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 June 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 August 1, 2004, was 91,667,748.

<PAGE>

                  First Health Group Corp. and Subsidiaries

                                    INDEX


 Part I.  Financial Information
                                                                  Page Number
                                                                  -----------
       Item 1. Financial Statements

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

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

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

       Consolidated Statements of Operations for the six months
         ended June 30, 2004 and 2003 ............................     6

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

       Consolidated Statements of Cash Flows for the six months
         ended June 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 .............   16-25

       Item 3. Quantitative and Qualitative Disclosures About
                 Market Risk .....................................    26

       Item 4. Controls and Procedures ...........................    26


 Part II. Other Information

       Item 1. Legal Proceedings .................................    27

       Item 2. Changes in Securities, Use of Proceeds and
                 Issuer Purchases of Equity Securities ...........    27

       Item 4. Submission of Matters to a Vote of
                 Security Holders ................................    27

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

       Item 6. Exhibits and Reports on Form 8-K ..................    28

 Signatures.......................................................    29

<PAGE>

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

 ASSETS                                                 June 30,   December 31,
                                                          2004         2003
                                                        --------     --------

 Current Assets:
   Cash and cash equivalents ....................      $    38.9    $     8.0
   Short-term investments .......................            2.3          2.0
   Accounts receivable, less allowances for
      doubtful accounts of $22.9
      and $21.1 respectively.....................           98.5        102.9
   Deferred income taxes ........................           26.8         26.8
   Other current assets .........................           30.4         37.4
                                                        --------     --------
   Total current assets .........................          196.9        177.1


 Long-Term Investments:
   Marketable securities ........................           58.6         63.0
   Other ........................................           66.8         66.7
                                                        --------     --------
                                                           125.4        129.7
                                                        --------     --------
 Property and Equipment:
   Land, buildings and improvements .............          105.4        103.1
   Computer equipment and software ..............          315.2        281.5
   Office furniture and equipment ...............           42.4         37.9
                                                        --------     --------
                                                           463.0        422.5
   Less accumulated depreciation and
     amortization ...............................         (221.6)      (186.6)
                                                        --------     --------
   Net property and equipment ...................          241.4        235.9
                                                        --------     --------

 Goodwill........................................          327.8        324.3

 Intangible assets, less accumulated amortization
   of $13.0 and $9.3, respectively ..............           81.4         82.6

 Reinsurance recoverable.........................           25.2         24.3

 Other Assets....................................            3.2          3.5
                                                        --------     --------
 Total Assets                                          $ 1,001.3    $   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

                                                        June 30,   December 31,
                                                          2004         2003
                                                        --------     --------
 Current Liabilities:
   Accounts payable .............................      $    77.1    $    73.2
   Accrued expenses .............................           44.0         47.8
   Claims reserves ..............................           23.9         23.8
   Income taxes payable .........................           26.7          8.1
                                                        --------     --------
   Total current liabilities ....................          171.7        152.9

 Long-Term Debt..................................          210.0        270.0
 Claims Reserves - Noncurrent....................           25.2         24.3
 Deferred Taxes..................................          125.7        126.5
 Other Noncurrent Liabilities....................           23.8         25.2
                                                        --------     --------
   Total liabilities ............................          556.4        598.9
                                                        --------     --------

 Commitments and Contingencies...................             --           --

 Stockholders' Equity:
   Common stock .................................            1.4          1.4
   Additional paid-in capital ...................          344.5        335.5
   Retained earnings ............................          730.9        672.0
   Accumulated other comprehensive loss .........           (3.2)        (1.7)
   Treasury stock, at cost ......................         (628.7)      (628.7)
                                                        --------     --------
   Total stockholders' equity ...................          444.9        378.5
                                                        --------     --------
 Total Liabilities and Stockholders' Equity            $ 1,001.3    $   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 June 30,
                                                    ---------------------------
                                                          2004         2003
                                                        --------     --------
 Revenues.........................................     $   220.8    $   218.6
                                                        --------     --------
 Operating expenses:
   Cost of services ..............................         104.9        100.1
   Selling and marketing .........................          20.8         21.4
   General and administrative ....................          19.3         15.4
   Health care benefits ..........................           7.3          4.4
   Depreciation and amortization .................          19.5         15.6
                                                        --------     --------
                                                           171.8        156.9
                                                        --------     --------

 Income from operations...........................          49.0         61.7

 Other (income) expense:
   Interest expense ..............................           1.7          1.4
   Interest income ...............................          (1.2)        (1.4)
                                                        --------     --------
 Income before income taxes.......................          48.5         61.7
 Income taxes.....................................         (18.4)       (24.5)
                                                        --------     --------
 Net income.......................................     $    30.1    $    37.2
                                                        ========     ========

