and there are 225 shares of common stock reserved for issuance.

Options issued under the RDM Plan are for directors, officers, and other key persons. These options vest immediately upon grant and have a term of 5 to 10 years from the date of issuance. The plan was adopted by Renal Disease Management by Physicians, Inc. (“RDM”) in 1997, and there are 109 shares of common stock reserved for issuance. The Company merged with RDM in a pooling-of-interests transaction in April 2000.

The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, but applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plans. Therefore, compensation expense would generally be recorded only if on the date of grant the then-current market price of the underlying stock exceeded the exercise price.

F-18

The following is a summary of option transactions during the period from January 1, 1999 through December 31, 2002:

																									Weighted
					1999			1996																	Average
		Free			Employee			Employee			Equity			1994			Directors			RDM			Exercise Price		Exercise
		Standing			Plan			Plan			Plan			Plan			Plan			Plan			Range		Price
Balance at December 31, 1999			1,904			939			4,801			18			23			34			65			$3.33 – $29.50	$	15.17
	Granted		—			1,538			350			—			—			22			—			15.94 – 29.03		16.08
	Exercised		(419	)		(82	)		(1,092	)		—			(6	)		—			(39	)		3.33 – 23.25		13.66
	Forfeited		(19	)		(20	)		(202	)		—			—			—			—			8.00 – 29.03		19.11
Balance at December 31, 2000			1,466			2,375			3,857			18			17			56			26			3.33 – 29.50		15.65
	Granted		120			899			—			—			—			17			—			28.02 – 29.63		28.05
	Exercised		(686	)		(198	)		(1,113	)		(1	)		(9	)		(6	)		(6	)		3.33 – 25.58		13.39
	Forfeited		(9	)		(46	)		(54	)		—			—			—			—			8.00 – 28.02		18.07
Balance at December 31, 2001			891			3,030			2,690			17			8			67			20			3.33 – 29.63		18.27
	Granted		—			1,920			—			—			—			11			—			28.30 – 32.70		28.41
	Exercised		(273	)		(486	)		(704	)		—			—			(5	)		(6	)		3.33 – 29.63		15.23
	Forfeited		(1	)		(64	)		(55	)		—			—			—			—			14.06 – 28.39		19.12
Balance at December 31, 2002			617			4,400			1,931			17			8			73			14			$3.33 – $32.70	$	21.66
Available for grant at December 31, 2002			—			313			129			—			—			135			—
Exercisable at December 31, 2002			428			1,216			1,720			16			8			73			13				$	18.44
Exercisable at December 31, 2001			571			800			1,935			17			8			67			17
Exercisable at December 31, 2000			1,065			417			2,149			18			16			56			20

The weighted-average fair value of options granted during 2000, 2001 and 2002 is $7.71, $12.40 and $11.55, respectively.

F-19

The following table summarizes information about stock options outstanding at December 31, 2002:

							Number
	Number Outstanding		Weighted Average		Weighted		Exercisable		Weighted
Range of	as of		Remaining		Average		as of		Average
Exercise	December 31,		Contractual		Exercise		December 31,		Exercise
Price	2002		Life		Price		2002		Price
$3.33 - $15.94		2,000		5.89	$	13.54		1,290	$	12.29
$16.17 - $22.00		2,008		6.00	$	19.87		1,636	$	20.30
$22.75 - $28.38		1,100		8.29	$	27.67		368	$	27.05
$28.39 - $32.70		1,952		9.48	$	28.44		180	$	28.87
$3.33 - $32.70		7,060		7.29	$	21.66		3,474	$	18.44

Pro forma information regarding net income and net income per share is required by SFAS No. 123 and SFAS No. 148, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2000			2001			2002
Expected volatility		45.0	%		45.0	%		40.0	%
Expected dividend yield	None			None			None
Risk-free interest rate		6.25	%		3.75	%		3.75	%
Expected life of options	5 years			5 years			5 years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

F-20

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the option’s vesting period. The Company’s pro forma information follows:

		Year Ended December 31,
		2000		2001		2002
Net income, as reported		$	51,459	$	76,601	$	92,460
Pro forma stock-based employee compensation expense, net of taxes			6,304		3,870		4,508
Pro forma net income		$	45,155	$	72,731	$	87,952
Earnings per share:
	Basic – as reported	$	1.12	$	1.59	$	1.89
	Basic – pro forma	$	0.98	$	1.51	$	1.80
	Diluted – as reported	$	1.07	$	1.52	$	1.82
	Diluted – pro forma	$	0.94	$	1.44	$	1.73

The effect of applying SFAS No. 123 and SFAS No. 148 for providing pro forma disclosure is not likely to be representative of the effect on reported net income for future years.

10.     OPERATING LEASES

The Company rents office and space for its dialysis facilities under lease agreements that are classified as operating leases for financial statement purposes. At December 31, 2002, future minimum rental payments under non-cancelable operating leases with terms of one year or more consist of the following:

2003	$	24,892
2004		22,314
2005		20,885
2006		18,956
2007		16,997
Thereafter		73,613
	$	177,657

Rent expense was $19,164, $22,624 and $27,074 for the years ending December 31, 2000, 2001 and 2002, respectively.

11.     EMPLOYEE BENEFIT PLANS

Defined Contribution Plans

The Company has qualified defined contribution plans covering substantially all employees that permit participants to make voluntary contributions. The Company pays all general and administrative expenses of the plans and makes matching contributions on behalf of the employees. The Company made contributions relating to these plans totaling $1,734, $1,960 and $2,518 for the years ended December 31, 2000, 2001 and 2002, respectively.

F-21

Defined Benefit Plan

Effective January 29, 2003, the Company implemented a retirement benefit plan for its CEO. The plan includes ten annual payments of $650, each beginning in 2004, and certain health insurance and other benefits. As a result, the Company recorded a $5,376 charge representing the net present value of such payments during the first quarter of 2003.

Employee Stock Purchase Plan

Effective April 1996, the Company adopted an Employee Stock Purchase Plan (“Stock Purchase Plan”) to provide substantially all employees an opportunity to purchase shares of its common stock in amounts not to exceed 10% of eligible compensation or $25 of common stock each calendar year. Annually, the participant’s December 31 account balance is used to purchase shares of stock at the lesser of 85% of the fair market value of shares at the beginning of the year or December 31. A total of 348 shares are available for purchase under the plan. At December 31, 2001 and 2002, $1,571 and $2,347, respectively, were included in accrued wages and benefits relating to the Stock Purchase Plan.

12.     EARNINGS PER SHARE

Basic net income per share is based on the weighted average number of common shares outstanding during the periods. Diluted net income per share is based on the weighted average number of common shares outstanding during the periods plus the effect of dilutive stock options and warrants calculated using the treasury stock method.

The following table sets forth the computation of basic and diluted net income per share.

			2000		2001		2002
Numerator:
	Numerator for basic and diluted net income per share		$	51,459	$	76,601	$	92,460
Denominator:
	Denominator for basic net income per share weighted-average shares			46,048		48,113		48,978
	Effect of dilutive securities:
		Stock options		1,498		2,087		1,712
		Warrants		402		233		77
	Denominator for diluted net income per share-adjusted weighted-average shares and assumed conversions			47,948		50,433		50,767
Basic net income per share			$	1.12	$	1.59	$	1.89
Diluted net income per share			$	1.07	$	1.52	$	1.82

F-22

13.     COMMITMENTS AND CONTINGENCIES

On August 30, 2000, 19 patients were hospitalized and one patient died shortly after becoming ill while receiving treatment at one of the Company’s dialysis centers in Youngstown, Ohio. One of the 19 hospitalized patients also died some time later. In March 2001, one of the affected patients sued the Company in Mahoning County, Ohio for injuries related to the August 30, 2000 illnesses. Additional suits have been filed, and as of December 31, 2002, a total of 11 suits were pending. The suits allege negligence, medical malpractice and product liability. Additional defendants are named in each of the suits. Additional defendants in some of the suits include the water system vendors who installed and maintained the water system in the dialysis center. Renal Care Group has denied the allegations and has filed cross-claims against the water system vendors. Renal Care Group intends to pursue these cross-claims vigorously. Management believes that Renal Care Group’s insurance should be adequate to cover these illnesses and does not anticipate a material adverse effect on the Company’s consolidated financial position or results of operations.

On December 12, 2000, the Company reached an agreement in principle with the U.S. Attorney for the Southern District of Mississippi to settle claims arising out of alleged inadequacies in physician documentation related to lab tests performed by its laboratory subsidiary, RenaLab, Inc. The terms of such agreement provided that the Company pay $1,980 to the Medicare program. This amount was recorded during the fourth quarter of 2000 and was paid in January 2002, when the Company and the government finalized the terms of a corporate integrity agreement.

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations governing the Medicare and Medicaid programs. The Company is not aware of any pending or threatened investigations involving allegations of potential noncompliance with applicable laws or regulations. While no regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs.

The Company is involved in other litigation and regulatory investigations arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, these matters will be resolved without material adverse effect on the Company’s consolidated financial position or results of operations.

The Company generally engages practicing board-certified or board-eligible nephrologists to serve as medical directors for its centers. Medical directors are responsible for the administration and monitoring of the Company’s patient care policies, including patient education, administration of dialysis treatment, development programs and assessment of all patients. The Company pays medical director fees that are consistent with the fair market value of the required supervisory services. Such medical director agreements typically have a term of seven years with a three-year renewal option. As of December 31, 2002, estimated commitments for medical director fees for the year 2003 were $16.4 million and were $82.9 million over the lives of the agreements.

F-23

14.     SELECTED QUARTERLY FINANCIAL DATA (unaudited)

The following tables include, for 2001 and 2002, certain selected quarterly financial data. In the opinion of the Company’s management this unaudited information has been prepared on the same basis as the audited information and includes all adjustments necessary to present fairly the information included therein. The operating results for any quarter are not necessarily indicative of results for any future period.

		2001
		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Net revenue		$	174,778	$	183,455	$	193,149	$	203,700
Operating expenses			133,131		139,451		146,665		154,844
Depreciation and amortization			8,852		9,296		9,997		10,800
Income from operations			32,795		34,708		36,487		38,056
Interest expense, net			999		1,274		198		165
Minority interest			3,130		3,722		4,104		4,522
Income before income taxes			28,666		29,712		32,185		33,369
Provision for income taxes			10,952		11,351		12,288		12,740
Net income		$	17,714	$	18,361	$	19,897	$	20,629
Net income per share:
	Basic	$	0.37	$	0.39	$	0.41	$	0.42
	Diluted	$	0.36	$	0.37	$	0.39	$	0.40

		2002
		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Net revenue		$	206,678	$	222,169	$	231,542	$	242,998
Operating expenses			157,756		170,273		177,416		185,831
Depreciation and amortization			9,362		9,933		10,402		10,735
Income from operations			39,560		41,963		43,724		46,432
Interest expense, net			173		138		569		260
Minority interest			4,710		5,307		5,364		6,029
Income before income taxes			34,677		36,518		37,791		40,143
Provision for income taxes			13,184		13,876		14,361		15,248
Net income		$	21,493	$	22,642	$	23,430	$	24,895
Net income per share:
	Basic	$	0.43	$	0.46	$	0.48	$	0.52
	Diluted	$	0.42	$	0.44	$	0.46	$	0.50

F-24

Schedule II

Renal Care Group, Inc.
Consolidated Schedule — Valuation and Qualifying Accounts
(in thousands)

		Balance		Amount					Balance
		Beginning		Charged to					At End of
		Of Period		Expense		Write-Offs			Period
Allowances for doubtful accounts:
	Year ended December 31, 2000	$	40,876	$	16,949	$	(10,433	)	$	47,392
	Year ended December 31, 2001	$	47,392	$	20,290	$	(22,422	)	$	45,260
	Year ended December 31, 2002	$	45,260	$	23,501	$	(25,084	)	$	43,677

F-25

SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Nashville, State of Tennessee, on the 18th day of March, 2003.

	RENAL CARE GROUP, INC.
By:	/s/ Sam A. Brooks, Jr. Sam A. Brooks, Jr. Chairman of the Board, President and Chief Executive Officer

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sam A. Brooks, Jr. and R. Dirk Allison and either of them (with full power in each to act alone) as true and lawful attorneys-in-fact with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.

/s/ SAM A. BROOKS, JR. Sam A. Brooks, Jr.	Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)	March 18, 2003
/s/ R. DIRK ALLISON R. Dirk Allison	Executive Vice President, Chief Financial Officer Treasurer (Principal Financial and Accounting Officer)	March 18, 2003
/s/ JOSEPH C. HUTTS Joseph C. Hutts	Director	March 18, 2003
/s/ HARRY R. JACOBSON, M.D. Harry R. Jacobson, M.D.	Director	March 18, 2003
/s/ THOMAS A. LOWERY, M.D. Thomas A. Lowery, M.D.	Director	March 18, 2003
/s/ STEPHEN D. MCMURRAY, M.D. Stephen D. McMurray, M.D.	Director	March 18, 2003
/s/ KENNETH E. JOHNSON, JR., M.D. Kenneth E. Johnson, Jr., M.D.	Director	March 18, 2003
/s/ WILLIAM V. LAPHAM William V. Lapham	Director	March 18, 2003
/s/ WILLIAM P. JOHNSTON William P. Johnston	Director	March 18, 2003

CERTIFICATION

     I, Sam A. Brooks, Chairman, President and Chief Executive Officer of Renal Care Group, Inc., certify that:

1.	I have reviewed this annual report on Form 10-K of Renal Care Group, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
(c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

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

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

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

Date: March 18, 2003

/s/ Sam A. Brooks
Sam A. Brooks
Chairman, President and Chief Executive Officer

CERTIFICATION

     I, R. Dirk Allison, Executive Vice President and Chief Financial Officer of Renal Care Group, Inc., certify that:

1.	I have reviewed this annual report on Form 10-K of Renal Care Group, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
(c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

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

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

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

Date: March 18, 2003

/s/ R. Dirk Allison
R. Dirk Allison
Executive Vice President and
Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number	Description of Exhibits
3.1	Amended and Restated Certificate of Incorporation of the Company (1)
3.1.2	Certificate of Amendment of Certificate of Incorporation of the Company (2)
3.1.3	Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of the Company (2)
3.1.4	Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company (12)
3.2	Amended and Restated Bylaws of the Company (1)
4.1	See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Certificate of Incorporation and Bylaws of the Company defining rights of holders of Common Stock of the Company (1)
4.2	Specimen stock certificate for the Common Stock of the Company (1)
4.3	Shareholder Rights Protection Agreement, dated May 2, 1997 between the Company and First Union National Bank of North Carolina, as Rights Agent (3)
10.1	Employment Agreement, dated July 13, 2000, between the Company and Sam A. Brooks (16)*
10.2	Employment Agreement, dated October 15, 1999, between the Company and R. Dirk Allison(14)*
10.3	Employment Agreement, dated July 13, 2000, between the Company and Raymond Hakim, M.D. (16)*
10.4	Medical Director Services Agreement, dated February 12, 1996, between the Company and Kansas Nephrology Physicians, P.A. (5)
10.5	Medical Director Services Agreement, dated February 12, 1996, between the Company and Indiana Dialysis Management, P.C. (5)
10.6	Medical Director Services Agreement, dated February 12, 1996, between the Company and Tyler Dialysis & Transplant Associates, P.A. (5)
10.7	Lease Agreement, dated February 5, 1996, between the Company and MEL, Inc. relating to approximately 20,000 square feet of space (5)
10.8	Lease Agreement, dated February 12, 1996, among the Company and Thomas A. Lowery, M.D., James R. Cotton, M.D., Roy D. Gerard, M.D. and Kevin A. Curran, M.D., relating to property in Carthage, Texas (5)
10.9	Lease Agreement, dated February 12, 1996, among the Company and Thomas A. Lowery, M.D., James R. Cotton, M.D., Roy D. Gerard, M.D., and Kevin A. Curran, M.D., relating to property in Tyler, Texas (5)
10.10	Sublease Agreement between M-W-R Investment and Kansas Nephrology Associates, P.A. dated February 1, 1990, to be assumed by the Company, and related Lease Agreement between Dodge City Medical Center Building, Inc. and M-W-R Investment (1)

Exhibit
Number	Description of Exhibits
10.11	Sublease Agreement, dated February 12, 1996, with Tyler Nephrology Associates, Inc. (5)
10.12	Dialysis Center Management Agreement, effective as of July 1, 2001, between Renal Care Group, Inc. and Vanderbilt University
10.13	1996 Stock Option Plan for Outside Directors (1)*
10.14	Fourth Amended and Restated 1996 Stock Incentive Plan (6)*
10.15	Amended and Restated Employee Stock Purchase Plan (2)*
10.16	Medical Director Services Agreement, dated September 30, 1996, between the Company and a group of individual physicians (7)
10.17	Employment Agreement, dated July 13, 2000, between the Company and Gary Brukardt (16)*
10.18	First Amended and Restated Loan Agreement, dated as of August 4, 1997, among the Company, its subsidiaries and NationsBank of Tennessee, N.A. (2)
10.18.1	Second Amendment to First Amended and Restated Loan Agreement, dated as of June 23, 1999, among the Company, First American National Bank, First Union National Bank, and NationsBank, N.A., SunTrust Bank, Nashville, N.A., AmSouth Bank, and NorWest Bank Arizona, N.A. (12)
10.18.2	Third Amendment to First Amended and Restated Loan Agreement dated September 29, 2000 (16)
10.18.3	Second Amended and Restated Loan Agreement, dated as of July 1, 2002, among the Company, Bank of America, N.A., SunTrust Bank, AmSouth Bank, and Wells Fargo Bank. N.A.(21)
10.19	Stock Option Agreement, dated April 30, 1997, between the Company and Sam A. Brooks (2)*
10.20	Stock Option Agreement, dated April 30, 1997, between the Company and Gary Brukardt (2)*
10.21	Asset Purchase Agreement with an effective date of February 1, 1997 among the Company, RCG Indiana, LLC, Eastern Indiana Kidney Center, Indiana Kidney Center, Indiana Kidney Center South, LLC, St. Vincent Dialysis Center, Saint Joseph Dialysis Center and Indiana Dialysis Services PC and Community Hospitals of Indiana, Inc., Seton Health Corporation of Central Indiana, Inc., Reid Hospital & Health Care Services, Inc., and Saint Joseph Hospital and Health Care Center of Kokomo, Indiana, Inc. and Indiana Dialysis Services, PC, Reid Hospital Physicians, Greenwood Dialysis Services, PC and certain individuals named on the signature pages thereto and Indiana Nephrology & Internal Medicine, P.C. (8)
10.22	Restricted Stock Award Agreement, dated December 23, 1997, between the Company and Harry R. Jacobson, M.D. (4)*
10.23	Restricted Stock Award Agreement, dated December 23, 1997, between the Company and Sam A. Brooks (4)*
10.24	Restricted Stock Award Agreement, dated December 23, 1997, between the Company and Gary Brukardt (4)*
10.25	Restricted Stock Award Agreement, dated December 23, 1997, between the Company and Raymond Hakim, M.D. (4)*

Exhibit
Number	Description of Exhibits
10.26	Restricted Stock Award Agreement, dated December 23, 1997, between the Company and Thomas Lowery, M.D. (4)*
10.27	Restricted Stock Award Agreement, dated December 23, 1997, between the Company and Stephen D. McMurray, M.D. (4)*
10.28	Stock Option Agreement, dated May 22, 1998, between the Company and Sam A. Brooks (9)*
10.29	Stock Option Agreement, dated May 22, 1998, between the Company and Gary A. Brukardt (9)*
10.30	Stock Option Agreement, dated May 22, 1998, between the Company and Raymond Hakim, M.D. (9)*
10.31	Stock Option Agreement, dated June 5, 1998, between the Company and Joseph C. Hutts (9)*
10.32	Stock Option Agreement, dated June 5, 1998, between the Company and Harry R. Jacobson, M.D. (9)*
10.33	Agreement No. 20010240, between Renal Care Group, Inc. and Amgen Inc. effective January 2, 2002 (The Company has requested confidential treatment of certain portions of this Exhibit.)
10.34	Restricted Stock Award Agreement, dated January 25, 1999, between the Company and Sam A. Brooks (10)*
10.35	Restricted Stock Award Agreement, dated January 25, 1999, between the Company and Harry R. Jacobson (10)*
10.36	Restricted Stock Award Agreement, dated January 25, 1999, between the Company and Stephen D. McMurray (10)*
10.37	Renal Care Group, Inc. 1999 Long-Term Incentive Plan (11)*
10.37.1	Amendment to the Renal Care Group, Inc. 1999 Long-Term Incentive Plan (15)*
10.38	Stock Option Agreement, dated August 30, 1999, between the Company and Sam A. Brooks (13)*
10.39	Stock Option Agreement, dated August 30, 1999, between the Company and Gary A. Brukardt (13)*
10.40	Stock Option Agreement, dated August 30, 1999, between the Company and Raymond Hakim, M.D. (13)*
10.41	Stock Option Agreement, dated June 2, 1999, between the Company and Joseph C. Hutts (13)*
10.42	Stock Option Agreement, dated June 2, 1999, between the Company and Harry R. Jacobson, M.D. (13)*
10.43	Stock Option Agreement, dated July 22, 1999, between the Company and William V. Lapham (13)*
10.44	Stock Option Agreement, dated October 27, 1999, between the Company and R. Dirk Allison(14)*
10.45	Stock Option Agreement, dated June 8, 2000, between the Company and Joseph C. Hutts (17)*
10.46	Stock Option Agreement, dated June 8, 2000, between the Company and Harry R. Jacobson, M.D.(17)*
10.47	Stock Option Agreement, dated June 8, 2000, between the Company and William V. Lapham(17)*

Exhibit
Number	Description of Exhibits
10.48	Stock Option Agreement, dated June 8, 2000, between the Company and W. Thomas Meredith(17)*
10.49	Stock Option Agreement, dated September 19, 2000, between the Company and Sam A. Brooks (17)*
10.50	Stock Option Agreement, dated September 19, 2000, between the Company and Gary A. Brukardt(17)*
10.51	Stock Option Agreement, dated September 19, 2000, between the Company and Raymond Hakim, M.D.(17)*
10.52	Stock Option Agreement, dated September 19, 2000, between the Company and R. Dirk Allison (17)*
10.53	Stock Option Agreement dated August 2, 2001 between the Company and Sam A. Brooks(18)*
10.54	Stock Option Agreement dated August 2, 2001 between the Company and R. Dirk Allison(18)*
10.55	Stock Option Agreement dated August 2, 2001 between the Company and Gary Brukardt(18)*
10.56	Stock Option Agreement dated August 2, 2001 between the Company and Raymond Hakim(18)*
10.57	Stock Option Agreement dated June 7, 2001 between the Company and Joseph C. Hutts(19)*
10.58	Stock Option Agreement dated June 7, 2001 between the Company and William V. Lapham(19)*
10.59	Stock Option Agreement dated June 7, 2001 between the Company and W. Thomas Meredith(19)*
10.60	Restricted Stock Award Agreement dated August 2, 2001 between the Company and Sam A. Brooks(20)*
10.61	Loan Agreement dated as of July 1, 2002, among the Company, Bank of America, N.A., SunTrust Bank, AmSouth Bank, and Wells Fargo Bank, N.A.(21)
10.62	Form of Stock Option Agreement for stock option grants to executive employees under the Company’s 1999 Long-Term Incentive Plan(22)
10.63	Form of Stock Option Agreement for stock option grants to non-management directors under the Company’s 1996 Stock Option Plan for Outside Directors(22)
10.64	Medical Director Services Agreement, dated May 1, 2002, between the Company and Tyler Nephrology Associates, P.A.
10.65	Medical Director Services Agreement, dated July 11, 2002 between the Company and Tyler Nephrology Associates, P.A.
10.66	Amendment No. 1 to Medical Director Services Agreement, effective as of May 1, 2002, between Renal Care Group Arizona, Inc. and Arizona Nephrology Associates, PLC
21.1	List of subsidiaries of the Company
23.1	Consent of Ernst & Young LLP
24.1	Power of Attorney (contained on the signature page of this report)
99.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit
Number	Description of Exhibits
(1)	Incorporated by reference to the Company’s Registration Statement on Form S-1 (Reg. No. 333-80221) effective February 6, 1996.
(2)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended June 30, 1997 (Commission File No. 0-27640).
(3)	Incorporated by reference to the Company’s Current Report on Form 8-K filed May 5, 1997 (Commission File No. 0-27640).
(4)	Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 1997 (Commission File No. 0-27640).
(5)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended March 31, 1996 (Commission File No. 0-27640).
(6)	Incorporated by reference to Appendix A to the Company’s definitive Proxy Statement filed April 27, 1998 relating to the 1998 Annual Meeting of Stockholders (Commission File No. 0-27640).
(7)	Incorporated by reference to the Company’s Registration Statement on Form S-1 (Reg. No. 333-13813) effective October 30, 1996.
(8)	Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 1996 (Commission File No. 0-27640).
(9)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended June 30, 1998 (Commission File No. 0-27640).
(10)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended March 31, 1999 (Commission File No. 0-27640).
(11)	Incorporated by reference to Appendix A to the Company’s definitive Proxy Statement filed April 27, 1999 relating to the 1999 Annual Meeting of Stockholders (Commission File No. 0-27640).
(12)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended June 30, 1999 (Commission File No. 0-27640).
(13)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended September 30, 1999 (Commission File No. 0-27640).
(14)	Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 1999 (Commission File No. 0-27640).
(15)	Incorporated by reference to Appendix A to the Company’s definitive Proxy Statement filed April 28, 2000 relating to the 2001 Annual Meeting of Stockholders (Commission File No. 0-27640).
(16)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended September 30, 2000 (Commission File No. 0-27640).
(17)	Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2000 (Commission File No. 0-27640).

Exhibit
Number	Description of Exhibits
(18)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended September 30, 2001 (Commission File No. 0-27640).
(19)	Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2001 (Commission File No. 0-27640).
(20)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended March 31, 2002 (Commission File No. 0-27640).
(21)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended June 30, 2002 (Commission File No. 0-27640).
(22)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended September 30, 2002 (Commission File No. 0-27640).

* Management contract or executive compensation plan or arrangement.

STATEMENT OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
OF RENAL CARE GROUP, INC.
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Renal Care Group, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned being the Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Sam A. Brooks
Sam A. Brooks
Chairman, President
and Chief Executive Officer
March 18, 2003

/s/ R. Dirk Allison
R. Dirk Allison
Executive Vice President and
Chief Financial Officer
March 18, 2003

EX-10.12 3 g81202exv10w12.txt DIALYSIS CENTER MANAGEMENT AGREEMENT Exhibit 10.12 DIALYSIS CENTER MANAGEMENT AGREEMENT Hemodialysis and Peritoneal Dialysis Programs 1500 21st Avenue South, Suite 3600A THIS DIALYSIS CENTER MANAGEMENT AGREEMENT (this "Agreement") is made and entered into effective as of the 1st day of July, 2001 ("Effective Date"), by and between VANDERBILT UNIVERSITY, a Tennessee nonprofit corporation ("Vanderbilt"), and RENAL CARE GROUP, INC., a Delaware corporation ("Management Company"). W I T N E S S E T H: WHEREAS, Management Company is engaged in the business of owning and/or managing dialysis units and has managed the outpatient dialysis unit (the "Unit") owned by Vanderbilt located at 1500 21st Avenue South, Suite 3600A, Nashville, Tennessee 37212; and WHEREAS, Vanderbilt desires that Management Company continue manage the Unit pursuant to the terms of this Agreement; and WHEREAS, Vanderbilt will contract with one or more qualified nephrologists to act as medical director (the "Medical Director") of the Unit; and WHEREAS, Management Company is willing to continue to manage the Unit under the name "The Vanderbilt Dialysis Clinic" pursuant to the terms of this Agreement; NOW, THEREFORE, for and in consideration of the mutual covenants and undertakings contained in this Agreement, Vanderbilt and Management Company agree as follows: ARTICLE I AUTHORITY OF THE PARTIES 1.1 Ultimate Control. Vanderbilt shall at all times exercise ultimate authority and control over the policies and assets of the Unit, and Vanderbilt shall retain the ultimate authority and responsibility regarding the powers, duties, and responsibilities vested in Vanderbilt with respect to the Unit by applicable law and regulations. Management Company shall, subject to the approval of Vanderbilt, which approval will not be unreasonably withheld, establish general administrative policies, which policies shall be carried out by Management Company as specified under this Agreement. 1.2 Grant of Day-to-Day Management Authority. Subject to the provisions of Section 1.1 above and to supervision of all professional medical care by the Medical Director as provided below, Vanderbilt hereby grants and delegates to Management Company the authority to supervise and manage the day-to-day operations of the Unit and to perform the specific functions set out in this Agreement. Vanderbilt shall cooperate with Management Company in order to facilitate Management Company's efficient performance of its management responsibilities under this Agreement. 1.3 Relationship of the Parties. Under this Agreement, Vanderbilt and Management Company intend solely to effect the appointment of Management Company for administrative management of the Unit as described in this Agreement. Vanderbilt and Management Company agree that this Agreement does not extend to or involve any other activities of either Vanderbilt or Management Company. Vanderbilt and Management Company intend that no other relationship be created or deemed to be created between the parties. Nothing in this Agreement shall be construed as to make either party 1 the employer or employee of the other, agent or principal of the other, the joint venturer or partner of the other. Further nothing in this Agreement shall be construed to give either party the right to, or control of, or in any manner conduct the other's business, other than as is explicitly provided in this Agreement. ARTICLE II. MANAGEMENT PERSONNEL 2.1 Administrator. 2.1.1 Management Company shall hire and appoint an administrator for the Unit ("Administrator"), who shall be an employee of Management Company. Notwithstanding the above, the appointment of the Administrator shall be subject to the approval of Vanderbilt, which approval will not be unreasonably withheld. 2.1.2 The Administrator shall have general day-to-day responsibility for the management of the Unit other than those duties specifically delegated to the Medical Director pursuant to this Agreement. 2.2 Medical Director. 2.2.1 Vanderbilt, on the recommendation of the Director of the Division of Nephrology at Vanderbilt, shall hire or retain and appoint, and may remove, the Medical Director of the Unit, who shall be and remain an employee or independent contractor of Vanderbilt. 2.2.2 The Medical Director shall supervise all professional medical services performed in the Unit and shall undertake overall coordination of utilization review, quality assurance, and related functions as directed by Vanderbilt. The Medical Director may perform other duties as Vanderbilt may deem appropriate, which other duties do not interfere with the performance of the Medical Director's duties under this Agreement. Vanderbilt shall be responsible for the compensation (including fringe benefits), expenses (including the cost of professional liability insurance), and other support and operating costs of the Medical Director. 2.3 Other Personnel. Management Company shall, at its expense, employ, pay, and supervise all other personnel reasonably necessary to perform its duties under this Agreement, and in its discretion may remove and/or reassign such other personnel, and locate such personnel at such places as are appropriate. Management Company shall be responsible for the compensation (including fringe benefits), expenses, and other support and operating costs of the Administrator and all other personnel it employs; provided, however, that Management Company shall be reimbursed by Vanderbilt, as set forth in the Annual Operating Plan (as defined below) approved by Vanderbilt pursuant to Section 3.5, for all costs incurred by Management Company in connection with providing such personnel, other than the Administrator, assigned to and performing services at the Unit. ARTICLE III. ADMINISTRATIVE SERVICES 3.1 General Responsibilities and Services. Management Company shall perform the services set forth in this Article III and all related functions as are reasonably necessary for the effective management of the operations of the Unit. Management Company shall establish operational policies for the Unit, subject to Vanderbilt's approval, which approval will not be unreasonably withheld. Management Company shall implement such approved policies. Management Company shall perform its 2 services diligently in accordance with generally recognized standards of good management in the health care industry relating to dialysis centers. Management Company shall perform such services in the reasonable exercise of its judgment and in accordance with performance standards implemented by Management Company and updated annually, which standards will be subject to the review and approval of Vanderbilt, which approval will not be unreasonably withheld. Nothing in this Agreement shall be construed to require or permit the practice of medicine by Management Company or any employee thereof. 3.2 Licenses and Permits. Management Company shall apply for and maintain, on behalf of and in the name of Vanderbilt, and with Vanderbilt's cooperation and assistance, all state and federal licenses, permits, certifications, and approvals required in connection with its management and operation of the Unit, including an End Stage Renal Dialysis provider number ("ESRD Number") in Vanderbilt's name; provided, however, that Vanderbilt shall be responsible for any required Certificates of Need or hospital facility licenses, professional medical licenses, permits, certifications, or other credentialing required of the Medical Director and attending physicians who are not employees of the Management Company. 3.3 Preparation and Adoption of Annual Operating Plan. Management Company shall prepare, for Vanderbilt's approval, which approval will not be unreasonably withheld, an annual operating plan (the "Annual Operating Plan") for each fiscal year or part thereof during which this Agreement is in effect. The Annual Operating Plan shall set out major operating objectives and anticipated revenues and expenses of the Unit. The Annual Operating Plan will be presented to Vanderbilt for its acceptance, rejection, or modification not later than four (4) months prior to the beginning of each fiscal year. After the Annual Operating Plan has been modified to incorporate any changes made by Vanderbilt, and subject to the provisions of this Agreement, it shall serve as a guide for the operation of the Unit. The Annual Operating Plan will include information with respect to the Unit's major business objectives, anticipated revenues and expenses, capital expenditures, cash flow, enrollment and staffing projections, and a discussion of anticipated changes, if any, in utilization, patient charges, and other significant criteria identified by Vanderbilt. Management Company may, from time to time, propose modifications to the Annual Operating Plan that it deems necessary or advisable, which modifications shall be incorporated into the Annual Operating Plan upon approval by Vanderbilt, which approval will not be unreasonably withheld. Vanderbilt may also, from time to time, propose modifications to the Annual Operating Plan which it deems necessary and advisable, which modifications shall, after consultation with Management Company, be incorporated into the Annual Operating Plan. 3.4 Billing and Collection of Accounts. Management Company has designed and implemented, and it will maintain, a billing and collection system and procedures appropriate to the Unit's operations using the Unit's ESRD Number. These procedures shall be in accordance with billing and collection policies approved by Vanderbilt. Vanderbilt appoints Management Company as its true and lawful attorney-in-fact to bill and to take prompt action (i) to collect accounts owed to the Unit in Vanderbilt's or the Unit's name and on Vanderbilt's behalf, and (ii) to take possession of and endorse in Vanderbilt's name any cash, notes, checks, money orders, insurance payments, and other instruments received in payment for services rendered at the Unit. 3.5 Deposit and Disbursement of Funds. Management Company shall promptly deposit all funds it receives on behalf of Vanderbilt in federally-insured accounts established by Vanderbilt in Vanderbilt's name with banks or other appropriate depository institutions. Management Company shall pay for all operating expenses of the Unit as set forth in the Annual Operating Plan and shall be reimbursed by Vanderbilt on an actual cost basis for all expenditures set forth in the Annual Operating Plan. In the event that Management Company spends an amount or incurs a liability on behalf of the Unit in excess of $10,000 that is not set forth in the approved Annual Operating Plan or not within the general 3 expenditure projections included within the Annual Operating Plan, Management Company shall not be entitled to reimbursement for such amount unless it obtained Vanderbilt's prior written approval for such expenditure, which approval will not be unreasonably withheld. Management Company shall request reimbursement from Vanderbilt no more often than every two weeks and shall accompany each request for reimbursement with an itemized statement of the actual expenditures to be reimbursed. Disbursements for approved expenses must be supported by vouchers, receipts, or other reasonable records duly approved by the Administrator or his or her delegate, and Management Company shall provide copies of these records to Vanderbilt upon request. 3.6 Accounting Records and Reports. Management Company shall implement and maintain an appropriate accounting system adequate for the Unit's needs and shall cause to be delivered to Vanderbilt monthly unaudited financial statements for the Unit. These statements shall be prepared on an accrual basis in accordance with generally accepted accounting principles. These statements shall include a balance sheet, a statement of income and expenses, a statement of cash flows, a summary analysis of all capital accounts, and a comparison between budgeted and actual revenues and expenses for the preceding month and the fiscal year to date. These financial statements shall be delivered to Vanderbilt on or before the third business day of the following month. Management Company will also prepare and deliver to Vanderbilt such other reports as are necessary to manage the Unit including, but not limited to, quarterly service reports (analyzing the utilization and cost of dialysis services and supplies provided), and quarterly billing reports. Within twelve (12) days after the end of each Vanderbilt fiscal year, Management Company shall prepare and deliver to Vanderbilt unaudited financial statements. Any financial books and records of the Management Company that relate to its operation of the Unit shall be available for inspection by Vanderbilt or its delegates during normal business hours or otherwise upon reasonable notice. With respect to all such reports and financial statements, Management Company shall be entitled to supplement such reports and financial statements from time to time as deemed necessary by Management Company. 3.7 Legal Services. 3.7.1 Management Company shall arrange for the Vanderbilt Office of General Counsel to provide legal services on behalf of the Unit, except that with respect to any legal dispute between Management Company and Vanderbilt relating to this Agreement or any matter as to which their interests are likely to be materially adverse, Management Company shall obtain and pay for its own legal counsel. 3.7.2 Management Company shall recommend to the Vanderbilt Office of General Counsel the initiation of any legal actions or proceedings that are advisable to operate the Unit and protect the assets of Vanderbilt. 3.8 Ancillary and Other Agreements. On behalf of Vanderbilt, Management Company shall negotiate and enter into such administrative agreements, with terms not exceeding one (1) year (unless a longer term is approved in writing by Vanderbilt), as Management Company reasonably deems necessary or advisable for the furnishing of utilities, services, concessions, and non-physician services and supplies for the maintenance and operation of the Unit, other than those directly provided by Management Company hereunder. 3.9 Other Agreements. Except as provided in the approved Annual Operating Plan or as otherwise specifically provided herein, Management Company shall not enter into any contracts, agreements, leases, debts, obligations, or legal commitments on behalf of Vanderbilt or make any capital expenditure involving an expense in excess of $10,000 on behalf of the Unit, or dispose of any asset of 4 the Unit having a value of more than $10,000, except as approved by Vanderbilt, which approval will not be unreasonably withheld. 3.10 Regulatory Requirements. Management Company shall prepare and submit on behalf of the Unit all necessary reports and filings, including cost and utilization reports, supporting data and other material required in connection with reimbursement under Medicare, TennCare, Blue Cross Blue Shield, and other third-party payment contracts and programs in which the Unit may from time to time participate. In addition, Management Company shall take all other appropriate actions necessary for regulatory compliance or otherwise advisable in order that Vanderbilt be in compliance with any requirements of local, state, or federal agencies having jurisdiction over the Unit's operations, or in order to comply with requirements of payors, provided that Management Company shall consult with Vanderbilt on an ongoing basis concerning these functions and compliance. ARTICLE IV DUTIES OF VANDERBILT AND MANAGEMENT COMPANY 4.1 Data and Information. Vanderbilt shall provide to Management Company without charge all necessary and relevant data and information in the possession of Vanderbilt as shall be reasonably required or requested by Management Company in order to enable it to perform its duties hereunder. 4.2 Management Company's Office Facilities. Management Company shall lease its own office space for purposes of carrying out its responsibilities under this Agreement. Management Company shall be responsible for the lease payments, leasehold improvements, any necessary facility maintenance costs, furnishing costs, and the purchase, lease, or any other expenses associated with its office facilities, telephone services, business equipment, furniture, and other equipment and supplies required in the performance of its duties under this Agreement. ARTICLE V COMPENSATION TO MANAGEMENT COMPANY 5.1 Amount of Compensation. In consideration of the services to Vanderbilt to be provided by Management Company pursuant to this Agreement, Vanderbilt will pay Management Company a management fee equal to $575,000 per annum (the "Management Fee"), which Management Fee shall be adjusted as provided in attached EXHIBIT A based upon the Gross Profit (as defined in EXHIBIT A) of the Unit for the fiscal year. Vanderbilt will pay the Management Fee in substantially equal monthly installments on or before the last day of each month. The Management Fee and the Final Management Fee (as defined in EXHIBIT A) represent payment to Management Company for the general and administrative overhead and executive management of Management Company, including the compensation and fringe benefits of the Administrator, in directing the management of the Unit. In addition, Vanderbilt shall reimburse Management Company for the approved actual operating expenses of the Unit as set forth in the Annual Operating Plan approved by Vanderbilt pursuant to Section 3.5 hereof. The Management Fee (and the adjustment thereof as contemplated by attached EXHIBIT A) shall be subject to renegotiation by the parties annually based upon personnel and other operating requirements of Management Company to manage and operate the Unit in accordance with this Agreement. ARTICLE VI OWNERSHIP OF WORK PRODUCT 6.1 Work Product. 5 6.1.1 All operating procedures, protocols, information systems, operating data, patient lists, computer databases, reports, and other non-public proprietary business systems or information uniquely pertaining to or owned by Vanderbilt used or obtained by Management Company in performing its management activities under this Agreement, with respect to the Unit, shall be and remain the exclusive property of Vanderbilt. All operating procedures, protocols, information systems, computer databases, and other non-public proprietary business systems or information not uniquely pertaining to Vanderbilt that are or were created, developed, or obtained by Management Company from sources other than Vanderbilt shall be the exclusive property of Management Company. 6.1.2 Management Company shall not disclose any confidential or proprietary data, reports, or other information or materials concerning Vanderbilt, the Unit, or its products or services without the prior written consent of Vanderbilt, except as otherwise required by law or regulation applicable to Vanderbilt or Management Company. 6.2 Licensure of Service Mark. 6.2.1 Management Company acknowledges Vanderbilt's exclusive right, title, and interest in and to the trade names and service marks related to Vanderbilt, and all related names, symbols, trade names, and service marks now owned by Vanderbilt (the "Marks"). Management Company will not alter or change the Marks without the prior approval of Vanderbilt, which approval may be unreasonably withheld. Management Company shall use the Marks only in connection with the operation and management of the Unit and shall use the Marks only in a manner previously approved by Vanderbilt. The parties agree that violations of this Section will result in irreparable harm and that, in addition to any other rights and remedies provided by law, Vanderbilt shall be entitled to seek injunctive relief to enforce Management Company's obligations under this Section. Management Company agrees that in any such action seeking injunctive relief, Management Company will not argue that Vanderbilt has an adequate remedy at law to address any breach or alleged breach of this Section by Management Company. 6.2.2 With Vanderbilt's prior approval, the Management Company may, on a non-exclusive basis, use the Marks in Management Company's service area in connection with the operation of the Unit while this Agreement remains in effect. Vanderbilt shall have the right to use the Marks on its own behalf as well. 6.2.3 Vanderbilt shall defend or settle at its expense any litigation or claim which may be instituted against Vanderbilt insofar as it contests the validity or ownership of the Marks. ARTICLE VII INSURANCE AND INDEMNIFICATION 7.1 Indemnification. Each party ("Indemnitor") shall indemnify, save and hold harmless the other party ("Indemnitee") from and against any and all judgments, damages, costs and expenses, including reasonable attorney's fees, paid or incurred by Indemnitee in any claim, action or proceeding for damage to property, injury or death to person, or otherwise, arising solely out of the proven negligent acts or omissions of Indemnitor in Indemnitor's performance or failure to perform under this Agreement. Indemnitor's obligations as set forth in the preceding sentence are conditioned upon (i) Indemnitee promptly notifying Indemnitor of any claim, demand or action, or any incident of which Indemnitee has actual and constructive knowledge, which may reasonably result in a claim, demand or action, and for which Indemnitee will look to Indemnitor for indemnification under this Section, (ii) Indemnitee, its directors, officers, employees and servants, cooperating fully with Indemnitor in Indemnitor's investigation and review of any such claim, demand, action or incident, and (iii) Indemnitee not entering 6 into any admissions, agreements or settlements which may affect the rights of Indemnitee or Indemnitor without the prior written consent and approval of Indemnitor. 7.2 Defense of Claims. If Indemnitor gives notice to Indemnitee acknowledging its obligation to indemnify Indemnitee with respect to such a claim, action or proceeding, then Indemnitor shall have the right, in its sole discretion, to assume the defense of Indemnitee in any such claim, action or proceeding; provided, however, that Indemnitor shall not have the right to assume the defense of Indemnitee if (a) in the reasonable judgment of Indemnitee, employment of separate counsel for Indemnitee is necessary because the claim or defense for which such counsel is employed is inconsistent or in conflict with the claims or defenses of the Indemnitor, or (b) Indemnitee shall have reasonably concluded that there may be claims or defenses available to it that are different from or in addition to those available to Indemnitor. If Indemnitor does not have the right to assume the defense of Indemnitee as provided above, the fees and expenses of separate counsel for Indemnitee shall be borne by the Indemnitor. If Indemnitor is permitted to assume, and in fact assumes, the defense of any such claim, action or proceeding, then Indemnitee shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnitee unless employment of such counsel and payment of the fees and expenses thereof by the Indemnitor has been specifically authorized by Indemnitor. Indemnitor shall not be liable for any settlement of any such action effected without Indemnitor's consent by Indemnitee, but if settled with the consent of Indemnitor or if there shall be a final judgment in an action based upon such claim, action or proceeding against Indemnitee or Indemnitor with or without the consent of Indemnitor, Indemnitor agrees to indemnify and hold harmless the Indemnitee to the extent provided herein. Indemnitor shall not be entitled to settle or compromise an indemnified claim, action or proceeding without the written consent of Indemnitee, which consent will not be unreasonably withheld, unless such settlement includes an unconditional release of Indemnitee and provides for no relief other than monetary damages that are fully indemnified by Indemnitor under this Agreement. 7.3 Professional Liability Insurance. Each party shall procure and maintain for the term of this Agreement professional liability insurance in a minimum amount of $2,000,000 per occurrence and $4,000,000 in the aggregate. Each party shall also provide the other with certificate of said coverage. Each party will notify the other of any cancellation or significant change thirty (30) days prior to such cancellation or change. If such coverage is written on a claims-made form following termination of this Agreement, coverage shall survive for a period of no less than five (5) years. Coverage shall provide for a retroactive date of placement coinciding with the Effective Date of this Agreement. Vanderbilt shall reimburse Management Company for that portion of the cost of such insurance attributable to Management Company's employees assigned to or performing services on a full-time basis at the Unit, provided such costs are set forth in the Annual Operating Plan approved by Vanderbilt pursuant to Section 3.5 hereof. Vanderbilt, as its expense, will obtain professional liability insurance coverage for the Medical Director of the Unit. 7.4 Other Insurance. Vanderbilt, at its expense, shall obtain and maintain fire and extended coverage insurance with respect to the Unit and its contents. Management Company shall be named as an additional insured under such policy. Vanderbilt also shall obtain and maintain general liability insurance coverage in a minimum amount of $1,000,000 per occurrence and $3,000,000 in the aggregate with respect to its ownership of the Unit. Management Company, at its expense, shall obtain and maintain general liability insurance coverage in a minimum amount of $1,000,000 per occurrence and $3,000,000 in the aggregate with respect to its actions as manager of the Unit. Management Company shall procure and maintain workers compensation insurance meeting statutory requirements. Vanderbilt shall reimburse Management Company for that portion of the cost of such insurance attributable to Management Company's employees who are assigned to or performing services on a full-time basis at the 7 Unit, provided that such costs are set forth in the Annual Operating Plan approved by Vanderbilt pursuant to Section 3.5 hereof. 7.5 Management Company Responsibility. Management Company shall be solely responsible for the hiring, compensation, termination and all matters relating to any persons, companies or corporations employed or engaged by Management Company, for any reason whatsoever in regard to this Agreement or to the operation of the Unit or otherwise. Management Company shall indemnify and hold Vanderbilt harmless from any liability arising from the employment or engagement by Management Company of any such persons or companies, including any liability arising under the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act, and any other relevant federal, state, and local laws or regulations. 7.6 Status of the Parties. No individual whose compensation for services is paid by Management Company shall be in any way, directly or indirectly, expressly or by implication, deemed an employee of Vanderbilt or any related entity, and no such individual shall be deemed to be employed by Vanderbilt or any related entity for the purpose of any payroll taxes, income tax withholding, or contributions imposed by any federal, state, or local law or regulations, with respect to employment, workers' compensation, or otherwise. Management Company accepts exclusive liability for any and all payroll taxes, income tax withholding or contributions, in any form whatsoever, imposed by federal, state, or local law or regulations, not only with respect to itself, but also with respect to any and all of its agents or employees. ARTICLE VIII TERM AND TERMINATION 8.1 Term. The term of this Agreement shall be one (1) year, unless earlier terminated as hereinafter set forth. This Agreement shall automatically be renewed from year to year unless either party gives notice of its intention not to permit this agreement automatically to be renewed at least ninety (90) days before the applicable anniversary date of the Effective Date of this Agreement. 8.2 Termination for Cause. 8.2.1 Bankruptcy Termination. Management Company may terminate this Agreement upon the "bankruptcy" of Vanderbilt, and Vanderbilt may terminate this Agreement upon the "bankruptcy" of Management Company, in each case upon written notice thereof to the other party. As used in this Section, "bankruptcy" of a party means: the filing of a petition commencing a voluntary case against it under the Bankruptcy Code; a general assignment by it for the benefit of creditors; its insolvency; its inability to pay its debts as they become due; the filing by it of any petition or answer in any proceeding seeking for itself or consenting to, or acquiescing in, any insolvency, receivership, composition, readjustment, liquidation, dissolution, or similar relief under any present or future statute, law, or regulation, or the filing by it of an answer or other pleading admitting or failing to deny or to contest the material allegations of the petition filed against it in any such proceeding; its seeking or consent to, or acquiescence in the appointment of, any trustee, receiver, or liquidator of it or any material part of its property; or the commencement against it of any involuntary case under the Bankruptcy Code, or a proceeding under any receivership, composition, readjustment liquidation, insolvency, dissolution, or like law or statute, which case or proceeding is not dismissed or vacated within sixty (60) days from commencement. 8.2.2 Termination for Breach or Default. If either party ("Defaulting Party") fails substantially to perform any of its material obligations under this Agreement, the other party ("Non-Defaulting Party") shall have the right to give the Defaulting Party a "Notice of Default." The Notice of 8 Default shall set forth the nature of the obligation that the Defaulting Party has not performed. If, within ten (10) days following the giving of the Notice of Default, the Defaulting Party in good faith commences to cure the default, and thereafter diligently and continuously pursues the curing to completion within thirty (30) days of such notice, unless the default is impossible to cure within thirty (30) days, in which event the Defaulting Party must continuously and diligently pursue a cure to completion within a reasonable time, it shall be deemed that the Notice of Default has not been given, and the Defaulting Party shall not lose any of its rights under this Agreement by reason of the event giving rise to the Notice of Default, although such Defaulting Party may be required to pay interest relating to such default if so required by the terms of this Agreement. If, within the ten (10) day notice period, the Defaulting Party does not commence in good faith the curing of the default or does not thereafter diligently and continuously prosecute and achieve the curing to completion within the applicable cure period, the Non-Defaulting Party shall have the right to terminate this Agreement upon ten (10) days' written notice to the Defaulting Party. 8.3 Rights upon Termination. 8.3.1 The right to terminate this Agreement shall be in addition to any other remedy available on account of any breach or default. 8.3.2 The parties acknowledge that Management Company has previously developed and furnished to Vanderbilt a comprehensive transitional and permanent operating plan that would enable Vanderbilt to take over the management and operation of the Unit in the event of termination of this Agreement for any reason. This plan shall includes operating procedures, protocols, business and other information systems, as well as any other materials or information (collectively, "Systems and Procedures") required to permit Vanderbilt to manage and operate the Unit. Management Company agrees that, in the event of termination of this Agreement for any reason, Management Company, at its expense, will provide to Vanderbilt copies of any records or computer information necessary to manage and operate the Unit. In addition, in the event of termination of this Agreement for any reason, Vanderbilt shall be entitled, at its option, to purchase or lease any computer systems or other assets of Management Company installed or utilized at the Unit at a fair market price to be negotiated in good faith by the parties. 8.3.3 Upon termination of this Agreement for any reason, and notwithstanding the provisions of Section 8.2, Management Company shall, for a period not to exceed ninety (90) days, assist Vanderbilt in effecting an orderly transfer of all of its management functions, including, without limitation, billing and collection of accounts receivable and maintenance of data, so as to minimize the disruption of the Unit's operations upon such termination. Such assistance shall be rendered in a manner consistent with usual and customary industry practice and Vanderbilt's needs. In addition, upon prior consultation with Management Company, if this Agreement is terminated by reason of Management Company's bankruptcy or default, then Vanderbilt shall have the right to solicit for employment with Vanderbilt all non-officer Management Company employees who provided services at the Unit. If this Agreement is terminated by reason of Vanderbilt's bankruptcy or default, then Vanderbilt may not solicit such employees without the prior written consent of Management Company. 9 ARTICLE IX MISCELLANEOUS 9.1 Assignment. Neither party may assign this Agreement without the prior written consent of the other party. 9.2 Further Assurances. The parties do hereby covenant and agree that they and their successors and permitted assigns will execute any and all instruments, releases, assignments, and consents which may reasonably be required of them in order to carry out the provisions of this Agreement. Notwithstanding expiration or termination of this Agreement, each party hereto shall take such further actions as are necessary to fulfill its existing obligations, including those in Section 3.5, Section 6.1, and Article X. 9.3 Effect on Successors. Without in any way limiting the provisions of Section 9.1, this Agreement shall be binding upon, enforceable by, and inure to the benefit of the parties and their permitted successors and assigns. 9.4 Entire Agreement. This Agreement contains the entire agreement between the parties relating to the subject matter of this Agreement. This Agreement supercedes in its entirety the Dialysis Center Management Agreement between the parties dated May 11, 1994 with respect to management of the Unit from and after the Effective Date. The terms of this Agreement may be modified or amended only by a writing signed by all parties. 9.5 Governing Law. This Agreement shall be governed by and construed, interpreted, and enforced pursuant to the laws of the State of Tennessee. 9.6 Notices. All notices under this Agreement by any party to the other shall be in writing. All notices, demands, and requests shall be deemed given when hand-delivered, mailed, postage prepaid, registered or certified mail, return receipt requested, or sent by prepaid express delivery service: (a) To: Department of Medicine Vanderbilt University D-3100 MCN Nashville, TN 37232-2358 Attention: Vice-Chairman for Finance & Administration (b) To: Renal Care Group, Inc. 2100 West End Avenue Suite 800 Nashville, TN 37203 Attention: Chief Operating Officer and General Counsel 9.7 No Waiver. The failure of any party to insist at any time upon the strict observance or performance of any of the provisions of this Agreement shall not impair any such right or remedy or be construed to be a waiver or relinquishment. Every right and remedy given by this Agreement to the parties may be exercised from time to time and as often as may be deemed expedient by the parties. 9.8 Enforceability; Severability. The invalidity or unenforceability of any term or provision of this Agreement shall not, unless otherwise specified, affect the validity or enforceability of any other term or provision, unless such term or provision is material and its invalidity or unenforceability results in 10 a substantial economic detriment to Vanderbilt or Management Company, in which event the parties hereto shall negotiate in good faith a resolution which to the maximum extent feasible preserves to each party the right and benefits contemplated hereunder. 9.9 Confidentiality. Each party covenants and agrees that it shall not disclose the terms of this Agreement or any agreement supplementing this Agreement to third parties, except as and to the extent disclosure is required by law, or required for the performance of its obligations hereunder or under related agreements, or as necessary or appropriate in dealing with the accountants, attorneys, and other representatives of the respective parties. ARTICLE X GOVERNMENTAL APPROVALS If this Agreement is disapproved in a final order by any governmental body having jurisdiction over Vanderbilt, Management Company, and/or this Agreement and if this Agreement is not amended to the satisfaction of the governmental body within ninety (90) days after the final order is entered, this Agreement may be terminated by either party upon written notice without incurring any liability as a result of such termination IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Vanderbilt: ---------- VANDERBILT UNIVERSITY By: /s/ Gregg Tarquinio ------------------------------ Title: Chief, Nephrology, Department of ---------------------------------- Medicine ---------------------------------- Management Company: ------------------ RENAL CARE GROUP, INC. By: /s/ Robert K. Stillwell ------------------------------------- Title: Senior Vice President ---------------------------------- 11 EXHIBIT A MANAGEMENT FEE 1. The Management Fee set forth in Section 5.1 shall be adjusted to arrive at a final management fee (the "Final Management Fee") based on the Income from Operations (as defined below) of the Unit during each Vanderbilt fiscal year this Agreement is in force in accordance with the following table:

