<PAGE>   1

                                                                    Exhibit 10.1

                                       TDH Document No. 7526032317  *  2001A-01
                                        Aug # 239B




                                    FY 2001
                             CONTRACT FOR SERVICES
                                    Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                      And
                                      HMO




                                                          1999 Renewal Contract
                                                            Harris Service Area
                                                                 August 9, 1999

<PAGE>   2
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I        PARTIES AND AUTHORITY TO CONTRACT....................................1

ARTICLE II       DEFINITIONS..........................................................2

ARTICLE III      PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS.................14

<S>  <C>                                                                           <C>
3.1   ORGANIZATION AND ADMINISTRATION................................................14
3.2   NON-PROVIDER SUBCONTRACTS......................................................15
3.3   MEDICAL DIRECTOR...............................................................17
3.4   PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS..............................18
3.5   RECORDS REQUIREMENTS AND RECORDS RETENTION.....................................19
3.6   HMO REVIEW OF TDH MATERIALS....................................................20
3.7   HMO TELEPHONE ACCESS REQUIREMENTS..............................................21

ARTICLE IV       FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS................21

4.1   FISCAL SOLVENCY................................................................21
4.2   MINIMUM NET WORTH..............................................................22
4.3   PERFORMANCE BOND...............................................................22
4.4   INSURANCE  ....................................................................22
4.5   FRANCHISE TAX..................................................................23
4.6   AUDIT..........................................................................23
4.7   PENDING OR THREATENED LITIGATION...............................................23
4.8   MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO OPERATIONS...........23
4.9   THIRD PARTY RECOVERY...........................................................24
4.10  CLAIMS PROCESSING REQUIREMENTS.................................................25
4.11  INDEMNIFICATION................................................................27

ARTICLE V        STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS....................28

5.1   COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS.................................28
5.2   PROGRAM INTEGRITY..............................................................28
5.3   FRAUD AND ABUSE COMPLIANCE PLAN................................................28
5.4   SAFEGUARDING INFORMATION.......................................................31
5.5   NON-DISCRIMINATION.............................................................31
5.6   HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs)...................................32
5.7   BUY TEXAS......................................................................33
5.8   CHILD SUPPORT..................................................................33
5.9   REQUESTS FOR PUBLIC INFORMATION................................................33
5.10  NOTICE AND APPEAL..............................................................34

ARTICLE VI       SCOPE OF SERVICES...................................................34

6.1   SCOPE OF SERVICES..............................................................34
6.2   PRE-EXISTING CONDITIONS........................................................37
6.3   SPAN OF ELIGIBILITY............................................................37
6.4   CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS................................38
6.5   EMERGENCY SERVICES.............................................................39
6.6   BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS........................40
6.7   FAMILY PLANNING - SPECIFIC REQUIREMENTS........................................42
6.8   TEXAS HEALTH STEPS (EPSDT).....................................................43
6.9   PERINATAL SERVICES.............................................................46
6.10  EARLY CHILDHOOD INTERVENTION (ECI).............................................47
</TABLE>

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<TABLE>
<S>  <C>                                                                           <C>
6.11  SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND CHILDREN
       (WIC) - SPECIFIC REQUIREMENTS.................................................48
6.12  TUBERCULOSIS (TB)..............................................................49
6.13  PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS......................50
6.14  HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS.............................52
6.15  SEXUALLY TRANSMITTED DISEASES (STDs) AND HUMAN IMMUNODEFICIENCY VIRUS
      (HIV) .........................................................................53
6.16  BLIND AND DISABLED MEMBERS.....................................................55

ARTICLE VII      PROVIDER NETWORK REQUIREMENTS.......................................56

7.1   PROVIDER ACCESSIBILITY.........................................................56
7.2   PROVIDER CONTRACTS.............................................................57
7.3   PHYSICIAN INCENTIVE PLANS......................................................61
7.4   PROVIDER MANUAL AND PROVIDER TRAINING..........................................63
7.5   MEMBER PANEL REPORTS...........................................................64
7.6   PROVIDER COMPLAINT AND APPEAL PROCEDURE........................................64
7.7   PROVIDER QUALIFICATIONS - GENERAL..............................................64
7.8   PRIMARY CARE PROVIDERS.........................................................66
7.9   OB/GYN PROVIDERS...............................................................70
7.10  SPECIALTY CARE PROVIDERS.......................................................70
7.11  SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES................................71
7.12  BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA).......................71
7.13  SIGNIFICANT TRADITIONAL PROVIDERS (STPs).......................................73
7.14  RURAL HEALTH PROVIDERS.........................................................74
7.15  FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH CLINICS (RHC).......75
7.16  COORDINATION WITH PUBLIC HEALTH................................................76
7.17  COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY
      SERVICES.......................................................................79
7.18  DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs).................80

ARTICLE VIII     MEMBER SERVICES REQUIREMENTS........................................82

8.1   MEMBER EDUCATION...............................................................82
8.2   MEMBER HANDBOOK................................................................82
8.3   ADVANCE DIRECTIVES.............................................................83
8.4   MEMBER ID CARDS................................................................85
8.5   MEMBER HOTLINE.................................................................85
8.6   MEMBER COMPLAINT PROCESS.......................................................85
8.7   MEMBER NOTICE, APPEALS AND FAIR HEARINGS.......................................88
8.8   MEMBER ADVOCATES...............................................................89
8.9   MEMBER CULTURAL AND LINGUISTIC SERVICES........................................89

ARTICLE IX       MARKETING AND PROHIBITED PRACTICES..................................92

9.1   MARKETING MATERIAL MEDIA AND DISTRIBUTION......................................92
9.2   MARKETING ORIENTATION AND TRAINING.............................................92
9.3   PROHIBITED MARKETING PRACTICES.................................................92
9.4   NETWORK PROVIDER DIRECTORY.....................................................93

ARTICLE X        MIS SYSTEM REQUIREMENTS.............................................94

10.1  MODEL MIS REQUIREMENTS.........................................................94
10.2  SYSTEM-WIDE FUNCTIONS..........................................................95
10.3  ENROLLMENT/ELIGIBILITY SUBSYSTEM...............................................96
10.4  PROVIDER SUBSYSTEM.............................................................97
10.5  ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM..........................................98
10.6  FINANCIAL SUBSYSTEM...........................................................100
</TABLE>

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<PAGE>   4

<TABLE>
<S>  <C>                                                                           <C>
10.7  UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM.....................................101
10.8  REPORT SUBSYSTEM..............................................................102
10.9  DATA INTERFACE SUBSYSTEM......................................................103
10.10 TPR SUBSYSTEM.................................................................105
10.11 YEAR 2000 (Y2K) COMPLIANCE....................................................105

ARTICLE XI       QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM..................106

11.1  QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM......................................106
11.2  WRITTEN QIP PLAN..............................................................106
11.3  QIP SUBCONTRACTING............................................................106
11.4  ACCREDITATION.................................................................106
11.5  BEHAVIORAL HEALTH INTEGRATION INTO QIP........................................106
11.6  QIP REPORTING REQUIREMENTS....................................................107

ARTICLE XII      REPORTING REQUIREMENTS.............................................107

12.1  FINANCIAL REPORTS.............................................................107
12.2  STATISTICAL REPORTS...........................................................109
12.3  ARBITRATION/LITIGATION CLAIMS REPORT..........................................110
12.4  SUMMARY REPORT OF PROVIDER COMPLAINTS.........................................110
12.5  PROVIDER NETWORK REPORTS......................................................110
12.6  MEMBER COMPLAINTS.............................................................111
12.7  FRAUDULENT PRACTICES..........................................................111
12.8  UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH............................111
12.9  UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH..............................112
12.10 QUALITY IMPROVEMENT REPORTS...................................................112
12.11 HUB REPORTS...................................................................113
12.12 THSTEPS REPORTS...............................................................113

ARTICLE XIII     PAYMENT PROVISIONS.................................................114

13.1  CAPITATION AMOUNTS............................................................114
13.2  EXPERIENCE REBATE TO STATE....................................................118
13.3  PERFORMANCE OBJECTIVES........................................................119
13.4  ADJUSTMENTS TO PREMIUM........................................................119

ARTICLE XIV      ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT.........................120

14.1  ELIGIBILITY DETERMINATION.....................................................120
14.2  ENROLLMENT....................................................................122
14.3  DISENROLLMENT.................................................................123
14.4  AUTOMATIC RE-ENROLLMENT.......................................................123
14.5  ENROLLMENT REPORTS............................................................124

ARTICLE XV       GENERAL PROVISIONS.................................................124

15.1  INDEPENDENT CONTRACTOR........................................................124
15.2  AMENDMENT.....................................................................124
15.3  LAW, JURISDICTION AND VENUE...................................................125
15.4  NON-WAIVER....................................................................125
15.5  SEVERABILITY..................................................................125
15.6  ASSIGNMENT....................................................................125
15.7  MAJOR CHANGE IN CONTRACTING...................................................126
15.8  NON-EXCLUSIVE.................................................................126
15.9  DISPUTE RESOLUTION............................................................126
15.10 DOCUMENTS CONSTITUTING CONTRACT...............................................126
15.11 FORCE MAJEURE.................................................................126
</TABLE>

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<TABLE>
<S>   <C>                                                                          <C>
15.12 NOTICES.......................................................................127
15.13 SURVIVAL.. ...................................................................127

ARTICLE XVI      DEFAULT AND REMEDIES...............................................127

16.1  DEFAULT BY TDH................................................................127
16.2  REMEDIES AVAILABLE TO HMO FOR TDH's DEFAULT...................................127
16.3  DEFAULT BY HMO................................................................128

ARTICLE XVII     NOTICE OF DEFAULT AND CURE OF DEFAULT..............................136

ARTICLE XVIII    EXPLANATION OF REMEDIES............................................137

18.1  TERMINATION...................................................................137
18.2  DUTIES OF CONTRACTING PARTIES UPON TERMINATION................................139
18.3  SUSPENSION OF NEW ENROLLMENT..................................................140
18.4  LIQUIDATED MONEY DAMAGES......................................................140
18.5  APPOINTMENT OF TEMPORARY MANAGEMENT...........................................142
18.6  TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE..............143
18.7  RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO....................143
18.8  CIVIL MONETARY PENALTIES......................................................143
18.9  FORFEITURE OF ALL OR PART OF THE TDI PERFORMANCE BOND.........................144
18.10 REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED....................................144

ARTICLE XIX      TERM...............................................................144
</TABLE>



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<PAGE>   6




                                   APPENDICES

APPENDIX A

         Standards For Quality Improvement Programs

APPENDIX B

         HUB Progress Assessment Reports

APPENDIX C

         Value-added Services

APPENDIX D

         Required Critical Elements

APPENDIX E

         Transplant Facilities

APPENDIX F

         Trauma Facilities

APPENDIX G

         Hemophilia Treatment Centers And Programs

APPENDIX H

         Utilization Management Report - Behavioral Health

APPENDIX I

         Managed Care Financial-Statistical Report

APPENDIX J

         Utilization Management Report - Physical Health

APPENDIX K

         Preventive Health Performance Objectives

APPENDIX L

         Cost Principles For Administrative Expenses

APPENDIX M

         Arbitration/Litigation Report


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<PAGE>   7


                                      1999
                             CONTRACT FOR SERVICES
                                    Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                      And
                                      HMO

This contract is entered into between the Texas Department of Health (TDH) and
AMERICAID Texas, Inc., dba Americaid Community Care (HMO). The purpose of this
contract is to set forth the terms and conditions for HMO's participation as a
managed care organization in the TDH STAR Program (STAR or STAR Program). Under
the terms of this contract HMO will provide comprehensive health care services
to qualified and Medicaid-eligible recipients through a managed care delivery
system. This is a risk-based contract. HMO was selected to provide services
under this contract under Health and Safety Code, Title 2, Section 12.011 and
Section 12.021, and Texas Government Code Section 533.001 et seq. HMO's
selection for this contract was based upon HMO's Application submitted in
response to TDH's Request for Application (RFA) in the service area.
Representations and responses contained in HMO's Application are incorporated
into and are enforceable provisions of this contract, except where changed by
this contract.

ARTICLE I     PARTIES AND AUTHORITY TO CONTRACT

1.1           The Texas Legislature has designated the Texas Health and Human
          Services Commission (THHSC) as the single State agency to administer
          the Medicaid program in the State of Texas. THHSC has delegated the
          authority to operate the Medicaid managed care delivery system for
          acute care services to TDH. TDH has authority to contract with HMO to
          carry out the duties and functions of the Medicaid managed care
          program under Health and Safety Code, Title 2, Section 12.011 and
          Section 12.021 and Texas Government Code Section 533.001 et seq.

1.2           HMO is a corporation with authority to conduct business in the
         State of Texas and has a certificate of authority from the Texas
         Department of Insurance (TDI) to operate as a Health Maintenance
         Organization (HMO) under Chapter 20A of the Insurance Code. HMO is in
         compliance with all TDI rules and laws that apply to HMOs. HMO has
         been authorized to enter into this contract by its Board of Directors
         or other governing body. HMO is an authorized vendor with TDH and has
         received a Vendor Identification number from the Texas Comptroller of
         Public Accounts.

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1.3           This contract is subject to the approval and on-going monitoring
          of the federal Health Care Financing Administration (HCFA).

1.4           Renewal Review. TDH is required by Human Resources Code Section
          32.034(a) and Government Code 533.007 to conduct renewal review of
          HMO's performance and compliance with this contract as a condition
          for retention and renewal.

1.4.1         Renewal Review may include a review of HMO's past performance and
          compliance with the requirements of this contract and on-site
          inspection of any or all of HMO's systems or processes.

1.4.2         TDH will provide HMO with at least 30 days written notice prior
          to conducting an HMO renewal review.  A report of the results of the
          renewal review findings will be provided to HMO within 10 weeks from
          the completion of the renewal review.  The renewal review report will
          include any deficiencies which must be corrected and the timeline
          within which the deficiencies must be corrected.

1.4.3         TDH reserves the right to conduct on-site inspections of any or
          all of HMO's systems and processes as often as necessary to ensure
          compliance with contract requirements. TDH may conduct at least one
          complete on-site inspection of all systems and processes every three
          years. TDH will provide six weeks advance notice to HMO of the three
          year on-site inspection, unless TDH enters into an MOU with the Texas
          Department of Insurance to accept the TDI report in lieu of a TDH
          on-site inspection. TDH will notify HMO prior to conducting an onsite
          visit related to a regularly scheduled review specifically described
          in this contract.  Even in the case of a regularly scheduled visit,
          TDH reserves the right to conduct an onsite review without advance
          notice if TDH believes there may be potentially serious or
          life-threatening deficiencies.

1.5           AUTHORITY OF HMO TO ACT ON BEHALF OF TDH. HMO is given express,
          limited authority to exercise the State's right of recovery as
          provided in Article 4.9, and to enforce provisions of this contract
          which require providers or subcontractors to produce records,
          reports, encounter data, public health data, and other documents to
          comply with this contract and which TDH has authority to require
          under State or federal laws.

ARTICLE II    DEFINITIONS

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<PAGE>   9


Terms used throughout this Contract have the following meaning, unless the
context clearly indicates otherwise:

Abuse means provider practices that are inconsistent with sound fiscal,
business, or medical practices and result in an unnecessary cost to the
Medicaid program, or in reimbursement for services that are not medically
necessary or that fail to meet professionally recognized standards for health
care. It also includes Member practices that result in unnecessary cost to the
Medicaid program.

Action means a denial, termination, suspension, or reduction of covered
services or the failure of HMO to act upon request for covered services within
a reasonable time or a denial of a request for prior authorization for covered
services affecting a Member. This term does not include reaching the end of
prior authorized services.

Adjudicate means to deny or pay a clean claim.