 Weighted average shares outstanding - basic......          91.6         95.3
                                                        ========     ========
 Net income per common share - basic .............     $     .33    $     .39
                                                        ========     ========
 Weighted average shares outstanding - diluted ...          92.9         97.7
                                                        ========     ========
 Net income per common share - diluted ...........     $     .32    $     .38
                                                        ========     ========

 See Notes to Consolidated Financial Statements

<PAGE>

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

                                                      Six Months Ended June 30,
                                                      -------------------------
                                                          2004         2003
                                                        --------     --------
 Revenues.........................................     $   438.9    $   432.4
                                                        --------     --------
 Operating expenses:
   Cost of services ..............................         211.3        196.3
   Selling and marketing .........................          41.7         42.4
   General and administrative ....................          38.9         30.6
   Health care benefits ..........................          13.6          9.6
   Depreciation and amortization .................          37.9         30.7
                                                        --------     --------
                                                           343.4        309.6
                                                        --------     --------
 Income from operations...........................          95.5        122.8

 Nonoperating expense (income):
   Interest expense ..............................           3.5          2.7
   Interest income ...............................          (2.9)        (2.7)
                                                        --------     --------
 Income before income taxes.......................          94.9        122.8
 Income taxes.....................................         (36.0)       (48.8)
                                                        --------     --------
 Net income.......................................     $    58.9    $    74.0
                                                        ========     ========

 Weighted average shares outstanding - basic .....          91.4         96.2
                                                        ========     ========
 Net income per common share - basic .............     $     .64    $     .77
                                                        ========     ========
 Weighted average shares outstanding - diluted ...          92.9         98.7
                                                        ========     ========
 Net income per common share - diluted ...........     $     .63    $     .75
                                                        ========     ========

 See Notes to Consolidated Financial Statements

<PAGE>

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

                                                    Three Months Ended June 30,
                                                    ---------------------------
                                                          2004         2003
                                                        --------     --------
 Net income.......................................     $    30.1    $    37.2
                                                        --------     --------
 Unrealized gains (losses) on securities,
   before tax.....................................          (2.2)         1.2
 Unrealized losses on limited partnership
   derivatives....................................          (0.4)          --
                                                        --------     --------
 Other comprehensive income (loss), before tax....          (2.6)         1.2
 Income tax (expense) benefit related to items
   of other comprehensive income..................           0.9         (0.5)
                                                        --------     --------
 Other comprehensive income (loss)................          (1.7)         0.7
                                                        --------     --------
 Comprehensive income.............................     $    28.4    $    37.9
                                                        ========     ========



                                                      Six Months Ended June 30,
                                                      -------------------------
                                                          2004         2003
                                                        --------     --------
 Net income.......................................     $    58.9    $    74.0
                                                        --------     --------
 Unrealized gains (losses) on securities,
   before tax.....................................          (1.9)         1.0
 Unrealized losses on limited partnership
   derivatives....................................          (0.4)          --
                                                        --------     --------
 Other comprehensive income (loss), before tax....          (2.3)         1.0
 Income tax (expense) benefit related to items
   of other comprehensive income..................           0.8         (0.4)
                                                        --------     --------
 Other comprehensive income (loss)................          (1.5)         0.6
                                                        --------     --------
 Comprehensive income.............................     $    57.4    $    74.6
                                                        ========     ========

 See Notes to Consolidated Financial Statements

<PAGE>

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

                                                      Six Months Ended June 30,
                                                      -------------------------
                                                          2004         2003
                                                        --------     --------
 Cash flows from operating activities:
   Net Income ....................................     $    58.9    $    74.0
                                                        --------     --------
   Adjustments to Reconcile Net Income to Net Cash
   Provided by Operating Activities:
     Depreciation and amortization ...............          37.9         30.7
     Change in allowance for uncollectible
       receivables ...............................           1.6         (0.1)
     Provision for deferred income taxes .........            --          0.1
     Tax benefits from stock options exercised ...           1.7          6.2
     Income from limited partnership .............          (1.6)        (1.3)
     Other, net ..................................           0.3           --

