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 March 31, 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 April 30, 2004, was 91,579,458.

<PAGE>

                  First Health Group Corp. and Subsidiaries

                                    INDEX


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

       Consolidated Balance Sheets - Assets at March 31, 2004
         and December 31, 2003 ...................................     4

       Consolidated Balance Sheets - Liabilities and Stockholders'
         Equity at March 31, 2004 and December 31, 2003...........     5

       Consolidated Statements of Operations for the three months
         ended March 31, 2004 and 2003 ...........................     6

       Consolidated Statements of Comprehensive Income for the
         three months ended March 31, 2004 and 2003 ..............     7

       Consolidated Statements of Cash Flows for the three months
         ended March 31, 2004 and 2003 ...........................    8-9

       Notes to Consolidated Financial Statements ................    10

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

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

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

 Part II. Other Information

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

       Item 2. Changes in Securities and Use of Proceeds .........    28

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

       Item 6. Exhibits and Reports on Form 8-K ..................    29

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

<PAGE>

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

 ASSETS                                                March 31,   December 31,
                                                          2004         2003
                                                         ------       ------
 Current Assets:
   Cash and cash equivalents ....................       $  37.7      $   8.0
   Short-term investments .......................           1.4          2.0
   Accounts receivable, less allowances for
      doubtful accounts of $21.5
      and $21.1, respectively....................         111.3        102.9
   Deferred income taxes ........................          26.8         26.8
   Other current assets .........................          29.2         37.4
                                                         ------       ------
   Total current assets .........................         206.4        177.1

 Long-Term Investments:
   Marketable securities ........................          56.5         63.0
   Other ........................................          67.1         66.7
                                                         ------       ------
                                                          123.6        129.7
                                                         ------       ------
 Property and Equipment:
   Land, buildings and improvements .............         103.5        103.1
   Computer equipment and software ..............         296.0        281.5
   Office furniture and equipment ...............          39.4         37.9
                                                         ------       ------
                                                          438.9        422.5
   Less accumulated depreciation and
      amortization...............................        (203.1)      (186.6)
                                                         ------       ------
   Net property and equipment ...................         235.8        235.9
                                                         ------       ------

 Goodwill........................................         324.3        324.3

 Intangible assets, less accumulated amortization
   of $11.1 and $9.3, respectively...............          80.8         82.6

 Reinsurance recoverable.........................          25.3         24.3

 Other Assets....................................           3.4          3.5
                                                         ------       ------
                                                        $ 999.6      $ 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

                                                       March 31,   December 31,
                                                          2004         2003
                                                         ------       ------
 Current Liabilities:
   Accounts payable .............................      $   74.5      $  73.2
   Accrued expenses .............................          40.4         47.8
   Claims reserves ..............................          21.1         23.8
   Income taxes payable .........................          21.5          8.1
                                                         ------       ------
   Total current liabilities ....................         157.5        152.9

 Long-Term Debt..................................         250.0        270.0
 Claims Reserves - Noncurrent....................          25.2         24.3
 Deferred Taxes..................................         126.6        126.5
 Other Noncurrent Liabilities....................          25.4         25.2
                                                         ------       ------
   Total liabilities ............................         584.7        598.9
                                                         ------       ------
 Commitments and Contingencies...................            --           --

 Stockholders' Equity:
   Common stock .................................           1.4          1.4
   Additional paid-in capital ...................         342.9        335.5
   Retained earnings ............................         700.8        672.0
   Accumulated other comprehensive income .......          (1.5)        (1.7)
   Treasury stock, at cost ......................        (628.7)      (628.7)
                                                         ------       ------
   Total stockholders' equity ...................         414.9        378.5
                                                         ------       ------
                                                        $ 999.6      $ 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 March 31,
                                                  ----------------------------
                                                        2004         2003
                                                       ------       ------
 Revenues.........................................    $ 218.1      $ 213.8
                                                       ------       ------
 Operating expenses:
   Cost of services ..............................      106.4         96.2
   Selling and marketing .........................       20.9         21.0
   General and administrative ....................       19.6         15.2
   Healthcare benefits ...........................        6.3          5.2
   Depreciation and amortization .................       18.4         15.1
                                                       ------       ------
                                                        171.6        152.7
                                                       ------       ------

 Income from operations...........................       46.5         61.1

 Nonoperating expenses (income):
   Interest expense ..............................        1.8          1.3
   Interest income ...............................       (1.7)        (1.3)
                                                       ------       ------
 Income before income taxes.......................       46.4         61.1
 Income taxes.....................................      (17.6)       (24.3)
                                                       ------       ------
 Net income.......................................    $  28.8      $  36.8
                                                       ======       ======

 Weighted average shares outstanding - basic......       91.3         96.9
                                                       ======       ======
 Net income per common share - basic..............    $   .32      $   .38
                                                       ======       ======
 Weighted average shares outstanding - diluted....       92.9         99.5
                                                       ======       ======
 Net income per common share - diluted............    $   .31      $   .37
                                                       ======       ======

