FORM 10-Q
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

        {X}  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 2004
                                      OR
        { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

             For the Transition period from ________ to ________

                        Commission file number 0-15846

                           First Health Group Corp.
            (Exact name of registrant as specified in its charter)

             Delaware                                36-3307583
 -------------------------------         ------------------------------------
 (State or other jurisdiction of         (IRS Employer Identification Number)
  incorporation or organization)

              3200 Highland Avenue, Downers Grove, Illinois 60515
              ---------------------------------------------------
              (Address of principal executive offices, Zip Code)

                                (630) 737-7900
               ------------------------------------------------
               (Registrant's phone number, including area code)

                          __________________________
             (Former name, former address and former fiscal year,
                        if changed since last report)

 Indicate by check  mark whether  the registrant  (1) has  filed all  reports
 required to be filed by Section 13  or 15(d) of the Securities Exchange  Act
 of 1934 during the preceding 12 months (or for such shorter period  that the
 registrant was required to file such  reports), and (2) has been  subject to
 such filing requirements for the past 90 days.

           Yes      X                     No ________

 Indicate by check mark  whether the registrant is  an accelerated filer  (as
 defined by Rule 12b-2 of the Exchange Act).

           Yes      X                     No ________

 Indicate the number of shares outstanding of each of the issuer's classes of
 common stock, as of the latest practicable date.

 The number of shares of Common Stock, par value $.01 per share, outstanding
 on November 1, 2004, was 91,903,467.

<PAGE>

                  First Health Group Corp. and Subsidiaries

                                    INDEX


 Part I.  Financial Information
                                                                  Page Number
                                                                  -----------
       Item 1. Financial Statements (Unaudited)

       Consolidated Balance Sheets - Assets at September 30, 2004
         and December 31, 2003 ...................................     3

       Consolidated Balance Sheets - Liabilities and Stockholders'
         Equity at September 30, 2004 and December 31, 2003.......     4

       Consolidated Statements of Operations for the three months
         ended September 30, 2004 and 2003 .......................     5

       Consolidated Statements of Operations for the nine months
         ended September 30, 2004 and 2003 .......................     6

       Consolidated Statements of Comprehensive Income for the
         three and nine months ended September 30, 2004 and 2003..     7

       Consolidated Statements of Cash Flows for the nine months
         ended September 30, 2004 and 2003 .......................    8-9

       Notes to Consolidated Financial Statements ................   10-15

       Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations .............   16-26

       Item 3. Quantitative and Qualitative Disclosures About
                 Market Risk .....................................     27

       Item 4. Controls and Procedures ...........................     27


 Part II. Other Information

       Item 1. Legal Proceedings .................................    28

       Item 2. Unregistered Sales of Equity Securities
                 and Use of Proceeds .............................    28

       Item 5. Other Information .................................    28

       Item 6. Exhibits  .........................................   28-29

 Signatures.......................................................    30

<PAGE>

 PART 1. Financial Information
 First Health Group Corp. and Subsidiaries
 CONSOLIDATED BALANCE SHEETS
 (in millions) (Unaudited)
 -----------------------------------------------------------------------------

 ASSETS                                              September 30, December 31,
                                                          2004         2003
                                                        --------     --------
 Current Assets:
   Cash and cash equivalents ....................      $    27.7    $     8.0
   Short-term investments .......................            7.1          2.0
   Accounts receivable, less allowances for
      doubtful accounts of $17.5
      and $21.1 respectively.....................          105.7        102.9
   Deferred income taxes ........................           23.1         26.8
   Other current assets .........................           47.2         37.4
                                                        --------     --------
   Total current assets .........................          210.8        177.1

 Long-Term Investments:
   Marketable securities ........................           58.2         63.0
   Other.........................................           70.8         66.7
                                                        --------     --------
                                                           129.0        129.7
                                                        --------     --------
 Property and Equipment:
   Land, buildings and improvements .............          106.5        103.1
   Computer equipment and software ..............          336.4        281.5
   Office furniture and equipment ...............           43.3         37.9
                                                        --------     --------
                                                           486.2        422.5
   Less accumulated depreciation and
      amortization...............................         (239.0)      (186.6)
                                                        --------     --------
   Net property and equipment ...................          247.2        235.9
                                                        --------     --------

 Goodwill........................................          328.8        324.3

 Intangible assets, less accumulated amortization
      of $15.2 and $9.3, respectively ...........           79.2         82.6

 Reinsurance recoverable.........................           24.2         24.3

 Other Assets....................................            2.9          3.5
                                                        --------     --------
 Total Assets                                          $ 1,022.1    $   977.4
                                                        ========     ========

 See Notes to Consolidated Financial Statements

<PAGE>

 First Health Group Corp. and Subsidiaries
 CONSOLIDATED BALANCE SHEETS
 (in millions) (Unaudited)
 -----------------------------------------------------------------------------

 LIABILITIES AND STOCKHOLDERS' EQUITY
                                                     September 30, December 31,
                                                          2004         2003
                                                        --------     --------

 Current Liabilities:
   Accounts payable .............................      $    85.3    $    73.2
   Accrued expenses .............................           38.5         47.8
   Claims reserves ..............................           23.4         23.8
   Income taxes payable .........................           25.4          8.1
                                                        --------     --------
   Total current liabilities ....................          172.6        152.9

 Long-Term Debt..................................          195.0        270.0
 Claims Reserves - Noncurrent....................           24.2         24.3
 Deferred Taxes..................................          128.2        126.5
 Other Noncurrent Liabilities....................           23.8         25.2
                                                        --------     --------
   Total liabilities ............................          543.8        598.9
                                                        --------     --------
 Commitments and Contingencies...................             --           --

 Stockholders' Equity:
   Common stock .................................            1.4          1.4
   Additional paid-in capital ...................          347.4        335.5
   Retained earnings ............................          758.5        672.0
   Accumulated other comprehensive loss .........           (0.3)        (1.7)
   Treasury stock, at cost ......................         (628.7)      (628.7)
                                                        --------     --------
   Total stockholders' equity ...................          478.3        378.5
                                                        --------     --------
 Total Liabilities and Stockholders' Equity .....      $ 1,022.1    $   977.4
                                                        ========     ========

 See Notes to Consolidated Financial Statements

<PAGE>

 First Health Group Corp. and Subsidiaries
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in millions except per share amounts) (Unaudited)
 -----------------------------------------------------------------------------

                                                         Three Months Ended
                                                            September 30,
                                                    ---------------------------
                                                          2004         2003
                                                        --------     --------

 Revenues.........................................     $   218.4    $   219.7
                                                        --------     --------
 Operating expenses:
   Cost of services ..............................         104.2         98.7
   Selling and marketing .........................          24.4         23.2
   General and administrative ....................          18.9         16.0
   Health care benefits ..........................           6.3          4.4
   Merger-related expenses .......................           1.3           --
   Depreciation and amortization .................          19.8         15.6
                                                        --------     --------
                                                           174.9        157.9
                                                        --------     --------

 Income from operations...........................          43.5         61.8

 Other (income) expense:
   Interest expense ..............................           1.6          1.2
   Interest income ...............................          (1.4)        (1.6)
                                                        --------     --------
 Income before income taxes.......................          43.3         62.2
 Income taxes.....................................         (15.7)       (21.5)
                                                        --------     --------
 Net income.......................................     $    27.6    $    40.7
                                                        ========     ========

 Weighted average shares outstanding - basic......          91.8         94.7
                                                        ========     ========
 Net income per common share - basic .............     $     .30    $     .43
                                                        ========     ========
 Weighted average shares outstanding - diluted....          92.8         97.0
                                                        ========     ========
 Net income per common share - diluted ...........     $     .30    $     .42
                                                        ========     ========

 See Notes to Consolidated Financial Statements

<PAGE>

 First Health Group Corp. and Subsidiaries
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in millions except per share amounts) (Unaudited)
 -----------------------------------------------------------------------------

                                                          Nine Months Ended
                                                            September 30,
                                                    ---------------------------
                                                          2004         2003
                                                        --------     --------

 Revenues.........................................     $   657.3    $   652.1
                                                        --------     --------
 Operating expenses:
   Cost of services ..............................         315.5        295.0
   Selling and marketing .........................          66.1         65.6
   General and administrative ....................          57.8         46.6
   Health care benefits ..........................          19.9         14.0
   Merger-related expenses .......................           1.3           --
   Depreciation and amortization .................          57.7         46.3
                                                        --------     --------
                                                           518.3        467.5
                                                        --------     --------

 Income from operations...........................         139.0        184.6

 Nonoperating expense (income):
   Interest expense ..............................           5.1          3.9
   Interest income ...............................          (4.3)        (4.3)
                                                        --------     --------
 Income before income taxes.......................         138.2        185.0
 Income taxes.....................................         (51.7)       (70.3)
                                                        --------     --------
 Net income.......................................     $    86.5    $   114.7
                                                        ========     ========

 Weighted average shares outstanding - basic                91.5         95.7
                                                        ========     ========
 Net income per common share - basic..............     $     .94    $    1.20
                                                        ========     ========
 Weighted average shares outstanding - diluted....          92.9         98.2
                                                        ========     ========
 Net income per common share - diluted ...........     $     .93    $    1.17
                                                        ========     ========

 See Notes to Consolidated Financial Statements

<PAGE>

 First Health Group Corp. and Subsidiaries
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (in millions) (Unaudited)
 -----------------------------------------------------------------------------

