Standards of Business Conduct

Manor Care, Inc.                                                           November 2003    

Manor Care, Inc. and its subsidiary organizations ("HCR Manor Care" or "Company") are dedicated to providing the highest quality in long-term care and related services. The Company is committed to achieving this vision by conducting its operations in compliance with applicable legal, regulatory and ethical standards. This statement is a summary of those standards of business conduct which all Company employees are expected to observe. All officers, managers, department heads, salaried employees, appropriate accounting employees and other personnel designated by the Company ("employees"), shall acknowledge their receipt and understanding of this statement and periodically shall confirm their understanding when requested by the Company.

Each employee is expected to understand and comply with the Standards. However, no set of principles or standards can anticipate each and every situation that may raise legal or ethical considerations. In the event an employee is not sure whether what they have been asked to do or what they contemplate doing is or is not legal or ethical, the employee must ask before he/she acts. In such a situation, the employee can ask the employee's immediate supervisor, next highest supervisor, any member of the Corporate Compliance Committee, the Privacy Officer or the HCR Manor Care Care Line. When in doubt, employees must ask before they act.

A. Compliance with Laws and Regulations

The Company and its employees acknowledge that the health care industry is a highly regulated sector of the economy and certain business practices that are permissible elsewhere may be illegal for health care providers. To facilitate compliance with all applicable laws and regulations, the Company has developed operating and administrative policies and procedures which contain detailed guidance on legal requirements. The Company regularly provides training and education on these policies and procedures and the underlying regulatory provisions. Corporate consultants assist nursing centers and other operations and their staffs in ensuring that daily operations are conducted within the appropriate legal framework. The Company's Legal Department is available to all employees for advice and guidance on compliance with applicable laws. Employees are required to perform their duties and responsibilities in compliance with applicable laws and regulations and with the Company policies and procedures that are designed to facilitate compliance.

Several federal laws, and corresponding or similar state laws, are particularly applicable to health care providers. Employees are strictly forbidden from engaging in any conduct which violates such laws and are subject to immediate disciplinary action if such misconduct takes place. These federal laws include the following.

Any knowingly false statement to a department or agency of the federal government is a crime. The federal False Claims Act specifically makes the submission of false claims to Medicare or Medicaid a crime. Violations of this statute include claims for services that are not medically necessary, claims for services that may be medically necessary but are not covered by Medicare (e.g. experimental procedures), using a code for a higher level of reimbursement than the code for the services actually provided, billing for one global procedure as a number of smaller ones to obtain a higher total level of reimbursement and knowingly providing false information on cost reports or any other documents or reports filed with Medicare or Medicaid. In addition, knowingly creating false documentation in medical, financial or employee records, or in other business records maintained by the Company, is strictly prohibited by Company policy.

The Medicare and Medicaid Anti-Kickback Act and many comparable state laws prohibit anyone from providing or offering to provide any remuneration in cash or in kind, directly or indirectly, in return for the referral of a patient whose treatment (item or service) is paid for in whole or in part by Medicare or Medicaid. Illegal kickbacks can take a wide variety of forms. They can be blatant direct payments for referrals or they can be more subtle and indirect (e.g., rebates, income guarantees, care or other expense allowances, cost-free loans, paid-for vacations, etc.). The language of the anti-kickback statute is broad, and many seemingly innocuous business practices may be deemed to be illegal kickbacks by the government. Certain business practices may be exempt under specific circumstances. In uncertain cases, the advice of the Company's Legal Department shall be sought before engaging in the business practice.

Federal anti-fraud statutes are not limited to Medicare and Medicaid. The federal mail and wire fraud statutes make it a crime to use the mails or interstate wire communication (telephone) in furtherance of a scheme to defraud, or to obtain money or property through false or fraudulent pretenses or representations. Nearly every form of health care fraud (e.g., billing for services not provided, for services not provided as claimed, or for unnecessary services) can be attacked under these statutes, if the mails or interstate wire communications are used. Fraudulent and deceptive practices can take many forms, and employees must be careful not to make misrepresentations to suppliers, private insurers or government agencies.

