<PAGE>


                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                   ---------------

                                      FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
    FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
                                          OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                             COMMISSION FILE NO. 0-21440

                                   ---------------

                           PHYSICIAN CORPORATION OF AMERICA
                (Exact name of Registrant as specified in its charter)

                    DELAWARE                     48-1006287
          (State or Other Jurisdiction of       (IRS Employer
         Incorporation or Organization)      Identification No.)


                                5835 BLUE LAGOON DRIVE
                                   MIAMI, FL 33126
                  (Principal Executive Offices, Including Zip Code)
          Registrant's telephone number including area code: (305) 267-6633

                                   ---------------

Indicate by check mark whether the Registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past ninety days.
                                    Yes   X    No
                                     ------    ------

                  APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                     PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether Registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.

                                  Not Applicable   X
                                              -----

                        APPLICABLE ONLY TO CORPORATE ISSUERS:

                                        NUMBER OF SHARES OUTSTANDING
                TITLE OF EACH CLASS         AT SEPTEMBER 30, 1996
                  Common Stock                   38,827,656


<PAGE>

                           PHYSICIAN CORPORATION OF AMERICA

                            QUARTERLY REPORT ON FORM 10-Q
                         FOR QUARTER ENDED SEPTEMBER 30, 1996

                                  TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----
PART I.  Financial Information
   Item 1.    Financial Statements                                          1-9
   Item 2.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                   10-14
PART II.  Other Information
   Item 1.    Legal Proceedings                                              15
   Item 2.    Changes in Securities                                          15
   Item 3.    Defaults Upon Senior Securities                                15
   Item 4.    Submission of Matters to a Vote of Security Holders            15
   Item 5.    Other Information                                              15
   Item 6.    Exhibits and Reports on Form 8-K                               15
Signature Page                                                               16


<PAGE>

                  PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
                       SEPTEMBER 30, 1996 AND DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                                                                    (UNAUDITED)
                                                                                   SEPTEMBER 30,        DECEMBER 31,
         ASSETS                                                                        1996                  1995
         ------                                                                    -------------        ------------
                                                                                             (IN THOUSANDS)
<S>                                                                                  <C>                 <C>
Current assets:
  Cash and cash equivalents                                                         $  101,307          $  164,706
  Short term investments                                                               227,434             131,185
  Accounts receivable, net of allowance of approximately
    $32,716 and $7,670 at September 30, 1996 and
    December 31, 1995, respectively:
       Trade (health premiums and administrative service fees)                         116,086              61,271
       Other                                                                            18,668              11,478
  Prepaid expenses, inventories and other current assets                                11,337               8,449
  Income taxes receivable                                                               52,305              20,580
  Deferred income tax benefit                                                           15,153              11,301
                                                                                   -------------        ------------
         Total current assets                                                          542,290             408,970
                                                                                   -------------        ------------

Property and equipment, net of accumulated depreciation
  of $20,314 and $22,652 at September 30, 1996 and
  December 31, 1995, respectively                                                       50,787              59,564
Long term investments                                                                  283,851             145,865
Deferred income tax benefit long-term                                                      721                -   
Statutory deposits and other assets                                                    153,064              43,141
Intangible assets:
  Goodwill, net of accumulated amortization of $18,729
    and $14,742 at September 30, 1996 and December 31,
    1995, respectively                                                                 151,224             164,871
  Other intangible assets net of accumulated amortization of
    $14,865 and $14,014 at September 30, 1996 and
    December 31, 1995, respectively                                                     18,263              27,251
                                                                                   -------------        ------------
         Total intangible assets                                                       169,487             192,122
                                                                                   -------------        ------------
                                                                                  $  1,200,200         $   849,662
                                                                                   -------------        ------------
                                                                                   -------------        ------------
</TABLE>


                                          1

<PAGE>

                  PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
                       CONSOLIDATED BALANCE SHEETS (CONTINUED)
                       SEPTEMBER 30, 1996 AND DECEMBER 31, 1995


<TABLE>
<CAPTION>

                                                                                   (UNAUDITED)
                                                                                   SEPTEMBER 30,        DECEMBER 31,
     LIABILITIES AND STOCKHOLDERS' EQUITY                                               1996                1995
                                                                                   -------------        ------------
                                                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                                                   <C>                 <C>
Current liabilities:
  Accounts payable, accrued expenses and other
    current liabilities                                                              $  95,427           $  55,592
  Health claims payable                                                                169,273             171,241
  Current portion of other claims payable, primarily
    workers' compensation                                                              112,056              23,629
  Unearned premiums and service fees                                                    23,144              54,398
  Current portion of long-term debt and obligations 
    under capital leases                                                               123,236              26,943
                                                                                   -------------        ------------
       Total current liabilities                                                       523,136             331,803

Long-term debt and obligations under capital leases,
  less current portion                                                                  10,911             157,096
Long-term portion of other claims payable, primarily
  workers' compensation                                                                494,698             138,894
Deferred income taxes                                                                       -                2,068
Deferred income and other long-term liabilities                                         54,946               9,632
                                                                                   -------------        ------------
       Total liabilities                                                             1,083,691             639,493
                                                                                   -------------        ------------