   Changes in Assets and Liabilities (net of
   effects of acquired businesses):
     Accounts receivable .........................           4.7        (13.9)
     Other current assets ........................           7.0          0.7
     Reinsurance recoverable .....................          (0.9)         1.4
     Accounts payable and accrued expenses........          (2.8)        (2.6)
     Claims reserves .............................           1.0         (0.7)
     Income taxes payable ........................          18.6         15.1
     Noncurrent assets and liabilities ...........          (1.0)         0.8
                                                        --------     --------
   Net cash provided by operating activities .....         125.4        110.4
                                                        --------     --------
 Cash flows from investing activities:
   Purchases of investments ......................         (21.1)       (20.7)
   Sales of investments ..........................          24.2         24.4
   Acquisition of business, net of cash acquired..          (6.2)        (3.4)
   Purchase of property and equipment ............         (38.8)       (30.6)
                                                        --------     --------
   Net cash used in investing activities .........         (41.9)       (30.3)
                                                        --------     --------
 Cash flows from financing activities:
   Purchase of treasury stock ....................            --       (119.1)
   Proceeds from issuance of long-term debt ......          35.0        105.0
   Repayment of long-term debt ...................         (95.0)       (75.0)
   Proceeds from issuance of common stock ........           7.4         14.7
   Stock option loan repayments ..................            --          0.2
                                                        --------     --------
   Net cash used in financing activities .........         (52.6)       (74.2)
                                                        --------     --------
 Net increase in cash and cash equivalents .......          30.9          5.9

 Cash and cash equivalents, beginning of period...           8.0         20.9
                                                        --------     --------
 Cash and cash equivalents, end of period ........     $    38.9    $    26.8
                                                        ========     ========
<PAGE>

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

                                                      Six Months Ended June 30,
                                                      -------------------------
                                                          2004         2003
                                                        --------     --------
 Supplemental cash flow data:

 Stock options exercised in exchange
   for common stock...............................     $      --    $     0.5
 Health care benefits paid........................         (15.3)        (8.7)
 Interest paid....................................          (3.0)        (2.3)
 Interest income received.........................           1.2          1.6
 Income taxes paid, net...........................         (15.8)       (27.5)

 Acquisition of businesses:
   Fair value of assets acquired,
     net of cash acquired.........................     $     3.1    $    (0.5)
   Goodwill ......................................           3.5          3.8
   Intangible Assets .............................           2.5           --
   Fair value of liabilities assumed .............          (2.9)         0.1
                                                        --------     --------
                                                       $     6.2    $     3.4
                                                        ========     ========

 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  when  the  liability  for  restructuring  and
     integration is finalized.

      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  a purchase price of approximately $10 million,  subject to
     certain  purchase price considerations.  The  acquisition  was  financed
     with  borrowings  under   the  Company's  credit  facility.   Additional
     goodwill  may be  recognized 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                                                6.6
      Intangible assets                                       3.7
      Liabilities assumed                                    (0.2)
      Liability for restructuring and integration costs      (0.3)
                                                           ------
                                                          $  10.4
                                                           ======

     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  when  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 June 30, 2004   As of December 31, 2003
                                ---------------------  -----------------------
                                Gross                   Gross
                               Carrying  Accumulated   Carrying  Accumulated
        (in millions)           Amount   Amortization   Amount   Amortization
        -------------           ------   ------------   ------   ------------
     Amortized intangible
       assets:
     Customer contracts
       and relationships        $ 80.7      $ 11.6      $ 78.2      $  8.3
     Provider Contracts           13.7         1.4        13.7         1.0
                                 -----       -----       -----       -----
       Total                    $ 94.4      $ 13.0      $ 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 six months  ended June 30, 2004
     and  2003,  respectively,  was  $3.7  million  and   $2.1  million.  The
     estimated amortization  expense for  each of the  years ending  December
     31,  2004 through  2007 is  approximately  $7.5 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 six months ended
     June 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                    --          (5.1)
                                           ------        ------
              Ending balance              $ 327.8       $ 324.3
                                           ======        ======

     The goodwill  acquired in  2004 represents  the goodwill  from the  FHPS
     acquisition. 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.  Accounts receivable valuation allowances for client-specific  items were
     $39.2 million and  $36.5 million as  of June 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 $50.3 million and  $101.6 million (23% of  total revenues)
     during the three  and six months ended  June 30, 2004 compared  to $54.4
     million and $106.0  million in revenues (25%  of total revenues)  during
     the comparable periods of 2003.

 5.  Allowances for doubtful  accounts were $22.9  million and $21.1  million
     as of June 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.

 6.  The  Company's   investments  in   marketable   securities,  which   are
     classified as available  for sale, had a  net unrealized loss in  market
     value of $1.2 million, net  of deferred income taxes, for the  six month
     period ended June  30, 2004.  The accumulated net unrealized loss as  of
     June 30,  2004, included  as a  component of  stockholders' equity,  was
     $0.7  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
     June  30, 2004  and  December  31,  2003 was  $59.1  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 $1.6
     million and  $1.3 million for  the six  months ended  June 30, 2004  and
     2003,  respectively, and  is  included  in interest  income.  The  total
     investment recorded at June 30, 2004 and December 31, 2003  is net of an
     unrealized loss on interest rate swaps of $2.5  million ($0.3 million of
     which was  recorded in the  quarter ended  June 30,  2004), net of  $1.3
     million  in  related taxes,  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 33%  interest in  each
     individual tranche of the partnership.

