Forward-looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "trends" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company's current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following:

• general economic and business conditions;

• demographic changes;

• changes in, or failure to comply with, existing governmental regulations;

• legislative proposals for healthcare reform;

• changes in Medicare and Medicaid reimbursement levels;

• effects of competition in the markets in which the Company operates;

• liability and other claims asserted against the Company;

• ability to attract and retain qualified personnel;

• ability to access capital markets;

• availability and terms of capital;

• loss of significant contracts or reduction in revenues associated with major payer sources;

• ability of customers to pay for services;

• business disruption due to natural disasters, pandemic outbreaks or terrorist acts;

• ability to successfully integrate the operations of acquisitions the Company may make and achieve expected synergies and operational efficiencies within expected time-frames;

• effect on liquidity of the Company's debt service requirements; and

• changes in estimates and judgments associated with critical accounting policies and estimates.

Forward-looking statements are found throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission ("SEC"), the Company does not have any intention or obligation to publicly release any revisions to forward-looking statements to reflect unforeseen or other events after the date of this report. The Company has provided a detailed discussion of risk factors in its 2008 Annual Report on Form 10-K and various filings with the SEC. The reader is encouraged to review these risk factors and filings.

General

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of Gentiva's results of operations and financial position. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this report.

The Company's results of operations are impacted by various regulations and other matters that are implemented from time to time in its industry, some of which are described in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2008 and in other filings with the SEC.

Prior year income statement line items have been modified to conform to current year presentation.

Overview

Gentiva Health Services, Inc. is a leading provider of comprehensive home health services. Gentiva serves patients through more than 380 locations, and, until September 25, 2008, through CareCentrix, which provided an array of administrative services and coordinated the delivery of home nursing services, acute and chronic infusion therapies, home medical equipment ("HME"), respiratory products, orthotics and prosthetics, and services for managed care organizations and health plans. Effective September 25, 2008, the Company completed the

disposition of 69 percent of its equity interest in the Company's CareCentrix ancillary care benefit management business. The Company provides a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; hospice services; social work; nutrition; disease management education; help with daily living activities; respiratory therapy and HME; infusion therapy services; and other therapies and services. Gentiva's revenues are generated from federal and state government programs, commercial insurance and individual consumers.

The federal and state government programs are subject to legislative and other risk factors that can make it difficult to determine future reimbursement rates for Gentiva's home health services to patients. For example, in late February 2009, President Barack Obama released the outline of his proposed 2010 budget for the United States. The budget outline included, among other things, a provision to create a reserve fund to pay for a portion of the cost of reforming the country's healthcare system. The budget outline indicated that a portion of the reserve fund would be funded through "improvements in Medicare home health payments to align with costs". In early May 2009, the President provided additional details of his 2010 budget proposal, which indicated that modifications in home health payments would include "advancing a planned case mix adjustment, providing a zero percentage market basket update in fiscal year 2010 and rebasing payments in fiscal year 2011". This provision of the budget proposal, if enacted, would have a negative impact on the Company's Medicare reimbursement commencing in 2010. However, 2010 budget outlines proposed by the Senate and the House of Representatives did not specifically address reductions in Medicare home health payments.

The commercial insurance industry is continually seeking ways to control the cost of services to patients that it covers. One of the ways it seeks to control costs is to require greater efficiencies from its providers, including home healthcare companies. Various states have addressed budget pressures by considering or implementing reductions in various healthcare programs, including reductions in rates or changes in patient eligibility requirements. In addition, the Company has also decided to reduce participation in certain Medicaid and other state and county programs.