Stockholders' equity:
  Preferred stock, $1.00 par value, 10,000,000 shares 
    authorized; none issued and outstanding                                                 -                   - 
  Common stock, $.01 par value, authorized 200,000,000
    shares; issued and outstanding 38,827,656 and 38,608,913
    at September 30, 1996 and December 31, 1995, 
    respectively                                                                           388                 386
  Additional paid-in capital                                                           136,453             137,826
  Common stock held in treasury - at cost; 462,554 and
    681,292 shares at September 30, 1996 and December 31,
    1995, respectively                                                                 (9,246)            (12,565)
  Retained earnings (accumulated deficit)                                             (11,054)              84,058
  Unrealized (loss)/gain on investments                                                   (32)                 464
                                                                                   -------------        ------------
       Total stockholders' equity                                                      116,509             210,169
Commitment and contingencies
                                                                                   -------------        ------------
                                                                                  $  1,200,200          $  849,662
                                                                                   -------------        ------------
                                                                                   -------------        ------------
</TABLE>



                                          2

<PAGE>

                  PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS
           FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995


<TABLE>
<CAPTION>

                                                                    (UNAUDITED)                            (UNAUDITED)
                                                          THREE MONTHS ENDED SEPTEMBER 30,        NINE MONTHS ENDED SEPTEMBER 30,
                                                          ---------------------------------       --------------------------------
                                                              1996                 1995                1996              1995
                                                          -------------       -------------       -------------      -------------
                                                                          (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                       <C>                 <C>                 <C>                <C>
Revenues:
  Health premiums                                        $    323,539        $    264,092        $    966,350       $    763,221
  Workers compensation and other revenues (note D)             32,887              41,929             105,580            110,461
  Investment income                                             5,654               4,516              17,262             12,227
                                                          -------------       -------------       -------------      -------------
    Total revenues                                            362,080             310,537           1,089,192            885,909

Operating expenses:
  Medical costs                                               283,252             230,713             844,121            630,775
  Administrative, marketing and other expenses (note D)        70,756              74,029             232,012            213,545
  Loss on assumption of net workers' compensation
    liabilities (note D)                                      130,000                  -              130,000                 - 
  Depreciation and amortization                                 5,439               5,971              17,408             16,627
                                                           ------------        ------------        ------------       -------------
    Total operating expenses                                  489,447             310,713           1,223,541            860,947


  Operating income (loss)                                    (127,367)               (176)           (134,349)            24,962

Gain on sale of subsidiaries (note E)                           4,452                  -               12,352                 - 
Interest expense                                               (3,120)             (2,420)            (10,842)            (6,579)
Other income (expense)                                              9                 (50)               (128)               (59)
                                                          -------------       -------------       -------------      -------------
  Earnings (loss) before income taxes                        (126,026)             (2,646)           (132,967)            18,324
Income tax benefit (expense)                                   30,512               1,437              37,855             (6,450)
                                                          -------------       -------------       -------------      -------------
Net earnings (loss)                                      $    (95,514)       $     (1,209)       $    (95,112)      $     11,874
                                                          -------------       -------------       -------------      -------------
                                                          -------------       -------------       -------------      -------------

Net earnings (loss) per common and common
  equivalent share                                       $      (2.44)       $      (0.03)       $      (2.41)      $       0.30
                                                          -------------       -------------       -------------      -------------
                                                          -------------       -------------       -------------      -------------

Net earnings (loss) per common and common
  equivalent share assuming full dilution                $      (2.44)       $      (0.03)       $      (2.41)      $       0.30
                                                          -------------       -------------       -------------      -------------
                                                          -------------       -------------       -------------      -------------

Number of common shares used in computation of
  primary earnings per share                               39,206,540          39,326,358          39,406,153         39,795,666
                                                          -------------       -------------       -------------      -------------
                                                          -------------       -------------       -------------      -------------

Number of common shares used in computation of
  fully diluted earnings per share                         39,206,540          39,326,358          39,406,153         39,953,536
                                                          -------------       -------------       -------------      -------------
                                                          -------------       -------------       -------------      -------------
</TABLE>


                                          3

<PAGE>

                  PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995


<TABLE>
<CAPTION>

                                                                                             (UNAUDITED)
                                                                                    NINE MONTHS ENDED SEPTEMBER 30,
                                                                                    -------------------------------
                                                                                         1996             1995
                                                                                    --------------    -------------
                                                                                              (IN THOUSANDS)
<S>                                                                                    <C>            <C>
Cash flows from operating activities:
  Net earnings (loss)                                                                  $  (95,112)    $   11,874
  Adjustments to reconcile net earnings (loss) to net
    cash provided by operating activities:
       Depreciation and amortization                                                       17,408         16,627
       Amortization of premium/accretion of discount                                        1,841            -  
       Gain on sale of subsidiaries                                                       (12,352)           -  
       Loss on sale of property and equipment                                                  70            -  
       Loss on assumption of net workers' compensation
         liabilities                                                                      100,000            -  
       Changes in working capital:
            Accounts receivable                                                           (59,649)         5,451
            Income taxes                                                                   11,135        (11,958)
            Accounts payable, accrued expenses and 
              other current liabilities                                                     5,818        (22,514)
            Claims payable                                                                151,020         52,392
            Unearned premiums                                                             (14,510)         3,480
            Deferred income taxes                                                          (8,230)         2,834
         Other changes in other assets and liabilities                                     21,161          9,153
                                                                                       -----------    -----------
            Total adjustments                                                             213,712         55,465
                                                                                       -----------    -----------
            Net cash provided by operating activities                                     118,600         67,339
                                                                                       -----------    -----------

