701 Cool Springs Blvd
Franklin, Tennessee 37067

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Stockholders of Healthways, Inc.:

     The Annual Meeting of Stockholders of Healthways, Inc., a Delaware corporation (the “Company”), will be held at the Franklin Marriott Cool Springs, 700 Cool Springs Boulevard, Franklin, Tennessee, 37067 at 9:00 a.m., Central time, on Friday, May 28, 2010 for the following purposes:

	(1)		To elect three (3) directors to hold office for a term of three (3) years and until their successors have been elected and qualified;
	(2)		To consider and act upon a proposal to amend and restate the Company’s 2007 Stock Incentive Plan to increase the number of shares of the Company’s common stock available for issuance under the 2007 Stock Incentive Plan by 2,000,000 shares;
	(3)		To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2010;
	(4)		To transact such other business as may properly come before the meeting, or any adjournment or postponement thereof.

     In accordance with the Securities and Exchange Commission rules, we are mailing to many of our stockholders a Notice of Internet Availability instead of a paper copy of the Proxy Statement and our 2009 Annual Report. The Notice of Internet Availability contains instructions on how stockholders can access the proxy documents over the Internet as well as how stockholders can receive a paper copy of our proxy materials, including the Proxy Statement, the 2009 Annual Report and a form of proxy card. The proxy statement and form of proxy accompanying this notice are being furnished to stockholders on or about April 16, 2010. Only stockholders of record at the close of business on April 5, 2010 are entitled to notice of and to vote at the meeting or any adjournment or postponement thereof.

     Your attention is directed to the proxy statement accompanying this notice for a more complete statement regarding the matters to be acted upon at the meeting.

     We hope very much that you will be able to attend the meeting. If you do not plan to attend the meeting in person, you are requested to complete, sign and date the proxy card and return it promptly or to vote by toll-free telephone or internet as described in the proxy card.

April 16, 2010

Healthways, Inc.
Proxy Statement
Table of Contents

		Page
Notice of Annual Meeting of Stockholders		1
Proxy Statement for Annual Meeting of Stockholders		3
Security Ownership of Certain Beneficial Owners and Management		5
Corporate Governance		7
Proposal No. 1 Election of Directors		13
Compensation Discussion and Analysis		20
Summary Compensation Table		32
Grants of Plan-Based Awards		35
Outstanding Equity Awards		38
Option Exercises and Stock Vested		39
Nonqualified Deferred Compensation		40
Potential Payments Upon Termination or Change in Control of the Company		42
Director Compensation		57
Proposal No. 2 Amendment and Restatement of the 2007 Stock Incentive Plan		60
Proposal No. 3 Ratification of Independent Registered Public Accounting Firm		71
Audit Committee Report		72
Deadline for Submission of Stockholder Proposals to be Presented at the 2011 Annual Meeting of Stockholders		74
Delivery of Annual Report and Proxy Statement to Stockholders Sharing an Address		74
Miscellaneous		75
2007 Stock Incentive Plan, as amended (Appendix A)		i

HEALTHWAYS, INC.
701 Cool Springs Boulevard
Franklin, Tennessee 37067

PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS

Friday, May 28, 2010

     The proxy is solicited by the Board of Directors on behalf of Healthways, Inc. for use at the Annual Meeting of Stockholders to be held on Friday, May 28, 2010, at 9:00 a.m., Central time, at the Franklin Marriott Cool Springs, 700 Cool Springs Boulevard, Franklin, Tennessee, 37067, and at all adjournments or postponements thereof, for the purposes set forth in the foregoing Notice of Annual Meeting of Stockholders. In accordance with the Securities and Exchange Commission rules, we are mailing to many of our stockholders a Notice of Internet Availability instead of a paper copy of the Proxy Statement and our 2009 Annual Report. The Notice of Internet Availability contains instructions on how stockholders can access the proxy documents over the Internet as well as how stockholders can receive a paper copy of our proxy materials, including the Proxy Statement, the 2009 Annual Report and a form of proxy card. Copies of the proxy, this proxy statement and the attached notice are being furnished to stockholders on or about April 16, 2010.

     In addition to solicitations by mail or internet, certain of our directors, officers and employees, without additional remuneration, may solicit proxies by telephone, facsimile, email and personal interviews, but may reimburse brokerage firms and others for their reasonable expenses in forwarding solicitation material to beneficial owners. We will bear all costs of this solicitation, including expenses in connection with preparing, assembling and furnishing this proxy statement. In addition, the Company has retained Georgeson Shareholder Communications, Inc. to assist with the solicitation of proxies for a fee not to exceed $12,500, plus reimbursable expenses.

     In the election of directors, you may vote “FOR” all of the nominees or your vote may be to “WITHHOLD AUTHORITY” with respect to one or more of the nominees. For the amendment and restatement of the 2007 Stock Incentive Plan and the ratification of the selection of Ernst & Young LLP, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote “AGAINST.” Shares represented by such proxies will be voted in accordance with the choices specified thereon. If you sign your proxy card without giving specific voting instructions, the shares represented by such proxies will be voted FOR the election of the director nominees set forth under Proposal No. 1, FOR the amendment and restatement of the 2007 Stock Incentive Plan set forth under Proposal No. 2, and FOR the ratification of Ernst & Young LLP as the independent registered public accounting firm for fiscal 2010 set forth under Proposal No. 3. We recently changed our fiscal year end to December 31 beginning in 2009. The Board of Directors does not know of any other matters which will be presented for action at the meeting, but the persons named in the proxy intend to vote or act with respect to any other proposal which may be properly presented for action according to their best judgment in light of the conditions then prevailing.

     The quorum requirement for holding the Annual Meeting and transacting business is a majority of the outstanding shares entitled to be voted. The shares may be present in person or represented by proxy at the Annual Meeting. Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of a quorum.

     Votes are counted by an independent third party. In the election for directors, the three persons receiving the highest number of “FOR” votes will be elected. The proposals to amend and restate the 2007 Stock Incentive Plan and to ratify the selection of the auditors require the affirmative “FOR” vote of a majority of those shares present and entitled to vote.

     Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because (1) the broker has not received voting instructions from the beneficial owner and (2) the broker lacks discretionary voting power to vote those shares. A broker is entitled to vote shares held for a beneficial owner on routine matters, such as the election of the Company’s directors and the ratification of the appointment of Ernst & Young LLP as independent auditors, without instructions from the beneficial owner of those shares. On the other hand, a broker may not be entitled to vote shares held for a beneficial owner on certain non-routine items, such as the amendment and restatement of the 2007 Stock Incentive Plan, absent instructions from the beneficial owner of such shares. Broker non-votes count for purposes of determining whether a quorum exists but do not count as entitled to vote with respect to individual proposals.

     A proxy may be revoked by a stockholder at any time before its exercise by attending the meeting and electing to vote in person, by filing with the Secretary of the Company a written revocation, by duly executing a proxy bearing a later date or by casting a new vote by toll-free telephone or the internet.

     The preliminary voting results will be published on a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission within four business days of the 2010 Annual Meeting. The final voting results, if different than the preliminary voting results, will be published on an amended Current Report on Form 8-K within four business days of the date on which the final results are known.

     Each share of our common stock, $.001 par value (the “Common Stock”), issued and outstanding on the record date, April 5, 2010, will be entitled to one vote on all matters to come before the meeting. Cumulative voting is not permitted. As of April 5, 2010, there were outstanding 34,101,905 shares of Common Stock.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

     The following table sets forth certain information with respect to those persons that we know to be the beneficial owners (as defined by certain rules of the Securities and Exchange Commission (the “Commission”)) of more than five percent (5%) of our Common Stock, our only voting security, and with respect to the beneficial ownership of our Common Stock by all directors and nominees, each of the executive officers named in the Summary Compensation Table and all of our executive officers and directors as a group. The information set forth below is based on ownership information we received as of April 5, 2010. Unless specified otherwise, the shares indicated are presently outstanding, and each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned.

		Amount and Nature
		of Beneficial
Name and Address of Beneficial Owner		Ownership (1)				Percent of Class (1)
FMR LLC			4,973,905	(2)			14.59	%
82 Devonshire Street Boston, MA 02109
T. Rowe Price Associates, Inc.			3,133,609	(2)			9.19	%
100 East Pratt Street Baltimore, MD 21202
BlackRock, Inc.			3,020,303	(2)			8.86	%
40 East 52nd Street New York, NY 10022
Earnest Partners, LLC			2,600,490	(2)			7.63	%
1180 Peachtree Street NE, Suite 2300 Atlanta, GA 30309
Waddell & Reed Financial Inc.			2,293,568	(3)			6.73	%
6300 Lamar Avenue Overland Park, KS 66202
Ben R. Leedle, Jr.****			1,413,250	(4)			3.98	%
Thomas G. Cigarran**			625,465	(5)			1.82	%
Mary A. Chaput***			294,192	(6)			*
William C. O’Neil, Jr.**			264,272	(7)			*
James E. Pope, M.D.***			141,729	(8)			*
L. Ben Lytle**			97,544				*
C. Warren Neel, Ph. D.**			77,230	(9)			*
John W. Ballantine**			65,000	(10)			*

		Amount and Nature
		of Beneficial
		Ownership (1)				Percent of Class (1)
Stefen F. Brueckner***			56,461	(11)			*
Jay C. Bisgard, M.D.**			50,000	(12)			*
Matthew E. Kelliher***			33,390	(13)			*
Mary Jane England, M.D.**			25,000	(14)			*
Alison Taunton-Rigby, Ph. D.**			20,000	(15)			*
Anne M. Wilkins***			18,264	(16)			*
John A. Wickens**			16,100	(17)			*
William Novelli**			0				*
All directors and executive officers as a group (19 persons)			3,402,463	(18)			9.31	%

CORPORATE GOVERNANCE

Board of Directors Information

     Our Board of Directors held ten meetings during fiscal 2009. All of the members of the Board of Directors except Messrs. Cigarran, Leedle, and Lytle are “independent,” as defined by applicable law and the NASDAQ Global Select Market (“NASDAQ”) listing standards. The Board of Directors has a Nominating and Corporate Governance Committee, an Audit Committee and a Compensation Committee.

     Each of our incumbent directors, with the exception of Mr. Lytle, attended at least 75% of the aggregate of the total number of meetings held during fiscal 2009 by the Board of Directors and each committee of which such director was a member for the entire fiscal year.

Leadership Structure

     We believe our board leadership structure is appropriate in light of the Company’s business. Our Board of Directors’ Corporate Governance Guidelines provide that our Board size should consist of at least three and no more than twelve directors which provides for the optimal exchange of ideas without stifling cooperation. While our Board of Directors’ Corporate Governance Guidelines provide flexibility in who may serve as Chairman of the Board, we do not presently combine the roles of Chairman and CEO, and our current Chairman, Thomas Cigarran, has served in his capacity since 1988, and as a director since our founding, giving our Board consistent leadership. Our Board of Directors’ Corporate Governance Guidelines set forth in greater detail the responsibilities of our Board. Our Board of Directors’ Corporate Governance Guidelines are available under “Corporate Governance” accessible through the “Investors” link on the Company’s website at www.healthways.com.