 7.  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 six months ended  June 30, 2004. During
     the six months ended June 30, 2003, the  Company repurchased 5.2 million
     shares (1 million shares in  the second quarter) on the open  market for
     approximately $125.5 million ($27.7 million in the  second quarter). The
     actual cash  paid of  $119.1 million  excludes $6.4  million for  trades
     dated in June that were settled during the first three  days of July. As
     of June 30, 2004, approximately 6.1 million  shares remain available for
     repurchase under the Company's current repurchase authorization.

 8.  Weighted average shares outstanding  for the diluted earnings  per share
     calculation increased by 1.3 million and 1.5 million  and by 2.4 million
     and 2.5 million  for the three and  six months ended  June 30, 2004  and
     2003, respectively,  due to  the effect  of  stock options  outstanding.
     Diluted net income  per share was  $.01 less than  basic net income  per
     share for both  the three months ended  June 30, 2004  and 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 six  months ended
     June 30, 2004 and $.02 less than basic net income per  share for the six
     months  ended  June 30,  2003,  due  to  the  effect  of  stock  options
     outstanding.

 9.  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  is
     expected to  be completed by  the third  quarter of 2004.  Substantially
     all of  the termination  costs were  incurred in  the  first quarter  of
     2004. This termination plan is solely for the  Commercial segment of the
     Company. The  following table summarizes  the termination cost  activity
     for the six months ended June 30, 2004 (in millions):

              Expenses                     Liability
              Incurred     Amounts           As of
              To-Date       Paid         June 30, 2004
              -------       ----         -------------
                $1.4        $1.3              $0.1

        The liability is recorded in "accrued expenses" in the consolidated
        balance sheet.

 10. Effective  January 1,  2003, the  Company adopted  SFAS  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        Six Months
     (in millions except EPS)             Ended June 30,      Ended June 30,
     ------------------------             --------------      --------------
                                          2004      2003      2004      2003
                                         ------    ------    ------    ------
      Net income, as reported           $  30.1   $  37.2   $  58.9   $  74.0

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

      Deduct:  Total stock-based
      employee compensation expense
      determined under fair value
      based method for all awards,
      net of related tax effects           (3.1)     (4.3)     (6.0)     (7.2)
                                         ------    ------    ------    ------
      Pro forma net income              $  27.0   $  32.8   $  52.9   $  66.8
                                         ======    ======    ======    ======
      Earnings per share:
        Basic, as reported              $   .33   $   .39   $   .64   $   .77
        Basic, pro forma                $   .29   $   .35   $   .58   $   .69

        Diluted, as reported            $   .32   $   .38   $   .63   $   .75
        Diluted, pro forma              $   .29   $   .34   $   .57   $   .68

 11. The Company and its  subsidiaries are 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
     June 30, 2004,  the  Plan  has  approximately  $385  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 June 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 six  months
     ended June 30 is as follows (in millions):

                                        Three months ended June 30,
                                        ---------------------------
                                   2004                               2003
                     --------------------------------   --------------------------------
                                 Public                             Public
     (in millions)   Commercial  Sector  Consolidated   Commercial  Sector  Consolidated
     -------------   ----------  ------  ------------   ----------  ------  ------------
     <S>               <C>       <C>       <C>             <C>      <C>         <C>
     Revenue           $178.2    $ 42.6    $  220.8        $174.4   $ 44.2      $218.6
     Net income          29.3       0.8        30.1          35.4      1.8        37.2
     Total assets      $956.4    $ 44.9    $1,001.3        $821.7   $ 41.2      $862.9



                                          Six Months Ended June 30,
                                          -------------------------
                                   2004                               2003
                     --------------------------------   --------------------------------
                                 Public                             Public
     (in millions)   Commercial  Sector  Consolidated   Commercial  Sector  Consolidated
     -------------   ----------  ------  ------------   ----------  ------  ------------
     Revenue           $357.0    $ 81.9    $  438.9       $348.6    $ 83.8      $432.4
     Net income          58.3       0.6        58.9         70.7       3.3        74.0
     Total assets      $956.4    $ 44.9    $1,001.3       $821.7    $ 41.2      $862.9

</TABLE>
<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) 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.

    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  $50.3 million  and $101.6  million
 (23% of total Company  revenue) during the three  and six months ended  June
 30, 2004,  respectively, as  compared to  $54.4 million  and $106.0  million
 during the comparable periods of 2003  (25 % of total  revenue). 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. During the second quarter of 2004, the  Company recorded
 $3 million of  revenue as  a result  of the  internal claims  reconciliation
 process related to 2003.