Adverse determination means a determination by a utilization review agent that
the health care services furnished, or proposed to be furnished to a patient,
are not medically necessary or not appropriate.

Affiliate means any individual or entity owning or holding more than a five
percent (5%) interest in HMO; in which HMO owns or holds more than a five
percent (5%) interest; any parent entity; or subsidiary entity of HMO,
regardless of the organizational structure of the entity.

Allowable expenses means all expenses related to the Contract for Services
between TDH and HMO that are incurred during the term of the contract that are
not reimbursable or recovered from another source.

Allowable revenue means all Medicaid managed care revenue received by HMO for
the contract period, including retroactive adjustments made by TDH.

Appeal of adverse determination means the formal process by which a utilization
review agent offers a mechanism to address adverse determinations as defined in
Article 21.58A, Texas Insurance Code.

Auxiliary aids and services includes qualified interpreters or other effective
methods of making aurally delivered materials understood by persons with
hearing impairments; and, taped texts, large print, Braille, or other effective
methods to ensure visually delivered materials are available to individuals
with visual impairments. Auxiliary aids and services also includes effective
methods to ensure that materials (delivered both aurally and visually) are
available to those with

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<PAGE>   10

cognitive or other disabilities affecting communication.

Behavioral health care services means covered services for the treatment of
mental or emotional disorders and treatment of chemical dependency disorders.

Benchmark means a target or standard based on historical data or an
objective/goal.

Capitation means a method of payment in which HMO or a health care provider
receives a fixed amount of money each month for each enrolled Member,
regardless of the amount of covered services used by the enrolled Member.

CHIP means Children's Health Insurance Program established by Title XXI of the
Social Security Act to assist state efforts to initiate and expand child health
assistance to uninsured, low-income children.

Chronic or complex condition means a physical, behavioral, or developmental
condition which may have no known cure and/or is progressive and/or can be
debilitating or fatal if left untreated or under-treated.

Clean claim means a TDH approved or identified claim format that contains all
data fields required by HMO and TDH for final adjudication of the claim. The
required data fields must be complete and accurate. Clean claim also includes
HMO-published requirements for adjudication, such as medical records, as
appropriate (see definition of Unclean Claim). The TDH required data fields are
identified in TDH's "HMO Encounter Data Claims Submission Manual."

CLIA means the federal legislation commonly known as the Clinical Laboratories
Improvement Act of 1988 as found at Section 353 of the federal Public Health
Services Act, and regulations adopted to implement the Act.

Community Management Team (CMT) means interagency groups responsible for
developing and implementing the Texas Children's Mental Health Plan (TCMHP) at
the local level. A CMT consists of local representatives from TXMHMR, the
Mental Health Association of Texas, Texas Commission on Alcohol and Drug Abuse,
Texas Department of Protective and Regulatory Services, Texas Department of
Human Services, Texas Department of Health, Juvenile Probation Commission,
Texas Youth Commission, Texas Rehabilitation Commission, Texas Education
Agency, Council on Early Childhood Intervention and a parent representative.
This organizational structure is also replicated in the State Management Team
that sets overall policy direction for the TCMHP.

Community Resource Coordination Groups (CRCGs) means a statewide system of
local

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<PAGE>   11

interagency groups, including both public and private providers, which
coordinate services for "multi-need" children and youth. CRCGs develop
individual service plans for children and adolescents whose needs can be met
only through interagency cooperation. CRCGs address complex needs in a model
that promotes local decision-making and ensures that children receive the
integrated combination of social, medical and other services needed to address
their individual problems.

Complainant means a Member or a treating provider or other individual
designated to act on behalf of the Member who files the complaint.

Complaint means any dissatisfaction, expressed by a complainant orally or in
writing to HMO, with any aspect of HMO's operation, including, but not limited
to, dissatisfaction with plan administration; procedures related to review or
appeal of an adverse determination, as that term is defined by Texas Insurance
Code Article 20A.12, with the exception of the Independent Review Organization
requirements; the denial, reduction, or termination of a service for reasons
not related to medical necessity; the way a service is provided; or
disenrollment decisions, expressed by a complainant. The term does not include
misinformation that is resolved promptly by supplying the appropriate
information or clearing up the misunderstanding to the satisfaction of the
Member. The term also does not include a provider's or enrollee's oral/written
dissatisfaction or disagreement with an adverse determination or a request for
a Fair Hearing to TDH.

Comprehensive Care Program: See definition for Texas Health Steps.

Continuity of care means care provided to a Member by the same primary care
provider or specialty provider to the greatest degree possible, so that the
delivery of care to the Member remains stable, and services are consistent and
unduplicated.

Contract means this contract between TDH and HMO and documents included by
reference and any of its written amendments, corrections or modifications.

Contract administrator means an entity contracting with TDH to carry out
specific administrative functions under the State's Medicaid managed care
program.

Contract anniversary date means September 1 of each year after the first year
of this contract, regardless of the date of execution or effective date of the
contract.

Contract period means the period of time starting with effective date of the
contract and ending on the termination date of the contract.

Court-ordered commitment means a commitment of a STAR Member to a psychiatric
facility for treatment that is ordered by a court of law pursuant to the Texas
Health and Safety Code, Title VII Subtitle C.

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Covered services means health care services HMO must arrange to provide to
Members, including all services required by this contract and state and federal
law, and all value-added services described by HMO in its response to the
Request For Application (RFA) for this contract.

Cultural competency means the ability of individuals and systems to provide
services effectively to people of various cultures, races, ethnic backgrounds,
and religions in a manner that recognizes, values, affirms, and respects the
worth of the individuals and protects and preserves their dignity.

Day means calendar day unless specified otherwise.

Denied claim means a clean claim or a portion of a clean claim for which a
determination is made that the claim cannot be paid.

Disability means a physical or mental impairment that substantially limits one
or more of the major life activities of an individual.

Disability-related access means that facilities are readily accessible to and
usable by individuals with disabilities, and that auxiliary aids and services
are provided to ensure effective communication, in compliance with Title III of
the Americans with Disabilities Act.

DSM-IV means the Diagnostic and Statistical Manual of Mental Disorders, Fourth
Edition, which is the American Psychiatric Association's official
classification of behavioral health disorders.

ECI means Early Childhood Intervention which is a federally mandated program
for infants and children under the age of three with or at risk for development
delays and/or disabilities. The federal ECI regulations are found at 34 C.F.R.
303.1 et seq. The State ECI rules are found at 25 TAC Section 621.21 et seq.

Effective date means the date on which TDH signs the contract following
signature of the contract by HMO.

Emergency behavioral health condition means any condition, without regard to
the nature or cause of the condition, which in the opinion of a prudent
layperson possessing an average knowledge of health and medicine requires
immediate intervention and/or medical attention without which Members would
present an immediate danger to themselves or others or which renders Members
incapable of controlling, knowing or understanding the consequences of their
actions.

Emergency services means covered inpatient and outpatient services that are
furnished by a

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<PAGE>   13

provider that is qualified to furnish such services under this contract and are
needed to evaluate or stabilize an emergency medical condition and/or an
emergency behavioral health condition.

Emergency Medical Condition means a medical condition manifesting itself by
acute symptoms of sufficient severity (including severe pain), such that a
prudent layperson, who possesses an average knowledge of health and medicine,
could reasonably expect the absence of immediate medical care could result in:

     (a)  placing the patient's health in serious jeopardy;

     (b)  serious impairment to bodily functions;

     (c)  serious dysfunction of any bodily organ or part;

     (d)  serious disfigurement; or

     (e)  in the case of a pregnant woman, serious jeopardy to the health of
          the fetus.

Encounter means a covered service or group of services delivered by a provider
to a Member during a visit between the Member and provider. This also includes
value-added services.

Encounter data means data elements from fee-for-service claims or capitated
services proxy claims that are submitted to TDH by HMO in accordance with TDH's
"HMO Encounter Data Claims Submission Manual".

Enrollment Broker means an entity contracting with TDH to carry out specific
functions related to Member services (i.e., enrollment/disenrollment,
complaints, etc.) under TDH's Medicaid managed care program.

Enrollment report means the list of Medicaid recipients who are enrolled with
an HMO as Members for the month the report was issued.

EPSDT means the federally mandated Early and Periodic Screening, Diagnosis and
Treatment program contained at 42 USC 1396d(r) (see definition for Texas Health
Steps). The name has been changed to Texas Health Steps (THSteps) in the State
of Texas.

Experience Rebate means excess of allowable HMO STAR revenues over allowable
HMO STAR expenses.

Fair Hearing means the process adopted and implemented by the Texas Department
of Health, 25 TAC Chapter 1, in compliance with federal regulations and state
rules relating to Medicaid Fair Hearings found at 42 CFR Part 431, Subpart E,
and 1 TAC, Chapter 357.

FQHC means a Federally Qualified Health Center that has been certified by HCFA
to meet the requirements of Section 1861(aa)(3) of the Social Security Act as a
federally qualified health center and is enrolled as a provider in the Texas
Medicaid program.

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<PAGE>   14


Fraud means an intentional deception or misrepresentation made by a person with
the knowledge that the deception could result in some unauthorized benefit to
himself or some other person. It includes any act that constitutes fraud under
applicable federal or state law.

HCFA means the federal Health Care Financing Administration.

Health care services means medically necessary physical medicine, behavioral
health care and health-related services which an enrolled population might
reasonably require in order to be maintained in good health, including, as a
minimum, emergency care and inpatient and outpatient services.

Implementation Date means the first date that Medicaid managed care services
are delivered to Members in a service area.

Inpatient stay means at least a 24-hour stay in a facility licensed to provide
hospital care.

JCAHO means Joint Commission on Accreditation of Health Care Organizations.

Linguistic access means translation and interpreter services, for written and
spoken language to ensure effective communication. Linguistic access includes
sign language interpretation, and the provision of other auxiliary aids and
services to persons with disabilities.

Local Health Department means a local health department established pursuant to
Health and Safety Code, Title 2, Local Public Health Reorganization Act Section
121.031.

Local Mental Health Authority (LMHA) means an entity to which the TXMHMR board
delegates its authority and responsibility within a specified region for
planning, policy development, coordination, and resource development and
allocation and for supervising and ensuring the provision of mental health care
services to persons with mental illness in one or more local service areas.

Major life activities means functions such as caring for oneself, performing
manual tasks, walking, seeing, hearing, speaking, breathing, learning, and
working.

Major population group means any population which represents at least 10% of
the Medicaid population in any of the counties in the service area served by
the Contractor.

Medical home means a primary or specialty care provider who has accepted the
responsibility for providing accessible, continuous, comprehensive and
coordinated care to Members participating in TDH's Medicaid managed care
program.

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<PAGE>   15


Medically necessary behavioral health care services means those behavioral
health care services which:

(a)  are reasonable and necessary for the diagnosis or treatment of a mental
     health or chemical dependency disorder or to improve or to maintain or to
     prevent deterioration of functioning resulting from such a disorder;

(b)  are in accordance with professionally accepted clinical guidelines and
     standards of practice in behavioral health care;

(c)  are furnished in the most appropriate and least restrictive setting in
     which services can be safely provided;

(d)  are the most appropriate level or supply of service which can safely be
     provided; and

(e)  could not be omitted without adversely affecting the Member's mental
     and/or physical health or the quality of care rendered.

Medically necessary health care services means health care services, other than
behavioral health care services which are:

(a)  reasonable and necessary to prevent illnesses or medical conditions, or
     provide early screening, interventions, and/or treatments for conditions
     that cause suffering or pain, cause physical deformity or limitations in
     function, threaten to cause or worsen a handicap, cause illness or
     infirmity of a Member, or endanger life;

(b)  provided at appropriate facilities and at the appropriate levels of care
     for the treatment of a Member's health conditions;

(c)  consistent with health care practice guidelines and standards that are
     endorsed by professionally recognized health care organizations or
     governmental agencies;

(d)  consistent with the diagnoses of the conditions; and

(e)  no more intrusive or restrictive than necessary to provide a proper
     balance of safety, effectiveness, and efficiency.

Member means a person who: is entitled to benefits under Title XIX of the
Social Security Act and the Texas Medical Assistance Program (Medicaid), is in
a Medicaid eligibility category included in the STAR Program, and is enrolled
in the STAR Program.

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<PAGE>   16


Member month means one Member enrolled with an HMO during any given month. The
total Member months for each month of a year comprise the annual Member months.

Mental health priority population means those individuals served by TXMHMR who
meet the definition of the priority population. The priority population for
mental health care services is defined as:

     Children and adolescents under the age of 18 who have a diagnosis of
     mental illness who exhibit severe emotional or social disabilities which
     are life-threatening or require prolonged intervention.

     Adults who have severe and persistent mental illnesses such as
     schizophrenia, major depression, manic depressive disorder, or other
     severely disabling mental disorders which require crisis resolution or
     ongoing and long-term support and treatment.

MIS means management information system.

Non-provider subcontracts means contracts between HMO and a third party which
performs a function, excluding delivery of health care services, that HMO is
required to perform under its contract with TDH.

Pended claim means a claim for payment which requires additional information
before the claim can be adjudicated as a clean claim.

Performance premium means an amount which may be paid to a managed care
organization as a bonus for accomplishing a portion or all of the performance
objectives contained in this contract.

Premium means the amount paid by TDH to a managed care organization on a
monthly basis and is determined by multiplying the Member months times the
capitation amount for each enrolled Member.

Primary care physician or primary care provider (PCP) means a physician or
provider who has agreed with HMO to provide a medical home to Members and who
is responsible for providing initial and primary care to patients, maintaining
the continuity of patient care, and initiating referral for care (also see
Medical home).

Provider means an individual or entity and its employees and subcontractors
that directly provide health care services to HMO's Members under TDH's
Medicaid managed care program.

Provider contract means an agreement entered into by a direct provider of
health care services and HMO or an intermediary entity.

Proxy Claim Form means a form submitted by providers to document services
delivered to

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<PAGE>   17

Medicaid Members under a capitated arrangement. It is not a claim for payment.

Public information means information that is collected, assembled, or
maintained under a law or ordinance or in connection with the transaction of
official business by a governmental body or for a governmental body and the
governmental body owns the information or has a right of access.

Real Time Captioning (also known as CART, Communication Access Real-Time
Translation) means a process by which a trained individual uses a shorthand
machine, a computer, and real-time translation software to type and
simultaneously translate spoken language into text on a computer screen. Real
Time Captioning is provided for individuals who are deaf, have hearing
impairments, or have unintelligible speech; and it is usually used to interpret
spoken English into text English but may be used to translate other spoken
languages into text.

Renewal Review means a review process conducted by TDH or its agent(s) to
assess HMO's capacity and capability to perform the duties and responsibilities
required under the Contract. This process is required by Texas Government Code
Section 533.007.

RFA means Request For Application issued by TDH for the initial procurement in
the service area and all RFA addenda, corrections or modifications.

Risk means the potential for loss as a result of expenses and costs of HMO
exceeding payments made by TDH under this contract.

Rural Health Clinic (RHC) means an entity that meets all of the requirements
for designation as a rural health clinic under Section 1861(aa)(1) of the
Social Security Act and approved for participation in the Texas Medicaid
Program.

SED means severe emotional disturbance as determined by a local mental health
authority.

Service area means the counties included in a site selected for the STAR
Program, within which a participating HMO must provide services.

SPMI means severe and persistent mental illness as determined by the Local
Mental Health Authority.

Significant traditional provider (STP) means all hospitals receiving
disproportionate share hospital funds (DSH) in FY '96 and all other providers
in a county that, when listed by provider type in descending order by the
number of recipient encounters, provided the top 80 percent of recipient
encounters for each provider type in FY '96.