Risk Oversight

     The Company is exposed to a number of risks, including economic, environmental, operational, and regulatory risks, among others. Management is responsible for the day-to-day management of the risks the Company faces, while the Board as a whole is responsible for the oversight of such risk. Our Audit, Compensation and Nominating and Corporate Governance Committees, however, each play a significant role in assisting the Board to fulfill its oversight responsibilities. Our Audit Committee, for example is responsible for overseeing the accounting, financial, legal, and regulatory risks the Company faces. The Audit Committee receives reports from management and outside auditors regarding any major issues concerning the adequacy of the Company’s internal controls over financial reporting. The Audit Committee also has complete access to management in discharging its duties and provides regular reports to the Board. Our Compensation Committee assists the Board with risk oversight by annually reviewing the compensation philosophy of the Company and evaluating and providing recommendations on executive compensation as well as producing an annual report on executive compensation to be included in our annual meeting proxy statement. The Compensation Committee regularly reports its activities to the full Board. Our Nominating

and Corporate Governance Committee assists with risk oversight by managing Board structure and organization, the criteria for selecting new members to the Board and any Board committees, determining compensation for directors, evaluating Board members, and annually reviewing the corporate governance principles of the Company and recommending changes when appropriate. The Nominating and Corporate Governance Committee regularly provides reports to the Board. The activities of each of our committees are set forth in greater detail in each of their respective charters and are available under “Corporate Governance” accessible through the “Investors” link on the Company’s website at www.healthways.com.

Committees of the Board of Directors

Compensation Committee

     During fiscal 2009, the Compensation Committee consisted of Drs. Bisgard, England, Neel and Taunton-Rigby and Mr. Novelli, who was appointed to the committee in August 2009 in connection with his appointment to the Board of Directors, and was chaired by Dr. Bisgard. As discussed in “Compensation Discussion and Analysis,” all of the directors on the Compensation Committee are “non-employee directors” as defined in Rule 16b-3 of the rules promulgated under the Securities Exchange Act of 1934, as amended, “outside directors” for purposes of regulations promulgated pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, and “independent directors” as defined in the NASDAQ corporate governance listing standards, in each case as determined by our Board of Directors. The Compensation Committee is responsible for overseeing our overall compensation strategies and policies, evaluating the performance of our executive officers and recommending to the independent directors the compensation of each of our executive officers and administering our equity-based incentive plans, among other things. The Compensation Committee’s Charter, which is reviewed annually by the Compensation Committee and is available on our website at www.healthways.com, provides a detailed description of its duties and responsibilities. The Compensation Committee held six meetings during fiscal 2009.

Nominating and Corporate Governance Committee

     During fiscal 2009, the Nominating and Corporate Governance Committee consisted of Drs. England and Taunton-Rigby and Messrs. O’Neil, Wickens, Ballantine, and Novelli, who was appointed to the committee in August 2009 in connection with his appointment to the Board of Directors, and was chaired by Dr. England. All of the directors on the Nominating and Corporate Governance Committee are independent directors as defined under applicable law and NASDAQ listing standards. The Nominating and Corporate Governance Committee’s responsibilities include identifying individuals qualified to become members of the Board of Directors and recommending such individuals to the Board of Directors for election to the Board of Directors and developing and recommending to the Board of Directors corporate governance principles applicable to the Company. The Nominating and Corporate Governance Committee Charter, which is reviewed annually by the Nominating and Corporate Governance Committee and is available on the Company’s website at www.healthways.com, provides a detailed description of the Nominating and Corporate Governance Committee’s responsibilities and sets forth the director nomination process. The Nominating and Corporate Governance Committee held four meetings during fiscal 2009.

Audit Committee

     During fiscal 2009, the Audit Committee consisted of Messrs. O’Neil, Ballantine and Wickens and Drs. Bisgard and Neel, each of whom is independent as defined by applicable law and the NASDAQ listing standards, and was chaired by Mr. Ballantine. We have, and will continue to have, at least one member of the Audit Committee who has past employment experience in finance or accounting and requisite professional certification in accounting or other comparable experience which results in the individual’s financial sophistication. The Audit Committee meets with our independent registered public accounting firm and management to review our consolidated financial statements, the quality and integrity of our accounting, auditing and financial reporting process, and our systems of internal controls. The Board of Directors has

determined that Messrs. O’Neil and Ballantine and Drs. Bisgard and Neel each qualify as an “audit committee financial expert,” as defined by the regulations of the Commission. The Audit Committee held ten meetings during fiscal 2009. The Audit Committee has adopted a Charter that provides a detailed description of its responsibilities, which is reviewed annually by the Audit Committee, and is available on our website at www.healthways.com.

Corporate Governance Guidelines

     The Board of Directors has adopted Corporate Governance Guidelines to assist the Board of Directors in the exercise of its duties and responsibilities and to serve the best interests of the Company and its stockholders. These Corporate Governance Guidelines, which are available on our website at www.healthways.com, provide a framework for the conduct of the business of the Board of Directors.

Code of Conduct

     We have a code of conduct that applies to all colleagues (including officers) and directors. The purpose of the code is to provide written standards that are reasonably designed to promote: honest and ethical conduct; full, fair, accurate, timely and understandable disclosure in reports and documents we file with the Commission and other public communications we make; compliance with applicable governmental laws, rules and regulations; prompt internal reporting of violations of the code; and accountability for adherence to the code, and to deter wrongdoing. A copy of our code of conduct, as well as any amendments thereto, can be obtained from our website at www.healthways.com.

Stockholder Nominees

     The policy of the Nominating and Corporate Governance Committee is to consider properly submitted stockholder nominations for director candidates as described below under “Identifying and Evaluating Nominees for Directors.” Any stockholder nominations proposed for consideration by the Nominating and Corporate Governance Committee should be addressed to: Secretary, Healthways, Inc., 701 Cool Springs Boulevard, Franklin, Tennessee 37067. To be timely, director nominations for the Annual Meeting of Stockholders to be held in 2010 must be submitted within the time limits for stockholder proposals as set forth on page 74 of this Proxy Statement.

Director Qualifications

     Under our Board of Directors’ Corporate Governance Guidelines and the Nominating and Corporate Governance Committee Charter, the Nominating and Corporate Governance Committee is responsible for determining the criteria for membership on our Board of Directors. Under such criteria, at least a majority of the members of the Board of Directors should be independent, and all members should have the highest professional and personal ethics and values consistent with our values and standards. Other criteria that will be considered are prior experience as a director, knowledge of our business and industry and broad experience at the operational, financial or policy making level in business. Diversity, age and skills in the context of the needs of the Board of Directors are also a consideration. While the Company’s Board of Directors’ Corporate Governance Guidelines do not explicitly define “diversity,” it is the Nominating and Corporate Governance Committee’s practice to seek director candidates who will contribute to a diversity of perspectives. The Nominating and Corporate Governance Committee considers diversity in the context of the Board as a whole and takes into account a candidate’s personal characteristics and industry experience, with the intent of maintaining a Board that represents a broad range of viewpoints. Board members should also have sufficient time to devote to the affairs of the Company and to provide insight and practical wisdom based on experience. As such, in order to be active participants and perform all director duties responsibly, directors’ service on other boards of public companies is limited to three public company boards (excluding the Company).

Identifying and Evaluating Nominees for Directors

     The Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Nominating and Corporate Governance Committee regularly assesses the appropriate size of the Board of Directors, and whether any vacancies on the Board of Directors are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Corporate Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Corporate Governance Committee through current Board of Directors members, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee and may be considered at any point during the year. As described above, the Nominating and Corporate Governance Committee considers properly submitted stockholder nominations for candidates for the Board of Directors. In evaluating nominations, the Nominating and Corporate Governance Committee uses the same criteria for all nominees, and the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and expertise on the Board of Directors.

     There are no nominees for election to the Board of Directors who have not previously been elected by the stockholders.

Directors’ Attendance at Annual Meetings of Stockholders

     Although directors are invited and are always encouraged to attend the annual stockholder meetings, we do not require their attendance. All of the directors attended the 2009 Annual Meeting of Stockholders held on January 29, 2009, with the exception of one director who was not able to attend due to travel delays.

Communications With the Board of Directors

     Stockholders may communicate with the Board of Directors by submitting a letter in writing addressed to: Chairman of the Board of Directors, Healthways, Inc., 701 Cool Springs Boulevard, Franklin, Tennessee 37067. If the communication relates to the Company’s ethics or conduct, financial statements, accounting practices or internal controls, the communication may be submitted in writing addressed to: Audit Committee Chairman, Healthways, Inc., 701 Cool Springs Boulevard, Franklin, Tennessee 37067. Stockholder communications may be submitted confidentially or anonymously.

Stock Retention Guidelines

     To further align officers’ interests with stockholders’ interests, in August 2005 the Board of Directors adopted stock retention guidelines for officers. As amended, the guidelines require officers to maintain a minimum ownership in the Company’s stock based on a multiple of their base salary (at least 2.5 times base salary for Named Executive Officers and 4 times base salary for the Chief Executive Officer). Officers must retain 75% of the net number of shares acquired (after payment of exercise price, if any, and taxes) upon the exercise of stock options and vesting of restricted stock units granted on or after August 24, 2005 until they reach the required multiple of base salary. Officers who do not comply with the guidelines may not be eligible for future equity awards.

     As a result of (i) the significant decline in the Company’s stock price, (ii) the completion of the option tender offer discussed in “Compensation Discussion and Analysis”, (iii) the decrease in the percentage of equity issued as part of our long-term incentive awards due to the limitation in the availability of shares under our 2007 Stock Incentive Plan and (iv) the completion of the update to our broad-based compensation structure as well as significant changes in the titling structure of our officers, the Company is in the process of reviewing its stock retention guidelines to ensure that the established stock retention guidelines are appropriate and remains committed to retention guidelines.

Evaluations of Board and Committee Performance

     Each year the Nominating and Corporate Governance Committee of our Board of Directors conducts an evaluation process focusing on the effectiveness of the Board of Directors as a whole, the performance of each committee of the Board of Directors and the performance of each individual Board member. The manner of the evaluation is determined annually by the Nominating and Corporate Governance Committee in order to ensure the procurement of accurate and relevant information. The evaluation process is designed to facilitate ongoing, systematic examination of the Board of Directors, each committee’s effectiveness and accountability, and each individual’s performance, and to identify opportunities for improvement. The Nominating and Corporate Governance Committee designed and coordinated the evaluations for the Board of Directors, committees, and individual directors, and the Chair of the Nominating and Corporate Governance Committee reported the results to each committee, the full Board of Directors, and each individual director.