                                                         Three Months Ended
                                                            September 30,
                                                    ---------------------------
                                                          2004         2003
                                                        --------     --------
 Net income.......................................     $    27.6    $    40.7
                                                        --------     --------
 Unrealized gains (losses) on securities,
   before tax.....................................           1.5         (0.7)
 Unrealized gains on limited partnership
   derivatives....................................           3.1           --
                                                        --------     --------
 Other comprehensive income (loss), before tax....           4.6         (0.7)
 Income tax (expense) benefit related to items
   of other comprehensive income..................          (1.7)         0.2
                                                        --------     --------
 Other comprehensive income (loss)................           2.9         (0.5)
                                                        --------     --------
 Comprehensive income.............................     $    30.5    $    40.2
                                                        ========     ========


                                                          Nine Months Ended
                                                            September 30,
                                                    ---------------------------
                                                          2004         2003
                                                        --------     --------



 Net income.......................................     $    86.5    $   114.7
                                                        --------     --------
 Unrealized gains (losses) on securities,
   before tax.....................................          (0.4)         0.3

 Unrealized gains on limited partnership
   derivatives....................................           2.7           --
                                                        --------     --------
 Other comprehensive income, before tax...........           2.3          0.3
 Income tax expense related to items of other
   comprehensive income...........................          (0.9)        (0.2)
                                                        --------     --------
 Other comprehensive income.......................           1.4          0.1
                                                        --------     --------
 Comprehensive income.............................     $    87.9    $   114.8
                                                        ========     ========

 See Notes to Consolidated Financial Statements

<PAGE>

 First Health Group Corp. and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in millions) (Unaudited)
 -----------------------------------------------------------------------------

                                                          Nine Months Ended
                                                            September 30,
                                                    ---------------------------
                                                          2004         2003
                                                        --------     --------
 Cash flows from operating activities:
   Net Income ....................................     $    86.5    $   114.7
                                                        --------     --------
   Adjustments to Reconcile Net Income to Net Cash
   Provided by Operating Activities:
     Depreciation and amortization ...............          57.7         46.3
     Change in allowance for uncollectible
       receivables ...............................          (3.8)        (1.5)
     Provision for deferred income taxes .........           4.5           --
     Tax benefits from stock options exercised....           2.0          8.0
     Income from limited partnership .............          (2.5)        (2.1)
     Other, net ..................................           0.2          0.2

   Changes in Assets and Liabilities (net of
   effects of acquired businesses):
     Accounts receivable .........................           3.0        (16.8)
     Other current assets ........................          (9.9)        (7.5)
     Reinsurance recoverable .....................           0.1          1.4
     Accounts payable and accrued expenses........          (0.1)         5.0
     Claims reserves .............................          (0.5)         0.2
     Income taxes payable ........................          17.3         13.9
     Noncurrent assets and liabilities ...........          (0.7)        (1.2)
                                                        --------     --------
   Net cash provided by operating activities .....         153.8        160.6
                                                        --------     --------
 Cash flows from investing activities:
   Purchases of investments ......................         (29.2)       (37.1)
   Sales of investments ..........................          29.5         34.4
   Acquisition of business, net of cash acquired..          (7.2)        (3.0)
   Purchase of property and equipment ............         (62.0)       (56.0)
                                                        --------     --------
   Net cash used in investing activities..........         (68.9)       (61.7)
                                                        --------     --------
 Cash flows from financing activities:
   Purchase of treasury stock ....................            --       (149.8)
   Proceeds from issuance of long-term debt.......          50.0        145.0
   Repayment of long-term debt ...................        (125.0)      (110.0)
   Proceeds from issuance of common stock.........           9.8         19.7
   Stock option loan repayments ..................            --          0.3
                                                        --------     --------
   Net cash used in financing activities..........         (65.2)       (94.8)
                                                        --------     --------
 Net increase in cash and cash equivalents........          19.7          4.1

 Cash and cash equivalents, beginning of period...           8.0         20.9
                                                        --------     --------
 Cash and cash equivalents, end of period ........     $    27.7    $    25.0
                                                        ========     ========


 First Health Group Corp. and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in millions) (Unaudited)
 -----------------------------------------------------------------------------

                                                          Nine Months Ended
                                                            September 30,
                                                    ---------------------------
                                                          2004         2003
                                                        --------     --------

 Supplemental cash flow data:

 Stock options exercised in exchange
   for common stock...............................     $      --    $     0.5
 Health care benefits paid........................         (22.1)       (12.4)
 Interest paid....................................          (5.0)        (3.5)
 Interest income received.........................           2.0          2.2
 Income taxes paid, net...........................         (27.9)       (48.3)

 Acquisition of businesses:
   Fair value of assets acquired,
     net of cash acquired.........................     $     3.1   $     (0.5)
   Goodwill ......................................           4.5          3.8
   Intangible Assets .............................           2.5           --
   Fair value of liabilities assumed .............          (2.9)        (0.3)
                                                        --------     --------
                                                       $     7.2    $     3.0
                                                        ========     ========
 See Notes to Consolidated Financial Statements

<PAGE>


 First Health Group Corp. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 -----------------------------------------------------------------------------

 1.  The unaudited  financial statements  herein have  been  prepared by  the
     Company pursuant  to the  rules and  regulations of  the Securities  and
     Exchange Commission. The accompanying interim financial  statements have
     been prepared under the presumption that users  of the interim financial
     information have  either read or  have access  to the audited  financial
     statements  for  the  latest  fiscal  year  ended   December  31,  2003.
     Accordingly, footnote  disclosures which  would substantially  duplicate
     the disclosures  contained in  the December 31,  2003 audited  financial
     statements have  been omitted from  these interim financial  statements.
     Certain  information  and  footnote  disclosures  normally  included  in
     financial statements prepared  in accordance with accounting  principles
     generally accepted in the  United States of America have  been condensed
     or omitted pursuant to  such rules and regulations. In our  opinion, the
     accompanying  unaudited consolidated  financial statements  contain  all
     adjustments  necessary for  a fair  presentation. Although  the  Company
     believes  that the  disclosures are  adequate  to make  the  information
     presented not misleading, it  is suggested that these  interim financial
     statements be read in conjunction with the  financial statements and the
     notes thereto  included in the  Company's latest  Annual Report on  Form
     10-K.

 2.  On October  31, 2003, the  Company completed the  acquisition of all  of
     the  outstanding  shares  of  capital  stock  of   Health  Net  Employer
     Services,  Inc.  ("Employer  Services"),  from  Health  Net,   Inc.  for
     approximately $79 million. Health  Net Employer Services, Inc.  has been
     renamed  First  Health  Employer  Services,  Inc.  The  acquisition  was
     financed  with  borrowings under  the  Company's  credit  facility.  The
     allocation of  the purchase  price is expected  to be  completed in  the
     fourth quarter of 2004.

      Purchase price has been allocated, on a preliminary basis, as follows
      (in millions):

      Fair value of tangible assets acquired              $  17.1
      Goodwill                                               43.5
      Intangible assets                                      29.5
      Liabilities assumed                                    (8.0)
      Liability for restructuring and integration costs      (2.9)
                                                           ------
                                                          $  79.2
                                                           ======

     On  October 31,  2003,  the Company  completed  the acquisition  of  PPO
     Oklahoma for  an initial  purchase price of  approximately $10  million,
     subject to  certain purchase price  considerations. The acquisition  was
     financed  with  borrowings under  the  Company's  credit  facility.  The
     Company paid  an additional  $1 million  in the  third  quarter of  2004
     based on  those purchase  price considerations  and increased  goodwill.
     Additional purchase price may be recorded in the  fourth quarter of 2004
     when the contingent purchase provisions are resolved.

      Purchase price has been allocated, on a preliminary basis, as follows
      (in millions):

      Fair value of tangible assets acquired              $   0.6
      Goodwill                                                7.6
      Intangible assets                                       3.7
      Liabilities assumed                                    (0.2)
      Liability for restructuring and integration costs      (0.3)
                                                           ------
                                                          $  11.4
                                                           ======

     On April 7, 2004, the Company completed the  acquisition of COMP Medical
     for a  purchase price of  approximately $6  million, subject to  certain
     purchase  price considerations  depending  on future  performance.  COMP
     Medical has been renamed First Health Priority  Services, Inc. ("FHPS").
     The  acquisition  was  funded  with  cash  from   operating  activities.
     Additional goodwill may be recognized as the  annual contingent purchase
     provisions are resolved.

      Purchase price has been allocated, on a preliminary basis, as follows
      (in millions):

      Fair value of tangible assets acquired              $   3.2
      Goodwill                                                3.5
      Intangible assets                                       2.5
      Liabilities assumed                                    (2.8)
      Liability for restructuring and integration costs      (0.1)
                                                           ------
                                                          $   6.3
                                                           ======
 3.  Acquired Intangible Assets

                                        As of                   As of
                                 September 30, 2004       December 31, 2003
                                ---------------------  -----------------------
                                Gross                   Gross
                               Carrying  Accumulated   Carrying  Accumulated
        (in millions)           Amount   Amortization   Amount   Amortization
        -------------           ------   ------------   ------   ------------
    Amortized intangible
      assets:
    Customer contracts          $ 80.7      $ 13.6      $ 78.2      $  8.3
      and relationships
    Provider Contracts            13.7         1.6        13.7         1.0
                                 -----       -----       -----       -----
      Total                     $ 94.4      $ 15.2      $ 91.9      $  9.3
                                 =====       =====       =====       =====

     Customer  contracts  and relationships  represent  added  value  to  the
     Company's  business  for  existing  long-term  contracts  and  long-term
     business relationships.  Provider contracts  represent additions to  the
     First Health[R]  Network that  the Company has  acquired. The  aggregate
     amortization expense  recorded during  the nine  months ended  September
     30, 2004 and 2003, respectively, was $5.9 million  and $3.1 million. The
     estimated amortization  expense for  each of the  years ending  December
     31,  2004 through  2007 is  approximately  $7.4 million.  The  estimated
     amortization  expense  for  the   year  ending  December  31,   2008  is
     approximately $6.9 million.