- ------------------------------------------------------------------------------------ INCOME FROM OPERATIONS FINAL MANAGEMENT FEE ---------------------- -------------------- - ------------------------------------------------------------------------------------ less than $600,000 $491,000 - ------------------------------------------------------------------------------------ $600,001 to $700,000 $491,000 + 7% of Income from Operations in excess of $600,000 - ------------------------------------------------------------------------------------ $700,001 to $800,000 $498,000 + 8% of Income from Operations in excess of $700,000 - ------------------------------------------------------------------------------------ $800,001 to $900,000 $506,000 + 9% of Income from Operations in excess of $800,000 - ------------------------------------------------------------------------------------ $900,001 to $1,000,000 $515,000 + 10% of Income from Operations in excess of $900,000 - ------------------------------------------------------------------------------------ $1,000,001 to $1,100,000 $525,000 + 11% of Income from Operations in excess of $1,000,000 - ------------------------------------------------------------------------------------ $1,100,001 to $1,200,000 $536,000 + 12% of Income from Operations in excess of $1,100,000 - ------------------------------------------------------------------------------------ $1,200,001 to $1,300,000 $548,000 + 13% of Income from Operations in excess of $1,200,000 - ------------------------------------------------------------------------------------ $1,300,001 to $1,400,000 $561,000 + 14% of Income from Operations in excess of $1,300,000 - ------------------------------------------------------------------------------------ $1,400,001 to $1,500,000 $575,000 + 15% of Income from Operations in excess of $1,400,000 - ------------------------------------------------------------------------------------ $1,500,001 to $1,600,000 $590,000 + 16% of Income from Operations in excess of $1,500,000 - ------------------------------------------------------------------------------------ $1,600,001 to $1,700,000 $606,000 + 17% of Income from Operations in Excess of $1,600,000 - ------------------------------------------------------------------------------------ $1,700,001 to $1,800,000 $623,000 + 18% of Income from Operations in Excess of $1,700,000 - ------------------------------------------------------------------------------------ $1,800,001 to $1,900,000 $641,000 + 19% of Income from Operations in Excess of $1,800,000 - ------------------------------------------------------------------------------------ $1,900,001 to $2,000,000 $660,000 + 20% of Income from Operations in Excess of $1,900,000 - ------------------------------------------------------------------------------------ $2,000,001 to $2,100,000 $680,000 + 21% of Income from Operations in Excess of $2,000,000 - ------------------------------------------------------------------------------------ $2,100,001 to $2,200,000 $701,000 + 22% of Income from Operations in Excess of $2,100,000 - ------------------------------------------------------------------------------------ more than $2,200,001 $723,000 - ------------------------------------------------------------------------------------