Certain Relationships and Related Transactions

     Since the beginning of the last fiscal year, we are aware of the following related party transactions between us and our directors, executive officers, 5% stockholders or their family members which require disclosure under Item 404 of Regulation S-K under the Securities Exchange Act of 1934.

	•		Christopher Cigarran, Vice President of Human Resources, is the son of Chairman Thomas G. Cigarran and received aggregate cash compensation of approximately $88,732 (consisting of salary and a run-out payment of an employee deferred cash award) during the four months ended December 31, 2008 and approximately $306,688 (consisting of salary, Capital Accumulation Plan distributions, and payment for stock options tendered as part of the Company’s purchase of outstanding employee-granted stock options) during fiscal 2009. He also receives equity awards commensurate with our other vice presidents who are direct reports to the Chief Executive Officer consistent with his job grade.
	•		Robert L. Chaput, who previously served as our Executive Vice President, Operations Services, but left the Company in December 2008, is the spouse of Mary A. Chaput, our Chief Financial Officer. Mr. Chaput and Ms. Chaput received aggregate cash compensation during the four months ended December 31, 2008 of approximately $128,287 and $129,990 (both consisting of salary), respectively, and aggregate cash compensation during fiscal 2009 of approximately $565,029 (consisting of salary, severance, Capital Accumulation Plan distributions, Performance Cash award, and payment for stock options tendered as part of the Company’s purchase of outstanding employee-granted stock options) and $563,159 (consisting of salary, Capital Accumulation Plan distributions, Performance Cash award, and payment for stock options tendered as part of the Company’s purchase of outstanding employee-granted stock options), respectively. Ms. Chaput receives equity awards commensurate with our other vice presidents who are direct reports to the Chief Executive Officer consistent with her job grade. Upon his separation from the Company, vesting was accelerated for Mr. Chaput’s outstanding, unvested equity grants in accordance with his employment agreement.

     Pursuant to its written charter, the Audit Committee reviews and either ratifies, approves or disapproves all “Interested Transactions,” which are generally defined to include any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which:

	•		the aggregate amount involved exceeded, or will or may be expected to exceed, $120,000 in any calendar year;
	•		the Company was, is or will be a participant; and
	•		any Related Party had, has or will have a direct or indirect interest.

For purposes of the policy, a “Related Party” is any:

	•		person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director;
	•		greater than 5% beneficial owner of the Company’s common stock;
	•		immediate family member of any of the foregoing; or
	•		firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner, managing member or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.

          In determining whether to approve or ratify an Interested Transaction under the policy, the Audit Committee considers the relevant information and facts available to it regarding the Interested Transaction and takes into account factors such as the Related Party’s relationship to the Company and interest (direct or indirect) in the transaction, the terms of the transaction and the benefits to the Company of the transaction. No director participates in the approval of an Interested Transaction for which he or she is a Related Party or otherwise has a direct or indirect interest.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

     Our Certificate of Incorporation provides for a staggered Board of Directors. Each director serves a three-year term or until his/her successor is elected and qualified. The directors to be elected at the 2010 Annual Meeting of Stockholders will serve until the Annual Meeting of Stockholders in 2013 (the “Class I” directors). Three directors currently serving on the Board of Directors will continue to serve until the Annual Meeting of Stockholders in 2011 (the “Class II” directors), and four directors currently serving on the Board of Directors will continue to serve until the Annual Meeting of Stockholders in 2012 (the “Class III” directors).

     Unless contrary instructions are received, shares of our Common Stock represented by duly executed proxies will be voted in favor of the election of the nominees named below. If for any reason a nominee is unable to serve as a director, it is intended that the proxies solicited hereby will be voted for such substitute nominee as our Board of Directors may propose. The Board of Directors has no reason to expect that the nominees will be unable to serve, and therefore, at this time does not have any substitute nominees under consideration.

     A nominee for election must receive a plurality of the votes cast to be elected as a director. Stockholders have no right to vote cumulatively for directors, but rather each stockholder shall have one vote for each share of Common Stock held by such stockholder for each director.

     The following persons are the nominees for election to serve as Class I directors. All nominees are presently directors of the Company and were previously elected by the stockholders. Certain information relating to the nominees, which the individuals named have furnished to us, is set forth below. Mr. Lytle will continue as a director until the date of the 2010 Annual Meeting of Stockholders but is not standing for re-election to the Board of Directors; however, we expect that he will continue serving as a consultant to the Company, as described on page 57. The Board of Directors recommends a vote FOR each nominee.

				Background
		Class of Director;		Information &
		Annual Meeting		Specific Skills,
		at Which		Experience and
Name of Director		Term Will Expire		Qualifications
William C. O’Neil, Jr.		I; 2013		Mr. O’Neil, 75, has served as a director of the Company since 1985. From 1989 to 1999, Mr. O’Neil was the Chairman, President and Chief Executive Officer of ClinTrials Research, Inc., a pharmaceutical research services company. Prior thereto, Mr. O’Neil was Chairman, President and Chief Executive Officer of International Clinical Laboratories, Inc., a national laboratory testing company. Mr. O’Neil is also a director of American HomePatient Inc., where he is a member of the Audit Committee, and Advocat, Inc., where he serves as Chair of the Audit Committee. Mr. O’Neil is a member of the Compensation Committee on each of these boards of directors.
				Mr. O’Neil’s specific skills, experience, and qualifications to serve as a director of the Company include his nearly ten years of leadership experience at ClinTrials Research, Inc., a global provider of

				Background
		Class of Director;		Information &
		Annual Meeting		Specific Skills,
		at Which		Experience and
Name of Director		Term Will Expire		Qualifications
				preclinical and clinical research services to pharmaceutical, biotechnology and medical device clients. Additionally Mr. O’Neil’s service on a number of boards in the healthcare industry coupled with various other leadership roles he has held in the industry lends specific insight to our Board.
Ben R. Leedle, Jr.		I; 2013		Mr. Leedle, 49, has served as director of the Company since August 2003, and as Chief Executive Officer of the Company since September 2003. Mr. Leedle served as President of the Company from May 2002 through October 2008. Mr. Leedle served as Chief Operating Officer of the Company from September 1999 to August 2003, Executive Vice President of the Company from September 1999 to May 2002, and as Senior Vice President of Operations from September 1997 to September 1999.
				Mr. Leedle’s specific skills, experience, and qualifications to serve as a director of the Company include his nearly thirteen years of senior leadership experience at the Company. During this time Mr. Leedle has effectively led the Company through significant growth as well as managed the Company in the current economic environment. Additionally, Mr. Leedle has overseen a talented group of senior executives. Given his extensive leadership experience and institutional knowledge of the Company we believe Mr. Leedle should serve as a director of the Company.
Alison Taunton-Rigby, Ph. D.		I; 2013		Dr. Taunton-Rigby, 65, has been a director of the Company since November 2005. Dr. Taunton-Rigby is the founder and Chief Executive Officer of RiboNovix, Inc., a private biotechnology company, since 2003. From 2001 to 2003, she served as the Chief Executive Officer of CMT, Inc., a private medical device company. From 1995 to 2000, Dr. Taunton-Rigby served as the Chief Executive Officer of Aquila Biopharmaceuticals, Inc., (Cambridge Biotech Corporation) a publicly-traded biotechnology company. She serves on the boards of directors of the RiverSource Funds, Abt Associates, where she serves as Chair of the Audit & Finance Committee, and Idera Pharmaceuticals, Inc., where she is a member of both the Audit and Compensation Committees. Dr. Taunton-Rigby also serves on the board of The Children’s Hospital, Boston.

				Background
		Class of Director;		Information &
		Annual Meeting		Specific Skills,
		at Which		Experience and
Name of Director		Term Will Expire		Qualifications
				Dr. Taunton-Rigby’s specific skills, experience, and qualifications to serve as a director of the Company include her over 25 years of senior executive experience in the biotechnology industry. As noted above, Dr. Taunton-Rigby is the founder and Chief Executive Officer of RiboNovix, Inc., which seeks to discover and develop new anti-infectives. Dr. Taunton-Rigby also has significant experience on the boards of a variety of companies in the healthcare industry. We believe Dr. Taunton-Rigby’s entrepreneurial and leadership experience in the biotechnology industry coupled with her board experience at other healthcare companies allows her to provide insight to our Board on the perspectives of other areas within the healthcare industry.

     The following seven persons currently are members of the Board of Directors and will continue in their present positions after the Annual Meeting. The following persons are not nominees, and stockholders are not being asked to vote for them. Certain information relating to the following persons has been furnished to us by the individuals named, and we have also included the specific skills, qualifications, and experience of each of our directors.

		Class of Director;
		Annual Meeting
		at Which
Name of Director		Term Will Expire		Background Information
Thomas G. Cigarran		II; 2011		Mr. Cigarran, 67, has served as Chairman of the Company since August 1988 and as a director since 1981. Mr. Cigarran served as Chief Executive Officer of the Company from August 1988 to September 2003. Mr. Cigarran served as President of the Company from September 1981 to June 2001. Mr. Cigarran also serves as chairman of the Board of Directors of AmSurg Corp.
				Mr. Cigarran’s specific skills, experience, and qualifications to serve as a director of the Company include his extensive historical knowledge of the Company as evidenced by his service on our Board since the Company’s founding. Additionally, Mr. Cigarran has a number of years of extensive leadership experience at the Company, including having served as Chief Executive Officer for over 15 years. We

		Class of Director;
		Annual Meeting
		at Which
Name of Director		Term Will Expire		Background Information
				believe Mr. Cigarran’s historical knowledge of the Company and strong leadership experience at the Company provides our Board with invaluable insight on the evolution of the Company while also highlighting opportunities for its growth.
C. Warren Neel, Ph. D.		II; 2011		Dr. Neel, 71, has been a director of the Company since October 1991. Dr. Neel is currently Executive Director of the Center for Corporate Governance at the University of Tennessee and the Interim President at Lincoln Memorial University. He served as the Commissioner of Finance and Administration for the State of Tennessee from July 2000 until February 2003. He served as Dean of the College of Business Administration at The University of Tennessee in Knoxville from 1977 to 2002. Dr. Neel is also a director of Saks, Inc. where he serves as Chair of the Audit Committee and as a member of the Governance Committee.
				Dr. Neel’s specific skills, experience, and qualifications to serve as a director of the Company include his significant leadership experience in business. As Commissioner of Finance and Administration for the State of Tennessee, Dr. Neel served as the governor’s Chief Financial Officer managing a budget of over $20 billion. In his current position, Dr. Neel helped establish the Center for Corporate Governance at The University of Tennessee. Additionally, Dr. Neel’s academic research has been published in a variety of journals. Because of Dr. Neel’s strong business acumen and leadership in a variety of roles, we believe he enhances our Board’s understanding of complex financial data and management.
John W. Ballantine		II; 2011		Mr. Ballantine, 64, has been a director of the Company since June 2003. Mr. Ballantine served as Executive Vice President and Chief Risk Management Officer of First Chicago NBD Corporation from 1996 until 1998. He serves as a director of DWS Funds, where he is Chairman of the Equity Oversight Committee,, and Portland General Electric, where he serves on the Compensation Committee and is Chairman of the Finance Committee. Mr. Ballantine also currently serves as a member of the Executive Network advisory board of Glencoe Capital, a private equity firm, and a member of the Board of Trustees of