Cash flows from investing activities:
  Purchase of investments                                                                (256,199)      (209,393)
  Proceeds from sale of investments                                                       188,716        182,332
  Purchase of property and equipment                                                       (9,606)       (14,729)
  Proceeds from sale of property and equipment                                              1,574            -  
  Statutory deposits and other assets                                                     (97,063)       (21,944)
  Acquisitions, net of cash acquired                                                            -        (26,768)
  Cash acquired from assumption of net workers'
    compensation liabilities                                                               31,318            -  
  Disposals, net of cash sold                                                               8,645            -  
                                                                                       -----------    -----------
            Net cash used in investing activities                                        (132,615)       (90,502)
                                                                                       -----------    -----------

Cash flows from financing activities:
  Proceeds from borrowings                                                                      -         25,000
  Principal payments on debt and capital leases                                           (48,691)        (4,027)
  Principal payments on covenants not-to-compete                                           (2,217)        (3,250)
  Proceeds from issuance of common stock                                                    1,524          1,021
  Repurchase of common stock                                                                  -          (18,211)
                                                                                       -----------    -----------
            Net cash (used in) provided by financing
              activities                                                                  (49,384)           533
                                                                                       -----------    -----------

Net (decrease) in cash                                                                    (63,399)       (22,630)
Cash and cash equivalents at beginning of period                                          164,706        123,135
                                                                                       -----------    -----------
Cash and cash equivalents at end of period                                             $  101,307     $  100,505
                                                                                       -----------    -----------
                                                                                       -----------    -----------
</TABLE>



                                          4

<PAGE>

                           PHYSICIAN CORPORATION OF AMERICA

                 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                         FOR QUARTER ENDED SEPTEMBER 30, 1996
               (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


NOTE A:

ORGANIZATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X.  Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for annual financial
statements.  In management's opinion, all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation have been
included.

The balance sheet as of December 31, 1995 was derived from the registrant's
audited financial statements.

The results for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full year.

NOTE B:

INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes."  Under SFAS 109, the deferred income tax expense or benefit generally
arises from changes in differences between financial reporting and tax bases of
all assets and liabilities, and previously recorded deferred tax assets and
liabilities are adjusted upon any changes in enacted tax rates.

NOTE C:

EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Primary earnings per share were based on the weighted average number of common
and common equivalent shares outstanding during the periods presented. 
Equivalent shares consist of those shares issuable upon the assumed exercise of
stock options calculated under the treasury stock method, based on average stock
market prices in the periods.

Fully diluted earnings per share were computed using the weighted average number
of common and common equivalent shares outstanding in the periods, assuming
exercise of stock options calculated under the treasury stock method, based on
the higher of average stock prices in the periods or the stock market price at
the end of the periods.


                                          5

<PAGE>

                           PHYSICIAN CORPORATION OF AMERICA

           NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         FOR QUARTER ENDED SEPTEMBER 30, 1996
               (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


NOTE D:

WORKERS COMPENSATION AND OTHER REVENUES  AND ADMINISTRATIVE, MARKETING AND OTHER
EXPENSES
In 1994 and 1995, the Company acquired four workers compensation third party
administration (TPA) companies and a property and casualty insurance  (PCA P&C)
company. These subsidiaries became the Company's workers compensation division. 
In 1994 and 1995 they earned the majority of their revenues and earnings from
investment earnings and TPA service fees for services provided to a number of
self insured funds and employer groups in the Southeastern United States
including three significant self insured funds; the Florida Business Mutual
Insurance Company (FBM), the Florida Auto Dealers Self Insured Fund (FADA), and
the Florida Builders and Employers Mutual Insurance Company (FBE) (collectively
the "Funds").  These Funds had been managed by the acquired TPA companies since
1978.  In 1995, the assets and liabilities of FADA were assumed by the Company. 
On September 30, 1996, the assets and liabilities of FBM were also assumed by
the Company.

As regulatory and legal changes occurred in Florida, competition increased in
the Florida market place and the Company evaluated its strategic options to
preserve its TPA service fee revenue base from the employer groups of these
funds.  As a result of this evaluation, in January 1996, the Company, through
PCA P&C, began providing primary workers compensation insurance coverage to
employer groups in Florida who previously were self insured through the Funds. 
In conjunction with providing this new risk product, the Company entered into
quota share arrangements with five reinsurers whereby a percentage of the
premiums and a percentage of the claims costs are retained by the Company and
the remaining percentage is ceded to the reinsurers.  In the first quarter of
1996 these agreements included a 50% quota share arrangement; however, in the
second quarter, they were amended to a 25% quota share arrangement retroactive
to January 1, 1996.  The impact to earnings of this retroactive amendment was
immaterial.