2. For purposes of this Agreement, "Income from Operations" means the net revenue of the Unit less patient care costs incurred in the Unit, provided that patient care costs shall explicitly include (i) management fees payable by Vanderbilt to Management Company under this Agreement, and (ii) fees payable to the Medical Director of the Unit, and (iii) the "IDS Tax" as currently changed by Vanderbilt to its operating units Patient care costs shall in no event include any general management charge, general 12 facilities charge, or other general and administrative charge imposed by Vanderbilt on the operations of the unit other than the "IDS Tax." For purposes of calculating Income from Operations, net revenue and patient care costs shall be calculated in accordance with generally accepted accounting principles applied consistently with the financial statements historically prepared by Management Company for the Unit as contemplated by Section 3.6 of this Agreement. The parties acknowledge that Vanderbilt's fiscal year is the twelve-month period beginning on July 1 and ending on June 30. If such fiscal year is changed, then following such change, the calculations contemplated by this EXHIBIT A will be based on the contract year beginning on July 1 and ending on June 30. 3. Within thirty (30) days after the end of each fiscal year, Management Company shall calculate the Income from Operations for such fiscal year and shall deliver to Vanderbilt a statement (the "Fee Statement") showing the calculation of the Income from Operations and the calculation of the Final Management Fee. With Fee Statement, Management Company shall deliver either (i) Management Company's check in an amount equal to the Management Fee actually paid by Vanderbilt during such fiscal year minus the Final Management Fee, if the Management Fee so paid by Vanderbilt is greater than the Final Management Fee, or (ii) an invoice for an amount equal to the Final Management Fee minus the Management Fee actually paid by Vanderbilt during such fiscal year if the Final Management Fee is greater than the Management Fee so paid by Vanderbilt. 4. Vanderbilt shall have the right to review Management Company's calculation of Income from Operations and the Final Management Fee and all books and records of the Unit or Management Company used in making such calculations. Management Company will cooperate with Vanderbilt and its agents and accountants in connection with their review of the books and records of the Unit and Management Company from which the Fee Statement is prepared, provided that Vanderbilt and its agents and accountants shall use commercially reasonable efforts to conduct their review of the Closing Statement in a manner that does not unreasonably interfere with the operation of the Management Company's business. The Fee Statement shall be conclusively binding upon the parties, unless Vanderbilt notifies Management Company (which notice shall state with reasonable specificity the reasons for any disagreement and the amounts in dispute) of a disagreement with the Fee Statement within thirty (30) days after Vanderbilt receives the Fee Statement. Management Company and Vanderbilt shall negotiate in good faith to resolve any dispute for at least fifteen (15) days after Vanderbilt so notifies Management Company of a disagreement with the Fee Statement. If Management Company and Vanderbilt are unable to resolve such dispute as to all items, then the items still subject to dispute shall be submitted to a "big five" accounting firm selected by lot from among those "big five" accounting firms that have no prior or existing relationship with Management Company or Vanderbilt (the "Accountants") for a final and binding resolution of such dispute. The parties will use their respective commercially reasonable efforts to cause the Accountants to resolve such dispute within forty-five (45) days. Management Company will pay the fees and expenses of the Accountants related to the resolution of such dispute if Management Company's determination of the Income from Operations was more than ten percent (10%) less than the amount determined by the Accountants. Vanderbilt will pay the fees and expenses of the Accountants related to the resolution of such dispute if Management Company's determination of the Income from Operations was not more than ten percent (10%) less than the amount determined by the Accountants. Management Company shall allow the Accountants to have reasonable access during regular business hours to the information and individuals necessary to determine the accuracy of the Fee Statement. The determination by the Accountants or by the agreement of the parties as to the actual Income from Operations shall be final and binding on the parties. Following such final determination, the party owing the other a payment based upon such final adjustment and the Final Management Fee shall pay the amount due within ten (10) days. 13 5. Management Company and Vanderbilt acknowledge and agree that the Management Fee and the adjustments to the Management Fee contemplated by this Agreement have been agreed upon as a result of arms' length negations between third parties, that the Management Fee payable under this Agreement is reasonable and consistent with the fair market value of the services to be provided, and that graduated incentives contemplated by this EXHIBIT A were agreed upon based upon the additional time, management expertise and expense to be expended by Management Company to achieve the additional levels of Income from Operations giving rise to such incentives. 14 EX-10.33 4 g81202exv10w33.txt RENAL CARE GROUP & AMGEN AGREEMENT EXHIBIT 10.33 AMGEN AMENDED AND RESTATED AGREEMENT NO. 20010240 - -------------------------------------------------------------------------------- This Amended and Restated Agreement ("Agreement") between Amgen USA Inc., One Amgen Center Drive, Thousand Oaks, California 91320 ("Amgen") and Renal Care Group, 2100 West End Avenue, Suite 800, Nashville TN 37203 ("RCG"), sets forth the terms and conditions for the purchase of EPOGEN(R) (Epoetin alfa) by RCG, exclusively for the treatment of dialysis patients. WHEREAS, Amgen and RCG entered into Agreement #20010240 effective January 1, 2002, and; WHEREAS, the parties now wish to amend and restate Agreement #20010240 to extend the term for an additional year, restate the terms and conditions to accommodate the additional year, and incorporate additional incentive provisions covered under Agreement #20010240; NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations and warranties set forth herein, the parties agree as follows: 1. TERM OF AGREEMENT. The "Term" of this Agreement shall be defined as January 1, 2002 ("Commencement Date") through December 31, 2003 ("Termination Date"). 2. DIALYSIS CENTER AFFILIATES. RCG must provide Amgen with a complete list of its dialysis center affiliates ("Affiliates") on or before the date this Agreement is executed by RCG. Only those Affiliates approved by Amgen and referenced in Appendix B hereto will be eligible to participate under this Agreement. Modifications to the dialysis center Affiliates included in Appendix B may be made pursuant to the request of RCG's corporate headquarters and are subject to approval and acknowledgment by Amgen in writing. Notification of proposed changes to the list of Affiliates must be provided by RCG to Amgen in writing at least thirty (30) days before the effective date of the proposed change. Amgen reserves the right to accept, reject, or immediately terminate any Affiliates with regard to participation in this Agreement, if Amgen reasonably determines that such Affiliate is not properly classified as a freestanding dialysis center or * or if Amgen determines such Affiliate is a party to another * for Epogen(R) with Amgen. 3. OWN USE. RCG hereby certifies that EPOGEN(R) purchased hereunder shall be for RCG's "own use", for the exclusive treatment of dialysis patients. 4. AUTHORIZED WHOLESALERS. On or before the date RCG executes this Agreement, RCG must provide Amgen with a complete list of its current wholesalers, from which RCG intends to purchase EPOGEN(R). Wholesalers so designated by RCG and approved by Amgen will be deemed "Authorized Wholesalers" for the purposes of this Agreement. A current listing of RCG's Authorized Wholesalers is included in Appendix C. Notification of proposed changes to the list of Authorized Wholesalers must be provided to Amgen in writing at least thirty (30) days before the effective date of the proposed change. Amgen reserves the right to accept, reject, or immediately terminate any wholesaler with regard to participation in this Agreement. In the event Amgen terminates any Authorized Wholesaler from which RCG is purchasing EPOGEN(R), Amgen will work with RCG to identify other possible Authorized Wholesalers from which RCG may purchase EPOGEN(R). In the event that RCG is unable to identify another Authorized Wholesaler from which RCG may purchase EPOGEN(R), and subject to receipt and approval of an *. RCG agrees to require all Authorized Wholesalers to submit product sales information directly to Amgen and to a third-party sales reporting organization designated by Amgen. * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. AMENDED AND RESTATED AGREEMENT NO. 20010240 Ver. 7/25/02 -1- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- 5. QUALIFIED PURCHASES. Only EPOGEN(R) purchased under this Agreement by RCG through *. 6. COMMITMENT TO PURCHASE. RCG agrees to purchase EPOGEN(R) for all of its dialysis use requirements for recombinant human erythropoietin. RCG may purchase another brand of recombinant human erythropoietin for its dialysis use requirements only for the time, and only to the extent, that Amgen has notified RCG's corporate headquarters in writing that Amgen cannot supply EPOGEN(R) within and for the time period reasonably required by RCG. 7. CONFIDENTIALITY. Both Amgen and RCG agree that this Agreement represents and contains confidential information which shall not be disclosed to any third party, or otherwise made public, without prior written authorization of the other party, except where such disclosure is contemplated hereunder or required by law, and then only upon prior written notification to the other party. 8. DISCOUNTS. RCG may qualify for discounts and incentives in accordance with the schedules and terms set forth in Appendix A. Discounts in arrears will be paid in the form of a check payable to RCG's corporate headquarters. Discounts in arrears will be calculated in accordance with Amgen's discount calculation policies based on * using the * in effect as of the date of purchase as the calculation price, except as otherwise provided hereunder. Upon vesting of all earned discounts, Amgen will use its best efforts to make such discounts available within * after receipt by Amgen of data, in a form reasonably acceptable to Amgen, detailing all * during the applicable period. Discount amounts, as calculated by Amgen, must * for the applicable period to qualify. Subject to the section entitled "Breach of Agreement", in the event that Amgen is notified in writing that RCG and/or any Affiliates are acquired by another entity or a change of control otherwise occurs with respect to RCG or an Affiliate, any discounts which may have been earned hereunder shall be paid in the form of a check payable to RCG's or the Affiliate's corporate headquarters subject to the conditions described herein. If any Affiliates are added to or deleted from this Agreement during any of the periods used for comparison, for any of the discounts paid in arrears contained herein, Amgen reserves the right in its sole and reasonable discretion to appropriately adjust RCG's discounts for the relevant periods, by including or excluding any purchases made by those Affiliates during any of those periods. 9. TREATMENT OF DISCOUNTS. RCG agrees that it will properly disclose and account for any discount or other reduction in price earned hereunder, in whatever form, (i.e. pricing, discount, or incentive) in a way that complies with all applicable federal, state, and local laws and regulations, including without limitation, Section 1128B(b) of the Social Security Act and its implementing regulations. Section 1128B(b) requires that a provider of services will properly disclose and appropriately reflect the value of any discount or other reduction in price earned in the costs claimed or charges made by the provider under a federal health care program, as that term is defined in Section 1128B(f). RCG also agrees that it will (a) claim the benefit of such discount received, in whatever form, in the fiscal year in which such discount was earned or the year after, (b) fully and accurately report the value of such discount in any cost reports filed under Title XVIII or Title XIX of the Social Security Act, or a state health care program, and (c) provide, upon request by the U.S. Department of Health and Human Services or a state agency or any other federally funded state health care program, the information furnished by Amgen concerning the amount or value of such discount. RCG's corporate headquarters agrees that it will advise all Affiliates, in writing, of any discount received by RCG's corporate headquarters hereunder with respect to purchases made by such Affiliates and that said Affiliates will account for any such discount in accordance with the above stated requirements. * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. AGREEMENT NO. 20010240 Ver. 7/25/02 -2- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- 10. DATA COLLECTION. RCG agrees that all data to be provided to Amgen pursuant to this Agreement, shall be in a form that does not disclose the identity or name of any patient or other patient-identifying information such as address, telephone number, or social security number. RCG acknowledges that the data to be supplied to Amgen pursuant to this Agreement shall be used to support verification of the discounts and incentives referenced herein, as well as for Amgen-sponsored research concerning the role of EPOGEN(R) in improving treatment outcomes and quality of life of dialysis patients. RCG shall consistently use a unique alpha-numeric code (which shall not be the same as the patient's social security number) as a "case identifier" to track the care rendered to each individual patient over time, and such case identifier shall be included in the data provided to Amgen. The key or list matching patient identities to their unique case identifiers shall not be provided to Amgen personnel. In furtherance of Amgen research, RCG may agree from time to time to use its key to update the patient care data by linking it with information concerning health outcomes, quality of life, and other pertinent data that may become available to Amgen from other sources. Any such linking of data sources shall not provide the identity of any patient to Amgen. Amgen agrees that it will maintain data supplied under this Agreement in confidence and that it will not use such data to identify or contact any patient. No reports by Amgen concerning analyses of the data or the results of such research shall disclose the identity of any patient. 11. BREACH OF AGREEMENT. If either party materially breaches this Agreement, then the other party may terminate this Agreement for breach upon thirty (30) days' advance written notice. In addition, in the event that RCG materially breaches any provision of this Agreement, Amgen shall have no obligation to continue to offer the terms described herein or pay any further discounts to RCG. 12. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California and the parties hereby submit to the jurisdiction of the California courts, both state and federal. 13. WARRANTIES. Each party represents and warrants to the other that this Agreement: (a) has been duly authorized, executed, and delivered by it, (b) constitutes a valid, legal, and binding agreement enforceable against it in accordance with the terms contained herein, and (c) does not conflict with or violate any of its other contractual obligations, expressed or implied, to which it is a party or by which it may be bound. The party executing this Agreement on behalf of RCG specifically warrants and represents to Amgen that he is authorized to execute this Agreement on behalf of and has the power to bind RCG and the Affiliates to the terms set forth in this Agreement. The party executing this Agreement on behalf of Amgen specifically warrants and represents to RCG that he is authorized to execute this Agreement on behalf of and has the power to bind Amgen to the terms set forth in this Agreement. 14. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed given or made when delivered in person or when sent to the other party by first class mail, nationally recognized overnight delivery service or other means of written communication at the respective party's current address or at such other address as the party shall have furnished to the other in accordance with this provision. 15. COMPLIANCE WITH HEALTH CARE PRICING AND PATIENT PRIVACY LEGISLATION AND STATUTES. (a) Notwithstanding anything contained herein to the contrary, at any time following the enactment of any federal, state, or local law or regulation that in any manner reforms, modifies, alters, restricts, or otherwise adversely affects the pricing of or reimbursement available for EPOGEN(R), Amgen may, in its sole discretion, upon thirty (30) days' notice (i) terminate this Agreement, or (ii) exclude any Affiliates from participating in this Agreement unless such Affiliate(s) certifies in writing that they are, or will be, exempt from the provisions thereunder. Additionally, in order to assure compliance with any existing federal, state or local statute, regulation or ordinance, Amgen reserves the right to exclude any Affiliates from the pricing, discount, and incentive provisions of this Agreement if, in the opinion of Amgen's legal counsel such exclusion is necessary to assure such compliance. (b) Notwithstanding anything contained herein to the contrary, at any time following the enactment of any federal, state, or local law or regulation relating to patient privacy of medical records that in any manner reforms, modifies, alters, restricts, or otherwise affects any of the data received or to be received in connection with any of the incentives AGREEMENT NO. 20010240 Ver. 7/25/02 -3- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- contemplated under this Agreement, either party may, in its discretion, upon thirty (30) days' notice, seek to modify this Agreement with respect to the affected incentive. RCG and Amgen shall meet and in good faith seek to mutually agree to modify this Agreement to accommodate any such change in law or regulation, with the intent to, if possible, retain the essential * structure of the affected incentive. If the parties, after reasonable time, are unable to agree upon a modification, Amgen shall be entitled to terminate the affected incentive upon thirty (30) days' notice, provided that if Amgen so terminates an incentive, RCG shall be entitled to terminate this Agreement upon thirty (30) days' notice. 16. FORCE MAJEURE. Neither party will be liable for delays in performance or nonperformance of this Agreement or any covenant contained herein if such delay or nonperformance is a result of Acts of God, civil or military authority, civil disobedience, epidemics, terrorism, war, failure of carriers to furnish transportation, strike, lockout or other labor disturbances, inability to obtain material or equipment, or any other cause of like or different nature beyond the control of such party. 17. MISCELLANEOUS. No modification of this Agreement will be effective unless made in writing and executed by a duly authorized representative of each party, except as otherwise provided hereunder. Neither party may assign this Agreement to a third party without the prior written consent of the other party. This Agreement may be executed in one or more counterparts, each of which is deemed to be an original but all of which taken together constitute one and the same agreement. 18. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding between the parties and supersedes all prior written or oral proposals, agreements, or commitments pertaining to the subject matter herein. Please retain one fully executed original for your records and return the other fully executed original to Amgen. THE PARTIES EXECUTED THIS AMENDMENT AS OF THE DATES SET FORTH BELOW. AMGEN USA INC. RENAL CARE GROUP, INC. Signature: Signature: ------------------------ ------------------------- Print Name: Print Name: ------------------------ ------------------------- Print Title: Print Title: ------------------------ ------------------------- Date: Date: ------------------------ ------------------------- * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. AGREEMENT NO. 20010240 Ver. 7/25/02 -4- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS 1. PRICING. Throughout the first year of the Term of this Agreement (January 1, 2002 - December 31, 2002), RCG may purchase EPOGEN(R) through * at an *, which shall be equal * in effect on *. Throughout the second year of the Term of this Agreement (January 1, 2003 - December 31, 2003), RCG may purchase EPOGEN(R) through * at an *, which shall be equal * in effect on *. Amgen reserves the right to change the * at any time, which change shall * RCG during the Term of this Agreement. Resulting prices do not include *. All discounts earned in arrears during the Term of the Agreement shall be calculated based *. 2. BASE SALES; SALES GROWTH CALCULATION. For purposes of * from the *, Amgen will * by all Affiliates listed on Appendix B of this Agreement as of the Commencement Date and, as provided for in this Section 2, all new approved Affiliates. For new approved Affiliates added through acquisition, * by such new approved Affiliates shall only be * if Dialysis Center provides adequate data to Amgen's reasonable satisfaction concerning such new approved Affiliates' purchases of EPOGEN(R) for the same time period from the previous year. Such new approved Affiliates' * shall be *. For purposes of * by all Affiliates listed on Appendix B at the beginning of CY2 and, as provided for in this Section 2, all new approved Affiliates. For new approved Affiliates added through acquisition, *. 3. *. RCG may qualify for * provided it meets the * defined below and the criteria described below in this section. * is designed to improve patient outcomes by encouraging * which recommends *.* APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) A. REQUIREMENTS: In order to qualify for *, RCG's aggregate * of EPOGEN(R) during * and * by all Affiliates as listed on Appendix B on the Commencement Date of this Agreement and those added at the beginning of * must equal or exceed * for * and * for *, of the aggregate * of EPOGEN(R) by those same Affiliates for *. *. In addition, no more than * may have * during each * of the Term. If either of these criteria is not met during any given * of the Term, RCG will not qualify for the * during that *. Failure of RCG to qualify for the * during a particular *. If at the end of * and * the * has been met, then Amgen * for that given * and appropriately * for those relevant * during the affected * in which a * was not *. However, if at the end of * and * the * has not been met for that year, * for that given *, *. *. * will be made by Amgen or RCG, as the case may be, within * after the end of * and *, *. In order to participate *, RCG and Affiliates must provide the following information for each dialysis patient to Amgen or to a data collection vendor specified by Amgen *, and * after the *: i) all * for each dialysis patient, the date of each test, and a consistent, unique, alpha-numeric identifier (sufficient consistently to track an individual patient without in any way disclosing the identity of the patient), along with the name, address and phone number of the particular Affiliate at which each patient received treatment (collectively the "Data"). To the extent permitted by applicable law, Amgen may utilize the Data for any purpose, and reserves the right to audit all Data. Under no circumstances should the Data include any patient identifiable information including, without limitation, name, complete social security number, address or birth date. The identity of the account submitting the Data and any association with the Data will remain confidential. The * must be derived from * taken immediately before dialysis treatment using any * testing method *, must be reported *, and must be submitted directly from the clinical laboratory in a format reasonably acceptable to Amgen. Handwritten reports are not acceptable; electronic submission of the Data is preferred, and * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. - --------------------- * * AGREEMENT NO. 20010240 Ver. 7/25/02 -5- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- ii) a properly executed "Certification Letter", a sample of which is attached hereto as Exhibit #1, that will be provided to RCG's corporate headquarters, unless otherwise requested, after this Agreement is executed by both parties. APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) B. CALCULATION: Assuming RCG has fulfilled all requirements as described in Section 3(a) above, RCG's * will be calculated as follows: The * for each dialysis patient will be based upon the average of all * gathered for each patient during * of the Term. The * of all dialysis patients with *, will be determined by dividing the total number of dialysis patients with *. * will be calculated based on RCG's overall performance in accordance with Amgen's discount calculation policies. C. PAYMENT: * will be calculated on a * and paid to RCG's corporate headquarters, except as otherwise provided hereunder. Payment is contingent upon receipt by Amgen of the "Certification Letter" and *. If Data is received more than * after *, the total * of EPOGEN(R) attributable to RCG during * for that *. Notwithstanding the foregoing, if Amgen receives all required Data from * of all Affiliates within the time frame referenced above for *, the total * of EPOGEN(R) attributable to RCG during *, will be included in the calculation of * for that *. However, if Amgen determines that any Affiliate is consistently not submitting the required Data, Amgen reserves the right in its sole discretion to exclude such Affiliate's * of EPOGEN(R) from the calculation * for any *. * payments will be based upon the Data received from the *, and will equal a percentage of RCG's total * of EPOGEN(R) during that * (exclusive of any * of EPOGEN(R) made by RCG or any Affiliate not meeting the Data submission requirements described above) as governed by * schedule listed below. Notwithstanding the foregoing, payment for any period during the Term that is not equivalent to a *, will be based *. If the EPOGEN(R)* or the *, then Amgen and RCG agree *. * above. * SCHEDULE * PLEASE DIRECT YOUR ATTENTION TO THE EPOGEN(R) PACKAGE INSERT * * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. AGREEMENT NO. 20010240 Ver. 7/25/02 -6- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) * * PLEASE DIRECT YOUR ATTENTION TO THE EPOGEN(R) PACKAGE INSERT * D. VESTING: RCG's * will vest at the *. E. * SUBMISSION: In the event RCG adds any Affiliates still submitting Data based on * to this Agreement, such Affiliates' * of EPOGEN(R), for the * in which they were added, shall be included in the calculation of B *. Amgen will accept the *. In order for such added Affiliates' * EPOGEN(R) to be included in all subsequent * payment calculations, such Affiliate must submit *. 4. *. RCG shall be eligible to receive * if certain data elements are transmitted to Amgen *. The * will be calculated as a percentage of the * of EPOGEN(R) attributable to RCG during *. In order to qualify for the *, the following * must be submitted to Amgen by all Affiliates *. The * must be submitted, on a *, and *. If the * are received * within a given *, the total * of EPOGEN(R) attributable to RCG * from the calculation of the * for that *. Notwithstanding the foregoing, if Amgen receives all required * within the time frame referenced above for any *, the total * of EPOGEN(R) attributable to RCG during such *, will be * of the * for that *. However, if Amgen determines that any Affiliate is consistently *, Amgen and RCG will work collaboratively in resolving such inconsistencies. Amgen reserves the right, in its sole discretion, to exclude any such non-reporting Affiliate's * of EPOGEN(R) from the calculation of the * for any relevant *. The * will vest on the last day of the corresponding *, and will be paid * thereafter. * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. AGREEMENT NO. 20010240 Ver. 7/25/02 -7- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) 5. *. RCG may qualify for the * as described below. A. CALCULATION: RCG's * will be calculated in accordance with the following formula. * * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. AGREEMENT NO. 20010240 Ver. 7/25/02 -8- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) * B. VESTING: RCG's * will vest *. * and the * amount earned. 6. *. * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. AGREEMENT NO. 20010240 Ver. 7/25/02 -9- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- APPENDIX B: LIST OF RCG AFFILIATES To be Attached TO ENSURE YOU RECEIVE THE APPROPRIATE DISCOUNT, IT IS IMPORTANT THAT WE HAVE YOUR CURRENT LIST OF AUTHORIZED WHOLESALERS. THE FOLLOWING LIST REPRESENTS THE WHOLESALERS AMGEN CURRENTLY HAS ASSOCIATED WITH YOUR CONTRACT. PLEASE UPDATE THE LIST BY ADDING OR DELETING WHOLESALERS AS NECESSARY. Metro Medical Supply Inc. 3332 Powell Avenue Nashville, TN 37204 Henry Schein, Inc. 135 Duryea Road Nelville, NY 11747 Priority HealthCare Corporation 285 West Central Parkway, Suite 1704 Altamonte Springs, FL 32714 AGREEMENT NO. 20010240 Ver. 7/25/02 -10- AGREEMENT NO. 20010240 (CONTINUED) - -------------------------------------------------------------------------------- EXHIBIT #1 SAMPLE CERTIFICATION LETTER Month X, 2002 FSDC Legal Name Street Address City, ST Zip RE: EPOGEN(R) (Epoetin alfa) Agreement No. 9XXXXX Dear ____________: Thank you for your participation in *. In order for us to enroll you, we require that a duly authorized representative of your organization sign the certification below. Upon receipt of this executed document, we will calculate the value of your *. If we do not receive the executed certification, we cannot provide you with this *. If you have any questions regarding this letter please contact me at *. Thank you for your assistance in returning this certification. Sincerely, * CERTIFICATION: On behalf of FSDC Legal Name and all eligible Affiliates participating in * under Agreement No. XXXXXX, the undersigned hereby certifies that the * required to be submitted (herein referred to as *), for each eligible Affiliate during the term of this Agreement includes the required * from all dialysis patients from each such Affiliate,*. The party executing this document also represents and warrants that it (i) has no reason to believe that the submitted * is incorrect, and (ii) is authorized to make this certification on behalf of all eligible Affiliates submitting *. FSDC LEGAL NAME Signature: _____________________________ Print Name: _____________________________ Print Title: _____________________________ Date: _____________________________ * Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. AGREEMENT NO. 20010240 Ver. 7/25/02 -11- EX-10.64 5 g81202exv10w64.txt MEDICAL DIRECTOR SERVICES AGREEMENT 07/11/02 Exhibit 10.64 RENAL CARE GROUP TEXAS, INC. c/o Renal Care Group, Inc. 2100 West End Avenue, Suite 800 Nashville, Tennessee 37203 July 11, 2002 Tyler Nephrology Associates 1133 Medical Drive Tyler, TX 75701 Re: Mineola Medical Director Services Agreement Ladies and Gentlemen: This letter is written with respect to the Medical Director Services Agreement (the "Mineola Agreement") between Renal Care Group Texas, Inc. ("RCGT") and Tyler Nephrology Associates ("TNA") that is being entered into contemporaneously with this letter agreement to cover medical director services provided by TNA for RCGT's facility in Mineola, Texas. RCGT and TNA acknowledge that the Medical Director Services Agreement between them dated February 12, 1996 is scheduled to expire on February 12, 2003 (the "Old Agreement"). This letter confirms the parties' intent (i) to negotiate in good faith to enter into a new multi-year agreement to replace the Old Agreement on or before February 12, 2003 and (ii) if such a replacement agreement is negotiated and agreed, to add the Mineola facility to that replacement agreement and terminate the Mineola Agreement. The parties agree that this letter is a non-binding statement of intent and that an agreement to replace the Old Agreement will only be binding when executed and delivered by each of the parties. If this letter accurately sets forth our intent concerning the negotiation of a replacement for the Old Agreement, please so indicate by executing in the space noted below. If you have any questions concerning these matters, please call RCGT's counsel, Doug Chappell, at (615) 345-5526. Thank you in advance for your cooperation. Sincerely, RENAL CARE GROUP TEXAS, INC. By: /s/ R. Dirk Allison ------------------------------ Title: Vice President -------------------------- ACKNOWLEDGED AND AGREED this _______ day of July, 2002 TYLER NEPHROLOGY ASSOCIATES, P.A. By: /s/ Roy D. Gerard, Jr., M.D. --------------------------------- Title: President ------------------------------ MEDICAL DIRECTOR SERVICES AGREEMENT THIS MEDICAL DIRECTOR SERVICES AGREEMENT (the "Agreement") is made and entered into this ________ day of July, 2002, by and between RENAL CARE GROUP TEXAS, INC., a Texas corporation (the "Company"), and TYLER NEPHROLOGY ASSOCIATES, P.A., a Texas professional corporation (the "Practice"). In addition, each Practice Physician, as defined below, has executed the attached Physician Joinder and by which each such Practice Physician has agreed to be bound by certain terms of this Agreement as provided in the Physician Joinder. W I T N E S S E T H: WHEREAS, the Company has developed and owns and operates a renal dialysis facility at 102 Maxine Drive, Mineola, Texas 75773 (the "Facility"), which Facility will provide outpatient dialysis services; WHEREAS, the Facility is an outpatient dialysis facility certified by the Center for Medicare and Medicaid Services ("CMS") for payment under the Medicare program, which program requires the Facility to obtain the services of a physician or group of physicians to perform prescribed medical director services for the Facility; WHEREAS, the Company desires to engage one or more nephrologists skilled in dialysis center administration to provide medical director services at the Facility in accordance with the requirements established by CMS and as provided in this Agreement; WHEREAS, the Practice desires and is qualified to provide the medical director services contemplated by this Agreement to the Facility through one or more of its Practice Physicians, each of whom will be licensed to Practice medicine and prescribe drugs without restriction in the State of Texas, will specialize in nephrology and dialysis services and will be experienced in dialysis center administration; NOW, THEREFORE, in consideration of the premises set forth above and the mutual covenants and agreements of the parties set forth in this Agreement, the receipt and sufficiency of which are acknowledged, the parties agree as follows: ARTICLE I ENGAGEMENT AND SERVICES 1.1 Engagement. The Company engages the Practice to provide, and the Practice shall provide, services for the Company as medical director of the Facilities in accordance with the requirements of applicable CMS regulations (including, without limitation, 42 C.F.R. Section 405.2100 et seq. and any successor regulations) and all applicable state regulations, as the same may be amended or supplemented, together with such other services as are customarily performed by medical directors at high quality dialysis facilities and such other tasks related to the oversight of dialysis treatments administered at the Facilities as the Company may from time to time reasonably designate. The Practice agrees that matters affecting the operating and capital budget of the Facility shall be presented to and require the approval of the Company. 1.2 Responsibilities. Without limiting the generality of this Article I, the Practice shall provide the medical director services described in EXHIBIT A, which may be revised and updated from time to time by the Company, provided that any change that is not a CMS or other legal requirement must first be approved by the Practice if it materially increases the medical director duties hereunder. 1.3 Principal Contact. The Practice shall from time to time designate in writing to the Company a Practice Physician to serve as the principal contact at the Facility and who shall provide or arrange for the provision of the services required hereunder, and who shall serve as the principal contact for a period of no less than 12 months. The initial principal contact for the Facility will beJames Cotton, M.D. 1.4 Patient Care Manual. The Practice shall advise the Company in developing and maintaining a patient care policy and procedures manual for the Facility and will assure its implementation by delegating to the supervising nurse the duty to oversee the implementation of the policies and providing medical guidance when needed. The manual will describe: (a) The types of dialysis used in the Facility and the procedures to be followed in performing each type of dialysis; (b) Procedures for implementing universal precautions for the prevention of disease transmission; (c) Procedures for properly handling blood-borne and infectious pathogens; and (d) A disaster readiness plan. 1.5 Supervising Nurse. The Company shall provide a full time nurse to manage the provision of patient care in the Facility. The Practice may delegate to the supervising nurse the responsibility for the execution of patient care policies on a day-to-day basis, and the principal contact will provide medical guidance to the supervising nurse in the execution of these duties. 1.6 Records. The Company and the Practice acknowledge that attending physicians have medical responsibility for the content of medical records of the Facility pertinent to the care of their patients. Furthermore, the Company and the Practice acknowledge that the head nurse or manager of the Facility has operational responsibility for the day-to-day maintenance of the Facility's records including records of nurses, technicians, dieticians and social workers providing services in the Facility. The Company, through a medical records supervisor designated for the Facility, with the assistance and support of the Practice shall oversee the maintenance of current medical and business records relating to the care and treatment of patients in the Facility in accordance with 42 CFR 405.2139 and 25 TAC ss. 117.45 and in accordance with Company policies and applicable regulations of governmental agencies, including: (a) Patient long-term care plans, patient short-term care plans and medical histories; (b) Results of physical examinations and laboratory tests; and (c) Progress notes by all patient care staff, and complete and legibly signed orders and discharge summaries. 1.7 Documentation. The Practice and Practice Physicians who provide services hereunder shall maintain, and provide to the Company upon request, reasonably complete and detailed documentation of the services performed in providing medical director services under this Agreement. This documentation shall be maintained in a form reasonably satisfactory to or prescribed by the Company and, at the reasonable request of the Company, will include documentation of the time spent performing services under this Agreement. 1.8 Medical Staff. The Practice shall review the applications of physicians requesting to attend to patients at the Facility and forward a recommendation concerning such applications to the body making credentialing decisions for the Facility under its Professional Staff Bylaws. Subject to the Facility's Professional Staff Bylaws, a member of the Practice shall, at the request of the Company or the Executive Board of the Medical Staff acting under such bylaws, serve on the peer review committee that maintains oversight of all disciplinary actions with regard to any matter of such physicians or patient care personnel as needed to assure the quality of services and conformity to Company and Facility rules and policies. 1.9 Coverage. The Practice shall make available one or more Practice Physicians, as appropriate, to provide medical director services at the Facility for its hours of operation. The Practice and the Company shall confer from time to time in good faith concerning the appropriate level of physician coverage to provide medical director services hereunder. 1.10 Practice Physicians. (a) The Practice represents and warrants that all physicians who as of the date of this Agreement meet the definition of a Practice Physician have executed the Physician Joinder attached hereto. As a condition to engaging any physician in a manner that causes such physician to become a Practice Physician, the Practice shall obtain the signature of such physician on the Physician Joinder in consideration for such engagement the fees payable to the Practice hereunder. (b) For purposes of this Agreement, the term "Practice Physician" means any physician who is a physician performing services on behalf of the Practice at any of the Facilities (whether as an employee, partner, member, shareholder or independent contractor of the Practice), any other physician performing services on behalf of the Practice hereunder (as may be approved by the Company), and any other physician in any way affiliated or associated with the Practice, or regularly seeing patients of the Practice (other than on a covering or locum tenens basis). 1.11 No Required Referrals. Notwithstanding any other provision of this Agreement, each of the Company, the Practice and the Practice Physicians acknowledges and agrees that neither the Practice nor any Practice Physician is required to make referrals of patients to the Company or any affiliate of the Company or to the Facility. Each of the Practice Physicians is free to maintain professional staff privileges at any dialysis facility, to refer patients to any other facility for dialysis or other services, and, subject to Article VII, otherwise to perform professional medical services at or through any entity, whether or not it is competing with the Facility, the Company or with any affiliates of the Company. 1.12 Personnel. The Company and the Practice acknowledge that the Practice has no control over the processes of hiring or firing of associates employed at the Facility. The Company and the Practice further acknowledge and agree that the Practice's involvement in the training of associates is confined to providing advice and counsel to the Company. ARTICLE II TERM AND TERMINATION 2.1 Initial and Renewal Terms. This Agreement shall be deemed effective as of the date on which the Company opens the Facility for services to patients (the "Effective Date") and shall remain in full force and effect until 12:00 p.m. midnight on the first anniversary of the Effective Date (the "Initial Term"), unless earlier terminated as provided in this Article II. This Agreement shall automatically renew for additional successive terms of one year each (the "Renewal Terms"), unless either party gives written notice of non-renewal to the other party not less than 90 days prior to the expiration of the Initial Term or then-current Renewal Term, as applicable. If such notice is given, this Agreement shall expire as of the last day of the Initial Term or the then-current Renewal Term, as applicable. 2.2 Termination By Agreement. The Company and the Practice may agree in writing signed by both parties to terminate this Agreement at a time and date stipulated in such writing. 2.3 Termination by the Practice for Cause. (a) The Practice may during the Initial Term or any Renewal Term terminate this Agreement upon written notice to the Company in the event of the occurrence of either of the following: (i) material breach of any covenant, agreement, term, representation or warranty of the Company in this Agreement or the failure of any representation or warranty of the Company in this Agreement to be true and correct in all material respects when made or deemed made hereunder, which breach or failure, if susceptible of cure, continues uncured for 30 days after the Practice gives written notice of such breach or failure to the Company; any notice of breach or failure will describe such breach or failure with reasonable particularity; or (ii) the revocation of the Medicare certification of the Facility or the exclusion of the Company from participation in the Medicare or Medicaid program which exclusion or revocation has not been cured, stayed or rescinded within 90 days. (iii) any felony conviction (including a plea of nolo contendre) of any officer or management-level employee of the Company relating to the provision of health care services at the Facility; (iv) dishonesty, misappropriation of property, or false or defamatory disparagement of the Practice or any of its medical staff, affiliates, representatives or employees; (v) the failure of the Company reasonably to consider or reasonably to act upon a written request by the Practice that the Company provide equipment, personnel or training for personnel necessary to operate the Facility in accordance with applicable law and the conditions of participation in the Medicare program, which failure continues for 30 days after the Practice gives the Company notice written notice that the Practice intends to terminate this Agreement under this Section 2.3(a)(v); or (vi) the existence of an immediate threat to the health or safety of any patient receiving treatment at the Facility, which threat results from any act or omission of the Company or any of its employees (and not from any act or omission of the Practice). (b) Upon the occurrence of any event described in Section 2.3(a)(iii) or 2.3(a)(iv), the Practice shall not terminate this Agreement if, within 10 days after the Practice gives the Company written notice of the action or event giving the Practice the right to terminate this Agreement, the Company agrees that the individual who is the subject of such cause will not have any further involvement with the Facilities. 2.4 Termination by the Company. (a) The Company may during the Initial Term or any Renewal Term terminate this Agreement upon written notice to the Practice in the event of the occurrence of any of the following with respect to the Practice or any one of the Practice Physicians: (i) dishonesty, misappropriation of property, disparagement of the Company, the Facility or Renal Care Group, Inc., the parent company of the Company ("RCG"), or any of their affiliates, representatives or employees; (ii) negligence in the performance of any duty or responsibility as medical director under this Agreement, which negligence was not occasioned in whole or in part by any negligence by the management or employees of the Company, the Facility or RCG, and which negligence results in substantial harm to the reputation or ongoing ability to conduct the business of the Facility or the Company, provided that the results of such negligence continue for thirty (30) days after the Company gives the Practice written notice of such negligence and that the Company intends to terminate this Agreement under this Section 2.4(a)(ii); (iii) suspension, revocation or limitation of the licenses or authorizations required to be maintained by the Practice or the Practice Physicians; (iv) exclusion of the Practice or any Practice Physician from participation under Medicare, Medicaid or any other federal health benefits program; (v) revocation, suspension, probation, removal or resignation under investigation of any Practice Physician from membership or privileges on the medical staff of the Facility or of any other health care facility at which such Practice Physician has medical staff privileges; (vi) the existence of an immediate threat to the health or safety of any patient receiving treatment at the Facility, which threat results from any act or omission of the Practice or any Practice Physician; (vii) the requirement, or threatened requirement, by any federal or state agency having jurisdiction over the Company or the Facility that the Practice or any Practice Physician cease to provide medical director services at the Facility; (viii) commission or conviction, including a plea of nolo contendere, of any felony or of any crime involving moral turpitude; or (ix) material breach of any covenant, agreement, term, representation or warranty of the Practice or any Practice Physician in this Agreement or the failure of any representation or warranty of the Practice in this Agreement to be true and correct in all material respects when made or deemed made hereunder, which breach or failure, if susceptible of cure, continues uncured for 30 days after the Company gives written notice of such breach or failure to the Practice; any notice of breach will describe such breach with reasonable particularity. (b) Upon the occurrence of any event described in paragraph (a) of this Section 2.4 that is the result of an act or omission of one or more specific Practice Physicians who do not constitute a majority of the Practice Physicians then providing services hereunder, the Company shall not terminate this Agreement if, within 10 days after the Company gives the Practice written notice of the act or omission giving the Company the right to terminate this Agreement, the Practice agrees that any Practice Physician who is the subject of such cause will not provide further services under this Agreement and, if requested by the Company, that the Practice will use its best efforts to cause such physician to resign the privileges of such Practice Physician to attend patients at the Facility. (c) Upon the occurrence of any event described in paragraph (a) of this Section 2.4, the Company shall have, in addition to the right to terminate this Agreement, the right to suspend the Practice from providing services under this Agreement for a period of up to one year. In the event of any such suspension, this Agreement shall remain in force, except that (i) the Practice will not be required to perform services required under this Agreement, (ii) the Company will not be required to pay the compensation contemplated by this Agreement, and (iii) the term of this Agreement shall not be extended by the occurrence of such suspension. At any time during or at the end of any such period of suspension, the Company may elect to terminate this Agreement. 2.5 Effect of Termination or Expiration. Upon and following the expiration of this Agreement or its termination for any reason, the Practice shall not interfere with any efforts by the Company to contract with any other individual or entity for the provision of medical director services. Expiration or termination of this Agreement shall not affect any rights or obligations of the parties accruing hereunder through the date of expiration or termination, including the Company's obligation to compensate Practice for medical director services pro-rated through such date, and such rights and obligations shall survive expiration or termination. ARTICLE III COMPENSATION 3.1 Compensation. (a) In consideration of the services, covenants, and agreements agreed to be performed by the Practice during the Initial Term and any Renewal Term, beginning on the commencement of operations at the Facility, the Company shall pay the Practice $35,000 per year. Such medical director fee shall be payable in substantially equal monthly installments in arrears on or before the 15th day of each month for services rendered during the preceding month, with the first and last months being prorated based on the number of days the Agreement is in force during such months. In addition to the monthly medical director fee prescribed above, the Practice shall be eligible for an annual bonus of up to 15% of the base annual medical director fee payable hereunder based upon the success of the Facility in meeting annual clinical outcomes targets and in achieving performance objectives for the Facility and the Practice generally prescribed by RCG for its dialysis facilities in the region in which the Facility is located. The criteria for reviewing and determining the bonus amount will bee attached hereto as EXHIBIT C. RCG may change such criteria annually, and the Company will provide the revised criteria to the Practice when adopted. The Practice's performance relative to these criteria will be evaluated as part of the peer review and quality assurance process for the South Central Region of RCG. This bonus will be calculated and paid on a calendar year basis, and for the first and last calendar year during which this Agreement is in force, the bonus will be prorated based on the number of days the Agreement was effective during such year. The Practice agrees to accept the payment under this subsection (a) (as it may be adjusted as provided below) as the total compensation for all services, covenants and agreements pursuant to this Agreement. (b) (i) If either party believes that the fair market value of the services provided by the Practice under this Agreement has changed in any material way since the most recent anniversary of the Effective Date (or since the Effective Date with respect to the first anniversary), then such party may notify the other that it believes such a change has occurred and the Practice and the Company shall negotiate in good faith an adjustment to the compensation described in Section 3.1(a) above so that it represents fair market value for the duties and responsibilities of the Practice to be provided during the next year under this Agreement. Notwithstanding the foregoing, no adjustment pursuant to this subsection (b)(i) to the compensation payable under this Agreement shall be effective unless set forth in writing signed by each of the Practice and the Company, which writing shall be deemed an amendment to this Agreement. (ii) If the Practice and the Company are unable to agree on an adjustment, then either may require that an adjustment of the compensation hereunder be submitted to a qualified independent third party mutually selected by both the Practice and the Company to determine the fair market value of the services required hereunder, the costs and fees of which shall be borne equally by the Practice and the Company. If the Practice and the Company are unable to agree on the third party, then each such party shall at its own cost and expense select its own qualified independent third party and the average of such two determinations of fair market value shall be the revised compensation unless such determinations are more than 10% apart, in which case such third parties shall mutually select an additional qualified independent third party, the fees and expenses of which shall be shared equally, who shall determine the fair market value of the services hereunder from between the range of the amounts determined by the first two appraisals. The fair market value of the services as determined in accordance with the provisions of this subsection (b)(ii) shall be the compensation payable under this Agreement effective as of the applicable anniversary of the Effective Date, and such final determination shall be deemed an amendment to this Agreement. (c) Any change to the compensation payable hereunder in accordance with subsection (b) of this Section 3.1 shall be effective as of the applicable anniversary of the Effective Date and shall remain effective, and not subject to adjustment under Section 3.1(b) or otherwise, for at least 12 months from the effective date of such change. 3.2 Expenses. The Company shall be responsible for all reasonable expenses incurred in the operation of the Facility and the support of the services provided by Practice hereunder, including appropriate office space and secretarial support, and shall reimburse the Practice for all reasonable out-of-pocket expenses incurred by the Practice in attending meetings outside the service area of the Facility as required or requested by the Company pursuant to Article I of this Agreement. ARTICLE IV STATUS OF PARTIES 4.1 Tax Status. The Company and the Practice acknowledge and agree that the relationship created under this Agreement between them is that of independent contractors and that nothing in this Agreement shall be deemed to render either party the employer or employee of the other, agent or principal of the other, or joint venturer or partner of the other. The parties acknowledge and agree that the Practice Physicians will be engaged by the Practice and will under no circumstances be considered the employee(s) of the Company, RCG or the Facility, or any of their affiliates. The Practice shall be responsible for all withholding, payroll and similar taxes related to its engagement of the Practice Physicians, and neither the Practice nor the Practice Physicians shall be entitled to any benefits afforded to the employees of the Company, RCG or the Facility, or any of their affiliates. The Practice agrees that (i) neither it nor any Practice Physician be treated as an employee of the Company for federal tax purposes; (ii) the Company will not withhold on behalf of the Practice any sums for income tax, unemployment insurance, social security, or any other withholding pursuant to any law or requirement of any governmental body; (iii) all of such taxes, payments and withholdings, if any, are the sole responsibility of the Practice; and (iv) the Practice will indemnify and hold the Company and RCG harmless from any and all loss or liability arising with respect to such benefits, taxes, payments and withholdings, if any. If the United States Internal Revenue Service ("IRS") should question or challenge the worker status of the Practice or the Practice Physicians, then the parties agree that both the Practice and the Company shall have the right to participate in any discussion or negotiation occurring with the IRS, irrespective of which party initiated such discussions or negotiations, and each party shall notify the other in advance of any planned meeting or discussion. 4.2 No Agency. The Practice shall not have the right or authority to, and expressly agrees that it will not, enter into any contract in the name of the Company or otherwise to bind the Company, in any way, without the express written consent of the Company. The Practice shall indemnify and hold the Company harmless from any and all loss or liability attributable to a violation of this covenant. However, the Practice shall advise and assist the Company in securing and retaining contracts in the name and for the account of the Company with such individuals or entities necessary for the proper and efficient functioning of the Company. 4.3 Access to Records. If it is ultimately determined that ss. 952 of the Omnibus Reconciliation Act of 1980 applies to this Agreement, then until the expiration of four years after the furnishing of services provided under this Agreement, the Practice will make available to the Secretary of the United States Department of Health and Human Services, the United States Comptroller General, and their representatives, this Agreement and all books, documents and records necessary to certify the nature and extent of the costs of those services. If the Practice carries out the duties of this Agreement through a subcontract worth $10,000 or more over a twelve-month period with a related organization, the subcontract will also contain an access clause to permit access by the Secretary, Comptroller General, and their representatives to the related organization's books, documents and records. 4.4 The Company's Work Product. All operating procedures, protocols, information systems, operating data, databases, reports and other non-public proprietary business systems or information owned by the Company or RCG shall be and remain the exclusive property of the Company or RCG, as appropriate. If the Practice or any Practice Physician modifies, enhances or alters any of such property such modification, enhancement or alteration will be deemed a work-for-hire and shall be the property of the Company or RCG, as appropriate. The Practice or Practice Physician making such modification, enhancement or alteration will execute all documents reasonably requested by the Company to vest fully in the Company or RCG title to such modification, enhancement or alteration. ARTICLE V INSURANCE 5.1 Practice Insurance Coverage. The Practice shall purchase and maintain at its expense for itself and each of the Practice Physicians professional and general liability insurance, with an insurance company reasonably acceptable to the Company, with policy limits of at least $1,000,000 per occurrence and $3,000,000 in the aggregate, including coverage for acts and omissions in rendering medical services to patients of the Practice, including patients being treated at the Facility. 5.2 Company Insurance Coverage. The Company shall procure and maintain throughout the term of this Agreement professional and general liability insurance (through self-insurance or an insurance carrier) with policy limits of at least $1,000,000 per occurrence and $3,000,000 in the aggregate, which coverage shall include coverage of the Practice for acts and omissions in connection with the performance of duties as medical director under this Agreement. 5.3 Evidence of Coverage. Upon the execution of this Agreement and annually thereafter or on reasonable request, the Company and the Practice shall each provide the other with certificates of insurance or other reasonably satisfactory evidence of the insurance required to be maintained under Sections 5.1 and 5.2. Each party shall notify the other at least 60 days prior to the voluntary cancellation or termination of any such coverage and immediately upon receipt of any notice of involuntary cancellation or termination of any such coverage. ARTICLE VI PRACTICE REPRESENTATIONS AND COVENANTS 6.1 Representations and Covenants. The Practice represents, covenants and warrants as follows: (a) The Practice is, and shall at all times during the term of this Agreement be, licensed to conduct its business in the State of Texas and shall engage as Practice Physicians only physicians who are licensed without restriction to Practice medicine in such state and who never have had any such license in this or any other state limited, withdrawn, suspended, subject to reprimand, curtailed, placed on probation or revoked; (b) The Practice shall engage as Practice Physicians under this Agreement only physicians who are board eligible or board certified in the specialty of nephrology as recognized by the American Board of Medical Specialists; (c) The Practice shall at all times engage at least one Practice Physician who is a member of the active medical staff of a local hospital; the Practice shall engage as Practice Physicians only physicians who have at least one year experience or training in the care of patients at an end stage renal disease treatment facility, and who have been granted privileges to practice at the Facility; (d) Except as may be approved in writing by the Company, which approval will not be unreasonably withheld, the Practice shall engage as Practice Physicians only physicians who have never been denied membership or reappointment to membership on the medical staff of any health care facility, and who have never had medical staff membership or clinical privileges limited, suspended, curtailed, revoked, placed on probation or withdrawn, and who have never been subject to reprimand whether voluntarily or as a result of action (either formal or informal) initiated by any health care facility or its medical staff; (e) The Practice shall require the Practice Physicians to use their commercially reasonable best efforts and professional skills and judgment in rendering services under this Agreement; (f) The Practice shall require the Practice Physicians to perform professional services and render care to patients in accordance with, and in a manner consistent with, appropriate standards and the ethics of the medical profession and as necessary for the Facility to maintain compliance with applicable governmental laws and regulations; (g) The Practice shall require the Practice Physicians promptly to notify the Company of any actual or threatened denial, suspension, revocation or curtailment of licensure or certification status, medical staff membership or clinical privileges held by such physician(s) with any state, with any facility operated by the Company (including the Facility), or with any payor or other health care facility; (h) The Practice has notified the Company of each action or claim alleging professional negligence filed or asserted against the Practice or any Practice Physician within the previous five years and a current status and/or ultimate resolution of such claim and will promptly notify the Company in writing of its receipt of any action, claim or lawsuit alleging professional negligence lodged against the Practice or any Practice Physician individually or any partnership, professional corporation or association with which any Practice Physician is affiliated; (i) The Practice shall, for itself, and for each Practice Physician, promptly notify the Company of any sanction, threatened sanction, investigation or proceeding by any governmental agency or any entity regarding the participation by the Practice or any Practice Physician in the Medicare, Medicaid program or any third party payor program in which the Facility participates; and (j) This Agreement covers all of the services being provided to the Company by the Practice and the Practice Physicians as medical directors of the Facility, and the Practice acknowledges and agrees that the aggregate amount of services to be provided under this Agreement will not exceed an amount that is reasonable and necessary for the legitimate medical and business purposes of this arrangement. ARTICLE VII CONFIDENTIALITY, NONCOMPETITION AND NONSOLICITATION COVENANT 7.1 Additional Covenants. (a) During the term of this Agreement and for a period of two years after the termination or expiration of this Agreement, the Practice and each Practice Physician agrees that it, he or she will not in any manner, directly or indirectly, by itself, himself or herself or in conjunction with any other person, (i) conduct any of the activities or perform any of the responsibilities delineated in Article I and EXHIBIT A ("Services") of this Agreement for any business entity that is competitive with the business of the Company or (ii) establish or own any financial, beneficial or other interest in (other than an interest consisting of less than one percent (1%) of a class of a publicly traded security), make any loan to or for the benefit of, or render any managerial, marketing or other business advice, to any entity that is then conducting activities that are competitive with those of the business of the Company, in either case within a 25-mile radius around the Facility. For purposes of this Article, the "business of the Company" means owning or operating a renal dialysis center, unit or facility or providing dialysis supplies or services to any other such center, unit or facility to any home dialysis program, including the provision of pharmaceuticals or laboratory services related to renal dialysis. By executing a counterpart of this Agreement and in consideration of the compensation paid to the Practice hereunder, each Practice Physician agrees to be bound by the terms of this Article VII. With respect to the Practice Physicians, the two-year time periods applicable to this Article VII shall begin on the earlier of (i) the termination or expiration of this Agreement, or (ii) the termination of the employment, independent contractor or other relationship or affiliation of the Practice Physician with the Practice, such that such Practice Physician ceases to fall within the definition of a Practice Physician hereunder and generally ceases to treat patients of the Practice. (b) During the term of this Agreement and for a period of two years after the termination or expiration of this Agreement, the Practice and each Practice Physician will use all reasonable efforts to keep confidential and not to divulge, or allow to be divulged to anyone, or use or otherwise appropriate for its, his or her own benefit or for the benefit of others, any knowledge or information of a confidential nature with respect to the business of the Company, the Company itself, or any of its affiliates, including all trade secrets, pricing information, marketing information or technical information (hereinafter referred to as the "Confidential Data"), except for (i) information that is generally available to the public other than as a result of a breach of a confidentiality agreement, (ii) information available on a non-confidential basis from a source other than the Company or its affiliates or agents, which source itself is not bound by a confidentiality agreement, (iii) information required to be disclosed by law or pursuant to court order, but only to the extent such disclosure is necessary to respond to such law or court order, or (iv) disclosure necessary in order for the Practice to perform its obligations under this Agreement, but only to the extent such disclosure is necessary for such performance. Each of the Practice and the Practice Physician acknowledges and agrees that the prohibitions against disclosure of Confidential Data recited herein are in addition to, and not in lieu of, any rights or remedies that the Company may have available pursuant to the laws of any jurisdiction or at common law to prevent the disclosure of confidential information or trade secrets, and the enforcement by the Company of its rights and remedies under to this Agreement shall not be construed as a waiver of any other rights or available remedies that the Company may possess in law or equity. (c) During the term of this Agreement and for a period of two years after the termination or expiration of this Agreement, neither the Practice nor any of the Practice Physicians will, for its, his or her own benefit or the benefit of others, solicit any person or entity that has or has had, or disrupt or attempt to disrupt, any relationship, contractual or otherwise, with the Company (including any patient, payor, physician, provider, managed care organization or supplier) at any time during the term of this Agreement for the purpose of assisting or creating such a relationship for any business entity that is competitive with the business of the Company. (d) During the term of this Agreement and for a period of two years after the termination of this Agreement, neither the Practice nor any of the Practice Physicians will induce, or attempt to induce, any employee of the Company or any of its affiliates to terminate his or her association with the Company or any of its affiliates. If any employee of the Company responds to a general solicitation and seeks employment with the Practice or a Practice Physician and the Practice or such Practice Physician desires to hire such employee, then the Practice or such Practice Physician shall give notice of its, his or her desire to hire such employee and will not offer to hire such employee until the earlier of seven days after such notice is received by the Company or the date on which the Company approves such hiring. If the Practice or a Practice Physician hires an employee of the Company after following the procedures outlined above, the Company may request that the employee continue to provide services to the Company for up to 30 days to provide for an orderly transition. (e) These covenants are considered by the parties hereto to be fair, reasonable and integral for the protection of the Company. The parties agree that if a violation of any of these covenants occurs, then (i) such violation and any threatened violation will cause irreparable injury to the Company, (ii) the remedy at law for any such violation or threatened violation will be inadequate, and (iii) the Company will be entitled to injunctive relief to prevent such violation. The parties acknowledge that these covenants will survive, and remain in effect and enforceable after, termination of this Agreement. (f) Nothing in this Article VII shall be deemed to prohibit any Practice Physician from exercising his or her medical judgment concerning the medical treatment of a patient in any manner whatsoever in any location whatsoever, and shall not be deemed to require the referral of any such patient to any facility of the Company or any of its affiliates. The parties acknowledge and agree that this Agreement shall in no way be deemed to restrict the right or ability of the Practice and the Practice Physicians to admit and provide professional service to patients at facilities and institutions other than facilities of the Company or RCG, including without limitation facilities operated by business entities that are competitive with the business of the Company. The Practice and the Practice Physicians acknowledge that enforcement of this covenant will not prevent any physician of the Practice from earning a living by practicing medicine or nephrology. ARTICLE VIII MISCELLANEOUS 8.1 Notices. Any notice sent in accordance with the provisions of this Section 8.1 shall be deemed to have been received (even if delivery is refused or unclaimed) on the date that is: (i) the date of proper posting, if sent by certified U.S. mail or by express U.S. mail or private overnight courier, or (ii) the date on which sent, if sent by facsimile transmission, with confirmation and with the original sent by certified U.S. mail, addressed as follows: Practice: TYLER NEPHROLOGY ASSOCIATES, P.A. 1133 Medical Drive Tyler, Texas 75701 Telecopy Number: (903) 595-0206 Company: Renal Care Group Texas, Inc. c/o Renal Care Group, Inc. 2100 West End, Suite 800 Nashville, Tennessee 37203 Telecopy Number: (615) 345-5503 Attn: Chief Financial Officer and General Counsel Copy to: Renal Care Group Texas, Inc. 5215 North O'Connor Boulevard, #490 Irving, Texas 75039 Telecopy Number: (941) 506-8388 Attn: Regional Chief Operating Officer Any party hereto may change its address specified for notices herein by designating a new address by notice in accordance with this Section 8.1. 8.2 Amendments. Subject to Section 8.4, this Agreement may be amended at any time by mutual agreement of the Practice and the Company hereto, but any such amendment shall not be operative or valid unless the same is reduced to writing and approved by the parties hereto. 8.3 Assignability. This Agreement shall not be assignable by the Practice, and the Practice shall not assign any of its rights or obligations under this Agreement without the written consent of the Company. This Agreement shall not be assignable by the Company, and the Company shall not assign any of its rights or obligations under this Agreement without the written consent of the Practice; provided that, without the consent of Practice, the Company may assign or transfer this Agreement to an affiliate of the Company or RCG or in connection with a sale of all or substantially all of the assets or business of the Company; provided that such assets and business are not composed predominantly of assets of facilities in Tyler, Texas or within 25 miles of Tyler, Texas. 8.4 Contract Modifications; Severability. (a) This Agreement shall be construed to the fullest extent possible to be in compliance with and permitted by all Federal (including Medicare and Medicaid) and state statutes, rules and regulations. If a Triggering Event (as defined below) occurs, either the Company or the Practice may by written notice to the other propose an amendment to this Agreement as necessary to comply with the item giving rise to the Trigger Event. To the fullest extent possible, any such amendment shall preserve the responsibilities and duties of the parties and the underlying economic and financial arrangements between the Company and the Practice with the least changes to the parties' expectations hereunder. If the Practice and the Company fail to agree to the form of an amendment within thirty days after the date of such notice, then either of such party may submit the matter to arbitration as provided in Section 8.9 and any arbitration award shall comply with the second sentence of this Section, provided that if any resulting change to this Agreement includes a change to the compensation under Section 3.1(a), then the amount of compensation shall be determined under the procedures in Section 3.1(b). For purposes of this Section 8.4, "Triggering Event" means the effectiveness of any statute, rule or regulation (i) prohibiting the Practice or any of the Practice Physicians from referring patients (whether Medicare, Medicaid or otherwise) for renal dialysis either directly or indirectly to the Facilities; (ii) prohibiting the Company, the Practice or any Practice Physician from submitting claims or receiving payment under the Medicare, Medicaid or any other third party payment programs for services rendered to patients at the Facilities; (iii) determining that the amount or method for determining compensation paid to the Practice hereunder does not reflect fair market value for the services provided by the Practice under this Agreement without taking into account the volume or value of referrals made by the Practice Physicians; or (iv) otherwise rendering illegal the relationship hereunder between the Company, the Practice and the Practice Physicians. (b) Subject to the provisions of subsection (a) of this Section 8.4, if any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws in effect during the term of this Agreement, the legality, validity or enforceability of the remaining provisions of this Agreement shall not be affected thereby. 8.5 Headings. The headings of this Agreement are inserted for convenience only and are not to be considered in construction of its provisions. 8.6 Entire Agreement. This Agreement constitutes the full contract and agreement of the parties with respect to its subject matter, superseding all prior or contemporaneous agreements, either oral or written. 8.7 Construction of the Agreement and Binding Effect. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, the parties expressly agree that all terms and conditions of this Agreement shall be construed under and governed by the laws of the State of Texas. 8.8 Non-Waiver. The failure of either party to exercise any of its rights under this Agreement for a breach thereof shall not be deemed to be a waiver of such rights or a waiver of any subsequent breach. 8.9 Disputes. (a) The parties agree that any dispute arising in connection with, or relating to, this Agreement or the termination of this Agreement (other than a dispute related to Sections 3.1(b) or 8.4) shall be subject to resolution through informal methods. If the parties are unable to resolve such dispute after thirty days of efforts, then such dispute shall be submitted to mediation with a singe mediator selected by the parties or, failing the parties' agreement on a mediator, by JAMS/Endispute. The mediation shall be conducted in accordance with the rules of JAMS/Endispute. If the parties are unable to resolve the dispute through mediation, they shall retain all rights and remedied at applicable law, subject to paragraph (b) below. (b) Following the procedures outlined in paragraph (a) above, the parties agree that any dispute arising in connection with, or relating to, this Agreement or the termination of this Agreement (other than a dispute related to Section 3.1(b) and, unless the Company so agrees, a dispute under Article VII), to the maximum extent allowed by applicable law, shall be subject to arbitration in accordance with the terms of the Commercial Arbitration Rules for Expedited Procedures of the American Arbitration Association. A single arbitrator shall be chosen mutually by the parties from among the Commercial Panel of the American Arbitration Association. Notwithstanding the foregoing, any party hereto may seek all available preliminary injunctive or other temporary relief pending the issuance of an arbitration award. The award of the arbitrator shall contain findings of fact and conclusions of law and shall be binding and conclusive upon the parties. (c) Any mediation or arbitration under this Agreement shall be held in Smith County, Texas. 8.10 Third Party Beneficiaries. The Practice and the Practice Physicians agree that RCG and its affiliates are express and intended third party beneficiaries of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written to be effective as provided hereinabove. Company: ------- RENAL CARE GROUP TEXAS, INC. By: /s/ R. Dirk Allison ------------------------------------- Title: Vice President ---------------------------------- Practice: -------- TYLER NEPHROLOGY ASSOCIATES, P.A. By: /s/ Roy D. Gerard, Jr., M.D. ------------------------------------- Title: President ---------------------------------- PHYSICIAN JOINDER Each Practice Physician executing below acknowledges that he or she has read and understood the terms of the Medical Director Services Agreement, dated July ____, 2002, to which this Physician Joinder is attached and as same may be amended or revised as provided therein (the "Agreement"). By signing this Physician Joinder, each Practice Physician agrees in his or her individual capacity, to (i) the nature and scope of medical director duties set forth in Article I of the Agreement, including as described in detail on EXHIBIT A, (ii) the restrictive covenants contained in Article VII of the Agreement, and (iii) the third party beneficiary designated in Section 8.10 of this Agreement, in each case as may be amended by agreement of the Practice. /s/ Roy D. Gerard, M.D. (seal) -------------------------------------- Name: Roy D. Gerard, Jr., M.D. -------------------------------- /s/ Stephanie Diaz, M.D. (seal) -------------------------------------- Name: Stephanie Diaz, M.D. -------------------------------- /s/ Thomas A. Lowery, M.D. (seal) -------------------------------------- Name: Thomas A. Lowery, M.D. -------------------------------- /s/ Nabeel Ahmed, M.D. (seal) -------------------------------------- Name: Nabeel Ahmed, M.D. -------------------------------- /s/ Alpesh Jethva, M.D. (seal) -------------------------------------- Name: Alpesh Jethva, M.D. -------------------------------- /s/ James R. Cotton, Jr., M.D. (seal) -------------------------------------- Name: James R. Cotton, Jr., M.D. -------------------------------- /s/ Diane S. Demick, M.D. (seal) -------------------------------------- Name: Diane S. Demick, M.D. -------------------------------- /s/ Robert C. Dobrowolski, M.D. (seal) -------------------------------------- Name: Robert C. Dobrowolski, M.D. -------------------------------- EXHIBIT A MEDICAL DIRECTOR DUTIES AND RESPONSIBILITIES (Rev. 2/4/99) Qualifications: The Practice, through the Practice Physicians, shall be the "Medical Director" contemplated by these duties and responsibilities. The Medical Director shall be a licensed physician in the State of Texas, who meets the criteria of and ESRD "qualified physician director" as well as the requirements for Professional Staff membership as enumerated in the Professional Staff Bylaws. Duties and Responsibilities: As required by Title 42 of the Code of Federal Regulations, the Medical Director has responsibility for the execution of patient-care policies at the Facility. The Medical Director exercises that responsibility through working with the Facility's head nurse or manager to direct the professional services of the Facility and conscientiously applying its policies and procedures. The Medical Director is a member of the governing body of the Facility and serves as the official channel of communications between the Medical Staff and the Executive Board. Specific responsibilities of the Medical Director include the administrative, medical and technical services outlined below. The duties and responsibilities of the Medical Director are separate and distinct from any Practice Physician's role as an attending nephrologist. Specific responsibilities of the Medical Director include: Administrative A. The Medical Director will provide advice and assistance to the Company in the implementation and maintenance of written policies and guidelines including: 1. Communicable disease control within the unit. 2. The RCG Professional Staff Bylaws. 3. Maintenance of patient medical records. 4. Patient and staff education programs. 5. Physical environment, fire and safety, and emergency preparedness of the dialysis facility. 6. Responsibilities and functions of each category of personnel employed by the facility. Such policies and guidelines will be developed by Company personnel, including the Facility's head nurse or manager and the area administrator, and the policies and guidelines will be subject to the review and comment of the Medical Director. The Company will, with the advice and assistance of the Medical Director, oversee the implementation and maintenance of such policies and procedures and the training of personnel in the same, and the Medical Director will provide advice in such training as needed to the Company. Training for nurses and dialysis technicians will be provided by the Company through the supervising nurse or another instructor qualified under 25 TAC ss. 117.62(g)(2). B. The Medical Director will actively participate in facility Quality Improvement Programs (CQI) and in multi-disciplinary quality assurance programs that monitor the performance of co-morbid conditions. C. As required by 42 CFR 405.2136, the Company, with the advice and assistance of the Medical Director, is responsible for maintaining and implementing written personnel policies and procedures including: 1. Qualifications and responsibilities of all staff employed by the facility. 2. Provision of a safe and sanitary environment, and procedures for reporting, preventing, and testing for health and safety hazards. 3. Supervision of trainees. 4. Maintenance of complete personnel records. 5. Personnel policies available to all personnel of the facility, including effective grievance procedures. 6. Personnel participation in regular educational programs. 7. Maintaining and updating manuals. D. The Medical Director will participate in an active dialogue with the RCG Medical Advisory Board (or its representative) in pursuit of the common goal of delivering the best patient care practical. This participation requires implementation of MAB mandated directives and consideration of its recommendations. E. The Medical Director will review as requested by the Company the RCG Quality Indicator and patient satisfaction data for the facility with the manager of the facility and will consult with attending nephrologists regarding achievement of Quality Indicator targets. F. The Medical Director will recommend an appropriate physician to serve as a representative on the governing body of the Facility. G. The Medical Director will exert reasonable efforts to assist facility in complying with applicable ESRD network, State, Federal and RCG mandates. The Medical Director will exert reasonable efforts to encourage all attending physicians to comply with applicable ESRD network, State, Federal and RCG mandates. H. The Medical Director will review incident reports, patient complaints and any disciplinary action of medical staff or patient care personnel monthly. I. The Medical Director will serve as facility liaison with affiliated medical institutions for services such as renal transplantation, hospitalizations and emergency medical services. J. The Medical Director will participate in the facility survey process by groups such as the State Board of Health, CMS, NCQA and JCAHO, and will then communicate to the Governing Body the results of such surveys to the Executive Board (and the medical staff). K. The Medical Director will collaborate with the Chief Medical Officer and the MAB in obtaining data from regulatory agencies as a part of the RCG strategy to work continuously to improve patient care. L. The Medical Director will participate as reasonably practicable given the time and circumstances of Medical Director in national RCG Medical Director educational conferences. M. The Medical Director will collaborate with the laboratory that tests the facility's samples to implement ESRD Network, State, Federal and RCG mandates. Medical A. The Medical Director will be a member of the renal health care team to ensure quality of care, including the establishment and implementation of policies regarding patient care. Among these quality of care criteria are: - The suitability of patients admitted to the outpatient dialysis facility. - The appropriateness of dialysis prescriptions in the facility. - Administration of dialysis-related medications. - Administration of recommended vaccines for ESRD patients and staff. - Existing patient care policies and procedures. B. The Medical Director will serve on the professional team in the development of long-term patient care plans and the review and revision of long-term patient care plans and will participate in the selection of an appropriate ESRD modality for all patients of the facility. C. The Medical Director will advise the Company regarding the development and implementation of written policies outlining patients' options for various treatment modalities, including in-center, home and peritoneal dialysis. D. When self-dialysis training or home dialysis training is offered, the Medical Director will advise the Company in developing and implementing a program that assures that patient teaching materials are available for the use of all trainees during training and at times other than during the dialysis procedure; E. The Medical Director will work to assure that the ESRD patient has appropriate consultation with a renal dietician, social worker, financial counselor and other individuals, as needed. F. The Medical Director will oversee the appropriate performance of the dialysis orders and day-to-day patient care policy by the nursing and technical staff. G. The Medical Director will use reasonable efforts to encourage attending physicians to comply with the facility's policies on patient care and will work with the Company to address instances of attending physicians' failure to comply with such policies. H. The Medical Director will review patient satisfaction surveys and data, clinical outcomes data, and the Medical Director will consult with attending physicians and staff as appropriate to implement appropriate action to address issues identified and to improve patient care at the facility. Technical A. The Medical Director will participate in the selection of treatment modalities and dialysis supplies to be offered by the facility and advise attending physicians regarding the compatibility of their dialysis prescriptions with the options available at the facility. B. The Company will provide to the Medical Director, for review and approval, policies and procedures regarding the adequate training of nurses and technicians in dialysis science techniques. C. The Medical Director will provide continuous availability for medical and technical questions to the patient care staff, including coverage when the Medical Director is not available. D. The Medical Director will advise the Company regarding the implementation of a dialysis water standards policy including monitoring and enforcement. E. The Medical Director will advise the Company regarding the implementation of a policy regarding dialyzer reuse including monitoring and enforcement. F. The Medical Director will advise the Company regarding the implementation of a policy on the administration of intradialytic medications. EXHIBIT C MEDICAL DIRECTOR GUIDELINES FACILITY/MEDICAL DIRECTOR ANNUAL EVALUATION The annual evaluation of the RCG Facility and its Medical Director is essential to our mission, which is "to improve the quality of life and to care for those patients with chronic and acute renal disease." To achieve this mission, the Facility and its staff must function collaboratively at the highest possible level, under the leadership of the Medical Director. The Facility / Medical Director evaluation will be conducted by the office of the Chief Medical Officer, to whom the Medical Director is primarily responsible. This evaluation process must be understood by Medical Directors, since it is an important component of the RCG policy of continuous quality improvement. The Interpretive Guidelines for ESRD Facilities states "Treatment is under the general supervision of a Director who is a physician. The Medical Director is responsible for planning, organizing, conducting and directing the professional ESRD services and must devote sufficient time to carrying out these responsibilities." The Nephrologist has the medical skills and must develop leadership and collaborative management skills to fulfill this mandate as Medical Director. Teamwork and collegiality are highly valued as the leader of the ESRD team. The evaluation will be based on a point system, with annual update, as authorized by the RCG Medical Advisory Board (MAB). The elements to be measured and their weight are as follows: - 50% based on Clinical Indicators of the Facility. The Clinical Indicators are measured monthly and reported quarterly; the unit of measurement used is based on the one year rolling average. Tracking the Clinical Indicators and observing trends provides opportunities for quality improvement using the CQI process. The market or regional Quality Management Committee is charged with reviewing the outcomes and performance of each Facility and Professional Staff member and is also available as a resource to the Medical Director. The point system has been heavily weighted to encourage certain outcomes regarding vascular access: reduction of temporary catheters and placement of AV fistulas. Vascular access is also the area that is most uniquely influenced by the Medical Director and requires concerted effort by the Medical director to bring about improvement. The literature clearly shows that mortality and morbidity are reduced when early permanent access has been placed; while mortality within the Facility is clearly the most important outcome, the improvement of this outcome can only come about by improvement in the processes of care (such as URR, nutrition, anemia, etc.) that are known to impact on patient outcomes. - 30% based on Medical Director administrative duties. Section 5 and 6 of this Handbook describe the administrative duties in greater detail. Guidelines have been prepared for the Medical Directors of both Hemodialysis and Home Therapy Facilities. At the back of each section is a grid, which is designed to assist the medical Director and the Facility Manager in the documentation of the performance of these duties. On a monthly basis, the required tasks should be completed and both the Medical Director and the Facility Manager should initial the completion at the bottom of the grid. At a minimum, this will document the compliance of the Medical Director with regulatory requirements by Medicare. The CQI process is a vital part of the quality improvement process of the Facility and the Medical Director is expected to participate in this process. Three levels of participation are provided for but a High level of participation is expected as medical Directors become knowledgeable and proficient with the CQI process. The Chief Medical Officer (CMO) and his staff are available as resources. - 20% based on patient satisfaction with the Facility. The Patient Satisfaction Survey will be conducted in the spring of each year and the results made available to the Facilities and Medical Directors. The Medical Director, as the clinical leader, and the Facility Manager, are held responsible for the performance of the staff of the Facility. Although not directly under the control of the Medical Director, he/she is expected to be a positive influence on the staff and their performance in the Facility. Completion of the duties should be documented in some manner, in addition to a check mark on the grid sheet, further described in Section 5. Common tools of documentation include minutes from meetings, a personal Medical Director notebook, or dictated notes kept in the Facility. The Facility Manager (or an RCG designee) must concur that the line item on the check list was completed and initial the monthly grid sheet, with the Medical Director. This indicates that the line item was completed to the satisfaction of both parties. The grid sheet and related documentation is the property of the Medical Director; a copy of the grid sheet should be forwarded monthly to the office of the Associate Medical Officer for monitoring purposes and for use in the annual Medical Director evaluation. The Medical director will be held accountable for meeting facility outcome criteria. Failure to improve outcomes, as measured by the annual Medical Director evaluation, especially when in the 4th Quartile of performance, will result in a request for a written explanation to the CMO. Clinical Performance Measures (50%) Hemodialysis Medical Director (evaluation based on annual rolling average of prior year) - URR (% of patients with URRs >=70%) >80% = 10 points RCG average 72.9% 75-80% = 8 points BEST REGION 80.7% 70-74.9% = 6 POINTS 65-69.9% = 4 points <65% = 0 points - Hematocrit (% of Hcts >=33%) >85% =10 points RCG average 74.6% 80-85% = 8 points Best Region 78.4% 75-79.9% = 6 points 70-74.9% = 4 points 65-69.9% = 2 points <65%= 0 points - Missed Treatments (91+ days, based on days per patient year at risk) RCG average < __ treatments = 8 points Best Region ___ - ____ treatments = 6 points ___ - ____ treatments = 2 points > ___ treatments = 0 points - Mortality (91+ days, based on deaths per 100 patient years at risk) RCG average 22.1 <20 = 8 points Best Region 17.5 20-23.9 = 6 points 24-29.9 = 4 points 30-35 = 2 points >35 = 0 points - Vascular Access: - % of temporary catheters <10% = 8 points RCG average 25.5% 10-14.9% = 6 points Best Region 17.4% 15-19.9% = 4 points 20-25% = 2 points >25% = 0 points - % native AV fistulas >43 = 8 points RCG average 29.8% 38-42.9% = 6 points Best Region 42.9% 33-37.9% = 4 points 28-32.9% = 2 points <28% = 0 points - PTFE clotting events/patient year <0.3 = 10 points RCG average 0.8 0.3-0.59 = 8 points Best region 0.4 0.6-0.99 = 6 points 1.0-1.2 = 4 points >1.2 = 0 points Peritoneal Dialysis Medical Director (valuation based on annual rolling average of prior year) - KT/V (>=2.1) RCG average 76.8% CAPD RCG average 88.1% CCPD >78 = 15 points 63-78% = 12 points 68-62.9% = 10 points 63-67.9% = 8 points 58-62.9% = 5 points - Creatinine Clearance (>=60L CAPD or >=60 L CCPD) RCG average 81.2% CAPD >75 = 15 points RCG average 75.2% CCPD 70-75% = 12 points Weighted average 78.2% 65-69.9% = 10 points 60-64.9% = 8 points 55-59.9% = 5 points - - Hematocrit (% of Hcts >=33%) >85% = 10 points RCG average 74.6% 80-85% = 8 points Best Region 78.4% 75-79.9% = 6 points 70-74.9% = 4 points 65-69.9% = 2 points <65% = 0 points - Mortality (91+ days, based on deaths per 100 patient years at risk) RCG average 20.7 <20 = 8 points Best Region 15.5 20-24.9 = 6 points 24-29.9 = 4 points 30-35 = 2 points >35 = 0 points - - Peritonitis (new cases + relapse) RCG average 14.9 months between cases Best Region 16.9 months between cases >25 months between cases 15 points 20-25 months between cases 12 points 15-19.9 months between cases 9 points 10-14.9 months between cases 6 points >10 months between cases 0 points Combination Hemodialysis & Peritoneal Medical Director For those physicians who oversee both modalities, each is evaluated using the above criteria. The overall Clinical Quality is then a composite of these, weighted to reflect the numbers of patients in each modality. MEDICAL DIRECTOR ADMINISTRATIVE TASKS (30%) The completion of administrative tasks must be documented by the Medical Director on a monthly basis. It is important that both the Facility Manager and the Medical Director document completion of the required tasks. Other Medical Director functions including such things as meeting with surgeons regarding access, goals, attendance at medical meetings and literature review regarding ESRD issues, etc, should also be noted in this record as well, since this contributes to a high quality Facility. Participation in monthly review: - Review staffing & training issues impacting patient outcomes with Manager - Review water quality - Review dialyzer reuse at the Facility - Review monthly lab of patients below quality goals & develop plan - Review trend in hospitalizations, infections - Review temporary catheter usage & trend - Review patient incident reports & trends - Monitor staff physician patient rounding process - Adequacy of staff physician medical documentation Participation in CQI process: - The CQI process should be a routine process in the facility striving to improve its outcomes. As physicians learn this process, Medical Directors are expected to participate at higher levels. In the meantime, Low, Medium and High participation levels may be chosen on the Performance grid, depending on the physician's comfort with the process. Participation in Professional Staff process: - Participate in the Quarterly Quality conference calls, which have physician CME available. Annual checklist: - Review and approve facility Policy and Procedures and make necessary modifications; review and approve clinical protocols. - Review patient satisfaction data annually and in concert with the Facility Manager make recommendations for improvement. - Participate with the Manager in the Budget process for the Facility. - Participate in Facility surveys by regulatory agencies. Patient Satisfaction Surveys (PSS) (20%) The Satisfaction Survey will be conducted in the spring of each year and results forwarded to each Facility for review and discussion regarding potential areas of improvement. CAREGIVER: RCG AVERAGE IN-CENTER 3.43 PSS >3.5 = 8 points PSS >=3.25 and <3.5 = 6 points PSS >=3.0 and <3.25 = 4 points PSS >2.5 and <3.0 = 2 points PSS <2.5 = 0 points RCG average Home 3.75 PSS >3.5 = 8 points PSS >=3.25 and <3.5 = 6 points PSS >=3.0 and <3.25 = 4 points PSS >2.5 and <3.0 = 2 points PSS <2.5 = 0 points Physician: RCG AVERAGE IN-CENTER 3.27 PSS >3.5 = 8 points PSS >=3.25 and <3.5 = 6 points PSS >=3.0 and <3.25 = 4 points PSS >2.5 and <3.0 = 2 points PSS <2.5 = 0 points RCG average Home 3.67 PSS >3.5 = 8 points PSS >=3.25 and <3.5 = 6 points PSS >=3.0 and <3.25 = 4 points PSS >2.5 and <3.0 = 2 points DIETICIAN: RCG average In-Center 3.27 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points RCG average Home 3.67 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points SOCIAL WORKER: RCG average In-Center 3.40 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points RCG average Home 3.51 PSS >3.5 = 4 points PSS >= 3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points FACILITY: RCG average: In-Center 3.24 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points RCG average Home 3.58 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points EX-10.65 6 g81202exv10w65.txt MEDICAL DIRECTOR SERVICES AGREEMENT 05/01/02 EXHIBIT 10.65 MEDICAL DIRECTOR SERVICES AGREEMENT THIS MEDICAL DIRECTOR SERVICES AGREEMENT (the "Agreement") is made and entered into this 1st day of May, 2002, effective as of May 1, 2000, by and between RENAL CARE GROUP TEXAS, INC., a Texas corporation (the "Company"), and TYLER NEPHROLOGY ASSOCIATES, P.A., a Texas professional corporation (the "Practice"). In addition, each Practice Physician, as defined below, has executed the attached Physician Joinder and by which each such Practice Physician has agreed to be bound by certain terms of this Agreement as provided in the Physician Joinder. W I T N E S S E T H: WHEREAS, the Company has developed and owns and operates a renal dialysis facility at 425 South Carroll Street, Athens, Texas 75751 (the "Facility"), which Facility will provide outpatient dialysis services; WHEREAS, the Facility is an outpatient dialysis facility certified by the Center for Medicare and Medicaid Services ("CMS") for payment under the Medicare program, which program requires the Facility to obtain the services of a physician or group of physicians to perform prescribed medical director services for the Facility; WHEREAS, the Company desires to engage one or more nephrologists skilled in dialysis center administration to provide medical director services at the Facility in accordance with the requirements established by CMS and as provided in this Agreement; WHEREAS, the Practice desires and is qualified to provide the medical director services contemplated by this Agreement to the Facility through one or more of its Practice Physicians, each of whom will be licensed to Practice medicine and prescribe drugs without restriction in the State of Texas, will specialize in nephrology and dialysis services and will be experienced in dialysis center administration; WHEREAS, the Practice has provided medical director services at the Facility since May 1, 2000, when the Facility opened, pursuant to an oral agreement, while the terms of this Agreement were being finalized. NOW, THEREFORE, in consideration of the premises set forth above and the mutual covenants and agreements of the parties set forth in this Agreement, the receipt and sufficiency of which are acknowledged, the parties agree as follows: ARTICLE I ENGAGEMENT AND SERVICES 1.1 Engagement. The Company engages the Practice to provide, and the Practice shall provide, services for the Company as medical director of the Facilities in accordance with the requirements of applicable CMS regulations (including, without limitation, 42 C.F.R. Section 405.2100 et seq. and any successor regulations) and all applicable state regulations, as the same may be amended or supplemented, together with such other services as are customarily performed by medical directors at high quality dialysis facilities and such other tasks related to the oversight of dialysis treatments administered at the Facilities as the Company may from time to time reasonably designate. The Practice agrees that matters affecting the operating and capital budget of the Facility shall be presented to and require the approval of the Company. 