Violations of the above laws and related federal and state laws can subject individuals and the Company to penalties and fines, and convicted individuals may be punished by imprisonment. As stated earlier, employees are strictly forbidden from engaging in such misconduct. The Company will not employ or contract for services with any person or entity that has been convicted of a criminal offense related to a government program or who is known to have been debarred or excluded from participation in a government program or otherwise sanctioned by a federal agency.

B. Confidential and Proprietary Information

1.  General. HCR Manor Care, like all companies, has proprietary and confidential information which should not be disclosed to our competitors or to the general public. Examples of such proprietary information are business, research and new product and service plans; facility profit and loss information; facility forms, policies and procedures; product systems and methods; vendor lists and detailed information regarding customer or vendor requirements; and unpublished financial and pricing (rates) information. All employees have an obligation to keep such proprietary information confidential so as not to harm the Company. Congress passed a privacy law to protect patients and their health information from unlawful disclosures. Any disclosures of medical records or other information concerning our residents could be the basis for legal action against the Company and the employee disclosing the information. Therefore, employees shall not, without proper authority, give or release data or information concerning the Company or its employees, patients, residents, customers, vendors or contractors to anyone not employed by the Company. Such information may be disclosed to other employees only if there is a proper business purpose for such disclosure. The Legal Department or Privacy Officer should be consulted on any questions concerning disclosure of potential proprietary or confidential information.

2.  Inside Information. Employees who possess material, non-public information about the Company which could affect the Company's stock price or otherwise influence an individual investor's decision to buy or sell the Company's stock must refrain from trading in the Company's stock until a reasonable period of time (usually, until the third business day) has passed following the public disclosure of the information. Typically, material information will be non-public information about the Company's financial performance and other major developments concerning the Company. In uncertain situations, employees should review any proposed sale or purchase of the Company's stock with the Legal Department prior to executing the trade.

3.  Business Opportunities. Employees shall not take advantage of business opportunities that the Company or any of its customers are interested in pursuing without prior approval by the Company. This prohibition extends to real estate or health care facilities which the Company may be interested in buying or leasing.

C. Outside Business Interests

Employees shall avoid any outside financial or business interest that might influence their decisions or actions on behalf of the Company unless such interest has been fully disclosed in writing to the Company and a determination has been made as to the acceptability of the interest. Such outside interest could include, among other things:

1. A personal or family business or financial interest in an enterprise which has business relations with the Company if such financial interest represents a material part of the employee's net worth or income, or if such business relations with the Company represent a material part of the business of the outside enterprise, or

2. An investment in another business which competes with any of the Company's interests if the investment represents a material part of the income or net worth of the individual, or if the area of competition represents a material part of the activity of the outside business. Generally, the ownership of less than 1 percent of the stock of a publicly traded company shall not be considered a conflict of interest.

Employees shall also avoid outside employment or activities that would impair the effective performance of their responsibilities to the Company, either because of excessive demands on their time, or because the outside commitment is inconsistent or adverse to the interests of the Company. Any employee who may have a potential conflict of interest should disclose it to the Company and have the matter resolved prior to the matter becoming an actual conflict.

D. Competitive Practices

The Company firmly believes that fair competition is fundamental to the free enterprise system. The Company complies with and supports all laws that prohibit restraints of trade, unfair practices or abuse of economic power.

The Company will not enter into agreements or arrangements that unlawfully restrict its ability to compete with other businesses or the ability of any other business to compete freely with the Company. Company policy also prohibits entering into, or even discussing, any unlawful arrangement or understanding that might affect its pricing policies or the terms upon which its facilities or services are sold or that might be construed as dividing customers or sales territories with a competitor.