		Class of Director;
		Annual Meeting
		at Which
Name of Director		Term Will Expire		Background Information
				Window to the World Communications, Inc, a non-profit corporation.
				Mr. Ballantine’s specific skills, experience, and qualifications to serve as a director of the Company include his leadership as Executive Vice President and Chief Risk Management Officer of First Chicago NBD Corporation, in addition to his board leadership roles at a number of companies including Glencoe Capital, a private equity firm and DWS Funds, an asset management firm. We believe Mr. Ballantine’s experience at these firms enhances the Board’s understanding of the perspective of institutional investors.
Jay C. Bisgard, M.D.		III; 2012		Dr. Bisgard, 67, has been a director of the Company since June 2003. Dr. Bisgard served as Director of Health Services at Delta Air Lines, Inc. from January 1994 to April 2001. Prior to that, he served as the corporate medical director at Pacific Bell, GTE and ARCO. He retired from the U.S. Air Force in 1986 with the rank of colonel. He served as acting Deputy Assistant Secretary of Defense (Health Affairs) from 1981 to 1984. He is a fellow of the Aerospace Medical Association, the American College of Preventive Medicine, and the American College of Physician Executives.
				Dr. Bisgard’s specific skills, experience, and qualifications to serve as a director of the Company include his over thirty years experience in the healthcare industry in both the private and public sectors, including serving as a director of a number of companies as well as serving as Deputy Assistant Secretary of Defense (Health Affairs). Dr. Bisgard is certified in aerospace medicine and his primary interests have been in health policy and resource management. We believe his extensive career in the healthcare industry as well as his interests in health policy and resource management provides critical insight to our Board on both the historical and current trends within the healthcare industry.
Mary Jane England, M.D.		III; 2012		Dr. England, 71, has been a director of the Company since September 2004. Dr. England has served as President of Regis College in Weston, Massachusetts since July 2001. From 1990 to 2001, she served as President of the Washington Business Group on

		Class of Director;
		Annual Meeting
		at Which
Name of Director		Term Will Expire		Background Information
				Health. Prior to 1990, she served as Vice President of Prudential Insurance Co., Associate Dean at the John F. Kennedy School of Government at Harvard, Commissioner of Social Services, and Associate Commissioner of Mental Health in Massachusetts. She serves on the board of directors of NSF International.
				Dr. England’s specific skills, experience, and qualifications to serve as a director of the Company include her significant experience in the healthcare industry. For over ten years, Dr. England served as the President of the Washington Business Group on Health, which is a non-profit devoted to representing the interest of large employers on national health policy issues. Additionally, Dr. England serves on the board of NSF International, which is a non-profit involved in standards development, product certification, education and risk-management for public health and safety. We believe Dr. England’s experience at the Washington Business Group on Health as well as in other positions provide our Board with unique insight on how the interests of companies within the healthcare industry are effectively represented.
John A. Wickens		III; 2012		Mr. Wickens, 53, has been a director of the Company since February 2007. He was National Health Plan President of UnitedHealth Group from January 2004 to February 2006 and South Division President from September 2001 to December 2003. Prior to that time, he served in various capacities at UnitedHealth Group beginning in 1995. Mr. Wickens currently serves on the boards of directors of Cancer Support Community, U.S.A. Track & Field Foundation, and UnitedHealthcare Children’s Foundation.
				Mr. Wickens’ specific skills, experience, and qualifications to serve as a director of the Company include his varied leadership roles at UnitedHealth Group, a diversified health and well-being company. We believe Mr. Wickens’ recent experience at UnitedHealth Group gives our Board insight in how other companies within the healthcare industry both manage and respond to the numerous challenges faced in the current economic and political climate.

		Class of Director;
		Annual Meeting
		at Which
Name of Director		Term Will Expire		Background Information
William Novelli		III; 2012		Mr. Novelli, 68, has been a director of the Company since August 2009. He has served as a professor at the McDonough School of Business at Georgetown University since August 2009. From 2001-2009, he served as the Chief Executive Officer of AARP. Mr. Novelli currently serves on the board of directors of Campaign for Tobacco-Free Kids.
				Mr. Novelli’s specific skills, experience, and qualifications to serve as a director of the Company are evidenced by his many years of executive leadership, most recently serving as the Chief Executive Officer of AARP, as mentioned above. Additionally, Mr. Novelli’s current leadership as chairman of the board of directors of the Campaign for Tobacco-Free Kids, a leader in fighting to reduce tobacco use and its consequences in the world, enhances our Board’s own understanding of how other organizations promote improved health and wellness, which is the core of the Company’s business.

Executive Compensation

Compensation Discussion and Analysis

This section explains the compensation of our Named Executive Officers for fiscal 2009, who are:

Name		Position
Ben R. Leedle, Jr.		Chief Executive Officer
Mary A. Chaput		Vice President, Chief Financial Officer
Matthew E. Kelliher		President — International
Anne M. Wilkins		Vice President, Strategy & Marketing
Stefen F. Brueckner		President and Chief Operating Officer
James E. Pope, MD		Vice President, Science & Value

     The Compensation Committee (the “Committee”) of our Board sets and administers the policies that govern compensation of our executive officers, including:

	•		Annually evaluating the performance of the CEO and other executive officers and recommending to the independent directors of the Board the compensation level for each such person based on this evaluation;
	•		Reviewing and recommending to the Board for approval any changes in executive officer incentive compensation plans and equity-based plans; and
	•		Reviewing and approving all equity-based compensation plans of the Company and granting equity-based awards pursuant to such plans.

The Committee seeks to assure that compensation paid to the executive officers is fair, reasonable and competitive, and is linked to increasing long-term stockholder value. Only independent directors serve on the Committee.

     Compensation Philosophy. The Committee reviews its compensation philosophy periodically, and at least on an annual basis. The Committee has determined that the best course of action at this time is to align compensation with the unique talent and business needs of Healthways, without encouraging excessive or unnecessary risk-taking. We believe this is best accomplished through the following objectives:

	•		To attract, retain and motivate talented executives by providing overall compensation that is performance-based, fair to the executives and the stockholders, and takes into consideration both individual and corporate performance;
	•		To closely align the interests of executives with those of stockholders and the long-term interests of the Company through a significant share of total compensation based on long-term incentives, including both equity and operational performance-based cash plans; and
	•		To provide appropriate incentives for executives to work toward the achievement of our annual financial performance and business goals based on our annual budget in a quality and sustainable manner — only if our publicly disclosed financial expectations are attained.

We use the following compensation vehicles to meet these objectives:

	•		Appropriate base salaries;
	•		Short-term incentives, based upon achieving EPS targets, where the plan is not funded until our publicly disclosed financial expectations are met; and

•

Long-term incentives where stock options and restricted stock are the equity vehicles used along with a performance cash plan based upon the achievement of our financial performance and/or business goals. In order to focus our executives on the long-term sustainable performance of the business, a significant share of our compensation plans are focused on long-term incentives.

     The Committee reviews annually our executive compensation policies in light of our financial performance, annual budget, and the compensation policies of similar companies. The compensation of individual executives is then reviewed annually by the Committee in light of such executive’s performance and the Committee’s executive compensation policies for that year. The Committee believes that our compensation strategies have been effective in promoting retention and are aligned with the Committee’s compensation philosophy and our company culture, which places a significant value on highly-performing individuals.

     Overview of Compensation Process. The Committee annually reviews the compensation of the Chief Executive Officer, the other executive officers and the direct reports to the Chief Executive Officer to ensure they are rewarded appropriately for their contributions to the Company. The Committee conducts this review and compensation determination through a comprehensive process involving a series of meetings typically occurring in the last quarter of the preceding year and the first quarter of the current year.

     Compensation Benchmarking Process. With respect to annual salary and the various short-term and long-term incentive awards available to the Named Executive Officers, the Committee considers the Company’s overall performance and the executive’s performance in determining the compensation awarded. In addition, as part of the executive compensation process, the Committee reviews the Named Executive Officers’ compensation against external references to ensure that the compensation is appropriate. These external comparisons only provide a point of reference as we do not use specific formulas to determine compensation levels reflecting the responsibilities of a particular officer position.

     The external references include commercially available, broad-based, comparative market compensation survey reports developed by independent professional organizations (collectively, the “Survey Reports”) and a proxy analysis that examines and compares various elements of the compensation of our senior management to that of a group of publicly-traded peer group companies.

     The Survey Reports cover a significant number of companies over a broad range of industries. For purposes of the Committee’s review, management provides information that combines and reflects market data from the Survey Reports to balance data outliers. The Committee believes that the size of the business and scope of the executive officer’s responsibility are the most important external factors for analyzing compensation for executive officers. In establishing appropriate compensation targets for our executives, the Committee correlates business revenue and compensation across various industries to compare executives with responsibilities of similar size and scope.

     In addition to the Survey Reports, the Committee conducts a proxy analysis that consists of the following publicly-traded peer group:

Allscripts Healthcare Solutions Inc		Heartland Payment Systems Inc
Amedisys Inc		Inventiv Health Inc
AMN Healthcare Services Inc		LHC Group Inc
Amsurg Corp		Odyssey Healthcare Inc
Cerner Corp / MOI		Psychiatric Solutions Inc
Chemed Corp		Res Care Inc / KY
Corvel Corp		Sun Healthcare Group Inc
CSG Systems International Inc		Sykes Enterprises Inc
Eclipsys Corp		Syntel Inc
Euronet Worldwide Inc		Teletech Holdings Inc

Fair Isaac Corp		Total System Services Inc
Gentiva Health Services Inc		WebMD Health Corp
Global Payments Inc

     As described more fully below, in October 2008, the Committee engaged Hewitt Associates (“Hewitt”), an independent executive compensation consulting firm, to assist with selecting the peer group. Due to the relatively small number of publicly-traded direct competitors in our industry and the relative size of such competitors, the Committee believed that a pure industry peer group would not necessarily create a meaningful comparison group. Absent an industry peer group, the Committee concluded that the most comparable companies with respect to executive pay are companies whose business size, growth and complexity are similar to the Company’s. As a result, the companies above were selected to provide a reference point for compensation comparison purposes because of their similarity to the Company in terms of size (based on revenues, market capitalization, number of employees, and/or operating income), industry classification, growth and financial performance and/or the existence of publicly available data. The Committee reviewed and reconfirmed the above list in November 2009.