ROLLOVER OF SELF INSURED WORKERS COMPENSATION FUND ASSETS AND LIABILITIES
Throughout 1996, the Company has continued to provide TPA services to the Funds
to run off the claims liabilities remaining in the Funds. On November 1, 1996,
the Company entered into various arrangements, all of which are pending approval
from the Florida Department of Insurance (DOI), to assume, effective September
30, 1996, financial responsibility for the net liabilities of the Funds.  These
agreements include an asset guaranty agreement between PCA P&C and FBE. The
Company assumed the net liabilities of the Funds as part of its evaluation of
its entire workers compensation operations in Florida and determined it was
necessary to preserve its TPA service revenue and further that it was in the
best interest of the Company and the Funds policyholders to do so.


                                          6

<PAGE>

                           PHYSICIAN CORPORATION OF AMERICA

           NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         FOR QUARTER ENDED SEPTEMBER 30, 1996
               (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


NOTE D: (CONTINUED)

A preliminary actuarial evaluation indicates that FBE's liabilities exceed its
assets by approximately $130.0 million on a pre-tax undiscounted basis as of
September 30, 1996.  Accordingly, PCA has recorded a non-recurring loss on
assumption of net workers' compensation liabilities of $100.0 million (net of a
$30.0 million income tax benefit) in the third quarter of 1996, as it has
determined the future recoverability of this deficit cannot be assured.  All
assets and liabilities of the FBE and FBM Funds have been consolidated with the
results of the Company in the accompanying balance sheet as of September 30,
1996.  Accordingly, the Company has reported additional assets of $260.0 million
(most of which are long-term investment grade securities) and additional
liabilities of $360.0 million (most of which are long-term workers' compensation
claims) on its balance sheet as of September 30, 1996.

As a result of this $100.0 million charge, the statutory equity of PCA P&C 
has been substantially depleted.  Accordingly, the Company has agreed that 
the DOI may exercise certain oversight functions with respect to PCA P&C's 
operations until such time as PCA P&C's statutory equity surplus has been 
restored.  While investment earnings in PCA P&C will approximate $11.0 
million in 1996, as a result of adding the long-term investments from this 
transaction, the investment earnings from PCA P&C is expected to increase to 
more than $17.0 million in 1997 and to decline every year thereafter as 
claims liabilities are paid out.  The Company is expected to earn 
approximately $20.0 million in future TPA fees and more than $150.0 million 
in future investment income in PCA P&C during this claims run-off period. 

In response to its evaluation of the long-term prospects of the Florida workers
compensation insurance risk, the Company intends to cease writing all workers'
compensation insurance products and to focus its workers' compensation division
on providing TPA services to its current and future customer base.  The Company
believes that this will eliminate the Company's exposure to workers'
compensation underwriting risks.

NOTE E:

DISPOSITIONS
In June 1996, the Company sold a wholly owned subsidiary, Physicians First, Inc.
(PFI), for $23.6 million in stock and notes to FPA Medical Management, Inc.
(FPA).  As consideration, the Company received 525,000 shares of unregistered
FPA stock and a $15.0 million note from FPA.  Additionally, as a condition of
the sale, PCA entered into a four-year covenant not-to-compete with FPA.  This
transaction resulted in an after-tax gain on the sale of PFI of approximately
$7.9 million.  After completing this transaction in June 1996, the Company made
a $9.5 million principal payment to reduce its outstanding bank debt balance. 
During the third quarter of 1996, FPA paid its $15.0 million note obligation to
PCA in full and PCA used the proceeds to make an additional $15.0 million of
bank debt principal payment in the third quarter of 1996.


                                          7

<PAGE>

                           PHYSICIAN CORPORATION OF AMERICA

           NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         FOR QUARTER ENDED SEPTEMBER 30, 1996
               (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


NOTE E: (CONTINUED)

In September 1996, the Company sold its wholly owned subsidiaries, PCA Health
Plans of Georgia, Inc. (PCA/Georgia), PCA Health Plans of Alabama, Inc.
(PCA/Alabama) and Health Strategies, Inc. (Health Strategies) to Health Partners
Southeast, Inc. (HPS) for $24.5 million in cash and non-compete payments. This
transaction resulted in an after-tax gain on the sale of approximately $4.5
million.  After completing this transaction in September 1996, the Company made
a $17.0 million principal payment to reduce its outstanding bank debt balance.

NOTE F:

SIGNIFICANT CONTRACTS
FLORIDA MEDICAID PROGRAM
In August 1996, the Florida Agency for Health Care Administration (AHCA)
announced its intent to utilize a competitive bidding process whereby it would
grade responses to its request for proposals (RFP) from qualified bidders using
both cost and quality of care criteria and award contracts to selected bid
winners to provide health services to Medicaid recipients in Florida.  The
Company filed a protest appealing this process on the grounds it violated
existing laws and regulations.  After AHCA modified its request for proposal and
provided clarifications regarding the process, the Company withdrew its protest.
The responses to the RFP are due to AHCA in November 1996, and it is anticipated
that in January or February 1997, AHCA will announce its intent to award
multi-year contracts to a number of qualifying HMOs in Florida to provide health
services to Florida Medicaid recipients.