We will compete fairly in the marketplace. Thus, the Company will not interfere with contracts made between a prospective customer and one of our competitors nor will the Company engage in marketing practices that are intended to injure or discredit a legitimate competitor through the use of misrepresentations or false innuendo.

These principles of fair competition are basic to all our operations. They are integral parts of the following sections that cover the Company's dealings with suppliers, customers and public officials.

E. Dealings with Suppliers

The Company is a valuable customer for many suppliers of goods and services. Those who wish to do business with the Company must understand that all purchases by the Company will be made exclusively on the basis of price, quality, service and suitability to the Company's needs. Purchases of goods or services must not lead to Company employees or their families receiving personal benefits of any kind, whether direct or indirect.

Gifts or entertainment involving customers and suppliers can be misunderstood even if exchanged out of the purest of motives. Such practices can appear to be attempts to influence our employees into directing Company business to a particular supplier. To avoid even the appearance of improper relations with suppliers or potential suppliers, the following standards shall apply to the receipt of gifts and entertainment by Company employees:

1. Gifts or Other Benefits. Employees are prohibited from soliciting gifts, gratuities, or any other personal benefit or favor of any kind from suppliers or potential suppliers. Employees are prohibited from accepting gifts of money or gifts which have significant monetary value (e.g., transportation or lodging for vendor meetings). Employees may accept unsolicited non-money gifts provided that such gifts are of nominal material value.

Any gift of more than nominal value must be reported to your supervisor. Some gifts may be perishable so as to make their return impractical. Supervisors can permit acceptance of such gifts, or may require that such gifts be returned or donated to charitable or other non-profit organizations. Supervisors may also require employees to inform givers that such gifts are discouraged.

2. Entertainment. Employees shall not encourage or solicit any entertainment from any individual or company with whom our Company does business. Entertainment includes, but is not limited to, activities such as dinner parties, theater parties and sporting events.

From time to time, employees may accept unsolicited entertainment, but only under the following conditions:

a. The entertainment occurs infrequently;

b. It arises out of the ordinary course of business;

c. It involves reasonable and not lavish expenditures; and

d. The entertainment takes place in settings that are reasonable, appropriate and fitting to employees, their hosts and the business at hand.

3. Vendor-Sponsored Events. From time to time, Company vendors or suppliers may invite employees to vendor-sponsored luncheons, trade shows, educational seminars or similar events. Prior to accepting any such invitation, the employee shall obtain approval from his or her supervisor.

F. Dealings with Residents, Patients, Families and Other Customers

Employees must keep all dealings with residents, patients, the families of residents and patients, and other potential customers fair and above-board. The Company earns and retains business because of the quality of its facilities and services. Residents, patients or family members should never think that they have to give gifts to get good service. Under no circumstances should we, as individual employees, ever solicit or accept any gifts from residents, patients or family members. All offers of gifts from residents, patients or their families must be declined and reported to the facility administrator or executive director.

If a resident or a family member wants voluntarily to recognize a group of employees or the facility generally, they can contribute a gift that is used for the benefit of all facility employees. The facility administrator or executive director must ensure that the gift is voluntary and that it goes to benefit the employees as a group.

G. Dealings with Referral Sources or Potential Customers

The Company must be extra careful on the subject of gifts and entertainment involving referral sources or other potential customers. Such care is required because federal law and the laws in many states prohibit any payment for patient referrals, and gifts or lavish entertainment could be mistakenly construed as payment for such referrals. Generally, the following guidelines would apply to such gifts and entertainment.

Entertainment for potential customers or referral sources may only be provided with supervisory approval. Entertainment must be of sufficiently limited value so that the entertainment cannot be construed as a referral fee, kickback, bribe or payoff. Entertainment must also be consistent with accepted ethical customs and practices, and public disclosure of the facts would not embarrass the Company. Entertainment shall be limited to activities and events which are considered normal and acceptable in conjunction with the related business transaction. In uncertain situations, the Legal Department should be consulted prior to arranging the entertainment.