1.2 Responsibilities. Without limiting the generality of this Article I, the Practice shall provide the medical director services described in EXHIBIT A, which may be revised and updated from time to time by the Company, provided that any change that is not a CMS or other legal requirement must first be approved by the Practice if it materially increases the medical director duties hereunder. 1.3 Principal Contact. The Practice shall from time to time designate in writing to the Company a Practice Physician to serve as the principal contact at the Facility and who shall provide or arrange for the provision of the services required hereunder, and who shall serve as the principal contact for a period of no less than 12 months. The initial principal contact for the Facility will be Roy Gerard, M.D. 1.4 Patient Care Manual. The Practice shall advise the Company in developing and maintaining a patient care policy and procedures manual for the Facility and will assure its implementation by delegating to the supervising nurse the duty to oversee the implementation of the policies and providing medical guidance when needed. The manual will describe: (a) The types of dialysis used in the Facility and the procedures to be followed in performing each type of dialysis; (b) Procedures for implementing universal precautions for the prevention of disease transmission; (c) Procedures for properly handling blood-borne and infectious pathogens; and (d) A disaster readiness plan. 1.5 Supervising Nurse. The Company shall provide a full time nurse to manage the provision of patient care in the Facility. The Practice may delegate to the supervising nurse the responsibility for the execution of patient care policies on a day-to-day basis, and the principal contact will provide medical guidance to the supervising nurse in the execution of these duties. 1.6 Records. The Company and the Practice acknowledge that attending physicians have medical responsibility for the content of medical records of the Facility pertinent to the care of their patients. Furthermore, the Company and the Practice acknowledge that the head nurse or manager of the Facility has operational responsibility for the day-to-day maintenance of the Facility's records including records of nurses, technicians, dieticians and social workers providing services in the Facility. The Company, through a medical records supervisor designated for the Facility, with the assistance and support of the Practice shall oversee the maintenance of current medical and business records relating to the care and treatment of patients in the Facility in accordance with 42 CFR 405.2139 and 25 TAC ss. 117.45 and in accordance with Company policies and applicable regulations of governmental agencies, including: (a) Patient long-term care plans, patient short-term care plans and medical histories; (b) Results of physical examinations and laboratory tests; and (c) Progress notes by all patient care staff, and complete and legibly signed orders and discharge summaries. 1.7 Documentation. The Practice and Practice Physicians who provide services hereunder shall maintain, and provide to the Company upon request, reasonably complete and detailed documentation of the services performed in providing medical director services under this Agreement. This documentation shall be maintained in a form reasonably satisfactory to or prescribed by the Company and, at the reasonable request of the Company, will include documentation of the time spent performing services under this Agreement. 1.8 Medical Staff. The Practice shall review the applications of physicians requesting to attend to patients at the Facility and forward a recommendation concerning such applications to the body making credentialing decisions for the Facility under its Professional Staff Bylaws. Subject to the Facility's Professional Staff Bylaws, a member of the Practice shall, at the request of the Company or the Executive Board of the Medical Staff acting under such bylaws, serve on the peer review committee that maintains oversight of all disciplinary actions with regard to any matter of such physicians or patient care personnel as needed to assure the quality of services and conformity to Company and Facility rules and policies. 1.9 Coverage. The Practice shall make available one or more Practice Physicians, as appropriate, to provide medical director services at the Facility for its hours of operation. The Practice and the Company shall confer from time to time in good faith concerning the appropriate level of physician coverage to provide medical director services hereunder. 1.10 Practice Physicians. (a) The Practice represents and warrants that all physicians who as of the date of this Agreement meet the definition of a Practice Physician have executed the Physician Joinder attached hereto. As a condition to engaging any physician in a manner that causes such physician to become a Practice Physician, the Practice shall obtain the signature of such physician on the Physician Joinder in consideration for such engagement the fees payable to the Practice hereunder. (b) For purposes of this Agreement, the term "Practice Physician" means any physician who is a physician performing services on behalf of the Practice at any of the Facilities (whether as an employee, partner, member, shareholder or independent contractor of the Practice), any other physician performing services on behalf of the Practice hereunder (as may be approved by the Company), and any other physician in any way affiliated or associated with the Practice, or regularly seeing patients of the Practice (other than on a covering or locum tenens basis). 1.11 No Required Referrals. Notwithstanding any other provision of this Agreement, each of the Company, the Practice and the Practice Physicians acknowledges and agrees that neither the Practice nor any Practice Physician is required to make referrals of patients to the Company or any affiliate of the Company or to the Facility. Each of the Practice Physicians is free to maintain professional staff privileges at any dialysis facility, to refer patients to any other facility for dialysis or other services, and, subject to Article VII, otherwise to perform professional medical services at or through any entity, whether or not it is competing with the Facility, the Company or with any affiliates of the Company. 1.12 Personnel. The Company and the Practice acknowledge that the Practice has no control over the processes of hiring or firing of associates employed at the Facility. The Company and the Practice further acknowledge and agree that the Practice's involvement in the training of associates is confined to providing advice and counsel to the Company. ARTICLE II TERM AND TERMINATION 2.1 Initial and Renewal Terms. This Agreement shall be deemed effective as of May 1, 2000, the date on which the Company opened the Facility for services to patients (the "Effective Date") and shall remain in full force and effect until 12:00 p.m. midnight on the tenth anniversary of the Effective Date (the "Initial Term"), unless earlier terminated as provided in this Article II. This Agreement shall automatically renew for additional successive terms of three years each (the "Renewal Terms"), unless either party gives written notice of non-renewal to the other party not less than 90 days prior to the expiration of the Initial Term or then-current Renewal Term, as applicable. If such notice is given, this Agreement shall expire as of the last day of the Initial Term or the then-current Renewal Term, as applicable. 2.2 Termination By Agreement. The Company and the Practice may agree in writing signed by both parties to terminate this Agreement at a time and date stipulated in such writing. 2.3 Termination by the Practice for Cause. (a) The Practice may during the Initial Term or any Renewal Term terminate this Agreement upon written notice to the Company in the event of the occurrence of either of the following: (i) material breach of any covenant, agreement, term, representation or warranty of the Company in this Agreement or the failure of any representation or warranty of the Company in this Agreement to be true and correct in all material respects when made or deemed made hereunder, which breach or failure, if susceptible of cure, continues uncured for 30 days after the Practice gives written notice of such breach or failure to the Company; any notice of breach or failure will describe such breach or failure with reasonable particularity; or (ii) the revocation of the Medicare certification of the Facility or the exclusion of the Company from participation in the Medicare or Medicaid program which exclusion or revocation has not been cured, stayed or rescinded within 90 days. (iii) any felony conviction (including a plea of nolo contendre) of any officer or management-level employee of the Company relating to the provision of health care services at the Facility; (iv) dishonesty, misappropriation of property, or false or defamatory disparagement of the Practice or any of its medical staff, affiliates, representatives or employees; (v) the failure of the Company reasonably to consider or reasonably to act upon a written request by the Practice that the Company provide equipment, personnel or training for personnel necessary to operate the Facility in accordance with applicable law and the conditions of participation in the Medicare program, which failure continues for 30 days after the Practice gives the Company notice written notice that the Practice intends to terminate this Agreement under this Section 2.3(a)(v); or (vi) the existence of an immediate threat to the health or safety of any patient receiving treatment at the Facility, which threat results from any act or omission of the Company or any of its employees (and not from any act or omission of the Practice). (b) Upon the occurrence of any event described in Section 2.3(a)(iii) or 2.3(a)(iv), the Practice shall not terminate this Agreement if, within 10 days after the Practice gives the Company written notice of the action or event giving the Practice the right to terminate this Agreement, the Company agrees that the individual who is the subject of such cause will not have any further involvement with the Facilities. 2.4 Termination by the Company. (a) The Company may during the Initial Term or any Renewal Term terminate this Agreement upon written notice to the Practice in the event of the occurrence of any of the following with respect to the Practice or any one of the Practice Physicians: (i) dishonesty, misappropriation of property, disparagement of the Company, the Facility or Renal Care Group, Inc., the parent company of the Company ("RCG"), or any of their affiliates, representatives or employees; (ii) negligence in the performance of any duty or responsibility as medical director under this Agreement, which negligence was not occasioned in whole or in part by any negligence by the management or employees of the Company, the Facility or RCG, and which negligence results in substantial harm to the reputation or ongoing ability to conduct the business of the Facility or the Company, provided that the results of such negligence continue for thirty (30) days after the Company gives the Practice written notice of such negligence and that the Company intends to terminate this Agreement under this Section 2.4(a)(ii); (iii) suspension, revocation or limitation of the licenses or authorizations required to be maintained by the Practice or the Practice Physicians; (iv) exclusion of the Practice or any Practice Physician from participation under Medicare, Medicaid or any other federal health benefits program; (v) revocation, suspension, probation, removal or resignation under investigation of any Practice Physician from membership or privileges on the medical staff of the Facility or of any other health care facility at which such Practice Physician has medical staff privileges; (vi) the existence of an immediate threat to the health or safety of any patient receiving treatment at the Facility, which threat results from any act or omission of the Practice or any Practice Physician; (vii) the requirement, or threatened requirement, by any federal or state agency having jurisdiction over the Company or the Facility that the Practice or any Practice Physician cease to provide medical director services at the Facility; (viii) commission or conviction, including a plea of nolo contendere, of any felony or of any crime involving moral turpitude; or (ix) material breach of any covenant, agreement, term, representation or warranty of the Practice or any Practice Physician in this Agreement or the failure of any representation or warranty of the Practice in this Agreement to be true and correct in all material respects when made or deemed made hereunder, which breach or failure, if susceptible of cure, continues uncured for 30 days after the Company gives written notice of such breach or failure to the Practice; any notice of breach will describe such breach with reasonable particularity. (b) Upon the occurrence of any event described in paragraph (a) of this Section 2.4 that is the result of an act or omission of one or more specific Practice Physicians who do not constitute a majority of the Practice Physicians then providing services hereunder, the Company shall not terminate this Agreement if, within 10 days after the Company gives the Practice written notice of the act or omission giving the Company the right to terminate this Agreement, the Practice agrees that any Practice Physician who is the subject of such cause will not provide further services under this Agreement and, if requested by the Company, that the Practice will use its best efforts to cause such physician to resign the privileges of such Practice Physician to attend patients at the Facility. (c) Upon the occurrence of any event described in paragraph (a) of this Section 2.4, the Company shall have, in addition to the right to terminate this Agreement, the right to suspend the Practice from providing services under this Agreement for a period of up to one year. In the event of any such suspension, this Agreement shall remain in force, except that (i) the Practice will not be required to perform services required under this Agreement, (ii) the Company will not be required to pay the compensation contemplated by this Agreement, and (iii) the term of this Agreement shall not be extended by the occurrence of such suspension. At any time during or at the end of any such period of suspension, the Company may elect to terminate this Agreement. 2.5 Effect of Termination or Expiration. Upon and following the expiration of this Agreement or its termination for any reason, the Practice shall not interfere with any efforts by the Company to contract with any other individual or entity for the provision of medical director services. Expiration or termination of this Agreement shall not affect any rights or obligations of the parties accruing hereunder through the date of expiration or termination, including the Company's obligation to compensate Practice for medical director services pro-rated through such date, and such rights and obligations shall survive expiration or termination. ARTICLE III COMPENSATION 3.1 Compensation. (a) In consideration of the services, covenants, and agreements agreed to be performed by the Practice during the Initial Term and any Renewal Term, beginning on the commencement of operations at the Facility, the Company shall pay the Practice $25,000 per year for the year from the Effective Date until the first anniversary thereof and $30,000 per year after such first anniversary. Such medical director fee shall be payable in substantially equal monthly installments in arrears on or before the 15th day of each month for services rendered during the preceding month. In addition to the monthly medical director fee prescribed above for years beginning on and after January 1, 2002, the Practice shall be eligible for an annual bonus of up to 15% of the base annual medical director fee payable hereunder based upon the success of the Facility in meeting annual clinical outcomes targets and in achieving performance objectives for the Facility and the Practice generally prescribed by RCG for its dialysis facilities in the region in which the Facility is located. The criteria for reviewing and determining the bonus amount will bee attached hereto as EXHIBIT C. RCG may change such criteria annually, and the Company will provide the revised criteria to the Practice when adopted. The Practice's performance relative to these criteria will be evaluated as part of the peer review and quality assurance process for the South Central Region of RCG. The Practice agrees to accept the payment under this subsection (a) (as it may be adjusted as provided below) as the total compensation for all services, covenants and agreements pursuant to this Agreement. (b) (i) If either party believes that the fair market value of the services provided by the Practice under this Agreement has changed in any material way since the most recent anniversary of the Effective Date (or since the Effective Date with respect to the first anniversary), then such party may notify the other that it believes such a change has occurred and the Practice and the Company shall negotiate in good faith an adjustment to the compensation described in Section 3.1(a) above so that it represents fair market value for the duties and responsibilities of the Practice to be provided during the next year under this Agreement. Notwithstanding the foregoing, no adjustment pursuant to this subsection (b)(i) to the compensation payable under this Agreement shall be effective unless set forth in writing signed by each of the Practice and the Company, which writing shall be deemed an amendment to this Agreement. (ii) If the Practice and the Company are unable to agree on an adjustment, then either may require that an adjustment of the compensation hereunder be submitted to a qualified independent third party mutually selected by both the Practice and the Company to determine the fair market value of the services required hereunder, the costs and fees of which shall be borne equally by the Practice and the Company. If the Practice and the Company are unable to agree on the third party, then each such party shall at its own cost and expense select its own qualified independent third party and the average of such two determinations of fair market value shall be the revised compensation unless such determinations are more than 10% apart, in which case such third parties shall mutually select an additional qualified independent third party, the fees and expenses of which shall be shared equally, who shall determine the fair market value of the services hereunder from between the range of the amounts determined by the first two appraisals. The fair market value of the services as determined in accordance with the provisions of this subsection (b)(ii) shall be the compensation payable under this Agreement effective as of the applicable anniversary of the Effective Date, and such final determination shall be deemed an amendment to this Agreement. (c) Any change to the compensation payable hereunder in accordance with subsection (b) of this Section 3.1 shall be effective as of the applicable anniversary of the Effective Date and shall remain effective, and not subject to adjustment under Section 3.1(b) or otherwise, for at least 12 months from the effective date of such change. 3.2 Expenses. The Company shall be responsible for all reasonable expenses incurred in the operation of the Facility and the support of the services provided by Practice hereunder, including appropriate office space and secretarial support, and shall reimburse the Practice for all reasonable out-of-pocket expenses incurred by the Practice in attending meetings outside the service area of the Facility as required or requested by the Company pursuant to Article I of this Agreement. ARTICLE IV STATUS OF PARTIES 4.1 Tax Status. The Company and the Practice acknowledge and agree that the relationship created under this Agreement between them is that of independent contractors and that nothing in this Agreement shall be deemed to render either party the employer or employee of the other, agent or principal of the other, or joint venturer or partner of the other. The parties acknowledge and agree that the Practice Physicians will be engaged by the Practice and will under no circumstances be considered the employee(s) of the Company, RCG or the Facility, or any of their affiliates. The Practice shall be responsible for all withholding, payroll and similar taxes related to its engagement of the Practice Physicians, and neither the Practice nor the Practice Physicians shall be entitled to any benefits afforded to the employees of the Company, RCG or the Facility, or any of their affiliates. The Practice agrees that (i) neither it nor any Practice Physician be treated as an employee of the Company for federal tax purposes; (ii) the Company will not withhold on behalf of the Practice any sums for income tax, unemployment insurance, social security, or any other withholding pursuant to any law or requirement of any governmental body; (iii) all of such taxes, payments and withholdings, if any, are the sole responsibility of the Practice; and (iv) the Practice will indemnify and hold the Company and RCG harmless from any and all loss or liability arising with respect to such benefits, taxes, payments and withholdings, if any. If the United States Internal Revenue Service ("IRS") should question or challenge the worker status of the Practice or the Practice Physicians, then the parties agree that both the Practice and the Company shall have the right to participate in any discussion or negotiation occurring with the IRS, irrespective of which party initiated such discussions or negotiations, and each party shall notify the other in advance of any planned meeting or discussion. 4.2 No Agency. The Practice shall not have the right or authority to, and expressly agrees that it will not, enter into any contract in the name of the Company or otherwise to bind the Company, in any way, without the express written consent of the Company. The Practice shall indemnify and hold the Company harmless from any and all loss or liability attributable to a violation of this covenant. However, the Practice shall advise and assist the Company in securing and retaining contracts in the name and for the account of the Company with such individuals or entities necessary for the proper and efficient functioning of the Company. 4.3 Access to Records. If it is ultimately determined that ss. 952 of the Omnibus Reconciliation Act of 1980 applies to this Agreement, then until the expiration of four years after the furnishing of services provided under this Agreement, the Practice will make available to the Secretary of the United States Department of Health and Human Services, the United States Comptroller General, and their representatives, this Agreement and all books, documents and records necessary to certify the nature and extent of the costs of those services. If the Practice carries out the duties of this Agreement through a subcontract worth $10,000 or more over a twelve-month period with a related organization, the subcontract will also contain an access clause to permit access by the Secretary, Comptroller General, and their representatives to the related organization's books, documents and records. 4.4 The Company's Work Product. All operating procedures, protocols, information systems, operating data, databases, reports and other non-public proprietary business systems or information owned by the Company or RCG shall be and remain the exclusive property of the Company or RCG, as appropriate. If the Practice or any Practice Physician modifies, enhances or alters any of such property such modification, enhancement or alteration will be deemed a work-for-hire and shall be the property of the Company or RCG, as appropriate. The Practice or Practice Physician making such modification, enhancement or alteration will execute all documents reasonably requested by the Company to vest fully in the Company or RCG title to such modification, enhancement or alteration. ARTICLE V INSURANCE 5.1 Practice Insurance Coverage. The Practice shall purchase and maintain at its expense for itself and each of the Practice Physicians professional and general liability insurance, with an insurance company reasonably acceptable to the Company, with policy limits of at least $1,000,000 per occurrence and $3,000,000 in the aggregate, including coverage for acts and omissions in rendering medical services to patients of the Practice, including patients being treated at the Facility. 5.2 Company Insurance Coverage. The Company shall procure and maintain throughout the term of this Agreement professional and general liability insurance (through self-insurance or an insurance carrier) with policy limits of at least $1,000,000 per occurrence and $3,000,000 in the aggregate, which coverage shall include coverage of the Practice for acts and omissions in connection with the performance of duties as medical director under this Agreement. 5.3 Evidence of Coverage. Upon the execution of this Agreement and annually thereafter or on reasonable request, the Company and the Practice shall each provide the other with certificates of insurance or other reasonably satisfactory evidence of the insurance required to be maintained under Sections 5.1 and 5.2. Each party shall notify the other at least 60 days prior to the voluntary cancellation or termination of any such coverage and immediately upon receipt of any notice of involuntary cancellation or termination of any such coverage. ARTICLE VI PRACTICE REPRESENTATIONS AND COVENANTS 6.1 Representations and Covenants. The Practice represents, covenants and warrants as follows: (a) The Practice is, and shall at all times during the term of this Agreement be, licensed to conduct its business in the State of Texas and shall engage as Practice Physicians only physicians who are licensed without restriction to Practice medicine in such state and who never have had any such license in this or any other state limited, withdrawn, suspended, subject to reprimand, curtailed, placed on probation or revoked; (b) The Practice shall engage as Practice Physicians under this Agreement only physicians who are board eligible or board certified in the specialty of nephrology as recognized by the American Board of Medical Specialists; (c) The Practice shall at all times engage at least one Practice Physician who is a member of the active medical staff of a local hospital; the Practice shall engage as Practice Physicians only physicians who have at least one year experience or training in the care of patients at an end stage renal disease treatment facility, and who have been granted privileges to practice at the Facility; (d) Except as may be approved in writing by the Company, which approval will not be unreasonably withheld, the Practice shall engage as Practice Physicians only physicians who have never been denied membership or reappointment to membership on the medical staff of any health care facility, and who have never had medical staff membership or clinical privileges limited, suspended, curtailed, revoked, placed on probation or withdrawn, and who have never been subject to reprimand whether voluntarily or as a result of action (either formal or informal) initiated by any health care facility or its medical staff; (e) The Practice shall require the Practice Physicians to use their commercially reasonable best efforts and professional skills and judgment in rendering services under this Agreement; (f) The Practice shall require the Practice Physicians to perform professional services and render care to patients in accordance with, and in a manner consistent with, appropriate standards and the ethics of the medical profession and as necessary for the Facility to maintain compliance with applicable governmental laws and regulations; (g) The Practice shall require the Practice Physicians promptly to notify the Company of any actual or threatened denial, suspension, revocation or curtailment of licensure or certification status, medical staff membership or clinical privileges held by such physician(s) with any state, with any facility operated by the Company (including the Facility), or with any payor or other health care facility; (h) The Practice has notified the Company of each action or claim alleging professional negligence filed or asserted against the Practice or any Practice Physician within the previous five years and a current status and/or ultimate resolution of such claim and will promptly notify the Company in writing of its receipt of any action, claim or lawsuit alleging professional negligence lodged against the Practice or any Practice Physician individually or any partnership, professional corporation or association with which any Practice Physician is affiliated; (i) The Practice shall, for itself, and for each Practice Physician, promptly notify the Company of any sanction, threatened sanction, investigation or proceeding by any governmental agency or any entity regarding the participation by the Practice or any Practice Physician in the Medicare, Medicaid program or any third party payor program in which the Facility participates; and (j) This Agreement covers all of the services being provided to the Company by the Practice and the Practice Physicians as medical directors of the Facility, and the Practice acknowledges and agrees that the aggregate amount of services to be provided under this Agreement will not exceed an amount that is reasonable and necessary for the legitimate medical and business purposes of this arrangement. ARTICLE VII CONFIDENTIALITY, NONCOMPETITION AND NONSOLICITATION COVENANT 7.1 Additional Covenants. (a) During the term of this Agreement and for a period of two years after the termination or expiration of this Agreement, the Practice and each Practice Physician agrees that it, he or she will not in any manner, directly or indirectly, by itself, himself or herself or in conjunction with any other person, (i) conduct any of the activities or perform any of the responsibilities delineated in Article I and EXHIBIT A ("Services") of this Agreement for any business entity that is competitive with the business of the Company or (ii) establish or own any financial, beneficial or other interest in (other than an interest consisting of less than one percent (1%) of a class of a publicly traded security), make any loan to or for the benefit of, or render any managerial, marketing or other business advice, to any entity that is then conducting activities that are competitive with those of the business of the Company, in either case within a 25-mile radius around the Facility. For purposes of this Article, the "business of the Company" means owning or operating a renal dialysis center, unit or facility or providing dialysis supplies or services to any other such center, unit or facility to any home dialysis program, including the provision of pharmaceuticals or laboratory services related to renal dialysis. By executing a counterpart of this Agreement and in consideration of the compensation paid to the Practice hereunder, each Practice Physician agrees to be bound by the terms of this Article VII. With respect to the Practice Physicians, the two-year time periods applicable to this Article VII shall begin on the earlier of (i) the termination or expiration of this Agreement, or (ii) the termination of the employment, independent contractor or other relationship or affiliation of the Practice Physician with the Practice, such that such Practice Physician ceases to fall within the definition of a Practice Physician hereunder and generally ceases to treat patients of the Practice. (b) During the term of this Agreement and for a period of two years after the termination or expiration of this Agreement, the Practice and each Practice Physician will use all reasonable efforts to keep confidential and not to divulge, or allow to be divulged to anyone, or use or otherwise appropriate for its, his or her own benefit or for the benefit of others, any knowledge or information of a confidential nature with respect to the business of the Company, the Company itself, or any of its affiliates, including all trade secrets, pricing information, marketing information or technical information (hereinafter referred to as the "Confidential Data"), except for (i) information that is generally available to the public other than as a result of a breach of a confidentiality agreement, (ii) information available on a non-confidential basis from a source other than the Company or its affiliates or agents, which source itself is not bound by a confidentiality agreement, (iii) information required to be disclosed by law or pursuant to court order, but only to the extent such disclosure is necessary to respond to such law or court order, or (iv) disclosure necessary in order for the Practice to perform its obligations under this Agreement, but only to the extent such disclosure is necessary for such performance. Each of the Practice and the Practice Physician acknowledges and agrees that the prohibitions against disclosure of Confidential Data recited herein are in addition to, and not in lieu of, any rights or remedies that the Company may have available pursuant to the laws of any jurisdiction or at common law to prevent the disclosure of confidential information or trade secrets, and the enforcement by the Company of its rights and remedies under to this Agreement shall not be construed as a waiver of any other rights or available remedies that the Company may possess in law or equity. (c) During the term of this Agreement and for a period of two years after the termination or expiration of this Agreement, neither the Practice nor any of the Practice Physicians will, for its, his or her own benefit or the benefit of others, solicit any person or entity that has or has had, or disrupt or attempt to disrupt, any relationship, contractual or otherwise, with the Company (including any patient, payor, physician, provider, managed care organization or supplier) at any time during the term of this Agreement for the purpose of assisting or creating such a relationship for any business entity that is competitive with the business of the Company. (d) During the term of this Agreement and for a period of two years after the termination of this Agreement, neither the Practice nor any of the Practice Physicians will induce, or attempt to induce, any employee of the Company or any of its affiliates to terminate his or her association with the Company or any of its affiliates. If any employee of the Company responds to a general solicitation and seeks employment with the Practice or a Practice Physician and the Practice or such Practice Physician desires to hire such employee, then the Practice or such Practice Physician shall give notice of its, his or her desire to hire such employee and will not offer to hire such employee until the earlier of seven days after such notice is received by the Company or the date on which the Company approves such hiring. If the Practice or a Practice Physician hires an employee of the Company after following the procedures outlined above, the Company may request that the employee continue to provide services to the Company for up to 30 days to provide for an orderly transition. (e) These covenants are considered by the parties hereto to be fair, reasonable and integral for the protection of the Company. The parties agree that if a violation of any of these covenants occurs, then (i) such violation and any threatened violation will cause irreparable injury to the Company, (ii) the remedy at law for any such violation or threatened violation will be inadequate, and (iii) the Company will be entitled to injunctive relief to prevent such violation. The parties acknowledge that these covenants will survive, and remain in effect and enforceable after, termination of this Agreement. (f) Nothing in this Article VII shall be deemed to prohibit any Practice Physician from exercising his or her medical judgment concerning the medical treatment of a patient in any manner whatsoever in any location whatsoever, and shall not be deemed to require the referral of any such patient to any facility of the Company or any of its affiliates. The parties acknowledge and agree that this Agreement shall in no way be deemed to restrict the right or ability of the Practice and the Practice Physicians to admit and provide professional service to patients at facilities and institutions other than facilities of the Company or RCG, including without limitation facilities operated by business entities that are competitive with the business of the Company. The Practice and the Practice Physicians acknowledge that enforcement of this covenant will not prevent any physician of the Practice from earning a living by practicing medicine or nephrology. ARTICLE VIII MISCELLANEOUS 8.1 Notices. Any notice sent in accordance with the provisions of this Section 8.1 shall be deemed to have been received (even if delivery is refused or unclaimed) on the date that is: (i) the date of proper posting, if sent by certified U.S. mail or by express U.S. mail or private overnight courier, or (ii) the date on which sent, if sent by facsimile transmission, with confirmation and with the original sent by certified U.S. mail, addressed as follows: Practice: TYLER NEPHROLOGY ASSOCIATES, P.A. 1133 Medical Drive Tyler, Texas 75701 Telecopy Number: (903) 595-0206 Company: Renal Care Group Texas, Inc. c/o Renal Care Group, Inc. 2100 West End, Suite 800 Nashville, Tennessee 37203 Telecopy Number:(615) 345-5503 Attn: Chief Financial Officer and General Counsel Copy to: Renal Care Group Texas, Inc. 5215 North O'Connor Boulevard, #490 Irving, Texas 75039 Telecopy Number: (941) 506-8388 Attn: Regional Chief Operating Officer Any party hereto may change its address specified for notices herein by designating a new address by notice in accordance with this Section 8.1. 8.2 Amendments. Subject to Section 8.4, this Agreement may be amended at any time by mutual agreement of the Practice and the Company hereto, but any such amendment shall not be operative or valid unless the same is reduced to writing and approved by the parties hereto. 8.3 Assignability. This Agreement shall not be assignable by the Practice, and the Practice shall not assign any of its rights or obligations under this Agreement without the written consent of the Company. This Agreement shall not be assignable by the Company, and the Company shall not assign any of its rights or obligations under this Agreement without the written consent of the Practice; provided that, without the consent of Practice, the Company may assign or transfer this Agreement to an affiliate of the Company or RCG or in connection with a sale of all or substantially all of the assets or business of the Company; provided that such assets and business are not composed predominantly of assets of facilities in Tyler, Texas or within 25 miles of Tyler, Texas. 8.4 Contract Modifications; Severability. (a) This Agreement shall be construed to the fullest extent possible to be in compliance with and permitted by all Federal (including Medicare and Medicaid) and state statutes, rules and regulations. If a Triggering Event (as defined below) occurs, either the Company or the Practice may by written notice to the other propose an amendment to this Agreement as necessary to comply with the item giving rise to the Trigger Event. To the fullest extent possible, any such amendment shall preserve the responsibilities and duties of the parties and the underlying economic and financial arrangements between the Company and the Practice with the least changes to the parties' expectations hereunder. If the Practice and the Company fail to agree to the form of an amendment within thirty days after the date of such notice, then either of such party may submit the matter to arbitration as provided in Section 8.9 and any arbitration award shall comply with the second sentence of this Section, provided that if any resulting change to this Agreement includes a change to the compensation under Section 3.1(a), then the amount of compensation shall be determined under the procedures in Section 3.1(b). For purposes of this Section 8.4, "Triggering Event" means the effectiveness of any statute, rule or regulation (i) prohibiting the Practice or any of the Practice Physicians from referring patients (whether Medicare, Medicaid or otherwise) for renal dialysis either directly or indirectly to the Facilities; (ii) prohibiting the Company, the Practice or any Practice Physician from submitting claims or receiving payment under the Medicare, Medicaid or any other third party payment programs for services rendered to patients at the Facilities; (iii) determining that the amount or method for determining compensation paid to the Practice hereunder does not reflect fair market value for the services provided by the Practice under this Agreement without taking into account the volume or value of referrals made by the Practice Physicians; or (iv) otherwise rendering illegal the relationship hereunder between the Company, the Practice and the Practice Physicians. (b) Subject to the provisions of subsection (a) of this Section 8.4, if any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws in effect during the term of this Agreement, the legality, validity or enforceability of the remaining provisions of this Agreement shall not be affected thereby. 8.5 Headings. The headings of this Agreement are inserted for convenience only and are not to be considered in construction of its provisions. 8.6 Entire Agreement. This Agreement constitutes the full contract and agreement of the parties with respect to its subject matter, superseding all prior or contemporaneous agreements, either oral or written. 8.7 Construction of the Agreement and Binding Effect. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, the parties expressly agree that all terms and conditions of this Agreement shall be construed under and governed by the laws of the State of Texas. 8.8 Non-Waiver. The failure of either party to exercise any of its rights under this Agreement for a breach thereof shall not be deemed to be a waiver of such rights or a waiver of any subsequent breach. 8.9 Disputes. (a) The parties agree that any dispute arising in connection with, or relating to, this Agreement or the termination of this Agreement (other than a dispute related to Sections 3.1(b) or 8.4) shall be subject to resolution through informal methods. If the parties are unable to resolve such dispute after thirty days of efforts, then such dispute shall be submitted to mediation with a singe mediator selected by the parties or, failing the parties' agreement on a mediator, by JAMS/Endispute. The mediation shall be conducted in accordance with the rules of JAMS/Endispute. If the parties are unable to resolve the dispute through mediation, they shall retain all rights and remedied at applicable law, subject to paragraph (b) below. (b) Following the procedures outlined in paragraph (a) above, the parties agree that any dispute arising in connection with, or relating to, this Agreement or the termination of this Agreement (other than a dispute related to Section 3.1(b) and, unless the Company so agrees, a dispute under Article VII), to the maximum extent allowed by applicable law, shall be subject to arbitration in accordance with the terms of the Commercial Arbitration Rules for Expedited Procedures of the American Arbitration Association. A single arbitrator shall be chosen mutually by the parties from among the Commercial Panel of the American Arbitration Association. Notwithstanding the foregoing, any party hereto may seek all available preliminary injunctive or other temporary relief pending the issuance of an arbitration award. The award of the arbitrator shall contain findings of fact and conclusions of law and shall be binding and conclusive upon the parties. (c) Any mediation or arbitration under this Agreement shall be held in Smith County, Texas. 8.10 Third Party Beneficiaries. The Practice and the Practice Physicians agree that RCG and its affiliates are express and intended third party beneficiaries of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written to be effective as provided hereinabove. Company: ------- RENAL CARE GROUP TEXAS, INC. By: /s/ R. Dirk Allison -------------------------------- Title: Vice President ----------------------------- Practice: -------- TYLER NEPHROLOGY ASSOCIATES, P.A. By: Roy D. Gerard, Jr., M.D. -------------------------------- Title: President ----------------------------- PHYSICIAN JOINDER Each Practice Physician executing below acknowledges that he or she has read and understood the terms of the Medical Director Services Agreement, dated May 1, 2002 and effective as of May 1, 2000, to which this Physician Joinder is attached and as same may be amended or revised as provided therein (the "Agreement"). By signing this Physician Joinder, each Practice Physician agrees in his or her individual capacity, to (i) the nature and scope of medical director duties set forth in Article I of the Agreement, including as described in detail on EXHIBIT A, (ii) the restrictive covenants contained in Article VII of the Agreement, and (iii) the third party beneficiary designated in Section 8.10 of this Agreement, in each case as may be amended by agreement of the Practice. /s/ Robert C. Dobrowolski, M.D. (seal) --------------------------------------- Name: Robert C. Dobrowolski, M.D. --------------------------------- /s/ Thomas A. Lowery, M.D. (seal) --------------------------------------- Name: Thomas A. Lowery, M.D. --------------------------------- /s/ James R. Cotton, Jr., M.D. (seal) --------------------------------------- Name: James R. Cotton, Jr., M.D. --------------------------------- /s/ Roy D. Gerard, M.D. (seal) --------------------------------------- Name: Roy D. Gerard, Jr., M.D. --------------------------------- /s/ Diane S. Demick, M.D. (seal) --------------------------------------- Name: Diane S. Demick, M.D. --------------------------------- /s/ Alpesh Jethva, M.D. (seal) --------------------------------------- Name: Alpesh Jethva, M.D. --------------------------------- /s/ Nabeel Ahmed, M.D. (seal) --------------------------------------- Name: Nabeel Ahmed, M.D. --------------------------------- /s/ Stephanie Diaz, M.D. (seal) --------------------------------------- Name: Stephanie Diaz, M.D. --------------------------------- EXHIBIT A MEDICAL DIRECTOR DUTIES AND RESPONSIBILITIES (Rev. 2/4/99) Qualifications: The Practice, through the Practice Physicians, shall be the "Medical Director" contemplated by these duties and responsibilities. The Medical Director shall be a licensed physician in the State of Texas, who meets the criteria of and ESRD "qualified physician director" as well as the requirements for Professional Staff membership as enumerated in the Professional Staff Bylaws. Duties and Responsibilities: As required by Title 42 of the Code of Federal Regulations, the Medical Director has responsibility for the execution of patient-care policies at the Facility. The Medical Director exercises that responsibility through working with the Facility's head nurse or manager to direct the professional services of the Facility and conscientiously applying its policies and procedures. The Medical Director is a member of the governing body of the Facility and serves as the official channel of communications between the Medical Staff and the Executive Board. Specific responsibilities of the Medical Director include the administrative, medical and technical services outlined below. The duties and responsibilities of the Medical Director are separate and distinct from any Practice Physician's role as an attending nephrologist. Specific responsibilities of the Medical Director include: Administrative A. The Medical Director will provide advice and assistance to the Company in the implementation and maintenance of written policies and guidelines including: 1. Communicable disease control within the unit. 2. The RCG Professional Staff Bylaws. 3. Maintenance of patient medical records. 4. Patient and staff education programs. 5. Physical environment, fire and safety, and emergency preparedness of the dialysis facility. 6. Responsibilities and functions of each category of personnel employed by the facility. Such policies and guidelines will be developed by Company personnel, including the Facility's head nurse or manager and the area administrator, and the policies and guidelines will be subject to the review and comment of the Medical Director. The Company will, with the advice and assistance of the Medical Director, oversee the implementation and maintenance of such policies and procedures and the training of personnel in the same, and the Medical Director will provide advice in such training as needed to the Company. Training for nurses and dialysis technicians will be provided by the Company through the supervising nurse or another instructor qualified under 25 TAC ss. 117.62(g)(2). B. The Medical Director will actively participate in facility Quality Improvement Programs (CQI) and in multi-disciplinary quality assurance programs that monitor the performance of co-morbid conditions. C. As required by 42 CFR 405.2136, the Company, with the advice and assistance of the Medical Director, is responsible for maintaining and implementing written personnel policies and procedures including: 1. Qualifications and responsibilities of all staff employed by the facility. 2. Provision of a safe and sanitary environment, and procedures for reporting, preventing, and testing for health and safety hazards. 3. Supervision of trainees. 4. Maintenance of complete personnel records. 5. Personnel policies available to all personnel of the facility, including effective grievance procedures. 6. Personnel participation in regular educational programs. 7. Maintaining and updating manuals. D. The Medical Director will participate in an active dialogue with the RCG Medical Advisory Board (or its representative) in pursuit of the common goal of delivering the best patient care practical. This participation requires implementation of MAB mandated directives and consideration of its recommendations. E. The Medical Director will review as requested by the Company the RCG Quality Indicator and patient satisfaction data for the facility with the manager of the facility and will consult with attending nephrologists regarding achievement of Quality Indicator targets. F. The Medical Director will recommend an appropriate physician to serve as a representative on the governing body of the Facility. G. The Medical Director will exert reasonable efforts to assist facility in complying with applicable ESRD network, State, Federal and RCG mandates. The Medical Director will exert reasonable efforts to encourage all attending physicians to comply with applicable ESRD network, State, Federal and RCG mandates. H. The Medical Director will review incident reports, patient complaints and any disciplinary action of medical staff or patient care personnel monthly. I. The Medical Director will serve as facility liaison with affiliated medical institutions for services such as renal transplantation, hospitalizations and emergency medical services. J. The Medical Director will participate in the facility survey process by groups such as the State Board of Health, CMS, NCQA and JCAHO, and will then communicate to the Governing Body the results of such surveys to the Executive Board (and the medical staff). K. The Medical Director will collaborate with the Chief Medical Officer and the MAB in obtaining data from regulatory agencies as a part of the RCG strategy to work continuously to improve patient care. L. The Medical Director will participate as reasonably practicable given the time and circumstances of Medical Director in national RCG Medical Director educational conferences. M. The Medical Director will collaborate with the laboratory that tests the facility's samples to implement ESRD Network, State, Federal and RCG mandates. Medical A. The Medical Director will be a member of the renal health care team to ensure quality of care, including the establishment and implementation of policies regarding patient care. Among these quality of care criteria are: - The suitability of patients admitted to the outpatient dialysis facility. - The appropriateness of dialysis prescriptions in the facility. - Administration of dialysis-related medications. - Administration of recommended vaccines for ESRD patients and staff. - Existing patient care policies and procedures. B. The Medical Director will serve on the professional team in the development of long-term patient care plans and the review and revision of long-term patient care plans and will participate in the selection of an appropriate ESRD modality for all patients of the facility. C. The Medical Director will advise the Company regarding the development and implementation of written policies outlining patients' options for various treatment modalities, including in-center, home and peritoneal dialysis. D. When self-dialysis training or home dialysis training is offered, the Medical Director will advise the Company in developing and implementing a program that assures that patient teaching materials are available for the use of all trainees during training and at times other than during the dialysis procedure; E. The Medical Director will work to assure that the ESRD patient has appropriate consultation with a renal dietician, social worker, financial counselor and other individuals, as needed. F. The Medical Director will oversee the appropriate performance of the dialysis orders and day-to-day patient care policy by the nursing and technical staff. G. The Medical Director will use reasonable efforts to encourage attending physicians to comply with the facility's policies on patient care and will work with the Company to address instances of attending physicians' failure to comply with such policies. H. The Medical Director will review patient satisfaction surveys and data, clinical outcomes data, and the Medical Director will consult with attending physicians and staff as appropriate to implement appropriate action to address issues identified and to improve patient care at the facility. Technical A. The Medical Director will participate in the selection of treatment modalities and dialysis supplies to be offered by the facility and advise attending physicians regarding the compatibility of their dialysis prescriptions with the options available at the facility. B. The Company will provide to the Medical Director, for review and approval, policies and procedures regarding the adequate training of nurses and technicians in dialysis science techniques. C. The Medical Director will provide continuous availability for medical and technical questions to the patient care staff, including coverage when the Medical Director is not available. D. The Medical Director will advise the Company regarding the implementation of a dialysis water standards policy including monitoring and enforcement. E. The Medical Director will advise the Company regarding the implementation of a policy regarding dialyzer reuse including monitoring and enforcement. F. The Medical Director will advise the Company regarding the implementation of a policy on the administration of intradialytic medications. EXHIBIT C MEDICAL DIRECTOR PERFORMANCE REVIEW There has been general agreement regarding the need for a clear set of guidelines and expectations of an RCG Medical Director. Objectivity in the annual performance evaluation has been prerequisite, leading to the development of this document. Our mission is "to improve the quality of life and to care for those patients with chronic and acute renal disease." This requires that the dialysis facility and its staff function collaboratively at the highest possible level, under the leadership of the Medical Director. The Practice's performance relative to the criteria set forth in this EXHIBIT C will be evaluated as part of the quality assurance process of RCG's South Central Region. These performance review criteria are designed to foster continuous improvements in patient care. The Interpretive Guidelines for ESRD Facilities states in V-420 "Treatment is under the general supervision of a Director who is a physician. The Medical Director is responsible for planning, organizing, conducting and directing the professional ESRD services and must devote sufficient time to carrying out these responsibilities." The Nephrologist has the medical skills and must develop leadership and collaborative management skills to fulfill this mandate as Medical Director. Teamwork and collegiality are highly valued as the leader of the ESRD team. The measure of performance will be based on a point system as authorized by the Medical Advisory Board (MAB). The specific criteria and weight may be changed in the future at the discretion of the MAB. The elements to be measured and their weight are as follows: - 50% based on Clinical Indicators of the Facility - 30% based on Medical Director administrative duties - 20% based on patient satisfaction with the Facility CLINICAL PERFORMANCE MEASURES (50%) HEMODIALYSIS MEDICAL DIRECTOR (evaluation based on annual rolling average of prior year) - - URR (% of patients with URRs >=70%) >75% = 10 points RCG AVERAGE 65% 70-75% = 8 points Best Region 72.8% 65-69.9% = 6 points 60-64.9% = 4 points <60% = 0 points - - HEMATOCRIT (% of Hcts >=33%) >75% = 10 points RCG AVERAGE 63.7% 70-75% = 8 points Best Region 70.2 65-69.9% = 6 points 60-64.9% = 4 points 55-59.9% = 2 points <55% = 0 points - - MISSED TREATMENTS (91+ days, based on days per patient year at risk) RCG AVERAGE ___ TREATMENTS < = 8 points Best Region ___ treatments = 6 points = 2 points > = 0 points - - MORTALITY (91+ days, based on deaths per 100 patient years at risk) RCG AVERAGE 20.7 <20 = 8 points Best Region 15.5 20-23.9 = 6 points 24-29.9 = 4 points 30-35 = 2 points >35 = 0 points - - VASCULAR ACCESS: % OF TEMPORARY CATHETERS <10% = 8 points RCG average 19.8% 10-14.9% = 6 points Best Region 10.7% 15-19.9% = 4 points 20-25% = 2 points >25% = 0 points - % native AV fistulas >35% = 15 points RCG average 22% 30-34.9% = 12 points Best Region 33.6% 25-29.9% = 9 points 20-24% = 6 points 15-19.9% = 3 points <15% = 0 points - PTFE clotting events/patient year <0.3 = 10 points RCG average 0.9 0.3-0.59 = 8 points Best Region 0.6 0.6-0.99 = 9 points 1.0-1.2 = 4 points >1.2 = 0 points PERITONEAL DIALYSIS MEDICAL DIRECTOR (VALUATION BASED ON ANNUAL ROLLING AVERAGE OF PRIOR YEAR) - - KT/V (>=2.1) RCG AVERAGE 63.5% CAPD >65 = 15 points RCG average 70.6% CCPD 60-65% = 12 points 55-59.9% = 10 points 50-54.9% = 8 points 45-49.9% = 5 points - - CREATININE CLEARANCE (>=60L CAPD or >=60 L CCPD) RCG AVERAGE 67.1% CAPD >70 = 15 points RCG average 70.6% CCPD 65-70% = 12 points 60-64.9% = 10 points 55-59.9% = 8 points 50-54.9% = 5 points - - HEMATOCRIT (% of Hcts 33-36%) >75% = 10 points RCG AVERAGE 63.7% 70-75% = 8 points Best Region 70.2 65-69.9% = 6 points 60-64.9% = 4 points 55-59.9% = 2 points <55% = 0 points - - HOSPITALIZATION (91 + days, based on days per patient year at risk) RCG AVERAGE 12.0 DAYS <10 days = 8 points Best Region 8.6 days 10-14.9 days = 6 points 15-20 days = 2 points >20 days = 0 points - - MORTALITY (91 + days, based on deaths per 100 patient years at risk) RCG AVERAGE 20.7 <20 = 8 points Best Region 15.5 20-24.9 = 6 points 24-29.9 = 4 points 30-35 = 2 points >35 = 0 points - - PERITONITIS (new cases + relapse) RCG AVERAGE 14.9 MONTHS BETWEEN CASES Best Region 16.9 months between cases >25 months between cases 15 points 20-25 months between cases 12 points 15-19.9 months between cases 9 points 10-14.9 months between cases 6 points >10 months between cases 0 points COMBINATION HEMODIALYSIS & PERITONEAL MEDICAL DIRECTOR For those physicians who oversee both modalities, each is evaluated using the above criteria. The overall Clinical Quality is then a composite of these, weighted to reflect the numbers of patients in each modality. MEDICAL DIRECTOR TASKS (30%) - ---------------------- - - PARTICIPATION IN MONTHLY REVIEW: (one point / month with 12 points possible) - Review staffing & training issues impacting patient outcomes with Manager - Review water quality - Review dialyzer reuse @ the Facility - Review monthly lab of patients below quality goals & develop plan - Review trend in hospitalizations, infections - Review temporary catheter usage & trend - Review patient incident reports & trends - Monitor staff physician patient rounding process - Adequacy of staff physician medical documentation - - PARTICIPATION IN CQI PROCESS: (one point/hourly meeting with 12 points possible) - - PARTICIPATION IN PROFESSIONAL STAFF PROCESS: - Quarterly Professional Staff meetings (one point/quarter - 4 points possible) - Quarterly Quality conference calls (one point/quarter - 4 points possible) - - ANNUAL CHECKLIST: (2 points for each item - 8 points possible) - Review and approve facility Policy and Procedures and make necessary modifications; review and approve clinical protocols. - Review patient satisfaction data annually and in concert with the Facility Manager make recommendations for improvement. - Participate with the Manager in the Budget process for the Facility. - Participate in Facility surveys by BOH, HCFA, etc. PATIENT SATISFACTION SCORES (PSS) (20 %) CAREGIVER: RCG average 1.26 PSS>1.5 = 8 points PSS 1.25-1.5 = 6 points PSS 1.0-1.249 = 4 points PSS 0.5-0.99 = 2 points PSS <0.5 = 0 points PHYSICIAN: RCG average 1.11 PSS>1.5 = 10 points PSS 1.25-1.5 = 8 points PSS 1.0-1.249 = 6 points PSS 0.5-0.99 = 2 points PSS <0.5 = 0 points DIETICIAN, SOCIAL WORKER, OTHER RCG average 1.47, 1.33, 1.08 PSS>1.5 = 4 points each PSS 1.25-1.5 = 3 points each PSS 1.0-1.249 = 2 points each PSS 0.5-0.99 = 1 point each PSS <0.5 = 0 points EX-10.66 7 g81202exv10w66.txt A#1 TO MEDICAL SERVICES AGREEMENT 05/01/02 Exhibit 10.66 AMENDMENT NUMBER 1 TO MEDICAL DIRECTOR SERVICES AGREEMENT THIS AMENDMENT NUMBER 1 TO MEDICAL DIRECTOR SERVICES AGREEMENT (this "Amendment") is made and entered into this 26th day of June, 2002, effective as of the 1st day of May, 2002, by and between RENAL CARE GROUP ARIZONA, INC., an Arizona corporation as assignee of Renal Care Group, Inc. (the "Company"), and ARIZONA NEPHROLOGY ASSOCIATES, PLC, an Arizona professional limited liability company as assignee of certain individual physicians (the "Group"). WITNESSETH: WHEREAS, the Company and the Group are parties to a Medical Director Services Agreement (Group Practice/Freestanding Facilities), effective as of September 30, 1996 (the "Agreement"), under which the Group provides medical director services for dialysis facilities located in Arizona that are owned in whole or in part by the Company; and WHEREAS, Renal Care Group, Inc. assigned the Agreement to the Company; and WHEREAS, individual physician members of the Group assigned the Agreement to the Group under an Assignment and Assumption Agreement dated June 8, 1999; and WHEREAS, the parties to this Amendment now desire to make certain modifications and amendments to the Agreement as provided in this Amendment; and WHEREAS, capitalized terms that are used but not defined in this Amendment that are defined in the Agreement shall have the meanings set forth in the Agreement; NOW, THEREFORE, in consideration of the mutual promises, covenants and undertakings set forth in this Amendment and in the Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Amendment hereby agree as follows: 1. Definitions. The parties agree that the Agreement is hereby amended to delete therefrom the definition of the term "Facilities" in the Preamble to the Agreement. For purposes of the Agreement and this Amendment, the term "Facilities" means, collectively, the dialysis facilities listed on attached EXHIBIT A and EXHIBIT A-1 to this Amendment. For purposes of the Agreement and this Amendment, the term "DRA Facilities" means the dialysis facilities listed on attached EXHIBIT A-1 to this Amendment. For purposes of the Agreement and this Amendment, the term "HCFA" and references to the "Health Care Financing Administration" are hereby deleted from the Agreement, and the terms "CMS" and "Centers for Medicare and Medicaid Services" are inserted in lieu thereof. 2. Deletion of DRA Facilities. (a) Except as provided herein and in subsection (b) below, the Company may from and after the date of this Amendment through May 1, 2003, upon written notice to the Group that the Company has entered into a Medical Director Services Agreement with Desert Renal Associates, PLC ("DRA"), delete the DRA Facilities from the definition of Facilities. From and after the delivery of such notice (the "Deletion Notice"), the Group shall not be responsible for the performance of medical director services at the DRA Facilities, and the Company shall not be responsible for paying the portion of the medical director fee attributable to the DRA Facilities as contemplated by Section 3.1 of the Agreement, as amended by this Amendment. Until the delivery of the Deletion Notice, the Group shall continue to subcontract with DRA, so that DRA will provide medical director services for the DRA Facilities on a subcontracted basis. The parties agree that if the Company delivers the Deletion Notice, then the Company and the Group will not enter into any agreement under which the Group will provide medical director services for any of the DRA Facilities until at least one year after RCG delivers the Deletion Notice. Notwithstanding the foregoing, the Company agrees that it shall not enter into any separate Medical Director Services Agreements with DRA until and unless, after good faith negotiations with DRA (as described further in subparagraph 2(b) herein), the Group is permitted to own membership interests representing a minimum aggregate ownership interest of 20% in Renal Dimensions, LLC ("RDI") or the Group and the Company enter into a joint venture for other dialysis facilities in Arizona. (b) The Company will from time to time engage in good faith negotiations with DRA for a period of up to one (1) year from the date of this Amendment to enter into a new Medical Director Services Agreement with DRA AND to cause DRA either (i) to permit the Company to offer the Group a membership interest of at least an aggregate of 20% in RDI, a joint venture between the Company and DRA, or (ii) to permit the Company to enter into a new joint venture arrangement with the Group to develop new dialysis facilities in and around Arizona, notwithstanding the first refusal provisions of the Limited Liability Company Agreement for RDI in favor of DRA. The Company will report to the Group at least every two (2) months concerning the status of such negotiations with DRA. The Company will give the Group written notice if, at any time during the one (1) year period, the Company determines that it can not enter into a new Medical Director Services Agreement with DRA or if DRA refuses to permit the Group ownership in RDI or to enter into a joint venture with the Company as contemplated above (a "Termination Notice"). If (A) the Company delivers the Termination Notice, or (B) the Company has not entered into a new Medical Director Services Agreement with DRA on or before May 1, 2003, then the Company shall cease to have the right to contract separately with DRA for the DRA Facilities during the term of this Agreement (i.e. the Company agrees that if negotiations with DRA fail, it will not enter into separate Medical Director Services Agreements with DRA for any of the Facilities during the term of this Agreement as it may be extended as provided below), and the Group will no longer be required to subcontract with DRA to obtain services for the DRA Facilities. In furtherance of the foregoing, the term of the Agreement shall be tolled during the negotiation period, such that, if Company is unsuccessful in its negotiations with DRA, then the term of the Agreement shall continue for a period of one (1) year after the earlier of the Company's delivery of a Termination Notice or May 1, 2003, and the parties shall abide by the terms and conditions of the Agreement and this Amendment during such extended term. 3. Responsibilities. The parties agree that Section 1.2 of the Agreement shall be, and is hereby, amended by deleting such Section in its entirety and inserting in lieu thereof the following: 1.2 Responsibilities. Without limiting the generality of this Article I, the Group shall provide the medical director services described in EXHIBIT B, which may be revised and updated from time to time by the Company, provided that any change that is not a CMS or other legal requirement must first be approved by the Group if it materially increases the medical director duties hereunder. The Group will designate a principal contact for coordination of medical director services at each Facility. Such principal contact may not be changed without the written consent of the Company, which consent will not be unreasonably withheld; provided that the Group will not seek to change the principal contact for any Facility more often than once a year except in the event of the death, disability or retirement of, or other exigent circumstances involving the principal contact. 2 4. Compensation for Services. The parties agree that Section 3.1 of the Agreement shall be, and is hereby, amended by deleting such Section in its entirety and inserting in lieu thereof, the following: 3.1 Compensation. (a) In consideration of the services, covenants, and agreements agreed to be performed by the Group during the Term, the Company shall pay the Group $1,168,000 per year, payable in substantially equal monthly installments in arrears. In addition to the annual medical director fee described above, the Group shall be eligible for an annual bonus of up to 15% of such annual medical director fee (exclusive of the $288,000 fee attributable to the DRA Facilities) based upon the success of the Facilities (other than the DRA Facilities) in meeting performance criteria for the Facilities and Group generally prescribed by Renal Care Group, Inc., parent company of the Company ("RCG"), for its facilities in the region in which the Facilities are located. This bonus will be first payable for the year beginning January 1, 2002 and ending December 31, 2002, but the bonus will be prorated based on the period of time during such year after Amendment Number 1 to this Agreement was in force. Prior to January 1 of each year from and including 2002, the Group will give the Company a notice stating the allocation of the potential bonus among the Facilities (other than the DRA Facilities), showing the percentage of the total bonus attributable to each such Facility. Such allocation shall be subject to the review and approval of the Company, which approval will not be unreasonably withheld. The Group shall make such allocation taking into account patient census, patient demographics, the amount of time expected to be spent providing medical director services to each such Facility and other similar relevant factors. The criteria for reviewing and determining the bonus amount will be substantially similar to those attached as EXHIBIT C to this Agreement. RCG may change the bonus criteria annually, and the Company will provide the revised criteria to the Group when adopted. RCG will not adopt clinical goals in the bonus criteria that supersede or undermine the Group's or any of its physicians' best clinical judgment. The Group will have the right to review the computation of the bonus and to dispute in good faith the Company's calculation of the bonus based on objective evidence of the Group's performance in relation to the bonus criteria. The Group agrees to accept this payment (as it may be adjusted as provided below) by the Company as the total compensation for all services, covenants and agreements pursuant to this Agreement. (b) The Group and the Company acknowledge and agree that $288,000 of the base medical director fee contemplated above is attributable to the DRA Facilities and that after the delivery of the Deletion Notice, the base medical director fee will be deemed automatically reduced to $880,000. (c) (i) Beginning 90 days prior to May 1, 2003 and May 1 of each year thereafter, if either party believes that the fair market value of the services provided by the Group under this Agreement has changed in any material way since the most recent anniversary of the effective date of a change in compensation payable under this Agreement (a "Compensation Adjustment Date"), then such party may notify the other that it believes such a change has occurred and the Group and the Company shall negotiate in good faith an adjustment to the compensation described in Section 3.1(a) above so that it represents fair market value for the duties and responsibilities of the Group to be provided during the next year under this Agreement. Notwithstanding the 3 foregoing, no adjustment pursuant to this subsection (c)(i) to the compensation payable under this Agreement shall be effective unless set forth in writing signed by the Group's and the Company's authorized representatives, which writing shall be deemed an amendment to this Agreement. (ii) If the Group and the Company are unable to agree on an adjustment, then either may require that an adjustment of the compensation hereunder be submitted to a qualified independent third party mutually selected by both the Group and the Company to determine the fair market value of the services required hereunder, the costs and fees of which shall be borne equally by the Group and the Company. If the Group and the Company are unable to agree on the third party, then each of the Company and the Group shall at its own cost and expense select its own qualified independent third party and the average of such two determinations of fair market value shall be the revised compensation unless such determinations are more than 10% apart, in which case such third parties shall mutually select an additional qualified independent third party, the fees and expenses of which shall be shared equally, who shall determine the fair market value of the services hereunder from between the range of the amounts determined by the first two appraisals. The fair market value of the services as determined in accordance with the provisions of this subsection (c)(ii) shall be the compensation payable under this Agreement effective as of the applicable anniversary of the Compensation Adjustment Date, and such final determination shall be deemed an amendment to this Agreement. (d) Any change to the compensation payable hereunder in accordance with subsection (c) of this Section 3.1 shall be effective as of the applicable anniversary of the Compensation Adjustment Date and shall remain effective, and not subject to adjustment under Section 3.1(c) or otherwise, for at least 12 months from the effective date of such change. 5. Settlement and Release. The Group and the Company, and each of their officers, directors, trustees, agents, employees, subsidiaries, affiliates, assigns, successors or heirs, hereby relinquish and release any and all known or unknown causes of action, claims, demands, liabilities, losses, expenses or other damages (including attorney's fees) against the other concerning the negotiation of an increase in the medical director fee payable under the Agreement or either the Group's or the Company's good faith, or lack thereof, in such negotiations. The Group and the Company represent that they have consulted with counsel of their choosing, or have had the opportunity to consult with counsel of their choosing, have read this Agreement in its entirety, fully understand and comprehend this Agreement, and assent to and sign this Agreement by their own free act. If any provision of this Agreement is held to be illegal, invalid or unenforceable by any court or tribunal of competent jurisdiction, then those provisions remaining legal, valid and enforceable shall remain in full force and effect. 6. Signing Consideration. In consideration of the Group's execution and delivery of this Agreement with the attendant agreements provided in Sections 2, 3, 4 and 5 of this Amendment, upon the execution and delivery of this Amendment by the Group and its physicians, the Company shall pay the Group cash in the amount of $90,000 by wire transfer to an account designated by the Group. 7. Exhibits. The parties agree that the Agreement is hereby amended by attaching EXHIBIT A, EXHIBIT A-1, EXHIBIT B and EXHIBIT C in the forms attached to this Amendment. 4 8. No Further Amendment. Except as expressly modified and amended by this Amendment, the parties agree that the Agreement shall continue in full force and effect as provided therein, and the parties reaffirm all of its provisions. 9. Miscellaneous. The section and other headings used in this Amendment are for convenience of reference only and shall not affect the interpretation of this Agreement in any way. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original for all purposes and all of which shall be deemed, collectively, one agreement. 11. Renal Dimensions, LLC. The Company will, within ten business days following the Group's request, cause its affiliate to sell to the Group a membership interest representing 10% of the outstanding membership interests in RDI. The purchase price for such interests will be the fair market value of such interests as determined by a final appraisal conducted by American Appraisal Associates. The Company represents that the current draft of an appraisal of interests representing 20% of the membership interests in RDI indicates that the fair market value of 10% of the membership interests would be $220,000. The sale will be conditioned on (i) the Company's affiliate's representation and warranty that it owns the interests free and clear of all liens, claims and encumbrances of any nature other than encumbrances arising under the Limited Liability Company Agreement for RDI, and (ii) the Group's representations and warranties that it is acquiring the interests for investment purposes only and not for resale and that it is an accredited investor for purposes of federal and state securities laws. Prior to the closing of any sale under this Section 11, the Group will have the opportunity to ask questions of and receive answers from management of RDI concerning the operations and financial status of RDI. The Group's right to purchase a 10% interest in RDI under this Section 11 will expire on August 30, 2002. [the remainder of this page intentionally left blank, signatures follow] 5 IN WITNESS WHEREOF, this Amendment is executed effective as of the date first set forth above. The Company: RENAL CARE GROUP ARIZONA, INC. By: /s/ R. Dirk Allison ------------------------------------ Title: Vice President --------------------------------- The Group ARIZONA NEPHROLOGY ASSOCIATES, PLC By: /s/ Douglas Anderson, M.D. ------------------------------------ Title: President --------------------------------- 6 Each physician executing below acknowledges that he or she has read and understood the terms of this Amendment and the Agreement amended hereby and hereby confirms and ratifies the acknowledgement set forth in Section 6.1(j) of the Agreement and the agreements set forth in Article VII of the Agreement, as provided therein. /s/ Douglas Chang, M.D. --------------------------------------- Douglas Chang, M.D. /s/ Ronald Hyde, M.D. --------------------------------------- Ronald Hyde, M.D. /s/ Melissa Go, M.D. --------------------------------------- Melissa Go, M.D. /s/ Kenneth Johnson, M.D. --------------------------------------- Kenneth Johnson, M.D. /s/ Kenneth Boren, M.D. --------------------------------------- Kenneth Boren, M.D. /s/ Manuel Abrante, M.D. --------------------------------------- Manuel Abrante, M.D. /s/ Frederick Osario, M.D. --------------------------------------- Frederick Osario, M.D. /s/ Vijay Kumar, M.D. --------------------------------------- Vijay Kumar, M.D. /s/ Jeffrey Packer --------------------------------------- Jeffrey Packer, D.O. --------------------------------------- Yogesh Amin, M.D. /s/ Douglas Anderson, M.D. --------------------------------------- Douglas Anderson, M.D. /s/ Richard Flick, M.D. --------------------------------------- Richard Flick, M.D. /s/ David Naai, M.D. --------------------------------------- David Naai, M.D. 7 Each physician executing below acknowledges that he or she has read and understood the terms of this Amendment and the Agreement amended hereby and hereby confirms and ratifies the acknowledgement set forth in Section 6.1(j) of the Agreement and the agreements set forth in Article VII of the Agreement, as provided therein. /s/ Anup Rai, M.D. --------------------------------------- Anup Rai, M.D. /s/ Georgetta Bidwell, M.D. --------------------------------------- Georgetta Bidwell, M.D. /s/ Berne Yee, M.D. --------------------------------------- Berne Yee, M.D. 8 EXHIBIT A FACILITIES Renal Care Group - Glendale 5157 W. Thunderbird, Building 3 Glendale, Arizona 85306 Renal Care Group - Sun City 10050 w. Bell Road, Suites 29-31 Sun City, Arizona 85351 Renal Care Group - Sun City West 13830 W. Camino del Sol, Suite 100 Sun City West, Arizona 85375 Renal Care Group - Home Dialysis of Glendale 5157 W. Thunderbird, Suite 306 Glendale, Arizona 85306 Acute Dialysis Services (West Valley) Renal Care Group - Prescott 1365 Iron Springs Road, Suite A7&8 Prescott, Arizona 86301 Renal Care Group - Apache Junction 11518 East Apache Trail, Suite 109 Apache Junction, Arizona 85220 Renal Care Group - Southwest Mesa 2620 W. Broadway, Suites 1-4 Mesa, Arizona 85202 Renal Care Group - Home Dialysis of Mesa 1750 S. Mesa Drive, Suite 100 Mesa, Arizona 85210 Renal Care Group - East Valley 215 South Power Road, Suite 218 Mesa, Arizona 85206 Renal Care Group - Globe 2250 US Highway 60, Suite 0-2 Miami, Arizona 85539 9 EXHIBIT A (CONTINUED) FACILITIES Renal Care Group - Safford 1600 20th Avenue, Unit B, Suite 2 Safford, Arizona 85546 Renal Care Group - Cottonwood 203 S. Candy Lane, Suites 11A&B Cottonwood, Arizona 86326 Renal Care Group - Lake Havasu 1761 McCulloch Blvd., Suite F Lake Havasu, Arizona 86403 Renal Care Group - Phoenix 1320 North 10th Street, Suite A Phoenix, Arizona 85006 Renal Care Group - Scottsdale 8435 E. McDowell Road, Suite 100 Scottsdale, Arizona 85257 Renal Care Group - South Phoenix 4621 South Central Avenue Phoenix, Arizona 85204 Home Hemo 1750 S. Mesa Drive, Suite 100 Mesa, Arizona 85210 10 EXHIBIT A-1 DRA FACILITIES Facilities Renal Care Group - AK-Chin 16536 North Maricopa Road Maricopa, AZ 85239 Renal Care Group - Casa Grande 695 E. Cottonwood Lane Casa Grande, AZ 85222 Renal Care Group - Chandler 912 West Chandler Blvd., Building A Chandler, AZ 85225 Renal Care Group - Mesa 1337 S. Gilbert Road, Suites 101-103 Mesa, AZ 85210 Renal Care Group - Sacaton Seed Farm & Skill Center Road, Box 207 Sacaton, AZ 85247 Renal Care Group - Payson 112 W. Cedar Lane Payson, AZ 85541 Renal Care Group - Show Low 1500 S. White Mountain Rd., Suite 204 Show Low, AZ 85901 Renal Care Group - Sun Lakes 9666 E. Riggs Road, Suite 504 Sun Lakes, AZ 85248 Renal Care Group - Tempe 1449 W. Southern Ave. Tempe, AZ 85282 Renal Care Group - White River Highway 73, Milepost 342 P.O. Box 1899 White River, AZ 85941 Acute Dialysis (East Valley) 11 EXHIBIT B MEDICAL DIRECTOR DUTIES AND RESPONSIBILITIES (Rev. 2/4/99) Qualifications: The Group, through the Practice Physicians, shall be the "Medical Director" contemplated by these duties and responsibilities. The Medical Director shall be a licensed physician in the State of Arizona, who meets the criteria of and ESRD "qualified physician director" as well as the requirements for Professional Staff membership as enumerated in the Professional Staff Bylaws. Duties and Responsibilities: As required by Title 42 of the Code of Federal Regulations, the Medical Director has responsibility for the quality of professional care delivered to the patients at the Facilities. The Medical Director exercises that responsibility through directing the professional services of the Facilities and conscientiously applying its policies and procedures. The Medical Director is a member of the governing body of the Facilities and serves as the official channel of communications between the Medical Staff and the Executive Board. Specific responsibilities of the Medical Director include the administrative, medical and technical services outlined below. The duties and responsibilities of the Medical Director are separate and distinct from any Practice Physician's role as an attending nephrologist. Specific responsibilities of the Medical Director include: Administrative A. The Medical Director will be responsible for the implementation and maintenance of written policies and guidelines including: 1. Patient care delivery policy and procedures manual. 2. Communicable disease control within the unit. 3. The RCG Professional Staff Bylaws. 4. Maintenance of patient medical records. 5. Patient and staff education programs. 6. Physical environment, fire and safety, and emergency preparedness of the dialysis Facilities. 7. Responsibilities and functions of each category of personnel employed by the Facilities. B. The Medical Director will actively participate in Facilities Quality Improvement Programs (CQI) and in multi-disciplinary quality assurance programs that monitor the performance of co-morbid conditions. C. The Medical Director will participate in an active dialogue with the RCG Medical Advisory Board (or its representative) in pursuit of the common goal of delivering the best patient care practical. This participation requires implementation of MAB mandated directives and consideration of its recommendations. 12 D. The Medical Director will review on a timely basis the RCG Quality Indicator and patient satisfaction data for the Facilities with the manager of the Facilities and will consult with attending nephrologists regarding achievement of Quality Indicator targets. E. The Medical Director will make available an appropriate physician to serve as a representative on the governing body of each Facilities. F. The Medical Director will assure that the Facilities and all attending physicians comply with applicable ESRD network, State, Federal and RCG mandates. G. The Medical Director will review incident reports, patient complaints and any disciplinary action of medical staff or patient care personnel monthly. H. The Medical Director will serve as Facilities liaison with affiliated medical institutions for services such as renal transplantation, hospitalizations and emergency medical services. I. The Medical Director will participate in the Facilities survey process by groups such as the State Board of Health, HCFA, NCQA and JCAHO, and will then communicate to the Governing Body the results of such surveys to the Executive Board (and the medical staff). J. The Medical Director will collaborate with the Chief Medical Officer and the MAB in obtaining data from regulatory agencies as a part of the RCG strategy to work continuously to improve patient care. K. The Medical Director will participate in national RCG Medical Director educational conferences. L. The Medical Director will collaborate with the laboratory that tests the Facilities's samples to implement ESRD Network, State, Federal and RCG mandates. Medical A. The Medical Director will coordinate the renal health care team to ensure quality of care, including the establishment and implementation of policies regarding patient care. Among these quality of care criteria are: - The suitability of patients admitted to the outpatient dialysis Facilities. - The appropriateness of dialysis prescriptions in the Facilities. - Administration of dialysis-related medications. - Administration of recommended vaccines for ESRD patients and staff. - Existing patient care policies and procedures. B. The Medical Director will supervise the development and implementation of both short- and long-term patient care plans to enable the selection of the most appropriate ESRD modality. 13 C. The Medical Director will supervise the development and implementation of written policies outlining patients' options for various treatment modalities, including in-center, home and peritoneal dialysis. D. When self-dialysis training or home dialysis training is offered, the Medical Director will oversee a program that assures that patient teaching materials are available for the use of all trainees during training and at times other than during the dialysis procedure; E. The Medical Director will work to assure that the ESRD patient has appropriate consultation with a renal dietician, social worker, financial counselor and other individuals, as needed. F. The Medical Director will oversee the appropriate performance of the dialysis orders and day-to-day patient care policy by the nursing and technical staff. G. The Medical Director will use reasonable efforts to cause attending physicians to comply with the Facilities's policies on patient care. H. The Medical Director will review patient satisfaction surveys and data, clinical outcomes data, and the Medical Director will consult with attending physicians and staff as appropriate to implement appropriate action to address issues identified and to improve patient care at the Facilities. Technical A. The Medical Director will participate in the selection of cost-effective treatment modalities and dialysis supplies to be offered by the Facilities and advise attending physicians regarding the compatibility of their dialysis prescriptions with the options available at the Facilities. B. The Medical Director will approve policies and procedures ensuring the adequate training of nurses and technicians in dialysis science techniques. C. The Medical Director will provide continuous availability for medical and technical questions to the patient care staff, including coverage when the Medical Director is not available. D. The Medical Director will supervise the implementation of a dialysis water standards policy including monitoring and enforcement. E. The Medical Director will supervise the implementation of a policy regarding dialyzer reuse including monitoring and enforcement. F. The Medical Director will supervise the implementation of a policy on the administration of intradialytic medications. 14 EXHIBIT C BONUS CRITERIA The annual evaluation of the RCG Facility and its Medical Director is essential to our mission, which is "to improve the quality of life and to care for those patients with chronic and acute renal disease." To achieve this mission, the Facility and its staff must function collaboratively at the highest possible level, under the leadership of the Medical Director. The Facility / Medical Director evaluation will be conducted by the office of the Chief Medical Officer, to whom the Medical Director is primarily responsible. This evaluation process must be understood by Medical Directors, since it is an important component of the RCG policy of continuous quality improvement. The Interpretive Guidelines for ESRD Facilities states "Treatment is under the general supervision of a Director who is a physician. The Medical Director is responsible for planning, organizing, conducting and directing the professional ESRD services and must devote sufficient time to carrying out these responsibilities." The Nephrologist has the medical skills and must develop leadership and collaborative management skills to fulfill this mandate as Medical Director. Teamwork and collegiality are highly valued as the leader of the ESRD team. The evaluation will be based on a point system, with annual update, as authorized by the RCG Medical Advisory Board (MAB). The elements to be measured and their weight are as follows: - 50% based on Clinical Indicators of the Facility. The Clinical Indicators are measured monthly and reported quarterly; the unit of measurement used is based on the one year rolling average. Tracking the Clinical Indicators and observing trends provides opportunities for quality improvement using the CQI process. The market or regional Quality Management Committee is charged with reviewing the outcomes and performance of each Facility and Professional Staff member and is also available as a resource to the Medical Director. The point system has been heavily weighted to encourage certain outcomes regarding vascular access: reduction of temporary catheters and placement of AV fistulas. Vascular access is also the area that is most uniquely influenced by the Medical Director and requires concerted effort by the Medical director to bring about improvement. The literature clearly shows that mortality and morbidity are reduced when early permanent access has been placed; while mortality within the Facility is clearly the most important outcome, the improvement of this outcome can only come about by improvement in the processes of care (such as URR, nutrition, anemia, etc.) that are known to impact on patient outcomes. 15 - 30% based on Medical Director administrative duties. Section 5 and 6 of this Handbook describe the administrative duties in greater detail. Guidelines have been prepared for the Medical Directors of both Hemodialysis and Home Therapy Facilities. At the back of each section is a grid, which is designed to assist the medical Director and the Facility Manager in the documentation of the performance of these duties. On a monthly basis, the required tasks should be completed and both the Medical Director and the Facility Manager should initial the completion at the bottom of the grid. At a minimum, this will document the compliance of the Medical Director with regulatory requirements by Medicare. The CQI process is a vital part of the quality improvement process of the Facility and the Medical Director is expected to participate in this process. Three levels of participation are provided for but a High level of participation is expected as medical Directors become knowledgeable and proficient with the CQI process. The Chief Medical Officer (CMO) and his staff are available as resources. - 20% based on patient satisfaction with the Facility. The Patient Satisfaction Survey will be conducted in the spring of each year and the results made available to the Facilities and Medical Directors. The Medical Director, as the clinical leader, and the Facility Manager, are held responsible for the performance of the staff of the Facility. Although not directly under the control of the Medical Director, he/she is expected to be a positive influence on the staff and their performance in the Facility. Completion of the duties should be documented in some manner, in addition to a check mark on the grid sheet, further described in Section 5. Common tools of documentation include minutes from meetings, a personal Medical Director notebook, or dictated notes kept in the Facility. The Facility Manager (or an RCG designee) must concur that the line item on the check list was completed and initial the monthly grid sheet, with the Medical Director. This indicates that the line item was completed to the satisfaction of both parties. The grid sheet and related documentation is the property of the Medical Director; a copy of the grid sheet should be forwarded monthly to the office of the Associate Medical Officer for monitoring purposes and for use in the annual Medical Director evaluation. The Medical director will be held accountable for meeting facility outcome criteria. Failure to improve outcomes, as measured by the annual Medical Director evaluation, especially when in the 4th Quartile of performance, will result in a request for a written explanation to the CMO. 16 Clinical Performance Measures (50%) Hemodialysis Medical Director (evaluation based on annual rolling average of prior year) - URR (% of patients with URRs >=70%) >80% =10 points RCG average 72.9% 75-80% = 8 points BEST REGION 80.7% 70-74.9% = 6 POINTS 65-69.9% = 4 points <65% = 0 points - - Hematocrit (% of Hcts >=33%) >85% =10 points RCG average 74.6% 80-85% = 8 points Best Region 78.4% 75-79.9% = 6 points 70-74.9% = 4 points 65-69.9% = 2 points <65% = 0 points - - Hospitalization (91+ days, based on days per patient year at risk) RCG average 12.1 days <10 days = 8 points Best Region 9.4 days 10-14.9 days = 6 points 15-20 days = 2 points >20 days = 0 points - Mortality (91+ days, based on deaths per 100 patient years at risk) RCG average 22.1 <20 = 8 points Best Region 17.5 20-23.9 = 6 points 24-29.9 = 4 points 30-35 = 2 points >35 = 0 points - Vascular Access: - % of temporary catheters <10% = 8 points RCG average 25.5% 10-14.9% = 6 points Best Region 17.4% 15-19.9% = 4 points 20-25% = 2 points >25% = 0 points - % native AV fistulas >43 = 8 points RCG average 29.8% 38-42.9% = 6 points Best Region 42.9% 33-37.9% = 4 points 28-32.9% = 2 points <28% = 0 points 17 - PTFE clotting events/patient year <0.3 = 10 points RCG average 0.8 0.3-0.59 = 8 points Best region 0.4 0.6-0.99 = 6 points 1.0-1.2 = 4 points >1.2 = 0 points Peritoneal Dialysis Medical Director (valuation based on annual rolling average of prior year) - KT/V (>=2.1) RCG average 76.8% CAPD RCG average 88.1% CCPD >78 = 15 points 63-78% = 12 points 68-62.9% = 10 points 63-67.9% = 8 points 58-62.9% = 5 points - Creatinine Clearance (>=60L CAPD or >=60 L CCPD) RCG average 81.2% CAPD >75 = 15 points RCG average 75.2% CCPD 70-75% = 12 points Weighted average 78.2% 65-69.9% = 10 points 60-64.9% = 8 points 55-59.9% = 5 points - Hematocrit (% of Hcts >=33%) >85% =10 points RCG average 74.6% 80-85% = 8 points Best Region 78.4% 75-79.9% = 6 points 70-74.9% = 4 points 65-69.9% = 2 points <65% = 0 points - Hospitalization (91+ days, based on days per patient year at risk) RCG average 12.1 days <10 days = 8 points Best Region 9.4 days 10-14.9 days = 6 points 15-20 days = 2 points >20 days = 0 points - Mortality (91+ days, based on deaths per 100 patient years at risk) RCG average 20.7 <20 = 8 points Best Region 15.5 20-24.9 = 6 points 24-29.9 = 4 points 30-35 = 2 points >35 = 0 points 18 - Peritonitis (new cases + relapse) RCG average 14.9 months between cases Best Region 16.9 months between cases >25 months between cases 15 points 20-25 months between cases 12 points 15-19.9 months between cases 9 points 10-14.9 months between cases 6 points >10 months between cases 0 points Combination Hemodialysis & Peritoneal Medical Director For those physicians who oversee both modalities, each is evaluated using the above criteria. The overall Clinical Quality is then a composite of these, weighted to reflect the numbers of patients in each modality. MEDICAL DIRECTOR ADMINISTRATIVE TASKS (30%) The completion of administrative tasks must be documented by the Medical Director on a monthly basis. It is important that both the Facility Manager and the Medical Director document completion of the required tasks. Other Medical Director functions including such things as meeting with surgeons regarding access, goals, attendance at medical meetings and literature review regarding ESRD issues, etc, should also be noted in this record as well, since this contributes to a high quality Facility. Participation in monthly review: - Review staffing & training issues impacting patient outcomes with Manager - Review water quality - Review dialyzer reuse at the Facility - Review monthly lab of patients below quality goals & develop plan - Review trend in hospitalizations, infections - Review temporary catheter usage & trend - Review patient incident reports & trends - Monitor staff physician patient rounding process - Adequacy of staff physician medical documentation Participation in CQI process: - The CQI process should be a routine process in the facility striving to improve its outcomes. As physicians learn this process, Medical Directors are expected to participate at higher levels. In the meantime, Low, Medium and High participation levels may be chosen on the Performance grid, depending on the physician's comfort with the process. 19 Participation in Professional Staff process: - Participate in the Quarterly Quality conference calls, which have physician CME available. Annual checklist: - Review and approve facility Policy and Procedures and make necessary modifications; review and approve clinical protocols. - Review patient satisfaction data annually and in concert with the Facility Manager make recommendations for improvement. - Participate with the Manager in the Budget process for the Facility. - Participate in Facility surveys by regulatory agencies. Patient Satisfaction Surveys (PSS) (20%) The Satisfaction Survey will be conducted in the spring of each year and results forwarded to each Facility for review and discussion regarding potential areas of improvement. CAREGIVER: RCG AVERAGE IN-CENTER 3.43 PSS >3.5 = 8 points PSS >=3.25 and <3.5 = 6 points PSS >=3.0 and <3.25 = 4 points PSS >2.5 and <3.0 = 2 points PSS <2.5 = 0 points RCG average Home 3.75 PSS >3.5 = 8 points PSS >=3.25 and <3.5 = 6 points PSS >=3.0 and <3.25 = 4 points PSS >2.5 and <3.0 = 2 points PSS <2.5 = 0 points Physician: RCG AVERAGE IN-CENTER 3.27 PSS >3.5 = 8 points PSS >=3.25 and <3.5 = 6 points PSS >=3.0 and <3.25 = 4 points PSS >2.5 and <3.0 = 2 points PSS <2.5 = 0 points RCG average Home 3.67 PSS >3.5 = 8 points PSS >=3.25 and <3.5 = 6 points PSS >=3.0 and <3.25 = 4 points PSS >2.5 and <3.0 = 2 points 20 DIETICIAN: RCG average In-Center 3.27 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points RCG average Home 3.67 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points SOCIAL WORKER: RCG average In-Center 3.40 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points RCG average Home 3.51 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points FACILITY: RCG average: In-Center 3.24 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points RCG average Home 3.58 PSS >3.5 = 4 points PSS >=3.25 and <3.5 = 3 points PSS >=3.0 and <3.25 = 2 points PSS >2.5 and <3.0 = 1 points 21 EX-21.1 8 g81202exv21w1.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 RENAL CARE GROUP, INC. SUBSIDIARIES 1. RCG Mississippi, Inc. 2. Renal Care Group of the Midwest, Inc. 3. Renal Care Group Texas, Inc. 4. RCG University Division, Inc. 5. Renal Care Group of the Southeast, Inc. 6. Renal Care Group East, Inc. 7. Renal Care Group Arizona, Inc. 8. Northeast Alabama Kidney Clinic, Inc. 9. Dialysis Management Corporation 10. RCG PA Merger Corp. 11. RCG Indiana, LLC 12. RenaLab, Inc. 13. RCG Finance, Inc. 14. RenalPartners, Inc. 15. RenalNet, Inc. 16. R.C.G. Supply Company 17. RCG Brandon, LLC 18. RCG Southaven, LLC 19. Southern Ocean County Dialysis Clinic, LLC 20. Renal Institute of Central Jersey, LLC 21. Saint Louis Renal Care, LLC 22. Saint Louis Supply Company, LLC 23. Ohio Renal Care Group, LLC 24. Ohio Renal Care Supply Company, LLC 25. Elyria Renal Care, LLC 26. STAT Dialysis Corporation 27. Brownsville Kidney Center, Ltd. 28. El Paso Kidney Center East, Ltd. 29. Angleton Dialysis, Inc. 30. Brazoria Kidney Center, Inc. 31. Fondren Dialysis Clinic, Inc. 32. Wharton Dialysis, Inc. 33. Stuttgart Dialysis, LLC 34. KDCO, Inc. 35. Little Rock Dialysis, Inc. 36. Jefferson County Dialysis, Inc. 37. Lawton Dialysis, Inc. 38. Northwest Dialysis, Inc. 39. Four State Regional Dialysis Center, Inc. 40. Fort Scott Regional Dialysis Center, Inc. 41. Miami Regional Dialysis Center, Inc. 42. RCG/Saint Luke's, LLC 43. Hutchison Dialysis, LLC 44. Renal Care Group Michigan, Inc. 45. RCG Martin, LLC 46. Renal Care Group Northwest, Inc. 47. Pacific Northwest Renal Services, LLC 48. Michigan Home Dialysis Center, Inc. 49. RCG Columbus, L.L.C. 50. RCG Lake Village, LLC 51. Summit Renal Care, LLC 52. RenalNet Arizona, Inc. 53. Wisconsin Renal Care Group, L.L.C. 54. SSKG Inc. 55. Dialysis Centers of America - Illinois, Inc. 56. Renal Care Group Alaska, Inc. 57. Renal Care Group Southwest Holdings, Inc. 58. Renal Care Group Southwest, L.P. 59. RCG West Health Supply, L.C. 60. Kidney Disease Centers of the Ozarks, LLC 61. Renal Care Group Beaumont, L.P. 62. Renal Care Group Ohio, Inc. 63. Physicians Dialysis Company, Inc. 64. Diabetes Care Group, Inc. 65. RCG Memphis, LLC 66. Renal Care Group-Harlingen, L.P. 67. Renal Care Group South New Mexico, LLC 68. Overland Trails Renal Care Group, LLC 69. THC/PNRS, LLC 70. Inland Northwest Renal Care Group, LLC 71. Three Rivers Dialysis Services, LLC 72. Lakewood Dialysis Services, LLC 73. RCG Arlington Heights, LLC 74. Maumee Dialysis Services, LLC 75. Renal Dimensions, LLC 76. Arizona Renal Investments, LLC 77. Renal Care Group Central Memphis, LLC 78. RCG Memphis East, LLC 79. RCG Tunica, LLC 80. Renal Care Group of the Rockies, LLC 81. Renal Care Group Tupelo, LLC 82. Columbus Area Renal Alliance, LLC 83. Kentucky Renal Care Group, LLC 84. Dialysis Licensing Corp. 85. RCGIH, Inc. 86. RCG Bloomington, LLC 87. RCG Memphis South, LLC 88. RCG Houston, LLP EX-23.1 9 g81202exv23w1.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-03886, Form S-8 No. 333-37299, Form S-8 No. 333-74565, Form S-8 No. 333-96197, Form S-8 No. 333-37658 and Form S-8 No. 333-72778) pertaining to the Renal Care Group, Inc. Employee Stock Purchase Plan, the Renal Care Group, Inc. 1996 Stock Option Plan, the Renal Care Group, Inc. 1996 Stock Option Plan for Outside Directors, the Renal Care Group, Inc. 1994 Stock Option Plan, the Renal Care Group, Inc. Third Amended and Restated Stock Incentive Plan, the Renal Care Group, Inc. Fourth Amended and Restated 1996 Stock Incentive Plan, the Dialysis Centers of America, Inc. Equity Compensation Plan, the Renal Care Group, Inc. 1999 Long-Term Incentive Plan, the Renal Disease Management by Physicians, Inc. Amended and Restated 1997/1998 Stock Plan, and the Renal Care Group, Inc., Amended and Restated 1999 Long-Term Incentive Plan of our report dated February 24, 2003, with respect to the consolidated financial statements and schedule of Renal Care Group, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2002. /s/ Ernst & Young LLP Nashville, Tennessee March 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.12