Special hospital means an establishment that:

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<PAGE>   18



(a)  offers services, facilities, and beds for use for more than 24 hours for
     two or more unrelated individuals who are regularly admitted, treated, and
     discharged and who require services more intensive than room, board,
     personal services, and general nursing care;

(b)  has clinical laboratory facilities, diagnostic x-ray facilities, treatment
     facilities, or other definitive medical treatment;

(c)  has a medical staff in regular attendance; and

(d)  maintains records of the clinical work performed for each patient.

STAR Program is the name of the State of Texas Medicaid managed care program.
"STAR" stands for the State of Texas Access Reform.

State fiscal year means the 12-month period beginning on September 1 and ending
on August 31 of the next year.

Subcontract means any written agreement between HMO and other party to fulfill
the requirements of this contract. All subcontracts are required to be in
writing.

Subcontractor means any individual or entity which has entered into a
subcontract with HMO.

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

TCADA means Texas Commission on Alcohol and Drug Abuse, the State agency
responsible for licensing chemical dependency treatment facilities. TCADA also
contracts with providers to deliver chemical dependency treatment services.

Texas Children's Mental Health Plan (TCMHP) means the interagency, State-funded
initiative that plans, coordinates, provides and evaluates service systems for
children and adolescents with behavioral health needs. The Plan is operated at
a state and local level by Community Management Teams representing the major
child-serving state agencies.

TDD means telecommunication device for the deaf. It is interchangeable with the
term Teletype machine or TTY.

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

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<PAGE>   19

TDI means the Texas Department of Insurance.

TDMHMR means the Texas Department of Mental Health and Mental Retardation,
which is the State agency responsible for developing mental health policy for
public and private sector providers.

Temporary Assistance to Needy Families (TANF) means the federally funded
program that provides assistance to single-parent families with children who
meet the categorical requirements for aid. This program was formerly known as
Aid to Families with Dependent Children (AFDC) program.

Texas Health Steps (THSteps) is the name adopted by the State of Texas for the
federally mandated Early and Periodic Screening, Diagnosis and Treatment
(EPSDT) program. It includes the State's Comprehensive Care Program extension
to EPSDT, which adds benefits to the federal EPSDT requirements contained in 42
United States Code '1396d(r), and defined and codified at 42 C.F.R. Section
440.40 and Sections 441.56-62. TDH's rules are contained in 25 TAC, Chapter 33
(relating to Early and Periodic Screening, Diagnosis and Treatment).

Texas Medicaid Provider Procedures Manual means the policy and procedures
manual published by or on behalf of TDH which contains policies and procedures
required of all health care providers who participate in the Texas Medicaid
program. The manual is published annually and is updated bi-monthly by the
Medicaid Bulletin.

Texas Medicaid Service Delivery Guide means an attachment to the Texas Medicaid
Provider Procedures Manual.

THHSC means the Texas Health and Human Services Commission.

Third Party Liability (TPL) means the legal responsibility of another
individual or entity to pay for all or part of the services provided to Members
under this contract (see 25 TAC, Subchapter 28, relating to Third Party
Resources).

Third Party Recovery (TPR) means the recovery of payments made on behalf of a
Member by TDH or HMO from an individual or entity with the legal responsibility
to pay for the services.

TXMHMR means Texas Mental Health and Mental Retardation system which includes
the state agency, TDMHMR, and the Local Mental Health and Mental Retardation
Authorities.

Unclean claim means a claim that does not contain accurate and complete data in
all claim fields that are required by HMO and TDH and other HMO-published
requirements for adjudication, such as medical records, as appropriate (see
definition of Clean Claim).

Urgent behavioral health situations means conditions which require attention
and assessment

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<PAGE>   20

within 24 hours but which do not place the Member in immediate danger to
themselves or others and the Member is able to cooperate with treatment.


Urgent condition means a health condition, including an urgent behavioral
health situation, which is not an emergency but is severe or painful enough to
cause a prudent layperson, possessing the average knowledge of medicine, to
believe that his or her condition requires medical treatment evaluation or
treatment within 24 hours by the Member's PCP or PCP designee to prevent
serious deterioration of the Member's condition or health.

Value-added services means a service that the state has approved to be included
in this contract for which HMO does not receive capitation.

ARTICLE III         PLAN ADMINISTRATIVE AND HUMAN RESOURCE
              REQUIREMENTS

3.1           ORGANIZATION AND ADMINISTRATION

3.1.1         HMO must maintain the organizational and administrative capacity
          and capabilities to carry out all duties and responsibilities under
          this contract.

3.1.2         HMO must maintain assigned staff with the capacity and capability
          to provide all services to all Members under this contract.

3.1.3         HMO must maintain an administrative office in the service area
          (local office). The local office must comply with the American with
          Disabilities Act (ADA) requirements for public buildings. Member
          Advocates for the service area must be located in this office (see
          Article 8.8).

3.1.4         HMO must provide training and development programs to all
          assigned staff to ensure they know and understand the service
          requirements under this contract including the reporting
          requirements, the policies and procedures, cultural and linguistic
          requirements and the scope of services to be provided.

3.1.5         HMO must notify TDH no later than 30 days after the effective
          date of this contract of any changes in its organizational chart as
          previously submitted to TDH.

3.1.5.1       HMO must notify TDH within fifteen (15) working days of any
          change in key managers or behavioral health subcontractors. This
          information must be updated whenever there is a significant change in
          organizational structure or

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<PAGE>   21

          personnel.

3.1.6         Participation in Regional Advisory Committee.  HMO must
          participate on a Regional Advisory Committee established in the
          service area in compliance with the Texas Government Code, Sections
          533.021-533.029.  The Regional Advisory Committee in each managed
          care service area must include representatives from at least the
          following entities: hospitals; managed care organizations; primary
          care providers; state agencies; consumer advocates; Medicaid
          recipients; rural providers; long-term care providers; specialty care
          providers, including pediatric providers; and political subdivisions
          with a constitutional or statutory obligation to provide health care
          to indigent patients.  THHSC and TDH will determine the composition
          of each Regional Advisory Committee.

3.1.6.1       The Regional Advisory Committee is required to meet at least
          quarterly for the first year after appointment of the committee and
          at least annually in subsequent years. The actual frequency may vary
          depending on the needs and requirements of the committee.

3.2           NON-PROVIDER SUBCONTRACTS

3.2.1         HMO must enter into written contracts with all subcontractors and
          maintain copies of the subcontracts in HMO's administrative office.
          HMO must submit two copies of all non-provider subcontracts to TDH
          for approval no later than 60 days after the effective date of this
          contract, unless the subcontract has already been submitted to and
          approved by TDH. Subcontracts entered into after the effective date
          of this contract must be submitted no later than 30 days prior to the
          date of execution of the subcontract.  HMO must also make
          non-provider subcontracts available to TDH upon request, at the time
          and location requested by TDH.

3.2.1.1   TDH HAS 15 WORKING DAYS TO REVIEW THE SUBCONTRACT AND RECOMMEND ANY
          SUGGESTIONS OR REQUIRED CHANGES. IF TDH HAS NOT RESPONDED TO HMO BY
          THE FIFTEENTH DAY, HMO MAY EXECUTE THE SUBCONTRACT. TDH RESERVES THE
          RIGHT TO REQUEST HMO TO MODIFY ANY SUBCONTRACT THAT HAS BEEN DEEMED
          APPROVED.

3.2.1.2       HMO must notify TDH no later than 90 days prior to terminating
          any subcontract affecting a major performance function of this
          contract. All major subcontractor terminations or substitutions
          require TDH approval (see Article 15.7).  TDH may require HMO to
          provide a transition plan describing how the subcontracted function
          will continue to be provided.  All subcontracts are subject to the
          terms and conditions of this contract and must contain the provisions
          of

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<PAGE>   22

          Article V, Statutory and Regulatory Compliance, and the provisions
          contained in Article 3.2.4.

3.2.2         Subcontracts which are requested by any agency with authority to
          investigate and prosecute fraud and abuse must be produced at the
          time and in the manner requested by the requesting Agency.
          Subcontracts requested in response to a Public Information request
          must be produced within 3 working days from TDH's notification to HMO
          of the request.  All requested records must be provided
          free-of-charge.

3.2.3         The form and substance of all subcontracts including subsequent
          amendments are subject to approval by TDH.  TDH retains the authority
          to reject or require changes to any provisions of the subcontract
          that do not comply with the requirements or duties and
          responsibilities of this contract or create significant barriers for
          TDH in carrying out its duty to monitor compliance with the contract.
          HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES
          AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
          RESPONSIBILITY OR SERVICE IS SUBCONTRACTED TO ANOTHER.

3.2.4         HMO and all intermediary entities must include the following
          standard language in each subcontract and ensure that this language
          is included in all subcontracts down to the actual provider of the
          services. The following standard language is not the only language
          that will be considered acceptable by TDH.

3.2.4.1       [Contractor] understands that services provided under this
          contract are funded by state and federal funds under the Texas
          Medical Assistance Program (Medicaid).  [Contractor] is subject to
          all state and federal laws, rules and regulations that apply to
          persons or entities receiving state and federal funds.  [Contractor]
          understands that any violation by [Contractor] of a state or federal
          law relating to the delivery of services under this contract, or any
          violation of the TDH/HMO contract could result in liability for
          contract money damages, and/or civil and criminal penalties and
          sanctions under state and federal law.

3.2.4.2       [Contractor] understands and agrees that HMO has the sole
          responsibility for payment of services rendered by the [Contractor]
          under this contract. In the event of HMO insolvency or cessation of
          operations, [Contractor's] sole recourse is against HMO through the
          bankruptcy or receivership estate of HMO.

3.2.4.3       [Contractor] understands and agrees that TDH is not liable or
          responsible for payment for any services provided under this
          contract.

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<PAGE>   23


3.2.4.4       [Contractor] agrees that any modification, addition, or deletion
          of the provisions of this agreement will become effective no earlier
          than 30 days after HMO notifies TDH of the change. If TDH does not
          provide written approval within 30 days from receipt of notification
          from HMO, changes may be considered provisionally approved.

3.2.4.5       This contract is subject to state and federal fraud and abuse
          statutes.  [Contractor] will be required to cooperate in the
          investigation and prosecution of any suspected fraud or abuse, and
          must provide any and all requested originals and copies of records
          and information, free-of-charge on request, to any state or federal
          agency with authority to investigate fraud and abuse in the Medicaid
          program.

3.2.5         The Texas Medicaid Fraud Control Unit must be allowed to conduct
          private interviews of HMO personnel, subcontractors and their
          personnel, witnesses, and patients.  Requests for information are to
          be complied with, in the form and the language requested.  HMO
          employees and Contractors and subcontractors and their employees and
          Contractors must cooperate fully in making themselves available in
          person for interviews, consultation, grand jury proceedings, pretrial
          conference, hearings, trial and in any other process, including
          investigations.  Compliance with this Article is at HMO's and
          subcontractors' own expense.

3.3           MEDICAL DIRECTOR

3.3.1         HMO must have the equivalent of a full-time Medical Director
          licensed under the Texas State Board of Medical Examiners (M.D. or
          D.O.). HMO must have a written job description describing the Medical
          Director's authority, duties and responsibilities as follows:

3.3.1.1       Ensure that medical necessity decisions, including prior
          authorization protocols, are rendered by qualified medical personnel
          and are based on TDH's definition of medical necessity, and is in
          compliance with the Utilization Review Act and 21.58a of the Texas
          Insurance Code.

3.3.1.2       Oversight responsibility of network providers to ensure that all
          care provided complies with the generally accepted health standards
          of the community.

3.3.1.3       Oversight of HMO's quality improvement process, including
          establishing and actively participating in HMO's quality improvement
          committee, monitoring Member health status, HMO utilization review
          policies and standards and patient outcome measures.

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<PAGE>   24


3.3.1.4       Identify problems and develop and implement corrective actions to
          quality improvement process.

3.3.1.5       Develop, implement and maintain responsibility for HMO's medical
          policy.

3.3.1.6       Oversight responsibility for medically related complaints.

3.3.1.7       Participate and provide witnesses and testimony on behalf of HMO
          in the TDH Fair Hearing process.

3.3.2         The Medical Director must exercise independent medical judgement
          in all medical necessity decisions. HMO must ensure that medical
          necessity decisions are not adversely influenced by fiscal management
          decisions. TDH may conduct reviews of medical necessity decisions by
          HMO Medical Director at any time.

3.4           PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS

3.4.1         HMO must receive written approval from TDH for all updated
          written materials, produced or authorized by HMO, containing
          information about the STAR Program prior to distribution to Members,
          prospective Members, providers within HMO's network, or potential
          providers who HMO intends to recruit as network providers. This
          includes Member education materials.

3.4.2         Member materials must meet cultural and linguistic requirements
          as stated in Article VIII.  Unless otherwise required, Member
          materials must be written at a 4th - 6th grade reading comprehension
          level; and translated into the language of any major population
          group, except when TDH requires HMO to use statutory language (i.e.,
          advance directives, medical necessity, etc.).

3.4.3         All materials regarding the STAR Program, including Member
          education materials, must be submitted to TDH for approval prior to
          distribution.  TDH has 15 working days to review the materials and
          recommend any suggestions or required changes. If TDH has not
          responded to HMO by the fifteenth day, HMO may print and distribute
          these materials.  TDH reserves the right to request HMO to modify
          plan materials that are deemed approved and have been printed or
          distributed.  These modifications can be made at the next printing
          unless substantial non-compliance exists.  An exception to the 15
          working day timeframe may be requested in writing by HMO for written
          provider materials that require a quick turn-around time (e.g.,
          letters).  These materials will be reviewed by TDH within 5 working
          days.

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<PAGE>   25


3.4.4         HMO must forward approved English versions of their Member
          Handbook, Member Provider Directory, newsletters, individual Member
          letters, and any written information that applies to
          Medicaid-specific services to DHS for DHS to translate into Spanish.
          DHS must provide the written and approved translation into Spanish to
          HMO no later than 15 working days after receipt of the English
          version by DHS. HMO must incorporate the approved translation into
          these materials.  If DHS has not responded to HMO by the fifteenth
          day, HMO may print and distribute these materials.  TDH reserves the
          right to require revisions to materials if inaccuracies are
          discovered or if changes are required by changes in policy or law.
          These changes can be made at the next printing unless substantial
          non-compliance exists.  HMO has the option of using the DHS
          translation unit or their own translators for health education
          materials that do not contain Medicaid-specific information and for
          other marketing materials such as billboards, radio spots, and
          television and newspaper advertisements.

3.4.5         HMO must reproduce all written instructional, educational, and
          procedural documents required under this contract and distribute them
          to its providers and Members. HMO must reproduce and distribute
          instructions and forms to all network providers who have reporting
          and audit requirements under this contract.

3.4.6         HMO must provide TDH with at least three paper copies and one
          electronic copy of their Member Handbook, Provider Manual and Member
          Provider Directory. If an electronic format is not available, five
          paper copies are required.

3.4.7         Changes to the Required Critical Elements for the Member
          Handbook, Provider Manual, and Provider Directory may be handled as
          inserts until the next printing of these documents.

3.5           RECORDS REQUIREMENTS AND RECORDS RETENTION

3.5.1         HMO must keep all records required to be created and retained
          under this contract. Records related to Members served in this
          service area must be made available in HMO's local office when
          requested by TDH.  All records must be retained for a period of five
          (5) years unless otherwise specified in this contract. Original
          records must be kept in the form they were created in the regular
          course of business for a minimum of two (2) years following the end
          of the contract period.  Microfilm, digital or electronic records may
          be substituted for the original records after the first two (2)
          years, if the retention system is reliable and supported by a
          retrieval system which allows reasonable access to the records.  All
          copies of original records must be made using guidelines and
          procedures approved by TDH, if the original documents will no longer
          be available or

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<PAGE>   26

          accessible.