 See Notes to Consolidated Financial Statements


<PAGE>

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

                                                  Three Months Ended March 31,
                                                  ----------------------------
                                                        2004         2003
                                                       ------       ------
 Net income.......................................    $  28.8      $  36.8
                                                       ------       ------
 Unrealized gains (losses) on securities,
   before tax.....................................        0.3         (0.2)

 Income tax (expense) benefit related to items of
   other comprehensive income.....................       (0.1)         0.1
                                                       ------       ------
 Other comprehensive gain (loss)..................        0.2         (0.1)
                                                       ------       ------
 Comprehensive income.............................    $  29.0      $  36.7
                                                       ======       ======

 See Notes to Consolidated Financial Statements

<PAGE>

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

                                                  Three Months Ended March 31,
                                                  ----------------------------
                                                        2004         2003
                                                       ------       ------
 Cash flows from operating activities:
   Net Income ....................................    $  28.8      $  36.8
                                                       ------       ------
   Adjustments to Reconcile Net Income to Net Cash
   Provided by Operating Activities:
     Depreciation and amortization ...............       18.4         15.1
     Change in allowance for uncollectible
       receivables ...............................         .4         (0.1)
     Tax benefits from stock options exercised ...        1.2          3.3
     Income from limited partnership .............       (0.9)        (0.8)
     Other, net ..................................       (0.4)         0.2

 Changes in Assets and Liabilities (net of
   effects of acquired businesses):
     Accounts receivable .........................       (8.8)       (13.9)
     Other current assets ........................        8.1         (1.3)
     Reinsurance recoverable .....................       (0.9)         0.8
     Accounts payable and accrued expenses .......       (6.1)        (2.9)
     Claims reserves .............................       (1.8)        (1.9)
     Income taxes payable ........................       13.4          6.5
     Non-current assets and liabilities ..........        0.3          0.5
                                                       ------       ------
   Net cash provided by operating activities .....       51.7         42.3
                                                       ------       ------
 Cash flows from investing activities:
   Purchases of investments ......................       (9.2)       (12.1)
   Sales of investments ..........................       17.6         12.1
   Acquisition of business, net of cash acquired..         --         (3.3)
   Purchase of property and equipment ............      (16.5)       (13.7)
                                                       ------       ------
   Net cash used in investing activities..........       (8.1)       (17.0)
                                                       ------       ------
 Cash flows from financing activities:
   Purchase of treasury stock ....................         --        (97.8)
   Proceeds from issuance of long-term debt ......       30.0         95.0
   Repayment of long-term debt ...................      (50.0)       (30.0)
   Proceeds from issuance of common stock ........        6.1          9.7
   Stock option loan repayments ..................         --          0.2
                                                       ------       ------
   Net cash used in financing activities .........      (13.9)       (22.9)
                                                       ------       ------
 Net increase in cash and cash equivalents .......       29.7          2.4

 Cash and cash equivalents, beginning of period...        8.0         20.8
                                                       ------       ------
 Cash and cash equivalents, end of period ........    $  37.7      $  23.2
                                                       ======       ======

<PAGE>

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

                                                  Three Months Ended March 31,
                                                  ----------------------------
                                                        2004         2003
                                                       ------       ------
 Supplemental cash flow data:

 Stock options exercised in exchange
   for common stock...............................    $    --      $   0.5

 Health care benefits paid........................       (8.5)        (6.2)

 Interest paid....................................       (1.9)        (1.1)

 Interest income received.........................        0.7          0.6

 Income taxes paid, net...........................       (3.0)       (14.6)

 Acquisition of businesses:
   Goodwill ......................................    $    --      $   3.3

 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.  is being
     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 and valuation of intangible assets 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 $10  million, subject to certain  purchase  price
   considerations.  The  acquisition was  financed with borrowings under  the
   Company's credit facility. The purchase price allocation is expected to be
   completed in the fourth quarter of 2004 when the calculation of additional
   purchase price considerations and the valuation  of intangible  assets  is
   finalized.

        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
                                                             ======

 3.  Acquired Intangible Assets

                               As of March 31, 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        $ 78.2      $  9.9      $ 78.2      $  8.3
     Provider Contracts           13.7         1.2        13.7         1.0
                                 -----       -----       -----       -----
     Total                      $ 91.9      $ 11.1      $ 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 three  months ended March  31,
     2004 and  2003, respectively,  was $1.8  million and  $1.0 million.  The
     estimated amortization  expense for  each of the  years ending  December
     31,  2004 through  2007  is  $7.3 million.  The  estimated  amortization
     expense for the year ending December 31, 2008 is $6.6 million.