     The changes  in the  carrying amount  of goodwill  for  the nine  months
     ended September 30, 2004  and the twelve months ended December  31, 2003
     are as follows:

                  (in millions)             2004          2003
                                           ------        ------
              Balance, January 1          $ 324.3       $ 279.4
              Goodwill acquired               3.5          50.0
              Other changes                   1.0          (5.1)
                                           ------        ------
              Ending balance              $ 328.8       $ 324.3
                                           ======        ======

     The goodwill  acquired in  2004 represents  the goodwill  from the  FHPS
     acquisition. The other  goodwill adjustments in 2004  represent payments
     for  purchase price  consideration related  to  the acquisition  of  PPO
     Oklahoma. The  goodwill acquired  in 2003 represents  goodwill from  the
     Employer  Services and  PPO Oklahoma  acquisitions. The  other  goodwill
     adjustments in 2003  represented finalization of  the allocation of  the
     purchase price related to prior acquisitions.

 4.  Effective January 1,  2003, the Company  adopted Statement of  Financial
     Accounting Standards No.  148 ("SFAS 148"), "Accounting  for Stock-Based
     Compensation - Transition  and  Disclosure," which amends  SFAS No.  123
     ("SFAS 123"),  "Accounting for  Stock Based  Compensation." The  Company
     accounts  for  these   plans  under  the  recognition   and  measurement
     principles  of APB  Opinion  No. 25,  "Accounting  for Stock  Issued  to
     Employees"  and   related  Interpretations.   No  stock-based   employee
     compensation cost is  reflected in net  income (other than  compensation
     cost for consultants), as  all options granted under these plans  had an
     exercise price  at least  equal to the  market value  of the  underlying
     common  stock on  the date  of  grant. As  permitted  by SFAS  123,  and
     amended  by  SFAS   148,  the  Company   follows  only  the   disclosure
     requirements of SFAS 123  and SFAS 148. The following  table illustrates
     the effect  on net  income and  earnings per  share if  the Company  had
     applied the  fair value  recognition provisions to  all outstanding  and
     unvested awards in each period:

                                        Three Months Ended  Nine Months Ended
     (in millions except EPS)             September 30,       September 30,
     ------------------------             --------------      --------------
                                          2004      2003      2004      2003
                                         ------    ------    ------    ------
     Net income, as reported            $  27.6   $  40.7   $  86.5   $ 114.7

     Add: Stock-based employee
     compensation expense included
     in reported net income, net
     of related tax effects                 0.1       0.1       0.1       0.1

     Deduct: Total stock-based employee
     compensation expense determined
     under fair value based method
     for all awards, net of related
     tax effects                           (2.6)     (3.1)     (8.6)    (10.3)
                                         ------    ------    ------    ------
     Pro forma net income               $  25.1   $  37.7   $  78.0   $ 104.5
                                         ======    ======    ======    ======
     Earnings per share:
       Basic, as reported               $   .30   $   .43   $   .94   $  1.20
       Basic, pro forma                 $   .27   $   .40   $   .85   $  1.09

       Diluted, as reported             $   .30   $   .42   $   .93   $  1.17
       Diluted, pro forma               $   .27   $   .39   $   .84   $  1.06


 5.  Accounts receivable valuation allowances for client-specific  items were
     $39.4 million and  $36.5 million as of  September 30, 2004 and  December
     31, 2003, respectively.  These  valuation allowances for matters such as
     performance  guarantees and  claim,  eligibility  and data  adjustments,
     are  netted  against  the  gross  accounts  receivable  balance  in  the
     consolidated  balance  sheets.   The  Company's  largest  client,   Mail
     Handlers  Benefit Plan  ("MHBP" or  the  "Plan"), generated  revenue  of
     approximately $51.3 million  and $152.9 million  (23% of total  revenue)
     during  the   three  and   nine  months   ended   September  30,   2004,
     respectively, compared to $63.2  million and $169.3 million  in revenues
     (29% and  26% of  total revenues,  respectively)  during the  comparable
     periods  of  2003.  As  previously  reported,  the Company  recorded  $8
     million of  revenue  in third quarter of  2003 related  to the  internal
     reconciliation of 2002 MHBP  claims and the Company recorded  $3 million
     of  revenue in  the  second quarter  of  2004  related to  the  internal
     reconciliation of 2003 MHBP claims.

 6.  Allowances for doubtful  accounts were $17.5  million and $21.1  million
     as  of September  30,  2004 and  December  31, 2003,  respectively.  The
     allowances for  doubtful accounts  are established  based on  historical
     experience and current  economic circumstances and are  adjusted monthly
     based upon updated information.

 7.  The  Company's   investments  in   marketable   securities,  which   are
     classified as available  for sale, had a  net unrealized loss in  market
     value of $0.3 million, net of deferred income taxes,  for the nine month
     period ended September 30, 2004. The accumulated  net unrealized loss as
     of September 30, 2004, included as a  component of stockholders' equity,
     was $0.2 million,  net of deferred income  taxes. The Company has  eight
     separate investments  in a  limited liability  company  that invests  in
     equipment that is  leased to third parties.  The total investment as  of
     September 30,  2004 and December  31, 2003 was  $62.6 million and  $59.0
     million, respectively,  and is  accounted for using  the equity  method.
     The Company's proportionate share  of the partnership's income  was $2.5
     million and $2.1  million for the nine  months ended September 30,  2004
     and 2003, respectively,  and is included in  interest income. The  total
     investment recorded at September  30, 2004 and December 31, 2003  is net
     of an unrealized  loss on interest  rate swaps of  $0.5 million (net  of
     $0.2 million in related taxes) and $2.2 million (net  of $1.3 million in
     related taxes),  respectively, which  is recorded  in accumulated  other
     comprehensive income. A  member of the Company's  Board of Directors  is
     associated  with   a  group   that  owns  approximately   90%  of   this
     partnership. The  Company has  between a  20% and  25%  interest in  the
     limited partners  share of  each individual tranche  of the  partnership
     (approximately 10% of the  total partnership). The partnership  had $1.3
     billion in total assets as of September 30, 2004.

 8.  In 2003 the Company's  Board of Directors approved the repurchase  of up
     to  5 million  shares of  the Company's  outstanding  common stock.  The
     Board had previously approved the repurchase of up  to 10 million shares
     of common stock. Purchases may  be made from time to time,  depending on
     market  conditions and  other  relevant  factors. The  Company  did  not
     repurchase any shares during  the nine months ended September  30, 2004.
     During  the  nine   months  ended  September   30,  2003,  the   Company
     repurchased  6.2  million  shares  (1.0  million  shares  in  the  third
     quarter) on  the open  market for  approximately  $153.3 million  ($27.8
     million in the  third quarter). The actual  cash paid of $149.8  million
     excludes $3.4 million  for trades dated in  September that were  settled
     in the first 3 days of October. As of  September 30, 2004, approximately
     6.1 million shares remain  available for repurchase under  the Company's
     current repurchase authorization.  The Company has  agreed that it  will
     not repurchase  any common stock  prior to the  closing of its  proposed
     Merger (See Note 13).

 9.  Weighted average shares outstanding  for the diluted earnings  per share
     calculation increased by 1.0 million and 1.4 million  and by 2.3 million
     and 2.5 million for the  three and nine months ended September  30, 2004
     and 2003, respectively, due to the effect  of stock options outstanding.
     Diluted net income per share was the same as basic  net income per share
     for the three  months ended September 30,  2004. Diluted net income  per
     share was  $.01  less than  basic net  income per  share  for the  three
     months ended  September 30,  2003, due to  the effect  of stock  options
     outstanding. Diluted net income  per share was $.01 less than  basic net
     income per share for the  nine months ended September 30, 2004  and $.03
     less  than  basic net  income  per  share  for  the  nine  months  ended
     September 30, 2003, due to the effect of stock options outstanding.

 10. Effective January 1,  2003, the Company  adopted Statement of  Financial
     Accounting  Standards  No.  146  ("SFAS  146"),  "Accounting  for  Costs
     Associated with Exit  or Disposal Activities", which  requires companies
     to recognize  costs associated  with exit  or  disposal activities  when
     they are incurred rather than at the date of a commitment  to an exit or
     disposal plan. Examples of  costs covered by the standard  include lease
     termination  costs  and  certain  employee  severance  costs   that  are
     associated with a  restructuring, discontinued operation, or  other exit
     or  disposal activity.  During the  quarter ended  March  31, 2004,  the
     Company initiated a plan to terminate approximately  200 employees for a
     total  cost of  $1.4  million  in termination  benefits.  The  plan  was
     completed  in the  third  quarter  of 2004.  Substantially  all  of  the
     termination  costs were  incurred in  the first  quarter  of 2004.  This
     termination plan was solely for the Commercial segment of the Company.

 11. A purported class action  lawsuit was filed on October 20,  2004 against
     Coventry Health Care, Inc.  ("Coventry"), the Company and  the Company's
     Board  of Directors  in  the  Circuit Court  of  Cook  County,  Illinois
     following the announcement that the Company had  entered into the Merger
     Agreement with Coventry (See Note 13). The  plaintiff in this litigation
     alleges,  among  other  things,  that  the  Company  and  its  Board  of
     Directors breached their  fiduciary duties by  entering into the  Merger
     Agreement with  Coventry and seeks  to represent  a class consisting  of
     all of  the Company's  stockholders who  were allegedly  harmed by  such
     action. The  plaintiff seeks to  enjoin the  consummation of the  Merger
     Agreement,  the imposition  of  a constructive  trust  in favor  of  the
     plaintiff, and  an award of  attorneys' and  experts' fees. The  Company
     believes the plaintiff's  allegations are without  merit and intends  to
     vigorously defend this litigation.