                                                               Exhibit 10.12




                      DIALYSIS CENTER MANAGEMENT AGREEMENT
                  Hemodialysis and Peritoneal Dialysis Programs
                       1500 21st Avenue South, Suite 3600A

         THIS DIALYSIS CENTER MANAGEMENT AGREEMENT (this "Agreement") is made
and entered into effective as of the 1st day of July, 2001 ("Effective Date"),
by and between VANDERBILT UNIVERSITY, a Tennessee nonprofit corporation
("Vanderbilt"), and RENAL CARE GROUP, INC., a Delaware corporation ("Management
Company").

                              W I T N E S S E T H:


         WHEREAS, Management Company is engaged in the business of owning and/or
managing dialysis units and has managed the outpatient dialysis unit (the
"Unit") owned by Vanderbilt located at 1500 21st Avenue South, Suite 3600A,
Nashville, Tennessee 37212; and

         WHEREAS, Vanderbilt desires that Management Company continue manage the
Unit pursuant to the terms of this Agreement; and

         WHEREAS, Vanderbilt will contract with one or more qualified
nephrologists to act as medical director (the "Medical Director") of the Unit;
and

         WHEREAS, Management Company is willing to continue to manage the Unit
under the name "The Vanderbilt Dialysis Clinic" pursuant to the terms of this
Agreement;

         NOW, THEREFORE, for and in consideration of the mutual covenants and
undertakings contained in this Agreement, Vanderbilt and Management Company
agree as follows:

                                    ARTICLE I
                            AUTHORITY OF THE PARTIES

         1.1 Ultimate Control. Vanderbilt shall at all times exercise ultimate
authority and control over the policies and assets of the Unit, and Vanderbilt
shall retain the ultimate authority and responsibility regarding the powers,
duties, and responsibilities vested in Vanderbilt with respect to the Unit by
applicable law and regulations. Management Company shall, subject to the
approval of Vanderbilt, which approval will not be unreasonably withheld,
establish general administrative policies, which policies shall be carried out
by Management Company as specified under this Agreement.

         1.2 Grant of Day-to-Day Management Authority. Subject to the provisions
of Section 1.1 above and to supervision of all professional medical care by the
Medical Director as provided below, Vanderbilt hereby grants and delegates to
Management Company the authority to supervise and manage the day-to-day
operations of the Unit and to perform the specific functions set out in this
Agreement. Vanderbilt shall cooperate with Management Company in order to
facilitate Management Company's efficient performance of its management
responsibilities under this Agreement.

         1.3 Relationship of the Parties. Under this Agreement, Vanderbilt and
Management Company intend solely to effect the appointment of Management Company
for administrative management of the Unit as described in this Agreement.
Vanderbilt and Management Company agree that this Agreement does not extend to
or involve any other activities of either Vanderbilt or Management Company.
Vanderbilt and Management Company intend that no other relationship be created
or deemed to be created between the parties. Nothing in this Agreement shall be
construed as to make either party



                                       1


the employer or employee of the other, agent or principal of the other, the
joint venturer or partner of the other. Further nothing in this Agreement shall
be construed to give either party the right to, or control of, or in any manner
conduct the other's business, other than as is explicitly provided in this
Agreement.

                                   ARTICLE II.
                              MANAGEMENT PERSONNEL

         2.1      Administrator.

                  2.1.1 Management Company shall hire and appoint an
administrator for the Unit ("Administrator"), who shall be an employee of
Management Company. Notwithstanding the above, the appointment of the
Administrator shall be subject to the approval of Vanderbilt, which approval
will not be unreasonably withheld.

                  2.1.2 The Administrator shall have general day-to-day
responsibility for the management of the Unit other than those duties
specifically delegated to the Medical Director pursuant to this Agreement.

         2.2      Medical Director.

                  2.2.1 Vanderbilt, on the recommendation of the Director of the
Division of Nephrology at Vanderbilt, shall hire or retain and appoint, and may
remove, the Medical Director of the Unit, who shall be and remain an employee or
independent contractor of Vanderbilt.

                  2.2.2 The Medical Director shall supervise all professional
medical services performed in the Unit and shall undertake overall coordination
of utilization review, quality assurance, and related functions as directed by
Vanderbilt. The Medical Director may perform other duties as Vanderbilt may deem
appropriate, which other duties do not interfere with the performance of the
Medical Director's duties under this Agreement. Vanderbilt shall be responsible
for the compensation (including fringe benefits), expenses (including the cost
of professional liability insurance), and other support and operating costs of
the Medical Director.

         2.3 Other Personnel. Management Company shall, at its expense, employ,
pay, and supervise all other personnel reasonably necessary to perform its
duties under this Agreement, and in its discretion may remove and/or reassign
such other personnel, and locate such personnel at such places as are
appropriate. Management Company shall be responsible for the compensation
(including fringe benefits), expenses, and other support and operating costs of
the Administrator and all other personnel it employs; provided, however, that
Management Company shall be reimbursed by Vanderbilt, as set forth in the Annual
Operating Plan (as defined below) approved by Vanderbilt pursuant to Section
3.5, for all costs incurred by Management Company in connection with providing
such personnel, other than the Administrator, assigned to and performing
services at the Unit.

                                  ARTICLE III.
                             ADMINISTRATIVE SERVICES

         3.1 General Responsibilities and Services. Management Company shall
perform the services set forth in this Article III and all related functions as
are reasonably necessary for the effective management of the operations of the
Unit. Management Company shall establish operational policies for the Unit,
subject to Vanderbilt's approval, which approval will not be unreasonably
withheld. Management Company shall implement such approved policies. Management
Company shall perform its




                                       2


services diligently in accordance with generally recognized standards of good
management in the health care industry relating to dialysis centers. Management
Company shall perform such services in the reasonable exercise of its judgment
and in accordance with performance standards implemented by Management Company
and updated annually, which standards will be subject to the review and approval
of Vanderbilt, which approval will not be unreasonably withheld. Nothing in this
Agreement shall be construed to require or permit the practice of medicine by
Management Company or any employee thereof.

         3.2 Licenses and Permits. Management Company shall apply for and
maintain, on behalf of and in the name of Vanderbilt, and with Vanderbilt's
cooperation and assistance, all state and federal licenses, permits,
certifications, and approvals required in connection with its management and
operation of the Unit, including an End Stage Renal Dialysis provider number
("ESRD Number") in Vanderbilt's name; provided, however, that Vanderbilt shall
be responsible for any required Certificates of Need or hospital facility
licenses, professional medical licenses, permits, certifications, or other
credentialing required of the Medical Director and attending physicians who are
not employees of the Management Company.

         3.3 Preparation and Adoption of Annual Operating Plan. Management
Company shall prepare, for Vanderbilt's approval, which approval will not be
unreasonably withheld, an annual operating plan (the "Annual Operating Plan")
for each fiscal year or part thereof during which this Agreement is in effect.
The Annual Operating Plan shall set out major operating objectives and
anticipated revenues and expenses of the Unit. The Annual Operating Plan will be
presented to Vanderbilt for its acceptance, rejection, or modification not later
than four (4) months prior to the beginning of each fiscal year. After the
Annual Operating Plan has been modified to incorporate any changes made by
Vanderbilt, and subject to the provisions of this Agreement, it shall serve as a
guide for the operation of the Unit. The Annual Operating Plan will include
information with respect to the Unit's major business objectives, anticipated
revenues and expenses, capital expenditures, cash flow, enrollment and staffing
projections, and a discussion of anticipated changes, if any, in utilization,
patient charges, and other significant criteria identified by Vanderbilt.
Management Company may, from time to time, propose modifications to the Annual
Operating Plan that it deems necessary or advisable, which modifications shall
be incorporated into the Annual Operating Plan upon approval by Vanderbilt,
which approval will not be unreasonably withheld. Vanderbilt may also, from time
to time, propose modifications to the Annual Operating Plan which it deems
necessary and advisable, which modifications shall, after consultation with
Management Company, be incorporated into the Annual Operating Plan.

         3.4 Billing and Collection of Accounts. Management Company has designed
and implemented, and it will maintain, a billing and collection system and
procedures appropriate to the Unit's operations using the Unit's ESRD Number.
These procedures shall be in accordance with billing and collection policies
approved by Vanderbilt. Vanderbilt appoints Management Company as its true and
lawful attorney-in-fact to bill and to take prompt action (i) to collect
accounts owed to the Unit in Vanderbilt's or the Unit's name and on Vanderbilt's
behalf, and (ii) to take possession of and endorse in Vanderbilt's name any
cash, notes, checks, money orders, insurance payments, and other instruments
received in payment for services rendered at the Unit.

         3.5 Deposit and Disbursement of Funds. Management Company shall
promptly deposit all funds it receives on behalf of Vanderbilt in
federally-insured accounts established by Vanderbilt in Vanderbilt's name with
banks or other appropriate depository institutions. Management Company shall pay
for all operating expenses of the Unit as set forth in the Annual Operating Plan
and shall be reimbursed by Vanderbilt on an actual cost basis for all
expenditures set forth in the Annual Operating Plan. In the event that
Management Company spends an amount or incurs a liability on behalf of the Unit
in excess of $10,000 that is not set forth in the approved Annual Operating Plan
or not within the general




                                       3



expenditure projections included within the Annual Operating Plan, Management
Company shall not be entitled to reimbursement for such amount unless it
obtained Vanderbilt's prior written approval for such expenditure, which
approval will not be unreasonably withheld. Management Company shall request
reimbursement from Vanderbilt no more often than every two weeks and shall
accompany each request for reimbursement with an itemized statement of the
actual expenditures to be reimbursed. Disbursements for approved expenses must
be supported by vouchers, receipts, or other reasonable records duly approved by
the Administrator or his or her delegate, and Management Company shall provide
copies of these records to Vanderbilt upon request.

         3.6 Accounting Records and Reports. Management Company shall implement
and maintain an appropriate accounting system adequate for the Unit's needs and
shall cause to be delivered to Vanderbilt monthly unaudited financial statements
for the Unit. These statements shall be prepared on an accrual basis in
accordance with generally accepted accounting principles. These statements shall
include a balance sheet, a statement of income and expenses, a statement of cash
flows, a summary analysis of all capital accounts, and a comparison between
budgeted and actual revenues and expenses for the preceding month and the fiscal
year to date. These financial statements shall be delivered to Vanderbilt on or
before the third business day of the following month. Management Company will
also prepare and deliver to Vanderbilt such other reports as are necessary to
manage the Unit including, but not limited to, quarterly service reports
(analyzing the utilization and cost of dialysis services and supplies provided),
and quarterly billing reports. Within twelve (12) days after the end of each
Vanderbilt fiscal year, Management Company shall prepare and deliver to
Vanderbilt unaudited financial statements. Any financial books and records of
the Management Company that relate to its operation of the Unit shall be
available for inspection by Vanderbilt or its delegates during normal business
hours or otherwise upon reasonable notice. With respect to all such reports and
financial statements, Management Company shall be entitled to supplement such
reports and financial statements from time to time as deemed necessary by
Management Company.

         3.7 Legal Services.

                  3.7.1 Management Company shall arrange for the Vanderbilt
Office of General Counsel to provide legal services on behalf of the Unit,
except that with respect to any legal dispute between Management Company and
Vanderbilt relating to this Agreement or any matter as to which their interests
are likely to be materially adverse, Management Company shall obtain and pay for
its own legal counsel.

                  3.7.2 Management Company shall recommend to the Vanderbilt
Office of General Counsel the initiation of any legal actions or proceedings
that are advisable to operate the Unit and protect the assets of Vanderbilt.

         3.8 Ancillary and Other Agreements. On behalf of Vanderbilt, Management
Company shall negotiate and enter into such administrative agreements, with
terms not exceeding one (1) year (unless a longer term is approved in writing by
Vanderbilt), as Management Company reasonably deems necessary or advisable for
the furnishing of utilities, services, concessions, and non-physician services
and supplies for the maintenance and operation of the Unit, other than those
directly provided by Management Company hereunder.

         3.9 Other Agreements. Except as provided in the approved Annual
Operating Plan or as otherwise specifically provided herein, Management Company
shall not enter into any contracts, agreements, leases, debts, obligations, or
legal commitments on behalf of Vanderbilt or make any capital expenditure
involving an expense in excess of $10,000 on behalf of the Unit, or dispose of
any asset of



                                       4


the Unit having a value of more than $10,000, except as approved by Vanderbilt,
which approval will not be unreasonably withheld.

         3.10 Regulatory Requirements. Management Company shall prepare and
submit on behalf of the Unit all necessary reports and filings, including cost
and utilization reports, supporting data and other material required in
connection with reimbursement under Medicare, TennCare, Blue Cross Blue Shield,
and other third-party payment contracts and programs in which the Unit may from
time to time participate. In addition, Management Company shall take all other
appropriate actions necessary for regulatory compliance or otherwise advisable
in order that Vanderbilt be in compliance with any requirements of local, state,
or federal agencies having jurisdiction over the Unit's operations, or in order
to comply with requirements of payors, provided that Management Company shall
consult with Vanderbilt on an ongoing basis concerning these functions and
compliance.

                                   ARTICLE IV
                   DUTIES OF VANDERBILT AND MANAGEMENT COMPANY

         4.1 Data and Information. Vanderbilt shall provide to Management
Company without charge all necessary and relevant data and information in the
possession of Vanderbilt as shall be reasonably required or requested by
Management Company in order to enable it to perform its duties hereunder.

         4.2 Management Company's Office Facilities. Management Company shall
lease its own office space for purposes of carrying out its responsibilities
under this Agreement. Management Company shall be responsible for the lease
payments, leasehold improvements, any necessary facility maintenance costs,
furnishing costs, and the purchase, lease, or any other expenses associated with
its office facilities, telephone services, business equipment, furniture, and
other equipment and supplies required in the performance of its duties under
this Agreement.

                                    ARTICLE V
                       COMPENSATION TO MANAGEMENT COMPANY

         5.1 Amount of Compensation. In consideration of the services to
Vanderbilt to be provided by Management Company pursuant to this Agreement,
Vanderbilt will pay Management Company a management fee equal to $575,000 per
annum (the "Management Fee"), which Management Fee shall be adjusted as provided
in attached EXHIBIT A based upon the Gross Profit (as defined in EXHIBIT A) of
the Unit for the fiscal year. Vanderbilt will pay the Management Fee in
substantially equal monthly installments on or before the last day of each
month. The Management Fee and the Final Management Fee (as defined in EXHIBIT A)
represent payment to Management Company for the general and administrative
overhead and executive management of Management Company, including the
compensation and fringe benefits of the Administrator, in directing the
management of the Unit. In addition, Vanderbilt shall reimburse Management
Company for the approved actual operating expenses of the Unit as set forth in
the Annual Operating Plan approved by Vanderbilt pursuant to Section 3.5 hereof.
The Management Fee (and the adjustment thereof as contemplated by attached
EXHIBIT A) shall be subject to renegotiation by the parties annually based upon
personnel and other operating requirements of Management Company to manage and
operate the Unit in accordance with this Agreement.

                                   ARTICLE VI
                            OWNERSHIP OF WORK PRODUCT

         6.1 Work Product.





                                       5


                  6.1.1 All operating procedures, protocols, information
systems, operating data, patient lists, computer databases, reports, and other
non-public proprietary business systems or information uniquely pertaining to or
owned by Vanderbilt used or obtained by Management Company in performing its
management activities under this Agreement, with respect to the Unit, shall be
and remain the exclusive property of Vanderbilt. All operating procedures,
protocols, information systems, computer databases, and other non-public
proprietary business systems or information not uniquely pertaining to
Vanderbilt that are or were created, developed, or obtained by Management
Company from sources other than Vanderbilt shall be the exclusive property of
Management Company.

                  6.1.2 Management Company shall not disclose any confidential
or proprietary data, reports, or other information or materials concerning
Vanderbilt, the Unit, or its products or services without the prior written
consent of Vanderbilt, except as otherwise required by law or regulation
applicable to Vanderbilt or Management Company.

         6.2 Licensure of Service Mark.

                  6.2.1 Management Company acknowledges Vanderbilt's exclusive
right, title, and interest in and to the trade names and service marks related
to Vanderbilt, and all related names, symbols, trade names, and service marks
now owned by Vanderbilt (the "Marks"). Management Company will not alter or
change the Marks without the prior approval of Vanderbilt, which approval may be
unreasonably withheld. Management Company shall use the Marks only in connection
with the operation and management of the Unit and shall use the Marks only in a
manner previously approved by Vanderbilt. The parties agree that violations of
this Section will result in irreparable harm and that, in addition to any other
rights and remedies provided by law, Vanderbilt shall be entitled to seek
injunctive relief to enforce Management Company's obligations under this
Section. Management Company agrees that in any such action seeking injunctive
relief, Management Company will not argue that Vanderbilt has an adequate remedy
at law to address any breach or alleged breach of this Section by Management
Company.

                  6.2.2 With Vanderbilt's prior approval, the Management Company
may, on a non-exclusive basis, use the Marks in Management Company's service
area in connection with the operation of the Unit while this Agreement remains
in effect. Vanderbilt shall have the right to use the Marks on its own behalf as
well.

                  6.2.3 Vanderbilt shall defend or settle at its expense any
litigation or claim which may be instituted against Vanderbilt insofar as it
contests the validity or ownership of the Marks.

                                   ARTICLE VII
                          INSURANCE AND INDEMNIFICATION

         7.1 Indemnification. Each party ("Indemnitor") shall indemnify, save
and hold harmless the other party ("Indemnitee") from and against any and all
judgments, damages, costs and expenses, including reasonable attorney's fees,
paid or incurred by Indemnitee in any claim, action or proceeding for damage to
property, injury or death to person, or otherwise, arising solely out of the
proven negligent acts or omissions of Indemnitor in Indemnitor's performance or
failure to perform under this Agreement. Indemnitor's obligations as set forth
in the preceding sentence are conditioned upon (i) Indemnitee promptly notifying
Indemnitor of any claim, demand or action, or any incident of which Indemnitee
has actual and constructive knowledge, which may reasonably result in a claim,
demand or action, and for which Indemnitee will look to Indemnitor for
indemnification under this Section, (ii) Indemnitee, its directors, officers,
employees and servants, cooperating fully with Indemnitor in Indemnitor's
investigation and review of any such claim, demand, action or incident, and
(iii) Indemnitee not entering



                                       6


into any admissions, agreements or settlements which may affect the rights of
Indemnitee or Indemnitor without the prior written consent and approval of
Indemnitor.

         7.2 Defense of Claims. If Indemnitor gives notice to Indemnitee
acknowledging its obligation to indemnify Indemnitee with respect to such a
claim, action or proceeding, then Indemnitor shall have the right, in its sole
discretion, to assume the defense of Indemnitee in any such claim, action or
proceeding; provided, however, that Indemnitor shall not have the right to
assume the defense of Indemnitee if (a) in the reasonable judgment of
Indemnitee, employment of separate counsel for Indemnitee is necessary because
the claim or defense for which such counsel is employed is inconsistent or in
conflict with the claims or defenses of the Indemnitor, or (b) Indemnitee shall
have reasonably concluded that there may be claims or defenses available to it
that are different from or in addition to those available to Indemnitor. If
Indemnitor does not have the right to assume the defense of Indemnitee as
provided above, the fees and expenses of separate counsel for Indemnitee shall
be borne by the Indemnitor. If Indemnitor is permitted to assume, and in fact
assumes, the defense of any such claim, action or proceeding, then Indemnitee
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnitee unless employment of such counsel and
payment of the fees and expenses thereof by the Indemnitor has been specifically
authorized by Indemnitor. Indemnitor shall not be liable for any settlement of
any such action effected without Indemnitor's consent by Indemnitee, but if
settled with the consent of Indemnitor or if there shall be a final judgment in
an action based upon such claim, action or proceeding against Indemnitee or
Indemnitor with or without the consent of Indemnitor, Indemnitor agrees to
indemnify and hold harmless the Indemnitee to the extent provided herein.
Indemnitor shall not be entitled to settle or compromise an indemnified claim,
action or proceeding without the written consent of Indemnitee, which consent
will not be unreasonably withheld, unless such settlement includes an
unconditional release of Indemnitee and provides for no relief other than
monetary damages that are fully indemnified by Indemnitor under this Agreement.

         7.3 Professional Liability Insurance. Each party shall procure and
maintain for the term of this Agreement professional liability insurance in a
minimum amount of $2,000,000 per occurrence and $4,000,000 in the aggregate.
Each party shall also provide the other with certificate of said coverage. Each
party will notify the other of any cancellation or significant change thirty
(30) days prior to such cancellation or change. If such coverage is written on a
claims-made form following termination of this Agreement, coverage shall survive
for a period of no less than five (5) years. Coverage shall provide for a
retroactive date of placement coinciding with the Effective Date of this
Agreement. Vanderbilt shall reimburse Management Company for that portion of the
cost of such insurance attributable to Management Company's employees assigned
to or performing services on a full-time basis at the Unit, provided such costs
are set forth in the Annual Operating Plan approved by Vanderbilt pursuant to
Section 3.5 hereof. Vanderbilt, as its expense, will obtain professional
liability insurance coverage for the Medical Director of the Unit.

         7.4 Other Insurance. Vanderbilt, at its expense, shall obtain and
maintain fire and extended coverage insurance with respect to the Unit and its
contents. Management Company shall be named as an additional insured under such
policy. Vanderbilt also shall obtain and maintain general liability insurance
coverage in a minimum amount of $1,000,000 per occurrence and $3,000,000 in the
aggregate with respect to its ownership of the Unit. Management Company, at its
expense, shall obtain and maintain general liability insurance coverage in a
minimum amount of $1,000,000 per occurrence and $3,000,000 in the aggregate with
respect to its actions as manager of the Unit. Management Company shall procure
and maintain workers compensation insurance meeting statutory requirements.
Vanderbilt shall reimburse Management Company for that portion of the cost of
such insurance attributable to Management Company's employees who are assigned
to or performing services on a full-time basis at the




                                       7



Unit, provided that such costs are set forth in the Annual Operating Plan
approved by Vanderbilt pursuant to Section 3.5 hereof.

         7.5 Management Company Responsibility. Management Company shall be
solely responsible for the hiring, compensation, termination and all matters
relating to any persons, companies or corporations employed or engaged by
Management Company, for any reason whatsoever in regard to this Agreement or to
the operation of the Unit or otherwise. Management Company shall indemnify and
hold Vanderbilt harmless from any liability arising from the employment or
engagement by Management Company of any such persons or companies, including any
liability arising under the Civil Rights Act of 1964, as amended, the Americans
with Disabilities Act of 1990, the Age Discrimination in Employment Act, and any
other relevant federal, state, and local laws or regulations.

         7.6 Status of the Parties. No individual whose compensation for
services is paid by Management Company shall be in any way, directly or
indirectly, expressly or by implication, deemed an employee of Vanderbilt or any
related entity, and no such individual shall be deemed to be employed by
Vanderbilt or any related entity for the purpose of any payroll taxes, income
tax withholding, or contributions imposed by any federal, state, or local law or
regulations, with respect to employment, workers' compensation, or otherwise.
Management Company accepts exclusive liability for any and all payroll taxes,
income tax withholding or contributions, in any form whatsoever, imposed by
federal, state, or local law or regulations, not only with respect to itself,
but also with respect to any and all of its agents or employees.

                                  ARTICLE VIII
                              TERM AND TERMINATION

         8.1 Term. The term of this Agreement shall be one (1) year, unless
earlier terminated as hereinafter set forth. This Agreement shall automatically
be renewed from year to year unless either party gives notice of its intention
not to permit this agreement automatically to be renewed at least ninety (90)
days before the applicable anniversary date of the Effective Date of this
Agreement.

         8.2 Termination for Cause.

                  8.2.1 Bankruptcy Termination. Management Company may terminate
this Agreement upon the "bankruptcy" of Vanderbilt, and Vanderbilt may terminate
this Agreement upon the "bankruptcy" of Management Company, in each case upon
written notice thereof to the other party. As used in this Section, "bankruptcy"
of a party means: the filing of a petition commencing a voluntary case against
it under the Bankruptcy Code; a general assignment by it for the benefit of
creditors; its insolvency; its inability to pay its debts as they become due;
the filing by it of any petition or answer in any proceeding seeking for itself
or consenting to, or acquiescing in, any insolvency, receivership, composition,
readjustment, liquidation, dissolution, or similar relief under any present or
future statute, law, or regulation, or the filing by it of an answer or other
pleading admitting or failing to deny or to contest the material allegations of
the petition filed against it in any such proceeding; its seeking or consent to,
or acquiescence in the appointment of, any trustee, receiver, or liquidator of
it or any material part of its property; or the commencement against it of any
involuntary case under the Bankruptcy Code, or a proceeding under any
receivership, composition, readjustment liquidation, insolvency, dissolution, or
like law or statute, which case or proceeding is not dismissed or vacated within
sixty (60) days from commencement.

                  8.2.2 Termination for Breach or Default. If either party
("Defaulting Party") fails substantially to perform any of its material
obligations under this Agreement, the other party ("Non-Defaulting Party") shall
have the right to give the Defaulting Party a "Notice of Default." The Notice of




                                       8


Default shall set forth the nature of the obligation that the Defaulting Party
has not performed. If, within ten (10) days following the giving of the Notice
of Default, the Defaulting Party in good faith commences to cure the default,
and thereafter diligently and continuously pursues the curing to completion
within thirty (30) days of such notice, unless the default is impossible to cure
within thirty (30) days, in which event the Defaulting Party must continuously
and diligently pursue a cure to completion within a reasonable time, it shall be
deemed that the Notice of Default has not been given, and the Defaulting Party
shall not lose any of its rights under this Agreement by reason of the event
giving rise to the Notice of Default, although such Defaulting Party may be
required to pay interest relating to such default if so required by the terms of
this Agreement. If, within the ten (10) day notice period, the Defaulting Party
does not commence in good faith the curing of the default or does not thereafter
diligently and continuously prosecute and achieve the curing to completion
within the applicable cure period, the Non-Defaulting Party shall have the right
to terminate this Agreement upon ten (10) days' written notice to the Defaulting
Party.

         8.3 Rights upon Termination.

                  8.3.1 The right to terminate this Agreement shall be in
addition to any other remedy available on account of any breach or default.

                  8.3.2 The parties acknowledge that Management Company has
previously developed and furnished to Vanderbilt a comprehensive transitional
and permanent operating plan that would enable Vanderbilt to take over the
management and operation of the Unit in the event of termination of this
Agreement for any reason. This plan shall includes operating procedures,
protocols, business and other information systems, as well as any other
materials or information (collectively, "Systems and Procedures") required to
permit Vanderbilt to manage and operate the Unit. Management Company agrees
that, in the event of termination of this Agreement for any reason, Management
Company, at its expense, will provide to Vanderbilt copies of any records or
computer information necessary to manage and operate the Unit. In addition, in
the event of termination of this Agreement for any reason, Vanderbilt shall be
entitled, at its option, to purchase or lease any computer systems or other
assets of Management Company installed or utilized at the Unit at a fair market
price to be negotiated in good faith by the parties.

                  8.3.3 Upon termination of this Agreement for any reason, and
notwithstanding the provisions of Section 8.2, Management Company shall, for a
period not to exceed ninety (90) days, assist Vanderbilt in effecting an orderly
transfer of all of its management functions, including, without limitation,
billing and collection of accounts receivable and maintenance of data, so as to
minimize the disruption of the Unit's operations upon such termination. Such
assistance shall be rendered in a manner consistent with usual and customary
industry practice and Vanderbilt's needs. In addition, upon prior consultation
with Management Company, if this Agreement is terminated by reason of Management
Company's bankruptcy or default, then Vanderbilt shall have the right to solicit
for employment with Vanderbilt all non-officer Management Company employees who
provided services at the Unit. If this Agreement is terminated by reason of
Vanderbilt's bankruptcy or default, then Vanderbilt may not solicit such
employees without the prior written consent of Management Company.




                                       9




                                   ARTICLE IX
                                  MISCELLANEOUS

         9.1 Assignment. Neither party may assign this Agreement without the
prior written consent of the other party.

         9.2 Further Assurances. The parties do hereby covenant and agree that
they and their successors and permitted assigns will execute any and all
instruments, releases, assignments, and consents which may reasonably be
required of them in order to carry out the provisions of this Agreement.
Notwithstanding expiration or termination of this Agreement, each party hereto
shall take such further actions as are necessary to fulfill its existing
obligations, including those in Section 3.5, Section 6.1, and Article X.

         9.3 Effect on Successors. Without in any way limiting the provisions of
Section 9.1, this Agreement shall be binding upon, enforceable by, and inure to
the benefit of the parties and their permitted successors and assigns.

         9.4 Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter of this Agreement. This
Agreement supercedes in its entirety the Dialysis Center Management Agreement
between the parties dated May 11, 1994 with respect to management of the Unit
from and after the Effective Date. The terms of this Agreement may be modified
or amended only by a writing signed by all parties.

         9.5 Governing Law. This Agreement shall be governed by and construed,
interpreted, and enforced pursuant to the laws of the State of Tennessee.

         9.6 Notices. All notices under this Agreement by any party to the other
shall be in writing. All notices, demands, and requests shall be deemed given
when hand-delivered, mailed, postage prepaid, registered or certified mail,
return receipt requested, or sent by prepaid express delivery service:

             (a)    To:   Department of Medicine
                          Vanderbilt University
                          D-3100 MCN
                          Nashville, TN 37232-2358
                          Attention: Vice-Chairman for Finance & Administration

             (b)    To:   Renal Care Group, Inc.
                          2100 West End Avenue
                          Suite 800
                          Nashville, TN 37203
                          Attention: Chief Operating Officer and General Counsel

         9.7 No Waiver. The failure of any party to insist at any time upon the
strict observance or performance of any of the provisions of this Agreement
shall not impair any such right or remedy or be construed to be a waiver or
relinquishment. Every right and remedy given by this Agreement to the parties
may be exercised from time to time and as often as may be deemed expedient by
the parties.

         9.8 Enforceability; Severability. The invalidity or unenforceability of
any term or provision of this Agreement shall not, unless otherwise specified,
affect the validity or enforceability of any other term or provision, unless
such term or provision is material and its invalidity or unenforceability
results in



                                       10


a substantial economic detriment to Vanderbilt or Management Company, in which
event the parties hereto shall negotiate in good faith a resolution which to the
maximum extent feasible preserves to each party the right and benefits
contemplated hereunder.

         9.9 Confidentiality. Each party covenants and agrees that it shall not
disclose the terms of this Agreement or any agreement supplementing this
Agreement to third parties, except as and to the extent disclosure is required
by law, or required for the performance of its obligations hereunder or under
related agreements, or as necessary or appropriate in dealing with the
accountants, attorneys, and other representatives of the respective parties.

                                    ARTICLE X
                             GOVERNMENTAL APPROVALS

         If this Agreement is disapproved in a final order by any governmental
body having jurisdiction over Vanderbilt, Management Company, and/or this
Agreement and if this Agreement is not amended to the satisfaction of the
governmental body within ninety (90) days after the final order is entered, this
Agreement may be terminated by either party upon written notice without
incurring any liability as a result of such termination

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.



                                        Vanderbilt:
                                        ----------
                                        VANDERBILT UNIVERSITY



                                        By: /s/ Gregg Tarquinio
                                            ------------------------------
                                        Title: Chief, Nephrology, Department of
                                              ----------------------------------
                                               Medicine
                                              ----------------------------------


                                        Management Company:
                                        ------------------
                                        RENAL CARE GROUP, INC.



                                        By: /s/ Robert K. Stillwell
                                           -------------------------------------
                                        Title:   Senior Vice President
                                              ----------------------------------



                                       11




                                    EXHIBIT A

                                 MANAGEMENT FEE

         1. The Management Fee set forth in Section 5.1 shall be adjusted to
arrive at a final management fee (the "Final Management Fee") based on the
Income from Operations (as defined below) of the Unit during each Vanderbilt
fiscal year this Agreement is in force in accordance with the following table:




- ------------------------------------------------------------------------------------
          INCOME FROM OPERATIONS                    FINAL MANAGEMENT FEE
          ----------------------                    --------------------
- ------------------------------------------------------------------------------------
                                        
           less than $600,000              $491,000
- ------------------------------------------------------------------------------------
          $600,001 to $700,000             $491,000 + 7% of Income from Operations
                                           in excess of $600,000
- ------------------------------------------------------------------------------------
          $700,001 to $800,000             $498,000 + 8% of Income from Operations
                                           in excess of $700,000
- ------------------------------------------------------------------------------------
          $800,001 to $900,000             $506,000 + 9% of Income from Operations
                                           in excess of $800,000
- ------------------------------------------------------------------------------------
         $900,001 to $1,000,000            $515,000 + 10% of Income from Operations
                                           in excess of $900,000
- ------------------------------------------------------------------------------------
        $1,000,001 to $1,100,000           $525,000 + 11% of Income from Operations
                                           in excess of $1,000,000
- ------------------------------------------------------------------------------------
        $1,100,001 to $1,200,000           $536,000 + 12% of Income from Operations
                                           in excess of $1,100,000
- ------------------------------------------------------------------------------------
        $1,200,001 to $1,300,000           $548,000 + 13% of Income from Operations
                                           in excess of $1,200,000
- ------------------------------------------------------------------------------------
        $1,300,001 to $1,400,000           $561,000 + 14% of Income from Operations
                                           in excess of $1,300,000
- ------------------------------------------------------------------------------------
        $1,400,001 to $1,500,000           $575,000 + 15% of Income from Operations
                                           in excess of $1,400,000
- ------------------------------------------------------------------------------------
        $1,500,001 to $1,600,000           $590,000 + 16% of Income from Operations
                                           in excess of $1,500,000
- ------------------------------------------------------------------------------------
        $1,600,001 to $1,700,000           $606,000 + 17% of Income from Operations
                                           in Excess of $1,600,000
- ------------------------------------------------------------------------------------
        $1,700,001 to $1,800,000           $623,000 + 18% of Income from Operations
                                           in Excess of $1,700,000
- ------------------------------------------------------------------------------------
        $1,800,001 to $1,900,000           $641,000 + 19% of Income from Operations
                                           in Excess of $1,800,000
- ------------------------------------------------------------------------------------
        $1,900,001 to $2,000,000           $660,000 + 20% of Income from Operations
                                           in Excess of $1,900,000
- ------------------------------------------------------------------------------------
        $2,000,001 to $2,100,000           $680,000 + 21% of Income from Operations
                                           in Excess of $2,000,000
- ------------------------------------------------------------------------------------
        $2,100,001 to $2,200,000           $701,000 + 22% of Income from Operations
                                           in Excess of $2,100,000
- ------------------------------------------------------------------------------------
          more than $2,200,001             $723,000
- ------------------------------------------------------------------------------------


         2. For purposes of this Agreement, "Income from Operations" means the
net revenue of the Unit less patient care costs incurred in the Unit, provided
that patient care costs shall explicitly include (i) management fees payable by
Vanderbilt to Management Company under this Agreement, and (ii) fees payable to
the Medical Director of the Unit, and (iii) the "IDS Tax" as currently changed
by Vanderbilt to its operating units Patient care costs shall in no event
include any general management charge, general



                                       12


facilities charge, or other general and administrative charge imposed by
Vanderbilt on the operations of the unit other than the "IDS Tax." For
purposes of calculating Income from Operations, net revenue and patient care
costs shall be calculated in accordance with generally accepted accounting
principles applied consistently with the financial statements historically
prepared by Management Company for the Unit as contemplated by Section 3.6 of
this Agreement. The parties acknowledge that Vanderbilt's fiscal year is the
twelve-month period beginning on July 1 and ending on June 30. If such fiscal
year is changed, then following such change, the calculations contemplated by
this EXHIBIT A will be based on the contract year beginning on July 1 and ending
on June 30.

         3. Within thirty (30) days after the end of each fiscal year,
Management Company shall calculate the Income from Operations for such fiscal
year and shall deliver to Vanderbilt a statement (the "Fee Statement") showing
the calculation of the Income from Operations and the calculation of the Final
Management Fee. With Fee Statement, Management Company shall deliver either (i)
Management Company's check in an amount equal to the Management Fee actually
paid by Vanderbilt during such fiscal year minus the Final Management Fee, if
the Management Fee so paid by Vanderbilt is greater than the Final Management
Fee, or (ii) an invoice for an amount equal to the Final Management Fee minus
the Management Fee actually paid by Vanderbilt during such fiscal year if the
Final Management Fee is greater than the Management Fee so paid by Vanderbilt.

         4. Vanderbilt shall have the right to review Management Company's
calculation of Income from Operations and the Final Management Fee and all books
and records of the Unit or Management Company used in making such calculations.
Management Company will cooperate with Vanderbilt and its agents and accountants
in connection with their review of the books and records of the Unit and
Management Company from which the Fee Statement is prepared, provided that
Vanderbilt and its agents and accountants shall use commercially reasonable
efforts to conduct their review of the Closing Statement in a manner that does
not unreasonably interfere with the operation of the Management Company's
business. The Fee Statement shall be conclusively binding upon the parties,
unless Vanderbilt notifies Management Company (which notice shall state with
reasonable specificity the reasons for any disagreement and the amounts in
dispute) of a disagreement with the Fee Statement within thirty (30) days after
Vanderbilt receives the Fee Statement. Management Company and Vanderbilt shall
negotiate in good faith to resolve any dispute for at least fifteen (15) days
after Vanderbilt so notifies Management Company of a disagreement with the Fee
Statement. If Management Company and Vanderbilt are unable to resolve such
dispute as to all items, then the items still subject to dispute shall be
submitted to a "big five" accounting firm selected by lot from among those "big
five" accounting firms that have no prior or existing relationship with
Management Company or Vanderbilt (the "Accountants") for a final and binding
resolution of such dispute. The parties will use their respective commercially
reasonable efforts to cause the Accountants to resolve such dispute within
forty-five (45) days. Management Company will pay the fees and expenses of the
Accountants related to the resolution of such dispute if Management Company's
determination of the Income from Operations was more than ten percent (10%) less
than the amount determined by the Accountants. Vanderbilt will pay the fees and
expenses of the Accountants related to the resolution of such dispute if
Management Company's determination of the Income from Operations was not more
than ten percent (10%) less than the amount determined by the Accountants.
Management Company shall allow the Accountants to have reasonable access during
regular business hours to the information and individuals necessary to determine
the accuracy of the Fee Statement. The determination by the Accountants or by
the agreement of the parties as to the actual Income from Operations shall be
final and binding on the parties. Following such final determination, the party
owing the other a payment based upon such final adjustment and the Final
Management Fee shall pay the amount due within ten (10) days.



                                       13



         5. Management Company and Vanderbilt acknowledge and agree that the
Management Fee and the adjustments to the Management Fee contemplated by this
Agreement have been agreed upon as a result of arms' length negations between
third parties, that the Management Fee payable under this Agreement is
reasonable and consistent with the fair market value of the services to be
provided, and that graduated incentives contemplated by this EXHIBIT A were
agreed upon based upon the additional time, management expertise and expense to
be expended by Management Company to achieve the additional levels of Income
from Operations giving rise to such incentives.




                                       14

EX-10.33

                                                                   EXHIBIT 10.33


AMGEN                                AMENDED AND RESTATED AGREEMENT NO. 20010240
- --------------------------------------------------------------------------------

This Amended and Restated Agreement ("Agreement") between Amgen USA Inc., One
Amgen Center Drive, Thousand Oaks, California 91320 ("Amgen") and Renal Care
Group, 2100 West End Avenue, Suite 800, Nashville TN 37203 ("RCG"), sets forth
the terms and conditions for the purchase of EPOGEN(R) (Epoetin alfa) by RCG,
exclusively for the treatment of dialysis patients.

        WHEREAS, Amgen and RCG entered into Agreement #20010240 effective
        January 1, 2002, and;

        WHEREAS, the parties now wish to amend and restate Agreement #20010240
        to extend the term for an additional year, restate the terms and
        conditions to accommodate the additional year, and incorporate
        additional incentive provisions covered under Agreement #20010240;

        NOW, THEREFORE, in consideration of the premises and of the mutual
        covenants, representations and warranties set forth herein, the parties
        agree as follows:

1.      TERM OF AGREEMENT. The "Term" of this Agreement shall be defined as
        January 1, 2002 ("Commencement Date") through December 31, 2003
        ("Termination Date").

2.      DIALYSIS CENTER AFFILIATES. RCG must provide Amgen with a complete list
        of its dialysis center affiliates ("Affiliates") on or before the date
        this Agreement is executed by RCG. Only those Affiliates approved by
        Amgen and referenced in Appendix B hereto will be eligible to
        participate under this Agreement. Modifications to the dialysis center
        Affiliates included in Appendix B may be made pursuant to the request of
        RCG's corporate headquarters and are subject to approval and
        acknowledgment by Amgen in writing. Notification of proposed changes to
        the list of Affiliates must be provided by RCG to Amgen in writing at
        least thirty (30) days before the effective date of the proposed change.
        Amgen reserves the right to accept, reject, or immediately terminate any
        Affiliates with regard to participation in this Agreement, if Amgen
        reasonably determines that such Affiliate is not properly classified as
        a freestanding dialysis center or * or if Amgen determines such
        Affiliate is a party to another * for Epogen(R) with Amgen.

3.      OWN USE. RCG hereby certifies that EPOGEN(R) purchased hereunder shall
        be for RCG's "own use", for the exclusive treatment of dialysis
        patients.

4.      AUTHORIZED WHOLESALERS. On or before the date RCG executes this
        Agreement, RCG must provide Amgen with a complete list of its current
        wholesalers, from which RCG intends to purchase EPOGEN(R). Wholesalers
        so designated by RCG and approved by Amgen will be deemed "Authorized
        Wholesalers" for the purposes of this Agreement. A current listing of
        RCG's Authorized Wholesalers is included in Appendix C. Notification of
        proposed changes to the list of Authorized Wholesalers must be provided
        to Amgen in writing at least thirty (30) days before the effective date
        of the proposed change. Amgen reserves the right to accept, reject, or
        immediately terminate any wholesaler with regard to participation in
        this Agreement. In the event Amgen terminates any Authorized Wholesaler
        from which RCG is purchasing EPOGEN(R), Amgen will work with RCG to
        identify other possible Authorized Wholesalers from which RCG may
        purchase EPOGEN(R). In the event that RCG is unable to identify another
        Authorized Wholesaler from which RCG may purchase EPOGEN(R), and subject
        to receipt and approval of an *. RCG agrees to require all Authorized
        Wholesalers to submit product sales information directly to Amgen and to
        a third-party sales reporting organization designated by Amgen.

        *       Omitted information is the subject of a request for confidential
                treatment pursuant to Rule 24b-2 under the Securities Exchange
                Act of 1934 and has been filed separately with the Securities
                and Exchange Commission.



AMENDED AND RESTATED AGREEMENT NO. 20010240                         Ver. 7/25/02


                                      -1-

                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------

5.      QUALIFIED PURCHASES. Only EPOGEN(R) purchased under this Agreement by
        RCG through *.

6.      COMMITMENT TO PURCHASE. RCG agrees to purchase EPOGEN(R) for all of its
        dialysis use requirements for recombinant human erythropoietin. RCG may
        purchase another brand of recombinant human erythropoietin for its
        dialysis use requirements only for the time, and only to the extent,
        that Amgen has notified RCG's corporate headquarters in writing that
        Amgen cannot supply EPOGEN(R) within and for the time period reasonably
        required by RCG.

7.      CONFIDENTIALITY. Both Amgen and RCG agree that this Agreement represents
        and contains confidential information which shall not be disclosed to
        any third party, or otherwise made public, without prior written
        authorization of the other party, except where such disclosure is
        contemplated hereunder or required by law, and then only upon prior
        written notification to the other party.

8.      DISCOUNTS. RCG may qualify for discounts and incentives in accordance
        with the schedules and terms set forth in Appendix A. Discounts in
        arrears will be paid in the form of a check payable to RCG's corporate
        headquarters. Discounts in arrears will be calculated in accordance with
        Amgen's discount calculation policies based on * using the * in effect
        as of the date of purchase as the calculation price, except as otherwise
        provided hereunder. Upon vesting of all earned discounts, Amgen will use
        its best efforts to make such discounts available within * after receipt
        by Amgen of data, in a form reasonably acceptable to Amgen, detailing
        all * during the applicable period. Discount amounts, as calculated by
        Amgen, must * for the applicable period to qualify. Subject to the
        section entitled "Breach of Agreement", in the event that Amgen is
        notified in writing that RCG and/or any Affiliates are acquired by
        another entity or a change of control otherwise occurs with respect to
        RCG or an Affiliate, any discounts which may have been earned hereunder
        shall be paid in the form of a check payable to RCG's or the Affiliate's
        corporate headquarters subject to the conditions described herein. If
        any Affiliates are added to or deleted from this Agreement during any of
        the periods used for comparison, for any of the discounts paid in
        arrears contained herein, Amgen reserves the right in its sole and
        reasonable discretion to appropriately adjust RCG's discounts for the
        relevant periods, by including or excluding any purchases made by those
        Affiliates during any of those periods.

9.      TREATMENT OF DISCOUNTS. RCG agrees that it will properly disclose and
        account for any discount or other reduction in price earned hereunder,
        in whatever form, (i.e. pricing, discount, or incentive) in a way that
        complies with all applicable federal, state, and local laws and
        regulations, including without limitation, Section 1128B(b) of the
        Social Security Act and its implementing regulations. Section 1128B(b)
        requires that a provider of services will properly disclose and
        appropriately reflect the value of any discount or other reduction in
        price earned in the costs claimed or charges made by the provider under
        a federal health care program, as that term is defined in Section
        1128B(f). RCG also agrees that it will (a) claim the benefit of such
        discount received, in whatever form, in the fiscal year in which such
        discount was earned or the year after, (b) fully and accurately report
        the value of such discount in any cost reports filed under Title XVIII
        or Title XIX of the Social Security Act, or a state health care program,
        and (c) provide, upon request by the U.S. Department of Health and Human
        Services or a state agency or any other federally funded state health
        care program, the information furnished by Amgen concerning the amount
        or value of such discount. RCG's corporate headquarters agrees that it
        will advise all Affiliates, in writing, of any discount received by
        RCG's corporate headquarters hereunder with respect to purchases made by
        such Affiliates and that said Affiliates will account for any such
        discount in accordance with the above stated requirements.




        *       Omitted information is the subject of a request for confidential
                treatment pursuant to Rule 24b-2 under the Securities Exchange
                Act of 1934 and has been filed separately with the Securities
                and Exchange Commission.



AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -2-


                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------

10.     DATA COLLECTION. RCG agrees that all data to be provided to Amgen
        pursuant to this Agreement, shall be in a form that does not disclose
        the identity or name of any patient or other patient-identifying
        information such as address, telephone number, or social security
        number. RCG acknowledges that the data to be supplied to Amgen pursuant
        to this Agreement shall be used to support verification of the discounts
        and incentives referenced herein, as well as for Amgen-sponsored
        research concerning the role of EPOGEN(R) in improving treatment
        outcomes and quality of life of dialysis patients. RCG shall
        consistently use a unique alpha-numeric code (which shall not be the
        same as the patient's social security number) as a "case identifier" to
        track the care rendered to each individual patient over time, and such
        case identifier shall be included in the data provided to Amgen. The key
        or list matching patient identities to their unique case identifiers
        shall not be provided to Amgen personnel. In furtherance of Amgen
        research, RCG may agree from time to time to use its key to update the
        patient care data by linking it with information concerning health
        outcomes, quality of life, and other pertinent data that may become
        available to Amgen from other sources. Any such linking of data sources
        shall not provide the identity of any patient to Amgen. Amgen agrees
        that it will maintain data supplied under this Agreement in confidence
        and that it will not use such data to identify or contact any patient.
        No reports by Amgen concerning analyses of the data or the results of
        such research shall disclose the identity of any patient.

11.     BREACH OF AGREEMENT. If either party materially breaches this Agreement,
        then the other party may terminate this Agreement for breach upon thirty
        (30) days' advance written notice. In addition, in the event that RCG
        materially breaches any provision of this Agreement, Amgen shall have no
        obligation to continue to offer the terms described herein or pay any
        further discounts to RCG.

12.     GOVERNING LAW. This Agreement shall be governed by the laws of the State
        of California and the parties hereby submit to the jurisdiction of the
        California courts, both state and federal.

13.     WARRANTIES. Each party represents and warrants to the other that this
        Agreement: (a) has been duly authorized, executed, and delivered by it,
        (b) constitutes a valid, legal, and binding agreement enforceable
        against it in accordance with the terms contained herein, and (c) does
        not conflict with or violate any of its other contractual obligations,
        expressed or implied, to which it is a party or by which it may be
        bound. The party executing this Agreement on behalf of RCG specifically
        warrants and represents to Amgen that he is authorized to execute this
        Agreement on behalf of and has the power to bind RCG and the Affiliates
        to the terms set forth in this Agreement. The party executing this
        Agreement on behalf of Amgen specifically warrants and represents to RCG
        that he is authorized to execute this Agreement on behalf of and has the
        power to bind Amgen to the terms set forth in this Agreement.

14.     NOTICES. Any notice or other communication required or permitted
        hereunder shall be in writing and shall be deemed given or made when
        delivered in person or when sent to the other party by first class mail,
        nationally recognized overnight delivery service or other means of
        written communication at the respective party's current address or at
        such other address as the party shall have furnished to the other in
        accordance with this provision.

15.     COMPLIANCE WITH HEALTH CARE PRICING AND PATIENT PRIVACY LEGISLATION AND
        STATUTES. (a) Notwithstanding anything contained herein to the contrary,
        at any time following the enactment of any federal, state, or local law
        or regulation that in any manner reforms, modifies, alters, restricts,
        or otherwise adversely affects the pricing of or reimbursement available
        for EPOGEN(R), Amgen may, in its sole discretion, upon thirty (30) days'
        notice (i) terminate this Agreement, or (ii) exclude any Affiliates from
        participating in this Agreement unless such Affiliate(s) certifies in
        writing that they are, or will be, exempt from the provisions
        thereunder. Additionally, in order to assure compliance with any
        existing federal, state or local statute, regulation or ordinance, Amgen
        reserves the right to exclude any Affiliates from the pricing, discount,
        and incentive provisions of this Agreement if, in the opinion of Amgen's
        legal counsel such exclusion is necessary to assure such compliance.

        (b)     Notwithstanding anything contained herein to the contrary, at
                any time following the enactment of any federal, state, or local
                law or regulation relating to patient privacy of medical records
                that in any manner reforms, modifies, alters, restricts, or
                otherwise affects any of the data received or to be received in
                connection with any of the incentives


AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -3-





                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------

        contemplated under this Agreement, either party may, in its discretion,
        upon thirty (30) days' notice, seek to modify this Agreement with
        respect to the affected incentive. RCG and Amgen shall meet and in good
        faith seek to mutually agree to modify this Agreement to accommodate any
        such change in law or regulation, with the intent to, if possible,
        retain the essential * structure of the affected incentive. If the
        parties, after reasonable time, are unable to agree upon a modification,
        Amgen shall be entitled to terminate the affected incentive upon thirty
        (30) days' notice, provided that if Amgen so terminates an incentive,
        RCG shall be entitled to terminate this Agreement upon thirty (30) days'
        notice.

16.     FORCE MAJEURE. Neither party will be liable for delays in performance or
        nonperformance of this Agreement or any covenant contained herein if
        such delay or nonperformance is a result of Acts of God, civil or
        military authority, civil disobedience, epidemics, terrorism, war,
        failure of carriers to furnish transportation, strike, lockout or other
        labor disturbances, inability to obtain material or equipment, or any
        other cause of like or different nature beyond the control of such
        party.

17.     MISCELLANEOUS. No modification of this Agreement will be effective
        unless made in writing and executed by a duly authorized representative
        of each party, except as otherwise provided hereunder. Neither party may
        assign this Agreement to a third party without the prior written consent
        of the other party. This Agreement may be executed in one or more
        counterparts, each of which is deemed to be an original but all of which
        taken together constitute one and the same agreement.

18.     ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
        between the parties and supersedes all prior written or oral proposals,
        agreements, or commitments pertaining to the subject matter herein.


Please retain one fully executed original for your records and return the other
fully executed original to Amgen.

    THE PARTIES EXECUTED THIS AMENDMENT AS OF THE DATES SET FORTH BELOW.

    AMGEN USA INC.                          RENAL CARE GROUP, INC.

    Signature:                              Signature:
               ------------------------                -------------------------
    Print Name:                             Print Name:
               ------------------------                -------------------------
    Print Title:                            Print Title:
               ------------------------                -------------------------
    Date:                                   Date:
               ------------------------                -------------------------








        *       Omitted information is the subject of a request for confidential
                treatment pursuant to Rule 24b-2 under the Securities Exchange
                Act of 1934 and has been filed separately with the Securities
                and Exchange Commission.



AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -4-


                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------



                APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS

        1.      PRICING. Throughout the first year of the Term of this Agreement
                (January 1, 2002 - December 31, 2002), RCG may purchase
                EPOGEN(R) through * at an *, which shall be equal * in effect on
                *. Throughout the second year of the Term of this Agreement
                (January 1, 2003 - December 31, 2003), RCG may purchase
                EPOGEN(R) through * at an *, which shall be equal * in effect on
                *. Amgen reserves the right to change the * at any time, which
                change shall * RCG during the Term of this Agreement. Resulting
                prices do not include *. All discounts earned in arrears during
                the Term of the Agreement shall be calculated based *.

        2.      BASE SALES; SALES GROWTH CALCULATION. For purposes of * from the
                *, Amgen will * by all Affiliates listed on Appendix B of this
                Agreement as of the Commencement Date and, as provided for in
                this Section 2, all new approved Affiliates. For new approved
                Affiliates added through acquisition, * by such new approved
                Affiliates shall only be * if Dialysis Center provides adequate
                data to Amgen's reasonable satisfaction concerning such new
                approved Affiliates' purchases of EPOGEN(R) for the same time
                period from the previous year. Such new approved Affiliates' *
                shall be *. For purposes of * by all Affiliates listed on
                Appendix B at the beginning of CY2 and, as provided for in this
                Section 2, all new approved Affiliates. For new approved
                Affiliates added through acquisition, *.