     The changes  in the  carrying amount of  goodwill for  the three  months
     ended March 31, are as follows:

                (in millions)               2004          2003
                                           ------        ------
             Balance, January 1           $ 324.3       $ 279.5
             Goodwill acquired                 --            --
             Other changes                     --           3.3
                                           ------        ------
             Balance, March 31            $ 324.3       $ 282.8
                                           ======        ======

     The   other  goodwill   adjustments   in  2003   represented   financial
     performance payments made related to the 2002  acquisition of HealthCare
     Value Management ("HCVM").

 4.  Accounts receivable valuation allowances for client-specific  items were
     $38.1 million and  $36.5 million as of  March 31, 2004 and  December 31,
     2003,  respectively.  These valuation  allowances  for matters  such  as
     performance  guarantees  and  claim,  eligibility and data  adjustments,
     are  netted  against  the  gross  accounts  receivable  balance  in  the
     consolidated  balance  sheets.   The  Company's  largest  client   (Mail
     Handlers  Benefit Plan)  ("MHBP" or  the  "Plan") generated  revenue  of
     approximately $51.3  million (24%  of total revenues)  during the  three
     months ended March  31, 2004 and $51.6  million during the three  months
     ended  March 31, 2003  (24% of total revenues).  Revenues  for  the Plan
     are recorded net of a valuation allowance established by the Company for
     various issues  associated with  the potential  disallowance of  certain
     expenses charged  to the Plan  and an estimate  for the disallowance  of
     certain claims due  to eligibility, coordination  of benefits and  other
     Plan provisions.

 5.  Allowances for doubtful  accounts were $21.5  million and $21.1  million
     as  of  March  31,  2004  and  December   31,  2003,  respectively.  The
     allowances for  doubtful accounts  are established  based on  historical
     experience, current economic circumstances and  contractual arrangements
     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 gain in  market
     value of  $0.2 million,  net of  deferred income  taxes,  for the  three
     month period ended March 31,  2004. The net unrealized gain as  of March
     31, 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  March 31,
     2004  and  December 31,  2003  was  $59.4  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  $0.9
     million and $0.8 million for  the three months ended March 31,  2004 and
     2003,  respectively, and  is  included  in interest  income.  The  total
     investment recorded at  March 31, 2004 and  December 31, 2003 is  net of
     an unrealized loss on interest  rate swaps of $2.2 million, 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.  The Company's  Board of Directors  approved the repurchase  of up to  10
     million shares of the  Company's outstanding common stock under  a prior
     authorization.  In 2003,  the  Board  approved a  new  authorization  to
     repurchase  up to  an  additional  5 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 quarter ended March 31, 2004. During  the quarter ended March
     31, 2003, the Company repurchased 4.2 million shares  on the open market
     for approximately  $97.8 million.  As of March  31, 2004,  approximately
     6.1 million shares remain  available for repurchase under  the Company's
     current repurchase authorization.

 8.  Weighted average shares  outstanding increased for diluted  earnings per
     share by 1.7  million and 2.6 million  for the three months  ended March
     31, 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  March 31, 2004  and
     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. Management believes
     this termination plan will save  the Company in excess of $7  million in
     salaries and benefits in  the second half of  2004 and in excess  of $10
     million  in 2005  (primarily in  cost of  services  in the  consolidated
     statement of operations).  The plan is expected  to be completed by  the
     third quarter of  2004 with substantially all  of the termination  costs
     being 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  three months  ended
     March 31, 2004 (in millions):

              Expenses                    Liability
              Incurred     Amounts          As of
              To-Date       Paid        March 31, 2004
              -------       ----        --------------
                $1.4        $0.9             $0.5


         The liability is recorded in the accrued expenses line 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:

      (in millions except EPS)                Three Months Ended March 31,
      ------------------------                ----------------------------
                                                  2004             2003
                                                 ------           ------
      Net income, as reported                   $  28.8          $  36.8

      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                   (2.9)            (2.9)
                                                 ------           ------
      Pro forma net income                      $  25.9          $  34.0
                                                 ======           ======
      Earnings per share:
        Basic, as reported                      $   .32          $   .38
        Basic, pro forma                        $   .28          $   .35

        Diluted, as reported                    $   .31          $   .37
        Diluted, pro forma                      $   .28          $   .34

 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
     March 31, 2004, the  Plan has approximately $405 million in  reserves to
     cover  Plan  expenses,  which  may  exceed  the   premiums  charged  and
     collected from the Plan  participants by the Plan sponsor. There  are no
     known Plan deficits as of March 31, 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.

     Summarized  segment financial  information for  the three  months  ended
     March 31 is as follows:

                               Three months ended March 31, 2004
                              ------------------------------------
                                            Public
        (in millions)         Commercial    Sector    Consolidated
        -------------         ----------    ------    ------------
        Revenue                $ 178.8     $  39.3      $ 218.1
        Net income (loss)         29.0        (0.2)        28.8
        Total assets           $ 961.8     $  37.8      $ 999.6


                               Three months ended March 31, 2003
                              ------------------------------------
                                            Public
        (in millions)         Commercial    Sector    Consolidated
        -------------         ----------    ------    ------------
        Revenue                $ 174.2     $  39.6      $ 213.8
        Net income                35.3         1.5         36.8
        Total assets           $ 824.9     $  37.5      $ 862.4


 13. In April, 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  $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.  The  preliminary  purchase  price  allocation  will  be
     recorded in the second quarter of 2004.