     Role of External Consultants. In August 2008, the Committee initiated a request for proposal (RFP) process to engage an independent executive compensation consultant to review the Company’s executive compensation program. Several executive compensation consulting firms submitted RFPs with the finalists making presentations to members of the Committee and management. After consulting with management, the Committee selected Hewitt to serve as the Committee’s independent executive consultant.

     In the fall of 2008, the Committee worked with Hewitt, and together with the independent directors, examined the Company’s executive compensation program. At the Committee’s request, Hewitt performed several analyses, including peer group and market comparisons, internal pay equity, and short- and long-term incentive structure modeling. These analyses assisted the Committee in determining if such compensation programs were advisable based on our current and expected financial position and strategic goals, as well as informing the Committee of developments in corporate governance and compensation design. Following the Committee’s examination of our compensation structure, the Committee determined that, in order to maintain a competitive position in the healthcare services industry and continue to attract and retain qualified colleagues, it was appropriate to adjust our total compensation program to moderately increase the short-term incentive opportunity available to our Named Executive Officers and revise the mix of stock options and restricted stock units granted as part of our long-term incentive compensation program. The Committee also elected to replace the retrospective performance-based cash award with a new prospective performance-based cash award. The aggregate amounts of such awards would vary with Company and individual performance and with the level of responsibility. The intent was to deliver long-term incentive awards that, when combined with base salaries and annual short-term incentive awards, would result in total compensation levels that were externally competitive and appropriate based on both the Company’s and the individual performance.

     The fees incurred for the services Hewitt provided to the Committee during the period of September 1, 2008 through December 31, 2009 totaled approximately $289,000. In addition, Hewitt provided services to the Company related to an update of our broad-based compensation structure, revisions to our domestic sales incentive plan design, consulting support related to an acquisition, and miscellaneous ad-hoc market analysis/job pricing. These services were recommended by management and did not require approval by the Committee. Total fees for all services provided during the period of September 1, 2008 through December 31, 2009 not related to the services provided to the Committee were approximately $441,000. A requirement of the Committee and management, as confirmed through the RFP process that lead to the selection of Hewitt, was that the consulting individuals serving the Committee were independent of the consulting individuals serving management.

     Role of Management. As part of the compensation process, the Committee solicits the views and recommendations of our Chief Executive Officer when determining the compensation of each of our Named Executive Officers, given his insight into their key contributions and performance. The Chief Executive Officer summarizes his assessment of the performance during the previous year of each of his direct reports, including each of the Named Executive Officers, based on the established performance objectives that were previously approved by the Committee for that year. The Chief Executive Officer also provides his recommendations on any compensation adjustments for each of his direct reports, including each of the Named Executive Officers. Following the Chief Executive Officer’s presentation, the Committee meets to review and discuss the performance of each Named Executive Officer, and recommend to the independent directors any compensation adjustments for each of the Named Executive Officers, based on such factors as the competitive compensation analysis, the Chief Executive Officer’s and the Committee’s assessment of individual performance, and the Company’s performance.

     CEO Compensation Determination. The process for determining any compensation adjustments for the Chief Executive Officer is similar to the process described above for our other Named Executive Officers, except that the Chief Executive Officer does not provide the Committee with a recommendation. The Chief Executive Officer presents a self-assessment of his performance during the year to the Committee based on the performance objectives previously approved by the Committee. For fiscal 2009, these performance objectives were based on maximizing stockholder value by meeting or exceeding revenue and earnings targets established by the Committee; maintaining our company culture; developing the Healthways brand; and planning effective short, intermediate and long-term strategies. During the first quarter of each fiscal year, the Committee meets in executive session to review the Chief Executive Officer’s performance and discuss and recommend to the independent directors any compensation adjustment based on the competitive compensation analysis, its assessment of the Chief Executive Officer’s performance in light of the pre-approved performance objectives, the Company’s performance and the level of Chief Executive Officer compensation relative to our other Named Executive Officers.

     Compensation Decisions for Fiscal 2009. In determining the compensation for the Named Executive Officers for fiscal 2009, the Committee utilized the executive compensation structure established with the assistance of Hewitt as a guideline, together with its own assessment of (i) the performance, responsibilities, expectations and contribution of each Named Executive Officer with the assistance of management as described above, (ii) the competitiveness of the Company’s executive compensation and (iii) overall Company performance. The specific analysis regarding the components of total executive compensation for fiscal 2009 is described in detail below.

     Base Salary. As discussed above, each year the Committee reviews and approves a revised annual salary plan for our Named Executive Officers, taking into account several factors, including prior year salary, responsibilities, performance against the individual objectives previously approved by the Committee, salaries paid by comparable companies for comparable positions, internal pay equity within the Company’s overall pay scale, and the Company’s recent financial performance. In determining whether an increase in base compensation for the Named Executive Officers (other than the Chief Executive Officer) was appropriate for fiscal 2009, the Committee reviewed recommendations of and consulted with the Chief Executive Officer. The Committee determined on the basis of discussions with the Chief Executive Officer and the experience of its members in business generally and with the Company specifically what it viewed to be appropriate levels of base compensation after taking into consideration the factors discussed above. Taking all of these factors into account, the Committee approved and recommended to the independent directors conservative base salary adjustments for our Named Executive Officers in the following amounts:

		Fiscal 2009 Base				Fiscal 2008 Base				Percentage
Name		Salary				Salary				Increase/ Decrease
Ben R. Leedle, Jr.		$	712,400			$	685,000				4.0	%
Mary A. Chaput			390,174				375,167				4.0	%
Matthew Kelliher			366,950				348,381				5.3	%
Anne M. Wilkins (1)			388,600				388,600				0.0	%
Stefen F. Brueckner (2)			475,000				475,000				0.0	%
James E. Pope, MD (3)			375,283				404,400				-7.2	%

     Annual Cash Incentive Plan Compensation. Short-term incentive awards are offered to the Named Executive Officers to align their annual compensation with the Company’s financial objectives for the current year. The change in our fiscal year start date from September 1 to January 1 (effective January 1, 2009), resulted in a partial transition year from September 1, 2008 to December 31, 2008. As a result, the fiscal 2009 short-term incentive plan was a 16-month plan covering the performance period of September 1, 2008 through December 31, 2009.

     The 2009 short-term incentive plan was structured as a “self-funded” plan in that, upon achievement of a minimum level of earnings per share for our domestic business (“Domestic EPS”), a portion of incremental earnings go toward funding the short-term incentive pool. For fiscal 2009, our Named Executive Officers were eligible to earn cash bonuses provided that actual Domestic EPS exceeded our targeted Domestic EPS of $0.96. The Committee chose Domestic EPS as the performance measure because it believes there is a strong correlation between Domestic EPS growth and growth in stockholder value. The Committee determined at the time it established the 2009 short-term incentive plan to exclude the impact of the Company’s international operations on the short-term incentive targets for domestic employees as the international employees participate in a short-term incentive plan that is solely based upon performance of our international operations.

     For fiscal 2009, our Chief Executive Officer was eligible to receive a target award of 70%, our President and Chief Operating Officer was eligible to receive a target award of 55%, and the remaining Named Executive Officers were eligible to receive a target award of 50% of their base salary for the performance period. In the event that the Company substantially exceeded its performance objectives, the Named Executive Officers could receive awards in excess of such amounts.

     For fiscal 2009, short-term incentives paid to Named Executive Officers were as follows. This is the first short-term incentive payment to Named Executive Officers since fiscal 2006.

		Fiscal 2009
Name		Short-Term Incentive Payment*
Ben Leedle, Jr.		$	611,343
Mary A. Chaput			251,120
Matthew Kelliher			157,048
Anne M. Wilkins			240,790
Stefen F. Brueckner			287,498
James E. Pope, MD			237,590

     Long-Term Incentive Compensation. As described above, one of our key compensation objectives is to provide long-term incentive compensation to strengthen and align the interests of our Named Executive Officers with the interests of our stockholders. To meet this objective, the Committee determined that long-term incentive compensation for fiscal 2009 for our Named Executive Officers should utilize the following combination of stock options, restricted stock units and performance-based cash awards:

				Estimated Percentage of
Vehicle		Objective		Long-Term Incentive Compensation
Stock options		Promote share price appreciation			25	%
Restricted stock units		Minimize stockholder dilution, increase executive retention and promote share price appreciation			25	%
Performance-based cash awards		Align executive awards with the Company’s financial goals			50	%

     The Committee believes that our long-term incentive compensation program is a key component of our retention strategy and is integral to our ability to achieve our performance goals. The Committee also believes this mix of long-term compensation will reduce the dilutive impact of equity grants to management compared to equity grants consisting solely of stock options.

     Long-term incentive awards are generally granted to eligible employees, including our Named Executive Officers, on an annual basis. These awards are generally made during the first fiscal quarter after the Committee has had the opportunity to review the full year results for the prior fiscal year and review the anticipated performance for the current fiscal year. Due to the recent change in the Company’s fiscal year, the annual long-term incentive award was made on February 12, 2009. Awards are granted on the date of the Committee approval, and the exercise price is equal to the fair market value of the Company’s common stock on the date of the grant. The Committee may also approve additional equity-based awards in certain special circumstances, such as upon an officer’s initial employment with the Company, the promotion of an officer to a new position or in recognition of special contributions made by an officer.

     The aggregate grant date fair value of the long-term incentive awards, which includes option awards, restricted stock units (based on the aggregate fair market value of the Company’s common stock on the date of grant) and performance cash awards, granted to the Named Executive Officers was equal to 390% of fiscal 2009 base salary for Mr. Leedle and 220% of fiscal 2009 base salary for each of the other Named Executive Officers. The long-term incentive awards targets for each of the Named Executive Officers as a percentage of base salary were consistent with the long-term incentive guidelines approved in fiscal 2007.