Gentiva believes that several marketplace factors can contribute to its future growth. First, the Company is a leader in a highly fragmented home healthcare industry populated by approximately 13,500 providers of varying size and resources. Second, the cost of a home healthcare visit to a patient can be significantly lower than the cost of an average day in a hospital or skilled nursing institution. And third, the demand for home care is expected to grow, primarily due to an aging U.S. population. The Company expects to capitalize on these positive trends through a determined set of strategies, as follows:
generate increased revenue by growing Medicare volume and improving commercial insurance pricing; continue to develop and expand specialty programs for incremental revenue growth; focus on clinical associate recruitment, retention and productivity; and continue technology initiatives that could make Gentiva more efficient and profitable. The Company anticipates executing these strategies by continuing to expand its sales presence, developing and marketing its managed care services, making operational improvements and deploying new technologies, providing employees with leadership training and instituting retention initiatives, ensuring strong ethics and corporate governance, and focusing on shareholder value.

Management intends the discussion of the Company's financial condition and results of operations that follows to provide information that will assist in understanding its financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect the Company's financial statements.

The Company's operations involve servicing patients and customers through
(i) its Home Health business segment, (ii) various smaller operating segments, including hospice, respiratory services and home medical equipment ("HME"), infusion therapy services and consulting, which are classified in the aggregate as "All Other" for segment reporting purposes, and (iii) for periods prior to September 25, 2008, its CareCentrix business segment.

Home Health

The Home Health segment is comprised of direct home nursing and therapy services operations, including specialty programs. The Company conducts direct home nursing and therapy services operations through licensed and Medicare-certified agencies, located in 39 states, from which the Company provides various combinations of skilled nursing and therapy services, paraprofessional nursing services and, to a lesser extent, homemaker services generally to adult and elder patients. The Company's direct home nursing and therapy services operations also deliver services to its customers through focused specialty programs that include:

• Gentiva Orthopedics, which provides individualized home orthopedic rehabilitation services to patients recovering from joint replacement or other major orthopedic surgery;

• Gentiva Safe Strides ® , which provides therapies for patients with balance issues who are prone to injury or immobility as a result of falling;

• Gentiva Cardiopulmonary, which helps patients and their physicians manage heart and lung health in a home-based environment;

• Gentiva Neurorehabilitation, which helps patients who have experienced a neurological injury or condition by removing the obstacles to healing in the patient's home; and

• Gentiva Senior Health, which addresses the needs of patients with age-related diseases and issues to effectively and safely stay in their homes.

Through its Rehab Without Walls ® unit, the Company also provides home and community-based neurorehabilitation therapies for patients with traumatic brain injury, cerebrovascular accident injury and acquired brain injury, as well as a number of other complex rehabilitation cases.

CareCentrix

The CareCentrix segment encompassed Gentiva's ancillary care benefit management and the coordination of integrated homecare services for managed care organizations and health benefit plans. CareCentrix operations provided an array of administrative services and coordinated the delivery of home nursing services, acute and chronic infusion therapies, HME, respiratory products, orthotics and prosthetics,

and services for managed care organizations and health benefit plans. CareCentrix accepted case referrals from a wide variety of sources, verified eligibility and benefits and transferred case requirements to the providers for services to the patient. CareCentrix provided services to its customers, including the fulfillment of case requirements, care management, provider credentialing, eligibility and benefits verification, data reporting and analysis, and coordinated centralized billing for all authorized services provided to the customers' enrollees.

All Other

Hospice

Hospice serves terminally ill patients in the southeast United States. Comprehensive management of the healthcare services and products needed by hospice patients and their families are provided through the use of an interdisciplinary team. Depending on a patient's needs, each hospice patient is assigned an interdisciplinary team comprised of a physician, nurse(s), home health aide(s), medical social worker(s), chaplain, dietary counselor and bereavement coordinator, as well as other care professionals.

Respiratory Therapy and Home Medical Equipment

Respiratory therapy and HME services are provided to patients at home through branch locations primarily in the southeast United States. Patients are offered a broad portfolio of products and services that serve as an adjunct to traditional home health nursing and hospice care. Respiratory therapy services are provided to patients who suffer from a variety of conditions including asthma, chronic obstructive pulmonary diseases, cystic fibrosis and other respiratory conditions. HME includes hospital beds, wheelchairs, ambulatory aids, bathroom aids, patient lifts and rehabilitation equipment.