        3.      *. RCG may qualify for * provided it meets the * defined below
                and the criteria described below in this section. * is designed
                to improve patient outcomes by encouraging * which recommends
                *.*


          APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED)

A. REQUIREMENTS: In order to qualify for *, RCG's aggregate * of EPOGEN(R)
during * and * by all Affiliates as listed on Appendix B on the Commencement
Date of this Agreement and those added at the beginning of * must equal or
exceed * for * and * for *, of the aggregate * of EPOGEN(R) by those same
Affiliates for *. *. In addition, no more than * may have * during each * of the
Term. If either of these criteria is not met during any given * of the Term, RCG
will not qualify for the * during that *. Failure of RCG to qualify for the *
during a particular *. If at the end of * and * the * has been met, then Amgen *
for that given * and appropriately * for those relevant * during the affected *
in which a * was not *. However, if at the end of * and * the * has not been met
for that year, * for that given *, *. *. * will be made by Amgen or RCG, as the
case may be, within * after the end of * and *, *. In order to participate *,
RCG and Affiliates must provide the following information for each dialysis
patient to Amgen or to a data collection vendor specified by Amgen *, and *
after the *:

        i)      all * for each dialysis patient, the date of each test, and a
                consistent, unique, alpha-numeric identifier (sufficient
                consistently to track an individual patient without in any way
                disclosing the identity of the patient), along with the name,
                address and phone number of the particular Affiliate at which
                each patient received treatment (collectively the "Data"). To
                the extent permitted by applicable law, Amgen may utilize the
                Data for any purpose, and reserves the right to audit all Data.
                Under no circumstances should the Data include any patient
                identifiable information including, without limitation, name,
                complete social security number, address or birth date. The
                identity of the account submitting the Data and any association
                with the Data will remain confidential. The * must be derived
                from * taken immediately before dialysis treatment using any *
                testing method *, must be reported *, and must be submitted
                directly from the clinical laboratory in a format reasonably
                acceptable to Amgen. Handwritten reports are not acceptable;
                electronic submission of the Data is preferred, and


*       Omitted information is the subject of a request for confidential
        treatment pursuant to Rule 24b-2 under the Securities Exchange Act of
        1934 and has been filed separately with the Securities and Exchange
        Commission.


- ---------------------
* *


AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -5-



                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------

        ii)     a properly executed "Certification Letter", a sample of which is
                attached hereto as Exhibit #1, that will be provided to RCG's
                corporate headquarters, unless otherwise requested, after this
                Agreement is executed by both parties.










          APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED)

        B.      CALCULATION: Assuming RCG has fulfilled all requirements as
                described in Section 3(a) above, RCG's * will be calculated as
                follows:

                The * for each dialysis patient will be based upon the average
                of all * gathered for each patient during * of the Term. The *
                of all dialysis patients with *, will be determined by dividing
                the total number of dialysis patients with *. * will be
                calculated based on RCG's overall performance in accordance with
                Amgen's discount calculation policies.

        C.      PAYMENT: * will be calculated on a * and paid to RCG's corporate
                headquarters, except as otherwise provided hereunder. Payment is
                contingent upon receipt by Amgen of the "Certification Letter"
                and *. If Data is received more than * after *, the total * of
                EPOGEN(R) attributable to RCG during * for that *.
                Notwithstanding the foregoing, if Amgen receives all required
                Data from * of all Affiliates within the time frame referenced
                above for *, the total * of EPOGEN(R) attributable to RCG during
                *, will be included in the calculation of * for that *. However,
                if Amgen determines that any Affiliate is consistently not
                submitting the required Data, Amgen reserves the right in its
                sole discretion to exclude such Affiliate's * of EPOGEN(R) from
                the calculation * for any *. * payments will be based upon the
                Data received from the *, and will equal a percentage of RCG's
                total * of EPOGEN(R) during that * (exclusive of any * of
                EPOGEN(R) made by RCG or any Affiliate not meeting the Data
                submission requirements described above) as governed by *
                schedule listed below. Notwithstanding the foregoing, payment
                for any period during the Term that is not equivalent to a *,
                will be based *. If the EPOGEN(R)* or the *, then Amgen and RCG
                agree *. * above.

                                   * SCHEDULE

                         *

        PLEASE DIRECT YOUR ATTENTION TO THE EPOGEN(R) PACKAGE INSERT

                     *







        *       Omitted information is the subject of a request for confidential
                treatment pursuant to Rule 24b-2 under the Securities Exchange
                Act of 1934 and has been filed separately with the Securities
                and Exchange Commission.



AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -6-


                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------

          APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED)

                                        *

     *


PLEASE DIRECT YOUR ATTENTION TO THE EPOGEN(R) PACKAGE INSERT

                                     *






        D.      VESTING: RCG's * will vest at the *.

        E.      * SUBMISSION: In the event RCG adds any Affiliates still
                submitting Data based on * to this Agreement, such Affiliates' *
                of EPOGEN(R), for the * in which they were added, shall be
                included in the calculation of B *. Amgen will accept the *. In
                order for such added Affiliates' * EPOGEN(R) to be included in
                all subsequent * payment calculations, such Affiliate must
                submit *.

4.      *. RCG shall be eligible to receive * if certain data elements are
        transmitted to Amgen *. The * will be calculated as a percentage of the
        * of EPOGEN(R) attributable to RCG during *. In order to qualify for the
        *, the following * must be submitted to Amgen by all Affiliates *. The *
        must be submitted, on a *, and *. If the * are received * within a given
        *, the total * of EPOGEN(R) attributable to RCG * from the calculation
        of the * for that *. Notwithstanding the foregoing, if Amgen receives
        all required * within the time frame referenced above for any *, the
        total * of EPOGEN(R) attributable to RCG during such *, will be * of the
        * for that *. However, if Amgen determines that any Affiliate is
        consistently *, Amgen and RCG will work collaboratively in resolving
        such inconsistencies. Amgen reserves the right, in its sole discretion,
        to exclude any such non-reporting Affiliate's * of EPOGEN(R) from the
        calculation of the * for any relevant *. The * will vest on the last day
        of the corresponding *, and will be paid * thereafter.









*       Omitted information is the subject of a request for confidential
        treatment pursuant to Rule 24b-2 under the Securities Exchange Act of
        1934 and has been filed separately with the Securities and Exchange
        Commission.


AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -7-

                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------


          APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED)

5.      *. RCG may qualify for the * as described below.

        A.      CALCULATION: RCG's * will be calculated in accordance with the
                following formula.


                                        *





















        *       Omitted information is the subject of a request for confidential
                treatment pursuant to Rule 24b-2 under the Securities Exchange
                Act of 1934 and has been filed separately with the Securities
                and Exchange Commission.





AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -8-


                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------


          APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED)

                                        *

























B.      VESTING: RCG's * will vest *. * and the * amount earned.

6.      *.








*       Omitted information is the subject of a request for confidential
        treatment pursuant to Rule 24b-2 under the Securities Exchange Act of
        1934 and has been filed separately with the Securities and Exchange
        Commission.





AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -9-

                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------


                       APPENDIX B: LIST OF RCG AFFILIATES

                                 To be Attached

TO ENSURE YOU RECEIVE THE APPROPRIATE DISCOUNT, IT IS IMPORTANT THAT WE HAVE
YOUR CURRENT LIST OF AUTHORIZED WHOLESALERS. THE FOLLOWING LIST REPRESENTS THE
WHOLESALERS AMGEN CURRENTLY HAS ASSOCIATED WITH YOUR CONTRACT. PLEASE UPDATE THE
LIST BY ADDING OR DELETING WHOLESALERS AS NECESSARY.

Metro Medical Supply Inc.
3332 Powell Avenue
Nashville, TN  37204

Henry Schein, Inc.
135 Duryea Road
Nelville, NY  11747

Priority HealthCare Corporation
285 West Central Parkway, Suite 1704
Altamonte Springs, FL  32714






AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -10-


                                              AGREEMENT NO. 20010240 (CONTINUED)
- --------------------------------------------------------------------------------


                                                                      EXHIBIT #1

                           SAMPLE CERTIFICATION LETTER

Month X, 2002

FSDC Legal Name
Street Address
City, ST  Zip

RE: EPOGEN(R) (Epoetin alfa) Agreement No. 9XXXXX

Dear ____________:

Thank you for your participation in *. In order for us to enroll you, we require
that a duly authorized representative of your organization sign the
certification below.

Upon receipt of this executed document, we will calculate the value of your *.
If we do not receive the executed certification, we cannot provide you with this
*.

If you have any questions regarding this letter please contact me at *. Thank
you for your assistance in returning this certification.

Sincerely,


*


CERTIFICATION:

On behalf of FSDC Legal Name and all eligible Affiliates participating in *
under Agreement No. XXXXXX, the undersigned hereby certifies that the * required
to be submitted (herein referred to as *), for each eligible Affiliate during
the term of this Agreement includes the required * from all dialysis patients
from each such Affiliate,*. The party executing this document also represents
and warrants that it (i) has no reason to believe that the submitted * is
incorrect, and (ii) is authorized to make this certification on behalf of all
eligible Affiliates submitting *.

FSDC LEGAL NAME

Signature:        _____________________________
Print Name:       _____________________________
Print Title:      _____________________________
Date:             _____________________________

*    Omitted information is the subject of a request for confidential treatment
     pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has
     been filed separately with the Securities and Exchange Commission.




AGREEMENT NO. 20010240                                              Ver. 7/25/02

                                      -11-

EX-10.64

                                                                 Exhibit 10.64




                          RENAL CARE GROUP TEXAS, INC.
                           c/o Renal Care Group, Inc.
                         2100 West End Avenue, Suite 800
                           Nashville, Tennessee 37203



                                  July 11, 2002


Tyler Nephrology Associates
1133 Medical Drive
Tyler, TX 75701

         Re:      Mineola Medical Director Services Agreement

Ladies and Gentlemen:

         This letter is written with respect to the Medical Director Services
Agreement (the "Mineola Agreement") between Renal Care Group Texas, Inc.
("RCGT") and Tyler Nephrology Associates ("TNA") that is being entered into
contemporaneously with this letter agreement to cover medical director services
provided by TNA for RCGT's facility in Mineola, Texas. RCGT and TNA acknowledge
that the Medical Director Services Agreement between them dated February 12,
1996 is scheduled to expire on February 12, 2003 (the "Old Agreement"). This
letter confirms the parties' intent (i) to negotiate in good faith to enter into
a new multi-year agreement to replace the Old Agreement on or before February
12, 2003 and (ii) if such a replacement agreement is negotiated and agreed, to
add the Mineola facility to that replacement agreement and terminate the Mineola
Agreement. The parties agree that this letter is a non-binding statement of
intent and that an agreement to replace the Old Agreement will only be binding
when executed and delivered by each of the parties.

         If this letter accurately sets forth our intent concerning the
negotiation of a replacement for the Old Agreement, please so indicate by
executing in the space noted below.

         If you have any questions concerning these matters, please call RCGT's
counsel, Doug Chappell, at (615) 345-5526. Thank you in advance for your
cooperation.


                                               Sincerely,
                                               RENAL CARE GROUP TEXAS, INC.


                                               By: /s/ R. Dirk Allison
                                                  ------------------------------
                                               Title: Vice President
                                                      --------------------------


ACKNOWLEDGED AND AGREED this _______ day of July, 2002

TYLER NEPHROLOGY ASSOCIATES, P.A.


By: /s/ Roy D. Gerard, Jr., M.D.
   ---------------------------------
Title:   President
      ------------------------------




                       MEDICAL DIRECTOR SERVICES AGREEMENT

         THIS MEDICAL DIRECTOR SERVICES AGREEMENT (the "Agreement") is made and
entered into this ________ day of July, 2002, by and between RENAL CARE GROUP
TEXAS, INC., a Texas corporation (the "Company"), and TYLER NEPHROLOGY
ASSOCIATES, P.A., a Texas professional corporation (the "Practice"). In
addition, each Practice Physician, as defined below, has executed the attached
Physician Joinder and by which each such Practice Physician has agreed to be
bound by certain terms of this Agreement as provided in the Physician Joinder.

                              W I T N E S S E T H:

         WHEREAS, the Company has developed and owns and operates a renal
dialysis facility at 102 Maxine Drive, Mineola, Texas 75773 (the "Facility"),
which Facility will provide outpatient dialysis services;

         WHEREAS, the Facility is an outpatient dialysis facility certified by
the Center for Medicare and Medicaid Services ("CMS") for payment under the
Medicare program, which program requires the Facility to obtain the services of
a physician or group of physicians to perform prescribed medical director
services for the Facility;

         WHEREAS, the Company desires to engage one or more nephrologists
skilled in dialysis center administration to provide medical director services
at the Facility in accordance with the requirements established by CMS and as
provided in this Agreement;

         WHEREAS, the Practice desires and is qualified to provide the medical
director services contemplated by this Agreement to the Facility through one or
more of its Practice Physicians, each of whom will be licensed to Practice
medicine and prescribe drugs without restriction in the State of Texas, will
specialize in nephrology and dialysis services and will be experienced in
dialysis center administration;

         NOW, THEREFORE, in consideration of the premises set forth above and
the mutual covenants and agreements of the parties set forth in this Agreement,
the receipt and sufficiency of which are acknowledged, the parties agree as
follows:

                                    ARTICLE I
                             ENGAGEMENT AND SERVICES

         1.1 Engagement. The Company engages the Practice to provide, and the
Practice shall provide, services for the Company as medical director of the
Facilities in accordance with the requirements of applicable CMS regulations
(including, without limitation, 42 C.F.R. Section 405.2100 et seq. and any
successor regulations) and all applicable state regulations, as the same may be
amended or supplemented, together with such other services as are customarily
performed by medical directors at high quality dialysis facilities and such
other tasks related to the oversight of dialysis treatments administered at the
Facilities as the Company may from time to time reasonably designate. The
Practice agrees that matters affecting the operating and capital budget of the
Facility shall be presented to and require the approval of the Company.

         1.2 Responsibilities. Without limiting the generality of this Article
I, the Practice shall provide the medical director services described in EXHIBIT
A, which may be revised and updated from time to time by



the Company, provided that any change that is not a CMS or other legal
requirement must first be approved by the Practice if it materially increases
the medical director duties hereunder.

         1.3 Principal Contact. The Practice shall from time to time designate
in writing to the Company a Practice Physician to serve as the principal contact
at the Facility and who shall provide or arrange for the provision of the
services required hereunder, and who shall serve as the principal contact for a
period of no less than 12 months. The initial principal contact for the Facility
will beJames Cotton, M.D.

         1.4 Patient Care Manual. The Practice shall advise the Company in
developing and maintaining a patient care policy and procedures manual for the
Facility and will assure its implementation by delegating to the supervising
nurse the duty to oversee the implementation of the policies and providing
medical guidance when needed. The manual will describe:

             (a) The types of dialysis used in the Facility and the procedures
to be followed in performing each type of dialysis;

             (b) Procedures for implementing universal precautions for the
prevention of disease transmission;

             (c) Procedures for properly handling blood-borne and infectious
pathogens; and

             (d) A disaster readiness plan.

         1.5 Supervising Nurse. The Company shall provide a full time nurse to
manage the provision of patient care in the Facility. The Practice may delegate
to the supervising nurse the responsibility for the execution of patient care
policies on a day-to-day basis, and the principal contact will provide medical
guidance to the supervising nurse in the execution of these duties.

         1.6 Records. The Company and the Practice acknowledge that attending
physicians have medical responsibility for the content of medical records of the
Facility pertinent to the care of their patients. Furthermore, the Company and
the Practice acknowledge that the head nurse or manager of the Facility has
operational responsibility for the day-to-day maintenance of the Facility's
records including records of nurses, technicians, dieticians and social workers
providing services in the Facility. The Company, through a medical records
supervisor designated for the Facility, with the assistance and support of the
Practice shall oversee the maintenance of current medical and business records
relating to the care and treatment of patients in the Facility in accordance
with 42 CFR 405.2139 and 25 TAC ss. 117.45 and in accordance with Company
policies and applicable regulations of governmental agencies, including:

             (a) Patient long-term care plans, patient short-term care plans and
medical histories;

             (b) Results of physical examinations and laboratory tests; and

             (c) Progress notes by all patient care staff, and complete and
legibly signed orders and discharge summaries.

         1.7 Documentation. The Practice and Practice Physicians who provide
services hereunder shall maintain, and provide to the Company upon request,
reasonably complete and detailed documentation of the services performed in
providing medical director services under this Agreement. This documentation
shall be maintained in a form reasonably satisfactory to or prescribed by the
Company and, at the reasonable



request of the Company, will include documentation of the time spent performing
services under this Agreement.

         1.8 Medical Staff. The Practice shall review the applications of
physicians requesting to attend to patients at the Facility and forward a
recommendation concerning such applications to the body making credentialing
decisions for the Facility under its Professional Staff Bylaws. Subject to the
Facility's Professional Staff Bylaws, a member of the Practice shall, at the
request of the Company or the Executive Board of the Medical Staff acting under
such bylaws, serve on the peer review committee that maintains oversight of all
disciplinary actions with regard to any matter of such physicians or patient
care personnel as needed to assure the quality of services and conformity to
Company and Facility rules and policies.

         1.9 Coverage. The Practice shall make available one or more Practice
Physicians, as appropriate, to provide medical director services at the Facility
for its hours of operation. The Practice and the Company shall confer from time
to time in good faith concerning the appropriate level of physician coverage to
provide medical director services hereunder.

         1.10 Practice Physicians. (a) The Practice represents and warrants that
all physicians who as of the date of this Agreement meet the definition of a
Practice Physician have executed the Physician Joinder attached hereto. As a
condition to engaging any physician in a manner that causes such physician to
become a Practice Physician, the Practice shall obtain the signature of such
physician on the Physician Joinder in consideration for such engagement the fees
payable to the Practice hereunder.

              (b) For purposes of this Agreement, the term "Practice Physician"
means any physician who is a physician performing services on behalf of the
Practice at any of the Facilities (whether as an employee, partner, member,
shareholder or independent contractor of the Practice), any other physician
performing services on behalf of the Practice hereunder (as may be approved by
the Company), and any other physician in any way affiliated or associated with
the Practice, or regularly seeing patients of the Practice (other than on a
covering or locum tenens basis).

         1.11 No Required Referrals. Notwithstanding any other provision of this
Agreement, each of the Company, the Practice and the Practice Physicians
acknowledges and agrees that neither the Practice nor any Practice Physician is
required to make referrals of patients to the Company or any affiliate of the
Company or to the Facility. Each of the Practice Physicians is free to maintain
professional staff privileges at any dialysis facility, to refer patients to any
other facility for dialysis or other services, and, subject to Article VII,
otherwise to perform professional medical services at or through any entity,
whether or not it is competing with the Facility, the Company or with any
affiliates of the Company.

         1.12 Personnel. The Company and the Practice acknowledge that the
Practice has no control over the processes of hiring or firing of associates
employed at the Facility. The Company and the Practice further acknowledge and
agree that the Practice's involvement in the training of associates is confined
to providing advice and counsel to the Company.

                                   ARTICLE II
                              TERM AND TERMINATION

         2.1 Initial and Renewal Terms. This Agreement shall be deemed effective
as of the date on which the Company opens the Facility for services to patients
(the "Effective Date") and shall remain in full force and effect until 12:00
p.m. midnight on the first anniversary of the Effective Date (the "Initial
Term"),



unless earlier terminated as provided in this Article II. This Agreement
shall automatically renew for additional successive terms of one year each (the
"Renewal Terms"), unless either party gives written notice of non-renewal to the
other party not less than 90 days prior to the expiration of the Initial Term or
then-current Renewal Term, as applicable. If such notice is given, this
Agreement shall expire as of the last day of the Initial Term or the
then-current Renewal Term, as applicable.

         2.2 Termination By Agreement. The Company and the Practice may agree in
writing signed by both parties to terminate this Agreement at a time and date
stipulated in such writing.

         2.3 Termination by the Practice for Cause. (a) The Practice may during
the Initial Term or any Renewal Term terminate this Agreement upon written
notice to the Company in the event of the occurrence of either of the following:

             (i) material breach of any covenant, agreement, term,
representation or warranty of the Company in this Agreement or the failure of
any representation or warranty of the Company in this Agreement to be true and
correct in all material respects when made or deemed made hereunder, which
breach or failure, if susceptible of cure, continues uncured for 30 days after
the Practice gives written notice of such breach or failure to the Company; any
notice of breach or failure will describe such breach or failure with reasonable
particularity; or

             (ii) the revocation of the Medicare certification of the Facility
or the exclusion of the Company from participation in the Medicare or Medicaid
program which exclusion or revocation has not been cured, stayed or rescinded
within 90 days.

             (iii) any felony conviction (including a plea of nolo contendre)
of any officer or management-level employee of the Company relating to the
provision of health care services at the Facility;

             (iv) dishonesty, misappropriation of property, or false or
defamatory disparagement of the Practice or any of its medical staff,
affiliates, representatives or employees;

             (v) the failure of the Company reasonably to consider or reasonably
to act upon a written request by the Practice that the Company provide
equipment, personnel or training for personnel necessary to operate the Facility
in accordance with applicable law and the conditions of participation in the
Medicare program, which failure continues for 30 days after the Practice gives
the Company notice written notice that the Practice intends to terminate this
Agreement under this Section 2.3(a)(v); or

             (vi) the existence of an immediate threat to the health or safety
of any patient receiving treatment at the Facility, which threat results from
any act or omission of the Company or any of its employees (and not from any act
or omission of the Practice).

             (b) Upon the occurrence of any event described in Section
2.3(a)(iii) or 2.3(a)(iv), the Practice shall not terminate this Agreement if,
within 10 days after the Practice gives the Company written notice of the action
or event giving the Practice the right to terminate this Agreement, the Company
agrees that the individual who is the subject of such cause will not have any
further involvement with the Facilities.

         2.4 Termination by the Company.



               (a) The Company may during the Initial Term or any Renewal Term
terminate this Agreement upon written notice to the Practice in the event of the
occurrence of any of the following with respect to the Practice or any one of
the Practice Physicians:

                   (i) dishonesty, misappropriation of property, disparagement
of the Company, the Facility or Renal Care Group, Inc., the parent company of
the Company ("RCG"), or any of their affiliates, representatives or employees;

                   (ii) negligence in the performance of any duty or
responsibility as medical director under this Agreement, which negligence was
not occasioned in whole or in part by any negligence by the management or
employees of the Company, the Facility or RCG, and which negligence results in
substantial harm to the reputation or ongoing ability to conduct the business of
the Facility or the Company, provided that the results of such negligence
continue for thirty (30) days after the Company gives the Practice written
notice of such negligence and that the Company intends to terminate this
Agreement under this Section 2.4(a)(ii);

                   (iii) suspension, revocation or limitation of the licenses or
authorizations required to be maintained by the Practice or the Practice
Physicians;

                   (iv) exclusion of the Practice or any Practice Physician
from participation under Medicare, Medicaid or any other federal health benefits
program;

                   (v) revocation, suspension, probation, removal or resignation
under investigation of any Practice Physician from membership or privileges on
the medical staff of the Facility or of any other health care facility at which
such Practice Physician has medical staff privileges;

                   (vi) the existence of an immediate threat to the health or
safety of any patient receiving treatment at the Facility, which threat results
from any act or omission of the Practice or any Practice Physician;

                   (vii) the requirement, or threatened requirement, by any
federal or state agency having jurisdiction over the Company or the Facility
that the Practice or any Practice Physician cease to provide medical director
services at the Facility;

                   (viii) commission or conviction, including a plea of nolo
contendere, of any felony or of any crime involving moral turpitude; or

                   (ix) material breach of any covenant, agreement, term,
representation or warranty of the Practice or any Practice Physician in this
Agreement or the failure of any representation or warranty of the Practice in
this Agreement to be true and correct in all material respects when made or
deemed made hereunder, which breach or failure, if susceptible of cure,
continues uncured for 30 days after the Company gives written notice of such
breach or failure to the Practice; any notice of breach will describe such
breach with reasonable particularity.

               (b) Upon the occurrence of any event described in paragraph (a)
of this Section 2.4 that is the result of an act or omission of one or more
specific Practice Physicians who do not constitute a majority of the Practice
Physicians then providing services hereunder, the Company shall not terminate
this Agreement if, within 10 days after the Company gives the Practice written
notice of the act or omission giving the Company the right to terminate this
Agreement, the Practice agrees that any Practice Physician who is the subject of
such cause will not provide further services under this Agreement and, if
requested by the



Company, that the Practice will use its best efforts to cause such physician to
resign the privileges of such Practice Physician to attend patients at the
Facility.

             (c) Upon the occurrence of any event described in paragraph (a)
of this Section 2.4, the Company shall have, in addition to the right to
terminate this Agreement, the right to suspend the Practice from providing
services under this Agreement for a period of up to one year. In the event of
any such suspension, this Agreement shall remain in force, except that (i) the
Practice will not be required to perform services required under this Agreement,
(ii) the Company will not be required to pay the compensation contemplated by
this Agreement, and (iii) the term of this Agreement shall not be extended by
the occurrence of such suspension. At any time during or at the end of any such
period of suspension, the Company may elect to terminate this Agreement.

         2.5 Effect of Termination or Expiration. Upon and following the
expiration of this Agreement or its termination for any reason, the Practice
shall not interfere with any efforts by the Company to contract with any other
individual or entity for the provision of medical director services. Expiration
or termination of this Agreement shall not affect any rights or obligations of
the parties accruing hereunder through the date of expiration or termination,
including the Company's obligation to compensate Practice for medical director
services pro-rated through such date, and such rights and obligations shall
survive expiration or termination.

                                   ARTICLE III
                                  COMPENSATION

         3.1   Compensation.

               (a) In consideration of the services, covenants, and agreements
agreed to be performed by the Practice during the Initial Term and any Renewal
Term, beginning on the commencement of operations at the Facility, the Company
shall pay the Practice $35,000 per year. Such medical director fee shall be
payable in substantially equal monthly installments in arrears on or before the
15th day of each month for services rendered during the preceding month, with
the first and last months being prorated based on the number of days the
Agreement is in force during such months. In addition to the monthly medical
director fee prescribed above, the Practice shall be eligible for an annual
bonus of up to 15% of the base annual medical director fee payable hereunder
based upon the success of the Facility in meeting annual clinical outcomes
targets and in achieving performance objectives for the Facility and the
Practice generally prescribed by RCG for its dialysis facilities in the region
in which the Facility is located. The criteria for reviewing and determining the
bonus amount will bee attached hereto as EXHIBIT C. RCG may change such criteria
annually, and the Company will provide the revised criteria to the Practice when
adopted. The Practice's performance relative to these criteria will be evaluated
as part of the peer review and quality assurance process for the South Central
Region of RCG. This bonus will be calculated and paid on a calendar year basis,
and for the first and last calendar year during which this Agreement is in
force, the bonus will be prorated based on the number of days the Agreement was
effective during such year. The Practice agrees to accept the payment under this
subsection (a) (as it may be adjusted as provided below) as the total
compensation for all services, covenants and agreements pursuant to this
Agreement.

               (b) (i) If either party believes that the fair market value of
the services provided by the Practice under this Agreement has changed in any
material way since the most recent anniversary of the Effective Date (or since
the Effective Date with respect to the first anniversary), then such party may
notify the other that it believes such a change has occurred and the Practice
and the Company shall negotiate in



good faith an adjustment to the compensation described in Section 3.1(a) above
so that it represents fair market value for the duties and responsibilities of
the Practice to be provided during the next year under this Agreement.
Notwithstanding the foregoing, no adjustment pursuant to this subsection (b)(i)
to the compensation payable under this Agreement shall be effective unless set
forth in writing signed by each of the Practice and the Company, which writing
shall be deemed an amendment to this Agreement.

                   (ii) If the Practice and the Company are unable to agree on
an adjustment, then either may require that an adjustment of the compensation
hereunder be submitted to a qualified independent third party mutually selected
by both the Practice and the Company to determine the fair market value of the
services required hereunder, the costs and fees of which shall be borne equally
by the Practice and the Company. If the Practice and the Company are unable to
agree on the third party, then each such party shall at its own cost and expense
select its own qualified independent third party and the average of such two
determinations of fair market value shall be the revised compensation unless
such determinations are more than 10% apart, in which case such third parties
shall mutually select an additional qualified independent third party, the fees
and expenses of which shall be shared equally, who shall determine the fair
market value of the services hereunder from between the range of the amounts
determined by the first two appraisals. The fair market value of the services as
determined in accordance with the provisions of this subsection (b)(ii) shall be
the compensation payable under this Agreement effective as of the applicable
anniversary of the Effective Date, and such final determination shall be deemed
an amendment to this Agreement.

               (c) Any change to the compensation payable hereunder in
accordance with subsection (b) of this Section 3.1 shall be effective as of the
applicable anniversary of the Effective Date and shall remain effective, and not
subject to adjustment under Section 3.1(b) or otherwise, for at least 12 months
from the effective date of such change.

         3.2 Expenses. The Company shall be responsible for all reasonable
expenses incurred in the operation of the Facility and the support of the
services provided by Practice hereunder, including appropriate office space and
secretarial support, and shall reimburse the Practice for all reasonable
out-of-pocket expenses incurred by the Practice in attending meetings outside
the service area of the Facility as required or requested by the Company
pursuant to Article I of this Agreement.

                                   ARTICLE IV
                                STATUS OF PARTIES

         4.1 Tax Status. The Company and the Practice acknowledge and agree that
the relationship created under this Agreement between them is that of
independent contractors and that nothing in this Agreement shall be deemed to
render either party the employer or employee of the other, agent or principal of
the other, or joint venturer or partner of the other. The parties acknowledge
and agree that the Practice Physicians will be engaged by the Practice and will
under no circumstances be considered the employee(s) of the Company, RCG or the
Facility, or any of their affiliates. The Practice shall be responsible for all
withholding, payroll and similar taxes related to its engagement of the Practice
Physicians, and neither the Practice nor the Practice Physicians shall be
entitled to any benefits afforded to the employees of the Company, RCG or the
Facility, or any of their affiliates. The Practice agrees that (i) neither it
nor any Practice Physician be treated as an employee of the Company for federal
tax purposes; (ii) the Company will not withhold on behalf of the Practice any
sums for income tax, unemployment insurance, social security, or any other
withholding pursuant to any law or requirement of any governmental body; (iii)
all of such taxes, payments and withholdings, if any, are the sole
responsibility of the Practice; and (iv) the Practice will indemnify and hold
the Company and RCG harmless from any and all loss or liability arising with
respect to such benefits,



taxes, payments and withholdings, if any. If the United States Internal Revenue
Service ("IRS") should question or challenge the worker status of the Practice
or the Practice Physicians, then the parties agree that both the Practice and
the Company shall have the right to participate in any discussion or negotiation
occurring with the IRS, irrespective of which party initiated such discussions
or negotiations, and each party shall notify the other in advance of any planned
meeting or discussion.

         4.2 No Agency. The Practice shall not have the right or authority to,
and expressly agrees that it will not, enter into any contract in the name of
the Company or otherwise to bind the Company, in any way, without the express
written consent of the Company. The Practice shall indemnify and hold the
Company harmless from any and all loss or liability attributable to a violation
of this covenant. However, the Practice shall advise and assist the Company in
securing and retaining contracts in the name and for the account of the Company
with such individuals or entities necessary for the proper and efficient
functioning of the Company.

         4.3 Access to Records. If it is ultimately determined that ss. 952 of
the Omnibus Reconciliation Act of 1980 applies to this Agreement, then until the
expiration of four years after the furnishing of services provided under this
Agreement, the Practice will make available to the Secretary of the United
States Department of Health and Human Services, the United States Comptroller
General, and their representatives, this Agreement and all books, documents and
records necessary to certify the nature and extent of the costs of those
services. If the Practice carries out the duties of this Agreement through a
subcontract worth $10,000 or more over a twelve-month period with a related
organization, the subcontract will also contain an access clause to permit
access by the Secretary, Comptroller General, and their representatives to the
related organization's books, documents and records.

         4.4 The Company's Work Product. All operating procedures, protocols,
information systems, operating data, databases, reports and other non-public
proprietary business systems or information owned by the Company or RCG shall be
and remain the exclusive property of the Company or RCG, as appropriate. If the
Practice or any Practice Physician modifies, enhances or alters any of such
property such modification, enhancement or alteration will be deemed a
work-for-hire and shall be the property of the Company or RCG, as appropriate.
The Practice or Practice Physician making such modification, enhancement or
alteration will execute all documents reasonably requested by the Company to
vest fully in the Company or RCG title to such modification, enhancement or
alteration.

                                    ARTICLE V
                                    INSURANCE

         5.1 Practice Insurance Coverage. The Practice shall purchase and
maintain at its expense for itself and each of the Practice Physicians
professional and general liability insurance, with an insurance company
reasonably acceptable to the Company, with policy limits of at least $1,000,000
per occurrence and $3,000,000 in the aggregate, including coverage for acts and
omissions in rendering medical services to patients of the Practice, including
patients being treated at the Facility.

         5.2 Company Insurance Coverage. The Company shall procure and maintain
throughout the term of this Agreement professional and general liability
insurance (through self-insurance or an insurance carrier) with policy limits of
at least $1,000,000 per occurrence and $3,000,000 in the aggregate, which
coverage shall include coverage of the Practice for acts and omissions in
connection with the performance of duties as medical director under this
Agreement.





         5.3 Evidence of Coverage. Upon the execution of this Agreement and
annually thereafter or on reasonable request, the Company and the Practice shall
each provide the other with certificates of insurance or other reasonably
satisfactory evidence of the insurance required to be maintained under Sections
5.1 and 5.2. Each party shall notify the other at least 60 days prior to the
voluntary cancellation or termination of any such coverage and immediately upon
receipt of any notice of involuntary cancellation or termination of any such
coverage.

                                   ARTICLE VI
                     PRACTICE REPRESENTATIONS AND COVENANTS

         6.1 Representations and Covenants. The Practice represents, covenants
and warrants as follows:

            (a) The Practice is, and shall at all times during the term of
this Agreement be, licensed to conduct its business in the State of Texas and
shall engage as Practice Physicians only physicians who are licensed without
restriction to Practice medicine in such state and who never have had any such
license in this or any other state limited, withdrawn, suspended, subject to
reprimand, curtailed, placed on probation or revoked;

            (b) The Practice shall engage as Practice Physicians under this
Agreement only physicians who are board eligible or board certified in the
specialty of nephrology as recognized by the American Board of Medical
Specialists;

            (c) The Practice shall at all times engage at least one Practice
Physician who is a member of the active medical staff of a local hospital; the
Practice shall engage as Practice Physicians only physicians who have at least
one year experience or training in the care of patients at an end stage renal
disease treatment facility, and who have been granted privileges to practice at
the Facility;

            (d) Except as may be approved in writing by the Company, which
approval will not be unreasonably withheld, the Practice shall engage as
Practice Physicians only physicians who have never been denied membership or
reappointment to membership on the medical staff of any health care facility,
and who have never had medical staff membership or clinical privileges limited,
suspended, curtailed, revoked, placed on probation or withdrawn, and who have
never been subject to reprimand whether voluntarily or as a result of action
(either formal or informal) initiated by any health care facility or its medical
staff;

            (e) The Practice shall require the Practice Physicians to use their
commercially reasonable best efforts and professional skills and judgment in
rendering services under this Agreement;

            (f) The Practice shall require the Practice Physicians to perform
professional services and render care to patients in accordance with, and in a
manner consistent with, appropriate standards and the ethics of the medical
profession and as necessary for the Facility to maintain compliance with
applicable governmental laws and regulations;

            (g) The Practice shall require the Practice Physicians promptly
to notify the Company of any actual or threatened denial, suspension, revocation
or curtailment of licensure or certification status, medical staff membership or
clinical privileges held by such physician(s) with any state, with any facility
operated by the Company (including the Facility), or with any payor or other
health care facility;



             (h) The Practice has notified the Company of each action or claim
alleging professional negligence filed or asserted against the Practice or any
Practice Physician within the previous five years and a current status and/or
ultimate resolution of such claim and will promptly notify the Company in
writing of its receipt of any action, claim or lawsuit alleging professional
negligence lodged against the Practice or any Practice Physician individually or
any partnership, professional corporation or association with which any Practice
Physician is affiliated;

             (i) The Practice shall, for itself, and for each Practice
Physician, promptly notify the Company of any sanction, threatened sanction,
investigation or proceeding by any governmental agency or any entity regarding
the participation by the Practice or any Practice Physician in the Medicare,
Medicaid program or any third party payor program in which the Facility
participates; and

             (j) This Agreement covers all of the services being provided to
the Company by the Practice and the Practice Physicians as medical directors of
the Facility, and the Practice acknowledges and agrees that the aggregate amount
of services to be provided under this Agreement will not exceed an amount that
is reasonable and necessary for the legitimate medical and business purposes of
this arrangement.

                                   ARTICLE VII
                         CONFIDENTIALITY, NONCOMPETITION
                          AND NONSOLICITATION COVENANT

         7.1   Additional Covenants.

               (a) During the term of this Agreement and for a period of two
years after the termination or expiration of this Agreement, the Practice and
each Practice Physician agrees that it, he or she will not in any manner,
directly or indirectly, by itself, himself or herself or in conjunction with any
other person, (i) conduct any of the activities or perform any of the
responsibilities delineated in Article I and EXHIBIT A ("Services") of this
Agreement for any business entity that is competitive with the business of the
Company or (ii) establish or own any financial, beneficial or other interest in
(other than an interest consisting of less than one percent (1%) of a class of a
publicly traded security), make any loan to or for the benefit of, or render any
managerial, marketing or other business advice, to any entity that is then
conducting activities that are competitive with those of the business of the
Company, in either case within a 25-mile radius around the Facility. For
purposes of this Article, the "business of the Company" means owning or
operating a renal dialysis center, unit or facility or providing dialysis
supplies or services to any other such center, unit or facility to any home
dialysis program, including the provision of pharmaceuticals or laboratory
services related to renal dialysis.

               By executing a counterpart of this Agreement and in consideration
of the compensation paid to the Practice hereunder, each Practice Physician
agrees to be bound by the terms of this Article VII. With respect to the
Practice Physicians, the two-year time periods applicable to this Article VII
shall begin on the earlier of (i) the termination or expiration of this
Agreement, or (ii) the termination of the employment, independent contractor or
other relationship or affiliation of the Practice Physician with the Practice,
such that such Practice Physician ceases to fall within the definition of a
Practice Physician hereunder and generally ceases to treat patients of the
Practice.

               (b) During the term of this Agreement and for a period of two
years after the termination or expiration of this Agreement, the Practice and
each Practice Physician will use all reasonable efforts to keep confidential and
not to divulge, or allow to be divulged to anyone, or use or otherwise
appropriate for its, his or her own benefit or for the benefit of others, any
knowledge or information of a confidential nature with



respect to the business of the Company, the Company itself, or any of its
affiliates, including all trade secrets, pricing information, marketing
information or technical information (hereinafter referred to as the
"Confidential Data"), except for (i) information that is generally available to
the public other than as a result of a breach of a confidentiality agreement,
(ii) information available on a non-confidential basis from a source other than
the Company or its affiliates or agents, which source itself is not bound by a
confidentiality agreement, (iii) information required to be disclosed by law or
pursuant to court order, but only to the extent such disclosure is necessary to
respond to such law or court order, or (iv) disclosure necessary in order for
the Practice to perform its obligations under this Agreement, but only to the
extent such disclosure is necessary for such performance. Each of the Practice
and the Practice Physician acknowledges and agrees that the prohibitions against
disclosure of Confidential Data recited herein are in addition to, and not in
lieu of, any rights or remedies that the Company may have available pursuant to
the laws of any jurisdiction or at common law to prevent the disclosure of
confidential information or trade secrets, and the enforcement by the Company of
its rights and remedies under to this Agreement shall not be construed as a
waiver of any other rights or available remedies that the Company may possess in
law or equity.

               (c) During the term of this Agreement and for a period of two
years after the termination or expiration of this Agreement, neither the
Practice nor any of the Practice Physicians will, for its, his or her own
benefit or the benefit of others, solicit any person or entity that has or has
had, or disrupt or attempt to disrupt, any relationship, contractual or
otherwise, with the Company (including any patient, payor, physician, provider,
managed care organization or supplier) at any time during the term of this
Agreement for the purpose of assisting or creating such a relationship for any
business entity that is competitive with the business of the Company.

               (d) During the term of this Agreement and for a period of two
years after the termination of this Agreement, neither the Practice nor any of
the Practice Physicians will induce, or attempt to induce, any employee of the
Company or any of its affiliates to terminate his or her association with the
Company or any of its affiliates. If any employee of the Company responds to a
general solicitation and seeks employment with the Practice or a Practice
Physician and the Practice or such Practice Physician desires to hire such
employee, then the Practice or such Practice Physician shall give notice of its,
his or her desire to hire such employee and will not offer to hire such employee
until the earlier of seven days after such notice is received by the Company or
the date on which the Company approves such hiring. If the Practice or a
Practice Physician hires an employee of the Company after following the
procedures outlined above, the Company may request that the employee continue to
provide services to the Company for up to 30 days to provide for an orderly
transition.

               (e) These covenants are considered by the parties hereto to be
fair, reasonable and integral for the protection of the Company. The parties
agree that if a violation of any of these covenants occurs, then (i) such
violation and any threatened violation will cause irreparable injury to the
Company, (ii) the remedy at law for any such violation or threatened violation
will be inadequate, and (iii) the Company will be entitled to injunctive relief
to prevent such violation. The parties acknowledge that these covenants will
survive, and remain in effect and enforceable after, termination of this
Agreement.

               (f) Nothing in this Article VII shall be deemed to prohibit any
Practice Physician from exercising his or her medical judgment concerning the
medical treatment of a patient in any manner whatsoever in any location
whatsoever, and shall not be deemed to require the referral of any such patient
to any facility of the Company or any of its affiliates. The parties acknowledge
and agree that this Agreement shall in no way be deemed to restrict the right or
ability of the Practice and the Practice Physicians to admit and provide
professional service to patients at facilities and institutions other than
facilities of the Company





or RCG, including without limitation facilities operated by business entities
that are competitive with the business of the Company. The Practice and the
Practice Physicians acknowledge that enforcement of this covenant will not
prevent any physician of the Practice from earning a living by practicing
medicine or nephrology.

                                  ARTICLE VIII
                                  MISCELLANEOUS

         8.1 Notices. Any notice sent in accordance  with the  provisions of
this Section 8.1 shall be deemed to have been received (even if delivery is
refused or unclaimed) on the date that is: (i) the date of proper posting, if
sent by certified U.S. mail or by express U.S. mail or private overnight
courier, or (ii) the date on which sent, if sent by facsimile transmission, with
confirmation and with the original sent by certified U.S. mail, addressed as
follows:

         Practice:                  TYLER NEPHROLOGY ASSOCIATES, P.A.
                                    1133 Medical Drive
                                    Tyler, Texas 75701
                                    Telecopy Number: (903) 595-0206

         Company:                   Renal Care Group Texas, Inc.
                                    c/o Renal Care Group, Inc.
                                    2100 West End, Suite 800
                                    Nashville, Tennessee 37203
                                    Telecopy Number: (615) 345-5503
                                    Attn: Chief Financial Officer
                                      and General Counsel

         Copy to:                   Renal Care Group Texas, Inc.
                                    5215 North O'Connor Boulevard, #490
                                    Irving, Texas 75039
                                    Telecopy Number: (941) 506-8388
                                    Attn: Regional Chief Operating Officer

         Any party hereto may change its address specified for notices herein by
designating a new address by notice in accordance with this Section 8.1.

         8.2 Amendments. Subject to Section 8.4, this Agreement may be amended
at any time by mutual agreement of the Practice and the Company hereto, but any
such amendment shall not be operative or valid unless the same is reduced to
writing and approved by the parties hereto.

         8.3 Assignability. This Agreement shall not be assignable by the
Practice, and the Practice shall not assign any of its rights or obligations
under this Agreement without the written consent of the Company. This Agreement
shall not be assignable by the Company, and the Company shall not assign any of
its rights or obligations under this Agreement without the written consent of
the Practice; provided that, without the consent of Practice, the Company may
assign or transfer this Agreement to an affiliate of the Company or RCG or in
connection with a sale of all or substantially all of the assets or business of
the Company; provided that such assets and business are not composed
predominantly of assets of facilities in Tyler, Texas or within 25 miles of
Tyler, Texas.




         8.4 Contract Modifications; Severability.

               (a) This Agreement shall be construed to the fullest extent
possible to be in compliance with and permitted by all Federal (including
Medicare and Medicaid) and state statutes, rules and regulations. If a
Triggering Event (as defined below) occurs, either the Company or the Practice
may by written notice to the other propose an amendment to this Agreement as
necessary to comply with the item giving rise to the Trigger Event. To the
fullest extent possible, any such amendment shall preserve the responsibilities
and duties of the parties and the underlying economic and financial arrangements
between the Company and the Practice with the least changes to the parties'
expectations hereunder. If the Practice and the Company fail to agree to the
form of an amendment within thirty days after the date of such notice, then
either of such party may submit the matter to arbitration as provided in Section
8.9 and any arbitration award shall comply with the second sentence of this
Section, provided that if any resulting change to this Agreement includes a
change to the compensation under Section 3.1(a), then the amount of compensation
shall be determined under the procedures in Section 3.1(b). For purposes of this
Section 8.4, "Triggering Event" means the effectiveness of any statute, rule or
regulation (i) prohibiting the Practice or any of the Practice Physicians from
referring patients (whether Medicare, Medicaid or otherwise) for renal dialysis
either directly or indirectly to the Facilities; (ii) prohibiting the Company,
the Practice or any Practice Physician from submitting claims or receiving
payment under the Medicare, Medicaid or any other third party payment programs
for services rendered to patients at the Facilities; (iii) determining that the
amount or method for determining compensation paid to the Practice hereunder
does not reflect fair market value for the services provided by the Practice
under this Agreement without taking into account the volume or value of
referrals made by the Practice Physicians; or (iv) otherwise rendering illegal
the relationship hereunder between the Company, the Practice and the Practice
Physicians.

               (b) Subject to the provisions of subsection (a) of this Section
8.4, if any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws in effect during the term of this
Agreement, the legality, validity or enforceability of the remaining provisions
of this Agreement shall not be affected thereby.

         8.5 Headings. The headings of this Agreement are inserted for
convenience only and are not to be considered in construction of its provisions.

         8.6 Entire Agreement. This Agreement constitutes the full contract and
agreement of the parties with respect to its subject matter, superseding all
prior or contemporaneous agreements, either oral or written.

         8.7 Construction of the Agreement and Binding Effect. Notwithstanding
the place where this Agreement may be executed by any of the parties hereto, the
parties expressly agree that all terms and conditions of this Agreement shall be
construed under and governed by the laws of the State of Texas.

         8.8 Non-Waiver. The failure of either party to exercise any of its
rights under this Agreement for a breach thereof shall not be deemed to be a
waiver of such rights or a waiver of any subsequent breach.

         8.9 Disputes. (a) The parties agree that any dispute arising in
connection with, or relating to, this Agreement or the termination of this
Agreement (other than a dispute related to Sections 3.1(b) or 8.4) shall be
subject to resolution through informal methods. If the parties are unable to
resolve such dispute after thirty days of efforts, then such dispute shall be
submitted to mediation with a singe mediator selected by the parties or, failing
the parties' agreement on a mediator, by JAMS/Endispute. The mediation shall be
conducted in accordance with the rules of JAMS/Endispute. If the parties are
unable to resolve the dispute



through mediation, they shall retain all rights and remedied at applicable law,
subject to paragraph (b) below.

         (b) Following the procedures outlined in paragraph (a) above, the
parties agree that any dispute arising in connection with, or relating to, this
Agreement or the termination of this Agreement (other than a dispute related to
Section 3.1(b) and, unless the Company so agrees, a dispute under Article VII),
to the maximum extent allowed by applicable law, shall be subject to arbitration
in accordance with the terms of the Commercial Arbitration Rules for Expedited
Procedures of the American Arbitration Association. A single arbitrator shall be
chosen mutually by the parties from among the Commercial Panel of the American
Arbitration Association. Notwithstanding the foregoing, any party hereto may
seek all available preliminary injunctive or other temporary relief pending the
issuance of an arbitration award. The award of the arbitrator shall contain
findings of fact and conclusions of law and shall be binding and conclusive upon
the parties.

         (c) Any mediation or arbitration under this Agreement shall be held in
Smith County, Texas.

         8.10 Third Party Beneficiaries. The Practice and the Practice
Physicians agree that RCG and its affiliates are express and intended third
party beneficiaries of this Agreement.




         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written to be effective as provided hereinabove.



                                       Company:
                                       -------

                                       RENAL CARE GROUP TEXAS, INC.



                                       By: /s/ R. Dirk Allison
                                          -------------------------------------
                                       Title:   Vice President
                                             ----------------------------------


                                       Practice:
                                       --------

                                       TYLER NEPHROLOGY ASSOCIATES, P.A.



                                       By: /s/ Roy D. Gerard, Jr., M.D.
                                          -------------------------------------
                                       Title:   President
                                             ----------------------------------




                                PHYSICIAN JOINDER

         Each Practice Physician executing below acknowledges that he or she has
read and understood the terms of the Medical Director Services Agreement, dated
July ____, 2002, to which this Physician Joinder is attached and as same may be
amended or revised as provided therein (the "Agreement"). By signing this
Physician Joinder, each Practice Physician agrees in his or her individual
capacity, to (i) the nature and scope of medical director duties set forth in
Article I of the Agreement, including as described in detail on EXHIBIT A, (ii)
the restrictive covenants contained in Article VII of the Agreement, and (iii)
the third party beneficiary designated in Section 8.10 of this Agreement, in
each case as may be amended by agreement of the Practice.


                                    /s/ Roy D. Gerard, M.D.               (seal)
                                    --------------------------------------
                                    Name:    Roy D. Gerard, Jr., M.D.
                                          --------------------------------


                                    /s/ Stephanie Diaz, M.D.              (seal)
                                    --------------------------------------
                                    Name:    Stephanie Diaz, M.D.
                                          --------------------------------


                                    /s/ Thomas A. Lowery, M.D.            (seal)
                                    --------------------------------------
                                    Name: Thomas A. Lowery, M.D.
                                          --------------------------------


                                    /s/ Nabeel Ahmed, M.D.                (seal)
                                    --------------------------------------
                                    Name:    Nabeel Ahmed, M.D.
                                          --------------------------------


                                    /s/ Alpesh Jethva, M.D.               (seal)
                                    --------------------------------------
                                    Name:    Alpesh Jethva, M.D.
                                          --------------------------------


                                    /s/ James R. Cotton, Jr., M.D.        (seal)
                                    --------------------------------------
                                    Name:    James R. Cotton, Jr., M.D.
                                          --------------------------------


                                    /s/ Diane S. Demick, M.D.             (seal)
                                    --------------------------------------
                                    Name: Diane S. Demick, M.D.
                                          --------------------------------


                                    /s/ Robert C. Dobrowolski, M.D.       (seal)
                                    --------------------------------------
                                    Name:  Robert C. Dobrowolski, M.D.
                                          --------------------------------




                                    EXHIBIT A

                  MEDICAL DIRECTOR DUTIES AND RESPONSIBILITIES

                                  (Rev. 2/4/99)

         Qualifications: The Practice, through the Practice Physicians, shall be
the "Medical Director" contemplated by these duties and responsibilities. The
Medical Director shall be a licensed physician in the State of Texas, who meets
the criteria of and ESRD "qualified physician director" as well as the
requirements for Professional Staff membership as enumerated in the Professional
Staff Bylaws.

         Duties and Responsibilities: As required by Title 42 of the Code of
Federal Regulations, the Medical Director has responsibility for the execution
of patient-care policies at the Facility. The Medical Director exercises that
responsibility through working with the Facility's head nurse or manager to
direct the professional services of the Facility and conscientiously applying
its policies and procedures. The Medical Director is a member of the governing
body of the Facility and serves as the official channel of communications
between the Medical Staff and the Executive Board. Specific responsibilities of
the Medical Director include the administrative, medical and technical services
outlined below. The duties and responsibilities of the Medical Director are
separate and distinct from any Practice Physician's role as an attending
nephrologist.

         Specific responsibilities of the Medical Director include:

Administrative

         A. The Medical Director will provide advice and assistance to the
Company in the implementation and maintenance of written policies and guidelines
including:

            1.  Communicable disease control within the unit.
            2.  The RCG Professional Staff Bylaws.
            3.  Maintenance of patient medical records.
            4.  Patient and staff education programs.
            5.  Physical environment, fire and safety, and emergency
                  preparedness of the dialysis facility.
            6.  Responsibilities and functions of each category of personnel
                  employed by the facility.

Such policies and guidelines will be developed by Company personnel, including
the Facility's head nurse or manager and the area administrator, and the
policies and guidelines will be subject to the review and comment of the Medical
Director. The Company will, with the advice and assistance of the Medical
Director, oversee the implementation and maintenance of such policies and
procedures and the training of personnel in the same, and the Medical Director
will provide advice in such training as needed to the Company. Training for
nurses and dialysis technicians will be provided by the Company through the
supervising nurse or another instructor qualified under 25 TAC ss. 117.62(g)(2).

         B.       The Medical Director will actively participate in facility
                  Quality Improvement Programs (CQI) and in multi-disciplinary
                  quality assurance programs that monitor the performance of
                  co-morbid conditions.




         C.     As required by 42 CFR 405.2136, the Company, with the advice
                and assistance of the Medical Director, is responsible for
                maintaining and implementing written personnel policies and
                procedures including:

                1.   Qualifications and responsibilities of all staff employed
                     by the facility.

                2.   Provision of a safe and sanitary environment, and
                     procedures for reporting, preventing, and testing for
                     health and safety hazards.

                3.   Supervision of trainees.

                4.   Maintenance of complete personnel records.

                5.   Personnel policies available to all personnel of the
                     facility, including effective grievance procedures.

                6.   Personnel participation in regular educational programs.

                7.   Maintaining and updating manuals.


         D.     The Medical Director will participate in an active dialogue
                with the RCG Medical Advisory Board (or its representative) in
                pursuit of the common goal of delivering the best patient care
                practical. This participation requires implementation of MAB
                mandated directives and consideration of its recommendations.

         E.     The Medical Director will review as requested by the Company
                the RCG Quality Indicator and patient satisfaction data for
                the facility with the manager of the facility and will consult
                with attending nephrologists regarding achievement of Quality
                Indicator targets.

         F.     The Medical Director will recommend an appropriate physician to
                serve as a representative on the governing body of the Facility.

         G.     The Medical Director will exert reasonable efforts to assist
                facility in complying with applicable ESRD network, State,
                Federal and RCG mandates. The Medical Director will exert
                reasonable efforts to encourage all attending physicians to
                comply with applicable ESRD network, State, Federal and RCG
                mandates.

         H.     The Medical Director will review incident reports, patient
                complaints and any disciplinary action of medical staff or
                patient care personnel monthly.

         I.     The Medical Director will serve as facility liaison with
                affiliated medical institutions for services such as renal
                transplantation, hospitalizations and emergency medical
                services.

         J.     The Medical Director will participate in the facility survey
                process by groups such as the State Board of Health, CMS, NCQA
                and JCAHO, and will then communicate to the Governing Body the
                results of such surveys to the Executive Board (and the medical
                staff).

         K.     The Medical Director will collaborate with the Chief Medical
                Officer and the MAB in obtaining data from regulatory agencies
                as a part of the RCG strategy to work continuously to improve
                patient care.

         L.     The Medical Director will participate as reasonably practicable
                given the time and circumstances of Medical Director in national
                RCG Medical Director educational conferences.



         M.     The Medical Director will collaborate with the laboratory that
                tests the facility's samples to implement ESRD Network, State,
                Federal and RCG mandates.

Medical

         A.     The Medical Director will be a member of the renal health care
                team to ensure quality of care, including the establishment
                and implementation of policies regarding patient care. Among
                these quality of care criteria are:

                -    The suitability of patients admitted to the outpatient
                     dialysis facility.
                -    The appropriateness of dialysis prescriptions in the
                     facility.
                -    Administration of dialysis-related medications.
                -    Administration of recommended vaccines for ESRD patients
                     and staff.
                -    Existing patient care policies and procedures.

         B.     The Medical Director will serve on the professional team in the
                development of long-term patient care plans and the review and
                revision of long-term patient care plans and will participate in
                the selection of an appropriate ESRD modality for all patients
                of the facility.

         C.     The Medical Director will advise the Company regarding the
                development and implementation of written policies outlining
                patients' options for various treatment modalities, including
                in-center, home and peritoneal dialysis.