   The  adjustment  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.  This  completes  the  2003
 reconciliation process. In addition, the MHBP may include an audit performed
 by a governmental agency within a  three to 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  June 30,
 2004, the Plan  has approximately  $385 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 $359  million
 and $346 million in such reserves as of June 30, 2003 and December 31, 2003,
 respectively. There are no known Plan deficits as of June 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.   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 substantially  all of  these
 costs during the first quarter of 2004. Management believes this termination
 plan should save the Company in excess of $7 million in salaries and related
 expenses during the  second half of  2004 and  in excess  of $10 million  in
 expenses during 2005 (primarily  in "cost of  services" in the  consolidated
 statement of operations).

 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 six months ended June 30,  2004 and
 2003, respectively:

   Sources of Revenue
                                              ($ in millions)
                                        Three Months Ended June 30,
                                       ------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
        Group Health:
          PPO plus Administration
            Services                  $  80.2    37%   $  91.1    41%
          PPO                            33.1    15       38.9    18
          Premiums                        9.4     4        4.2     2
                                       ------   ----    ------   ----
           Total Group Health           122.7    56      134.2    61
                                       ------   ----    ------   ----
        Workers' Compensation:
          PPO plus Administration
            Services                     31.6    14       25.1    12
          PPO                            23.9    11       15.1     7
                                       ------   ----    ------   ----
           Total Workers' Compensation   55.5    25       40.2    19
                                       ------   ----    ------   ----
      Total Commercial Revenue          178.2    81      174.4    80
                                       ------   ----    ------   ----
      Public Sector Revenue              42.6    19       44.2    20
                                       ------   ----    ------   ----
      Total Revenue                   $ 220.8   100%   $ 218.6   100%
                                       ======   ====    ======   ====

                                              ($ in millions)
                                          Six Months Ended June 30,
                                       ------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
        Group Health:
          PPO plus Administration
            Services                   $164.2    38%   $ 180.0    42%
          PPO                            67.8    15       79.8    18
          Premiums                       18.5     4        8.4     2
                                       ------   ----    ------   ----
           Total Group Health           250.5    57      268.2    62
                                       ------   ----    ------   ----
        Workers' Compensation:
          PPO plus Administration
            Services                     63.8    14       50.1    12
          PPO                            42.7    10       30.3     7
                                       ------   ----    ------   ----
           Total Workers' Compensation  106.5    24       80.4    19
                                       ------   ----    ------   ----
      Total Commercial Revenue          357.0    81      348.6    81
                                       ------   ----    ------   ----
      Public Sector Revenue              81.9    19       83.8    19
                                       ------   ----    ------   ----
      Total Revenue                   $ 438.9   100%   $ 432.4   100%
                                       ======   ====    ======   ====

   Supplemental Revenue Information

   The following table sets forth supplemental information by revenue sector:

                                              ($ in millions)
                                        Three Months Ended June 30,
                                       ------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
        Group Health:
          FEHBP                       $  57.2    26%   $  62.4    28%
          Corporate                      40.4    18       50.9    23
          Insurers/TPA                   25.1    12       20.9    10
                                       ------   ----    ------   ----
        Total Group Health              122.7    56      134.2    61
                                       ------   ----    ------   ----
        Workers' Compensation            55.5    25       40.2    19
                                       ------   ----    ------   ----
        Total Commercial                178.2    81      174.4    80
                                       ------   ----    ------   ----
        Public Sector                    42.6    19       44.2    20
                                       ------   ----    ------   ----
        Total Revenue                 $ 220.8   100%   $ 218.6   100%
                                       ======   ====    ======   ====

                                              ($ in millions)
                                          Six Months Ended June 30,
                                       ------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
        Group Health:
          FEHBP                       $ 115.9    26%   $ 121.8    28%
          Corporate                      84.4    19      103.1    24
          Insurers/TPA                   50.2    12       43.3    10
                                       ------   ----    ------   ----
        Total Group Health              250.5    57      268.2    62
                                       ------   ----    ------   ----
        Workers' Compensation           106.5    24       80.4    19
                                       ------   ----    ------   ----
        Total Commercial                357.0    81      348.6    81
                                       ------   ----    ------   ----
        Public Sector                    81.9    19       83.8    19
                                       ------   ----    ------   ----
        Total Revenue                 $ 438.9   100%   $ 432.4   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 40%
 of total Company revenues on a percentage-of-savings basis for the three and
 six months ended June  30, 2004 compared to  38% and 39% for  the comparable
 periods of 2003.