Infusion Therapy

Infusion therapy is provided to patients at home through pharmacy locations in the southeast United States. Infusion therapy serves as a complement to the Company's traditional service offerings, providing clients with a comprehensive home health provider while diversifying the Company's revenue base. Services provided include: (i) enteral nutrition, (ii) antibiotic therapy, (iii) total parenteral nutrition, (iv) pain management, (v) chemotherapy, (vi) patient education and training and (vii) nutrition management.

Consulting

The Company provides consulting services to home health agencies through its Gentiva Consulting unit. These services include billing and collection activities, on-site agency support and consulting, operational support and individualized strategies for reduction of days sales outstanding.

Significant Developments

Pediatric and Adult Hourly Services Dispositions

During the first quarter of 2009, the Company sold assets associated primarily with certain branch offices that specialized primarily in pediatric home health care services for total consideration of $6.5 million. The sales related to seven offices in five cities and included the adult home care services in the affected offices. Annual revenues generated from the assets that were sold approximated $24 million for the twelve months prior to the sales' effective dates. The Company received $5.9 million in cash and recorded a receivable of $0.6 million for the balance of the consideration, which is included in prepaid expenses and other current assets in the Company's consolidated balance sheet at March 29, 2009. The sales, after deducting related costs, resulted in a net gain before income taxes of $5.8 million. This gain is included in the gain on sale of assets, net in the Company's consolidated statement of income and consolidated statement of cash flows for the three months ended March 29, 2009.

CareCentrix Disposition

Effective September 25, 2008, the Company completed the disposition of 69 percent of its equity interest in the Company's CareCentrix ancillary care benefit management business for total consideration of approximately $135 million.

The Company's consolidated statement of income for the three months ended March 30, 2008 presented herein includes the results of CareCentrix operations. The Company's consolidated statement of income for the three months ended March 29, 2009 presented herein includes the Company's equity in the net earnings of CareCentrix Holdings Inc., a holding company which owns CareCentrix.

Home Health Care Affiliates, Inc.

Effective February 29, 2008, the Company completed the acquisition of Home Health Care Affiliates, Inc. ("HHCA"), a provider of home health and hospice services in the state of Mississippi. The impact of this acquisition has been reflected in the Company's results of operations and financial condition from the closing date. See Note 3 for additional information.

Results of Operations

The historical results that follow present a discussion of the Company's consolidated operating results using the historical results of Gentiva prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for the periods presented.

Revenues

A summary of the Company's net revenues by segment follows:



                                                 First Quarter
                                                               Percentage
               (Dollars in millions)    2009        2008        Variance
               Home Health             $ 257.7     $ 217.0           18.8 %
               CareCentrix                  -         77.8             -
               All Other                  31.6        27.7           13.9 %
               Intersegment revenues      (0.4 )      (0.9 )        (57.7 %)

               Total net revenues      $ 288.9     $ 321.6          (10.2 %)

A summary of the Company's net revenues by payer follows:

                                                       First Quarter
                                                                   Percentage
        (Dollars in millions)                   2009      2008      Variance
        Medicare
        Home Health                            $ 186.1   $ 145.1         28.2 %
        All Other                                 20.0      16.2         23.8 %

        Total Medicare                           206.1     161.3         27.8 %
        Medicaid and Local Government             28.1      31.6        (10.9 %)
        Commercial Insurance and Other:
        Paid at episodic rates                    16.1      11.1         44.7 %
        Other                                     38.6     117.6        (67.3 %)

        Total Commercial Insurance and Other      54.7     128.7        (57.6 %)

        Total net revenues                     $ 288.9   $ 321.6        (10.2 %)

Net revenues decreased by $33 million or 10.2 percent for the first quarter of 2009 as compared to the first quarter of 2008. Excluding prior year's first quarter revenues from the Company's CareCentrix business unit and the related adjustment to intersegment revenues, net revenues increased approximately $45 million or 18 percent in the first quarter of 2009.