<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  recently completed  acquisitions; then  the Company  may  not
 achieve its anticipated 2004 financial results.

 Overview
 --------
   The  following  information concerning  recent  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 $51.3 million (24% of  total Company
 revenue) in the first  quarter of 2004 as  compared to $51.6 million  in the
 first quarter of 2003 (24% of total revenue). Revenue from the Plan  for the
 second, third and fourth quarters of 2003 was $54.4 million,  $63.1 million,
 and $66.9 million, respectively.  Adjustments to revenue  are recorded on  a
 client specific and aggregated basis based on empirical data in  each period
 and may be  subject to  further adjustments  in subsequent  periods. In  the
 third and fourth quarters  of 2003, the Company  reported $8 million and  $6
 million of  revenue,  respectively,  as  a result  of  the  internal  claims
 reconciliation process related to  2002, net of reserves.  In the third  and
 fourth quarters of  2003, the  pretax income contribution  from the  revenue
 adjustment,  net  of  incremental  marketing  expenses  related   to  future
 retention of MHBP members,  was approximately $4  million and $(1)  million,
 respectively.

   The  adjustments  in  the third  and  fourth  quarters  of  2003  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  internal claims  reconciliation process  has been  typically
 performed within nine to twelve months after year-end. In addition, the MHBP
 may include an audit performed by a governmental agency within three to five
 years 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.  The claims reconciliation  process
 related to 2002 Plan revenue was completed in the third and  fourth quarters
 of 2003 and increased 2003 revenue attributable to the Plan by  $14 million.
 The MHBP contract was renegotiated as of January 1, 2003 at  a significantly
 lower  PPO  savings  rate  which  effectively  reduced PPO  revenue recorded
 in  2003  and  beyond.  Based upon  the savings  rate  reduction, lower plan
 enrollment in 2004,  lower MHBP participant utilization, lower medical trend
 and  a changing mix of enrollment between Plan options  in the first quarter
 of 2004, the Company lowered its revenue outlook  for the full year of 2004.
 In  addition,  the Company  does  not  anticipate  a material adjustment  to
 revenue  from  the 2004 internal claims  reconciliation process  (related to
 2003 claims) due to a more efficient process and lower effective fees earned
 on  2003  participant  savings.  The  Company  was  unable  to  discern this
 information or the related trend until the end of the first quarter of 2004.
 The  trend  with  respect to the revenue  from the Plan is  discussed in the
 "2004  Outlook."  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 March
 31, 2004, the Plan has approximately $405 million  in reserves to cover Plan
 expenses that  may exceed the premiums charged  and collected from  the Plan
 participants by the  Plan sponsor. There  are no known  Plan deficits as  of
 March 31, 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. is being renamed First Health Employer Services,
 Inc.

   On October  31, 2003, the  Company also completed  the acquisition of  PPO
 Oklahoma for a purchase  price of $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.

   In April 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  $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.

    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 in the quarter  ended March 31,  2004 with the  remaining costs to  be
 recorded over the  second and  third quarters 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  months ended March 31, 2004  and 2003,
 respectively:

   Sources of Revenue
                                              ($ in millions)
                                        Three Months Ended March 31,
                                       ------------------------------
                                        2004      %      2003      %
                                       ------   ----    ------   ----
      Commercial Revenue:
        Group Health:
          PPO plus Administration
            Services                  $  84.0    39%   $  88.9    42%
          PPO                            34.7    16       40.9    19
          Premiums                        9.1     4        4.2     2
                                       ------   ----    ------   ----
           Total Group Health           127.8    59      134.0    63
                                       ------   ----    ------   ----
        Workers' Compensation:
          PPO plus Administration
            Services                     32.2    15       25.0    12
          PPO                            18.8     8       15.2     7
                                       ------   ----    ------   ----
           Total Workers' Compensation   51.0    23       40.2    19
                                       ------   ----    ------   ----
      Total Commercial Revenue          178.8    82      174.2    82
                                       ------   ----    ------   ----
      Public Sector Revenue              39.3    18       39.6    18
                                       ------   ----    ------   ----
      Total Revenue                   $ 218.1   100%   $ 213.8   100%
                                       ======   ====    ======   ====

   Supplemental Revenue Information

   Effective for the quarter ending March 31, 2004,  the Company is providing
 the following supplemental information by revenue sector:

      -----------------------------------------------------------------------
                                        Year ended December 31, 2001
      -----------------------------------------------------------------------
                                 1st       2nd       3rd       4th      Full
      (in millions)              Qtr       Qtr       Qtr       Qtr      Year
                               ------    ------    ------    ------    ------
      Commercial Revenue
         Group Health:
          FEHBP               $  21.8   $  25.0   $  29.1   $  24.8   $ 100.7
          Corporate              46.5      45.3      46.0      44.6     182.4
          Insurers/TPA           12.2      10.3      15.2      25.6      63.3
                               ------    ------    ------    ------    ------
         Total Group Health      80.5      80.6      90.3      95.0     346.4
                               ------    ------    ------    ------    ------
         Workers' Compensation   29.3      28.8      33.1      39.5     130.7
                               ------    ------    ------    ------    ------
      Total Commercial          109.8     109.4     123.4     134.5     477.1
                               ------    ------    ------    ------    ------
      Public Sector              27.2      29.5      28.8      30.5     116.0
                               ------    ------    ------    ------    ------
      Total Revenue           $ 137.0   $ 138.9   $ 152.2   $ 165.0   $ 593.1
                               ======    ======    ======    ======    ======

      -----------------------------------------------------------------------
                                        Year ended December 31, 2002
      -----------------------------------------------------------------------
                                 1st       2nd       3rd       4th      Full
      (in millions)              Qtr       Qtr       Qtr       Qtr      Year
                               ------    ------    ------    ------    ------
      Commercial Revenue
         Group Health:
          FEHBP               $  30.2   $  31.7   $  63.4   $  64.5   $ 189.8
          Corporate              49.4      49.9      45.2      46.3     190.8
          Insurers/TPA           21.3      20.3      22.3      21.7      85.6
                               ------    ------    ------    ------    ------
         Total Group Health     100.9     101.9     130.9     132.5     466.2
                               ------    ------    ------    ------    ------
         Workers' Compensation   39.2      41.8      40.8      39.5     161.3
                               ------    ------    ------    ------    ------
      Total Commercial          140.1     143.7     171.7     172.0     627.5
                               ------    ------    ------    ------    ------
      Public Sector              29.3      32.2      33.2      37.8     132.5
                               ------    ------    ------    ------    ------
      Total Revenue           $ 169.4   $ 175.9   $ 204.9   $ 209.8   $ 760.0
                               ======    ======    ======    ======    ======

      -----------------------------------------------------------------------
                                        Year ended December 31, 2003
      -----------------------------------------------------------------------
                                 1st       2nd       3rd       4th      Full
      (in millions)              Qtr       Qtr       Qtr       Qtr      Year
                               ------    ------    ------    ------    ------
      Commercial Revenue
         Group Health:
          FEHBP               $  59.4   $  62.4   $  71.9   $  74.6   $ 268.3
          Corporate              52.2      50.9      47.8      45.7     196.6
          Insurers/TPA           22.4      20.9      18.2      24.3      85.8
                               ------    ------    ------    ------    ------
         Total Group Health     134.0     134.2     137.9     144.6     550.7
                               ------    ------    ------    ------    ------
         Workers' Compensation   40.2      40.2      39.1      48.6     168.1
                               ------    ------    ------    ------    ------
      Total Commercial          174.2     174.4     177.0     193.2     718.8
                               ------    ------    ------    ------    ------
      Public Sector              39.6      44.2      42.7      45.6     172.1
                               ------    ------    ------    ------    ------
      Total Revenue           $ 213.8   $ 218.6   $ 219.7   $ 238.8   $ 890.9
                               ======    ======    ======    ======    ======

      --------------------------------
                             Qtr ended
      (in millions)           3/31/04
      --------------------------------
      Commercial Revenue
         Group Health:
          FEHBP               $  58.7
          Corporate              44.0
          Insurers/TPA           25.1
                               ------
         Total Group Health     127.8
                               ------
         Workers' Compensation   51.0
                               ------
      Total Commercial          178.8
                               ------
      Public Sector              39.3
                               ------
      Total Revenue           $ 218.1
                               ======

      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 41%,
 41%, 46% and 50% of total Company revenues on a  percentage-of-savings basis
 for the three months ended March  31, 2004 and the years ended  December 31,
 2003, 2002 and 2001, respectively.