Gifts to referral sources or other potential customers of more than nominal value are not permitted. Even in the case of gifts of nominal value, other than nominal public relations items with the Company logo or name (e.g., coffee mug, calendar), employees should first receive approval from their supervisor. Obviously, gifts of cash or cash equivalents, in whatever amount, are never permitted.

In some situations, the Company may itself be a referral source. Given that it is illegal both to receive payment for a referral or to give such payment, the above rules apply to Company employees where the Company is the referral source.

H. Dealings with Public Officials

The regulatory nature of the Company's business often requires employees to be in contact with public officials. The employees who regularly make these contacts have special responsibilities for upholding the Company's good name. The following standards point out these special responsibilities:

1. No employee shall make any form of payment, direct or indirect, to any public official as inducement for any official action or omission to act. The Company will never pay a bribe. Any requests to Company employees that appear to be attempts at bribery must be reported immediately to your supervisor and to the Compliance Committee.

2. No employee shall give any gifts to a public official.

3. Employees may provide public officials with items containing the Company logo (such as pins, caps, mugs, notebooks, etc.) if the items are part of the Company's general marketing and public relations programs, are of nominal value and are given for informational purposes only.

4. On special ceremonial occasions, the Company may publicly give gifts of more than nominal value to public institutions or public bodies. Such gifts can commemorate special events or milestones in the Company's history, such as a new facility dedication. These may be transmitted through public officials, but the gifts are given to the public institutions and public groups they represent, not to the officials personally. Any such gifts must be approved in advance by the Company's President, Chief Operating Officer or Chief Financial Officer.

5. From time to time, employees may entertain public officials to the extent permitted by law, but only if the entertainment is not solicited by the public official, the entertainment occurs infrequently and it arises out of the ordinary course of business. Supervisory approval must be obtained prior to arranging the entertainment. The entertainment must not involve lavish expenditures under the circumstances, and the settings and types of entertainment must be reasonable, appropriate and fitting to our employees, their guests and the business at hand. In uncertain situations, the Legal Department should be consulted prior to arranging the entertainment.

I. Political Activities and Contributions

The HCR Employees Good Citizenship Fund has been established for the purpose of enabling our employees conveniently to make political contributions to the extent permitted by law. Contributions to the fund are completely voluntary. When prohibited by law, employees shall not use Company funds for contributions of any kind to any political party, political action committee, or any candidate for any office of any national, state or local government. When Company funds lawfully may be used for political contributions, all such contributions must be approved by senior officers.

The Company encourages individuals on their own behalf to become involved in political and civic affairs. Employees who participate in partisan political activities must make every effort to ensure they do not leave the impression that they speak or act for the Company. The Company will not infringe on the right of any employee to decide whether, to whom and in what amount he or she will make personal political contributions. The same is true of volunteer political activity so long as it does not interfere with the employee's work for the Company.


J. Proper Accounting and Candor in Dealing with Auditors

Compliance with generally accepted accounting rules and internal controls is expected at all times. The Company policies and procedures as outlined in the accounting manuals and supporting memoranda are to be followed without exception. The financial records of the Company must always reflect the transactions they are intended to record. All appropriate assets and liabilities shall be recorded in the regular books of the Company. Employees are forbidden to use, authorize or condone the use of unrecorded bank accounts, unauthorized cash accounts (slush funds), improper adjustments to the accounts of the Company, falsified books or any other devices that could be utilized to distort the records or reports of the Company’s true operating results and financial condition. Complete candor is required with the Company’s independent and internal auditors.

The Company’s Chief Financial Officer or Controller shall be consulted for advice on how to handle any uncertain matters.

K. Company Assets

All employees are responsible for safeguarding Company assets. Each employee must ensure that Company expenditures are utilized for legitimate business purposes, with proper record keeping for all Company funds spent. Company assets must be used for Company business and not for the personal benefit of any individual. Any suspected misuse of Company assets must be reported to your supervisor.