3.5.2         Availability and Accessibility.  All records, documents and data
          required to be created under this contract are subject to audit,
          inspection and production.  If an audit, inspection or production is
          requested by TDH, TDH's designee or TDH acting on behalf of any
          agency with regulatory or statutory authority over Medicaid Managed
          Care, the requested records must be made available at the time and at
          the place the records are requested.  Copies of requested records
          must be produced or provided free-of-charge to the requesting agency.
          Records requested after the second year following the end of contract
          term that have been stored or archived must be accessible and made
          available within 10 calendar days from the date of a request by TDH
          or the requesting agency or at a time and place specified by the
          requesting entity.

3.5.3         Accounting Records.  HMO must create and keep accurate and
          complete accounting records in compliance with Generally Accepted
          Accounting Principles (GAAP).  Records must be created and kept for
          all claims payments, refunds and adjustment payments to providers,
          premium or capitation payments, interest income and payments for
          administrative services or functions.  Separate records must be
          maintained for medical and administrative fees, charges, and
          payments.

3.5.4         General Business Records. HMO must create and keep complete and
          accurate general business records to reflect the performance of
          duties and responsibilities, and compliance with the provisions of
          this contract.

3.5.5         Medical Records.  HMO must require, through contractual
          provisions or provider manual, providers to create and keep medical
          records in compliance with the medical records standards contained in
          the Standards for Quality Improvement Programs in Appendix A.  All
          medical records must be kept for at least five (5) years, except for
          records of rural health clinics, which must be kept for a period of
          six (6) years from the date of service.

3.5.6         Matters in Litigation. HMO must keep records related to matters
          in litigation for five (5) years following the termination or
          resolution of the litigation.

3.5.7         On-line Retention of Claims History. HMO must keep automated
          claims payment histories for a minimum of 18 months from date of
          adjudication in an on-line inquiry system. HMO must also keep
          sufficient history on-line to ensure all claim/encounter service
          information is submitted to and accepted by TDH for processing.

3.6           HMO REVIEW OF TDH MATERIALS

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<PAGE>   27


          TDH will submit all studies or audits that relate or refer to HMO for
          review and comment to HMO 10 working days prior to releasing the
          report to the public or to Members.

3.7           HMO TELEPHONE ACCESS REQUIREMENTS

          HMO must ensure that HMO has adequately-staffed telephone lines.
          Telephone personnel must receive customer service telephone training.
          HMO must ensure that telephone staffing is adequate to fulfill the
          standards of promptness and quality listed below:

          1.  80% of all telephone calls must be answered within an average of
              30 seconds;

          2.  The lost (abandonment) rate must not exceed 10%;

          3.  HMO cannot impose maximum call duration limits but must allow
              calls to be of sufficient length to ensure adequate information
              is provided to the Member or Provider.

ARTICLE IV          FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

4.1           FISCAL SOLVENCY

4.1.1         HMO must be and remain in full compliance with all state and
          federal solvency requirements for HMOs, including but not limited to
          all reserve requirements, net worth standards, debt-to-equity ratios,
          or other debt limitations.

4.1.2         If HMO becomes aware of any impending changes to its financial or
          business structure which could adversely impact its compliance with
          these requirements or its ability to pay its debts as they come due,
          HMO must notify TDH immediately in writing.  If HMO becomes aware of
          a take-over or assignment which would require the approval of TDI or
          TDH, HMO must notify TDH immediately in writing.

4.1.3         HMO must not have been placed under state conservatorship or
          receivership or filed for protection under federal bankruptcy laws.
          None of HMO's property, plant or equipment must have been subject to
          foreclosure or repossession within the preceding 10-year period.  HMO
          must not have any debt declared in default and accelerated to
          maturity within the preceding 10-year


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<PAGE>   28

          period.  HMO represents that these statements are true as of the
          contract effective date.  HMO must inform TDH within 24 hours of a
          change in any of the preceding representations.

4.2           MINIMUM NET WORTH

4.2.1         HMO has minimum net worth to the greater of (a) $1,500,000; (b)
          an amount equal to the sum of twenty-five dollars ($25) times the
          number of all enrollees including Medicaid Members; or (c) an amount
          that complies with standards adopted by TDI. Minimum net worth means
          the excess total admitted assets over total liabilities, excluding
          liability for subordinated debt issued in compliance with Article
          1.39 of the Insurance Code.

4.2.2         The minimum equity must be maintained during the entire contract
          period.

4.3           PERFORMANCE BOND

          HMO has furnished TDH with a performance bond in the form prescribed
          by TDH and approved by TDI, naming TDH as Obligee, securing HMO's
          faithful performance of the terms and conditions of this contract.
          The performance bond has been issued in the amount of $100,000 for a
          two year period (contract period). If the contract is renewed or
          extended under Article XVIII, a separate bond will be required for
          each additional term of the contract. The bond has been issued by a
          surety licensed by TDI, and specifies cash payment as the sole
          remedy. Performance Bond requirements under this Article must comply
          with Texas Insurance Code Section 11.1805, relating to Performance
          and Fidelity Bonds. The bond must be delivered to TDH at the same
          time the signed HMO contract is delivered to TDH.

4.4           INSURANCE

4.4.1         HMO must maintain, or cause to be maintained, general liability
          insurance in the amounts of at least $1,000,000 per occurrence and
          $5,000,000 in the aggregate.

4.4.2         HMO must maintain or require professional liability insurance on
          each of the providers in its network in the amount of $100,000 per
          occurrence and $300,000 in the aggregate, or the limits required by
          the hospital at which the network provider has admitting privileges.

4.4.3         HMO must maintain an umbrella professional liability insurance
          policy for the greater of $3,000,000 or an amount (rounded to the
          next $100,000) which represents the number of STAR Members enrolled
          in HMO in the first month of

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          the contract year multiplied by $150, not to exceed $10,000,000.

4.4.4         Any exceptions to the requirements of this Article must be
          approved in writing by TDH prior to the effective date of this
          contract.  HMOs and providers who qualify as either state or federal
          units of government are exempt from the insurance requirements of
          this Article and are not required to obtain exemptions from these
          provisions prior to the effective date of this contract.  State and
          federal units of government are required to comply with and are
          subject to the provisions of the Texas or Federal Tort Claims Act.

4.5           FRANCHISE TAX

          HMO certifies that its payment of franchise taxes is current or that
          it is not subject to the State of Texas franchise tax.

4.6           AUDIT

4.6.1         TDH, TDI, or their designee have the right from time to time to
          examine and audit books and records of HMO, or its subcontractors,
          relating to:  (1) HMO's capacity to bear the risk of potential
          financial losses; (2) services performed or determination of amounts
          payable under this contract; (3) detection of fraud and abuse; and
          (4) other purposes TDH deems to be necessary to perform its
          regulatory function and/or to enforce the provisions of this
          contract.

4.6.2         TDH is required to conduct an audit of HMO at least once every
          three years. HMO is responsible for paying the costs of an audit
          conducted under this Article. The costs of the audit paid by HMO are
          allowable costs under this contract.

4.7           PENDING OR THREATENED LITIGATION

          HMO must require disclosure from subcontractors and network providers
          of all pending or potential litigation or administrative actions
          against the subcontractor or network provider and must disclose this
          information to TDH, in writing, prior to the execution of this
          contract. HMO must make reasonable investigation and inquiry that
          there is not pending or potential litigation or administrative action
          against the providers or subcontractors in HMO's provider network.
          HMO must notify TDH of any litigation which is initiated or
          threatened after the effective date of this contract within seven
          days of receiving service or becoming aware of the threatened
          litigation.

4.8           MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND

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          IN HMO OPERATIONS

4.8.1         HMO was awarded this contract based upon the responses and
          representations contained in HMO's application submitted in response
          to TDH's RFA. All responses and representations upon which scoring
          was based were considered material to the decision of whether to
          award the contract to HMO.  RFA responses are incorporated into this
          contract by reference.  The provisions of this contract control over
          any RFA response if there is a conflict between the RFA and this
          contract, or if changes in law or policy have changed the
          requirements of HMO contracting with TDH to provide Medicaid Managed
          Care.

4.8.2         This contract was awarded in part based upon HMO's representation
          of its current equity and financial ability to bear the risks under
          this contract.  TDH will consider any misrepresentations of HMO's
          equity, HMO's ability to bear financial risks of this contract or
          inflating the equity of HMO, solely for the purpose of being awarded
          this contract, a material misrepresentation and fraud under this
          contract.

4.8.3         Discovery of any material misrepresentation or fraud on the part
          of HMO in HMO's application or in HMO's day-to-day activities and
          operations may cause this contract to terminate and may result in
          legal action being taken against HMO under this contract, and state
          and federal civil and criminal laws.

4.9           THIRD PARTY RECOVERY

4.9.1         Third Party Recovery.  All Members are required to assign their
          rights to any benefits to the State and agree to cooperate with the
          State in identifying third parties who may be liable for all or part
          of the costs for providing services to the Member, as a condition for
          participation in the Medicaid program.  HMO is authorized to act as
          the State's agent in enforcing the State's rights to third party
          recovery under this contract.

4.9.2         Identification.  HMO must develop and implement systems and
          procedures to identify potential third parties who may be liable for
          payment of all or part of the costs for providing medical services to
          Members under this contract.  Potential third parties must include
          any of the sources identified in 42 C.F.R. 433.138, relating to
          identifying third parties, except workers' compensation, uninsured
          and underinsured motorist insurance, first and third party liability
          insurance and tortfeasors.  HMO must coordinate with TDH to obtain
          information from other state and federal agencies and HMO must
          cooperate with TDH in obtaining information from commercial third
          party resources.  HMO must require all providers to comply with the
          provisions of 25 TAC Section 28, relating to Third Party

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          Recovery in the Medicaid program.

4.9.3         Exchange of Identified Resources.  HMO must forward identified
          resources of uninsured and underinsured motorist insurance, first and
          third party liability insurance and tortfeasors ("excepted
          resources") to TDH for TDH to pursue collection and recovery from
          these resources. TDH will forward information on all third party
          resources identified by TDH to HMO.  HMO must coordinate with TDH to
          obtain information from other state and federal agencies, including
          HCFA for Medicare and the Child Support Enforcement Division of the
          Office of the Attorney General for medical support.  HMO must
          cooperate with TDH in obtaining and exchanging information from
          commercial third party resources.

4.9.4         Recovery.  HMO must actively pursue and collect from third party
          resources which have been identified, except when the cost of
          pursuing recovery reasonably exceeds the amount which may be
          recovered by HMO.  HMO is not required to, but may pursue recovery
          and collection from the excepted resources listed in Article 4.9.3.
          HMO must report the identity of these resources to TDH, even if HMO
          will pursue collection and recovery from the excepted resources.

4.9.4.1       HMO must provide third party resource information to network
          providers to whom individual Members have been assigned or who
          provide services to Members.  HMO must require providers to seek
          recovery from potential third party resources prior to seeking
          payment from HMO.  If network providers are paid capitation, HMO must
          either seek recovery from third party resources or account to TDH for
          all amounts received by network providers from third party resources.

4.9.4.2       HMO must prohibit network providers from interfering with or
          placing liens upon the State's right or HMO's right, acting as the
          State's agent, to recovery from third party resources.  HMO must
          prohibit network providers from seeking recovery in excess of the
          Medicaid payable amount or otherwise violating state and federal
          laws.

4.9.5         Retention. HMO may retain as income all amounts recovered from
          third party sources as long as recoveries are obtained in compliance
          with the contract and state and federal laws.

4.9.6         Accountability.  HMO must report all third party recovery efforts
          and amounts recovered as required in Article 12.1.12.  If HMO fails
          to pursue and recover from third parties no later than 180 days after
          the date of service, TDH may pursue third party recoveries and retain
          all amounts recovered without

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<PAGE>   32


          accounting to HMO for the amounts recovered.  Amounts recovered by
          TDH will be added to expected third party recoveries to reduce future
          capitation rates, except recoveries from those excepted third party
          resources listed in Article 4.9.3.

4.10          CLAIMS PROCESSING REQUIREMENTS

4.10.1        HMO and claims processing subcontractors must comply with TDH's
          Texas Managed Care Claims Manual (Claims Manual), which contains
          TDH's claims processing requirements. HMO must comply with any
          changes to the Claims Manual with appropriate notice of changes from
          TDH.

4.10.2        HMO must forward claims submitted to HMO in error to either: 1)
          the correct HMO if the correct HMO can be determined from the claim
          or is otherwise known to HMO; 2) the State's claims administrator; or
          3) the provider who submitted the claim in error, along with an
          explanation of why the claim is being returned.

4.10.3        HMO must not pay any claim submitted by a provider who has been
          excluded or suspended from the Medicare or Medicaid programs for
          fraud and abuse when HMO has knowledge of the exclusion or
          suspension.

4.10.4        All provider clean claims must be adjudicated (finalized as paid
          or denied adjudicated) within 30 days from the date the claim is
          received by HMO.  HMO must pay providers interest on a clean claim
          which is not adjudicated within 30 days from the date the claim is
          received by HMO or becomes clean at a rate of 1.5% per month (18%
          annual) for each month the clean claim remains unadjudicated. HMO
          will be held to a minimum performance level of 90% of all clean
          claims paid or denied within 30 days of receipt and 99% of all clean
          claims paid or denied within 90 days of receipt. Failure to meet
          these performance levels is a default under this contract and could
          lead to damages or sanctions as outlined in Article XVII.  The
          performance levels are subject to changes if required to comply with
          federal and state laws or regulations.

4.10.4.1  All claims and appeals submitted to HMO and claims processing
          subcontractors must be paid-adjudicated (clean claims),
          denied-adjudicated (clean claims), or denied for additional
          information (unclean claims) to providers within 30 days from the
          date the claim is received by HMO. Providers must be sent a written
          notice for each claim that is denied for additional information
          (unclean claims) identifying the claim, all reasons why the claim is
          being denied, the date the claim was received by HMO, all information
          required from the provider in order for HMO to adjudicate the claim,
          and the date by which the requested information must be received from
          the provider.

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4.10.4.2  Claims that are suspended (pended internally) must be subsequently
          paid-adjudicated, denied-adjudicated, or denied for additional
          information (pended externally) within 30 days from date of receipt.
          No claim can be suspended for a period exceeding 30 days from date of
          receipt of the claim.

4.10.4.3  HMO must identify each data field of each claim form that is required
          from the provider in order for HMO to adjudicate the claim. HMO must
          inform all network providers about the required fields no later than
          30 days prior to the effective date of the contract or as a provision
          within HMO/provider contract. Out-of-network providers must be
          informed of all required fields if the claim is denied for additional
          information. The required fields must include those required by HMO
          and TDH.

4.10.5        HMO is subject to Article XVI, Default and Remedies, for claims
          that are not processed on a timely basis as required by this contract
          and the Claims Manual.  Notwithstanding the provisions of Articles
          4.10.4, 4.10.4.1 and 4.10.4.2, HMO's failure to adjudicate (paid,
          denied, or external pended) at least ninety percent (90%) of all
          claims within thirty (30) days of receipt and ninety-nine percent
          (99%) within ninety (90) days of receipt for the contract year to
          date is a default under Article XVI of this contract.

4.10.6        HMO must comply with the standards adopted by the U.S. Department
          of Health and Human Services under the Health Insurance Portability
          and Accountability Act of 1996 submitting and receiving claims
          information through electronic data interchange (EDI) that allows for
          automated processing and adjudication of claims within two or three
          years, as applicable, from the date the rules promulgated under HIPAA
          are adopted.

4.10.7        For claims requirements regarding retroactive PCP changes for
          mandatory Members, see Article 7.8.12.2.