         D.     When self-dialysis training or home dialysis training is
                offered, the Medical Director will advise the Company in
                developing and implementing a program that assures that patient
                teaching materials are available for the use of all trainees
                during training and at times other than during the dialysis
                procedure;

         E.     The Medical Director will work to assure that the ESRD patient
                has appropriate consultation with a renal dietician, social
                worker, financial counselor and other individuals, as needed.

         F.     The Medical Director will oversee the appropriate performance of
                the dialysis orders and day-to-day patient care policy by the
                nursing and technical staff.

         G.     The Medical Director will use reasonable efforts to encourage
                attending physicians to comply with the facility's policies on
                patient care and will work with the Company to address instances
                of attending physicians' failure to comply with such policies.

         H.     The Medical Director will review patient satisfaction surveys
                and data, clinical outcomes data, and the Medical Director will
                consult with attending physicians and staff as appropriate to
                implement appropriate action to address issues identified and to
                improve patient care at the facility.



Technical

         A.     The Medical Director will participate in the selection of
                treatment modalities and dialysis supplies to be offered by the
                facility and advise attending physicians regarding the
                compatibility of their dialysis prescriptions with the options
                available at the facility.

         B.     The Company will provide to the Medical Director, for review and
                approval, policies and procedures regarding the adequate
                training of nurses and technicians in dialysis science
                techniques.

         C.     The Medical Director will provide continuous availability for
                medical and technical questions to the patient care staff,
                including coverage when the Medical Director is not available.

         D.     The Medical Director will advise the Company regarding the
                implementation of a dialysis water standards policy including
                monitoring and enforcement.

         E.     The Medical Director will advise the Company regarding the
                implementation of a policy regarding dialyzer reuse including
                monitoring and enforcement.

         F.     The Medical Director will advise the Company regarding the
                implementation of a policy on the administration of
                intradialytic medications.



                                    EXHIBIT C

                           MEDICAL DIRECTOR GUIDELINES
                   FACILITY/MEDICAL DIRECTOR ANNUAL EVALUATION

         The annual evaluation of the RCG Facility and its Medical Director is
essential to our mission, which is "to improve the quality of life and to care
for those patients with chronic and acute renal disease." To achieve this
mission, the Facility and its staff must function collaboratively at the highest
possible level, under the leadership of the Medical Director. The Facility /
Medical Director evaluation will be conducted by the office of the Chief Medical
Officer, to whom the Medical Director is primarily responsible. This evaluation
process must be understood by Medical Directors, since it is an important
component of the RCG policy of continuous quality improvement.

         The Interpretive Guidelines for ESRD Facilities states "Treatment is
under the general supervision of a Director who is a physician. The Medical
Director is responsible for planning, organizing, conducting and directing the
professional ESRD services and must devote sufficient time to carrying out these
responsibilities." The Nephrologist has the medical skills and must develop
leadership and collaborative management skills to fulfill this mandate as
Medical Director. Teamwork and collegiality are highly valued as the leader of
the ESRD team.

         The evaluation will be based on a point system, with annual update, as
authorized by the RCG Medical Advisory Board (MAB). The elements to be measured
and their weight are as follows:

         -      50% based on Clinical Indicators of the Facility. The Clinical
                Indicators are measured monthly and reported quarterly; the unit
                of measurement used is based on the one year rolling average.
                Tracking the Clinical Indicators and observing trends provides
                opportunities for quality improvement using the CQI process. The
                market or regional Quality Management Committee is charged with
                reviewing the outcomes and performance of each Facility and
                Professional Staff member and is also available as a resource to
                the Medical Director.

                The point system has been heavily weighted to encourage certain
                outcomes regarding vascular access: reduction of temporary
                catheters and placement of AV fistulas. Vascular access is also
                the area that is most uniquely influenced by the Medical
                Director and requires concerted effort by the Medical director
                to bring about improvement. The literature clearly shows that
                mortality and morbidity are reduced when early permanent access
                has been placed; while mortality within the Facility is clearly
                the most important outcome, the improvement of this outcome can
                only come about by improvement in the processes of care (such as
                URR, nutrition, anemia, etc.) that are known to impact on
                patient outcomes.

         -      30% based on Medical Director administrative duties. Section 5
                and 6 of this Handbook describe the administrative duties in
                greater detail. Guidelines have been prepared for



                the Medical Directors of both Hemodialysis and Home Therapy
                Facilities. At the back of each section is a grid, which is
                designed to assist the medical Director and the Facility Manager
                in the documentation of the performance of these duties. On a
                monthly basis, the required tasks should be completed and both
                the Medical Director and the Facility Manager should initial the
                completion at the bottom of the grid. At a minimum, this will
                document the compliance of the Medical Director with regulatory
                requirements by Medicare.

                The CQI process is a vital part of the quality improvement
                process of the Facility and the Medical Director is expected to
                participate in this process. Three levels of participation are
                provided for but a High level of participation is expected as
                medical Directors become knowledgeable and proficient with the
                CQI process. The Chief Medical Officer (CMO) and his staff are
                available as resources.

         -      20% based on patient satisfaction with the Facility. The
                Patient Satisfaction Survey will be conducted in the spring of
                each year and the results made available to the Facilities and
                Medical Directors. The Medical Director, as the clinical leader,
                and the Facility Manager, are held responsible for the
                performance of the staff of the Facility. Although not directly
                under the control of the Medical Director, he/she is expected to
                be a positive influence on the staff and their performance in
                the Facility.

         Completion of the duties should be documented in some manner, in
addition to a check mark on the grid sheet, further described in Section 5.
Common tools of documentation include minutes from meetings, a personal Medical
Director notebook, or dictated notes kept in the Facility. The Facility Manager
(or an RCG designee) must concur that the line item on the check list was
completed and initial the monthly grid sheet, with the Medical Director. This
indicates that the line item was completed to the satisfaction of both parties.
The grid sheet and related documentation is the property of the Medical
Director; a copy of the grid sheet should be forwarded monthly to the office of
the Associate Medical Officer for monitoring purposes and for use in the annual
Medical Director evaluation. The Medical director will be held accountable for
meeting facility outcome criteria. Failure to improve outcomes, as measured by
the annual Medical Director evaluation, especially when in the 4th Quartile of
performance, will result in a request for a written explanation to the CMO.

Clinical Performance Measures (50%)

Hemodialysis Medical Director
(evaluation based on annual rolling average of prior year)

       - URR (% of patients with URRs >=70%)     >80% = 10 points
         RCG average 72.9%                      75-80% = 8 points
         BEST REGION 80.7%                    70-74.9% = 6 POINTS
                                              65-69.9% = 4 points
                                                  <65% = 0 points




      - Hematocrit (% of Hcts >=33%)                 >85% =10 points
        RCG average 74.6%                          80-85% = 8 points
        Best Region 78.4%                        75-79.9% = 6 points
                                                 70-74.9% = 4 points
                                                 65-69.9% = 2 points
                                                      <65%= 0 points

      - Missed Treatments (91+ days, based on days per patient year at risk)
         RCG average                          < __ treatments = 8 points
         Best Region                    ___ - ____ treatments = 6 points
                                        ___ - ____ treatments = 2 points
                                             > ___ treatments = 0 points


         - Mortality (91+ days, based on deaths per 100 patient years at risk)
           RCG average 22.1                           <20 = 8 points
           Best Region 17.5                       20-23.9 = 6 points
                                                  24-29.9 = 4 points
                                                    30-35 = 2 points
                                                      >35 = 0 points

         - Vascular Access:
           -  % of temporary catheters               <10% = 8 points
              RCG average 25.5%                  10-14.9% = 6 points
              Best Region 17.4%                  15-19.9% = 4 points
                                                   20-25% = 2 points
                                                     >25% = 0 points

           -  % native AV fistulas                    >43 = 8 points
              RCG average 29.8%                  38-42.9% = 6 points
              Best Region 42.9%                  33-37.9% = 4 points
                                                 28-32.9% = 2 points
                                                     <28% = 0 points

           -  PTFE clotting events/patient year     <0.3 = 10 points
              RCG average 0.8                    0.3-0.59 = 8 points
              Best region 0.4                    0.6-0.99 = 6 points
                                                  1.0-1.2 = 4 points
                                                     >1.2 = 0 points


Peritoneal Dialysis Medical Director
(valuation based on annual rolling average of prior year)

         - KT/V (>=2.1)
           RCG average 76.8% CAPD
           RCG average 88.1% CCPD                    >78 = 15 points
                                                  63-78% = 12 points
                                                68-62.9% = 10 points
                                                63-67.9% =  8 points
                                                58-62.9% =  5 points

         - Creatinine Clearance (>=60L CAPD or >=60 L CCPD)
           RCG average 81.2% CAPD                    >75 = 15 points
           RCG average 75.2% CCPD                 70-75% = 12 points
           Weighted average 78.2%               65-69.9% = 10 points
                                                60-64.9% =  8 points
                                                55-59.9% =  5 points

- -        Hematocrit (% of Hcts >=33%)               >85% = 10 points
         RCG average 74.6%                         80-85% = 8 points
         Best Region 78.4%                       75-79.9% = 6 points
                                                 70-74.9% = 4 points
                                                 65-69.9% = 2 points
                                                     <65% = 0 points

         - Mortality (91+ days, based on deaths per 100 patient years at risk)
           RCG average 20.7                           <20 = 8 points
           Best Region 15.5                       20-24.9 = 6 points
                                                  24-29.9 = 4 points
                                                    30-35 = 2 points
                                                      >35 = 0 points

- -        Peritonitis (new cases + relapse)
         RCG average 14.9 months between cases
         Best Region 16.9 months between cases

         >25 months between cases                 15 points
         20-25 months between cases               12 points
         15-19.9 months between cases              9 points
         10-14.9 months between cases              6 points
         >10 months between cases                  0 points





Combination Hemodialysis & Peritoneal Medical Director

For those physicians who oversee both modalities, each is evaluated using the
above criteria. The overall Clinical Quality is then a composite of these,
weighted to reflect the numbers of patients in each modality.

MEDICAL DIRECTOR ADMINISTRATIVE TASKS (30%)

The completion of administrative tasks must be documented by the Medical
Director on a monthly basis. It is important that both the Facility Manager and
the Medical Director document completion of the required tasks. Other Medical
Director functions including such things as meeting with surgeons regarding
access, goals, attendance at medical meetings and literature review regarding
ESRD issues, etc, should also be noted in this record as well, since this
contributes to a high quality Facility.

Participation in monthly review:

        -       Review staffing & training issues impacting patient outcomes
                with Manager
        -       Review water quality
        -       Review dialyzer reuse at the Facility
        -       Review monthly lab of patients below quality goals & develop
                plan
        -       Review trend in hospitalizations, infections
        -       Review temporary catheter usage & trend
        -       Review patient incident reports & trends
        -       Monitor staff physician patient rounding process
        -       Adequacy of staff physician medical documentation

Participation in CQI process:

        -       The CQI process should be a routine process in the facility
                striving to improve its outcomes. As physicians learn this
                process, Medical Directors are expected to participate at higher
                levels. In the meantime, Low, Medium and High participation
                levels may be chosen on the Performance grid, depending on the
                physician's comfort with the process.

Participation in Professional Staff process:

        -       Participate in the Quarterly Quality conference calls, which
                have physician CME available.

Annual checklist:

        -       Review and approve facility Policy and Procedures and make
                necessary modifications; review and approve clinical protocols.
        -       Review patient satisfaction data annually and in concert with
                the Facility Manager make recommendations for improvement.
        -       Participate with the Manager in the Budget process for the
                Facility.
        -       Participate in Facility surveys by regulatory agencies.




Patient Satisfaction Surveys (PSS) (20%)

The Satisfaction Survey will be conducted in the spring of each year and results
forwarded to each Facility for review and discussion regarding potential areas
of improvement.

         CAREGIVER:
                     RCG AVERAGE IN-CENTER 3.43
                              PSS >3.5                        = 8 points
                              PSS >=3.25 and <3.5             = 6 points
                              PSS >=3.0 and <3.25             = 4 points
                              PSS >2.5 and <3.0               = 2 points
                              PSS <2.5                        = 0 points

         RCG average Home 3.75
                              PSS >3.5                        = 8 points
                              PSS >=3.25 and <3.5             = 6 points
                              PSS >=3.0 and <3.25             = 4 points
                              PSS >2.5 and <3.0               = 2 points
                              PSS <2.5                        = 0 points

                     Physician:

                     RCG AVERAGE IN-CENTER 3.27
                              PSS >3.5                        = 8 points
                              PSS >=3.25 and <3.5             = 6 points
                              PSS >=3.0 and <3.25             = 4 points
                              PSS >2.5 and <3.0               = 2 points
                              PSS <2.5                        = 0 points

         RCG average Home 3.67
                              PSS >3.5                        = 8 points
                              PSS >=3.25 and <3.5             = 6 points
                              PSS >=3.0 and <3.25             = 4 points
                              PSS >2.5 and <3.0               = 2 points


         DIETICIAN:
         RCG average In-Center 3.27
                              PSS >3.5                        = 4 points
                              PSS >=3.25 and <3.5             = 3 points
                              PSS >=3.0 and <3.25             = 2 points
                              PSS >2.5 and <3.0               = 1 points



         RCG average Home 3.67
                              PSS >3.5                        = 4 points
                              PSS >=3.25 and <3.5             = 3 points
                              PSS >=3.0 and <3.25             = 2 points
                              PSS >2.5 and <3.0               = 1 points

         SOCIAL WORKER:
         RCG average In-Center 3.40
                              PSS >3.5                        = 4 points
                              PSS >=3.25 and <3.5             = 3 points
                              PSS >=3.0 and <3.25             = 2 points
                              PSS >2.5 and <3.0               = 1 points

         RCG average Home 3.51
                              PSS >3.5                        = 4 points
                              PSS >= 3.25 and <3.5            = 3 points
                              PSS >=3.0 and <3.25             = 2 points
                              PSS >2.5 and <3.0               = 1 points

         FACILITY:
         RCG average: In-Center 3.24
                              PSS >3.5                        = 4 points
                              PSS >=3.25 and <3.5             = 3 points
                              PSS >=3.0 and <3.25             = 2 points
                              PSS >2.5 and <3.0               = 1 points

         RCG average Home 3.58
                              PSS >3.5                        = 4 points
                              PSS >=3.25 and <3.5             = 3 points
                              PSS >=3.0 and <3.25             = 2 points
                              PSS >2.5 and <3.0               = 1 points

EX-10.65

                                                                   EXHIBIT 10.65


                       MEDICAL DIRECTOR SERVICES AGREEMENT

         THIS MEDICAL DIRECTOR SERVICES AGREEMENT (the "Agreement") is made and
entered into this 1st day of May, 2002, effective as of May 1, 2000, by and
between RENAL CARE GROUP TEXAS, INC., a Texas corporation (the "Company"), and
TYLER NEPHROLOGY ASSOCIATES, P.A., a Texas professional corporation (the
"Practice"). In addition, each Practice Physician, as defined below, has
executed the attached Physician Joinder and by which each such Practice
Physician has agreed to be bound by certain terms of this Agreement as provided
in the Physician Joinder.

                                W I T N E S S E T H:

         WHEREAS, the Company has developed and owns and operates a renal
dialysis facility at 425 South Carroll Street, Athens, Texas 75751 (the
"Facility"), which Facility will provide outpatient dialysis services;

         WHEREAS, the Facility is an outpatient dialysis facility certified by
the Center for Medicare and Medicaid Services ("CMS") for payment under the
Medicare program, which program requires the Facility to obtain the services of
a physician or group of physicians to perform prescribed medical director
services for the Facility;

         WHEREAS, the Company desires to engage one or more nephrologists
skilled in dialysis center administration to provide medical director services
at the Facility in accordance with the requirements established by CMS and as
provided in this Agreement;

         WHEREAS, the Practice desires and is qualified to provide the medical
director services contemplated by this Agreement to the Facility through one or
more of its Practice Physicians, each of whom will be licensed to Practice
medicine and prescribe drugs without restriction in the State of Texas, will
specialize in nephrology and dialysis services and will be experienced in
dialysis center administration;

         WHEREAS, the Practice has provided medical director services at the
Facility since May 1, 2000, when the Facility opened, pursuant to an oral
agreement, while the terms of this Agreement were being finalized.

         NOW, THEREFORE, in consideration of the premises set forth above and
the mutual covenants and agreements of the parties set forth in this Agreement,
the receipt and sufficiency of which are acknowledged, the parties agree as
follows:

                                    ARTICLE I
                             ENGAGEMENT AND SERVICES

         1.1 Engagement. The Company engages the Practice to provide, and the
Practice shall provide, services for the Company as medical director of the
Facilities in accordance with the requirements of applicable CMS regulations
(including, without limitation, 42 C.F.R. Section 405.2100 et seq. and any
successor regulations) and all applicable state regulations, as the same may be
amended or supplemented, together with such other services as are customarily
performed by medical directors at high quality dialysis facilities and such
other tasks related to the oversight of dialysis treatments administered at the
Facilities as the Company may from time to time reasonably designate. The
Practice agrees that matters affecting the operating and capital budget of the
Facility shall be presented to and require the approval of the Company.




         1.2 Responsibilities. Without limiting the generality of this Article
I, the Practice shall provide the medical director services described in EXHIBIT
A, which may be revised and updated from time to time by the Company, provided
that any change that is not a CMS or other legal requirement must first be
approved by the Practice if it materially increases the medical director duties
hereunder.

         1.3 Principal Contact. The Practice shall from time to time designate
in writing to the Company a Practice Physician to serve as the principal contact
at the Facility and who shall provide or arrange for the provision of the
services required hereunder, and who shall serve as the principal contact for a
period of no less than 12 months. The initial principal contact for the Facility
will be Roy Gerard, M.D.

         1.4 Patient Care Manual. The Practice shall advise the Company in
developing and maintaining a patient care policy and procedures manual for the
Facility and will assure its implementation by delegating to the supervising
nurse the duty to oversee the implementation of the policies and providing
medical guidance when needed. The manual will describe:

               (a) The types of dialysis used in the Facility and the procedures
to be followed in performing each type of dialysis;

               (b) Procedures for implementing universal precautions for the
prevention of disease transmission;

               (c) Procedures for properly handling blood-borne and infectious
pathogens; and

               (d) A disaster readiness plan.

         1.5 Supervising Nurse. The Company shall provide a full time nurse to
manage the provision of patient care in the Facility. The Practice may delegate
to the supervising nurse the responsibility for the execution of patient care
policies on a day-to-day basis, and the principal contact will provide medical
guidance to the supervising nurse in the execution of these duties.

         1.6 Records. The Company and the Practice acknowledge that attending
physicians have medical responsibility for the content of medical records of the
Facility pertinent to the care of their patients. Furthermore, the Company and
the Practice acknowledge that the head nurse or manager of the Facility has
operational responsibility for the day-to-day maintenance of the Facility's
records including records of nurses, technicians, dieticians and social workers
providing services in the Facility. The Company, through a medical records
supervisor designated for the Facility, with the assistance and support of the
Practice shall oversee the maintenance of current medical and business records
relating to the care and treatment of patients in the Facility in accordance
with 42 CFR 405.2139 and 25 TAC ss. 117.45 and in accordance with Company
policies and applicable regulations of governmental agencies, including:

               (a) Patient long-term care plans, patient short-term care plans
and medical histories;

               (b) Results of physical examinations and laboratory tests; and

               (c) Progress notes by all patient care staff, and complete and
legibly signed orders and discharge summaries.

         1.7 Documentation. The Practice and Practice Physicians who provide
services hereunder shall maintain, and provide to the Company upon request,
reasonably complete and detailed documentation of the





services performed in providing medical director services under this Agreement.
This documentation shall be maintained in a form reasonably satisfactory to or
prescribed by the Company and, at the reasonable request of the Company, will
include documentation of the time spent performing services under this
Agreement.

         1.8 Medical Staff. The Practice shall review the applications of
physicians requesting to attend to patients at the Facility and forward a
recommendation concerning such applications to the body making credentialing
decisions for the Facility under its Professional Staff Bylaws. Subject to the
Facility's Professional Staff Bylaws, a member of the Practice shall, at the
request of the Company or the Executive Board of the Medical Staff acting under
such bylaws, serve on the peer review committee that maintains oversight of all
disciplinary actions with regard to any matter of such physicians or patient
care personnel as needed to assure the quality of services and conformity to
Company and Facility rules and policies.

         1.9 Coverage. The Practice shall make available one or more Practice
Physicians, as appropriate, to provide medical director services at the Facility
for its hours of operation. The Practice and the Company shall confer from time
to time in good faith concerning the appropriate level of physician coverage to
provide medical director services hereunder.

         1.10 Practice Physicians. (a) The Practice represents and warrants that
all physicians who as of the date of this Agreement meet the definition of a
Practice Physician have executed the Physician Joinder attached hereto. As a
condition to engaging any physician in a manner that causes such physician to
become a Practice Physician, the Practice shall obtain the signature of such
physician on the Physician Joinder in consideration for such engagement the fees
payable to the Practice hereunder.

               (b) For purposes of this Agreement, the term "Practice Physician"
means any physician who is a physician performing services on behalf of the
Practice at any of the Facilities (whether as an employee, partner, member,
shareholder or independent contractor of the Practice), any other physician
performing services on behalf of the Practice hereunder (as may be approved by
the Company), and any other physician in any way affiliated or associated with
the Practice, or regularly seeing patients of the Practice (other than on a
covering or locum tenens basis).

         1.11 No Required Referrals. Notwithstanding any other provision of this
Agreement, each of the Company, the Practice and the Practice Physicians
acknowledges and agrees that neither the Practice nor any Practice Physician is
required to make referrals of patients to the Company or any affiliate of the
Company or to the Facility. Each of the Practice Physicians is free to maintain
professional staff privileges at any dialysis facility, to refer patients to any
other facility for dialysis or other services, and, subject to Article VII,
otherwise to perform professional medical services at or through any entity,
whether or not it is competing with the Facility, the Company or with any
affiliates of the Company.

         1.12 Personnel. The Company and the Practice acknowledge that the
Practice has no control over the processes of hiring or firing of associates
employed at the Facility. The Company and the Practice further acknowledge and
agree that the Practice's involvement in the training of associates is confined
to providing advice and counsel to the Company.






                                   ARTICLE II
                              TERM AND TERMINATION

         2.1 Initial and Renewal Terms. This Agreement shall be deemed effective
as of May 1, 2000, the date on which the Company opened the Facility for
services to patients (the "Effective Date") and shall remain in full force and
effect until 12:00 p.m. midnight on the tenth anniversary of the Effective Date
(the "Initial Term"), unless earlier terminated as provided in this Article II.
This Agreement shall automatically renew for additional successive terms of
three years each (the "Renewal Terms"), unless either party gives written notice
of non-renewal to the other party not less than 90 days prior to the expiration
of the Initial Term or then-current Renewal Term, as applicable. If such notice
is given, this Agreement shall expire as of the last day of the Initial Term or
the then-current Renewal Term, as applicable.

         2.2 Termination By Agreement. The Company and the Practice may agree in
writing signed by both parties to terminate this Agreement at a time and date
stipulated in such writing.

         2.3 Termination by the Practice for Cause. (a) The Practice may during
the Initial Term or any Renewal Term terminate this Agreement upon written
notice to the Company in the event of the occurrence of either of the following:

               (i) material breach of any covenant, agreement, term,
representation or warranty of the Company in this Agreement or the failure of
any representation or warranty of the Company in this Agreement to be true and
correct in all material respects when made or deemed made hereunder, which
breach or failure, if susceptible of cure, continues uncured for 30 days after
the Practice gives written notice of such breach or failure to the Company; any
notice of breach or failure will describe such breach or failure with reasonable
particularity; or

               (ii) the revocation of the Medicare certification of the Facility
or the exclusion of the Company from participation in the Medicare or Medicaid
program which exclusion or revocation has not been cured, stayed or rescinded
within 90 days.

               (iii) any felony conviction (including a plea of nolo contendre)
of any officer or management-level employee of the Company relating to the
provision of health care services at the Facility;

               (iv) dishonesty, misappropriation of property, or false or
defamatory disparagement of the Practice or any of its medical staff,
affiliates, representatives or employees;

               (v) the failure of the Company reasonably to consider or
reasonably to act upon a written request by the Practice that the Company
provide equipment, personnel or training for personnel necessary to operate the
Facility in accordance with applicable law and the conditions of participation
in the Medicare program, which failure continues for 30 days after the Practice
gives the Company notice written notice that the Practice intends to terminate
this Agreement under this Section 2.3(a)(v); or

               (vi) the existence of an immediate threat to the health or safety
of any patient receiving treatment at the Facility, which threat results from
any act or omission of the Company or any of its employees (and not from any act
or omission of the Practice).

               (b) Upon the occurrence of any event described in Section
2.3(a)(iii) or 2.3(a)(iv), the Practice shall not terminate this Agreement if,
within 10 days after the Practice gives the Company written





notice of the action or event giving the Practice the right to terminate this
Agreement, the Company agrees that the individual who is the subject of such
cause will not have any further involvement with the Facilities.

         2.4 Termination by the Company.

               (a) The Company may during the Initial Term or any Renewal Term
terminate this Agreement upon written notice to the Practice in the event of the
occurrence of any of the following with respect to the Practice or any one of
the Practice Physicians:

                    (i) dishonesty, misappropriation of property, disparagement
of the Company, the Facility or Renal Care Group, Inc., the parent company of
the Company ("RCG"), or any of their affiliates, representatives or employees;

                    (ii) negligence in the performance of any duty or
responsibility as medical director under this Agreement, which negligence was
not occasioned in whole or in part by any negligence by the management or
employees of the Company, the Facility or RCG, and which negligence results in
substantial harm to the reputation or ongoing ability to conduct the business of
the Facility or the Company, provided that the results of such negligence
continue for thirty (30) days after the Company gives the Practice written
notice of such negligence and that the Company intends to terminate this
Agreement under this Section 2.4(a)(ii);

                    (iii) suspension, revocation or limitation of the licenses
or authorizations required to be maintained by the Practice or the Practice
Physicians;

                    (iv) exclusion of the Practice or any Practice Physician
from participation under Medicare, Medicaid or any other federal health benefits
program;

                    (v) revocation, suspension, probation, removal or
resignation under investigation of any Practice Physician from membership or
privileges on the medical staff of the Facility or of any other health care
facility at which such Practice Physician has medical staff privileges;

                    (vi) the existence of an immediate threat to the health or
safety of any patient receiving treatment at the Facility, which threat results
from any act or omission of the Practice or any Practice Physician;

                    (vii) the requirement, or threatened requirement, by any
federal or state agency having jurisdiction over the Company or the Facility
that the Practice or any Practice Physician cease to provide medical director
services at the Facility;

                    (viii) commission or conviction, including a plea of nolo
contendere, of any felony or of any crime involving moral turpitude; or

                    (ix) material breach of any covenant, agreement, term,
representation or warranty of the Practice or any Practice Physician in this
Agreement or the failure of any representation or warranty of the Practice in
this Agreement to be true and correct in all material respects when made or
deemed made hereunder, which breach or failure, if susceptible of cure,
continues uncured for 30 days after the Company gives written notice of such
breach or failure to the Practice; any notice of breach will describe such
breach with reasonable particularity.




               (b) Upon the occurrence of any event described in paragraph (a)
of this Section 2.4 that is the result of an act or omission of one or more
specific Practice Physicians who do not constitute a majority of the Practice
Physicians then providing services hereunder, the Company shall not terminate
this Agreement if, within 10 days after the Company gives the Practice written
notice of the act or omission giving the Company the right to terminate this
Agreement, the Practice agrees that any Practice Physician who is the subject of
such cause will not provide further services under this Agreement and, if
requested by the Company, that the Practice will use its best efforts to cause
such physician to resign the privileges of such Practice Physician to attend
patients at the Facility.

               (c) Upon the occurrence of any event described in paragraph (a)
of this Section 2.4, the Company shall have, in addition to the right to
terminate this Agreement, the right to suspend the Practice from providing
services under this Agreement for a period of up to one year. In the event of
any such suspension, this Agreement shall remain in force, except that (i) the
Practice will not be required to perform services required under this Agreement,
(ii) the Company will not be required to pay the compensation contemplated by
this Agreement, and (iii) the term of this Agreement shall not be extended by
the occurrence of such suspension. At any time during or at the end of any such
period of suspension, the Company may elect to terminate this Agreement.

         2.5 Effect of Termination or Expiration. Upon and following the
expiration of this Agreement or its termination for any reason, the Practice
shall not interfere with any efforts by the Company to contract with any other
individual or entity for the provision of medical director services. Expiration
or termination of this Agreement shall not affect any rights or obligations of
the parties accruing hereunder through the date of expiration or termination,
including the Company's obligation to compensate Practice for medical director
services pro-rated through such date, and such rights and obligations shall
survive expiration or termination.

                                   ARTICLE III
                                  COMPENSATION

         3.1 Compensation.

               (a) In consideration of the services, covenants, and agreements
agreed to be performed by the Practice during the Initial Term and any Renewal
Term, beginning on the commencement of operations at the Facility, the Company
shall pay the Practice $25,000 per year for the year from the Effective Date
until the first anniversary thereof and $30,000 per year after such first
anniversary. Such medical director fee shall be payable in substantially equal
monthly installments in arrears on or before the 15th day of each month for
services rendered during the preceding month. In addition to the monthly medical
director fee prescribed above for years beginning on and after January 1, 2002,
the Practice shall be eligible for an annual bonus of up to 15% of the base
annual medical director fee payable hereunder based upon the success of the
Facility in meeting annual clinical outcomes targets and in achieving
performance objectives for the Facility and the Practice generally prescribed by
RCG for its dialysis facilities in the region in which the Facility is located.
The criteria for reviewing and determining the bonus amount will bee attached
hereto as EXHIBIT C. RCG may change such criteria annually, and the Company will
provide the revised criteria to the Practice when adopted. The Practice's
performance relative to these criteria will be evaluated as part of the peer
review and quality assurance process for the South Central Region of RCG. The
Practice agrees to accept the payment under this subsection (a) (as it may be
adjusted as provided below) as the total compensation for all services,
covenants and agreements pursuant to this Agreement.




               (b) (i) If either party believes that the fair market value of
the services provided by the Practice under this Agreement has changed in any
material way since the most recent anniversary of the Effective Date (or since
the Effective Date with respect to the first anniversary), then such party may
notify the other that it believes such a change has occurred and the Practice
and the Company shall negotiate in good faith an adjustment to the compensation
described in Section 3.1(a) above so that it represents fair market value for
the duties and responsibilities of the Practice to be provided during the next
year under this Agreement. Notwithstanding the foregoing, no adjustment pursuant
to this subsection (b)(i) to the compensation payable under this Agreement shall
be effective unless set forth in writing signed by each of the Practice and the
Company, which writing shall be deemed an amendment to this Agreement.

                    (ii) If the Practice and the Company are unable to agree on
an adjustment, then either may require that an adjustment of the compensation
hereunder be submitted to a qualified independent third party mutually selected
by both the Practice and the Company to determine the fair market value of the
services required hereunder, the costs and fees of which shall be borne equally
by the Practice and the Company. If the Practice and the Company are unable to
agree on the third party, then each such party shall at its own cost and expense
select its own qualified independent third party and the average of such two
determinations of fair market value shall be the revised compensation unless
such determinations are more than 10% apart, in which case such third parties
shall mutually select an additional qualified independent third party, the fees
and expenses of which shall be shared equally, who shall determine the fair
market value of the services hereunder from between the range of the amounts
determined by the first two appraisals. The fair market value of the services as
determined in accordance with the provisions of this subsection (b)(ii) shall be
the compensation payable under this Agreement effective as of the applicable
anniversary of the Effective Date, and such final determination shall be deemed
an amendment to this Agreement.

               (c) Any change to the compensation payable hereunder in
accordance with subsection (b) of this Section 3.1 shall be effective as of the
applicable anniversary of the Effective Date and shall remain effective, and not
subject to adjustment under Section 3.1(b) or otherwise, for at least 12 months
from the effective date of such change.

         3.2 Expenses. The Company shall be responsible for all reasonable
expenses incurred in the operation of the Facility and the support of the
services provided by Practice hereunder, including appropriate office space and
secretarial support, and shall reimburse the Practice for all reasonable
out-of-pocket expenses incurred by the Practice in attending meetings outside
the service area of the Facility as required or requested by the Company
pursuant to Article I of this Agreement.




                                   ARTICLE IV
                                STATUS OF PARTIES

         4.1 Tax Status. The Company and the Practice acknowledge and agree that
the relationship created under this Agreement between them is that of
independent contractors and that nothing in this Agreement shall be deemed to
render either party the employer or employee of the other, agent or principal of
the other, or joint venturer or partner of the other. The parties acknowledge
and agree that the Practice Physicians will be engaged by the Practice and will
under no circumstances be considered the employee(s) of the Company, RCG or the
Facility, or any of their affiliates. The Practice shall be responsible for all
withholding, payroll and similar taxes related to its engagement of the Practice
Physicians, and neither the Practice nor the Practice Physicians shall be
entitled to any benefits afforded to the employees of the Company, RCG or the
Facility, or any of their affiliates. The Practice agrees that (i) neither it
nor any Practice Physician be treated as an employee of the Company for federal
tax purposes; (ii) the Company will not withhold on behalf of the Practice any
sums for income tax, unemployment insurance, social security, or any other
withholding pursuant to any law or requirement of any governmental body; (iii)
all of such taxes, payments and withholdings, if any, are the sole
responsibility of the Practice; and (iv) the Practice will indemnify and hold
the Company and RCG harmless from any and all loss or liability arising with
respect to such benefits, taxes, payments and withholdings, if any. If the
United States Internal Revenue Service ("IRS") should question or challenge the
worker status of the Practice or the Practice Physicians, then the parties agree
that both the Practice and the Company shall have the right to participate in
any discussion or negotiation occurring with the IRS, irrespective of which
party initiated such discussions or negotiations, and each party shall notify
the other in advance of any planned meeting or discussion.

         4.2 No Agency. The Practice shall not have the right or authority to,
and expressly agrees that it will not, enter into any contract in the name of
the Company or otherwise to bind the Company, in any way, without the express
written consent of the Company. The Practice shall indemnify and hold the
Company harmless from any and all loss or liability attributable to a violation
of this covenant. However, the Practice shall advise and assist the Company in
securing and retaining contracts in the name and for the account of the Company
with such individuals or entities necessary for the proper and efficient
functioning of the Company.

         4.3 Access to Records. If it is ultimately determined that ss. 952 of
the Omnibus Reconciliation Act of 1980 applies to this Agreement, then until the
expiration of four years after the furnishing of services provided under this
Agreement, the Practice will make available to the Secretary of the United
States Department of Health and Human Services, the United States Comptroller
General, and their representatives, this Agreement and all books, documents and
records necessary to certify the nature and extent of the costs of those
services. If the Practice carries out the duties of this Agreement through a
subcontract worth $10,000 or more over a twelve-month period with a related
organization, the subcontract will also contain an access clause to permit
access by the Secretary, Comptroller General, and their representatives to the
related organization's books, documents and records.

         4.4 The Company's Work Product. All operating procedures, protocols,
information systems, operating data, databases, reports and other non-public
proprietary business systems or information owned by the Company or RCG shall be
and remain the exclusive property of the Company or RCG, as appropriate. If the
Practice or any Practice Physician modifies, enhances or alters any of such
property such modification, enhancement or alteration will be deemed a
work-for-hire and shall be the property of the Company or RCG, as appropriate.
The Practice or Practice Physician making such modification, enhancement or
alteration will execute all documents reasonably requested by the Company to
vest fully in the Company or RCG title to such modification, enhancement or
alteration.




                                    ARTICLE V
                                    INSURANCE

         5.1 Practice Insurance Coverage. The Practice shall purchase and
maintain at its expense for itself and each of the Practice Physicians
professional and general liability insurance, with an insurance company
reasonably acceptable to the Company, with policy limits of at least $1,000,000
per occurrence and $3,000,000 in the aggregate, including coverage for acts and
omissions in rendering medical services to patients of the Practice, including
patients being treated at the Facility.

         5.2 Company Insurance Coverage. The Company shall procure and maintain
throughout the term of this Agreement professional and general liability
insurance (through self-insurance or an insurance carrier) with policy limits of
at least $1,000,000 per occurrence and $3,000,000 in the aggregate, which
coverage shall include coverage of the Practice for acts and omissions in
connection with the performance of duties as medical director under this
Agreement.

         5.3 Evidence of Coverage. Upon the execution of this Agreement and
annually thereafter or on reasonable request, the Company and the Practice shall
each provide the other with certificates of insurance or other reasonably
satisfactory evidence of the insurance required to be maintained under Sections
5.1 and 5.2. Each party shall notify the other at least 60 days prior to the
voluntary cancellation or termination of any such coverage and immediately upon
receipt of any notice of involuntary cancellation or termination of any such
coverage.

                                   ARTICLE VI
                     PRACTICE REPRESENTATIONS AND COVENANTS

         6.1 Representations and Covenants. The Practice represents, covenants
and warrants as follows:

               (a) The Practice is, and shall at all times during the term of
this Agreement be, licensed to conduct its business in the State of Texas and
shall engage as Practice Physicians only physicians who are licensed without
restriction to Practice medicine in such state and who never have had any such
license in this or any other state limited, withdrawn, suspended, subject to
reprimand, curtailed, placed on probation or revoked;

               (b) The Practice shall engage as Practice Physicians under this
Agreement only physicians who are board eligible or board certified in the
specialty of nephrology as recognized by the American Board of Medical
Specialists;

               (c) The Practice shall at all times engage at least one Practice
Physician who is a member of the active medical staff of a local hospital; the
Practice shall engage as Practice Physicians only physicians who have at least
one year experience or training in the care of patients at an end stage renal
disease treatment facility, and who have been granted privileges to practice at
the Facility;

               (d) Except as may be approved in writing by the Company, which
approval will not be unreasonably withheld, the Practice shall engage as
Practice Physicians only physicians who have never been denied membership or
reappointment to membership on the medical staff of any health care facility,
and who have never had medical staff membership or clinical privileges limited,
suspended, curtailed, revoked, placed on probation or withdrawn, and who have
never been subject to reprimand whether



voluntarily or as a result of action (either formal or informal) initiated by
any health care facility or its medical staff;

               (e) The Practice shall require the Practice Physicians to use
their commercially reasonable best efforts and professional skills and judgment
in rendering services under this Agreement;

               (f) The Practice shall require the Practice Physicians to perform
professional services and render care to patients in accordance with, and in a
manner consistent with, appropriate standards and the ethics of the medical
profession and as necessary for the Facility to maintain compliance with
applicable governmental laws and regulations;

               (g) The Practice shall require the Practice Physicians promptly
to notify the Company of any actual or threatened denial, suspension, revocation
or curtailment of licensure or certification status, medical staff membership or
clinical privileges held by such physician(s) with any state, with any facility
operated by the Company (including the Facility), or with any payor or other
health care facility;

               (h) The Practice has notified the Company of each action or claim
alleging professional negligence filed or asserted against the Practice or any
Practice Physician within the previous five years and a current status and/or
ultimate resolution of such claim and will promptly notify the Company in
writing of its receipt of any action, claim or lawsuit alleging professional
negligence lodged against the Practice or any Practice Physician individually or
any partnership, professional corporation or association with which any Practice
Physician is affiliated;

               (i) The Practice shall, for itself, and for each Practice
Physician, promptly notify the Company of any sanction, threatened sanction,
investigation or proceeding by any governmental agency or any entity regarding
the participation by the Practice or any Practice Physician in the Medicare,
Medicaid program or any third party payor program in which the Facility
participates; and

               (j) This Agreement covers all of the services being provided to
the Company by the Practice and the Practice Physicians as medical directors of
the Facility, and the Practice acknowledges and agrees that the aggregate amount
of services to be provided under this Agreement will not exceed an amount that
is reasonable and necessary for the legitimate medical and business purposes of
this arrangement.

                                   ARTICLE VII
                         CONFIDENTIALITY, NONCOMPETITION
                          AND NONSOLICITATION COVENANT

         7.1 Additional Covenants.

               (a) During the term of this Agreement and for a period of two
years after the termination or expiration of this Agreement, the Practice and
each Practice Physician agrees that it, he or she will not in any manner,
directly or indirectly, by itself, himself or herself or in conjunction with any
other person, (i) conduct any of the activities or perform any of the
responsibilities delineated in Article I and EXHIBIT A ("Services") of this
Agreement for any business entity that is competitive with the business of the
Company or (ii) establish or own any financial, beneficial or other interest in
(other than an interest consisting of less than one percent (1%) of a class of a
publicly traded security), make any loan to or for the benefit of, or render any
managerial, marketing or other business advice, to any entity that is then
conducting activities that are competitive with those of the business of the
Company, in either case within a 25-mile radius around the Facility. For
purposes of this Article, the "business of the Company" means owning or
operating a renal





dialysis center, unit or facility or providing dialysis supplies or services to
any other such center, unit or facility to any home dialysis program, including
the provision of pharmaceuticals or laboratory services related to renal
dialysis.

               By executing a counterpart of this Agreement and in consideration
of the compensation paid to the Practice hereunder, each Practice Physician
agrees to be bound by the terms of this Article VII. With respect to the
Practice Physicians, the two-year time periods applicable to this Article VII
shall begin on the earlier of (i) the termination or expiration of this
Agreement, or (ii) the termination of the employment, independent contractor or
other relationship or affiliation of the Practice Physician with the Practice,
such that such Practice Physician ceases to fall within the definition of a
Practice Physician hereunder and generally ceases to treat patients of the
Practice.

               (b) During the term of this Agreement and for a period of two
years after the termination or expiration of this Agreement, the Practice and
each Practice Physician will use all reasonable efforts to keep confidential and
not to divulge, or allow to be divulged to anyone, or use or otherwise
appropriate for its, his or her own benefit or for the benefit of others, any
knowledge or information of a confidential nature with respect to the business
of the Company, the Company itself, or any of its affiliates, including all
trade secrets, pricing information, marketing information or technical
information (hereinafter referred to as the "Confidential Data"), except for (i)
information that is generally available to the public other than as a result of
a breach of a confidentiality agreement, (ii) information available on a
non-confidential basis from a source other than the Company or its affiliates or
agents, which source itself is not bound by a confidentiality agreement, (iii)
information required to be disclosed by law or pursuant to court order, but only
to the extent such disclosure is necessary to respond to such law or court
order, or (iv) disclosure necessary in order for the Practice to perform its
obligations under this Agreement, but only to the extent such disclosure is
necessary for such performance. Each of the Practice and the Practice Physician
acknowledges and agrees that the prohibitions against disclosure of Confidential
Data recited herein are in addition to, and not in lieu of, any rights or
remedies that the Company may have available pursuant to the laws of any
jurisdiction or at common law to prevent the disclosure of confidential
information or trade secrets, and the enforcement by the Company of its rights
and remedies under to this Agreement shall not be construed as a waiver of any
other rights or available remedies that the Company may possess in law or
equity.

               (c) During the term of this Agreement and for a period of two
years after the termination or expiration of this Agreement, neither the
Practice nor any of the Practice Physicians will, for its, his or her own
benefit or the benefit of others, solicit any person or entity that has or has
had, or disrupt or attempt to disrupt, any relationship, contractual or
otherwise, with the Company (including any patient, payor, physician, provider,
managed care organization or supplier) at any time during the term of this
Agreement for the purpose of assisting or creating such a relationship for any
business entity that is competitive with the business of the Company.

               (d) During the term of this Agreement and for a period of two
years after the termination of this Agreement, neither the Practice nor any of
the Practice Physicians will induce, or attempt to induce, any employee of the
Company or any of its affiliates to terminate his or her association with the
Company or any of its affiliates. If any employee of the Company responds to a
general solicitation and seeks employment with the Practice or a Practice
Physician and the Practice or such Practice Physician desires to hire such
employee, then the Practice or such Practice Physician shall give notice of its,
his or her desire to hire such employee and will not offer to hire such employee
until the earlier of seven days after such notice is received by the Company or
the date on which the Company approves such hiring. If the Practice or a
Practice Physician hires an employee of the Company after following the
procedures outlined above, the





Company may request that the employee continue to provide services to the
Company for up to 30 days to provide for an orderly transition.

               (e) These covenants are considered by the parties hereto to be
fair, reasonable and integral for the protection of the Company. The parties
agree that if a violation of any of these covenants occurs, then (i) such
violation and any threatened violation will cause irreparable injury to the
Company, (ii) the remedy at law for any such violation or threatened violation
will be inadequate, and (iii) the Company will be entitled to injunctive relief
to prevent such violation. The parties acknowledge that these covenants will
survive, and remain in effect and enforceable after, termination of this
Agreement.

               (f) Nothing in this Article VII shall be deemed to prohibit any
Practice Physician from exercising his or her medical judgment concerning the
medical treatment of a patient in any manner whatsoever in any location
whatsoever, and shall not be deemed to require the referral of any such patient
to any facility of the Company or any of its affiliates. The parties acknowledge
and agree that this Agreement shall in no way be deemed to restrict the right or
ability of the Practice and the Practice Physicians to admit and provide
professional service to patients at facilities and institutions other than
facilities of the Company or RCG, including without limitation facilities
operated by business entities that are competitive with the business of the
Company. The Practice and the Practice Physicians acknowledge that enforcement
of this covenant will not prevent any physician of the Practice from earning a
living by practicing medicine or nephrology.

                                  ARTICLE VIII
                                  MISCELLANEOUS

         8.1 Notices. Any notice sent in accordance with the provisions of this
Section 8.1 shall be deemed to have been received (even if delivery is refused
or unclaimed) on the date that is: (i) the date of proper posting, if sent by
certified U.S. mail or by express U.S. mail or private overnight courier, or
(ii) the date on which sent, if sent by facsimile transmission, with
confirmation and with the original sent by certified U.S. mail, addressed as
follows:

         Practice:                  TYLER NEPHROLOGY ASSOCIATES, P.A.
                                    1133 Medical Drive
                                    Tyler, Texas 75701
                                    Telecopy Number: (903) 595-0206

         Company:                   Renal Care Group Texas, Inc.
                                    c/o Renal Care Group, Inc.
                                    2100 West End, Suite 800
                                    Nashville, Tennessee 37203
                                    Telecopy Number:(615) 345-5503
                                    Attn: Chief Financial Officer
                                      and General Counsel

         Copy to:                   Renal Care Group Texas, Inc.
                                    5215 North O'Connor Boulevard, #490
                                    Irving, Texas 75039
                                    Telecopy Number: (941) 506-8388
                                    Attn: Regional Chief Operating Officer




         Any party hereto may change its address specified for notices herein by
designating a new address by notice in accordance with this Section 8.1.

         8.2 Amendments. Subject to Section 8.4, this Agreement may be amended
at any time by mutual agreement of the Practice and the Company hereto, but any
such amendment shall not be operative or valid unless the same is reduced to
writing and approved by the parties hereto.

         8.3 Assignability. This Agreement shall not be assignable by the
Practice, and the Practice shall not assign any of its rights or obligations
under this Agreement without the written consent of the Company. This Agreement
shall not be assignable by the Company, and the Company shall not assign any of
its rights or obligations under this Agreement without the written consent of
the Practice; provided that, without the consent of Practice, the Company may
assign or transfer this Agreement to an affiliate of the Company or RCG or in
connection with a sale of all or substantially all of the assets or business of
the Company; provided that such assets and business are not composed
predominantly of assets of facilities in Tyler, Texas or within 25 miles of
Tyler, Texas.

         8.4 Contract Modifications; Severability.

               (a) This Agreement shall be construed to the fullest extent
possible to be in compliance with and permitted by all Federal (including
Medicare and Medicaid) and state statutes, rules and regulations. If a
Triggering Event (as defined below) occurs, either the Company or the Practice
may by written notice to the other propose an amendment to this Agreement as
necessary to comply with the item giving rise to the Trigger Event. To the
fullest extent possible, any such amendment shall preserve the responsibilities
and duties of the parties and the underlying economic and financial arrangements
between the Company and the Practice with the least changes to the parties'
expectations hereunder. If the Practice and the Company fail to agree to the
form of an amendment within thirty days after the date of such notice, then
either of such party may submit the matter to arbitration as provided in Section
8.9 and any arbitration award shall comply with the second sentence of this
Section, provided that if any resulting change to this Agreement includes a
change to the compensation under Section 3.1(a), then the amount of compensation
shall be determined under the procedures in Section 3.1(b). For purposes of this
Section 8.4, "Triggering Event" means the effectiveness of any statute, rule or
regulation (i) prohibiting the Practice or any of the Practice Physicians from
referring patients (whether Medicare, Medicaid or otherwise) for renal dialysis
either directly or indirectly to the Facilities; (ii) prohibiting the Company,
the Practice or any Practice Physician from submitting claims or receiving
payment under the Medicare, Medicaid or any other third party payment programs
for services rendered to patients at the Facilities; (iii) determining that the
amount or method for determining compensation paid to the Practice hereunder
does not reflect fair market value for the services provided by the Practice
under this Agreement without taking into account the volume or value of
referrals made by the Practice Physicians; or (iv) otherwise rendering illegal
the relationship hereunder between the Company, the Practice and the Practice
Physicians.

               (b) Subject to the provisions of subsection (a) of this Section
8.4, if any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws in effect during the term of this
Agreement, the legality, validity or enforceability of the remaining provisions
of this Agreement shall not be affected thereby.

         8.5 Headings. The headings of this Agreement are inserted for
convenience only and are not to be considered in construction of its provisions.




         8.6 Entire Agreement. This Agreement constitutes the full contract and
agreement of the parties with respect to its subject matter, superseding all
prior or contemporaneous agreements, either oral or written.

         8.7 Construction of the Agreement and Binding Effect. Notwithstanding
the place where this Agreement may be executed by any of the parties hereto, the
parties expressly agree that all terms and conditions of this Agreement shall be
construed under and governed by the laws of the State of Texas.

         8.8 Non-Waiver. The failure of either party to exercise any of its
rights under this Agreement for a breach thereof shall not be deemed to be a
waiver of such rights or a waiver of any subsequent breach.

         8.9 Disputes. (a) The parties agree that any dispute arising in
connection with, or relating to, this Agreement or the termination of this
Agreement (other than a dispute related to Sections 3.1(b) or 8.4) shall be
subject to resolution through informal methods. If the parties are unable to
resolve such dispute after thirty days of efforts, then such dispute shall be
submitted to mediation with a singe mediator selected by the parties or, failing
the parties' agreement on a mediator, by JAMS/Endispute. The mediation shall be
conducted in accordance with the rules of JAMS/Endispute. If the parties are
unable to resolve the dispute through mediation, they shall retain all rights
and remedied at applicable law, subject to paragraph (b) below.

         (b) Following the procedures outlined in paragraph (a) above, the
parties agree that any dispute arising in connection with, or relating to, this
Agreement or the termination of this Agreement (other than a dispute related to
Section 3.1(b) and, unless the Company so agrees, a dispute under Article VII),
to the maximum extent allowed by applicable law, shall be subject to arbitration
in accordance with the terms of the Commercial Arbitration Rules for Expedited
Procedures of the American Arbitration Association. A single arbitrator shall be
chosen mutually by the parties from among the Commercial Panel of the American
Arbitration Association. Notwithstanding the foregoing, any party hereto may
seek all available preliminary injunctive or other temporary relief pending the
issuance of an arbitration award. The award of the arbitrator shall contain
findings of fact and conclusions of law and shall be binding and conclusive upon
the parties.

         (c) Any mediation or arbitration under this Agreement shall be held in
Smith County, Texas.

         8.10 Third Party Beneficiaries. The Practice and the Practice
Physicians agree that RCG and its affiliates are express and intended third
party beneficiaries of this Agreement.






         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written to be effective as provided hereinabove.

                                            Company:
                                            -------

                                            RENAL CARE GROUP TEXAS, INC.

                                            By: /s/ R. Dirk Allison
                                                --------------------------------
                                            Title: Vice President
                                                   -----------------------------


                                            Practice:
                                            --------

                                            TYLER NEPHROLOGY ASSOCIATES, P.A.

                                            By: Roy D. Gerard, Jr., M.D.
                                                --------------------------------
                                            Title: President
                                                   -----------------------------






                                PHYSICIAN JOINDER

         Each Practice Physician executing below acknowledges that he or she has
read and understood the terms of the Medical Director Services Agreement, dated
May 1, 2002 and effective as of May 1, 2000, to which this Physician Joinder is
attached and as same may be amended or revised as provided therein (the
"Agreement"). By signing this Physician Joinder, each Practice Physician agrees
in his or her individual capacity, to (i) the nature and scope of medical
director duties set forth in Article I of the Agreement, including as described
in detail on EXHIBIT A, (ii) the restrictive covenants contained in Article VII
of the Agreement, and (iii) the third party beneficiary designated in Section
8.10 of this Agreement, in each case as may be amended by agreement of the
Practice.

                                  /s/ Robert C. Dobrowolski, M.D.        (seal)
                                  ---------------------------------------
                                  Name: Robert C. Dobrowolski, M.D.
                                        ---------------------------------


                                  /s/ Thomas A. Lowery, M.D.              (seal)
                                  ---------------------------------------
                                  Name: Thomas A. Lowery, M.D.
                                        ---------------------------------



                                  /s/ James R. Cotton, Jr., M.D.          (seal)
                                  ---------------------------------------
                                  Name: James R. Cotton, Jr., M.D.
                                        ---------------------------------


                                  /s/ Roy D. Gerard, M.D.                 (seal)
                                  ---------------------------------------
                                  Name: Roy D. Gerard, Jr., M.D.
                                        ---------------------------------


                                  /s/ Diane S. Demick, M.D.               (seal)
                                  ---------------------------------------
                                  Name: Diane S. Demick, M.D.
                                        ---------------------------------


                                  /s/ Alpesh Jethva, M.D.                 (seal)
                                  ---------------------------------------
                                  Name: Alpesh Jethva, M.D.
                                        ---------------------------------


                                  /s/ Nabeel Ahmed, M.D.                  (seal)
                                  ---------------------------------------
                                  Name: Nabeel Ahmed, M.D.
                                        ---------------------------------


                                  /s/ Stephanie Diaz, M.D.                (seal)
                                  ---------------------------------------
                                  Name: Stephanie Diaz, M.D.
                                        ---------------------------------





                                    EXHIBIT A

                  MEDICAL DIRECTOR DUTIES AND RESPONSIBILITIES


                                  (Rev. 2/4/99)

         Qualifications: The Practice, through the Practice Physicians, shall be
the "Medical Director" contemplated by these duties and responsibilities. The
Medical Director shall be a licensed physician in the State of Texas, who meets
the criteria of and ESRD "qualified physician director" as well as the
requirements for Professional Staff membership as enumerated in the Professional
Staff Bylaws.

         Duties and Responsibilities: As required by Title 42 of the Code of
Federal Regulations, the Medical Director has responsibility for the execution
of patient-care policies at the Facility. The Medical Director exercises that
responsibility through working with the Facility's head nurse or manager to
direct the professional services of the Facility and conscientiously applying
its policies and procedures. The Medical Director is a member of the governing
body of the Facility and serves as the official channel of communications
between the Medical Staff and the Executive Board. Specific responsibilities of
the Medical Director include the administrative, medical and technical services
outlined below. The duties and responsibilities of the Medical Director are
separate and distinct from any Practice Physician's role as an attending
nephrologist.

         Specific responsibilities of the Medical Director include:

Administrative

         A.     The Medical Director will provide advice and assistance to the
Company in the implementation and maintenance of written policies and guidelines
including:

                1.       Communicable disease control within the unit.
                2.       The RCG Professional Staff Bylaws.
                3.       Maintenance of patient medical records.
                4.       Patient and staff education programs.
                5.       Physical environment, fire and safety, and emergency
                         preparedness of the dialysis facility.
                6.       Responsibilities and functions of each category of
                         personnel employed by the facility.

Such policies and guidelines will be developed by Company personnel, including
the Facility's head nurse or manager and the area administrator, and the
policies and guidelines will be subject to the review and comment of the Medical
Director. The Company will, with the advice and assistance of the Medical
Director, oversee the implementation and maintenance of such policies and
procedures and the training of personnel in the same, and the Medical Director
will provide advice in such training as needed to the Company. Training for
nurses and dialysis technicians will be provided by the Company through the
supervising nurse or another instructor qualified under 25 TAC ss. 117.62(g)(2).

        B.      The Medical Director will actively participate in facility
                Quality Improvement Programs (CQI) and in multi-disciplinary
                quality assurance programs that monitor the performance of
                co-morbid conditions.