      Total revenue  for the  three months  ended March  31,  2004 of  $218.1
 million increased  $4.4 million  (2%) from  the first  quarter  of 2003  and
 decreased $20.6 million (9%) from the fourth quarter of 2003. The components
 of the Company's quarterly revenue are as follows:

      Group Health revenue of $127.8 million for the three months ended March
 31, 2004 decreased  $6.2 million  (5%) from the  first quarter  of 2003  and
 decreased $16.8 million (12%) from the fourth quarter 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 months ended March  31, 2004 decreased  $4.9
 million (6%) from  the comparable period  of 2003 due  in part to  increased
 price competition  plus  higher client  attrition  than expected.  PPO  plus
 Administration  Services  revenue  decreased  $14.5 million  (15%) from  the
 fourth quarter of 2003  due primarily to a  $17 million decrease  in revenue
 from the Plan (due in part to a  10% decline in Plan enrollment and  in part
 to $6 million in revenue recorded in the fourth quarter related to  the 2002
 adjustment process, net of reserves) and the increased price competition and
 higher client attrition mentioned  above. Group Health  PPO revenue for  the
 three months ended  March 31,  2004 decreased  $6.1 million  (15%)  from the
 first quarter of 2003 and $2.6 million (7%) from the fourth quarter  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 months ended  March 31,  2004 increased $4.8  million
 (114%) from  the  comparable  period  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. This business is expected to generate approximately $20  million in
 annual premium  revenue  for  the Company.  The  Company  ceded 80%  of  the
 premiums and related policy  benefits to a  highly rated insurance  carrier.
 Premium revenue was consistent with the fourth quarter of 2003.

      Workers' Compensation revenue  of $51.0  million for  the three  months
 ended March 31,  2004 increased $10.9  million (27%)  and $2.5 million  (5%)
 from the first and fourth quarters of 2003, respectively. The  increase from
 the  first  quarter  of 2003  is due primarily to $15.7 million  in  revenue
 from the  Employer Services acquisition.  Absent  the  acquisition, workers'
 compensation revenue would have decreased due to lower volumes from existing
 clients and to new  legislation in California  regarding fee schedule  rates
 for ambulatory care services. The increase  from the fourth quarter  of 2003
 is due primarily  to a  full quarter of  Employer Services  activity in  the
 first quarter of 2004 versus two months of activity in the fourth quarter of
 2003. Approximately 74%,  71% and  73% of Workers'  Compensation revenue  is
 generated on a  percentage-of-savings basis during  the quarter ended  March
 31, 2004, the quarter  ended March 31, 2003  and the quarter ended  December
 31, 2003, respectively.

      Public Sector revenue of $39.3 million for the three months ended March
 31, 2004 was consistent with the same period of 2003. Public  Sector revenue
 decreased $6.3 million (14%) from the  fourth quarter of 2003  due primarily
 to a decrease  in revenue  from one-time HIPAA  support implementations  and
 fees associated with pharmacy programs that were completed in 2003.  None of
 the Public Sector revenue is generated on a percentage-of-savings basis.

      Cost of services  increased $10.2  million (11%) for  the three  months
 ended March 31,  2004 from the  comparable period in  2003 due primarily  to
 costs associated with  the Employer  Services acquisition and,  to a  lesser
 extent, costs  associated  with  the Company's  termination  plan.  Cost  of
 services was essentially flat compared to  the fourth quarter of  2003. 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 48.8% for the three months ended March 31, 2004 from  45.0% and
 44.5% in the first and fourth  quarters of 2003, respectively.  The increase
 as a  percentage of  revenue is  due primarily  to a  change in  the mix  of
 Company business  from PPO  business to  more cost-intensive  administration
 services. The Company has  taken a number  of key steps  in 2004 to  improve
 profitability (see "Termination Plan" above and "2004 Outlook" below).

      Selling and marketing costs for the  three months ended March  31, 2004
 decreased $0.1 million (1%) and $6.5 million (24%) from the first and fourth
 quarters of  2003,  respectively.  The  decrease is  due  primarily  to  the
 reduction in spending  on national  advertising campaigns, particularly  for
 the Plan. The Company incurred in excess of $7 million of  incremental costs
 during the fourth quarter of 2003  related to the open season  enrollment of
 MHBP members.

      General and administrative costs for  the three months ended  March 31,
 2004 increased $4.4  million (29%) from  the comparable  period 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
 were essentially flat compared to the fourth quarter of 2003.

      Healthcare benefits represent  medical losses  incurred by insureds  of
 the Company's insurance entities.  Healthcare benefits for the  three months
 ended March 31, 2004 increased $1.2 million (22%) from the comparable period
 of 2003 and decreased  $1.1 million (15%) from  the fourth quarter of  2003.
 The increase  from  the  first quarter  of  2003  is due  primarily  to  new
 business, particularly  the  NEF  block of  business  discussed  above.  The
 decrease from the fourth quarter of 2003 is due to better  experience within
 the Company's  small  group  business  (particularly in  the  NEF  block  of
 business). The  loss ratio  (healthcare benefits  as  a percent  of  premium
 revenue) was 70% for the three months ended March 31, 2004 compared  to 122%
 for the first quarter  of 2003 and 85%  in the fourth  quarter of 2003.  The
 decrease in the loss ratio is due primarily to improved stop-loss experience
 and NEF  experience in  2004.  Management continues to  review  the book  of
 business in  detail  to minimize  the  loss  ratio. Stop-loss  insurance  is
 related to the Company's integrated Commercial services and is used as a way
 to attract additional PPO business,  which is the Company's  most profitable
 product.