     The Company  and its  subsidiaries are  also subject  to various  claims
     arising in the  ordinary course of business  and are parties to  various
     legal proceedings that constitute litigation incidental to  the business
     of the Company and  its subsidiaries. The Company does not  believe that
     the  outcome  of such  matters  will  have  a  material  effect  on  the
     Company's financial position, results of operations or cash flows.

     The provisions  of the contract  with the  Plan's sponsor, the  National
     Postal Mail Handlers Union,  require that the Company fund  any deficits
     in the Plan  after the Plan's reserves  have been fully utilized.  As of
     September 30, 2004, the Plan has approximately  $378 million in reserves
     to  cover Plan  expenses,  which may  exceed  the premiums  charged  and
     collected from the Plan  participants by the Plan sponsor. The  Plan had
     approximately $346  million in such  reserves as  of December 31,  2003.
     There are no known Plan deficits as of September 30, 2004.

     FASB Interpretation No.  45, "Guarantees, Including Indirect  Guarantees
     of Indebtedness  to Others,"  requires the Company  to disclose  certain
     guarantees, including contractual indemnifications, it has  assumed. The
     Company generally declines to provide indemnification to  its customers.
     In  limited circumstances,  to secure  long-term customer  contracts  at
     favorable  rates, the  Company  may  negotiate risk  allocation  through
     mutual  indemnification  provisions that,  in  the  Company's  judgment,
     appropriately  allocate risk  relative to  the  value of  the  customer.
     Management  believes  that any  liability  under  these  indemnification
     provisions would not be material.

 12. The Company operates in  two segments: Commercial and Public  Sector. In
     the  Commercial segment,  the Company  often  bundles its  products  and
     services  to offer  a  comprehensive  health benefits  solution  to  the
     customer centered  around the First  Health [R]  Network. In the  Public
     Sector  segment,   the  Company  offers   products  and  services   more
     specialized to  the needs of  the individual  customer as public  sector
     health  programs  move  toward  more  efficient  utilization  of  health
     services. The  Company has  one executive management  team that  reviews
     and approves all strategic and resource allocations for  each of the two
     segments. Discreet financial  information is available  for each of  the
     two segments and is  reviewed regularly by the chief  operating decision
     maker.

     The Company calculates  income from operations and  net income for  each
     segment consistent  with the  accounting policies  for the  consolidated
     financial  statements.  Interest   expense  for  the  Company's   credit
     facility is charged primarily to the Commercial  segment. The Commercial
     segment  also includes  the Company's  treasury,  legal, tax  and  other
     similar  corporate  functions.  Income  taxes  are  computed  using  the
     consolidated income tax rate of the Company.

<TABLE>
     Summarized segment financial information  for the three and  nine months
     ended September 30 is as follows:

                                      Three months ended September 30,
                                      --------------------------------
                                   2004                               2003
                     --------------------------------   --------------------------------
                                 Public                             Public
     (in millions)   Commercial  Sector  Consolidated   Commercial  Sector  Consolidated
     -------------   ----------  ------  ------------   ----------  ------  ------------
     <S>               <C>       <C>       <C>             <C>      <C>         <C>
     Revenue           $173.4    $ 45.0    $  218.4        $177.0   $ 42.7      $219.7
     Net income          25.8       1.8        27.6          39.4      1.3        40.7
     Total assets      $974.4    $ 47.7    $1,022.1        $847.6   $ 39.8      $887.4


                                       Nine months ended September 30,
                                       -------------------------------
                                   2004                               2003
                     --------------------------------   --------------------------------
                                 Public                             Public
     (in millions)   Commercial  Sector  Consolidated   Commercial  Sector  Consolidated
     -------------   ----------  ------  ------------   ----------  ------  ------------
     Revenue           $530.4    $126.9    $  657.3       $525.6    $126.5      $652.1
     Net income          84.1       2.4        86.5        110.1       4.6       114.7
     Total assets      $974.4    $ 47.7    $1,022.1       $847.6    $ 39.8      $887.4


     Included in the Commercial  segment for the three and nine  months ended
     September 30, 2004, is  $0.8 million, net of related taxes,  of expenses
     related to the Company's proposed merger (see Note 13).
</TABLE>

 13. On October 14, 2004, the  Company announced that it had entered  into an
     Agreement  and Plan  of  Merger, dated  October  13, 2004  (the  "Merger
     Agreement"), with  Coventry pursuant  to which  the  Company will  merge
     with and into a wholly owned subsidiary of Coventry (the "Merger").

     Pursuant to the Merger  Agreement, at the effective time of  the Merger,
     each  outstanding  share of  Company  common  stock  will  be  converted
     (except for shares  held in the treasury  of the Company  or owned by  a
     stockholder who  properly demands appraisal  rights) into and  represent
     the right to receive  0.1791 shares of Coventry common stock  and $9.375
     in cash.  The Merger Agreement has been approved by the  Company's Board
     of Directors and  the Merger is expected  to close in the  first quarter
     of  2005,  subject  to   the  approval  of  the   Company  stockholders,
     regulatory approvals and other customary conditions.

<PAGE>

 First Health Group Corp. and Subsidiaries

 Item 2.

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS
 (Unaudited)
 -----------------------------------------------------------------------------

 Forward-Looking Information
 ---------------------------
   This  Management's Discussion  and  Analysis of  Financial  Condition  and
 Results of Operations may include certain forward-looking statements, within
 the meaning of Section 27A  of the Securities Act  of 1933, as amended,  and
 Section 21E of the  Securities Exchange Act of  1934, as amended,  including
 (without limitation) statements with respect to anticipated future operating
 and financial performance,  growth and acquisition  opportunities and  other
 similar forecasts and  statements of expectation.  Words such as  "expects",
 "anticipates", "intends", "plans", "believes", "seeks", "estimates", "could"
 and "should"  and variations  of these  words and  similar expressions,  are
 intended  to  identify  these  forward-looking  statements.  Forward-looking
 statements made by the  Company and its management  are based on  estimates,
 projections, beliefs  and assumptions  of management  at  the time  of  such
 statements and  are  not  guarantees  of  future  performance.  The  Company
 disclaims any obligation to update  or revise any forward-looking  statement
 based on the occurrence of future events, the receipt of new information  or
 otherwise.

   Actual  future performance,  outcomes and  results may  differ  materially
 from those expressed in forward-looking statements  made by the Company  and
 its management  as  a  result  of  a  number  of  risks,  uncertainties  and
 assumptions. Representative  examples  of  these  factors  include  (without
 limitation) the  effect  of  the Merger  Agreement  with  Coventry  (defined
 below); general industry and economic conditions; interest rate trends; cost
 of capital and  capital requirements;  competition from  other managed  care
 companies; customer contract  cancellations; the ability  to expand  certain
 areas of  the Company's  business; shifts  in customer  demands; changes  in
 operating  expenses,  including   employee  wages,   benefits  and   medical
 inflation;  governmental  and  public  policy  changes  and  the   continued
 availability of  financing in  the amounts  and on  the terms  necessary  to
 support the Company's future business. In addition, if the Company does  not
 continue to successfully  implement new contracts  and programs and  control
 health care  benefit  expenses, or  if  the Company  does  not  successfully
 integrate its  recent acquisitions;  then the  Company may  not achieve  its
 anticipated 2004 financial results.

 Significant Developments
 ------------------------

    Overview
    --------
   The following information concerning significant business  developments is
 important to understanding the comparability of the 2004 and  2003 financial
 results.

 Merger Agreement
 ----------------
   On October  14, 2004, the Company  announced that it  had entered into  an
 Agreement  and  plan  of  Merger,  dated  October  13,  2004  (the   "Merger
 Agreement"), with Coventry Health Care, Inc. ("Coventry"), pursuant to which
 the Company will merge with and  into a wholly owned subsidiary of  Coventry
 (the "Merger").

   Pursuant to  the Merger Agreement,  at the effective  time of the  Merger,
 each outstanding share of Company common stock will be converted (except for
 shares held in the  treasury of the  Company or owned  by a stockholder  who
 properly demands appraisal rights) into and  represent the right to  receive
 0.1791 shares  of Coventry  common  stock and  $9.375  in cash.  The  Merger
 Agreement has been  approved by  the Company's  Board of  Directors and  the
 Merger is expected to  close in the  first quarter of  2005, subject to  the
 approval  of  the  Company  stockholders,  regulatory  approvals  and  other
 customary conditions.

   In conjunction  with this  Merger, the  Company recorded  $0.8 million  in
 merger-related expenses,  net of  related taxes,  during the  quarter  ended
 September 30, 2004. These expenses reduced earnings per share for the  three
 and nine months ended September 30, 2004 by approximately $.01.

   The  Merger is  subject to  approval by  the Company's  stockholders,  but
 there is no assurance that the Merger will be successfully completed. In the
 event that the  Merger is  not successfully  completed, the  Company may  be
 subject to a number of material risks, including the following:

           *  failure to complete the Merger may seriously harm investors'
              and analysts' perception of our underlying business and
              prospects which could seriously harm our stock price;
           *  the Company may be required to pay Coventry a termination fee
              of up to $59.7 million if the Merger Agreement is terminated
              under specified circumstances;
           *  the price of the Company common stock may decline to the
              extent that the current market price for the common stock
              reflects a market assumption that the proposed Merger will be
              completed;
           *  costs related to the proposed Merger, such as legal,
              accounting, financial advisory and financial printing fees
              must be paid by the Company, even if the Merger is not
              completed; and
           *  the Merger has diverted management attention and resources

   In addition, in the event that  the Merger is not completed and the  Board
 of Directors of the  Company determines to seek  another merger or  business
 combination, it  may  not be  able  to find  a  partner willing  to  pay  an
 equivalent or more attractive price than that which would have been paid  in
 the proposed merger with Coventry.