The RFP stipulates all bids must contain proposed premiums equal to not more
than 92% of fee-for-service rates as actuarially determined.  AHCA contends HMOs
in Florida are currently paid premiums equal to 95% of fee-for-service rates. 
AHCA has agreed to establish a task force to review the Medicaid prepaid health
plan rate setting methodology and provide recommendations regarding the
methodology by February 1, 1997.  The Company and other Florida HMOs believe the
current rates paid by AHCA to HMOs are actually less than 92% of fee-for-service
rates.

The impact of this competitive bidding process on the Company's Florida Medicaid
business, its Medicaid Premium rates or the number of Medicaid members serviced
by the Company cannot be predicted at this time.  However  the Company, as
Florida's largest Medicaid contractor, believes it will gain Medicaid membership
through this process.

PUERTO RICO REFORM PROGRAM
The Company's Puerto Rico HMO subsidiary currently provides health services to
approximately 266,000 Government Reform Program members pursuant to a one-year
contract which expires in December 1996. The Company expects this contract,
which is currently in a rebid stage, to be renewed for an additional annual term
at substantially similar premium rates.


                                          8

<PAGE>

                           PHYSICIAN CORPORATION OF AMERICA

           NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         FOR QUARTER ENDED SEPTEMBER 30, 1996
               (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


NOTE F: (CONTINUED)

TEXAS MEDICAID CONTRACT
During the third quarter of 1996, the Company's Texas HMO subsidiary was awarded
contracts to provide covered health care services to approximately 12,500 and
17,900 Medicaid members in Tarrent and Bexar counties, respectively, in addition
to the re-award of 22,000 Medicaid members it already services in Travis County.

NOTE G:

DEBT
As a result of recording the loss on the assumption of net workers' compensation
liabilities, at September 30, 1996, PCA was in violation of certain line of
credit facility covenants.  PCA is working with its banks to obtain a waiver
from them for such violations and restructure the facility's repayment terms. 
In the interim, the Company has classified all of its bank debt as a current
liability in the accompanying balance sheet as of September 30, 1996.

NOTE H:

MERGER AGREEMENT
On November 2, 1996, PCA entered into a definitive agreement to be merged with
Sierra Health Services, Inc. (Sierra).  The agreement provides for an exchange
of common shares on the basis of 0.45 common shares of  Sierra exchanged for
each PCA share.  The transaction which is expected to be completed in early
1997, is subject to regulatory and shareholder approval and is expected to be
accounted for as a pooling-of-interests.


                                          9

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

Physician Corporation of America ("the Company") is a managed health care
company that provides comprehensive health care services through its health
maintenance organizations ("HMOs") and workers compensation administrative
management services and provides primary workers compensation and reinsurance
insurance coverage through its workers compensation third party administration
and indemnity companies ("Workers Compensation Companies").  The Company
conducts all of its business in the Southeastern United States and Puerto Rico.

In the third quarter 1996, the Company continued to focus on its core markets
and execute its strategic plan to turn around its operations as evidenced by: 
i) the sale of its non producing subsidiaries, PCA/ Alabama, Health Strategies
and PCA/Georgia, ii) the reduction in force of employees in its HMO and workers'
compensation subsidiaries, iii) the expansion of global risk provider contracts
in its Florida and Texas operations, and iv) the continued increase in health
premium revenue and membership growth in its health plans.  The third quarter
1996 results show significant improvement over the previous three quarters prior
to a non-recurring $100 million after tax charge relating to the loss on the
assumption of net workers' compensation liabilities (see Note D to the
accompanying financial statements).  The Company intends to cease writing all
workers' compensation insurance coverage (thereby eliminating the Company's
exposure to any workers' compensation underwriting related risks) in the fourth
quarter of 1996.  The Company does not expect this action to have a material
impact on its financial results.  The following sets forth certain financial and
operating information pertaining to the Company's results for the three and nine
months ended September 30, 1996 compared to 1995:

<TABLE>
<CAPTION>

                                                                    Three Months Ended              Nine Months Ended
                                                                       September 30,                  September 30,
                                                                 --------------------------    --------------------------
                                                                    1996            1995           1996          1995
                                                                 -----------    -----------    -----------    -----------
                                                                                     (In thousands)
<S>                                                                <C>            <C>            <C>            <C>
Health Premiums:
  Commercial                                                      $138,256       $127,670       $425,349       $367,845
  Medicaid                                                          94,970         75,486        276,891        241,136
  Medicare                                                          81,462         53,563        238,184        134,902
  Indemnity                                                          8,851          7,373         25,926         19,338
                                                                 -----------    -----------    -----------    -----------
    Total health premiums                                         $323,539       $264,092       $966,350       $763,221
                                                                 -----------    -----------    -----------    -----------
                                                                 -----------    -----------    -----------    -----------
  Workers compensation administrative
    service fees and other revenues                                $32,887        $41,929       $105,580       $110,461
                                                                 -----------    -----------    -----------    -----------
                                                                 -----------    -----------    -----------    -----------
Operating Statistics and Data:
  Medical loss ratio (1)                                             87.5%          87.4%          87.4%          82.6%
  Health administrative, marketing
  and other expenses ratio (2)                                       14.2%          16.0%          15.3%          17.2%
  Period ending membership:
  HMO:
    Commercial                                                                                   408,000        418,000
    Medicaid                                                                                     445,000        206,000
    Medicare                                                                                      60,000         45,000
                                                                                               -----------    -----------
    Total HMO                                                                                    913,000        669,000
  Health Indemnity and PPO                                                                        35,000         31,000
                                                                                               -----------    -----------
                                                                                               -----------    -----------
  Total HMO and Insured Health Membership                                                        948,000        700,000
                                                                                               -----------    -----------
                                                                                               -----------    -----------
</TABLE>

(1)      Medical costs as a percentage of health premiums.
(2)      Health administrative, marketing and other expenses, including
         allocations of corporate overhead as a percentage of health premiums.