Home Health

Home Health segment revenues are derived from all three payer groups: Medicare, Medicaid and Local Government and Commercial Insurance and Other. First quarter 2009 net revenues were $257.7 million, up $40.7 million, or 18.8 percent, from $217.0 million in the prior year period.

Revenues generated from Medicare were $186.1 million in the first quarter of 2009 as compared to $145.1 million in the first quarter of 2008, an increase of $41.0 million or 28.2 percent. In addition, non-Medicare Prospective Payment System ("PPS") revenues, which are included in Commercial Insurance and Other and represent Medicare Advantage business paid on an episodic basis, were $16.1 million in the first quarter of 2009 compared to $11.1 million in the first quarter of 2008, an increase of $5.0 million or 45 percent.

Net revenues from the combination of Medicare and non-Medicare PPS business paid at episodic rates were $202.2 million in the first quarter of 2009, an increase of 29.4 percent from $156.2 million in the first quarter of 2008. Total episodes of care approximated 66,700 in the first quarter of 2009, an increase of approximately 12 percent from the 59,700 episodes serviced in the first quarter. The increase in episodes of care was driven primarily by increased volume in specialty programs in both existing and new markets and the impact of the HHCA and PHHC acquisitions as noted below. Revenue per episode for the first quarter of 2009 was $3,030, an increase of about 16 percent from revenue per

episode of $2,610 in the first quarter of 2008. Factors contributing to the improvements in revenue per episode for the first quarter of 2009 include growth in the Company's therapy-based specialty programs that have a higher level of reimbursement, and a shift in mix toward higher acuity cases. Episodic revenue growth, excluding the impact of HHCA and PHHC acquisitions, was approximately 25 percent for the first quarter of 2009.

Medicare and non-Medicare PPS revenues as a percent of total Home Health revenues were 78 percent and 72 percent for the first quarter of fiscal years 2009 and 2008, respectively. Home Health revenues attributable to the HHCA acquisition approximated $6.1 million for the period December 29, 2008 through March 1, 2009 and PHHC acquisition revenues approximated $2.8 million in the first quarter of fiscal 2009, the majority of which related to Medicare revenues.

Revenues from Medicaid and Local Government payer sources were $25.9 million in the first quarter of 2009 as compared to $29.4 million in the first quarter of 2008. Revenues from Commercial Insurance and Other payer sources, excluding non-Medicare PPS revenues, were $29.6 million in the first quarter of 2009 as compared to $31.4 million in the first quarter of 2008. The disposition of the majority of the Company's pediatric business as well as other contracts in the quarter contributed to the decreases in Medicaid and Local Government revenues and in Commercial Insurance and Other revenues by $1.3 million and $0.5 million, respectively. Additional decreases in the Medicaid and Local Government and Commercial Insurance and Other payer sources resulted primarily from the Company's ongoing strategy to reduce or eliminate certain lower gross margin business as the Company continues to pursue more favorable commercial pricing and a higher mix of Medicare and non-Medicare PPS business.

CareCentrix

CareCentrix segment revenues were derived from the Commercial Insurance and Other payer group only. First quarter 2008 net revenues were $77.8 million. Revenues derived from Cigna were approximately $63.8 million in the first quarter of 2008.

All Other

All Other revenues are derived from all three payer groups. First quarter of fiscal 2009 net revenues were $31.6 million as compared to the first quarter of fiscal 2008 net revenues of $27.7 million. The increase for the first quarter of 2009 was attributable primarily to a $3.6 million increase in hospice revenues, of which approximately $2.1 million related to revenues from acquisitions completed during 2008, and a $0.6 million increase in respiratory therapy services and HME revenues, offset somewhat by declines in other segment component revenues as compared to the corresponding period of 2008.