    Mail Handlers Benefit Plan
    --------------------------
   The Mail  Handlers Benefit  Plan ("MHBP"  or the  "Plan") is  part of  the
 Company's Federal  Employee Health  Benefit Plan  ("FEHBP") sector  and  the
 Company's largest customer.  Revenue was  $51.3 million  and $152.9  million
 (approximately 23 %  of total  Company revenue)  during the  three and  nine
 months ended September 30, 2004, respectively, as compared to $63.2  million
 and $169.3 million  during the comparable  periods of 2003  (29% and 26%  of
 total revenue,  respectively).  Adjustments to  revenue  are recorded  on  a
 client specific and aggregated basis based on empirical data in each  period
 and may be subject to further adjustments in subsequent periods. The Company
 previously disclosed that  second quarter 2004  revenue includes $3  million
 related to its internal  claims reconciliation process  for 2003 claims  and
 2003 revenue  in  the third  quarter  includes  $8 million  related  to  the
 reconciliation of 2002 MHBP claims.

   The  adjustments resulted  primarily from  factors  that the  Company  has
 historically  used  in  its  internal  claims  reconciliation  process.  The
 internal  reconciliation  process  involves  reconciling  fees  and  savings
 associated with each medical claim, the eligibility of each Plan member, the
 allowability of  each claim  in  relation to  the  Plan definition  and  the
 coordination of  benefits with  other insurers.  In addition,  the MHBP  may
 include an audit performed  by a governmental agency  within each five  year
 period after a fiscal year end. This retrospective review of claims data may
 result in changes to previous  estimates made for eligibility,  coordination
 of  benefits  and  other  Plan  provisions.  See  the  "Critical  Accounting
 Policies" section for a further description of revenue adjustments.

   The  provisions of  the contract  with the  Plan's  sponsor, the  National
 Postal Mail Handlers Union,  require that the Company  fund any deficits  in
 the Plan after the Plan's reserves have been fully utilized. As of September
 30, 2004, the Plan has approximately $378 million in reserves to  cover Plan
 expenses that may exceed  the premiums charged and  collected from the  Plan
 participants by the Plan  sponsor. The Plan  had approximately $358  million
 and $346 million in such reserves as of September 30, 2003 and  December 31,
 2003, respectively. There  are no known  Plan deficits  as of September  30,
 2004.

    Acquisitions
    ------------
   On October 31, 2003, the  Company completed the acquisition of all  of the
 outstanding shares of capital  stock of Health  Net Employer Services,  Inc.
 ("Employer Services") from Health  Net, Inc. for approximately  $79 million.
 The purchase also included Health Net  Plus Managed Care Services,  Inc. and
 Health Net CompAmerica,  Inc. Employer Services  is a workers'  compensation
 managed care  company  based  in Irvine,  California.  The  acquisition  was
 financed with borrowings  under the  Company's credit  facility. Health  Net
 Employer Services, Inc.  has been  renamed First  Health Employer  Services,
 Inc.

   On October  31, 2003, the  Company also completed  the acquisition of  PPO
 Oklahoma for  a purchase  price of  approximately  $10 million,  subject  to
 certain purchase price  considerations. The  Company paid  an additional  $1
 million in  the  third  quarter  of  2004 as  part  of  the  purchase  price
 considerations  and  increased  goodwill.   PPO  Oklahoma  operates   almost
 exclusively in  the state  of Oklahoma.  The acquisition  was financed  with
 borrowings under the Company's credit facility.

   On April 7, 2004,  the Company completed the acquisition of  COMP Medical,
 a workers' compensation company headquartered in Woodland  Hills, California
 that  specializes  in  appointment  setting  for  chronic  pain  management,
 diagnostic imaging  and electrodiagnostic  procedures, as  well as  Medicare
 set-aside allocations.  The purchase  price  was approximately  $6  million,
 subject to  additional purchase  price  considerations depending  on  future
 performance, and was paid with cash from operating activities.  COMP Medical
 has been renamed First Health Priority Services, Inc. ("FHPS").

    Termination Plan
    ----------------
   During the quarter ended March  31, 2004, the Company initiated a  plan to
 terminate approximately 200 employees at  an estimated cost of  $1.4 million
 in termination benefits. The Company recorded and paid substantially  all of
 these costs during the first quarter of 2004.

 Results of Operations
 ---------------------
   The  Company's revenues  consist primarily  of  fees for  cost  management
 services provided on a predetermined  contractual basis or on  a percentage-
 of-savings basis. Revenues also  include insurance premium revenue  from the
 Company's insurance company operations.

   The following table sets forth information with respect  to the sources of
 the Company's revenues  for the three  and nine  months ended September  30,
 2004 and 2003, respectively:

   Sources of Revenue
                                              ($ in millions)
                                      Three Months Ended September 30,
                                      --------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
        Group Health:
          PPO plus Administration
            Services                  $  80.3    37%   $  97.1    44%
          PPO                            32.1    15       36.4    17
          Premiums                        9.7     4        4.4     2
                                       ------   ----    ------   ----
           Total Group Health           122.1    56      137.9    63
                                       ------   ----    ------   ----
        Workers' Compensation:
          PPO plus Administration
            Services                     32.1    15       23.1    11
          PPO                            19.2     8       16.0     7
                                       ------   ----    ------   ----
           Total Workers' Compensation   51.3    23       39.1    18
                                       ------   ----    ------   ----
      Total Commercial Revenue          173.4    79      177.0    81
                                       ------   ----    ------   ----
      Public Sector Revenue              45.0    21       42.7    19
                                       ------   ----    ------   ----
      Total Revenue                   $ 218.4   100%   $ 219.7   100%
                                       ======   ====    ======   ====

                                               ($ in millions)
                                       Nine Months Ended September 30,
                                      --------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
        Group Health:
          PPO plus Administration
            Services                  $ 244.5    37%   $ 277.1    43%
          PPO                            99.9    15      116.2    18
          Premiums                       28.2     5       12.8     2
                                       ------   ----    ------   ----
           Total Group Health           372.6    57      406.1    63
                                       ------   ----    ------   ----
        Workers' Compensation:
          PPO plus Administration
            Services                     95.9    15       73.3    11
          PPO                            61.9     9       46.2     7
                                       ------   ----    ------   ----
           Total Workers' Compensation  157.8    24      119.5    18
                                       ------   ----    ------   ----
      Total Commercial Revenue          530.4    81      525.6    81
                                       ------   ----    ------   ----
      Public Sector Revenue             126.9    19      126.5    19
                                       ------   ----    ------   ----
      Total Revenue                   $ 657.3   100%   $ 652.1   100%
                                       ======   ====    ======   ====

   Supplemental Revenue Information

      The following table sets forth supplemental information by revenue
 sector:

                                              ($ in millions)
                                      Three Months Ended September 30,
                                      --------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
      Group Health:
       FEHBP                          $  58.0    27%   $  71.9    33%
       Corporate                         39.4    18       47.8    22
       Insurers/TPA                      24.7    11       18.2     8
                                       ------   ----    ------   ----
         Total Group Health             122.1    56      137.9    63
                                       ------   ----    ------   ----
      Workers' Compensation              51.3    23       39.1    18
                                       ------   ----    ------   ----
      Total Commercial                  173.4    79      177.0    81
                                       ------   ----    ------   ----
      Public Sector                      45.0    21       42.7    19
                                       ------   ----    ------   ----
      Total Revenue                   $ 218.4   100%   $ 219.7   100%
                                       ======   ====    ======   ====

                                               ($ in millions)
                                       Nine Months Ended September 30,
                                      --------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
      Group Health:
       FEHBP                          $ 173.9    27%   $ 193.7    30%
       Corporate                        123.8    19      150.9    23
       Insurers/TPA                      74.9    11       61.5    10
                                       ------   ----    ------   ----
         Total Group Health             372.6    57      406.1    63
                                       ------   ----    ------   ----
      Workers' Compensation             157.8    24      119.5    18
                                       ------   ----    ------   ----
      Total Commercial                  530.4    81      525.6    81
                                       ------   ----    ------   ----
      Public Sector                     126.9    19      126.5    19
                                       ------   ----    ------   ----
      Total Revenue                   $ 657.3   100%   $ 652.1   100%
                                       ======   ====    ======   ====

   This  supplemental revenue  data provides  information  about the  mix  of
 clients  within  the   Company's  revenue  sectors.   In  addition  to   the
 supplemental information above, the Company has generated approximately 38 %
 and 39% of total Company revenues  on a percentage-of-savings basis  for the
 three and nine months  ended September 30,  2004, respectively, compared  to
 41% and 40% for the comparable periods of 2003.

   Total  revenue for  the three  and nine  months ended  September 30,  2004
 decreased $1.4 million  (0.6%) and  increased $5.1 million  (0.8%) from  the
 comparable periods  of  2003.  The components  of  the  Company's  quarterly
 revenue are as follows:

   Group Health  revenue of $122.1 million  and $372.6 million for  the three
 and nine months ended September 30, 2004 decreased $15.9 million (11.5%) and
 $33.6 million  (8.3%) from  the comparable  periods  of 2003.  Group  Health
 revenue represents revenue  from the corporate,  FEHBP, small group  carrier
 and third party administrator  payors. Group Health PPO  plus Administration
 Services revenue for  the three  and nine  months ended  September 30,  2004
 decreased  $16.8  million  (17.3%)  and  $32.6  million  (11.8%)   from  the
 comparable periods of 2003 due in part to increased price  competition, less
 new business and  higher client  attrition than expected.  Group Health  PPO
 revenue for the  three and nine  months ended  September 30, 2004  decreased
 $4.3 million (11.9%) and $16.3  million (14.1%) from the  comparable periods
 of 2003 due primarily  to clients taking advantage  of a wider array  of the
 Company's  services  (which  is  reported  under  PPO   plus  Administration
 Services). Premium revenue for the three and nine months ended September 30,
 2004 increased $5.3  million (119.3%)  and $15.4 million  (120.8%) from  the
 comparable periods of 2003 as a result of new client  activity, particularly
 due to the New England Financial  ("NEF") block of small  group, multi-sited
 business the Company  assumed in  the fourth  quarter of  2003. The  Company
 ceded 80% of  the premiums  and related  policy benefits  to a  highly-rated
 insurance carrier.