4.11          INDEMNIFICATION

4.11.1        HMO/TDH: HMO must agree to indemnify TDH and its agents for any
          and all claims, costs, damages and expenses, including court costs
          and reasonable attorney's fees, which are related to or arise out of:

4.11.1.1  Any failure, inability, or refusal of HMO or any of its network
          providers or other subcontractors to provide covered services;

4.11.1.2  Claims arising from HMO's, HMO's network provider's or other
          subcontractor's negligent or intentional conduct in not providing
          covered services; and

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<PAGE>   34

4.11.1.3  Failure, inability, or refusal of HMO to pay any of its network
          providers or subcontractors for covered services.

4.11.2        HMO/Provider: HMO is prohibited from requiring providers to
          indemnify HMO for HMO's own acts or omissions which result in damages
          or sanctions being assessed against HMO either under this contract or
          under state or federal law.

ARTICLE V           STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

5.1           COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS

5.1.1         HMO must know, understand and comply with all state and federal
          laws and regulations relating to the Texas Medicaid Program which
          have not been waived by HCFA.  HMO must comply with all rules
          relating to the Medicaid managed care program adopted by TDH, TDI,
          THHSC, TDMHMR and any other state agency delegated authority to
          operate or administer Medicaid or Medicaid managed care programs.

5.1.2         HMO must require, through contract provisions, that all network
          providers or subcontractors comply with all state and federal laws
          and regulations relating to the Texas Medicaid Program and all rules
          relating to the Medicaid managed care program adopted by TDH, TDI,
          THHSC, TDMHMR and any other state agency delegated authority to
          operate Medicaid or Medicaid Managed Care programs.

5.1.3         HMO must comply with the provisions of the Clean Air Act and the
          Federal Water Pollution Control Act, as amended, found at 42 C.F.R.
          7401, et seq. and 33 U.S.C. 1251, et seq., respectively.

5.2           PROGRAM INTEGRITY

5.2.1         HMO has not been excluded, debarred, or suspended from
          participation in any program under Title XVIII or Title XIX under any
          of the provisions of Section 1128(a) or (b) of the Social Security
          Act (42 USC Section 1320 a-7), or Executive Order 12549.  HMO must
          notify TDH within 3 days of the time it receives notice that any
          action is being taken against HMO or any person defined under the
          provisions of Section 1128(a) or (b) or any subcontractor, which
          could result in exclusion, debarment, or suspension of HMO or a
          subcontractor from the Medicaid program, or any program listed in
          Executive Order 12549.

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<PAGE>   35

5.2.2         HMO must comply with the provisions of, and file the
          certification of compliance required by the Byrd Anti-Lobbying
          Amendment, found at 31 U.S.C. 1352, relating to use of federal funds
          for lobbying for or obtaining federal contracts.

5.3           FRAUD AND ABUSE COMPLIANCE PLAN

5.3.1         This contract is subject to all state and federal laws and
          regulations relating to fraud and abuse in health care and the
          Medicaid program.  HMO must cooperate and assist TDH and THHSC and
          any other state or federal agency charged with the duty of
          identifying, investigating, sanctioning or prosecuting suspected
          fraud and abuse. HMO must provide originals and/or copies of all
          records and information requested and allow access to premises and
          provide records to TDH or its authorized agent(s), THHSC, HCFA, the
          U.S. Department of Health and Human Services, FBI, TDI, and the Texas
          Attorney General's Medicaid Fraud Control Unit.  All copies of
          records must be provided free of charge.

5.3.2         Compliance Plan.  HMO must submit to TDH for approval a written
          fraud and abuse compliance plan which is based on the Model
          Compliance Plan issued by the U.S. Department of Health and Human
          Services, the Office of Inspector General (OIG), no later than 30
          days after the effective date of the contract.  HMO must designate an
          officer or director in its organization who has the responsibility
          and authority for carrying out the provisions of its compliance plan.
          HMO must submit any updates or modifications in its compliance plan
          to TDH for approval at least 30 days prior to the modifications going
          into effect.  HMO's fraud and abuse compliance plan must:

5.3.2.1       ensure that all officers, directors, managers and employees know
          and understand the provisions of HMO's fraud and abuse compliance
          plan.

5.3.2.2       contain procedures designed to prevent and detect potential or
          suspected abuse and fraud in the administration and delivery of
          services under this contract.

5.3.2.3       contain provisions for the confidential reporting of plan
          violations to the designated person in HMO.

5.3.2.4       contain provisions for the investigation and follow-up of any
          compliance plan reports.

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<PAGE>   36

5.3.2.5       ensure that the identity of individuals reporting violations of
          the plan is protected.

5.3.2.6       contain specific and detailed internal procedures for officers,
          directors, managers and employees for detecting, reporting, and
          investigating fraud and abuse compliance plan violations.

5.3.2.7       require any confirmed or suspected fraud and abuse under state or
          federal law be reported to TDH, the Medicaid Program Integrity
          section of the Office of Investigations and Enforcement of the Texas
          Health and Human Services Commission, and/or the Medicaid Fraud
          Control Unit of the Texas Attorney General.

5.3.2.8       ensure that no individual who reports plan violations or
          suspected fraud and abuse is retaliated against.

5.3.3         Training.  HMO must designate executive and essential personnel
          to attend mandatory training in fraud and abuse detection, prevention
          and reporting.  The training will be conducted by the Office of
          Investigation and Enforcement, Health and Human Services Commission,
          and will be provided free of charge.  HMO must schedule and complete
          training no later than 90 days after the effective date of any
          updates or modification of the written Model Compliance Plan.

5.3.3.1       If HMO's personnel have attended OIE training prior to the
          effective date of this contract, they are not required to attend
          additional OIE training unless new training is required due to
          changes in federal and/or state law or regulations.  If additional
          OIE training is required, TDH will notify HMO to schedule this
          additional training.

5.3.3.2       If HMO updates or modifies its written fraud and abuse compliance
          plan, HMO must train its executive and essential personnel on these
          updates or modifications no later than 90 days after the effective
          date of the updates or modifications.

5.3.3.3       If HMO's executive and essential personnel change or if HMO
          employs additional executive and essential personnel, the new or
          additional personnel must attend OIE training within 90 days of
          employment by HMO.

5.3.4         HMO's failure to report potential or suspected fraud or abuse may
          result in sanctions, contract cancellation, or exclusion from
          participation in the Medicaid program.

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<PAGE>   37

5.3.5         HMO must allow the Texas Medicaid Fraud Control Unit and THHSC's
          Office of Investigations and Enforcement, to conduct private
          interviews of HMO's employees, subcontractors and their employees,
          witnesses, and patients.  Requests for information must be complied
          with in the form and the language requested.  HMO's employees and its
          subcontractors and their employees must cooperate fully and be
          available in person for interviews, consultation, grand jury
          proceedings, pre-trial conference, hearings, trial and in any other
          process.

5.3.6         Subcontractors.  HMO must submit the documentation described in
          Articles 5.3.6.1 through 5.3.6.3, in compliance with Texas Government
          Code Section 533.012, regarding any subcontractor providing health
          care services under this contract except for those providers who have
          re-enrolled as a provider in the Medicaid program as required by
          Section 2.07, Chapter 1153, Acts of the 75th Legislature, Regular
          Session, 1997, or who modified a contract in compliance with that
          section.  HMO must submit information in a format as specified by
          TDH. Documentation must be submitted no later than 120 days after the
          effective date of this contract.  Subcontracts entered into after the
          effective date of this contract must be submitted no later than 90
          days after the effective date of the subcontract.  The required
          documentation required under this provision is not subject to
          disclosure under Chapter 552, Government Code.

5.3.6.1       a description of any financial or other business relationship
          between HMO and its subcontractor;

5.3.6.2       a copy of each type of contract between HMO and its
          subcontractor;

5.3.6.3       a description of the fraud control program used by any
          subcontractor.

5.4           SAFEGUARDING INFORMATION

5.4.1         All Member information, records and data collected or provided to
          HMO by TDH or another State agency is protected from disclosure by
          state and federal law and regulations.  HMO may only receive and
          disclose information which is directly related to establishing
          eligibility, providing services and conducting or assisting in the
          investigation and prosecution of civil and criminal proceedings under
          state or federal law.  HMO must include a confidentiality provision
          in all subcontracts with individuals.

5.4.2         HMO is responsible for informing Members and providers regarding
          the provisions of 42 C.F.R. 431, Subpart F, relating to Safeguarding
          Information on Applicants and Recipients, and HMO must ensure that
          confidential information is

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<PAGE>   38

          protected from disclosure except for authorized purposes.

5.4.3         HMO must assist network PCPs in developing and implementing
          policies for protecting the confidentiality of AIDS and HIV-related
          medical information and an anti-discrimination policy for employees
          and Members with communicable diseases.  Also see Health and Safety
          Code, Chapter 85, Subchapter E, relating to the Duties of State
          Agencies and State Contractors.

5.4.4         HMO must require that subcontractors have mechanisms in place to
          ensure Member's (including minor's) confidentiality for family
          planning services.

5.5           NON-DISCRIMINATION

          HMO agrees to comply with and to include in all subcontracts a
          provision that the subcontractor will comply with each of the
          following requirements:

5.5.1         Title VI of the Civil Rights Act of 1964, Section 504 of the
          Rehabilitation Act of 1973, the Americans with Disabilities Act of
          1990, and all requirements imposed by the regulations implementing
          these acts and all amendments to the laws and regulations.  The
          regulations provide in part that no person in the United States shall
          on the grounds of race, color, national origin, sex, age, disability,
          political beliefs or religion be excluded from participation in, or
          denied, any aid, care, service or other benefits, or be subjected to
          any discrimination under any program or activity receiving federal
          funds.

5.5.2         Texas Health and Safety Code Section 85.113 (relating to
          workplace and confidentiality guidelines regarding AIDS and HIV).

5.5.3         The provisions of Executive Order 11246, as amended by 11375,
          relating to Equal Employment Opportunity.

5.5.4         HMO shall not discriminate with respect to participation,
          reimbursement, or indemnification as to any provider who is acting
          within the scope of the provider's license or certification under
          applicable State law, solely on the basis of such license or
          certification.  This requirement shall not be construed to prohibit
          HMO from including providers only to the extent necessary to meet the
          needs of HMO's Members or from establishing any measure designed to
          maintain quality and control costs consistent with HMO's
          responsibilities.

5.6           HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)

5.6.1         TDH is committed to providing procurement and contracting
          opportunities

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          to historically underutilized businesses (HUBs), under the provisions
          of Texas Government Code, Title 10, Subtitle D, Chapter 2161 and 1
          TAC Section 111.11(b) and 111.13(c)(7).  TDH requires its Contractors
          and subcontractors to make a good faith effort to assist HUBs in
          receiving a portion of the total contract value of this contract.

5.6.2         The HUB good faith effort goal for this contract is 18.1% of
          total premiums paid.  HMO agrees to make a good faith effort to meet
          or exceed this goal. HMO acknowledges it made certain good faith
          effort representations and commitments to TDH during the HUB good
          faith effort determination process.  HMO agrees to use its best
          efforts to abide by these representations and commitments during the
          contract period.

5.6.3         HMO is required to submit HUB quarterly reports to TDH as
          required in Article 12.11.

5.6.4         TDH will assist HMO in meeting the contracting and reporting
          requirements of this Article.

5.7           BUY TEXAS

          HMO agrees to "Buy Texas" products and materials when they are
          available at a comparable price and in a comparable period of time,
          as required by Section 48 of Article IX of the General Appropriations
          Act of 1995.

5.8           CHILD SUPPORT

5.8.1         The Texas Family Code Section 231.006 requires TDH to withhold
          contract payments from any for-profit entity or individual who is at
          least 30 days delinquent in child support obligations.  It is HMO's
          responsibility to determine and verify that no owner, partner, or
          shareholder who has at least at 25% ownership interest is delinquent
          in child support obligations.  HMO must attach a list of the names
          and Social Security numbers of all shareholders, partners or owners
          who have at least a 25% ownership interest in HMO.

5.8.2         Under Section 231.006 of the Family Code, the contractor
          certifies that the contractor is not ineligible to receive the
          specified grant, loan, or payment and acknowledges that this contract
          may be terminated and payment may be withheld if this certification
          is inaccurate.  A child support obligor who is more than 30 days
          delinquent in paying child support or a business entity in which the
          obligor is a sole proprietor, partner, shareholder, or owner with an
          ownership interest of at least 25% is not eligible to receive the
          specified grant, loan or payment.


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5.8.3         If TDH is informed and verifies that a child support obligor who
          is more than 30 days delinquent is a partner, shareholder, or owner
          with at least a 25% ownership interest, it will withhold any payments
          due under this contract until it has received satisfactory evidence
          that the obligation has been satisfied or that the obligor has
          entered into a written repayment request.

5.9           REQUESTS FOR PUBLIC INFORMATION

5.9.1         This contract and all network provider and subcontractor
          contracts are subject to public disclosure under the Public
          Information Act (Texas Government Code, Chapter 552).  TDH may
          receive Public Information requests related to this contract,
          information submitted as part of the compliance of the contract and
          HMO's application upon which this contract was awarded.  TDH agrees
          that it will promptly deliver a copy of any request for Public
          Information to HMO.

5.9.2         TDH may, in its sole discretion, request a decision from the
          Office of the Attorney General (AG opinion) regarding whether the
          information requested is excepted from required public disclosure.
          TDH may rely on HMO's written representations in preparing any AG
          opinion request, in accordance with Texas Government Code Section
          552.305. TDH is not liable for failing to request an AG opinion or
          for releasing information which is not deemed confidential by law, if
          HMO fails to provide TDH with specific reasons why the requested
          information is exempt from the required public disclosure.  TDH or
          the Office of the Attorney General will notify all interested parties
          if an AG opinion is requested.

5.9.3         If HMO believes that the requested information qualifies as a
          trade secret or as commercial or financial information, HMO must
          notify TDH--within three (3) working days of HMO's receipt of the
          request--of the specific text, or portions of text, which HMO claims
          is excepted from required public disclosure.  HMO is required to
          identify the specific provisions of the Public Information Act which
          HMO believes are applicable, and is required to include a detailed
          written explanation of how the exceptions apply to the specific
          information identified by HMO as confidential and excepted from
          required public disclosure.

5.10          NOTICE AND APPEAL

          HMO must comply with the notice requirements contained in 25 TAC
          Section 36.21, and the maintaining benefits and services contained in
          25 TAC Section 36.22, whenever HMO intends to take an action
          affecting the Member benefits and services under this contract. Also
          see the Member appeal requirements contained in Article 8.7 of this
          contract.

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ARTICLE VI          SCOPE OF SERVICES

6.1           SCOPE OF SERVICES

          HMO is paid capitation for all services included in the State of
          Texas Title XIX State Plan and the 1915(b) waiver application for the
          SDA currently filed and approved by HCFA, except those services which
          are specifically excluded and listed in Article 6.1.8 (non-capitated
          services).

6.1.1         HMO must pay for or reimburse for all covered services provided
          to mandatory-enrolled Members for whom HMO is paid capitation.

6.1.2         TDH must pay for or reimburse for all covered services provided
          to SSI voluntary Members who enroll with HMO on a voluntary basis. It
          is at HMO's discretion whether to provide value-added services to
          voluntary Members.

6.1.3         HMO must provide covered services described in the 1999 Texas
          Medicaid Provider Procedures Manual (Provider Procedures Manual),
          subsequent editions of the Provider Procedures Manual also in effect
          during the contract period, and all Texas Medicaid Bulletins which
          update the 1999 Provider Procedures Manual and subsequent editions of
          the Provider Procedures Manual published during the contract period.

6.1.4         Covered services are subject to change due to changes in federal
          law, changes in Texas Medicaid policy, and/or responses to changes in
          Medicine, Clinical protocols, or technology.

