SETTLEMENT AGREEMENT

Exhibit 10.1

SETTLEMENT AGREEMENT

I. PARTIES

This Settlement Agreement (Agreement) is entered into among the United States of America, acting through the United States Department of Justice and on behalf of the Department of Health and Human Services (HHS) (collectively the "United States"); A. Scott Pogue (Relator); and American Healthways Services, Inc., f/k/a Diabetes Treatment Centers of America, Inc. and its parent, Healthways, Inc. (Collectively, "DTCA") (hereafter referred to as "the Parties"), through their authorized representatives. A

II. PREAMBLE

As a preamble to this Agreement, the Parties agree to the following:

A.            In the late 1980s and 1990s, DTCA operated diabetes treatment centers in various hospitals located around the country.

B.         On or about June 23, 1994, Relator, A. Scott Pogue, filed a qui tam action pursuant to the False Claims Act, 31 U.S.C. §§ 3729 et seq. in the United States District Court for the Middle District of Tennessee captioned United States ex rel. A. Scott Pogue v. American HealthCorp., Inc., Diabetes Treatment Centers of America, et al. , Civil Action, No. 3-94-0515 (M.D. Tenn). This matter was subsequently transferred to the District of Columbia as part of a Multi-District Litigation (MDL), captioned United States ex rel. A. Scott Pogue v. Diabetes Treatment Centers of America, et al., Case No. 99-3298 (D.D.C.), and is in the process of being remanded back to the Middle District of Tennessee (hereinafter “the Civil Action”).

C.         The United States declined to intervene in the Civil Action on or about February 6, 1995, and the Relator has litigated the claims of the United States against DTCA pursuant to 31 U.S.C. § 3730.

D.         The Relator contends that he and the United States have certain civil claims against DTCA. Specifically, the Relator, a former employee of DTCA, alleged that between 1984 and 1996, DTCA entered into contracts with more than 100 hospitals across the country to operate diabetes treatment centers within those hospitals. Relator also alleged that between 1984 and 1996, DTCA entered into contracts with more than 270 physicians to serve as medical directors at its diabetes treatment centers. Relator alleges that as a result of those contracts, physicians received remuneration in exchange for patient referrals in violation of the Anti-Kickback Act, 42 U.S.C. § 1320-7b(b), which thereby caused treating hospitals to submit false claims to the Medicare and Medicaid programs in violation of the False Claims Act, 31 U.S.C. §§ 3729-33 (hereinafter referred to as the Covered Conduct).

E.         On February 22, 2007, the Relator filed a petition for bankruptcy protection pursuant to Chapter 11 of the Bankruptcy Code, which case is captioned In re Scott Pogue , Case No. 07-00838-TBB-11 (United States Bankruptcy Court for the Northern District of Alabama) (the "Bankruptcy Action"). As part of the Bankruptcy Action, all rights of Relator in the Civil Litigation have been transferred to James G. Henderson, Liquidation Trustee ("Liquidation Trustee").

F.          DTCA denies and disputes the allegations of the Relator. This Agreement is neither an admission of liability by DTCA nor a concession that the claims asserted on behalf of the United States are not well founded.

G.         To avoid the delay, uncertainty, inconvenience, and expense of protracted litigation of the above claims, the Parties reach a full and final settlement pursuant to the Terms and Conditions below.

III. TERMS AND CONDITIONS

1.          Healthways, Inc. agrees to pay to the United States $28,000,000 (the "Settlement Amount"). The foregoing payment shall be made as follows:

a.         DTCA agrees to pay the full Settlement Amount to the United States by electronic funds transfer pursuant to written instructions to be provided by the Department of Justice. DTCA agrees to make this electronic funds transfer no later than seven business days after the Effective Date of this Agreement.

b.         Contingent upon the United States receiving the Settlement Amount from DTCA and as soon as feasible after receipt, the United States agrees to pay $8,120,000 to Relator by electronic funds transfer.