   Group Health revenue is further broken down into  the FEHBP, Corporate and
 Insurers/TPA sectors. FEHBP  sector revenue  for the three  and nine  months
 ended September 30, 2004 decreased  $13.9 million (19.4%) and  $19.8 million
 (10.2%) from the comparable periods of 2003. This decrease is  due primarily
 to the MHBP  which experienced  an approximate 10%  decrease in  enrollment,
 lower participant utilization and a change  in the mix of plan  options. The
 Company previously disclosed it  had recorded $8 million  of revenue in  the
 third quarter of  2003 as part  of its retrospective  review of claims  data
 related to 2002 MHBP business. The Company also previously disclosed  it had
 recorded $3 million of revenue in the second quarter of 2004 as  part of its
 retrospective review of  claims data  related to 2003  MHBP business.  FEHBP
 sector revenue increased $0.8 million (1.4%) from the second quarter of 2004
 due primarily to billable  open season activity  for MHBP. Corporate  sector
 revenue for the  three and nine  months ended  September 30, 2004  decreased
 $8.4 million (17.7%) and $27.2  million (18.0%) from the  comparable periods
 of 2003. This decrease  is due to client  attrition, less new business  than
 anticipated and increased price competition in the sector.  Corporate sector
 revenue decreased $1.0 million  (2.5%) from the second  quarter of 2004  due
 primarily to price  competition. Insurers/TPA sector  revenue for the  three
 and nine months ended September 30, 2004 increased $6.5 million  (35.7%) and
 $13.4 million (21.8%) from the comparable  periods of 2003 due  primarily to
 new business with insurers, principally the NEF business  discussed earlier.
 Insurers/TPA sector revenue was comparable to the second quarter of 2004.

   Workers' Compensation revenue of $51.3 million and  $157.8 million for the
 three and  nine months  ended September  30,  2004 increased  $12.2  million
 (31.2%) and $38.3 million (32.0%) from the comparable periods of  2003. This
 increase is due to $12.5 million  and $43.5 million in revenues earned  as a
 result of the Employer Services and FHPS acquisitions for the three and nine
 months ended September 30, 2004, respectively. Workers' Compensation revenue
 decreased $4.2 million (7.5%) from the second quarter of 2004  due primarily
 to  less  new  business  and  revenue  delays  as  several   large  workers'
 compensation clients made changes to their processes and systems  related to
 recent regulatory reforms in California.

   Public Sector  revenue of $45.0 million  and $126.9 million for  the three
 and nine months ended September 30,  2004 increased $2.3 million  (5.3%) and
 $0.4 million  (0.3%) from  the comparable  periods  of 2003.  Public  Sector
 revenue represents fees associated with pharmacy benefit  management, fiscal
 agent services and  health care  management from clients  within the  public
 sector. This increase in revenue is due primarily to new pharmacy contracts.
 Public Sector  revenue in  the  third quarter  of  2003 had  been  favorably
 impacted by $9.0 million of non-recurring implementations (for HIPAA support
 and other systems implementations) compared to $0.3 million of  such revenue
 in the third quarter  of 2004. Absent the  non-recurring business, the  2004
 quarterly revenue  would have  increased $11.0  million  or 32.7%  from  the
 comparable quarter of  2003. Public  Sector revenue  increased $2.3  million
 (5.5%) from the second quarter of 2004 due to new pharmacy contracts.

   Cost of  services increased $5.6 million  (5.6%) and $20.6 million  (7.0%)
 for the three and nine months  ended September 30, 2004 from  the comparable
 periods in  2003  due  primarily  to  costs  associated  with  the  Employer
 Services, PPO Oklahoma  and FHPS  acquisitions partially  offset by  savings
 associated with improved efficiency  and staff reductions. Cost  of services
 decreased $0.7 million  (0.6%) from  the second quarter  of 2004  consistent
 with the  Company's  cost savings  initiatives.  Cost of  services  consists
 primarily of salaries  and related  costs for personnel  involved in  claims
 administration, PPO administration,  development and expansion,  utilization
 management  programs,   fee  schedule   and   other  cost   management   and
 administrative services offered by the Company. To a lesser extent,  cost of
 services includes  telephone  expenses,  facility expenses  and  information
 processing costs. As a percentage of revenue, cost of services  increased to
 47.7% and 48.0%  for the  three and nine  months ended  September 30,  2004,
 respectively, from 44.9% and  45.2% in the comparable  periods of 2003,  and
 increased slightly from 47.5% in the second quarter of 2004. The increase as
 a percentage of revenue from each comparable period in 2003 is due primarily
 to the costs  associated with the  various acquisitions as  well as a  trend
 toward providing more administrative services that are  more cost-intensive.
 The increase from the  second quarter of 2004  is due primarily to  expenses
 related to open enrollment as  well as lower workers'  compensation revenues
 previously discussed.

   Selling and marketing costs for the three and  nine months ended September
 30, 2004  increased  $1.1 million  (4.9%) and  $0.5 million  (0.7%) from the
 comparable  periods  in  2003  primarily  due to costs associated  with  the
 Company's  MHBP enrollment campaign.  Selling and marketing  costs increased
 $3.5 million (17.0%) from the  second  quarter of 2004 also due primarily to
 costs associated with  the MBHP  enrollment campaign.  The  majority of  the
 2004 enrollment costs were incurred in the  third quarter of 2004 while  the
 2003 expenses were incurred more ratably over the year.

   General  and administrative  costs for  the three  and  nine months  ended
 September 30, 2004 increased $3.0 million (18.6%) and $11.1  million (23.9%)
 from  the  comparable  periods  in  2003  due  primarily  to   increases  in
 professional liability insurance and other professional fees associated with
 cost savings initiatives  incurred in the  first half  of 2004. General  and
 administrative costs decreased slightly from the second quarter of  2004 due
 primarily to less 401K expenses due to forfeitures.

   Health care benefits represent medical losses incurred  by insureds of the
 Company's insurance entities.  Health care  benefits increased $1.8  million
 (41.0%) and  $5.9  million  (41.8%) for  the  three  and nine  months  ended
 September 30, 2004 from  the comparable periods of  2003. This increase  was
 due primarily  to  new business,  particularly  the NEF  business  discussed
 above. Health care benefits decreased  $1.0 million (13.2%) from  the second
 quarter of 2004 due primarily to  improved experience in the  Company's stop
 loss business. The loss ratio (health care benefits as a percent  of premium
 revenue) was 65% and 71% for  the three and nine months ended  September 30,
 2004 compared  to 101%  and 110%  for the  comparable periods  of 2003.  The
 decrease in the loss ratio from 2003 is due primarily to improved experience
 in the  Company's stop  loss  business and  the  NEF small  group  business.
 Management reviews the  book of  business in detail  on a  monthly basis  to
 minimize the  loss ratio.  Stop-loss insurance  is related  to  the PPO  and
 claims administration businesses and is used as a way to  attract additional
 PPO business, which is the Company's most profitable product.

   Depreciation and amortization expenses increased $4.1  million (26.2%) and
 $11.3 million (24.5%) for the three and nine months ended September 30, 2004
 from the  comparable periods  in 2003  due primarily  to increased  software
 investments made over the  course of the  past few years,  and, to a  lesser
 extent,  amortization   of  intangible   assets  related   to  the   various
 acquisitions the  Company  has made.  Depreciation  expense is  expected  to
 continue to grow primarily as a result of continuing investments the Company
 is making in its infrastructure.

   Income from operations of  $43.5 million and $139.0 million for  the three
 and nine months ended September 30, 2004 decreased $18.3 million (29.7%) and
 $45.6 million  (24.7%) from  the comparable  periods  of 2003.  Income  from
 operations decreased $5.6 million (11.4%)  from the second quarter  of 2004.
 These results  include  $1.3  million of  pre-tax,  merger-related  expenses
 recorded in the quarter ended  September 30, 2004. Operating  margin (income
 from operations as a percentage of  revenue) was 19.9% in the  third quarter
 of 2004, 28.1% in the third quarter of 2003 and 22.2% in  the second quarter
 of 2004. The decrease in income  from operations and operating  margins from
 2003 is due to a change in the mix of revenue to lower-margin administrative
 services business as well as expenses the Company incurred in the first half
 of 2004 associated  with cost  savings initiatives. The  decrease in  income
 from operations and operating margins from the second quarter of 2004 is due
 primarily to the decrease in Workers' Compensation revenue.

   Interest income for the three and nine months ended  September 30, 2004 is
 comparable to prior periods  as the Company has  repaid $75 million of  debt
 rather than increasing its investments.

   Interest expense  for the three and  nine months ended September  30, 2004
 increased $0.5 million (38.3%) and $1.3 million (32.9%) from  the comparable
 periods in  2003. Interest  expense has  increased as  the outstanding  debt
 increased from  $155  million  at September  30,  2003  to $195  million  at
 September 30, 2004 and the effective borrowing rate has risen. The effective
 marginal interest  rate on  September 30,  2004 was  approximately 2.7%  per
 annum.

   The Company's effective tax rate was 36% and 37.4% for  the three and nine
 months ended September 30, 2004,  respectively,  compared to 34.5%  and  38%
 for the  same  periods  in  2003.  The  Company  recorded  $0.8  million  in
 additional tax credits in the third quarter of 2004 that reduced  its annual
 effective tax rate from 38%.