      Depreciation and amortization expenses for the three months ended March
 31, 2004 increased  $3.3 million (22%)  from the first  quarter of 2003  and
 $1.7 million  (10%)  from  the  fourth  quarter of  2003  due  primarily  to
 increased infrastructure 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  $46.5 million  for the  three months  ended
 March 31, 2004 decreased  $14.5 million (24%) and  $14.9 million (24%)  from
 the first  and  fourth  quarters of  2003,  respectively.  Operating  margin
 (income from operations as  a percentage of revenue)  decreased to 21.3%  in
 the first quarter of 2004 from 28.6% in the first quarter of  2003 and 25.7%
 in the fourth quarter  of 2003. The decrease  in income from operations  and
 operating margin is due to the  change in mix of revenue discussed  above to
 lower-margin administrative services  business as well  as the expenses  the
 Company has  incurred in  the first  quarter of  2004  associated with  cost
 savings initiatives.

      Interest income for  the three  months ended March  31, 2004  increased
 $0.4 million (27%) from the first quarter of 2003 and $0.1 million (3%) from
 the fourth  quarter  of  2003. The  Company  has  used $20  million  of  its
 available cash in 2004 to repay debt.

      Interest expense for the  three months ended  March 31, 2004  increased
 $0.5 million (41%) and $0.1 million (4%) from the first and  fourth quarters
 of 2003, respectively.  Interest expense  has increased  as the  outstanding
 debt increased from $185 million at March 31, 2003 to $250 million  at March
 31, 2004.  The  effective  marginal interest  rate  on  March 31,  2004  was
 approximately 2% per annum.

      Diluted net income per  common share for the  three months ended  March
 31, 2004 decreased 16% to $.31 per share from the first quarter  of 2003 and
 decreased 23% from the  fourth quarter 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 months  ended  March  31,  2004,  diluted  common  shares  outstanding
 decreased 7% from the first quarter  of 2003 and 2% from the  fourth quarter
 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 March 31,
      (in millions except %)         2004           2003
      ----------------------       ------           ------
    Revenues                      $ 178.8          $ 174.2
    Operating expenses              132.0            115.6
                                   ------           ------
    Income from operations           46.8             58.6
                                   ------           ------
       Operating margin               26%              34%

    Interest income                  (1.7)            (1.3)
    Interest expense                  1.8              1.3
                                   ------           ------
    Income before income taxes       46.7             58.6
    Income taxes                    (17.7)           (23.3)
                                   ------           ------
    Net income                    $  29.0          $  35.3
                                   ======           ======

 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
 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 March 31,
      (in millions except %)        2004             2003
      ----------------------       ------           ------
    Revenues                      $  39.3          $  39.6
    Operating expenses               39.6             37.1
                                   ------           ------
    Income (loss) from operations    (0.3)             2.5

       Operating margin                (1)%              6%

    Interest income                    --               --
    Interest expense                   --               --
                                   ------           ------
    Income (loss) before
      income taxes                   (0.3)             2.5
    Income tax (expense) benefit      0.1             (1.0)
                                   ------           ------
    Net income (loss)             $  (0.2)         $   1.5
                                   ======           ======

 The decline in income  from operations and net  income in the Public  Sector
 segment is due  primarily to  the timing  of costs  associated with  various
 government contracts. The revenue and profitability is expected  to increase
 going forward in 2004, as certain contract milestones are met and efficiency
 initiatives are put in place to help control costs.

 Liquidity and Capital Resources
 -------------------------------
      The Company had  $48.9 million  in working  capital on  March 31,  2004
 compared with working capital of $24.1  million at December 31,  2003. Total
 cash and investments amounted to $162.7  million at March 31,  2004 compared
 to $139.7 million at December 31, 2003.

      Cash and  cash equivalents  at March  31,  2004 include  $29.9  million
 accumulated in the accounts of the  Company's insurance entities due  to the
 timing of the  collection of insurance  premiums in  advance of the  related
 payments for  commissions and  payments to  re-insurers. Additionally,  $6.0
 million was set  aside in anticipation  of the  pending acquisition of  COMP
 Medical.

      The Company continues to generate the majority of cash  from collection
 of its accounts receivables although this  amount has declined from  the end
 of 2003 due to a decrease in Company revenues. The Company has  collected $8
 million in  reinsurance recoverable  balances due  at the  end  of 2003  (in
 "Other current assets" in  the consolidated balance sheets).  Cash collected
 from the exercise of  stock options has declined  as 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, 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 March  31, 2004  decreased to  $250
 million from $270  million at  December 31, 2003  as the  Company used  cash
 generated from operations to pay down its debt.