In All Other, Medicare revenues were $20.0 million in the first quarter of 2009 as compared to $16.2 million in the first quarter of 2008. Medicaid revenues were $2.3 million and $2.2 million in the first quarter of 2009 and 2008, respectively. Commercial Insurance and Other revenues in the first quarter of 2009 and 2008 were both $9.3 million.

Gross Profit



                                                   First Quarter
               (Dollars in millions)      2009        2008        Variance
               Gross profit              $ 148.1     $ 136.5     $     11.6
               As a percent of revenue      51.3 %      42.4 %          8.9 %

Gross profit increased by $11.6 million or 8.5 percent for the first quarter of 2009 as compared to the first quarter of 2008. Excluding prior year's first quarter gross profit from the Company's CareCentrix unit, gross profit increased by $25.9 million or 21 percent.

As a percentage of revenues, gross profit of 51.3 percent in the first quarter of 2009 represented an 8.9 percentage point increase as compared to the first quarter of 2008. Approximately 7.6 percentage points of this increase are attributable to the first three months of fiscal 2009 no longer including the impact of the lower margin CareCentrix business. From a total Company perspective, the remaining increase in gross margin percentage was attributable primarily to increases in the Home Health segment resulting from (i) significant changes in business mix, (ii) improvements in revenue per episode, and (iii) the full impact of the HHCA and PHHC acquisitions.

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company's specialty programs, and the non-Medicare PPS business and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric services and other business in home health branch offices that were sold in the first quarter of 2009. These changes contributed to an overall increase in gross margin within the Home Health segment from 50.8 percent in the first quarter of 2008 to 52.1 percent in the first quarter of 2009.

CareCentrix gross profit as a percentage of revenues was 18.4 percent in the first quarter of 2008.

Gross profit as a percentage of revenues in All Other decreased from 43.9 percent in the first quarter of 2008 to 43.6 percent in the first quarter of 2009. Gross profit in All Other was impacted by depreciation expense of $1.2 million and $1.1 million in the first quarter of 2009 and 2008, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $7.5 million or 6.3 percent to $125.4 million for the first quarter of 2009 as compared to $117.9 million for the first quarter of 2008. Excluding prior year's first quarter selling, general and administrative expenses relating to CareCentrix selling expenses and field operating costs ($8.1 million) and estimated corporate expenses to support CareCentrix ($1.9 million), selling, general and administrative expenses increased approximately $17.5 million or 16 percent.

The increase of $7.5 million for the first quarter of 2009 as compared to the corresponding period of 2008 was primarily attributable to (i) Home Health segment and All Other field operating costs, exclusive of acquisitions, to support higher revenue volume in the 2009 period as compared to the 2008 period ($7.9 million and $0.6 million, respectively), (ii) incremental costs in the 2009 period associated with operations acquired during 2008 ($4.1 million, including $0.7 million of selling expenses, $2.8 million of Home Health operating costs and $0.6 million of All Other operating costs),
(iii) incremental selling expenses in Home Health, exclusive of acquisitions, relating to increased headcount ($2.1 million), (iv) corporate expenses, excluding restructuring and integration costs, as noted below ($0.9 million),
(v) restructuring and integration costs ($0.6 million) and (vi) depreciation and amortization ($0.3 million). These increases in costs were partially offset by reductions in (i) selling expenses and field operating costs resulting from the CareCentrix disposition in September 2008 ($8.1 million), (ii) costs associated with pediatric home health care branches that were sold during the first quarter of 2009 ($0.3 million) and (iii) the provision for doubtful accounts due to improved collections and a continued transition from legacy Healthfield billing systems ($0.6 million).

The net increase in corporate expenses between the first quarters of 2008 and 2009 resulted from higher personnel and administrative costs in support of the Company's growing Home Health business, changes in estimates relating to certain accrued expenses and timing issues relating to the transition of CareCentrix support functions.

. . .