     Equity Awards. On February 12, 2009, non-qualified options for the purchase of the Company’s common stock and restricted stock units of the Company’s common stock were approved by the Committee and granted to our Named Executive Officers pursuant to our 2007 Stock Incentive Plan. In addition to the equity awards granted in accordance with the guidelines indicated above, there was a one-time discretionary grant of between 3,333 and 10,000 non-qualified stock options and between 1,667 and 5,000 restricted stock units provided to certain officers of the Company, including the Named Executive Officers (with the exception of the Chief Executive Officer and the Company’s President and Chief Operating Officer), to maintain appropriate retention incentives in light of the recently completed purchase of outstanding

employee-granted stock options that occurred in January 2009, as referenced below. Following are the equity awards granted to the Named Executive Officers in fiscal 2009:

		Number of								Number of Restricted
		Non-Qualified Stock								Stock Units Subject
		Options Subject to								To Time-Based
Name		Time-Based Vesting				Exercise Price(1)				Vesting
Ben R. Leedle, Jr.			108,424			$	11.57				53,724
Mary A. Chaput			43,498			$	11.57				21,598
Matthew Kelliher			31,504			$	11.57				15,610
Anne M. Wilkins			43,363			$	11.57				21,531
Stefen F. Brueckner (2)			0								0
James E. Pope, MD			42,220			$	11.57				20,965

     The nonqualified stock options and restricted stock units are subject to the terms of the 2007 Stock Incentive Plan and the individual award agreements. The Committee believes equity grants should be reflective of the long-term strategy of the Company and be reflective of contemporary market practices. To achieve this objective, a four-year graded vesting schedule was put in place for each equity award. Specifically, each option vests 25% per year on each anniversary of the grant date, has a ten-year term, and has an exercise price equal to the fair market value of our common stock at the time of the grant, as determined by the closing price of our common stock on the NASDAQ on the grant date. Each restricted stock unit vests 25% per year on each anniversary of the grant date. Generally, all equity awards granted to Named Executive Officers fully vest in the event of a Change in Control, death, disability or in the event of early or normal retirement (as defined in the 2007 Plan). In addition, as provided in the employment agreements of our Named Executive Officers (other than Mr. Kelliher), in the event of a termination without cause or resignation by the executive for good reason, the equity awards would accelerate and fully vest. For a detailed discussion of potential severance and change of control benefits, see “Potential Payments Upon Termination or Change in Control of the Company,” beginning on page 42 of this Proxy Statement.

     Prospective Performance Cash Awards. To further align Named Executive Officers’ compensation with long-term stockholder interests while working within the limitations of our current equity pool, the Committee replaced the retrospective performance cash award (described below), which is being phased out over a two-year period, with a prospective performance cash award. The prospective performance cash award is a cash-based grant with three, forward-looking one-year performance periods and is granted pursuant to our 2007 Plan.

     Each one-year period provides the recipient with the opportunity to earn up to one-third of the total amount granted for that plan year, provided that certain Company performance metrics pre-approved by the Committee are achieved. In the event that the Company exceeds its performance metrics, the Named Executive Officers could receive awards in excess of such amounts. Based on achievement of the performance metrics, the award earned by the grantee vests on the third anniversary of the grant date. As part of the Company’s retention strategy, actual payment of each plan year’s award is not made until the end of the three-year period based on the cumulative achievement of each one-year period.

     For the fiscal 2009 grant, the performance metric required for 100% funding was earnings per share of $0.90 (excluding a legal settlement and related costs in March 2009). Based on actual EPS achievement of $1.04, 100% of the first year cash award was credited to participants. Based on plan provisions and Company achievement, the following awards were granted and earned for year one of the fiscal 2009 grant:

						Fiscal 2009 Year One
		Fiscal 2009 Prospective				Prospective Performance
Name		Performance Cash Grant				Cash Award Earned
Ben R. Leedle, Jr.		$	1,432,194			$	477,398
Mary A. Chaput			442,482				147,494
Matthew Kelliher			416,146				138,715
Anne M. Wilkins			440,697				146,899
Stefen F. Brueckner			522,500				174,167
James E. Pope, MD			384,027				128,009

     Retrospective Performance Cash Awards. Following the work completed by Hewitt, the Committee determined that a prospective performance cash award (as discussed above), would better align the interests of our Named Executive Officers with those of our stockholders based on the achievement of objectives set forth at the beginning of each plan year. As such, the Committee elected to replace the retrospective performance cash award, which was established in 2005 to supplement long-term equity incentive awards and was based on the Company’s EPS growth (excluding the impact of the long-term incentive awards) over a three-year lookback period, with the prospective performance cash award. A two-year sunset period was established to recognize the period of time that must transpire before the prospective plan reflects three years of performance. As such, the fiscal 2009 retrospective performance cash award (for fiscal 2007, 2008 and 2009 performance) paid in 2010 was calculated based on the formula below and factored by two-thirds, with the total payout indicated below. The award to be paid in 2011 (for fiscal 2008, 2009, and 2010 performance) will be factored by one-third and will be the last award paid under this plan. For fiscal 2009, the performance awards for the Named Executive Officers were based on the following formula:

Performance Award (1) = (average base salary for such executive over the most recent three fiscal years) times (the Company’s average EPS growth (excluding the impact of the long-term incentive awards) over the most recent three fiscal years).

     Based on the above formula, the following retrospective performance cash awards for performance in fiscal 2007, 2008 and 2009 were awarded to our Named Executive Officers in 2010:

		Retrospective
		Performance
Name		Cash Award
Ben R. Leedle, Jr.		$	25,754
Mary A. Chaput			7,041
Matthew Kelliher			6,615
Anne M. Wilkins (1)			4,866
Stefen F. Brueckner (2)			0
James E. Pope, MD			7,290

     Long-Term Performance Award for Mr. Kelliher. The Committee believes Healthways’ international business represents a substantial growth opportunity for the Company. In order to properly align and incentivize Mr. Kelliher to develop the Company’s international business operations in a profitable manner, on September 29, 2006, the Committee granted a long-term performance award to Mr. Kelliher under the Company’s 1996 Stock Incentive Plan, as amended (the “1996 Plan”). This award provides Mr. Kelliher a cash-based incentive to develop the Company’s international business by entering into signed contracts with respect to foreign countries (“Signed Contracts”) during the four-year period beginning on September 1, 2006 and ending on August 31, 2010. The amount that Mr. Kelliher may earn under this award while employed as head of the Company’s international operations will depend on (1) Signed Contracts entered into with respect to new foreign countries, (2) the Company’s net revenue derived from Signed Contracts, (3) the achievement of adjusted operating margins in excess of targeted levels derived from Signed Contracts, and (4) the expansion of the Company’s international commercial relationships. The maximum amount that Mr. Kelliher may earn under this long-term performance award during any fiscal year within the four-year performance period is $1,000,000. This is in addition to long-term incentives he receives for being an executive officer. For fiscal 2009 and the four-month transition period ended December 31, 2008, Mr. Kelliher was granted long-term performance awards of $366,555 and $200,338, respectively, based upon achieving certain targets discussed above with respect to the Company’s international business operations.

     Earned amounts generally vest on August 31, 2010 based on continued eligible employment during the performance period and are eligible to be paid to Mr. Kelliher after vesting. Accelerated vesting will result if (1) Mr. Kelliher terminates employment due to disability, death, or an event that entitles him to severance benefits under his employment agreement, or (2) Mr. Kelliher remains an eligible employee on a Change in Control (as defined under the 1996 Plan) or a sale of the Company’s international business operations. Except as described below, earned and vested amounts will be paid as soon as practicable following the performance period or, if earlier, an event described in (2) above.

     As consideration for this award, Mr. Kelliher extended his non-competition and non-solicitation obligations to the Company from one to two years after termination from employment with the Company. Mr. Kelliher also agreed that otherwise earned and vested amounts under this award will not be payable if Mr. Kelliher materially breaches any of these obligations.

     Purchase of Outstanding Employee-Granted Stock Options. Not unlike many other companies, the significant decline in the Company’s stock price leading up to the end of calendar year 2008 had resulted in most of the Company’s outstanding stock options being significantly out of the money as a result of the exercise price of these options being significantly in excess of the trading prices of the Company’s stock at that time. As a result, the Committee did not believe these outstanding options provided the retentive and incentive value that was the basis for their grant, yet we continued to incur the ongoing compensation cost related to these options as measured at their grant dates. In addition, we did not have a sufficient number of shares available under the Company’s 2007 Stock Incentive Plan to include equity-based awards as a component of the Company’s long-term incentive compensation strategy consistent with the Company’s compensation philosophy. After considering this situation with management and the Committee’s independent compensation consultant, the Committee and the Board of Directors determined that it was in the best interests of the Company’s stockholders to offer to purchase from our employees (other than our Chief Executive Officer and Board of Directors) options granted under the Company’s stock incentive plans between September 1, 2004 and August 15, 2008. These options had exercise prices ranging from $25.31 to $66.97 per share. The per option cash amount we offered to pay for each eligible option that was tendered to us ranged from $0.29 to $2.10, with an average price of $0.66. At the commencement of the offer, there were options to purchase 1,321,502 shares of the Company’s common stock that were outstanding and subject to the offer. Ultimately, there were 1,110,228 shares tendered for a total cash payment of $736,049.

Shares underlying the options purchased pursuant to the offer increased the shares available for grant under the 2007 Stock Incentive Plan.

     Stock Retention Guidelines. To further align officers’ interests with stockholders’ interests, in August 2005 the Board of Directors adopted stock retention guidelines for officers. As amended, the guidelines require officers to maintain a minimum ownership in the Company’s stock based on a multiple of their base salary (at least 2.5 times base salary for Named Executive Officers and 4 times base salary for the Chief Executive Officer). Officers must retain 75% of the net number of shares acquired (after payment of exercise price, if any, and taxes) upon the exercise of stock options and vesting of restricted stock units granted on or after August 24, 2005 until they reach the required multiple of base salary. Officers who do not comply with the guidelines may not be eligible for future equity awards.

     As a result of (i) the significant decline in the Company’s stock price, (ii) the completion of the option tender offer discussed above, (iii) the decrease in the percentage of equity issued as part of our long-term incentive awards due to the limitation in the availability of shares under our 2007 Stock Incentive Plan and (iv) the completion of the update to our broad-based compensation structure as well as significant changes in the titling structure of our officers, the Company is in the process of reviewing its stock retention guidelines to ensure that the established stock retention guidelines are appropriate and remains committed to retention guidelines.

     Retirement Plans. The Committee believes that an important aspect of attracting and retaining qualified individuals to serve as Named Executive Officers involves providing methods for those individuals to save for retirement. As part of the 401(k) Plan, which is based on a calendar year, we have provided a matching contribution of 52 cents for each dollar of the participant’s voluntary salary contributions up to 6% of base salary. The annual maximum participant voluntary salary contributions for calendar 2008 and 2009, as established by the Internal Revenue Service, was $15,500 and $16,500, respectively, plus a $5,000 “catch-up” contribution limit (only for those over 50 years old). Approximately 29% of the Company matching contribution is in the form of Company Common Stock. All matching Company contributions to the 401(k) Plan vest after five years of service with the Company and are payable pursuant to the provisions of the 401(k) Plan.

     Under the Company’s Capital Accumulation Plan, which is based on a calendar year, contributions are made to the Capital Accumulation Plan on behalf of all of the Company’s officers, including the Named Executive Officers, that for calendar 2009 were based on (a) a percentage of the officer’s voluntary salary deferrals into the Capital Accumulation Plan and (b) performance against targeted Company Domestic EPS for fiscal 2009 established by the Committee. For fiscal 2009, the portion of the Company’s contribution that was based on the officer’s voluntary salary deferrals provided that to the extent the officer could not defer at least 6% of his/her base salary under the 401(k) Plan because of Internal Revenue Service maximum contribution limits, then the officer could defer the difference between his/her actual deferral and 6% of his/her annual base salary into the Capital Accumulation Plan, and the Company would provide a matching contribution of up to 52% of the amount deferred. Each officer was also eligible to contribute up to an additional 4% of base salary into the Capital Accumulation Plan, but no matching contribution was made by the Company for this portion of the salary deferral.