        C.      As required by 42 CFR 405.2136, the Company, with the advice and
                assistance of the Medical Director, is responsible for
                maintaining and implementing written personnel policies and
                procedures including:

                1.      Qualifications and responsibilities of all staff
                        employed by the facility.
                2.      Provision of a safe and sanitary environment, and
                        procedures for reporting, preventing, and testing for
                        health and safety hazards.
                3.      Supervision of trainees.
                4.      Maintenance of complete personnel records.
                5.      Personnel policies available to all personnel of the
                        facility, including effective grievance procedures.
                6.      Personnel participation in regular educational programs.
                7.      Maintaining and updating manuals.


        D.      The Medical Director will participate in an active dialogue with
                the RCG Medical Advisory Board (or its representative) in
                pursuit of the common goal of delivering the best patient care
                practical. This participation requires implementation of MAB
                mandated directives and consideration of its recommendations.

        E.      The Medical Director will review as requested by the Company the
                RCG Quality Indicator and patient satisfaction data for the
                facility with the manager of the facility and will consult with
                attending nephrologists regarding achievement of Quality
                Indicator targets.

        F.      The Medical Director will recommend an appropriate physician to
                serve as a representative on the governing body of the Facility.

        G.      The Medical Director will exert reasonable efforts to assist
                facility in complying with applicable ESRD network, State,
                Federal and RCG mandates. The Medical Director will exert
                reasonable efforts to encourage all attending physicians to
                comply with applicable ESRD network, State, Federal and RCG
                mandates.

        H.      The Medical Director will review incident reports, patient
                complaints and any disciplinary action of medical staff or
                patient care personnel monthly.

        I.      The Medical Director will serve as facility liaison with
                affiliated medical institutions for services such as renal
                transplantation, hospitalizations and emergency medical
                services.

        J.      The Medical Director will participate in the facility survey
                process by groups such as the State Board of Health, CMS, NCQA
                and JCAHO, and will then communicate to the Governing Body the
                results of such surveys to the Executive Board (and the medical
                staff).

        K.      The Medical Director will collaborate with the Chief Medical
                Officer and the MAB in obtaining data from regulatory agencies
                as a part of the RCG strategy to work continuously to improve
                patient care.

        L.      The Medical Director will participate as reasonably practicable
                given the time and circumstances of Medical Director in national
                RCG Medical Director educational conferences.




        M.      The Medical Director will collaborate with the laboratory that
                tests the facility's samples to implement ESRD Network, State,
                Federal and RCG mandates.

Medical

        A.      The Medical Director will be a member of the renal health care
                team to ensure quality of care, including the establishment and
                implementation of policies regarding patient care. Among these
                quality of care criteria are:

                -       The suitability of patients admitted to the outpatient
                        dialysis facility.
                -       The appropriateness of dialysis prescriptions in the
                        facility.
                -       Administration of dialysis-related medications.
                -       Administration of recommended vaccines for ESRD patients
                        and staff.
                -       Existing patient care policies and procedures.

        B.      The Medical Director will serve on the professional team in the
                development of long-term patient care plans and the review and
                revision of long-term patient care plans and will participate in
                the selection of an appropriate ESRD modality for all patients
                of the facility.

        C.      The Medical Director will advise the Company regarding the
                development and implementation of written policies outlining
                patients' options for various treatment modalities, including
                in-center, home and peritoneal dialysis.

        D.      When self-dialysis training or home dialysis training is
                offered, the Medical Director will advise the Company in
                developing and implementing a program that assures that patient
                teaching materials are available for the use of all trainees
                during training and at times other than during the dialysis
                procedure;

        E.      The Medical Director will work to assure that the ESRD patient
                has appropriate consultation with a renal dietician, social
                worker, financial counselor and other individuals, as needed.

        F.      The Medical Director will oversee the appropriate performance of
                the dialysis orders and day-to-day patient care policy by the
                nursing and technical staff.

        G.      The Medical Director will use reasonable efforts to encourage
                attending physicians to comply with the facility's policies on
                patient care and will work with the Company to address instances
                of attending physicians' failure to comply with such policies.

        H.      The Medical Director will review patient satisfaction surveys
                and data, clinical outcomes data, and the Medical Director will
                consult with attending physicians and staff as appropriate to
                implement appropriate action to address issues identified and to
                improve patient care at the facility.




Technical

        A.      The Medical Director will participate in the selection of
                treatment modalities and dialysis supplies to be offered by the
                facility and advise attending physicians regarding the
                compatibility of their dialysis prescriptions with the options
                available at the facility.

        B.      The Company will provide to the Medical Director, for review and
                approval, policies and procedures regarding the adequate
                training of nurses and technicians in dialysis science
                techniques.

        C.      The Medical Director will provide continuous availability for
                medical and technical questions to the patient care staff,
                including coverage when the Medical Director is not available.

        D.      The Medical Director will advise the Company regarding the
                implementation of a dialysis water standards policy including
                monitoring and enforcement.

        E.      The Medical Director will advise the Company regarding the
                implementation of a policy regarding dialyzer reuse including
                monitoring and enforcement.

        F.      The Medical Director will advise the Company regarding the
                implementation of a policy on the administration of
                intradialytic medications.









                                    EXHIBIT C

                       MEDICAL DIRECTOR PERFORMANCE REVIEW

         There has been general agreement regarding the need for a clear set of
guidelines and expectations of an RCG Medical Director. Objectivity in the
annual performance evaluation has been prerequisite, leading to the development
of this document. Our mission is "to improve the quality of life and to care for
those patients with chronic and acute renal disease." This requires that the
dialysis facility and its staff function collaboratively at the highest possible
level, under the leadership of the Medical Director. The Practice's performance
relative to the criteria set forth in this EXHIBIT C will be evaluated as part
of the quality assurance process of RCG's South Central Region. These
performance review criteria are designed to foster continuous improvements in
patient care.

         The Interpretive Guidelines for ESRD Facilities states in V-420
"Treatment is under the general supervision of a Director who is a physician.
The Medical Director is responsible for planning, organizing, conducting and
directing the professional ESRD services and must devote sufficient time to
carrying out these responsibilities." The Nephrologist has the medical skills
and must develop leadership and collaborative management skills to fulfill this
mandate as Medical Director. Teamwork and collegiality are highly valued as the
leader of the ESRD team.

         The measure of performance will be based on a point system as
authorized by the Medical Advisory Board (MAB). The specific criteria and weight
may be changed in the future at the discretion of the MAB. The elements to be
measured and their weight are as follows:

        - 50% based on Clinical Indicators of the Facility
        - 30% based on Medical Director administrative duties
        - 20% based on patient satisfaction with the Facility

CLINICAL PERFORMANCE MEASURES (50%)

                          HEMODIALYSIS MEDICAL DIRECTOR
           (evaluation based on annual rolling average of prior year)

- -    URR (% of patients with URRs >=70%)                 >75% = 10 points
         RCG AVERAGE 65%                                70-75% = 8 points
         Best Region 72.8%                            65-69.9% = 6 points
                                                      60-64.9% = 4 points
                                                          <60% = 0 points

- -    HEMATOCRIT (% of Hcts >=33%)                        >75% = 10 points
         RCG AVERAGE 63.7%                              70-75% = 8 points
         Best Region 70.2                             65-69.9% = 6 points
                                                      60-64.9% = 4 points
                                                      55-59.9% = 2 points
                                                          <55% = 0 points




- -    MISSED TREATMENTS (91+ days, based on days per patient year at risk)
         RCG AVERAGE ___ TREATMENTS                         < =  8 points
         Best Region ___ treatments                           =  6 points
                                                              =  2 points
                                                            > =  0 points

- -    MORTALITY (91+ days, based on deaths per 100 patient years at risk)
         RCG AVERAGE 20.7                                 <20 =  8 points
         Best Region 15.5                             20-23.9 =  6 points
                                                      24-29.9 =  4 points
                                                        30-35 =  2 points
                                                          >35 =  0 points

- -    VASCULAR ACCESS:
         % OF TEMPORARY CATHETERS                        <10% =  8 points
         RCG average 19.8%                           10-14.9% =  6 points
         Best Region 10.7%                           15-19.9% =  4 points
                                                       20-25% =  2 points
                                                         >25% =  0 points

         -   % native AV fistulas                        >35% = 15 points
             RCG average 22%                         30-34.9% = 12 points
             Best Region 33.6%                       25-29.9% =  9 points
                                                       20-24% =  6 points
                                                     15-19.9% =  3 points
                                                         <15% =  0 points

         -   PTFE clotting events/patient year           <0.3 = 10 points
             RCG average 0.9                         0.3-0.59 =  8 points
             Best Region 0.6                         0.6-0.99 =  9 points
                                                      1.0-1.2 =  4 points
                                                         >1.2 =  0 points

                      PERITONEAL DIALYSIS MEDICAL DIRECTOR
            (VALUATION BASED ON ANNUAL ROLLING AVERAGE OF PRIOR YEAR)

- -    KT/V  (>=2.1)
         RCG AVERAGE 63.5% CAPD                           >65 = 15 points
         RCG average 70.6% CCPD                        60-65% = 12 points
                                                     55-59.9% = 10 points
                                                     50-54.9% =  8 points
                                                     45-49.9% =  5 points




- -    CREATININE CLEARANCE  (>=60L CAPD or >=60 L CCPD)


         RCG AVERAGE 67.1% CAPD                           >70 = 15 points
         RCG average 70.6% CCPD                        65-70% = 12 points
                                                     60-64.9% = 10 points
                                                     55-59.9% =  8 points
                                                     50-54.9% =  5 points

- -    HEMATOCRIT  (% of Hcts 33-36%)                      >75% = 10 points
         RCG AVERAGE 63.7%                             70-75% =  8 points
         Best Region 70.2                            65-69.9% =  6 points
                                                     60-64.9% =  4 points
                                                     55-59.9% =  2 points
                                                         <55% =  0 points

- -    HOSPITALIZATION (91 + days, based on days per patient year at risk)
         RCG AVERAGE 12.0 DAYS                       <10 days =  8 points
         Best Region 8.6 days                    10-14.9 days =  6 points
                                                   15-20 days =  2 points
                                                     >20 days =  0 points


- -    MORTALITY (91 + days, based on deaths per 100 patient years at risk)
         RCG AVERAGE 20.7                                 <20 =  8 points
         Best Region 15.5                             20-24.9 =  6 points
                                                      24-29.9 =  4 points
                                                        30-35 =  2 points
                                                          >35 =  0 points

- -    PERITONITIS (new cases + relapse)
         RCG AVERAGE 14.9 MONTHS BETWEEN CASES
         Best Region 16.9 months between cases

         >25 months between cases             15 points
         20-25 months between cases           12 points
         15-19.9 months between cases          9 points
         10-14.9 months between cases          6 points
         >10 months between cases              0 points






             COMBINATION HEMODIALYSIS & PERITONEAL MEDICAL DIRECTOR

For those physicians who oversee both modalities, each is evaluated using the
above criteria. The overall Clinical Quality is then a composite of these,
weighted to reflect the numbers of patients in each modality.

MEDICAL DIRECTOR TASKS (30%)
- ----------------------

- -       PARTICIPATION IN MONTHLY REVIEW: (one point / month with 12 points
        possible)
        -       Review staffing & training issues impacting patient outcomes
                with Manager
        -       Review water quality
        -       Review dialyzer reuse @ the Facility
        -       Review monthly lab of patients below quality goals & develop
                plan
        -       Review trend in hospitalizations, infections
        -       Review temporary catheter usage & trend
        -       Review patient incident reports & trends
        -       Monitor staff physician patient rounding process
        -       Adequacy of staff physician medical documentation

- -       PARTICIPATION IN CQI PROCESS: (one point/hourly meeting with 12 points
        possible)

- -       PARTICIPATION IN PROFESSIONAL STAFF PROCESS:
        -       Quarterly Professional Staff meetings (one point/quarter - 4
                points possible)
        -       Quarterly Quality conference calls (one point/quarter - 4
                points possible)

- -       ANNUAL CHECKLIST: (2 points for each item - 8 points possible)
        -       Review and approve facility Policy and Procedures and make
                necessary modifications; review and approve clinical protocols.
        -       Review patient satisfaction data annually and in concert with
                the Facility Manager make recommendations for improvement.
        -       Participate with the Manager in the Budget process for the
                Facility.
        -       Participate in Facility surveys by BOH, HCFA, etc.

PATIENT SATISFACTION SCORES (PSS) (20 %)

         CAREGIVER:
         RCG average 1.26
                             PSS>1.5         =    8 points
                             PSS 1.25-1.5    =    6 points
                             PSS 1.0-1.249   =    4 points
                             PSS 0.5-0.99    =    2 points
                             PSS <0.5        =    0 points






         PHYSICIAN:
         RCG average 1.11
                             PSS>1.5         =   10 points
                             PSS 1.25-1.5    =    8 points
                             PSS 1.0-1.249   =    6 points
                             PSS 0.5-0.99    =    2 points
                             PSS <0.5        =    0 points


         DIETICIAN, SOCIAL WORKER, OTHER
         RCG average 1.47, 1.33, 1.08

                             PSS>1.5         =    4 points each
                             PSS 1.25-1.5    =    3 points each
                             PSS 1.0-1.249   =    2 points each
                             PSS 0.5-0.99    =    1 point each
                             PSS <0.5        =    0 points

EX-10.66

                                                                  Exhibit 10.66




                              AMENDMENT NUMBER 1 TO
                       MEDICAL DIRECTOR SERVICES AGREEMENT

         THIS AMENDMENT NUMBER 1 TO MEDICAL DIRECTOR SERVICES AGREEMENT (this
"Amendment") is made and entered into this 26th day of June, 2002, effective as
of the 1st day of May, 2002, by and between RENAL CARE GROUP ARIZONA, INC., an
Arizona corporation as assignee of Renal Care Group, Inc. (the "Company"), and
ARIZONA NEPHROLOGY ASSOCIATES, PLC, an Arizona professional limited liability
company as assignee of certain individual physicians (the "Group").

                                   WITNESSETH:

         WHEREAS, the Company and the Group are parties to a Medical Director
Services Agreement (Group Practice/Freestanding Facilities), effective as of
September 30, 1996 (the "Agreement"), under which the Group provides medical
director services for dialysis facilities located in Arizona that are owned in
whole or in part by the Company; and

         WHEREAS, Renal Care Group, Inc. assigned the Agreement to the Company;
and

         WHEREAS, individual physician members of the Group assigned the
Agreement to the Group under an Assignment and Assumption Agreement dated June
8, 1999; and

         WHEREAS, the parties to this Amendment now desire to make certain
modifications and amendments to the Agreement as provided in this Amendment; and

         WHEREAS, capitalized terms that are used but not defined in this
Amendment that are defined in the Agreement shall have the meanings set forth in
the Agreement;

         NOW, THEREFORE, in consideration of the mutual promises, covenants and
undertakings set forth in this Amendment and in the Agreement, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Amendment hereby agree as follows:

         1. Definitions. The parties agree that the Agreement is hereby amended
to delete therefrom the definition of the term "Facilities" in the Preamble to
the Agreement. For purposes of the Agreement and this Amendment, the term
"Facilities" means, collectively, the dialysis facilities listed on attached
EXHIBIT A and EXHIBIT A-1 to this Amendment. For purposes of the Agreement and
this Amendment, the term "DRA Facilities" means the dialysis facilities listed
on attached EXHIBIT A-1 to this Amendment. For purposes of the Agreement and
this Amendment, the term "HCFA" and references to the "Health Care Financing
Administration" are hereby deleted from the Agreement, and the terms "CMS" and
"Centers for Medicare and Medicaid Services" are inserted in lieu thereof.

         2. Deletion of DRA Facilities. (a) Except as provided herein and in
subsection (b) below, the Company may from and after the date of this Amendment
through May 1, 2003, upon written notice to the Group that the Company has
entered into a Medical Director Services Agreement with Desert Renal Associates,
PLC ("DRA"), delete the DRA Facilities from the definition of Facilities. From
and after the delivery of such notice (the "Deletion Notice"), the Group shall
not be responsible for the performance of medical director services at the DRA
Facilities, and the Company shall not be responsible for paying the portion of
the medical director fee attributable to the DRA Facilities as contemplated by
Section 3.1 of the Agreement, as amended by this Amendment. Until the delivery
of the Deletion Notice, the Group shall continue



to subcontract with DRA, so that DRA will provide medical director services for
the DRA Facilities on a subcontracted basis. The parties agree that if the
Company delivers the Deletion Notice, then the Company and the Group will not
enter into any agreement under which the Group will provide medical director
services for any of the DRA Facilities until at least one year after RCG
delivers the Deletion Notice. Notwithstanding the foregoing, the Company agrees
that it shall not enter into any separate Medical Director Services Agreements
with DRA until and unless, after good faith negotiations with DRA (as described
further in subparagraph 2(b) herein), the Group is permitted to own membership
interests representing a minimum aggregate ownership interest of 20% in Renal
Dimensions, LLC ("RDI") or the Group and the Company enter into a joint venture
for other dialysis facilities in Arizona.

                  (b) The Company will from time to time engage in good faith
negotiations with DRA for a period of up to one (1) year from the date of this
Amendment to enter into a new Medical Director Services Agreement with DRA AND
to cause DRA either (i) to permit the Company to offer the Group a membership
interest of at least an aggregate of 20% in RDI, a joint venture between the
Company and DRA, or (ii) to permit the Company to enter into a new joint venture
arrangement with the Group to develop new dialysis facilities in and around
Arizona, notwithstanding the first refusal provisions of the Limited Liability
Company Agreement for RDI in favor of DRA. The Company will report to the Group
at least every two (2) months concerning the status of such negotiations with
DRA. The Company will give the Group written notice if, at any time during the
one (1) year period, the Company determines that it can not enter into a new
Medical Director Services Agreement with DRA or if DRA refuses to permit the
Group ownership in RDI or to enter into a joint venture with the Company as
contemplated above (a "Termination Notice"). If (A) the Company delivers the
Termination Notice, or (B) the Company has not entered into a new Medical
Director Services Agreement with DRA on or before May 1, 2003, then the Company
shall cease to have the right to contract separately with DRA for the DRA
Facilities during the term of this Agreement (i.e. the Company agrees that if
negotiations with DRA fail, it will not enter into separate Medical Director
Services Agreements with DRA for any of the Facilities during the term of this
Agreement as it may be extended as provided below), and the Group will no longer
be required to subcontract with DRA to obtain services for the DRA Facilities.
In furtherance of the foregoing, the term of the Agreement shall be tolled
during the negotiation period, such that, if Company is unsuccessful in its
negotiations with DRA, then the term of the Agreement shall continue for a
period of one (1) year after the earlier of the Company's delivery of a
Termination Notice or May 1, 2003, and the parties shall abide by the terms and
conditions of the Agreement and this Amendment during such extended term.

         3. Responsibilities. The parties agree that Section 1.2 of the
Agreement shall be, and is hereby, amended by deleting such Section in its
entirety and inserting in lieu thereof the following:

                  1.2 Responsibilities. Without limiting the generality of this
         Article I, the Group shall provide the medical director services
         described in EXHIBIT B, which may be revised and updated from time to
         time by the Company, provided that any change that is not a CMS or
         other legal requirement must first be approved by the Group if it
         materially increases the medical director duties hereunder. The Group
         will designate a principal contact for coordination of medical director
         services at each Facility. Such principal contact may not be changed
         without the written consent of the Company, which consent will not be
         unreasonably withheld; provided that the Group will not seek to change
         the principal contact for any Facility more often than once a year
         except in the event of the death, disability or retirement of, or other
         exigent circumstances involving the principal contact.



                                       2



         4. Compensation for Services. The parties agree that Section 3.1 of the
Agreement shall be, and is hereby, amended by deleting such Section in its
entirety and inserting in lieu thereof, the following:

                  3.1 Compensation. (a) In consideration of the services,
         covenants, and agreements agreed to be performed by the Group during
         the Term, the Company shall pay the Group $1,168,000 per year, payable
         in substantially equal monthly installments in arrears. In addition to
         the annual medical director fee described above, the Group shall be
         eligible for an annual bonus of up to 15% of such annual medical
         director fee (exclusive of the $288,000 fee attributable to the DRA
         Facilities) based upon the success of the Facilities (other than the
         DRA Facilities) in meeting performance criteria for the Facilities and
         Group generally prescribed by Renal Care Group, Inc., parent company of
         the Company ("RCG"), for its facilities in the region in which the
         Facilities are located. This bonus will be first payable for the year
         beginning January 1, 2002 and ending December 31, 2002, but the bonus
         will be prorated based on the period of time during such year after
         Amendment Number 1 to this Agreement was in force. Prior to January 1
         of each year from and including 2002, the Group will give the Company a
         notice stating the allocation of the potential bonus among the
         Facilities (other than the DRA Facilities), showing the percentage of
         the total bonus attributable to each such Facility. Such allocation
         shall be subject to the review and approval of the Company, which
         approval will not be unreasonably withheld. The Group shall make such
         allocation taking into account patient census, patient demographics,
         the amount of time expected to be spent providing medical director
         services to each such Facility and other similar relevant factors. The
         criteria for reviewing and determining the bonus amount will be
         substantially similar to those attached as EXHIBIT C to this Agreement.
         RCG may change the bonus criteria annually, and the Company will
         provide the revised criteria to the Group when adopted. RCG will not
         adopt clinical goals in the bonus criteria that supersede or undermine
         the Group's or any of its physicians' best clinical judgment. The Group
         will have the right to review the computation of the bonus and to
         dispute in good faith the Company's calculation of the bonus based on
         objective evidence of the Group's performance in relation to the bonus
         criteria. The Group agrees to accept this payment (as it may be
         adjusted as provided below) by the Company as the total compensation
         for all services, covenants and agreements pursuant to this Agreement.

                  (b) The Group and the Company acknowledge and agree that
         $288,000 of the base medical director fee contemplated above is
         attributable to the DRA Facilities and that after the delivery of the
         Deletion Notice, the base medical director fee will be deemed
         automatically reduced to $880,000.

                  (c) (i) Beginning 90 days prior to May 1, 2003 and May 1 of
         each year thereafter, if either party believes that the fair market
         value of the services provided by the Group under this Agreement has
         changed in any material way since the most recent anniversary of the
         effective date of a change in compensation payable under this Agreement
         (a "Compensation Adjustment Date"), then such party may notify the
         other that it believes such a change has occurred and the Group and the
         Company shall negotiate in good faith an adjustment to the compensation
         described in Section 3.1(a) above so that it represents fair market
         value for the duties and responsibilities of the Group to be provided
         during the next year under this Agreement. Notwithstanding the



                                       3


         foregoing, no adjustment pursuant to this subsection (c)(i) to the
         compensation payable under this Agreement shall be effective unless set
         forth in writing signed by the Group's and the Company's authorized
         representatives, which writing shall be deemed an amendment to this
         Agreement.

                           (ii) If the Group and the Company are unable to agree
         on an adjustment, then either may require that an adjustment of the
         compensation hereunder be submitted to a qualified independent third
         party mutually selected by both the Group and the Company to determine
         the fair market value of the services required hereunder, the costs and
         fees of which shall be borne equally by the Group and the Company. If
         the Group and the Company are unable to agree on the third party, then
         each of the Company and the Group shall at its own cost and expense
         select its own qualified independent third party and the average of
         such two determinations of fair market value shall be the revised
         compensation unless such determinations are more than 10% apart, in
         which case such third parties shall mutually select an additional
         qualified independent third party, the fees and expenses of which shall
         be shared equally, who shall determine the fair market value of the
         services hereunder from between the range of the amounts determined by
         the first two appraisals. The fair market value of the services as
         determined in accordance with the provisions of this subsection (c)(ii)
         shall be the compensation payable under this Agreement effective as of
         the applicable anniversary of the Compensation Adjustment Date, and
         such final determination shall be deemed an amendment to this
         Agreement.

                  (d) Any change to the compensation payable hereunder in
         accordance with subsection (c) of this Section 3.1 shall be effective
         as of the applicable anniversary of the Compensation Adjustment Date
         and shall remain effective, and not subject to adjustment under Section
         3.1(c) or otherwise, for at least 12 months from the effective date of
         such change.

         5. Settlement and Release. The Group and the Company, and each of their
officers, directors, trustees, agents, employees, subsidiaries, affiliates,
assigns, successors or heirs, hereby relinquish and release any and all known or
unknown causes of action, claims, demands, liabilities, losses, expenses or
other damages (including attorney's fees) against the other concerning the
negotiation of an increase in the medical director fee payable under the
Agreement or either the Group's or the Company's good faith, or lack thereof, in
such negotiations. The Group and the Company represent that they have consulted
with counsel of their choosing, or have had the opportunity to consult with
counsel of their choosing, have read this Agreement in its entirety, fully
understand and comprehend this Agreement, and assent to and sign this Agreement
by their own free act. If any provision of this Agreement is held to be illegal,
invalid or unenforceable by any court or tribunal of competent jurisdiction,
then those provisions remaining legal, valid and enforceable shall remain in
full force and effect.

         6. Signing Consideration. In consideration of the Group's execution and
delivery of this Agreement with the attendant agreements provided in Sections 2,
3, 4 and 5 of this Amendment, upon the execution and delivery of this Amendment
by the Group and its physicians, the Company shall pay the Group cash in the
amount of $90,000 by wire transfer to an account designated by the Group.

         7. Exhibits. The parties agree that the Agreement is hereby amended by
attaching EXHIBIT A, EXHIBIT A-1, EXHIBIT B and EXHIBIT C in the forms attached
to this Amendment.



                                       4


         8. No Further Amendment. Except as expressly modified and amended by
this Amendment, the parties agree that the Agreement shall continue in full
force and effect as provided therein, and the parties reaffirm all of its
provisions.

         9. Miscellaneous. The section and other headings used in this Amendment
are for convenience of reference only and shall not affect the interpretation of
this Agreement in any way. This Amendment may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and all
of which shall be deemed, collectively, one agreement.

         11. Renal Dimensions, LLC. The Company will, within ten business days
following the Group's request, cause its affiliate to sell to the Group a
membership interest representing 10% of the outstanding membership interests in
RDI. The purchase price for such interests will be the fair market value of such
interests as determined by a final appraisal conducted by American Appraisal
Associates. The Company represents that the current draft of an appraisal of
interests representing 20% of the membership interests in RDI indicates that the
fair market value of 10% of the membership interests would be $220,000. The sale
will be conditioned on (i) the Company's affiliate's representation and warranty
that it owns the interests free and clear of all liens, claims and encumbrances
of any nature other than encumbrances arising under the Limited Liability
Company Agreement for RDI, and (ii) the Group's representations and warranties
that it is acquiring the interests for investment purposes only and not for
resale and that it is an accredited investor for purposes of federal and state
securities laws. Prior to the closing of any sale under this Section 11, the
Group will have the opportunity to ask questions of and receive answers from
management of RDI concerning the operations and financial status of RDI. The
Group's right to purchase a 10% interest in RDI under this Section 11 will
expire on August 30, 2002.

    [the remainder of this page intentionally left blank, signatures follow]





                                       5



         IN WITNESS WHEREOF, this Amendment is executed effective as of the date
first set forth above.

                                        The Company:

                                        RENAL CARE GROUP ARIZONA, INC.



                                        By: /s/ R. Dirk Allison
                                           ------------------------------------
                                        Title: Vice President
                                              ---------------------------------

                                        The Group

                                        ARIZONA NEPHROLOGY ASSOCIATES, PLC



                                        By: /s/ Douglas Anderson, M.D.
                                           ------------------------------------
                                        Title: President
                                              ---------------------------------



                                       6




         Each physician executing below acknowledges that he or she has read and
understood the terms of this Amendment and the Agreement amended hereby and
hereby confirms and ratifies the acknowledgement set forth in Section 6.1(j) of
the Agreement and the agreements set forth in Article VII of the Agreement, as
provided therein.

                                         /s/ Douglas Chang, M.D.
                                         ---------------------------------------
                                         Douglas Chang, M.D.


                                         /s/ Ronald Hyde, M.D.
                                         ---------------------------------------
                                         Ronald Hyde, M.D.


                                         /s/ Melissa Go, M.D.
                                         ---------------------------------------
                                         Melissa Go, M.D.


                                         /s/ Kenneth Johnson, M.D.
                                         ---------------------------------------
                                         Kenneth Johnson, M.D.


                                         /s/ Kenneth Boren, M.D.
                                         ---------------------------------------
                                         Kenneth Boren, M.D.


                                         /s/ Manuel Abrante, M.D.
                                         ---------------------------------------
                                         Manuel Abrante, M.D.


                                         /s/ Frederick Osario, M.D.
                                         ---------------------------------------
                                         Frederick Osario, M.D.


                                         /s/ Vijay Kumar, M.D.
                                         ---------------------------------------
                                         Vijay Kumar, M.D.


                                         /s/ Jeffrey Packer
                                         ---------------------------------------
                                         Jeffrey Packer, D.O.



                                         ---------------------------------------
                                         Yogesh Amin, M.D.


                                         /s/ Douglas Anderson, M.D.
                                         ---------------------------------------
                                         Douglas Anderson, M.D.


                                         /s/ Richard Flick, M.D.
                                         ---------------------------------------
                                         Richard Flick, M.D.


                                         /s/ David Naai, M.D.
                                         ---------------------------------------
                                         David Naai, M.D.




                                       7



         Each physician executing below acknowledges that he or she has read and
understood the terms of this Amendment and the Agreement amended hereby and
hereby confirms and ratifies the acknowledgement set forth in Section 6.1(j) of
the Agreement and the agreements set forth in Article VII of the Agreement, as
provided therein.


                                         /s/ Anup Rai, M.D.
                                         ---------------------------------------
                                           Anup Rai, M.D.

                                         /s/ Georgetta Bidwell, M.D.
                                         ---------------------------------------
                                         Georgetta Bidwell, M.D.


                                         /s/ Berne Yee, M.D.
                                         ---------------------------------------
                                           Berne Yee, M.D.





                                       8



                                    EXHIBIT A

                                   FACILITIES

Renal Care Group - Glendale
5157 W. Thunderbird, Building 3
Glendale, Arizona 85306

Renal Care Group - Sun City
10050 w. Bell Road, Suites 29-31
Sun City, Arizona 85351

Renal Care Group - Sun City West
13830 W. Camino del Sol, Suite 100
Sun City West, Arizona 85375

Renal Care Group - Home Dialysis of Glendale
5157 W. Thunderbird, Suite 306
Glendale, Arizona 85306

Acute Dialysis Services (West Valley)

Renal Care Group - Prescott
1365 Iron Springs Road, Suite A7&8
Prescott, Arizona 86301

Renal Care Group - Apache Junction
11518 East Apache Trail, Suite 109
Apache Junction, Arizona 85220

Renal Care Group - Southwest Mesa
2620 W. Broadway, Suites 1-4
Mesa, Arizona 85202

Renal Care Group - Home Dialysis of Mesa
1750 S. Mesa Drive, Suite 100
Mesa, Arizona 85210

Renal Care Group - East Valley
215 South Power Road, Suite 218
Mesa, Arizona 85206

Renal Care Group - Globe
2250 US Highway 60, Suite 0-2
Miami, Arizona 85539



                                       9



                             EXHIBIT A (CONTINUED)

                                   FACILITIES

Renal Care Group - Safford
1600 20th Avenue, Unit B, Suite 2
Safford, Arizona 85546

Renal Care Group - Cottonwood
203 S. Candy Lane, Suites 11A&B
Cottonwood, Arizona 86326

Renal Care Group - Lake Havasu
1761 McCulloch Blvd., Suite F
Lake Havasu, Arizona 86403

Renal Care Group - Phoenix
1320 North 10th Street, Suite A
Phoenix, Arizona 85006

Renal Care Group - Scottsdale
8435 E. McDowell Road, Suite 100
Scottsdale, Arizona 85257

Renal Care Group - South Phoenix
4621 South Central Avenue
Phoenix, Arizona 85204

Home Hemo
1750 S. Mesa Drive, Suite 100
Mesa, Arizona 85210




                                       10




                                   EXHIBIT A-1

                                 DRA FACILITIES

Facilities

Renal Care Group - AK-Chin
16536 North Maricopa Road
Maricopa, AZ 85239

Renal Care Group - Casa Grande
695 E. Cottonwood Lane
Casa Grande, AZ 85222

Renal Care Group - Chandler
912 West Chandler Blvd., Building A
Chandler, AZ 85225

Renal Care Group - Mesa
1337 S. Gilbert Road, Suites 101-103
Mesa, AZ 85210

Renal Care Group - Sacaton
Seed Farm & Skill Center Road, Box 207
Sacaton, AZ 85247

Renal Care Group - Payson
112 W. Cedar Lane
Payson, AZ 85541

Renal Care Group - Show Low
1500 S. White Mountain Rd., Suite 204
Show Low, AZ 85901

Renal Care Group - Sun Lakes
9666 E. Riggs Road, Suite 504
Sun Lakes, AZ 85248

Renal Care Group - Tempe
1449 W. Southern Ave.
Tempe, AZ 85282

Renal Care Group - White River
Highway 73, Milepost 342
P.O. Box 1899
White River, AZ 85941

Acute Dialysis (East Valley)




                                       11




                                    EXHIBIT B

                  MEDICAL DIRECTOR DUTIES AND RESPONSIBILITIES

                                  (Rev. 2/4/99)

         Qualifications: The Group, through the Practice Physicians, shall be
the "Medical Director" contemplated by these duties and responsibilities. The
Medical Director shall be a licensed physician in the State of Arizona, who
meets the criteria of and ESRD "qualified physician director" as well as the
requirements for Professional Staff membership as enumerated in the Professional
Staff Bylaws.

         Duties and Responsibilities: As required by Title 42 of the Code of
Federal Regulations, the Medical Director has responsibility for the quality of
professional care delivered to the patients at the Facilities. The Medical
Director exercises that responsibility through directing the professional
services of the Facilities and conscientiously applying its policies and
procedures. The Medical Director is a member of the governing body of the
Facilities and serves as the official channel of communications between the
Medical Staff and the Executive Board. Specific responsibilities of the Medical
Director include the administrative, medical and technical services outlined
below. The duties and responsibilities of the Medical Director are separate and
distinct from any Practice Physician's role as an attending nephrologist.

         Specific responsibilities of the Medical Director include:

Administrative

         A. The Medical Director will be responsible for the implementation and
maintenance of written policies and guidelines including:

             1.     Patient care delivery policy and procedures manual.
             2.     Communicable disease control within the unit.
             3.     The RCG Professional Staff Bylaws.
             4.     Maintenance of patient medical records.
             5.     Patient and staff education programs.
             6.     Physical environment, fire and safety, and emergency
                    preparedness of the dialysis Facilities.
             7.     Responsibilities and functions of each category of personnel
                    employed by the Facilities.

         B.  The Medical Director will actively participate in Facilities
             Quality Improvement Programs (CQI) and in multi-disciplinary
             quality assurance programs that monitor the performance of
             co-morbid conditions.

         C.  The Medical Director will participate in an active dialogue with
             the RCG Medical Advisory Board (or its representative) in pursuit
             of the common goal of delivering the best patient care practical.
             This participation requires implementation of MAB mandated
             directives and consideration of its recommendations.



                                       12


         D.  The Medical Director will review on a timely basis the RCG
             Quality Indicator and patient satisfaction data for the Facilities
             with the manager of the Facilities and will consult with
             attending nephrologists regarding achievement of Quality Indicator
             targets.

         E.  The Medical Director will make available an appropriate physician
             to serve as a representative on the governing body of each
             Facilities.

         F.  The Medical Director will assure that the Facilities and all
             attending physicians comply with applicable ESRD network, State,
             Federal and RCG mandates.

         G.  The Medical Director will review incident reports, patient
             complaints and any disciplinary action of medical staff or  patient
             care personnel monthly.

         H.  The Medical Director will serve as Facilities liaison with
             affiliated medical institutions for services such as renal
             transplantation, hospitalizations and emergency medical services.

         I.  The Medical Director will participate in the Facilities survey
             process by groups such as the State Board of Health, HCFA, NCQA and
             JCAHO, and will then communicate to the Governing Body the results
             of such surveys to the Executive Board (and the medical staff).

         J.  The Medical Director will collaborate with the Chief Medical
             Officer and the MAB in obtaining data from regulatory agencies as a
             part of the RCG strategy to work continuously to improve patient
             care.

         K.  The Medical Director will participate in national RCG Medical
             Director educational conferences.

         L.  The Medical Director will collaborate with the laboratory that
             tests the Facilities's samples to implement ESRD Network, State,
             Federal and RCG mandates.

Medical

         A.  The Medical Director will coordinate the renal health care team to
             ensure quality of care, including the establishment and
             implementation of policies regarding patient care. Among these
             quality of care criteria are:

             -     The suitability of patients admitted to the outpatient
                   dialysis Facilities.
             -     The appropriateness of dialysis prescriptions in the
                   Facilities.
             -     Administration of dialysis-related medications.
             -     Administration of recommended vaccines for ESRD patients and
                   staff.
             -     Existing patient care policies and procedures.

         B.  The Medical Director will supervise the development and
             implementation of both short- and long-term patient care plans
             to enable the selection of the most appropriate ESRD modality.



                                       13


         C.  The Medical Director will supervise the development and
             implementation of written policies outlining patients' options
             for various treatment modalities, including in-center, home and
             peritoneal dialysis.

         D.  When self-dialysis training or home dialysis training is offered,
             the Medical Director will oversee a program that assures that
             patient teaching materials are available for the use of all
             trainees during training and at times other than during the
             dialysis procedure;

         E.  The Medical Director will work to assure that the ESRD patient
             has appropriate consultation with a renal dietician, social
             worker, financial counselor and other individuals, as needed.

         F.  The Medical Director will oversee the appropriate performance of
             the dialysis orders and day-to-day patient care policy by the
             nursing and technical staff.

         G.  The Medical Director will use reasonable efforts to cause attending
             physicians to comply with the Facilities's policies on patient
             care.

         H.  The Medical Director will review patient satisfaction surveys
             and data, clinical outcomes data, and the Medical Director will
             consult with attending physicians and staff as appropriate to
             implement appropriate action to address issues identified and to
             improve patient care at the Facilities.

Technical

         A.  The Medical Director will participate in the selection of
             cost-effective treatment modalities and dialysis supplies to be
             offered by the Facilities and advise attending physicians regarding
             the compatibility of their dialysis prescriptions with the options
             available at the Facilities.

         B.  The Medical Director will approve policies and procedures ensuring
             the adequate training of nurses and technicians in dialysis science
             techniques.

         C.  The Medical Director will provide continuous availability for
             medical and technical questions to the patient care staff,
             including coverage when the Medical Director is not available.

         D.  The Medical Director will supervise the implementation of a
             dialysis water standards policy including monitoring and
             enforcement.

         E.  The Medical Director will supervise the implementation of a policy
             regarding dialyzer reuse including monitoring and enforcement.

         F.  The Medical Director will supervise the implementation of a
             policy on the administration of intradialytic medications.




                                       14




                                    EXHIBIT C

                                 BONUS CRITERIA

         The annual evaluation of the RCG Facility and its Medical Director is
essential to our mission, which is "to improve the quality of life and to care
for those patients with chronic and acute renal disease." To achieve this
mission, the Facility and its staff must function collaboratively at the highest
possible level, under the leadership of the Medical Director. The Facility /
Medical Director evaluation will be conducted by the office of the Chief Medical
Officer, to whom the Medical Director is primarily responsible. This evaluation
process must be understood by Medical Directors, since it is an important
component of the RCG policy of continuous quality improvement.

         The Interpretive Guidelines for ESRD Facilities states "Treatment is
under the general supervision of a Director who is a physician. The Medical
Director is responsible for planning, organizing, conducting and directing the
professional ESRD services and must devote sufficient time to carrying out these
responsibilities." The Nephrologist has the medical skills and must develop
leadership and collaborative management skills to fulfill this mandate as
Medical Director. Teamwork and collegiality are highly valued as the leader of
the ESRD team.

         The evaluation will be based on a point system, with annual update, as
authorized by the RCG Medical Advisory Board (MAB). The elements to be measured
and their weight are as follows:

         -    50% based on Clinical Indicators of the Facility. The Clinical
              Indicators are measured monthly and reported quarterly; the unit
              of measurement used is based on the one year rolling average.
              Tracking the Clinical Indicators and observing trends provides
              opportunities for quality improvement using the CQI process. The
              market or regional Quality Management Committee is charged with
              reviewing the outcomes and performance of each Facility and
              Professional Staff member and is also available as a resource to
              the Medical Director.

              The point system has been heavily weighted to encourage certain
              outcomes regarding vascular access: reduction of temporary
              catheters and placement of AV fistulas. Vascular access is also
              the area that is most uniquely influenced by the Medical Director
              and requires concerted effort by the Medical director to bring
              about improvement. The literature clearly shows that mortality and
              morbidity are reduced when early permanent access has been placed;
              while mortality within the Facility is clearly the most important
              outcome, the improvement of this outcome can only come about by
              improvement in the processes of care (such as URR, nutrition,
              anemia, etc.) that are known to impact on patient outcomes.



                                       15



         -    30% based on Medical Director administrative duties. Section 5 and
              6 of this Handbook describe the administrative duties in greater
              detail. Guidelines have been prepared for the Medical Directors
              of both Hemodialysis and Home Therapy Facilities. At the back of
              each section is a grid, which is designed to assist the medical
              Director and the Facility Manager in the documentation of the
              performance of these duties. On a monthly basis, the required
              tasks should be completed and both the Medical Director and the
              Facility Manager should initial the completion at the bottom of
              the grid. At a minimum, this will document the compliance of the
              Medical Director with regulatory requirements by Medicare.

              The CQI process is a vital part of the quality improvement process
              of the Facility and the Medical Director is expected to
              participate in this process. Three levels of participation are
              provided for but a High level of participation is expected as
              medical Directors become knowledgeable and proficient with the CQI
              process. The Chief Medical Officer (CMO) and his staff are
              available as resources.

         -    20% based on patient satisfaction with the Facility. The Patient
              Satisfaction Survey will be conducted in the spring of each year
              and the results made available to the Facilities and Medical
              Directors. The Medical Director, as the clinical leader, and the
              Facility Manager, are held responsible for the performance of
              the staff of the Facility. Although not directly under the
              control of the Medical Director, he/she is expected to be a
              positive influence on the staff and their performance in the
              Facility.

         Completion of the duties should be documented in some manner, in
addition to a check mark on the grid sheet, further described in Section 5.
Common tools of documentation include minutes from meetings, a personal Medical
Director notebook, or dictated notes kept in the Facility. The Facility Manager
(or an RCG designee) must concur that the line item on the check list was
completed and initial the monthly grid sheet, with the Medical Director. This
indicates that the line item was completed to the satisfaction of both parties.
The grid sheet and related documentation is the property of the Medical
Director; a copy of the grid sheet should be forwarded monthly to the office of
the Associate Medical Officer for monitoring purposes and for use in the annual
Medical Director evaluation. The Medical director will be held accountable for
meeting facility outcome criteria. Failure to improve outcomes, as measured by
the annual Medical Director evaluation, especially when in the 4th Quartile of
performance, will result in a request for a written explanation to the CMO.



                                       16



Clinical Performance Measures (50%)

Hemodialysis Medical Director

(evaluation based on annual rolling average of prior year)

         - URR (% of patients with URRs >=70%)             >80% =10 points
           RCG average 72.9%                             75-80% = 8 points
           BEST REGION 80.7%                           70-74.9% = 6 POINTS
                                                       65-69.9% = 4 points
                                                           <65% = 0 points

- -          Hematocrit (% of Hcts >=33%)                    >85% =10 points
           RCG average 74.6%                             80-85% = 8 points
           Best Region 78.4%                           75-79.9% = 6 points
                                                       70-74.9% = 4 points
                                                       65-69.9% = 2 points
                                                           <65% = 0 points

- -    Hospitalization (91+ days, based on days per patient year at risk)
           RCG average 12.1 days                       <10 days = 8 points
           Best Region 9.4 days                    10-14.9 days = 6 points
                                                     15-20 days = 2 points
                                                       >20 days = 0 points


         - Mortality (91+ days, based on deaths per 100 patient years at risk)
           RCG average 22.1                                 <20 = 8 points
           Best Region 17.5                             20-23.9 = 6 points
                                                        24-29.9 = 4 points
                                                          30-35 = 2 points
                                                            >35 = 0 points

         - Vascular Access:
           - % of temporary catheters                      <10% = 8 points
             RCG average 25.5%                         10-14.9% = 6 points
             Best Region 17.4%                         15-19.9% = 4 points
                                                         20-25% = 2 points
                                                           >25% = 0 points

           - % native AV fistulas                           >43 = 8 points
             RCG average 29.8%                         38-42.9% = 6 points
             Best Region 42.9%                         33-37.9% = 4 points
                                                       28-32.9% = 2 points
                                                           <28% = 0 points



                                       17


         - PTFE clotting events/patient year                <0.3 = 10 points
           RCG average 0.8                              0.3-0.59 =  8 points
           Best region 0.4                              0.6-0.99 =  6 points
                                                         1.0-1.2 =  4 points
                                                            >1.2 =  0 points

Peritoneal Dialysis Medical Director

(valuation based on annual rolling average of prior year)

         - KT/V  (>=2.1)
           RCG average 76.8% CAPD
           RCG average 88.1% CCPD                            >78 = 15 points
                                                          63-78% = 12 points
                                                        68-62.9% = 10 points
                                                        63-67.9% =  8 points
                                                        58-62.9% =  5 points

         - Creatinine Clearance (>=60L CAPD or >=60 L CCPD)
           RCG average 81.2% CAPD                            >75 = 15 points
           RCG average 75.2% CCPD                         70-75% = 12 points
           Weighted average 78.2%                       65-69.9% = 10 points
                                                        60-64.9% =  8 points
                                                        55-59.9% =  5 points

         - Hematocrit (% of Hcts >=33%)                     >85% =10 points
           RCG average 74.6%                              80-85% = 8 points
           Best Region 78.4%                            75-79.9% = 6 points
                                                        70-74.9% = 4 points
                                                        65-69.9% = 2 points
                                                            <65% = 0 points

         - Hospitalization (91+ days, based on days per patient year at risk)
           RCG average 12.1 days                        <10 days = 8 points
           Best Region 9.4 days                     10-14.9 days = 6 points
                                                      15-20 days = 2 points
                                                        >20 days = 0 points

         - Mortality (91+ days, based on deaths per 100 patient years at risk)
           RCG average 20.7                                  <20 = 8 points
           Best Region 15.5                              20-24.9 = 6 points
                                                         24-29.9 = 4 points
                                                           30-35 = 2 points
                                                             >35 = 0 points



                                       18



      -  Peritonitis (new cases + relapse)
         RCG average 14.9 months between cases
         Best Region 16.9 months between cases

         >25 months between cases                     15 points
         20-25 months between cases                   12 points
         15-19.9 months between cases                  9 points
         10-14.9 months between cases                  6 points
         >10 months between cases                      0 points

Combination Hemodialysis & Peritoneal Medical Director

For those physicians who oversee both modalities, each is evaluated using the
above criteria. The overall Clinical Quality is then a composite of these,
weighted to reflect the numbers of patients in each modality.

MEDICAL DIRECTOR ADMINISTRATIVE TASKS (30%)

The completion of administrative tasks must be documented by the Medical
Director on a monthly basis. It is important that both the Facility Manager and
the Medical Director document completion of the required tasks. Other Medical
Director functions including such things as meeting with surgeons regarding
access, goals, attendance at medical meetings and literature review regarding
ESRD issues, etc, should also be noted in this record as well, since this
contributes to a high quality Facility.

Participation in monthly review:

        -       Review staffing & training issues impacting patient outcomes
                with Manager
        -       Review water quality
        -       Review dialyzer reuse at the Facility
        -       Review monthly lab of patients below quality goals & develop
                plan
        -       Review trend in hospitalizations, infections
        -       Review temporary catheter usage & trend
        -       Review patient incident reports & trends
        -       Monitor staff physician patient rounding process
        -       Adequacy of staff physician medical documentation

Participation in CQI process:

        -       The CQI process should be a routine process in the facility
                striving to improve its outcomes. As physicians learn this
                process, Medical Directors are expected to participate at higher
                levels. In the meantime, Low, Medium and High participation
                levels may be chosen on the Performance grid, depending on the
                physician's comfort with the process.


                                       19



Participation in Professional Staff process:

        -       Participate in the Quarterly Quality conference calls, which
                have physician CME available.

Annual checklist:

        -       Review and approve facility Policy and Procedures and make
                necessary modifications; review and approve clinical protocols.
        -       Review patient satisfaction data annually and in concert with
                the Facility Manager make recommendations for improvement.
        -       Participate with the Manager in the Budget process for the
                Facility.
        -       Participate in Facility surveys by regulatory agencies.

Patient Satisfaction Surveys (PSS) (20%)

The Satisfaction Survey will be conducted in the spring of each year and results
forwarded to each Facility for review and discussion regarding potential areas
of improvement.

        CAREGIVER:
              RCG AVERAGE IN-CENTER 3.43
                            PSS >3.5                       = 8 points
                            PSS >=3.25 and <3.5            = 6 points
                            PSS >=3.0 and <3.25            = 4 points
                            PSS >2.5 and <3.0              = 2 points
                            PSS <2.5                       = 0 points

         RCG average Home 3.75
                            PSS >3.5                       = 8 points
                            PSS >=3.25 and <3.5            = 6 points
                            PSS >=3.0 and <3.25            = 4 points
                            PSS >2.5 and <3.0              = 2 points
                            PSS <2.5                       = 0 points

              Physician:
              RCG AVERAGE IN-CENTER 3.27
                            PSS >3.5                       = 8 points
                            PSS >=3.25 and <3.5            = 6 points
                            PSS >=3.0 and <3.25            = 4 points
                            PSS >2.5 and <3.0              = 2 points
                            PSS <2.5                       = 0 points

         RCG average Home 3.67
                            PSS >3.5                       = 8 points
                            PSS >=3.25 and <3.5            = 6 points
                            PSS >=3.0 and <3.25            = 4 points
                            PSS >2.5 and <3.0              = 2 points



                                       20



         DIETICIAN:
         RCG average In-Center 3.27
                            PSS >3.5                       = 4 points
                            PSS >=3.25 and <3.5            = 3 points
                            PSS >=3.0 and <3.25            = 2 points
                            PSS >2.5 and <3.0              = 1 points

         RCG average Home 3.67
                            PSS >3.5                       = 4 points
                            PSS >=3.25 and <3.5            = 3 points
                            PSS >=3.0 and <3.25            = 2 points
                            PSS >2.5 and <3.0              = 1 points

         SOCIAL WORKER:
         RCG average In-Center 3.40
                             PSS >3.5                      = 4 points
                             PSS >=3.25 and <3.5           = 3 points
                             PSS >=3.0 and <3.25           = 2 points
                             PSS >2.5 and <3.0             = 1 points

         RCG average Home 3.51
                             PSS >3.5                      = 4 points
                             PSS >=3.25 and <3.5           = 3 points
                             PSS >=3.0 and <3.25           = 2 points
                             PSS >2.5 and <3.0             = 1 points

         FACILITY:
         RCG average: In-Center 3.24
                            PSS >3.5                       = 4 points
                            PSS >=3.25 and <3.5            = 3 points
                            PSS >=3.0 and <3.25            = 2 points
                            PSS >2.5 and <3.0              = 1 points

         RCG average Home 3.58
                            PSS >3.5                       = 4 points
                            PSS >=3.25 and <3.5            = 3 points
                            PSS >=3.0 and <3.25            = 2 points
                            PSS >2.5 and <3.0              = 1 points



                                       21

EX-21.1

                                                                  EXHIBIT 21.1




                       RENAL CARE GROUP, INC. SUBSIDIARIES

1.     RCG Mississippi, Inc.
2.     Renal Care Group of the Midwest, Inc.
3.     Renal Care Group Texas, Inc.
4.     RCG University Division, Inc.
5.     Renal Care Group of the Southeast, Inc.
6.     Renal Care Group East, Inc.
7.     Renal Care Group Arizona, Inc.
8.     Northeast Alabama Kidney Clinic, Inc.
9.     Dialysis Management Corporation
10.    RCG PA Merger Corp.
11.    RCG Indiana, LLC
12.    RenaLab, Inc.
13.    RCG Finance, Inc.
14.    RenalPartners, Inc.
15.    RenalNet, Inc.
16.    R.C.G. Supply Company
17.    RCG Brandon, LLC
18.    RCG Southaven, LLC
19.    Southern Ocean County Dialysis Clinic, LLC
20.    Renal Institute of Central Jersey, LLC
21.    Saint Louis Renal Care, LLC
22.    Saint Louis Supply Company, LLC
23.    Ohio Renal Care Group, LLC
24.    Ohio Renal Care Supply Company, LLC
25.    Elyria Renal Care, LLC
26.    STAT Dialysis Corporation
27.    Brownsville Kidney Center, Ltd.
28.    El Paso Kidney Center East, Ltd.
29.    Angleton Dialysis, Inc.
30.    Brazoria Kidney Center, Inc.
31.    Fondren Dialysis Clinic, Inc.
32.    Wharton Dialysis, Inc.
33.    Stuttgart Dialysis, LLC
34.    KDCO, Inc.
35.    Little Rock Dialysis, Inc.
36.    Jefferson County Dialysis, Inc.
37.    Lawton Dialysis, Inc.
38.    Northwest Dialysis, Inc.
39.    Four State Regional Dialysis Center, Inc.
40.    Fort Scott Regional Dialysis Center, Inc.
41.    Miami Regional Dialysis Center, Inc.
42.    RCG/Saint Luke's, LLC
43.    Hutchison Dialysis, LLC
44.    Renal Care Group Michigan, Inc.
45.    RCG Martin, LLC
46.    Renal Care Group Northwest, Inc.
47.    Pacific Northwest Renal Services, LLC
48.    Michigan Home Dialysis Center, Inc.
49.    RCG Columbus, L.L.C.
50.    RCG Lake Village, LLC
51.    Summit Renal Care, LLC
52.    RenalNet Arizona, Inc.
53.    Wisconsin Renal Care Group, L.L.C.
54.    SSKG Inc.
55.    Dialysis Centers of America - Illinois, Inc.
56.    Renal Care Group Alaska, Inc.
57.    Renal Care Group Southwest Holdings, Inc.
58.    Renal Care Group Southwest, L.P.
59.    RCG West Health Supply, L.C.
60.    Kidney Disease Centers of the Ozarks, LLC
61.    Renal Care Group Beaumont, L.P.
62.    Renal Care Group Ohio, Inc.
63.    Physicians Dialysis Company, Inc.
64.    Diabetes Care Group, Inc.
65.    RCG Memphis, LLC
66.    Renal Care Group-Harlingen, L.P.
67.    Renal Care Group South New Mexico, LLC
68.    Overland Trails Renal Care Group, LLC
69.    THC/PNRS, LLC
70.    Inland  Northwest Renal Care Group, LLC
71.    Three Rivers Dialysis Services, LLC
72.    Lakewood Dialysis Services, LLC
73.    RCG Arlington Heights, LLC
74.    Maumee Dialysis Services, LLC
75.    Renal Dimensions, LLC
76.    Arizona Renal Investments, LLC
77.    Renal Care Group Central Memphis, LLC
78.    RCG Memphis East, LLC
79.    RCG Tunica, LLC
80.    Renal Care Group of the Rockies, LLC
81.    Renal Care Group Tupelo, LLC
82.    Columbus Area Renal Alliance, LLC
83.    Kentucky Renal Care Group, LLC
84.    Dialysis Licensing Corp.
85.    RCGIH, Inc.
86.    RCG Bloomington, LLC
87.    RCG Memphis South, LLC
88.    RCG Houston, LLP

EX-23.1

                                                                    EXHIBIT 23.1



               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-03886, Form S-8 No. 333-37299, Form S-8 No. 333-74565, Form
S-8 No. 333-96197, Form S-8 No. 333-37658 and Form S-8 No. 333-72778) pertaining
to the Renal Care Group, Inc. Employee Stock Purchase Plan, the Renal Care
Group, Inc. 1996 Stock Option Plan, the Renal Care Group, Inc. 1996 Stock Option
Plan for Outside Directors, the Renal Care Group, Inc. 1994 Stock Option Plan,
the Renal Care Group, Inc. Third Amended and Restated Stock Incentive Plan, the
Renal Care Group, Inc. Fourth Amended and Restated 1996 Stock Incentive Plan,
the Dialysis Centers of America, Inc. Equity Compensation Plan, the Renal Care
Group, Inc. 1999 Long-Term Incentive Plan, the Renal Disease Management by
Physicians, Inc. Amended and Restated 1997/1998 Stock Plan, and the Renal Care
Group, Inc., Amended and Restated 1999 Long-Term Incentive Plan of our report
dated February 24, 2003, with respect to the consolidated financial statements
and schedule of Renal Care Group, Inc. included in the Annual Report (Form 10-K)
for the year ended December 31, 2002.



                                         /s/ Ernst & Young LLP


Nashville, Tennessee
March 14, 2003