                                          10

<PAGE>

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1995

NET EARNINGS:
Net earnings for the three and nine months ended September 30, 1996 as compared
to 1995 decreased by $94.3 million to a $95.5 million net loss and by $107.0
million to a $95.1 million loss, respectively.  The three and nine month
decreases were primarily due to a $2.4 million increase and a $19.6 million
decline, respectively, in profitability of the Company's HMO operations in 1996,
profits earned from the worker's compensation third party administration
companies, a  third quarter 1996 $100 million after tax charge from the
assumption of net workers' compensation liabilities and a third quarter 1996
$4.5 million gain from the sale of PCA/Alabama, Health Strategies and
PCA/Georgia.

REVENUES:
Total revenues for the three and nine months ended September 30, 1996 as
compared to 1995 increased by $51.5 million or 17% and $203.3 million or 23%,
respectively.  The principal components of these increases are as follows:

HEALTH PREMIUMS
Health premium revenues for the three and nine months ended September 30, 1996
as compared to 1995 increased by $59.4 million or 23% and 203.1 million or 27%,
respectively.  

Of the three months increase, $114.7 million was due to a 43% increase in the
average number of members during the period offset by a $55.3 million decrease
due to a 15% decrease in the weighted average health premium rate per member. 
Of the nine months increase, $334.3 million was due to a 44% increase in the
average number of members during the period offset by a $131.2 million decrease
due to a 12% decrease in the weighted average health premium per member.  The
weighted average decrease in premium rates is due to:  i) the 18% decrease in
the Florida Medicaid premium rates which became effective in the third quarter
of 1995, as well as ii) the Company having approximately 266,000 Medicaid
members (Puerto Rico reform program) with a lower than average premium rate
(approximately $48 per member per month) in the three and nine months ended
September 30, 1996 which began enrolling in December 1995. Total membership of
948,000 at September 30, 1996 increased by approximately 248,000 members from
700,000 members at September 30, 1995 (10,000 decrease in Commercial, 239,000
increase in Medicaid, 15,000 increase in Medicare and 4,000 increase in
indemnity and PPO members).

WORKERS COMPENSATION AND OTHER REVENUES
Workers compensation and other revenues for the three and nine months ended
September 30, 1996 decreased $9.0 million and decreased $4.9 million,
respectively.  The fluctuations are due to: (i) workers compensation
administrative service fees and other revenues for the three and nine month
periods ended September 30, 1996 decreased by $13.4 million to $14.2 million
from $27.6 million and by $23.0 million to $51.8 million from $74.8 million,
respectively. These revenues were generated primarily by the Company's workers
compensation administration and indemnity operations servicing self insured
funds.  In 1996, through its workers compensation indemnity subsidiary, the
Company began offering primary workers compensation coverage to these employer
groups (who were previously members of these self insured funds).  Therefore,
the workers compensation services fees earned from these employers in 1995 have
been replaced in 1996 by primary workers compensation premiums; and (ii) workers
compensation premiums for the three and nine months ended September 30, 1996
increased $4.4 million and $18.1 million, respectively.  The three and nine
month increase is attributable to the introduction of primary workers
compensation insurance coverage commencing January 1, 1996.


                                          11

<PAGE>

Investment income for the three and nine months ended September 30, 1996 as
compared to 1995 increased by $1.1 million or 25% and $5.0 million or 41%,
respectively.  These increases were the result of the Company investing:  i) the
proceeds from the $70 million borrowed in December 1995 under the Company's bank
facility which were used to further capitalize the Company's workers
compensation and Puerto Rico HMO operations, and ii) cash generated from
operations.

MEDICAL COSTS
Medical costs for the three and nine months ended September 30, 1996 as compared
to 1995 increased by $52.5 million or 23% and $213.3 million and 34%,
respectively.  Of the three months increase, $100.1 million was due to a 43%
increase in the average number of members during the period offset by a $47.6
million decrease due to a 16% decrease in the weighted average medical costs per
member.  Of the nine months increase, $276.3 million was due to a 44% increase
in the average number of members in the period offset by a $63.0 million
decrease due to a 7% decrease in the weighted average medical cost per member.