     With respect to the portion of the Capital Accumulation Plan contribution that is based on performance criteria for fiscal 2009 established by the Committee, officers were eligible to receive a Company contribution of between 0% and 13.5% of base salary for calendar 2009, based on the Company’s actual Domestic EPS as compared to the Domestic EPS target. In recent years, the high end of the contribution was established at 18.5%, but was reduced to 13.5% in fiscal 2009, which is believed to be an appropriately competitive level for fiscal 2009. For fiscal 2009, the Domestic EPS target at which contributions began was set at $1.00. Awards were made as of December 31 based on performance criteria for the fiscal year ending December 31. The actual performance award under the Capital Accumulation Plan

credited to participants, including the Company’s Named Executive Officers, during fiscal 2009 was an award of 13.5% of base salary earned during calendar 2009.

     The Company’s contributions to the Capital Accumulation Plan vest equally over four years from the beginning of the plan year, and vested amounts are paid out upon the earliest of (1) one year following an officer’s termination of employment, (2) one year following normal or early retirement, (3) 90 days following death or disability, or (4) a date selected prior to the beginning of each Capital Accumulation Plan year by the officer, but in no event will this selected date be earlier than four years from the beginning of the Capital Accumulation Plan year. In certain instances, payments upon termination of service may be delayed six months pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). Capital Accumulation Plan account balances earn interest at a rate equal to the prevailing prime rate of interest plus 1% as of November 1 of each year for the succeeding calendar year. The Capital Accumulation Plan is not funded and is carried as an unsecured obligation of the Company. Each of the Named Executive Officers participated in the Company’s Capital Accumulation Plan during fiscal 2009.

     Severance and Change of Control Benefits. The Committee believes that reasonable severance and change in control benefits are necessary in order to recruit and retain effective senior managers. These severance benefits reflect the fact that it may be difficult for such executives to find comparable employment within a short period of time, and are a product of a generally competitive recruiting environment within our industry. The Committee also believes that a change in control arrangement provides an appropriate level of security to an executive that will likely reduce the reluctance of that executive to pursue a change in control transaction that could be in the best interests of our stockholders. Although the Committee independently reviewed the potential severance and change in control payments in light of their reasonableness as part of negotiating the employment agreements with our Named Executive Officers, the Committee typically does not consider the value of potential severance and change in control payments when assessing annual compensation as these payouts are contingent and have primary purposes unrelated to ordinary compensation matters. In connection with the amended and restated employment agreements entered into with the Named Executive Officers in February 2006, the Committee assessed the reasonableness of the potential severance and change in control payments. For a detailed discussion of potential severance and change of control benefits as well as an estimate of the amounts that would have been payable had they been triggered as of the end of fiscal 2009, see “Potential Payments Upon Termination or Change in Control of the Company,” beginning on page 42 of this Proxy Statement.

     Perquisites and Other Benefits. The Company has previously paid relocation expenses, either in the form of reimbursement or a lump sum payment, to the Named Executive Officers who have relocated to the Nashville, Tennessee area in order to assume their positions with the Company, and has made tax gross up payments to such officers to cover income tax associated with such payments. The Named Executive Officers are also eligible for benefits generally available to and on the same terms as the Company’s employees who are exempt for purposes of the Fair Labor Standards Act, including health insurance, disability insurance, dental insurance, and life insurance.

     Tax Deductibility of Compensation. Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility on the Company’s tax return of compensation over $1.0 million to the Chief Executive Officer, Chief Financial Officer, or any of the other three most highly compensated Named Executive Officers serving at the end of the fiscal year unless, in general, the compensation is paid pursuant to a plan which is performance-related, non-discretionary, and has been approved by the Company’s stockholders. The Committee considered the impact of Section 162(m) in setting compensation for fiscal 2009 with the goal of providing for compensation that was deductible to the extent permitted while simultaneously providing compensation consistent with the Company’s philosophy. The Committee intends to structure performance-based compensation awarded in the future to Named Executive Officers who may be subject to Section 162(m) in a manner that satisfies the relevant requirements. The Committee, however, reserves the authority to award non-deductible compensation as deemed appropriate. Further, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and related regulations, no assurance

can be given that compensation intended to satisfy the requirements for deductibility under Section 162(m) will in fact do so.

     Compensation Decisions for fiscal 2010. In evaluating how best to implement the Company’s compensation philosophy for fiscal 2010, the Committee reviewed with management the Company’s overall compensation strategy. Pursuant to the work completed by Hewitt, the Committee believes the Company’s overall compensation levels are competitive, but require a slight shift in the mix of pay components. As a result, the Committee has not provided base salary increases to any Named Executive Officers, or changed short-term incentive target opportunities from the levels established in fiscal 2009, and the Committee has slightly reduced long-term incentive target opportunities for the Company’s Named Executive Officers (with the exception of our President and Chief Operating Officer, whose target opportunity will remain the same). The Committee determined that a long-term incentive compensation strategy utilizing a mix of stock options, restricted stock units and performance-based cash compensation as part of the Company’s overall compensation strategy continues to be a key component of the Company’s ability to attract, retain and motivate the management team. However, due to the current limitations of available shares in the 2007 Stock Incentive Plan, the Committee was required to adjust the mix of stock options, restricted stock units and long-term performance-based cash incentives awarded during fiscal 2010 to accommodate share availability. As a result, the relative mix of long-term incentive components provided during our February 2010 annual grant was approximately 57% performance cash, 8% restricted stock units and 35% stock options. As previously discussed, we are submitting for stockholder approval an amendment and restatement to increase the share reserve under the 2007 Stock Incentive Plan to ensure continued ability to attract, retain and reward key employees throughout the Company.

Compensation Committee Report

The following Report of the Compensation Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

     The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Respectfully submitted,

Jay C. Bisgard, M.D., Chairman

Alison Taunton-Rigby, Ph.D.

C. Warren Neel, Ph.D.

Mary Jane England, M.D.

William Novelli

Compensation Committee Interlocks and Insider Participation

     During fiscal 2009, the Compensation Committee of the Board of Directors was composed of Drs. Bisgard, Neel, England, and Taunton-Rigby and Mr. Novelli, who was appointed to the committee in August 2009 in connection with his appointment to the Board of Directors. None of these persons has at any time been an officer or employee of the Company or any of the Company’s subsidiaries. In addition, there are no relationships among the Company’s executive officers, members of the Compensation Committee or entities whose executives serve on the Board of Directors or the Compensation Committee that require disclosure under applicable Commission regulations.

Summary Compensation Table

     The following table provides information regarding the compensation during fiscal 2009, the four-month transition period ended December 31, 2008 (the “Transition Period” or “2008T”), fiscal 2008 and 2007 to the Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers, as well as one additional highly compensated individual who was not serving as an executive officer of the Company as of December 31, 2009 (the “Named Executive Officers”).

     The Named Executive Officers were not entitled to receive payments that would be characterized as “Bonus” payments for fiscal 2009, the Transition Period, fiscal 2008 or fiscal 2007. As described under “Compensation Discussion and Analysis,” there was an award payment that would be characterized as “Non-Equity Incentive Plan Compensation” made to the Named Executive Officers pursuant to the terms of the 2009 Annual Incentive Award Plan. There were no such payments made to the Named Executive Officers pursuant to the terms of the 2008 Annual Incentive Award Plan or the 2007 Short-Term Incentive Plan.

     Based on the dollar amounts recognized for financial statement reporting purposes for equity incentives and the base salary of the Named Executive Officers, “Salary” accounted for approximately 28%, 31%, 29% and 40% of the total compensation of the Named Executive Officers in fiscal 2009, 2008T, 2008 and 2007, respectively; equity-based incentive compensation accounted for 34%, 43%, 53% and 58% of total compensation in fiscal 2009, 2008T, 2008 and 2007, respectively; and other compensation accounted for 38%, 26%, 18%, and 2% of total compensation in fiscal 2009, 2008T, 2008 and 2007; respectively.

																						Change in
																						Pension
																						Value and
																						Nonqualified
																		Non-Equity				Deferred
										Stock				Option				Incentive Plan				Compensation				All Other
										Awards				Awards				Compensation				Earnings				Compensation
Name and						Salary				($)				($)				($)				($)				($)
Principal Position		Year				($)				(1)				(2)				(3)				(4)				(5)				Total ($)
Ben R. Leedle, Jr.			2009			$	712,400			$	621,587			$	724,579			$	961,694			$	—			$	119,670	(6)		$	3,139,930
Chief Executive Officer			2008T			$	237,240			$	—			$	—			$	152,802			$	4,516			$	8,169	(6)		$	402,727
			2008			$	685,000			$	625,849			$	1,087,853			$	318,167			$	15,244			$	75,672	(6)		$	2,807,785
			2007			$	660,000			$	419,984			$	840,000			$	—			$	17,021			$	21,504			$	1,958,509
Mary A. Chaput			2009			$	390,174			$	249,889			$	290,690			$	342,889			$	—			$	84,696			$	1,358,338
Vice President and Chief			2008T			$	129,990			$	—			$	—			$	62,766			$	2,147			$	5,047			$	199,950
Financial Officer			2008			$	375,167			$	189,344			$	333,198			$	87,097			$	7,220			$	45,102			$	1,037,128
			2007			$	359,700			$	131,997			$	263,992			$	—			$	8,659			$	14,538			$	778,886
Matthew E. Kelliher			2009			$	366,950			$	180,608			$	210,536			$	630,042	(7)		$	—			$	99,498	(8)		$	1,487,634
President, International			2008T			$	120,593			$	—			$	—			$	239,229	(7)		$	1,641			$	4,147			$	365,610
			2008			$	348,381			$	182,798			$	319,397			$	391,625	(7)		$	6,841			$	35,772			$	1,284,814
Anne M. Wilkins			2009			$	388,600			$	249,114			$	289,788			$	330,638			$	—			$	129,328			$	1,387,468
Vice President, Strategy & Marketing			2008T			$	134,640			$	—			$	—			$	61,917			$	76			$	19,135	(9)		$	215,768

																						Change in
																						Pension
																						Value and
																						Nonqualified
																		Non-Equity				Deferred
										Stock				Option				Incentive Plan				Compensation				All Other
										Awards				Awards				Compensation				Earnings				Compensation
Name and						Salary				($)				($)				($)				($)				($)
Principal Position		Year				($)				(1)				(2)				(3)				(4)				(5)				Total ($)
Stefen F. Brueckner			2009			$	475,000			$	—			$	—			$	426,699			$	—			$	83,039			$	984,738
President and Chief Operating Officer			2008T			$	65,783			$	—			$	1,126,024			$	34,966			$	—			$	211,798	(10)		$	1,438,571
James E. Pope, MD			2009			$	375,283			$	242,565			$	282,149			$	308,454			$	—			$	94,818			$	1,303,269
Vice President, Science &			2008T			$	140,109			$	—			$	—			$	64,435			$	2,240			$	6,198			$	212,982
Value			2008			$	404,400			$	201,722			$	355,759			$	92,243			$	7,791			$	46,862			$	1,108,777
			2007			$	385,143			$	135,285			$	270,610			$	—			$	8,207			$	13,520			$	812,765

Grants of Plan-Based Awards in Fiscal 2009 and the Transition Period

     The following table sets forth the plan-based awards granted to the Company’s Named Executive Officers during fiscal 2009 and the Transition Period.