   Diluted net income  per common share for  the three and nine  months ended
 September 30, 2004  decreased 28.6%  to $.30 per  share and  20.5% to  $.93,
 respectively, per share from the comparable periods of 2003. The decrease in
 net income per common share was  due primarily to the change in  revenue mix
 and the expenses associated  with cost savings initiatives  discussed above.
 For the  three and  nine months  ended September  30,  2004, diluted  common
 shares  outstanding  decreased  4.4%   and  5.4%,  respectively,  from   the
 comparable periods of 2003.

 Segment Information
 -------------------
   The  Company  reports  its  financial  results  under  two  segments:  the
 Commercial segment, where the  Company provides its health  benefit services
 to Commercial  customers  in  the Group  Health  and  Workers'  Compensation
 markets, and  the Public  Sector segment,  where  the Company  services  are
 provided to customers  within state  and local  governments. The  Commercial
 Group Health market represents  payors from the  FEHBP, corporate and  third
 party administrators/insurers sectors. Management believes this presentation
 reflects how the Company markets and sells its products and services. In the
 Commercial sector, the Company  often bundles its  products and services  to
 offer a  comprehensive  health  benefits  solution, and  it  does  not  sell
 administrative  services  (claims  administration,  bill   review,  pharmacy
 benefit management, clinical management) on a stand-alone basis  without PPO
 network services.  In the  Public Sector,  the Company  offers products  and
 services more specialized to the needs of the individual customer  as public
 sector health  programs move  toward more  efficient  utilization of  health
 services. The Commercial sector includes the $1.3 million in pre-tax merger-
 related expenses recorded in the third quarter of 2004.

                              Three months ended          Nine months ended
                                September 30,                September 30,
        Commercial            -----------------           ------------------
     ($ in millions)           2004       2003             2004        2003
  ----------------------      ------     ------           ------      ------
 Revenues                    $ 173.4    $ 177.0          $ 530.4     $ 525.6
 Operating expenses            132.8      117.1            395.3       348.4
                              ------     ------           ------      ------
 Income from operations         40.6       59.9            135.1       177.2
                              ------     ------           ------      ------
    Operating margin            23.5%      33.9%            25.5%       33.7%

 Interest income                (1.4)      (1.6)            (4.3)       (4.3)
 Interest expense                1.6        1.2              5.1         3.9
                              ------     ------           ------      ------
 Income before income taxes     40.4       60.3            134.3       177.6
 Income taxes                  (14.6)     (20.9)           (50.2)      (67.5)
                              ------     ------           ------      ------
 Net income                  $  25.8    $  39.4          $  84.1     $ 110.1
                              ======     ======           ======      ======

 The decline in  income from  operations and  net income  for the  Commercial
 segment is due to a number of factors including: increased price competition
 (particularly in the  Corporate sector);  new business in  the lower  margin
 third party administrator/insurance sector;  lower PPO savings in  the FEHBP
 sector; and  the costs  incurred associated  with  savings initiatives.  The
 Commercial segment has also  experienced less new  business in its  Workers'
 Compensation revenue,  and  some  clients  had  system  conversion  problems
 inherent in  their  businesses,  partially  due  to  regulatory  reforms  in
 California.

                              Three months ended          Nine months ended
                                September 30,                September 30,
      Public Sector           -----------------           ------------------
     ($ in millions)           2004       2003             2004        2003
  ----------------------      ------     ------           ------      ------

 Revenues                    $  45.0    $  42.7          $ 126.9     $ 126.5
 Operating expenses             42.1       40.8            123.0       119.1
                              ------     ------           ------      ------
 Income from operations          2.9        1.9              3.9         7.4
                              ------     ------           ------      ------
   Operating margin              6.2%       4.3%             3.0%        5.8%

 Interest expense                 --         --               --          --
                              ------     ------           ------      ------
 Income before income taxes      2.9        1.9              3.9         7.4
 Income taxes                   (1.1)      (0.6)            (1.5)       (2.8)
                              ------     ------           ------      ------
 Net income                  $   1.8    $   1.3          $   2.4     $   4.6
                              ======     ======           ======      ======

 The decline in income  from operations and net  income in the Public  Sector
 segment is due primarily to the  decline in non-recurring HIPAA  support and
 other  systems   implementations   discussed   earlier.  The   revenue   and
 profitability is expected to increase going forward in 2004, as the pharmacy
 benefit management ("PBM") business grows and efficiency initiatives are put
 in place  to help  control costs.  The Company  has won  14 of  its last  16
 contract bids for  PBM services within  the Public  Sector. PBM business  is
 higher-margin business  and now  represents more  than  half of  the  Public
 Sector revenue.

 Liquidity and Capital Resources
 -------------------------------
   The Company  had $38.2 million  in working capital  on September 30,  2004
 compared with working capital of $24.1  million at December 31,  2003. Total
 cash and  investments  amounted to  $163.8  million  at September  30,  2004
 compared to $139.7 million at December 31, 2003.

   Cash flow  from operations for  the nine months  ended September 30,  2004
 decreased $6.8 million from 2003 due  to lower net income,  partially offset
 by positive cash  flow effects  for the  timing of  collections of  accounts
 receivable  and  the  timing   of  payment  of  the   Company's  tax-related
 liabilities. Accounts receivable  collection efforts  in 2004 provided  $3.0
 million of cash in 2004 versus a use of $16.8 million of  cash in 2003. Cash
 collected from the exercise of stock options has declined from prior years.

   The Company's most significant uses of cash continue to  be for payment of
 operating  expenses,  income  taxes  and  capital  expenditures.  Management
 currently expects that capital  expenditures for 2004 will  be approximately
 8% of  revenues or  $75  million, slightly  below  the 10%  average  capital
 investment of the past several years.

   The Company's  outstanding debt at  September 30,  2004 decreased to  $195
 million from $270  million at  December 31, 2003  as the  Company used  cash
 generated from operations to pay down debt.

 The following table summarizes  the contractual obligations the  Company has
 outstanding as of September 30, 2004:

  (in millions)                     Payments due by period
                                    ----------------------
                                      Less than    1-3       3-5     Over 5
  Contractual Obligations      Total    1 year    years     years    years
  -----------------------      -----    ------    -----     -----    -----
  Long-term debt              $195.0   $    --   $195.0    $    -   $    -
  Operating leases              52.0      14.3     20.6      12.8      4.3
  Purchase obligations           0.5       0.5        -         -        -
                               -----     -----    -----     -----    -----
  Total                       $247.5     $14.8   $215.6    $ 12.8   $  4.3
                               =====     =====    =====     =====    =====

   The  purchase  obligation  is  a  commitment  to  a  limited   partnership
 investment. The Company has no capital lease obligations, off-balance  sheet
 financing arrangements or other contractual obligations as of September  30,
 2004. The long-term  debt obligation excludes  any related interest  expense
 and fees.

   The  Company believes  that its  working capital,  long-term  investments,
 credit facility and cash generated from future operations will be sufficient
 to fund the Company's anticipated operations and expansion plans.

   In accordance  with FASB  Interpretation No.  45 ("FIN 45"),  "Guarantees,
 Including Indirect Guarantees  of Indebtedness  to Others",  the Company  is
 required   to   disclose    certain   guarantees,   including    contractual
 indemnifications, it has assumed. The Company generally declines  to provide
 indemnification to its customers. In limited circumstances, to  secure long-
 term customer contracts at favorable  rates, the Company may  negotiate risk
 allocation through mutual indemnification provisions that, in  the Company's
 judgment, appropriately allocate risk relative to the value of the customer.
 As of September 30, 2004 management believes that any liability  under these
 indemnification provisions would not be material.

 2004 Outlook
 ------------
   The Company expects  full year 2004 earnings to be  in the range of  $1.25
 to $1.28 per share excluding the costs and expenses related to the  proposed
 transaction with  Coventry  and professional  fees  for settlement  of  tax-
 related services previously negotiated on a contingent fee basis. The  costs
 for these two  issues are expected  to aggregate to  approximately $.10  per
 share in  2004. Additionally,  this guidance  excludes any  amounts for  the
 Merger Agreement's  provision for  settlement of  the Company's  outstanding
 stock options, which cannot be estimated at this time. The earnings guidance
 is reduced  from prior  quarters  primarily due  to  less new  business  and
 revenue delays  in the  Workers' Compensation  sector. Although  the  recent
 regulatory reforms  in  California have  lead  to delays  in  2004  revenue,
 management believes these reforms will have a significant positive effect on
 revenue in 2005.

 Critical Accounting Policies
 ----------------------------
   The  consolidated financial  statements are  prepared in  accordance  with
 accounting principles generally accepted in the United States of America and
 include amounts  based  on  management's prudent  judgments  and  estimates.
 Management believes that any reasonable  deviation from these judgments  and
 estimates would  not  have a  material  impact on  the  Company's  financial
 position or results  of operations. To  the extent that  the estimates  used
 differ from actual results, adjustments to  the statement of operations  and
 the balance sheet would be necessary. Some of the more significant estimates
 include the  recognition of  revenue, allowance  for doubtful  accounts  and
 insurance claim  reserves.  The Company  uses  the following  techniques  to
 determine estimates:

   Revenue recognition - Significant  estimates  used in recognizing  revenue
 relate to performance guarantees,  other client-specific claim,  eligibility
 and other data adjustments. Adjustments to PPO savings, and, therefore,  PPO
 revenues, occur  due to  client corrections  of member  eligibility data  as
 originally submitted or due to certain clients' inability to resubmit claims
 adjustments to  the Company's  repricing system.  In addition,  the  Company
 performs a claims reconciliation process which varies client-by-client  and,
 in some cases, such as with the MHBP, is performed a number of months  after
 year-end. The claims reconciliation process is affected by a number of items
 including:  size  of   enrollment;  volume  of   claims  data;  a   client's
 technological infrastructure;  structure of  the  benefit plan(s);  and  the
 specific terms of the client contract. MHBP is the Company's largest  client
 and presents a complex combination of  these items above which results in  a
 lengthy reconciliation  process.  The  Company records  adjustments  in  the
 current accounting period; further adjustments may be made in future periods
 based on new information that becomes  available in such future periods.  In
 some cases, such as with the MHBP, the adjustment process is also subject to
 an external  audit performed  by  a governmental  agency.  The use  of  such
 estimates and  the  claims reconciliation  process  enables the  Company  to
 report PPO fee revenue more accurately  as information becomes available  to
 support entitlement to fees, net of actual adjustments. Revenue  adjustments
 are estimated  on  a  client-specific and  aggregated  basis  using  actual,
 historical adjustment data. Valuation  allowances recorded for such  matters
 were $39.4 million at September 30,  2004 and $36.5 million at December  31,
 2003. Total adjustments to revenue amounted  to a reduction of less than  1%
 of total Company revenue for the nine months ended September 30, 2004 and an
 addition to revenues of less than 1% for the nine months ended September 30,
 2003.