   Total revenue for the three  and six months ended June 30,  increased $2.1
 million (1.0%) and $6.5 million (1.5%) from the comparable periods  of 2003.
 The components of the Company's quarterly revenue are as follows:

   Group Health  revenue of $122.7 million  and $250.5 million for  the three
 and six months ended June 30, 2004 decreased $11.5 million (8.6%)  and $17.7
 million (6.6%) 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 six  months ended June  30, 2004 decreased  $11.0
 million (12.1%) and $15.9 million (8.8%) 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
 six months ended  June 30,  2004 decreased  $5.9 million  (15.1%) and  $12.0
 million (15.0%) 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 six months ended June 30, 2004 increased $5.3 million (129.0%) and
 $10.2 million (121.5%) 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 signed 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 six  months
 ended June 30, 2004  decreased $5.2 million (8.4%)  and $5.9 million  (4.8%)
 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 revenue
 decrease was partially  offset by  $3 million  the Company  recorded in  the
 second quarter of 2004 as part  of its  retrospective review of  claims data
 related to 2003 MHBP  business. Corporate sector revenue  for the three  and
 six months ended  June 30, 2004  decreased $10.5  million (20.6%) and  $18.7
 million (18.2%) 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. Insurers/TPA sector revenue for the three and six
 months ended June 30, 2004 increased  $4.2 million (19.8%) and  $6.9 million
 (16.0%) from the comparable  periods of 2003 due  primarily to new  business
 with insurers, principally the NEF business discussed earlier.

   Workers' Compensation revenue of $55.5 million and  $106.5 million for the
 three and six months ended June 30, 2004 increased $15.2 million (37.7%) and
 $26.1 million (32.4%) from the comparable periods of 2003. This  increase is
 due primarily to  $13.0 million and  $28.7 million in  revenues earned as  a
 result of the  Employer Services acquisition  for the  three and six  months
 ended June 30,  2004. Workers' Compensation  revenue increased $4.5  million
 (8.8%) from  the first  quarter of  2004 due  primarily to  $2.3 million  in
 revenues  earned  from  the  FHPS  acquisition.  Absent  these  acquisitions
 Workers' Compensation revenue decreased slightly from 2003.

   Public Sector  revenue of $42.6  million and $81.9  million for the  three
 and six months ended  June 30, 2004 decreased  $1.6 million (3.5%) and  $1.9
 million (2.2%) 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 decrease in revenue is due primarily to less revenue from non-recurring
 HIPAA support and pharmacy program implementations. Public Sector revenue in
 the second quarter of 2003 was  favorably impacted by $11.5 million  of such
 non-recurring implementations compared  to $0.8 million  of such revenue  in
 the second  quarter  of  2004.  On  a continuing  revenue  basis,  the  2004
 quarterly revenue  would  have  increased  $9.1  million  or  28%  from  the
 comparable quarter of  2003. Public  Sector revenue  increased $3.4  million
 (8.5%) from the first quarter of 2004 due to new pharmacy contracts.

   Cost of  services increased $4.7 million  (4.7%) and $15.0 million  (7.6%)
 for the three and six months ended June 30, 2004 from the comparable periods
 in 2003 due primarily  to costs associated with  the Employer Services,  PPO
 Oklahoma and FHPS acquisitions and, to a lesser extent costs associated with
 the Company's  termination plan.  Cost of  services  decreased $1.5  million
 (1.4%) from the first quarter of 2004 as the Company cost reduction programs
 have begun to take effect. 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 47.5% and 48.1% for the
 three and six months ended June 30, 2004, respectively, from 45.8% and 45.4%
 in the comparable  periods of 2003,  but decreased from  48.8% in the  first
 quarter of 2004. The  increase as a percentage  of revenue from 2003  is due
 primarily to the costs associated with the various acquisitions as well as a
 trend toward providing  more administrative  services which  are more  cost-
 intensive.

   Selling and marketing  costs for the three  and six months ended  June 30,
 2004 decreased  $0.6  million  (2.6%)  and  $0.7  million  (1.6%)  from  the
 comparable periods in 2003 primarily due  to a decrease in  costs associated
 with the Company's ad campaign. Selling and marketing costs were essentially
 flat compared to the first quarter of 2004.

   General and administrative costs  for the three and six months  ended June
 30, 2004 increased $3.8  million (24.5%) and $8.2  million (26.6%) from  the
 comparable periods  in  2003  due primarily  to  increases  in  professional
 liability insurance and other professional fees associated with cost savings
 initiatives designed to improve efficiencies and profitability.  General and
 administrative costs decreased slightly from the first quarter of 2004.

   Health care benefits represent medical losses incurred  by insureds of the
 Company's insurance entities.  Health care  benefits increased $2.9  million
 (65.7%) and $4.0 million (42.2%) for the three and six months ended June 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 increased $1.0 million (15.2%) from the first quarter of  2004 also
 due to the NEF business. The  loss ratio (health care benefits as  a percent
 of premium revenue) was 77% and 73% for the three and six  months ended June
 30, 2004 compared to 106% and  114% 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 $4.0  million (25.6%) and
 $7.2 million (23.6%) for the three  and six months ended June 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  will continue  to
 grow primarily as a result of  continuing investments the Company  is making
 in its infrastructure.