																		All Other				All Other
																		Stock				Option
																		Awards:				Awards:
						Estimated Possible Payouts												Number				Number of				Exercise				Grant Date
						Under Non-Equity Incentive												of Shares				Securities				or Base				Fair Value
						Plan Awards												of Stock				Underlying				Price of				of Stock
						(1)												or Units				Options				Option				and Option
		Grant				Threshold				Target				Maximum				(#)				(#)				Awards				Awards
Name		Date				($)				($)				($)				(8)				(8)				($/Sh)				($)
Ben R. Leedle, Jr.						$	—			$	664,748	(2)			(2	)
Ben R. Leedle, Jr.						$	—			$	25,754	(3)			(4	)
Ben R. Leedle, Jr.						$	—			$	1,432,194	(5)			(6	)
Ben R. Leedle, Jr.			2/12/09																53,724											$	621,587
Ben R. Leedle, Jr.			2/12/09																				108,424			$	11.57			$	724,579
Mary A. Chaput						$	—			$	260,082	(2)			(2	)
Mary A. Chaput						$	—			$	7,041	(3)			(4	)
Mary A. Chaput						$	—			$	442,482	(5)			(6	)

																		All Other				All Other
																		Stock				Option
																		Awards:				Awards:
						Estimated Possible Payouts												Number				Number of				Exercise				Grant Date
						Under Non-Equity Incentive												of Shares				Securities				or Base				Fair Value
						Plan Awards												of Stock				Underlying				Price of				of Stock
						(1)												or Units				Options				Option				and Option
		Grant				Threshold				Target				Maximum				(#)				(#)				Awards				Awards
Name		Date				($)				($)				($)				(8)				(8)				($/Sh)				($)
Mary A. Chaput			2/12/09																21,598											$	249,889
Mary A. Chaput			2/12/09																				43,498			$	11.57			$	290,690
Matthew E. Kelliher						$	—			$	243,772	(2)			(2	)
Matthew E. Kelliher						$	—			$	6,615	(3)			(4	)
Matthew E. Kelliher						$	—			$	416,146	(5)			(6	)
Matthew E. Kelliher						$	—			$	566,893	(7)			(7	)
Matthew E. Kelliher			2/12/09																15,610											$	180,608
Matthew E. Kelliher			2/12/09																				31,504			$	11.57			$	210,536
Anne M. Wilkins						$	—			$	261,620	(2)			(2	)
Anne M. Wilkins						$	—			$	4,866	(3)			(4	)
Anne M. Wilkins						$	—			$	440,697	(5)			(6	)
Anne M. Wilkins			2/12/09																21,531											$	249,114
Anne M. Wilkins			2/12/09																				43,363			$	11.57			$	289,788
Stefen F. Brueckner						$	—			$	297,431	(2)			(2	)
Stefen F. Brueckner						$	—			$	522,500	(5)			(6	)
Stefen F. Brueckner			10/31/08																				225,000			$	10.10			$	1,126,024
James E. Pope, M.D.						$	—			$	257,696	(2)			(2	)
James E. Pope, M.D.						$	—			$	7,290	(3)			(4	)

All Other

All Other

Stock

Option

Awards:

Awards:

Estimated Possible Payouts

Number

Number of

Exercise

Grant Date

Under Non-Equity Incentive

of Shares

Securities

or Base

Fair Value

Plan Awards

of Stock

Underlying

Price of

of Stock

(1)

or Units

Options

Option

and Option

Grant

Threshold

Target

Maximum

(#)

(#)

Awards

Awards

Name

Date

($)

($)

($)

(8)

(8)

($/Sh)

($)

James E. Pope, M.D.

$

—

$

384,027

(5)

(6

)

James E. Pope, M.D.

2/12/09

20,965

$

242,565

James E. Pope, M.D.

2/12/09

42,220

$

11.57

$

282,149

Compensation Programs for Fiscal 2009

     As reflected in the above Summary Compensation Table and Grants of Plan-Based Awards Table, the primary components of our fiscal 2009 compensation programs were base salary, short-term incentive plan compensation, equity awards, performance cash awards and awards under retirement plans. For a detailed discussion of each of these components, see the “Compensation Discussion and Analysis” section of this Proxy Statement.

Outstanding Equity Awards at Fiscal 2009 Year-End

     The following tables provide information with respect to outstanding stock options and restricted stock units held by the Named Executive Officers as of December 31, 2009.

		OPTION AWARDS
						Number
						of				Number of
						Securities				Securities
						Underlying				Underlying
						Unexercised				Unexercised				Option
		Option				Options				Options				Exercise				Option
		Grant				(#)				(#)				Price				Expiration
Name		Date				Exercisable				Unexercisable				($)				Date
Ben R. Leedle, Jr.			6/23/00				11,250				—			$	1.36				6/23/10
			9/29/00				45,000				—				1.89				9/29/10
			10/8/01				150,000				—				11.58				10/8/11
			8/27/02				200,000				—				7.24				8/27/12
			8/27/03				300,000				—				17.51				8/27/13
			8/24/04				300,000				—				26.33				8/24/14
			8/24/05				335,798				—				43.44				8/24/12
			10/2/06				—				39,599	(1)			42.69				10/2/13
			10/8/07				—				42,721	(1)			55.01				10/8/14
			2/12/09				—				108,424	(2)			11.57				2/12/19
Mary A. Chaput			10/1/01				90,000				—			$	11.58				10/1/11
			8/27/02				100,000				—				7.24				8/27/12
			8/27/03				40,000				—				17.51				8/27/13
			8/24/04				25,000				—				26.33				8/24/14
			2/12/09				—				43,498	(2)			11.57				2/12/19
Matthew E. Kelliher			8/24/04				25,000				—			$	26.33				8/24/14
			2/12/09				—				31,504	(2)			11.57				2/12/19

OPTION AWARDS

Number

of

Number of

Securities

Securities

Underlying

Underlying

Unexercised

Unexercised

Option

Option

Options

Options

Exercise

Option

Grant

(#)

(#)

Price

Expiration

Name

Date

Exercisable

Unexercisable

($)

Date

Anne M. Wilkins

2/12/09

—

43,363

(2)

$

11.57

2/12/19

Stefen F. Brueckner

10/31/08

56,250

168,750

(2)

$

10.10

10/31/15

James E. Pope, M.D.

10/29/03

100,000

—

$

21.67

10/29/13

8/24/04

25,000

—

26.33

8/24/14

2/12/09

—

42,220

(2)

11.57

2/12/19

		STOCK AWARDS
										Market
						Number				Value of
						of Shares				Shares or
						or Units				Units of
						of Stock				Stock That
		Stock				That Have				Have Not
		Award				Not				Vested
		Grant				Vested				($)
Name		Date				(#)				(5)
Ben R. Leedle, Jr.			10/2/06				9,838	(3)		$	180,429
			10/8/07				11,377	(3)			208,654
			2/12/09				53,724	(4)			985,298
Mary A. Chaput			10/2/06				3,092	(3)		$	56,707
			10/8/07				3,442	(3)			63,126
			2/12/09				21,598	(4)			396,107
Matthew E. Kelliher			10/2/06				3,092	(3)		$	56,707
			10/8/07				3,323	(3)			60,944
			2/12/09				15,610	(4)			286,287
Anne M. Wilkins			5/12/08				20,000	(3)		$	366,800
			2/12/09				21,531	(4)			394,879
Stefen F. Brueckner			—				—				—
James E. Pope, M.D.			10/2/06				3,169	(3)		$	58,119
			10/8/07				3,667	(3)			67,253
			2/12/09				20,965	(4)			384,498

Option Exercises and Stock Vested in Fiscal 2009 and the Transition Period

     The following table provides information on stock option exercises and restricted stock units that vested on behalf of our Named Executive Officers during fiscal 2009 and the Transition Period.

		Option Awards								Stock Awards
		Number of								Number of
		Shares				Value Realized				Shares
		Acquired				on Exercise				Acquired				Value Realized
		on Exercise				($)				on Vesting				on Vesting
Name		(#)				(1)				(#)				($)
Ben R. Leedle, Jr.			39,188			$	552,714				8,235			$	115,537
Mary A. Chaput			—				—				2,692				37,769
Matthew E. Kelliher			—				—				3,012				42,258
Anne M. Wilkins			—				—				—				—
Stefen F. Brueckner			—				—				—				—
James E. Pope, M.D			—				—				2,824				39,621

Nonqualified Deferred Compensation in Fiscal 2009 and the Transition Period

     Our Capital Accumulation Plan, which is based on a calendar year, is a nonqualified deferred compensation plan that allows highly compensated employees, including the Named Executive Officers, to defer up to 10% of their base salary. For a further discussion of the CAP, please see the “Compensation Discussion and Analysis” section beginning on page 20.

     The following table shows the activity in the CAP for each Named Executive Officer for the Transition Period and fiscal 2009 as well as the ending balance as of December 31, 2009.

																										Aggregate
										Registrant				Registrant				Aggregate								With-				Aggregate
		Executive								Contri-				Contri-				Earnings								drawals/				With-
		Contributions				Executive				butions in				butions in				in				Aggregate				Distri-				drawals/
		in Transition				Contributions				Transition				Last Fiscal				Transition				Earnings in				butions in				Distri-				Aggregate
		Period				in Last Fiscal Year				Period				Year				Period				Last Fiscal				Transition				butions in				Balance
		($)				($)				($)				($)				Year ($)				Year ($)				Period				Last Fiscal Year				at Last
Name		(1)				(1)				(2)				(2)				(3)				(3)								($)				Fiscal Year-End ($)
Ben R. Leedle, Jr.		$	23,712			$	68,500			$	65,900			$	110,617			$	11,497			$	18,960			$	—			$	169,871			$	545,750
Mary A. Chaput		$	12,986			$	37,517			$	33,792			$	57,126			$	5,468			$	9,098			$	—			$	84,785			$	268,427
Matthew E. Kelliher		$	—			$	—			$	27,174			$	49,461			$	4,169			$	4,555			$	—			$	95,328			$	145,116