6.1.5         The STAR Program has obtained a waiver to the State Plan to
          include three enhanced benefits to all voluntary and mandatory STAR
          Members.  Two of these enhanced benefits removed restrictions which
          previously applied to Medicaid eligible individuals 21 years and
          older: the three-prescriptions per month limit; and, the 30-day spell
          of illness limit. One of these expanded the covered benefits to add
          an annual adult well check.

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6.1.6         Value-added Services. Value-added services that are approved by
          TDH during the contracting process are included in the Scope of
          Services under this contract. Value-added services are listed in
          Appendix C.

6.1.6.1       The approval request must include:

6.1.6.1.1 A detailed description of the service to be offered;

6.1.6.1.2 Identification of the category or group of Members eligible to receive
          the service if it is a type of service that is not appropriate for all
          Members. (HMO has the discretion to determine if voluntary Members are
          eligible for the value-added services);

6.1.6.1.3 Any limits or restrictions which apply to the service; and

6.1.6.1.4 A description of how a Member may obtain or access the service.

6.1.6.2       Value-added services can only be added or removed by written
          amendment of this contract. HMO cannot include a value-added service
          in any material distributed to Members or prospective Members until
          this contract has been amended to include that value-added service or
          HMO has received written approval from TDH pending finalization of
          the contract amendment.

6.1.6.2.1 If a value-added service is deleted by amendment, HMO must notify each
          Member that the service is no longer available through HMO, and HMO
          must revise all materials distributed to prospective Members to
          reflect the change in covered services.

6.1.6.3       Value-added services must be offered to all mandatory HMO Members,
          as indicated in Article 6.1.6.1.2, unless the contract is amended or
          the contract terminates.

6.1.7         HMO may offer additional benefits that are outside the scope of
          services of this contract to individual Members on a case-by-case
          basis, based on medical necessity, cost-effectiveness, and
          satisfaction and improved health/behavioral health status of the
          Member/Member family.

6.1.8          Non-Capitated Services. The following Texas Medicaid program
          services have been excluded from the services included in the
          calculation of HMO capitation rate:

               THSteps Dental (including Orthodontia)

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              Early Childhood Intervention Case Management/Service Coordination

              MHMR Targeted Case Management

              Mental Health Rehabilitation

              Pregnant Women and Infants Case Management

              THSteps Medical Case Management

              Texas School Health and Related Services

              Texas Commission for the Blind Case Management

              Tuberculosis Services Provided by TDH-approved providers (Directly
                    Observed Therapy and Contact Investigation)

              Vendor Drugs (out-of-office drugs)

              Medical Transportation

              TDHS Hospice Services

          Refer to relevant chapters in the Provider Procedures Manual and the
          Texas Medicaid Bulletins for more information.

          Although HMO is not responsible for paying or reimbursing for these
          non-capitated services, HMO remains responsible for providing
          appropriate referrals for Members to obtain or access these services.

6.1.8.1       HMO is responsible for informing providers that all non-capitated
          services must be submitted to TDH for payment or reimbursement.

6.2           PRE-EXISTING CONDITIONS

          HMO is responsible for providing all covered services to each
          eligible Member beginning on the effective date of the contract or
          the Member's date of enrollment under the contract regardless of
          pre-existing conditions, prior diagnosis and/or receipt of any prior
          health care services.

6.3       SPAN OF ELIGIBILITY

          The following outlines HMO's responsibilities for payment of hospital
          and free-standing psychiatric facility (facility) admissions:

6.3.1         Inpatient Admission Prior to Enrollment in HMO. HMO is
          responsible for payment of physician and non-hospital/facility
          charges for the period for which HMO is paid a capitation payment for
          that Member. HMO is not responsible for hospital/facility charges for
          Members admitted prior to the date of enrollment in HMO.

6.3.2         Inpatient Admission After Enrollment in HMO. HMO is responsible
          for all charges until the Member is discharged from the
          hospital/facility or until the


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          Member loses Medicaid eligibility.

6.3.2.1       If a Member regains Medicaid eligibility and the Member was
          enrolled in HMO at the time the Member was admitted to the hospital,
          HMO is responsible for charges as follows:

6.3.2.1.1 Member Re-enrolls into HMO After Regaining Medicaid Eligibility.
          HMO is responsible for all charges for the period for which HMO
          receives a capitation payment for the Member or until the Member is
          discharged or loses Medicaid eligibility.

6.3.2.1.2 Member Re-enrolls in Another Health Plan After Regaining Medicaid
          Eligibility. HMO is responsible for hospital/facility charges until
          the Member is discharged or loses Medicaid eligibility.

6.3.3         Plan Change. A Member cannot change from one health plan to
          another health plan during an inpatient hospital stay.

6.3.4         Hospital/Facility Transfer. Discharge from one acute care
          hospital/facility and readmission to another acute care
          hospital/facility within 24 hours for continued treatment is not a
          discharge under this contract.

6.3.5         HMO insolvency or receivership. HMO is responsible for payment of
          all services provided to a person who was a Member on the date of
          insolvency or receivership to the same extent they would otherwise be
          responsible under this Article 6.3.

6.4           CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS

6.4.1         HMO must ensure that the care of newly enrolled Members is not
          disrupted or interrupted.  HMO must take special care to provide
          continuity in the care of newly enrolled Members whose health or
          behavioral health condition has been treated by specialty care
          providers or whose health could be placed in jeopardy if care is
          disrupted or interrupted.

6.4.2         Pregnant Members with 12 weeks or less remaining before the
          expected delivery date must be allowed to remain under the care of
          the Member's current OB/GYN through the Member's postpartum checkup,
          even if the provider is out-of-network.  If Member wants to change
          her OB/GYN to one who is in the plan, she must be allowed to do so if
          the provider to whom she wishes to transfer agrees to accept her in
          the last trimester.

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6.4.3         HMO must pay a Member's existing out-of-network providers for
          covered services until the Member's records, clinical information and
          care can be transferred to a network provider.  Payment must be made
          within the time period required for network providers.  Payment
          amounts must be the amount the HMO pays a comparable network
          provider, an amount negotiated between the out-of-network provider
          and the HMO, or the Medicaid fee-for-service amount.

6.4.4          HMO must provide or pay out-of-network providers who provide
          covered services to Members who move out of the service area through
          the end of the period for which capitation has been paid for the
          Member.

6.5           EMERGENCY SERVICES

6.5.1         HMO must pay for the professional, facility, and ancillary
          services that are medically necessary to perform the medical
          screening examination and stabilization of HMO Member presenting as
          an emergency medical condition or an emergency behavioral health
          condition to the hospital emergency department, 24 hours a day, 7
          days a week, rendered by either HMO's in-network or out-of-network
          providers.  HMO may elect to pay any emergency services provider an
          amount negotiated between the emergency provider and HMO, or a
          reasonable and customary amount determined by the HMO.

6.5.2         HMO must ensure that its network primary care providers (PCPs)
          have after-hours telephone availability 24 hours a day, 7 days a week
          throughout the service area.

6.5.3         HMO cannot require prior authorization as a condition for payment
          for an emergency medical condition, an emergency behavioral health
          condition, or labor and delivery.

6.5.4         Medical Screening Examination.  A medical screening examination
          may range from a relatively simple history, physical examination,
          diagnosis, and treatment, to a complex examination, diagnosis, and
          treatment that requires substantial use of hospital emergency
          department and physician services.  HMO must pay for the emergency
          medical screening examination required to determine whether an
          emergency condition exists, as required by 42 U.S.C. 1395dd.  HMOs
          must reimburse for both the physician's services and the hospital's
          emergency services, including the emergency room and its ancillary
          services.

6.5.5         Stabilization Services.  HMO must pay for emergency services
          performed to stabilize the Member as documented by the Emergency
          physician in the Member's medical record.  HMOs must reimburse for
          physician's services and

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<PAGE>   46

          hospital's emergency services including the emergency room and its
          ancillary services.  With respect to an emergency medical condition,
          to stabilize is to provide such medical care as to assure within
          reasonable medical probability that no deterioration of the condition
          is likely to result from, or occur during discharge, transfer, or
          admission of the Member from the emergency room.

6.5.6         Post-stabilization Services. Post-stabilization services are
          services subsequent to an emergency that a treating physician views
          as medically necessary after an emergency medical condition has been
          stabilized.  They are not "emergency services" and are subject to
          HMO's prior authorization process.  HMO must be available to
          authorize or deny post-stabilization services within one hour after
          being contacted by the treating physician.

6.5.7         HMO must provide access to the TDH-designated Level I and Level
          II trauma centers within the State or hospitals meeting the
          equivalent level of trauma care.  HMOs may make out-of-network
          reimbursement arrangements with the TDH-designated Level I and Level
          II trauma centers to satisfy this access requirement.

6.6           BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS

6.6.1         HMO must provide or arrange to have provided to Members all
          behavioral health care services included as covered services.  These
          services are described in detail in the Texas Medicaid Provider
          Procedures Manual (Provider Procedures Manual) and the Texas Medicaid
          Bulletins, which is the bi-monthly update to the Provider Procedures
          Manual.  Clinical information regarding covered services are
          published by the Texas Medicaid program in the Texas Medicaid Service
          Delivery Guide.

6.6.2         HMO must maintain a behavioral health provider network that
          includes psychiatrists, psychologists and other behavioral health
          providers.  HMO must provide or arrange to have provided behavioral
          health benefits described as covered services.  These services are
          indicated in the Provider Procedures Manual and the Texas Medicaid
          Bulletins, which is the bi-monthly update to the Provider Procedures
          Manual. Clinical information regarding covered services are published
          by the Texas Medicaid Program in the Texas Medicaid Service Delivery
          Guide.   The network must include providers with experience in
          serving children and adolescents to ensure accessibility and
          availability of qualified providers to all eligible children and
          adolescents in the service area.  The list of providers including
          names, addresses and phone numbers must be available to TDH upon
          request.

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6.6.3         HMO must maintain a Member education process to help Members know
          where and how to obtain behavioral health care services.

6.6.4         HMO must implement policies and procedures to ensure that Members
          who require routine or regular laboratory and ancillary medical tests
          or procedures to monitor behavioral health conditions are provided
          the services by the provider ordering the procedure or at a lab
          located at or near the provider's office.

6.6.5         When assessing Members for behavioral health care services, HMO
          and network behavioral health providers must use the DSM-IV
          multi-axial classification and report axes I, II, III, IV, and V to
          TDH.  TDH may require use of other assessment instrument/outcome
          measures in addition to the DSM-IV.  Providers must document DSM-IV
          and assessment/outcome information in the Member's medical record.

6.6.6         HMO must permit Members to self refer to any in-network
          behavioral health care provider without a referral from the Member's
          PCP.  HMO must permit Members to participate in the selection or
          assignment of the appropriate behavioral health individual
          practitioner(s) who will serve them.  HMO previously submitted a
          written copy of its policies and procedures for self-referral to TDH.
          Changes or amendments to those policies and procedures must be
          submitted to TDH for approval at least 60 days prior to their
          effective date.

6.6.7         HMO must require, through contract provisions, that PCPs have
          screening and evaluation procedures for detection and treatment of,
          or referral for, any known or suspected behavioral health problems
          and disorders.  PCPs may provide any clinically appropriate
          behavioral health care services within the scope of their practice.
          This requirement must be included in all Provider Manuals.

6.6.8         HMO must require that behavioral health providers refer Members
          with known or suspected physical health problems or disorders to
          their PCP for examination and treatment.  Behavioral health providers
          may only provide physical health care services if they are licensed
          to do so.  This requirement must be included in all Provider Manuals.

6.6.9         HMO must require that behavioral health providers send initial
          and quarterly (or more frequently if clinically indicated) summary
          reports of Members' behavioral health status to PCP. This requirement
          must be included in all Provider Manuals.

6.6.10        HMO must require, through contract provisions, that all Members

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<PAGE>   48

          receiving inpatient psychiatric services are scheduled for outpatient
          follow-up and/or continuing treatment prior to discharge.  The
          outpatient treatment must occur within 7 days from the date of
          discharge.  HMO must ensure that behavioral health providers contact
          Members who have missed appointments within 24 hours to reschedule
          appointments.

6.6.11        HMO must provide inpatient psychiatric services to Members under
          the age of 21 who have been ordered to receive the services by a
          court of competent jurisdiction under the provisions of Chapters 573
          and 574 of the Texas Health and Safety Code, relating to court
          ordered commitments to psychiatric facilities.

6.6.11.1  HMO cannot deny, reduce or controvert the medical necessity of any
          court ordered inpatient psychiatric service for Members under age 21.
          Any modification or termination of services must be presented to the
          court with jurisdiction over the matter for determination.

6.6.11.2  A Member who has been ordered to receive treatment under the
          provisions of Chapter 573 or 574 of the Texas Health and Safety Code
          cannot appeal the commitment through HMO's complaint or appeals
          process.

6.6.12        HMO must comply with 28 TAC Sections 3.8001 et seq., regarding
          utilization review of chemical dependency treatment.

6.7       FAMILY PLANNING - SPECIFIC REQUIREMENTS

6.7.1         Counseling and Education.  HMO must require, through contract
          provisions, that Members requesting contraceptive services or family
          planning services are also provided counseling and education about
          family planning and family planning services available to Members.
          HMO must develop outreach programs to increase community support for
          family planning and encourage Members to use available family
          planning services.  HMO is encouraged to include a representative
          cross-section of Members and family planning providers who practice
          in the community in developing, planning and implementing family
          planning outreach programs.

6.7.2         Freedom of Choice.  HMO must ensure that Members have the right
          to choose any Medicaid participating family planning provider,
          whether the provider chosen by the Member is in or outside HMO
          provider network.  HMO must provide Members access to information
          about the providers of family planning services available and the
          Member's right to choose any Medicaid family planning provider.  HMO
          must provide access

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          to confidential family planning services.

6.7.3         Provider Standards and Payment.  HMO must require all
          subcontractors who are family planning agencies to deliver family
          planning services according to the TDH Family Planning Service
          Delivery Standards.  HMO must provide, at minimum, the full scope of
          services available under the Texas Medicaid program for family
          planning services.  HMO will reimburse family planning agencies and
          out-of-network family planning providers the Medicaid fee-for service
          amounts for family planning services, including medically necessary
          medications, contraceptives, and supplies.

6.7.4         HMO must provide medically-approved methods of contraception to
          Members.  Contraceptive methods must be accompanied by verbal and
          written instructions on their correct use.  HMO must establish
          mechanisms to ensure all medically approved methods of contraception
          are made available to the Member, either directly or by referral to a
          subcontractor.  The following initial Member education content may
          vary according to the educator's assessment of the Member's current
          knowledge:

6.7.4.1   general benefits of family planning services and contraception;

6.7.4.2   information on male and female basic reproductive anatomy and
          physiology;

6.7.4.3   information regarding particular benefits and potential side effects
          and complications of all available contraceptive methods;

6.7.4.4   information concerning all of the health care provider's available
          services, the purpose and sequence of health care provider
          procedures, and the routine schedule of return visits;

6.7.4.5   information regarding medical emergencies and where to obtain
          emergency care on a 24-hour basis;

6.7.4.6   breast self-examination rationales and instructions unless provided
          during physical exam (for females); and

6.7.4.7   information on HIV/STD infection and prevention and safer sex
          discussion.

6.7.5         HMO must require, through contractual provisions, that
          subcontractors have mechanisms in place to ensure Member's (including


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          minor's) confidentiality for family planning services.

6.7.6         HMO must develop, implement, monitor, and maintain standards,
          policies and procedures for providing information regarding family
          planning to providers and Members, specifically regarding State and
          federal laws governing Member confidentiality (including minors).
          Providers and family planning agencies cannot require parental
          consent for minors to receive family planning services.