L. Patient Trust Funds

In no case shall patient trust fund monies be used for any purpose other than those described in the patient trust fund policy of the Company. Patient trust funds are for the exclusive use of the patient and can be used only upon written approval of the patient or the patient's official guardian.

M. Petty Cash and Vending Machine Income

Petty cash levels will be established by the Company. Petty cash shall be used only for appropriate business purposes.

Vending machine income shall be deposited only into the revenue account of the facility and shall not be used or spent for any purpose by facility personnel.

N. Government Investigations

The Company has a policy of cooperating with all government inquiries, requests for information or investigations. In addition, the Company expects all employees to also cooperate. In order to make certain that all government inquiries, requests for information and investigations are handled in a coordinated and efficient manner, all such matters should be reported immediately to your supervisor, the Legal Department or the Compliance Committee. (Routine government contact, such as state health department surveys and reimbursement audits, should be handled pursuant to normal Company policy.) When contacted by a government official or agent, whether such contact is during business hours or after business hours at home, an employee should request identification, obtain the agent's name and telephone number, and stress that the Company will cooperate and that an appropriate management employee will be in prompt contact. The employee should make certain to contact their supervisor or a member of the Compliance Committee as soon as possible.

O. Compliance with Standards

1. Initial Distribution. Current employees designated to receive these Standards will receive their copies immediately after publication. Future employees designated to receive these Standards will receive their copies at the time they are hired.

2. Initial Verification. Upon receiving a copy of the Standards, current and future employees shall:

a. Become thoroughly familiar with the Standards.

b. Resolve any doubts or questions about the Standards with their supervisors Supervisors should consult with the Company's Legal Department on any activities or practices that might raise questions.

c. Inform their supervisors of any existing holdings or activities which might be, or appear to be, at variance with the Standards Employees shall cooperate in implementing appropriate corrective action which shall be approved by the supervisor and the Legal Department if necessary.

d. Prepare written disclosures of such information, if requested by supervisors.

e. Sign the verification form and return it to their supervisor who will make it a part of each employee's permanent record.

3. Maintaining Compliance. Employees have the responsibility of understanding all of the Standards and complying with them. Supervisors have the responsibility of maintaining an awareness on the part of their employees of the importance of complying with the Standards. Employees and supervisors will be asked periodically to confirm their understanding of the Standards and their compliance with them.

P. Reporting Violations of Standards

Employees have the obligation to report violations of the Standards that they observe or that are made known to them, including any issues regarding accounting, internal accounting controls or auditing. Failure to do so can have serious consequences for the employees and the Company. Reports should be made by employees to their supervisor, the Compliance Committee, the Privacy Officer or to the HCR Manor Care Care Line (800) 366-1232. Reports can be made confidentially and anonymously; however, employees should realize that anonymous reports may make it difficult (or in some cases impossible) to conduct an effective investigation. Employees may be requested to submit a written report setting forth the facts of the alleged violations. The Company shall endeavor to maintain the confidentiality of individuals reporting violations of these Standards, consistent with the Company's obligation to investigate violations and/or to report improper activity to the appropriate authorities. The Company will not tolerate any form of retaliation or discrimination against any individual reporting violations of the Standards.

Any employee who reports a violation that has not been properly addressed by his supervisor should contact a member of the Company's Compliance Committee. The names and phone numbers of Committee members are posted in each facility.

Supervisors who receive a report of a serious violation of these Standards should notify a member of the Compliance Committee. Management has the right to determine what disciplinary action will be taken for a violation, ranging from an oral reprimand to termination. Proposed disciplinary action is subject to review by senior management. Employees should be aware that, in addition to any disciplinary action taken by the Company, violations of some Standards may require restitution and may lead to civil or criminal action against individual employees.