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Yes you should send them to rehab.
Yes you should replace the worse players with better players.
As you clean up the roster, be careful to keep some less-than-horrible roster filler in AAA so you can use them in an injury emergency rather than have to go sign or trade for someone to fill in while you have a guy out for a couple of weeks. I like to have a C, an IF, and an OF with ML experience stashed in AAA, not necessarily on the 40-man roster (in fact I prefer to have those sorts on minor league contracts).
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