AMENDMENT NO. 3 TO CREDIT AGREEMENT

EXHIBIT 10.1

AMENDMENT NO. 3 TO CREDIT AGREEMENT

AMENDMENT NO. 3 (this “Amendment”) dated as of October 19, 2006, to the $400,000,000 Amended and Restated Credit Agreement dated as of June 28, 2004 (as heretofore amended, the “Credit Agreement”) among KINDRED HEALTHCARE, INC. (the “Borrower”), the LENDERS party thereto, and JPMORGAN CHASE BANK, N.A. (formerly known as JPMorgan Chase Bank), as Administrative Agent and Collateral Agent.

W I T N E S S E T H:

WHEREAS, the parties hereto desire to amend certain provisions of the Credit Agreement as provided herein;

NOW, THEREFORE, the parties hereto agree as follows:

SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Credit Agreement shall, after the amendments herein become effective, refer to the Credit Agreement as amended hereby.

SECTION 2. Defined Terms. The definition of “HCPI Transaction” in Section 1.01 of the Credit Agreement is amended and restated in its entirety to read as follows:

““HCPI Transaction” means (a) the transaction pursuant to which a Credit Party acquired the HCPI Property referred to as “MO# 860/861” in Part A of Schedule 1.01J from Health Care Property Investors, Inc. (together with its affiliates, “HCPI”) and, substantially simultaneously therewith and as sole consideration for which acquisition, entered into a Sale and Leaseback Transaction with respect to the HCPI Property referred to as “TN# 274” in Part A of Schedule 1.01J with HCPI and (b) the proposed transaction pursuant to which a Credit Party acquires the HCPI Properties referred to in Part B of Schedule 1.01J from HCPI and, substantially simultaneously therewith and as consideration for which acquisition, pays HCPI cash consideration of $23,000,000 and enters into a Sale and Leaseback Transaction with respect to the HCPI Properties referred to in Part C of Schedule 1.01J with HCPI, including $13,000,000 of supplemental rent.”

SECTION 3. Future Assets To Be Added To Collateral. Section 5.09(e) of the Credit Agreement is amended and restated in its entirety to read as follows:

“(e) If any Specified Property referred to in Part B of Schedule 1.01H with a fair market value exceeding $6,000,000 (in the case of a hospital) or $3,000,000 (in all other cases) has not been sold on or prior to the date that is nine months after the date on which the transaction referred to in clause (b) of the definition of “HCPI Transaction” is consummated (the date on which such transaction is consummated, the “HCPI Transaction Consummation Date”) (other than to the Borrower or any Subsidiary of

the Borrower), the Borrower shall promptly (and in any event by no later than the date that is ten months after the HCPI Transaction Consummation Date) cause such Specified Property to be added to the Collateral by delivering to the Agent a Mortgage with respect thereto. Prior to such time, the Borrower shall ensure that no Lien (other than Permitted Encumbrances) over any such Specified Property is granted to any Person.”

SECTION 4. Credit Agreement Schedules. (a) Schedule 1.01H to the Credit Agreement is replaced in its entirety with Schedule 1.01H attached hereto.

(b) Schedule 1.01J to the Credit Agreement is replaced in its entirety with Schedule 1.01J attached hereto.

SECTION 5. Representations Correct; No Default. The Borrower represents and warrants that (i) the representations and warranties contained in the Financing Documents are true as though made on and as of the date hereof and will be true on and as of the Amendment Effective Date (as defined below) as though made on and as of such date and (ii) no Default has occurred and is continuing on the date hereof and no Default will occur or be continuing on the Amendment Effective Date.

SECTION 6. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

SECTION 7. Effectiveness. (a) This Amendment shall become effective as of the date hereof on the date (the “Amendment Effective Date”) when the Administrative Agent shall have received duly executed counterparts hereof signed by the Borrower, the Subsidiary Guarantors and the Required Lenders (or, in the case of any Lender as to which an executed counterpart shall not have been received, the Administrative Agent shall have received facsimile or other written confirmation from such party of execution of a counterpart hereof by such Lender).

(b) Except as expressly set forth herein, the amendments contained herein shall not constitute a waiver or amendment of any term or condition of the Credit Agreement or any other Financing Document, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects.

SECTION 8. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date and year first above written.

SCHEDULE 1.01H

SPECIFIED PROPERTIES

Part A

Capital Stock

All of the issued and outstanding capital stock of Transitional Hospitals Corporation of Michigan, Inc.

Facilities

Part B

SCHEDULE 1.01J

HCPI PROPERTIES

Part A

Part B

Part B

Part C