   Income from  operations of $49.0 million  and $95.5 million for  the three
 and six months ended June 30, 2004 decreased $12.7 million (20.6%) and $27.3
 million (22.2%) from the comparable periods of 2003. Income  from operations
 increased $2.5  million (5.4%)  from the  first quarter  of 2004.  Operating
 margin (income from operations as a percentage of revenue) was 22.2%  in the
 second quarter of 2004, 28.2% in the second quarter of 2003 and 21.3% in the
 first 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
 associated with cost savings  initiatives. These initiatives had  a positive
 effect beginning in the second quarter of 2004.

   Interest  income for  the three  and six  months ended  June  30, 2004  is
 comparable to  prior  periods.  The Company  has  used  $60 million  of  its
 available cash in 2004 to repay debt.

   Interest  expense  for the  three  and  six months  ended  June  30,  2004
 increased $0.3 million (21.6%) and $0.8 million (30.6%) from  the comparable
 periods in  2003. Interest  expense has  increased as  the outstanding  debt
 increased from $150 million  at June 30,  2003 to $210  million at June  30,
 2004.  The  effective  marginal   interest  rate  on   June  30,  2004   was
 approximately 2.2% per annum.

   Diluted net  income per common share  for the three  and six months  ended
 June 30, 2004 decreased 15.8% to $.32 per share and 16.0% to  $.63 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
 six months ended June 30, 2004, diluted common shares  outstanding decreased
 4.9% and 5.9% 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.

        Commercial       Three months ended June 30,  Six months ended June 30,
     ($ in millions)           2004       2003             2004        2003
  ----------------------      ------     ------           ------      ------
 Revenues                    $ 178.2    $ 174.4          $ 357.0     $ 348.6
 Operating expenses            130.5      115.7            262.5       231.3
                              ------     ------           ------      ------
 Income from operations         47.7       58.7             94.5       117.3
                              ------     ------           ------      ------
    Operating margin            26.8%      33.6%            26.5%       33.6%

 Interest income                (1.2)      (1.4)            (2.9)       (2.7)
 Interest expense                1.7        1.4              3.5         2.7
                              ------     ------           ------      ------
 Income before income taxes     47.2       58.7             93.9       117.3
 Income taxes                  (17.9)     (23.3)           (35.6)      (46.6)
                              ------     ------           ------      ------
 Net income                  $  29.3    $  35.4          $  58.3     $  70.7
                              ======     ======           ======      ======

 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
 Company's termination  plan, discussed  above, is  designed  to improve  the
 profitability of  the Commercial  segment beginning  in the  second half  of
 2004.

       Public Sector     Three months ended June 30,  Six months ended June 30,
      ($ in millions)          2004       2003             2004        2003
  ----------------------      ------     ------           ------      ------
  Revenues                   $  42.6      $44.2          $  81.9     $  83.8
  Operating expenses            41.3       41.2             80.9        78.3
                              ------     ------           ------      ------
  Income from operations         1.3        3.0              1.0         5.5
                              ------     ------           ------      ------
    Operating margin             3.1%       6.9%             1.3%        6.6%

  Interest expense                --         --               --          --
                              ------     ------           ------      ------
  Income before income taxes     1.3        3.0              1.0         5.5
  Income taxes                  (0.5)      (1.2)            (0.4)       (2.2)
                              ------     ------           ------      ------
  Net income                 $   0.8    $   1.8          $   0.6     $   3.3
                              ======     ======           ======      ======

 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
 pharmacy program business 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 $25.2  million  in  working capital  on  June  30,  2004
 compared with working capital of $24.1  million at December 31,  2003. Total
 cash and investments amounted to $166.6 million at June 30, 2004 compared to
 $139.7 million at December 31, 2003.

   Cash  and  cash  equivalents  at  June  30,  2004  include  $23.1  million
 accumulated in the accounts of the  Company's insurance entities due  to the
 timing of  the  collection  of  insurance premiums  in  advance  of  related
 payments for commissions and payments to re-insurers.

   Cash  flow from  operations was  driven by  the timing  of collections  of
 accounts receivable  and  the timing  of  payment of  its  insurance-related
 liabilities. Strong  accounts receivable  collection efforts  in the  second
 quarter of 2004 provided $4.7 million of cash in 2004 versus a  use of $13.9
 million of  cash in  2003. The  Company  has also  collected $8  million  in
 reinsurance recoverable balances in 2004  (in "Other current assets"  in the
 consolidated balance  sheets). These  collection  efforts offset  lower  net
 income in  2004 and  contributed to  a  $15 million  increase in  cash  from
 operations. Cash collected from the  exercise of stock options  has declined
 from prior years, which was anticipated in the Company's 2003  Annual Report
 on Form 10-K.