These decreases in the weighted average medical costs per member were due
primarily to: (i) the shift in membership mix to proportionately more Medicaid
reform members in Puerto Rico (which have a lower than average medical cost of
approximately $42 per member per month but a higher medical loss ratio), (ii)
reduction in overall utilization by members through stronger medical utilization
management, and (iii) medical cost savings as a result of the Company's efforts
to recontract with its providers during the three and nine months ended
September 30, 1996 compared to 1995. These factors, mitigated the impact of a
lower premium rate for the Medicaid reform members in Puerto Rico, the impact of
the Florida Medicaid premium rate decrease and the increase in number of
Medicare members (which have a higher than average per member per month medical
cost), resulting in the Company's overall medical loss ratio for the three and
nine months ended September 30, 1996 increasing to 87.5%  from 87.4% and to
87.4% from 82.6%, respectively for the same periods in 1995.

ADMINISTRATIVE, MARKETING AND OTHER EXPENSES
Administrative, marketing and other expenses for the three and nine months ended
September 30, 1996 as compared to 1995 decreased by $3.3 million or 4% and
increased by $18.5 million or 9%, respectively.  The three month decrease in
administrative, marketing and other expenses was primarily due to administrative
cost control measures put in place.  The nine month increase is attributable to
the introduction of primary workers compensation insurance coverage commencing
January 1, 1996. The Company's health administrative cost ratio for the three
and nine months ended September 30, 1996 was 14.2% and 15.3%, respectively,
compared to 16.0% and 17.2% for the same periods in 1995.  This improvement was
a direct result of the Company implementing cost cutting measures while
increasing premiums.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the three and nine months ended September 30,
1996 as compared to 1995 remained constant, as expected.

GAIN ON SALE OF SUBSIDIARIES
In June 1996, the Company sold its wholly owned subsidiary, PFI for $23.6
million in stock and notes to FPA Medical Management, Inc. (FPA).  As
consideration, the Company received 525,000 shares of unregistered FPA stock and
a $15.0 million note from FPA which was received in full from FPA in the third
quarter of 1996.  Additionally, as a condition of the sale, PCA entered into a
four-year covenant not-to-compete with FPA.  This transaction resulted in a gain
on the sale of PFI of approximately $7.9 million being reflected in the second
quarter of 1996. 


                                          12

<PAGE>

In September 1996, the Company sold its wholly owned subsidiaries, PCA Health
Plans of Georgia, Inc. (PCA/Georgia) and PCA Health Plans of Alabama, Inc.
(PCA/Alabama) to Health Partners Southeast, Inc. (HPS) for $24.5 million in cash
and non-compete payments.  This transaction resulted in a gain on the sale of
PCA/Georgia and PCA/Alabama of approximately $4.5 million.

INTEREST EXPENSE
Interest expense for the three and nine months ended September 30, 1996 as
compared to 1995 increased by $.7 million to $3.1 million and $4.3 million to
$10.8 million, respectively.  These increases were due primarily to incremental
interest expense incurred relating to the $70 million borrowed under the
Company's credit facility in December 1995 to capitalize the Company's Puerto
Rico HMO and its workers compensation insurance subsidiary.

INCOME TAXES
The Company recognized an income tax benefit in the three and nine months ended
September 30, 1996 of $30.5 million and $37.9 million, respectively.  This
compares with a tax benefit of $1.4 million and a tax expense of $6.5 million
for the three and nine months ended September 30, 1995, respectively.  The
increase in tax benefit recognized is attributable directly to the Company
incurring a taxable loss in the three and nine months ended September 30, 1996. 
The tax benefits for the three and nine months ended September 30, 1996,
respectively, are consistent with: (i) the 35% statutory rate for such periods,
(ii) the nondeductibility of goodwill amortization for income tax purposes
arising from the acquisition of the HMOs and workers compensation companies
offset by tax exempt investment income, (iii) the $30 million tax benefit
recognized with respect to the loss on assumption of net workers' compensation
liabilities, and iv) the Company incurring no income tax expense on the gains
from the sale of Physicians First, Inc., PCA/Alabama, Health Strategies and
PCA/Georgia due to the availability of capital loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1996, the Company had working capital of $19.2 million.  Cash
and cash equivalents were $101.3 million at September 30, 1996, a decrease of
$63.4 million from $164.7 million at December 31, 1995 and short term
investments were $227.4 million at September 30, 1996, an increase of $96.2
million from a $131.2 million balance at December 31, 1995.  At September 30,
1996, the Company has classified approximately $140.0 million of investments
with future contractual maturities of more than one year as short-term
investments in the accompanying balance sheet based on its intent to sell the
investments to meet its obligations.  The decrease in cash and cash equivalents
is the result of cash generated from operations offset by cash used in investing
and financing activities. The Company's cash and cash equivalents do not include
statutory cash deposits segregated as required by various regulatory
authorities.

Net cash provided by operating activities for the nine months ended September
30, 1996 was $118.6 million compared to cash of $67.3 million provided by
operating activities for the nine months ended September 30, 1995.  The cash
provided by operating activities for 1996 was principally the result of the
following factors: (i) net loss of $95.1 million, (ii) increase in claims
payable in the amount of $151.0 million, (iii) decrease in income taxes
receivable in the amount of $11.1 million, (iv) decrease in unearned premiums in
the amount of $14.5 million, (v) $59.6 million increase in accounts receivable
resulting from the primary workers' compensation insurance written commencing
January 1996, and (vi) an increase in accounts payable, accrued expenses and
other current liabilities of $5.8 million.