2.         Subject to the exceptions in Paragraph 4 below (concerning excluded claims), in consideration of the obligations of DTCA in this Agreement, conditioned upon DTCA's full payment of the Settlement Amount and subject to Paragraph 12, below (concerning bankruptcy proceedings commenced within 91 days of the Effective Date of this Agreement or any payment made under this Agreement), the United States (on behalf of itself, its officers, agents, agencies, and departments) agrees to release DTCA together with its current and former parent corporations; direct and indirect subsidiaries; brother or sister corporations; divisions; current or former owners; and officers, directors, employees, and affiliates; and the successors and assigns of any of them from any civil or administrative monetary claim the United States has or may have for the Covered Conduct under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Civil

Monetary Penalties Law, 42 U.S.C. § 1320a-7a; the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-3812; or the common law theories of payment by mistake, unjust enrichment, restitution and fraud.

3.         Subject to the exceptions in Paragraph 4 (concerning excluded claims), below, in consideration of the obligations of DTCA in this Agreement, conditioned upon DTCA's full payment of the Settlement Amount, and subject to Paragraph 12, below (concerning bankruptcy proceedings commenced within 91 days of the Effective Date of this Agreement or any payment made under this Agreement), Relator and the Liquidation Trustee, for Relator and for Relator's heirs, successors, attorneys, agents, and assigns, agree to fully and finally release DTCA together with its current and former parent corporations; direct and indirect subsidiaries; brother or sister corporations; divisions; current or former owners; officers, directors, employees and affiliates; and all hospitals and physicians with which DTCA did business, to and only to the extent of any claim predicated on the relationship between such hospital or physician and DTCA; and the successors and assigns of any of them from any claim he has asserted, could have asserted or may assert in the future related to the Covered Conduct, and any other claim the Relator has asserted, could have asserted or may assert in the future related to the Civil Action, known and unknown, with the exception of claims for attorney's fees, costs and expenses to which Relator is entitled to under 31 U.S.C. § 3730(d)(2) and which are expressly reserved from this agreement.

4.          Notwithstanding any term of this Agreement, specifically reserved and excluded from the scope and terms of this Agreement as to any entity or person (including DTCA and Relator) are the following claims of the United States:

a.         Any civil, criminal, or administrative liability arising under Title 26, U.S. Code (Internal Revenue Code);

c.         Any administrative liability, including mandatory or permissive exclusion from Federal health care programs;

d.         Any liability to the United States (or its agencies) for any conduct other than the Covered Conduct;

e.         Any liability based upon such obligations as are created by this Agreement;

f.         Any liability for express or implied warranty claims or other claims for defective or deficient products or services, including quality of goods and services;

5.          DTCA and Relator explicitly reserve from this Agreement any payment for Relator's expenses, attorney's fees and costs associated with Relator's filing of the Civil Action, as required under 31 U.S.C. § 3730(d).

6.          Relator, the Liquidation Trustee, and Relator's heirs, successors, attorneys, agents, and assigns agree not to object to this Agreement and agree and confirm that this Agreement is fair, adequate, and reasonable under all the circumstances, pursuant to 31 U.S.C. § 3730(c)(2)(B) and, conditioned upon receipt of Relator's share, Relator and Liquidation Trustee, for Relator individually, and for Relator's heirs, successors, agents, and assigns, fully and finally release, waive, and forever discharge the United States, its officers, agents, and employees, from any claims arising from or relating to 31 U.S.C. § 3730; from any claims arising from the filing of the Civil Action; and from any other claims for a share of the Settlement Amount; and in full settlement of any claims Relator or Liquidation Trustee may have under this Agreement. This Agreement does not resolve or in any manner affect any claims the United States has or may

have against the Relator arising under Title 26, U.S. Code (Internal Revenue Code), or any claims arising under this Agreement.

7.          DTCA waives and shall not assert any defenses DTCA may have to any criminal prosecution or administrative action relating to the Covered Conduct that may be based in whole or in part on a contention that, under the Double Jeopardy Clause in the Fifth Amendment of the Constitution, or under the Excessive Fines Clause in the Eighth Amendment of the Constitution, this Agreement bars a remedy sought in such criminal prosecution or administrative action. Nothing in this paragra