   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% investment of the past
 several years.  The Company  anticipates that  its  operating expenses  will
 decrease in  the  second half  of  2004 when  the  steps taken  to  increase
 profitability are expected to take full effect.

   The Company's outstanding debt at June 30, 2004  decreased to $210 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 June 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              $210.0    $    -   $210.0    $    -   $    -
  Operating leases              55.8      14.6     21.8      14.0      5.4
  Purchase obligations           1.0       1.0        -         -        -
                               -----     -----    -----     -----    -----
  Total                       $266.8    $ 15.6   $231.8    $ 14.0   $  5.4
                               =====     =====    =====     =====    =====

   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 June 30, 2004.

   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.
 Management  believes  that   any  liability   under  these   indemnification
 provisions would not be material.

 2004 Outlook
 ------------
   The Company  reaffirms the  revenue, earnings  and cash  flow guidance  it
 released in April  2004. The  Company has  taken a  number of  key steps  to
 improve profitability  including  the  Company's  termination  plan,  deeper
 sector focus (operationally and functionally), growth initiatives to develop
 new market opportunities (especially in the workers' compensation and public
 sectors) and initiatives  to drive  operational efficiencies (especially  in
 the group health and public sectors). These steps are expected  to favorably
 impact earnings for the last six months of 2004.

 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,  and recoverability of receivables.  Adjustments
 to  PPO  savings,  and,  therefore,  PPO  revenues,  occur  due   to  client
 corrections of member  eligibility data  as originally submitted  or due  to
 certain client's 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  $39.2 million at  June
 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 six months ended June 30, 2004 and 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 $22.9 million at  June 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.  The
 Company adopted the  disclosure provisions  of Issue  03-1 in  2003 and  the
 guidance for  evaluating  whether  an investment  is  other-than-temporarily
 impaired is effective for reporting  periods beginning after June  15, 2004.
 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 June 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 June 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 June 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
           -----------------

   The Company and its subsidiaries are 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.   Changes in Securities, Use of Proceeds and Issuer Purchases of
           --------------------------------------------------------------
           Equity Securities
           -----------------

   The following table summarizes any purchases of the Company common stock
 made by or on behalf of the Company for the quarter ended June 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
      ------         ---------    ---------       --------        ---------
 April 1 - April 30         --           --             --        6,109,841
 May 1 - May 31             --           --             --        6,109,841
 June 1  - June 30          --           --             --        6,109,841
                     ---------    ---------       --------        ---------
 Total                      --           --             --        6,109,841
                     =========    =========       ========        =========


 Item 4.   Submission of Matters to a Vote of Security Holders
           ---------------------------------------------------

   At the annual meeting of stockholders of the Company on  May 13, 2004, all
 directors of  the Company  who stood  for  reelection were  re-elected.  The
 number of votes cast for and withheld for each director were as follows:

                                  For           Withheld
                               ----------       --------
      Michael J. Boskin        84,097,648       1,405,900
      Daniel S. Brunner        83,108,920       2,394,628
      Raul Cesan               84,037,510       1,466,038
      Ronald H. Galowich       69,798,218      15,705,330
      Harold S. Handlesman     83,201,397       2,302,151
      Don Logan                84,282,990       1,220,558
      William Mayer            84,276,568       1,226,980
      David E. Simon           83,255,866       2,247,682
      James C. Smith           83,339,369       2,164,179
      Edward L. Wristen        83,337,609       2,165,939


   A proposal  to ratify the reappointment  of Deloitte &  Touche LLP as  the
 Company's independent auditors for  the fiscal year  2004 was approved  with
 84,555,837 shares  cast  for,  925,416  shares  against  and  22,295  shares
 abstaining.


 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 and Reports on Form 8-K
           --------------------------------

   Exhibits:

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

      (b) 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.

      (c) 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.

      (d) 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.

      (e) 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.

      Reports on Form 8-K:

          The Company  furnished a report  on Form 8-K  dated April 26,  2004
          reporting under Item  12 lowering its first  quarter and full  year
          2004 financial expectations.

          The  Company furnished  a report  on Form  8-K  dated May  3,  2004
          reporting under  Item 12  the results of  operations and  financial
          condition for the three months ended March 31, 2004.

<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: August 6, 2004         /s/Edward L. Wristen
                                    -------------------------------------
                                    Edward L. Wristen
                                    President and Chief Executive Officer



      Dated: August 6, 2004         /s/William R. McManaman
                                    -------------------------------------
                                    William R. McManaman
                                    Senior Vice President, Chief
                                    Financial Officer
                                    (Principal Financial Officer)