6.7.7         HMO must report encounter data on family planning services in
          accordance with Article 12.2.

6.8           TEXAS HEALTH STEPS (EPSDT)

6.8.1         THSteps Services.  HMO must develop effective methods to ensure
          that children under the age of 21 receive THSteps services when due
          and according to the recommendations established by the American
          Academy of Pediatrics and the THSteps periodicity schedule for
          children.  HMO must arrange for THSteps services to be provided to
          all eligible Members except when a Member knowingly and voluntarily
          declines or refuses services after the Member has been provided
          information upon which to make an informed decision.

6.8.2         Member Education and Information.  HMO must ensure that Members
          are provided information and educational materials about the services
          available through the THSteps program, and how and when they can
          obtain the services.  The information should tell the Member how they
          can obtain dental benefits, transportation services through the TDH
          Medical Transportation program, and advocacy assistance from HMO.

6.8.3         Provider Education and Training.  HMO must provide appropriate
          training to all network providers and provider staff in the
          providers' area of practice regarding the scope of benefits available
          and the THSteps program.  Training must include THSteps benefits, the
          periodicity schedule for THSteps checkups and immunizations, and
          Comprehensive Care Program (CCP) services available under the THSteps
          program to Members under age 21 years.  Providers must also be
          educated and trained regarding the requirements imposed upon the
          department and contracting HMOs under the Consent Decree entered in
          Frew v. McKinney, et. al., Civil Action No. 3:93CV65, in the United
          States District Court for the Eastern District of Texas, Paris
          Division.  Providers should be educated and trained to treat each
          THSteps visit as an opportunity for a comprehensive assessment of the
          Member.

6.8.4          Member Outreach.  HMO must provide an outreach unit that works
          with

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          Members to ensure they receive prompt services and are effectively
          informed about available THSteps services.  Each month HMO must
          retrieve from the Enrollment Broker BBS a list of Members who are due
          and overdue THSteps services.  Using these lists and their own
          internally generated lists, HMOs will contact Members and encourage
          Members who are periodically due or overdue a THSteps service to
          obtain the service as soon as possible. HMO outreach staff must
          coordinate with TDH THSteps outreach staff to ensure that Members
          have access to the Medical Transportation Program, and that any
          coordination with other agencies is maintained.

6.8.5         Initial Checkups Upon Enrollment.  HMO must have mechanisms in
          place to ensure that all newly enrolled Members receive a THSteps
          checkup within 90 days from enrollment, if one is due according to
          the American Academy of Pediatrics periodicity schedule, or if there
          is uncertainty regarding whether one is due.  HMO should make THSteps
          checkups a priority to all newly enrolled Members.

6.8.6         Accelerated Services to Migrant Populations.  HMO must cooperate
          and coordinate with the department, outreach programs and THSteps
          regional program staff and agents to ensure prompt delivery of
          services to children of migrant farm workers and other migrant
          populations who may transition into and out of HMOs program more
          rapidly and/or unpredictably than the general population.

6.8.7         Newborn Checkups.  HMO must have mechanisms in place to ensure
          that all newborn Members have an initial newborn checkup before
          discharge from the hospital and again within two weeks from the time
          of birth.  HMO must require providers to send all THSteps newborn
          screens to the TDH Bureau of Laboratories or a TDH certified
          laboratory.  Providers must include detailed identifying information
          for all screened newborn Members and the Member's mother to allow TDH
          to link the screens performed at the hospital with screens performed
          at the two week follow-up.

6.8.7.1       Laboratory Tests:  All laboratory specimens collected as a
          required component of a THSteps checkup (see Medicaid Provider
          Procedures Manual for age-specific requirements) must be submitted to
          the TDH Laboratory for analysis.  HMO must educate providers about
          THSteps program requirements for submitting laboratory tests to the
          TDH Bureau of Laboratories.

6.8.8         Coordination and Cooperation.  HMO must make an effort to
          coordinate and cooperate with existing community and school-based
          health and education

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          programs that offer services to school-aged children in a location
          that is both familiar and convenient to the Members.  HMO must make a
          good faith effort to comply with Head Start's requirement that
          Members participating in Head Start receive their THSteps checkup no
          later than 45 days after enrolling into either program.

6.8.9         Immunizations. HMO must educate providers on the Immunization
          Standard Requirements set forth in Chapter 161, Health and Safety
          Code; the standards in the ACIP Immunization Schedule; and the AAP
          Periodicity Schedule.

6.8.9.1       ImmTrac Compliance. HMO must educate providers about and require
          providers to comply with the requirements of Chapter 161, Health and
          Safety Code, relating to the Texas Immunization Registry (ImmTrac),
          to include parental consent on the Vaccine Information Statement.

6.8.10        Claim Forms. HMO must require all THSteps providers to submit
          claims for services paid (either on a capitated or fee-for service
          basis) on the HCFA 1500 claim form and use the unique procedure
          coding required by TDH.

6.8.11        Compliance with THSteps Performance Benchmark.  TDH will
          establish performance benchmarks against which HMO's full compliance
          with the THSteps periodicity schedule will be measured.  The
          performance benchmarks will establish minimum compliance measures
          which will increase over time.  HMO must meet all performance
          benchmarks required for THSteps services.

6.8.12        Validation of Encounter Data.  Encounter data will be validated
          by chart review of a random sample of THSteps eligible enrollees
          against monthly encounter data reported by HMO. Chart reviews will be
          conducted by TDH to validate that all screens are performed when due
          and as reported, and that reported data is accurate and timely.
          Substantial deviation between reported and charted encounter data
          could result in HMO and/or network providers being investigated for
          potential fraud and abuse without notice to HMO or the provider.

6.9           PERINATAL SERVICES

6.9.1         HMO's perinatal health care services must ensure appropriate care
          is provided to women and infants who are Members of HMO, from the
          preconception period through the infant's first year of life.  HMO's
          perinatal health care system must comply with the requirements of
          Health & Safety Code, Chapter 32 Maternal and Infant Health
          Improvement Act and 25 TAC Section 37.233 et seq.

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6.9.2         HMO shall have a perinatal health care system in place that, at a
          minimum, provides the following services:

6.9.2.1       pregnancy planning and perinatal health promotion and education
          for reproductive- age women;

6.9.2.2       perinatal risk assessment of nonpregnant women, pregnant and
          postpartum women, and infants up to one year of age;

6.9.2.3       access to appropriate levels of care based on risk assessment,
          including emergency care;

6.9.2.4       transfer and care of pregnant women, newborns, and infants to
          tertiary care facilities when necessary;

6.9.2.5       availability and accessibility of obstetricians/gynecologists,
          anesthesiologists, and neonatologists capable of dealing with
          complicated perinatal problems;

6.9.2.6       availability and accessibility of appropriate outpatient and
          inpatient facilities capable of dealing with complicated perinatal
          problems; and

6.9.2.7       compiles, analyzes and reports process and outcome data of
          Members to TDH.

6.9.3         HMO must have procedures in place to assign a pediatrician to an
          unborn child prior to birth of the child.

6.9.4         HMO must provide inpatient care for its pregnant/delivering
          Members and newborn Members in a health care facility, if requested
          by the mother or is determined to be medically necessary by the
          Member's PCP, for a minimum of:

6.9.4.1       48 hours following an uncomplicated vaginal delivery; and

6.9.4.2       96 hours for an uncomplicated caesarian delivery.

6.9.5         HMO must establish mechanisms to ensure that medically necessary
          inpatient care is provided to either the Member or the newborn Member
          for complications following the birth of the newborn using HMO's
          prior authorization procedures for a medically necessary
          hospitalization.


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6.9.6         HMO is responsible for all covered services provided to newborn
          Members.  The State will enroll newborn children of STAR Members in
          accordance with Section 533.0075 of the Texas Government Code when
          changes to the DHS eligibility system that are necessary to implement
          the law have been made. TDH will notify HMO of the implementation
          date of the changes under Section 533.0075 of the Government Code.
          Section 533.0075 states that newborn children of STAR Members will be
          enrolled in a STAR health plan on the date on which DHS has completed
          the newborn's Medicaid eligibility determination, including the
          assignment of a Medicaid eligibility number to the newborn, or 60
          days after the date of birth, whichever is earlier.

6.10          EARLY CHILDHOOD INTERVENTION (ECI)

6.10.1        ECI Services.  HMO must provide all federally mandated services
          contained at 34 C.F.R. 303.1 et seq., and 25 TAC Section 621.21 et
          seq., relating to identification, referral and delivery of health
          care services contained in the Member's Individual Family Service
          Plan (IFSP).  An IFSP is the written plan which identifies a Member's
          disability or chronic or complex condition(s) or developmental delay,
          and describes the course of action developed to meet those needs, and
          identifies the person or persons responsible for each action in the
          plan.  The plan is a mutual agreement of the Member's Primary Care
          Physician (PCP), Case Manager, and the Member/family, and is part of
          the Member's medical record.

6.10.2         ECI Providers.  HMO must contract with qualified providers to
          provide ECI services to Members under age 3 with developmental
          delays. HMO may contract with local ECI programs or non-ECI providers
          who meet qualifications for participation by the Texas Interagency
          Council on Early Childhood Intervention to provide ECI services.

6.10.3        Identification and Referral.  HMO must ensure that network
          providers are educated regarding the identification of Members under
          age 3 who have or are at risk for having disabilities and/or
          developmental delays.  HMO must use written education material
          developed or approved by the Texas Interagency Council on Early
          Childhood Intervention.  HMO must ensure that all providers refer
          identified Members to ECI service providers within two working days
          from the day the Member is identified. Eligibility for ECI services
          is determined by the local ECI program using the criteria contained
          in 25 TAC Section 621.21 et seq.

6.10.4        Coordination.  HMO must coordinate and cooperate with local ECI
          programs which perform assessment in the development of the
          Individual Family Service Plan (IFSP), including on-going case
          management and other non-

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          capitated services required by the Member's IFSP.  Cooperation
          includes conducting medical diagnostic procedures and providing
          medical records required to perform developmental assessments and
          develop the IFSP within the time lines established at 34 C.F.R. 303.1
          et seq.  ECI case management is not an HMO capitated service.

6.10.5        Intervention.  HMO must require, through contract  provisions,
          that all medically necessary health and behavioral health care
          services contained in the Member's IFSP are provided to the Member in
          amount, duration and scope established by the IFSP. Medical necessity
          for health and behavioral health care services is determined by the
          interdisciplinary team as approved by the Member's PCP.  HMO cannot
          modify the plan of care or alter the amount, duration and scope of
          services required by the Member's IFSP.  HMO cannot create
          unnecessary barriers for the Member to obtain IFSP services,
          including requiring prior authorization for the ECI assessment and
          insufficient authorization periods for prior authorized services.

6.11          SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND
          CHILDREN (WIC) - SPECIFIC REQUIREMENTS

6.11.1        HMO must coordinate with WIC to provide certain medical
          information which is necessary to determine WIC eligibility, such as
          height, weight, hematocrit or hemoglobin (see Article 7.16.3.2).

6.11.2        HMO must direct all eligible Members to the WIC program (Medicaid
          recipients are automatically income-eligible for WIC).

6.11.3        HMO must coordinate with existing WIC providers to ensure Members
          have access to the Special Supplemental Nutrition Program for Women,
          Infants and Children; or HMO must provide these services.

6.11.4        HMO may use the nutrition education provided by WIC to satisfy
          health education requirements described in this contract.

6.12          TUBERCULOSIS (TB)

6.12.1        Education, Screening, Diagnosis and Treatment.  HMO must provide
          Members and providers with education on the prevention, detection and
          effective treatment of tuberculosis (TB).  HMO must establish
          mechanisms to ensure all procedures required to screen at-risk
          Members and to form the basis for a diagnosis and proper prophylaxis
          and management of TB are available to all Members, except services
          referenced in Article 6.1.8 as non-capitated services.

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          HMO must develop policies and procedures to ensure that Members who
          may be or are at risk for exposure to TB are screened for TB.  An
          at-risk Member refers to a person who is susceptible to TB because of
          the association with certain risk factors, behaviors, drug
          resistance, or environmental conditions.  HMO must consult with the
          local TB control program to ensure that all services and treatments
          provided by HMO are in compliance with the guidelines recommended by
          the American Thoracic Society (ATS), the Centers for Disease Control
          and Prevention (CDC), and TDH policies and standards.

6.12.2        Reporting and Referral.  HMO must implement policies and
          procedures requiring providers to report all confirmed or suspected
          cases of TB to the local TB control program within one working day of
          identification of a suspected case, using the forms and procedures
          for reporting TB adopted by TDH (25 TAC Section 97).  HMO must
          require that in-state labs report mycobacteriology culture results
          positive for M. Tuberculosis and M. Tuberculosis antibiotic
          susceptibility to TDH as required for in-state labs by 25 TAC Section
          97.5(a).  Referral to state-operated hospitals specializing in the
          treatment of tuberculosis should only be made for TB-related
          treatment.

6.12.3        Medical Records. HMO must provide access to Member medical
          records to TDH and the local TB control program for all confirmed and
          suspected TB cases upon request.

6.12.4        Coordination and Cooperation with the Local TB Control Program.
          HMO must coordinate with the local TB control program to ensure that
          all Members with confirmed or suspected TB have a contact
          investigation and receive Directly Observed Therapy (DOT).  HMO must
          require, through contract provisions, that providers report any
          Member who is non-compliant, drug resistant, or who is or may be
          posing a public health threat to TDH or the local TB control program.
          HMO must cooperate with the local TB control program in enforcing the
          control measures and quarantine procedures contained in Chapter 81 of
          the Texas Health and Safety Code.

6.12.4.1  HMO must have a mechanism for coordinating a post-discharge plan for
          follow-up DOT with the local TB program.

6.12.4.2  HMO must coordinate with the TDH South Texas Hospital and Texas
          Center for Infectious Disease for voluntary and court-ordered
          admission, discharge plans, treatment objectives and projected length
          of stay for Members with multi-drug resistant TB.

6.12.4.3  HMO may contract with the local TB control programs to perform any of
          the

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          capitated services required in Article 6.12.

6.13          PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS

6.13.1        HMO shall provide the following services to persons with
          disabilities or chronic or complex conditions.  These services are in
          addition to the covered services described in detail in the Texas
          Medicaid Provider Procedures Manual (Provider Procedures Manual) and
          the Texas Medicaid Bulletins which is the bi-monthly update to the
          Provider Procedures Manual. Clinical information regarding covered
          services are published by the Texas Medicaid program in the Texas
          Medicaid Service Delivery Guide.

6.13.2        HMO must develop and maintain a system and procedures for
          identifying Members who have disabilities or chronic or complex
          medical and behavioral health conditions.  Once identified, HMO must
          have effective health delivery systems to provide the covered
          services to meet the special preventive, primary acute, and
          speciality health care needs appropriate for treatment of the
          individual's condition. The guidelines and standards established by
          the American Academy of Pediatrics, the American College of
          Obstetrics/Gynecologists, the U.S. Public Health Service, and other
          medical and professional health organizations and associations'
          practice guidelines whose standards are recognized by TDH must be
          used in determining the medically necessary services and plan of care
          for each individual.

6.13.3        HMO must require that the PCP for all persons with disabilities
          or chronic or complex conditions develops a plan of care to meet the
          needs of the Member.  The plan of care must be based on health needs,
          specialist(s) recommendations, and periodic reassessment of the
          Member's developmental and functional status and service delivery
          needs.  HMO must require providers to maintain record keeping systems
          to ensure that each Member who has been identified with a disability
          or chronic or complex condition has an initial plan of care in the
          primary care provider's medical records, Member agrees to that plan
          of care, and that the plan is updated as often as the Member's needs
          change, but at least annually.