   Allowance  for doubtful  accounts  -  The Company  provides  reserves  for
 uncollectible revenue due  to client collectibility  issues as an  allowance
 for doubtful accounts. The primary reasons for nonpayment of these  accounts
 receivable are client bankruptcy,  insolvency or disputes over  eligibility.
 The methodology for calculating the allowance for doubtful accounts includes
 an assessment of specific receivables that are aged and an assessment of the
 aging of the total receivable pool.  Substantially all of the Public  Sector
 revenue  is  received  from  state  and  local  governments.  The  Company's
 experience with recovering receivables related  to Public Sector revenue  is
 impacted primarily by contract disputes, changes in administrative personnel
 and the  timing of  fiscal appropriations  relative to  the billing  of  our
 services. The reserving methodology  for Public Sector receivables  provides
 for a  longer  collection period  compared  to Commercial  receivables.  The
 Company evaluates the recoverability of  Public Sector receivables based  on
 the aging of  receivables, with  additional consideration  given to  clients
 with known fiscal appropriations issues. The allowance for doubtful accounts
 totaled $17.5 million at  September 30, 2004 and  $21.1 million at  December
 31, 2003.

   Insurance claim reserves - Claims reserves are developed based on  medical
 claims payment history adjusted for specific benefit plan elements (such  as
 deductibles) and  expected savings  generated by  utilization of  The  First
 Health [R] Network. Based  upon this process,  management believes that  the
 insurance claims reserves are  appropriate; however, actual claims  incurred
 and actual  settlement  values  of  claims  may  differ  from  the  original
 estimates requiring adjustments to the reserves.

 New Accounting Pronouncements
 -----------------------------
   In March 2004, the FASB Task  Force reached a consensus on Issue No.  03-1
 ("Issue 03-1"),  "The Meaning  of  Other-Than-Temporary Impairment  and  its
 Application to  Certain  Investments."  Issue  03-1  provides  guidance  for
 determining  when  an  investment  is  other-than-temporarily  impaired.  In
 September 2004,  the FASB  voted  to defer  the  effective date  of  certain
 paragraphs in  Issue 03-1  pending the  issuance of  a final  FASB  position
 relating to guidance on implementation of  Issue 03-01. The Company  adopted
 the disclosure provisions of  Issue 03-1 in 2003.  The amount of any  other-
 than-temporary impairment that may  need to be  recognized upon adoption  of
 Issue 03-1 will be  dependent on market  conditions and management's  intent
 and ability at the time of the impairment evaluation to hold the  underwater
 investments until a  forecasted recovery  in fair  value up  to (or  beyond)
 adjusted cost.


 Item 3.  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

      The Company's  market  risk  exposure  as of  September  30,  2004  was
 consistent with the types of market risk and amount of exposure presented in
 its 2003 Annual Report on Form 10-K.


 Item 4.  Controls and Procedures
          -----------------------

      The Company  maintains  disclosure controls  and  procedures that  are
 designed to  ensure  that  information  required  to be  disclosed  in  the
 Company's Exchange  Act  reports  is  recorded,  processed, summarized  and
 reported within the time  periods specified in the  Securities and Exchange
 Commission's rules and forms  and that such information  is accumulated and
 communicated to  the Company's  management, including  its  Chief Executive
 Officer and Chief  Financial Officer, as  appropriate, to allow  for timely
 decisions regarding required disclosure.   In designing  and evaluating the
 disclosure controls and procedures, management recognizes that any controls
 and procedures, no matter how well designed  and operated, can provide only
 reasonable assurance  of  achieving  the  desired  control objectives,  and
 management is required to apply its judgment in evaluating the cost-benefit
 relationship of possible controls and procedures.

      As of  September 30,  2004, the  end  of the  quarter covered  by  this
 report, management carried out an evaluation, with the participation  of the
 Company's Chief  Executive  Officer  and Chief  Financial  Officer,  of  the
 effectiveness of  the  design  and operation  of  the  Company's  disclosure
 controls and  procedures.  Based  on  the  foregoing,  the  Company's  Chief
 Executive Officer and Chief  Financial Officer concluded that  the Company's
 disclosure  controls  and  procedures  were  effective  at   the  reasonable
 assurance level as of September 30, 2004.

      There has  been  no change  in  the  Company's internal  controls  over
 financial reporting during the Company's most recent fiscal quarter that has
 materially affected,  or  is reasonably  likely  to materially  affect,  the
 Company's internal controls over financial reporting.


 PART II

 Item 1.   Legal Proceedings
           -----------------
   A purported  class action lawsuit  was filed on  October 20, 2004  against
 Coventry, the Company and  the Company's Board of  Directors in the  Circuit
 Court of Cook County, Illinois following  the announcement that the  Company
 had entered into the Merger Agreement  with Coventry.  The plaintiff in this
 litigation alleges, among other  things, that the Company  and its Board  of
 Directors breached  their  fiduciary  duties by  entering  into  the  Merger
 Agreement with Coventry and seeks to represent a class consisting of all  of
 the Company's stockholders  who were allegedly  harmed by  such action.  The
 plaintiff seeks  to enjoin  the consummation  of the  Merger Agreement,  the
 imposition of a constructive trust in  favor of the plaintiff, and an  award
 of attorneys'  and  experts'  fees. The  Company  believes  the  plaintiff's
 allegations  are  without  merit  and  intends  to  vigorously  defend  this
 litigation.

   The  Company and  its  subsidiaries are  also  subject to  various  claims
 arising in the ordinary course of business and are parties to various  legal
 proceedings that constitute  litigation incidental  to the  business of  the
 Company and its subsidiaries. The Company does not believe that the  outcome
 of such  matters will  have a  material effect  on the  Company's  financial
 position or results of operations.


 Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
           -----------------------------------------------------------

   The following table summarizes any purchases of the Company common stock
 made by or on behalf of the Company for the quarter ended September 30,
 2004.


                                                 Total # of      Maximum # of
                                              shares purchased   shares that
                                                 as part of       may yet be
                      Total #      Average        publicly        purchased
                     of shares    price paid      announced       under the
      Period         purchased    per share       programs        programs
      ------         ---------    ---------       --------        ---------
 July 1 - July 31           --           --             --        6,109,841
 Aug 1 - Aug 31             --           --             --        6,109,841
 Sept 1 - Sept 30           --           --             --        6,109,841
                     ---------    ---------       --------        ---------
 Total                      --           --             --        6,109,841
                     =========    =========       ========        =========


 Item 5.   Other Information
           -----------------

   There has been no material change to the procedures by which security
 holders may recommend nominees to the Company's Board of Directors.


 Item 6.   Exhibits
           --------
    (a) Exhibit  3   - Amendment to Restated Certificate of Incorporation
                       as Filed with the Securities and Exchange Commission
                       on March 30, 1991.

    (b) Exhibit 10.1 - Change in control severance agreement by and between
                       Edward Wristen and the Company dated August 17, 2004.

    (c) Exhibit 10.2 - Change in control severance agreement by and between
                       Joseph Whitters and the Company dated August 16, 2004.

    (d) Exhibit 10.3 - Form of change in control severance agreement by
                       and between the Company and the following executive
                       officers: Alton L. Dickerson, Patrick Dills, Susan T.
                       Smith and Susan Oberling dated August 16, 2004.

    (e) Exhibit 10.4 - Change in control severance agreement by and between
                       Thomas Mastri and the Company dated August 16, 2004.

    (f) Exhibit 11   - Computation of Basic Earnings Per Common Share and
                       Diluted Earnings Per Common Share

    (g) Exhibit 31.1 - Certification of Chief Executive Officer pursuant
                       to Rule pursuant 13a - 14(a) and Rule 15d - 14(a),
                       promulgated under the Securities Exchange Act of
                       1934, as amended.

    (h) Exhibit 31.2 - Certification of Chief Financial Officer pursuant
                       to Rule pursuant 13a - 14(a) and Rule 15d - 14(a),
                       promulgated under the Securities Exchange Act of
                       1934, as amended.

    (i) Exhibit 32.1 - Certification of Chief Executive Officer pursuant
                       to 18 U.S.C. Section 1350, as adopted pursuant to
                       Section 906 of the Sarbanes - Oxley Act of 2002.

    (j) Exhibit 32.2 - Certification of Chief Financial Officer pursuant
                       to 18 U.S.C. Section 1350, as adopted pursuant to
                       Section 906 of the Sarbanes - Oxley Act of 2002.

<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.

                                    First Health Group Corp.

      Dated: November 5, 2004       /s/Edward L. Wristen
                                    -------------------------------------
                                    Edward L. Wristen
                                    President and Chief Executive Officer


      Dated: November 5, 2004       /s/William R. McManaman
                                    -------------------------------------
                                    William R. McManaman
                                    Senior Vice President,
                                    Chief Financial Officer
                                    (Principal Financial Officer)