 The following table summarizes  the contractual obligations the  Company has
 outstanding as of March 31, 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              $250.0    $    -   $    -    $250.0   $    -
  Operating leases              53.9      14.1     20.6      12.9      6.3
  Purchase obligations           1.0       1.0        -         -        -
                               -----     -----    -----     -----    -----
  Total                       $304.9    $ 15.1   $ 20.6    $262.9   $  6.3
                               =====     =====    =====     =====    =====

      The purchase  obligation  is  a commitment  to  a  limited  partnership
 investment. The Company has no capital lease obligations,  off-balance sheet
 financing arrangements  or other  contractual obligations  as  of March  31,
 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 operations and anticipated expansion plans.

 2004 Outlook
 ------------
      In  April  2004,   the  Company  revised   its  revenue  and   earnings
 expectations for 2004 to take into account the negative trend  it discerned,
 primarily with respect to MHBP, at the end of the first quarter of 2004. The
 Company's previous revenue estimate  related to the  FEHBP business was  too
 high,  especially  with respect  to MHBP revenue. MHBP revenues are expected
 to  decline  in  2004  due  primarily  to the savings rate reduction,  lower
 Plan  enrollment  (approximately  10%),  lower MHBP participant utilization,
 lower  medical trend  and  a changed mix of enrollment between Plan options.
 Moreover, the Company does  not  anticipate  that  the  adjustments expected
 to  be  made  in  2004,  which  are  attributable  to  2003   Plan  revenue,
 will  be in amounts  similar  to  the  adjustments  that  were made in  2003
 attributable to 2002 Plan revenue.  See "Overview" and  "Critical Accounting
 Policies" for  further  discussion  of the  claims  reconciliation  process.
 Revenue  expectations  in  the  Corporate  Sector  have  declined  as  price
 competition has accelerated and the  Company has realized less  new business
 than expected. The Company's smallest sector, third party administrators and
 insurers, is expected  to report revenue  in 2004 that  will be higher  than
 2003, but  slightly less  than previously  estimated. Workers'  Compensation
 revenue is expected to grow rapidly in 2004, principally due to the Employer
 Services acquisition, but previous  estimates anticipated earlier  decisions
 from potential new customers and a more profitable mix of new  business. The
 Company anticipates its  Public Sector revenue  for 2004  will be flat  with
 both last year and with previous estimates.

      The Company has taken  a number of key  steps to improve  profitability
 including   the   Company's   termination   plan,   operational   leadership
 consolidation,  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).

 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  $38.1  million at March 31, 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 three months  ended March 31,  2004 and  a
 positive revenue adjustment of less than 1% of total Company revenue for the
 three months ended March 31, 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  reason for nonpayment of  these accounts
 receivable  is  due  to  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 $21.5 million at March 31, 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
 -----------------------------
      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.
 The effect of SFAS 146 is  discussed earlier in the MD&A (under  the caption
 "Termination Plan") and in Note 8 to the consolidated financial statements.

      Effective January 1, 2003, the Company adopted FASB  Interpretation No.
 45, ("FIN 45") "Guarantees, Including Indirect Guarantees of Indebtedness to
 Others", which expands previously issued accounting guidance  and disclosure
 requirements for certain guarantees. FIN 45 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. The adoption of  FIN 45 had no  impact on the Company's  financial
 position, results of operations or cash flows.


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

      The Company's  market risk exposure as of March 31, 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 March 31,  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 March 31, 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 and Use of Proceeds
           -----------------------------------------

      The following  table summarizes  any purchases  of  the Company  common
 stock made by or on  behalf of the Company  for the quarter ended  March 31,
 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
    ------         ---------     ---------        --------        ---------
 Jan 1 - Jan 31           --            --              --        6,109,841
 Feb 1 - Feb 29           --            --              --        6,109,841
 March 1 - Mar 31         --            --              --        6,109,841
                   ---------     ---------        --------        ---------
 Total                    --            --              --        6,109,841
                   =========     =========        ========        =========


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

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


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

      Exhibits:

           (a)         Exhibit 10.1 - Employment  Agreement dated March  22,
                       2004 between First Health Group Corp. and William  R.
                       McManaman.

           (b)         Exhibit 10.2 - Stock Option Agreements dated March 22,
                       2004  by and  between  First Health  Group  Corp.  and
                       William R. McManaman

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

           (d)         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.

           (e)         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.

           (f)         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.

           (g)         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 February 17, 2004
           reporting under Item  12 the results  of operations and  financial
           condition for the year ended December 31, 2003.

           The Company  filed a  report  on Form  8-K  dated March  22,  2004
           reporting under Item  5 announcing the  appointment of William  R.
           McManaman as Senior Vice President and Chief Financial Officer.



<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:  May 10, 2004          /s/Edward L. Wristen
                                    -------------------------------------
                                    Edward L. Wristen
                                    President and Chief Executive Officer


      Dated:  May 10, 2004          /s/William R. McManaman
                                    -------------------------------------
                                    William R. McManaman
                                    Senior Vice President and Chief
                                    Financial Officer
                                    (Principal Financial Officer)