                                          13

<PAGE>

In 1996, net cash used in investment activities increased to $132.6 million,
from $90.5 million in 1995.  The net cash used in investing activities was
primarily the result of the following factors:  (i) $9.6 million purchase of
property and equipment, (ii) the net purchase of investments of $67.4 million,
(iii) $97.0 million increase in statutory deposits and other assets, the
majority of which relates to estimated reinsurance recoveries, and (iv) $31.3
million of cash acquired from the assumption of net workers' compensation
liabilities.  The Company believes it will be able to finance all capital
expenditures for the foreseeable future from cash generated from operations and
amounts available from cash.  The Company has utilized capital leases to finance
certain equipment additions in the past and expects to continue to do so in the
future.

In 1996, net cash used in financing activities for the nine months ended
September 30, 1996 was $49.4 million compared to $.5 million cash provided in
the nine months ended September 30, 1995.  The cash used in financing activities
was primarily the result of $50.9 million of long-term debt principal and
covenant payments.

The Company believes that cash on hand and cash flow generated from operations
will be sufficient to fund future capital expenditures, introduction of new
products and services.  The cash proceeds from the sales of Physicians First,
Inc., PCA/Georgia and PCA/Alabama were used to pay down the Company's bank debt
facility, which is provided by six banks, including Citibank, NA as agent.

As a result of the $100.0 million charge, the Company is in violation of its
bank loan covenants as of September 30, 1996.  Consequently, the banks have the
right among other things, to accelerate the majority of the entire outstanding
balance of $118.5 million.  Discussions are underway with the banks and while
the banks have been favorably inclined to work with the Company, there can be no
assurance that a modification/waiver agreement will be completed.  In the event
that the banks were to accelerate the indebtedness, the Company would be
required to seek refinancing of such indebtedness or, if such refinancing were
unavailable, to sell assets in order to make such payments.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: The Statements contained in this report which are not historical facts are
forward looking.  Actual results may differ materially from those projected in
such forward looking statements; such statements involve risks and
uncertainties, including but not limited to the following: completion of the
merger which is subject to various approvals including regulatory and
shareholder; Medicare and Medicaid premium rates set by state and federal
governments change unexpectedly; Texas and Puerto Rico Medicaid contracts and
renewals are awarded under a competitive bidding process and award is not
guaranteed; a Medicaid RFP process in Florida is currently underway and the full
impact on the Company is not known; completion of an actuarial study to confirm
that the liabilities of the P&C subsidiary are not understated; the outcome and
impact of present discussions with the Company's bankers regarding loan covenant
violations is uncertain; increased competition in the Company's markets or
change in product mix may unexpectedly reduce premium yield; health care costs
in any given period may be greater than expected due to incidence of major
illnesses, natural disasters, epidemics, changes in physician practice policies,
and new technologies; and, the Company may be unable to obtain acceptable
provider arrangements on satisfactory terms in key markets.


                                          14

<PAGE>

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings
         Not Applicable
Item 2.  Changes in Securities
         Not Applicable
Item 3.  Defaults Upon Senior Securities
         Not Applicable
Item 4.  Submission of Matters to a Vote of Security Holders
         Not Applicable
Item 5.  Other Information
         Not Applicable
Item 6.  Exhibits and Reports on Form 8-K
         (A)  Exhibits furnished as part of the Report:
              (1)   Financial Statements, See PART I, Item 1
              (2)   Exhibits:
                     2.1   Agreement and Plan of Merger dated November 2, 1996
                           among Sierra Health Services, Inc., Sierra
                           Acquisition Corporation and Physician Corporation
                           of America.
                    10.1   Workers' Compensation and Employers Liability Asset
                           Guarantee and Indemnification Contract By and
                           Between Florida Builders & Employers Mutual
                           Insurance Company and PCA Property & Casualty
                           Insurance Company effective September 30, 1996.


                                          15

<PAGE>

                                      SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            PHYSICIAN CORPORATION OF AMERICA
                                            (Registrant)
                                            
                                            By: /s/ E. Stanley Kardatzke, M.D.
                                                 -------------------------------
                                            E. Stanley Kardatzke, M.D.,
                                            Chairman of the Board and CEO 
                                            (Principal Executive Officer)
                                            
                                            By: /s/ Clifford W. Donnelly
                                                 -------------------------------
                                            Clifford W. Donnelly
                                            Senior Vice President of Finance 
                                            and Chief Financial Officer
                                            

                                            By: /s/ Jay M. Grobowsky
                                                 -------------------------------
                                            Jay M. Grobowsky
Date:November 14, 1996                      Vice President of Finance
     -----------------


                                          16

<PAGE>

                           PHYSICIAN CORPORATION OF AMERICA

                            QUARTERLY REPORT ON FORM 10-Q
                         FOR QUARTER ENDED SEPTEMBER 30, 1996

                                    EXHIBIT INDEX

     2.1       Agreement and Plan of Merger dated November 2, 1996 among Sierra
               Health Services, Inc., Sierra Acquisition Corporation and
               Physician Corporation of America.

     10.1      Workers' Compensation and Employers Liability Asset Guarantee and
               Indemnification Contract By and Between Florida Builders &
               Employers Mutual Insurance Company and PCA Property & Casualty
               Insurance Company effective September 30, 1996.