6.13.4        HMO must provide primary care and specialty care provider network
          for persons with disabilities or chronic or complex conditions.
          Specialty and subspecialty providers serving all Members must be
          Board Certified/Board Eligible in their specialty.  HMO may request
          exceptions from TDH for approval of traditional providers who are not
          board-certified or board-eligible but who otherwise meet HMO's
          credentialing requirements.

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6.13.5        HMO must have in its network PCPs and specialty care providers
          that have documented experience in treating people with disabilities
          or chronic or complex conditions, including children.  For services
          to children with disabilities or chronic or complex conditions, HMO
          must have in its network PCPs and specialty care providers that have
          demonstrated experience with children with disabilities or chronic or
          complex conditions in pediatric specialty centers such as children's
          hospitals, medical schools, teaching hospitals and tertiary center
          levels.

6.13.6        HMO must provide information, education and training programs to
          Members, families, PCPs, specialty physicians, and community agencies
          about the care and treatment available in HMO's plan for Members with
          disabilities or chronic or complex conditions.

6.13.7        HMO must coordinate care and establish linkages, as appropriate
          for a particular Member, with existing community-based entities and
          services, including but not limited to: Maternal and Child Health,
          Chronically Ill and Disabled Children's Services (CIDC), the
          Medically Dependent Children Program (MDCP), Community Resource
          Coordination Groups (CRCGs), Interagency Council on Early Childhood
          Intervention (ECI), Home and Community-based Services (HCS),
          Community Living Assistance and Support Services (CLASS), Community
          Based Alternatives (CBA), In Home Family Support, Primary Home Care,
          Day Activity and Health Services (DAHS), Deaf/Blind Multiple Disabled
          waiver program and Medical Transportation Program (MTP).

6.13.8        HMO must include TDH approved pediatric transplant centers, TDH
          designated trauma centers, and TDH designated hemophilia centers in
          its provider network (see Appendices E, F, and G for a listing of
          these facilities).

6.13.9        HMO must ensure Members with disabilities or chronic or complex
          conditions have access to treatment by a multidisciplinary team when
          determined to be medically necessary for effective treatment, or to
          avoid separate and fragmented evaluations and service plans.  The
          teams must include both physician and non-physician providers
          determined to be necessary by the Member's PCP for the comprehensive
          treatment of the Member.  The team must:

6.13.9.1  Participate in hospital discharge planning;

6.13.9.2  Participate in pre-admission hospital planning for non-emergency
          hospitalizations;

6.13.9.3  Develop specialty care and support service recommendations to be
          incorporated

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          into the primary care provider's plan of care;

6.13.9.4  Provide information to the Member and the Member's family concerning
          the specialty care recommendations; and

6.13.9.5  Develop and implement training programs for primary care providers,
          community agencies, ancillary care providers, and families concerning
          the care and treatment of a Member with a disability or chronic or
          complex conditions.

6.13.10   HMO must identify coordinators of medical care to assist providers
          who serve Members with disabilities and chronic or complex conditions
          and the Members and their families in locating and accessing
          appropriate providers inside and outside HMO's network.

6.13.11   HMO must assist, through information and referral, eligible Members
          in accessing providers of non-capitated Medicaid services listed in
          Article 6.1.8, as applicable.

6.13.12   HMO must ensure that Members who require routine or regular
          laboratory and ancillary medical tests or procedures to monitor
          disabilities or chronic or complex conditions are allowed by HMO to
          receive the services from the provider in the provider's office or at
          a contracted lab located at or near the provider's office.

6.14          HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS

6.14.1        Health Education Plan.  HMO must develop and implement a Health
          Education plan. The health education plan must tell Members how HMO
          system operates, how to obtain services, including emergency care and
          out-of-plan services.  The plan must emphasize the value of screening
          and preventive care and must contain disease-specific information and
          educational materials.

6.14.2        Wellness Promotion Programs.  HMO must conduct wellness promotion
          programs to improve the health status of its Members.  HMO may
          cooperatively conduct Health Education classes for all enrolled STAR
          Members with one or more HMOs also contracting with TDH in the
          service area to provide services to Medicaid recipients in all
          counties of the service area.  Providers and HMO staff must integrate
          health education, wellness and prevention training into the care of
          each Member.  HMO must provide a range of health promotion and
          wellness information and activities for Members in formats that meet
          the needs of all Members.  HMO must:

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          (1) develop, maintain and distribute health education services
              standards, policies and procedures to providers;

          (2) monitor provider performance to ensure the standards for health
              education services are complied with;

          (3) inform providers in writing about any non-compliance with the
              plan standards, policies or procedures;

          (4) establish systems and procedures that ensure that provider's
              medical instruction and education on preventive services provided
              to the Member are documented in the Member's medical record; and

          (5) establish mechanisms for promoting preventive care services to
              Members who do not access care, e.g. newsletters, reminder cards,
              and mail-outs.

6.14.3        Health Education Activities Report. HMO must submit, upon
          request, a Health Education Activities Schedule to TDH or its
          designee listing the time and location of classes, health fairs or
          other events conducted during the time period of the request.

6.15          SEXUALLY TRANSMITTED DISEASES (STDS) AND HUMAN IMMUNODEFICIENCY
          VIRUS (HIV)

          HMO must provide STD services that include STD/HIV prevention,
          screening, counseling, diagnosis, and treatment. HMO is responsible
          for implementing procedures to ensure that Members have prompt access
          to appropriate services for STDs, including HIV.

6.15.1        HMO must allow Members access to STD services and HIV diagnosis
          services without prior authorization or referral by PCP. HMO must
          comply with Texas Family Code Section 32.003, relating to consent to
          treatment by a child.

6.15.2        HMO must provide all covered services required to form the basis
          for a diagnosis and treatment plan for STD/HIV by the provider.

6.15.3        HMO must consult with TDH regional public health authority to
          ensure that Members receiving clinical care of STDs, including HIV,
          are managed according to a protocol which has been approved by TDH
          (see Article 7.16.1 relating to cooperative agreements with public
          health authorities).

6.15.4        HMO must make education available to providers and Members on the


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          prevention, detection and effective treatment of STDs, including HIV.

6.15.5        HMO must require providers to report all confirmed cases of STDs,
          including HIV, to the local or regional health authority according to
          25 Texas Administrative Code, Sections 97.131 - 97.134, using the
          required forms and procedures for reporting STDs.

6.15.6        HMO must coordinate with the TDH regional health authority to
          ensure that Members with confirmed cases of syphilis, chancroid,
          gonorrhea, chlamydia and HIV receive risk reduction and partner
          elicitation/notification counseling.  Coordination must be included
          in the subcontract required by Article 7.16.1.  HMO may contract with
          local or regional health authorities to perform any of the covered
          services required in Article 6.15.

6.15.7        HMO's PCPs may enter into contracts or agreements with
          traditional HIV service providers in the service area to provide
          services such as case management, psychosocial support and other
          services.  If the service provided is a covered service under this
          contract, the contract or agreement must include payment provisions.

6.15.8        The subcontract with the respective TDH regional offices and city
          and county health departments, as described in Article 7.16.1, must
          include, but not be limited to, the following topics:

6.15.8.1  Access for Case Investigation. Procedures must be established to make
          Member records available to public health agencies with authority to
          conduct disease investigation, receive confidential Member
          information, and follow up.

6.15.8.2  Medical Records and Confidentiality. HMO must require that providers
          have procedures in place to protect the confidentiality of Members
          provided STD/HIV services. These procedures must include, but are not
          limited to, the manner in which medical records are to be
          safeguarded; how employees are to protect medical information; and
          under what conditions information can be shared. HMO must inform and
          require its providers who provide STD/HIV services to comply with all
          state laws relating to communicable disease reporting requirements.
          HMO must implement policies and procedures to monitor provider
          compliance with confidentiality requirements.

6.15.8.3  Partner Referral and Treatment. Members who are named as contacts to
          an STD, including HIV, should be evaluated and treated according to
          HMO's protocol. All protocols must be approved by TDH. HMO's
          providers must coordinate referral of non-Member partners to local
          and regional health department STD staff.

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6.15.8.4  Informed Consent and Counseling. HMO must have policies and
          procedures in place regarding obtaining informed consent and
          counseling Members. The subcontracts with providers who treat HIV
          patients must include provisions requiring the provider to refer
          Members with HIV infection to public health agencies for in-depth
          prevention counseling, on-going partner elicitation and notification
          services and other prevention support services. The subcontracts must
          also include provisions that require the provider to direct-counsel
          or refer an HIV-infected Member about the need to inform and refer
          all sex and/or needle-sharing partners that might have been exposed
          to the infection for prevention counseling and antibody testing.

6.16          BLIND AND DISABLED MEMBERS

6.16.1        HMO must arrange for all covered health and health-related
          services required under this contract for all voluntarily enrolled
          Blind and Disabled Members. HMO is not required to provide
          value-added services to Blind and Disabled Members.

6.16.2        HMO must perform the same administrative services and functions
          as are performed for mandatory Members under this contract. These
          administrative services and functions include, but are not limited
          to:

6.16.2.1  Prior authorization of services;

6.16.2.2  All customer services functions offered Members in mandatory
          participation categories, including the complaint process, enrollment
          services, and hotline services;

6.16.2.3  Linguistic services, including providing Member materials in
          alternative formats for the blind and disabled;

6.16.2.4  Health education;

6.16.2.5  Utilization management using TDH Claims Administrator encounter data
          to provide appropriate interventions for Members through
          administrative case management;

6.16.2.6  Quality assurance activities as needed and Focused Studies as
          required by TDH; and

6.16.2.7  Coordination to link Blind and Disabled Members with applicable
          community


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          resources and targeted case management programs (see Non-Capitated
          Services in Article 6.1.8).

6.16.3        HMO must require network providers to submit claims for health
          and health-related services to TDH's Claims Administrator for claims
          adjudication and payment.

6.16.4        HMO must provide services to Blind and Disabled Members within
          HMO's network unless necessary services are unavailable within
          network.  HMO must also allow referrals to out-of-network providers
          if necessary services are not available within HMO's network. Records
          must be forwarded to Member's PCP following a referral visit.


ARTICLE V II  PROVIDER NETWORK REQUIREMENTS

7.1           PROVIDER ACCESSIBILITY

7.1.1         HMO must enter into written contracts with properly credentialed
          health care service providers.  The names of all providers must be
          submitted to TDH as part of HMO subcontracting process.  HMO must
          have its own credentialing process to review, approve and
          periodically recertify the credentials of all participating providers
          in compliance with 28 TAC 11.1902, relating to credentialing of
          providers in HMOs.

7.1.2         HMO must require tax I.D. numbers from all providers. HMO is
          required to do backup withholding from all payments to providers who
          fail to give tax I.D. numbers or who give incorrect numbers.

7.1.3         Timeframes for Access Requirements.  HMO must have sufficient
          network providers and establish procedures to ensure Members have
          access to routine, urgent, and emergency services; telephone
          appointments; advice and Member service lines.  These services must
          be accessible to Members within the following timeframes:

7.1.3.1       Urgent Care within 24 hours of request;

7.1.3.2       Routine care within 2 weeks of request;

7.1.3.3       Physical/Wellness Exams for adults must be provided within 8 to
          10


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          weeks of the request;

7.1.3.4       HMO must establish policies and procedures to ensure that THSteps
          Checkups be provided within 90 days of new enrollment, except newborn
          Members should be seen within 2 weeks of enrollment, and in all cases
          for all Members be consistent with the American Academy of Pediatrics
          and THSteps periodicity schedule which is based on the American
          Academy of Pediatrics schedule and delineated in the Texas Medicaid
          Provider Procedures Manual and the Medicaid bi-monthly bulletins (see
          Article 6.1, Scope of Services).  If the Member does not request a
          checkup, HMO must establish a procedure for contacting the Member to
          schedule the checkup.

7.1.4         HMO is prohibited from requiring a provider or provider group to
          enter into an exclusive contracting arrangement with HMO as a
          condition for participation in its provider network.

7.2           PROVIDER CONTRACTS

7.2.1         All providers must have a written contract, either with an
          intermediary entity or an HMO, to participate in the Medicaid program
          (provider contract).  HMO must make all contracts available to TDH
          upon request, at the time and location requested by TDH. All standard
          formats of provider contracts must be submitted to TDH for approval
          no later than 60 days after the effective date of this contract,
          unless previously filed with TDH.  HMO must submit 1 paper copy and 1
          electronic copy in a form specified by TDH.  Any change to the
          standard format must be submitted to TDH for approval no later than
          30 days prior to the implementation of the new standard format.  All
          provider contracts are subject to the terms and conditions of this
          contract and must contain the provisions of Article V, Statutory and
          Regulatory Compliance, and the provisions contained in Article 3.2.4.

7.2.1.1       TDH has 15 working days to review the materials and recommend any
          suggestions or required changes. If TDH has not responded to HMO by
          the fifteenth day, HMO may execute the contract. TDH reserves the
          right to request HMO to modify any contract that has been deemed
          approved.

7.2.2         Primary Care Provider (PCP) contracts and specialty care
          contracts must contain provisions relating to the requirements of the
          provider types found in this contract. For example, PCP contracts
          must contain the requirements of Article 7.8 relating to Primary Care
          Providers.

7.2.3         Provider contracts that are requested by any agency with
          authority to

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          investigate and prosecute fraud and abuse must be produced at the
          time and place required by TDH or the requesting agency.  Provider
          contracts requested in response to a Public Information request must
          be produced within 48 hours of the request. Requested contracts and
          all related records must be provided free-of-charge to the requesting
          agency.

7.2.4         The form and substance of all provider contracts are subject to
          approval by TDH.  TDH retains the authority to reject or require
          changes to any contract that do not comply with the requirements or
          duties and responsibilities of this contract.  HMO REMAINS
          RESPONSIBLE FOR PERFORMING AND FOR ANY FAILURE TO PERFORM ALL DUTIES,
          RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS OF
          WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS CONTRACTED TO ANOTHER
          FOR ACTUAL PERFORMANCE.

7.2.5         TDH reserves the right and retains the authority to make
          reasonable inquiry and conduct investigations into patterns of
          provider and Member complaints against HMO or any intermediary entity
          with whom HMO contracts to deliver health care services under this
          contract.  TDH may impose appropriate sanctions and contract remedies
          to ensure HMO compliance with the provisions of this contract.

7.2.6         HMO must not restrict a provider's ability to provide opinions or
          counsel to a Member with respect to benefits, treatment options, and
          provider's change in network status.

7.2.7         To the extent feasible within HMO's existing claims processing
          systems, HMO should have a single or central address to which
          providers must submit claims.  If a central processing center is not
          possible within HMO's existing claims processing system, HMO must
          provide each network provider a complete list of all entities to whom
          the providers must submit claims for processing and/or adjudication.
          The list must include the name of the entity, the address to which
          claims must be sent, explanation for determination of the correct
          claims payer based on services rendered, and a phone number the
          provider may call to make claims inquiries.  HMO must notify
          providers in writing of any changes in the claims filing list at
          least 30 days prior to effective date of change.  If HMO is unable to
          provide 30 days notice, providers must be given a 30-day extension on
          their claims filing deadline to ensure claims are routed to correct
          processing center.

7.2.8         HMO, all IPAs, and other intermediary entities must include
          contract language which substantially complies with the following
          standard contract

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          provisions in each Medicaid provider contract. This language must be
          included in each contract with an actual provider of services,
          whether through a direct contract or through intermediary provider
          contracts:

7.2.8.1       [Provider] is being contracted to deliver Medicaid managed care
          under the TDH STAR program.  HMO must provide copies of the TDH/HMO
          Contract to the [Provider] upon request. [Provider] understands that
          services provided under this contract are funded by State and federal
          funds under the Medicaid program. [Provider] is subject to all state
          and federal laws, rules and regulations that apply to all persons or
          entities receiving state and federal funds.  [Provider] understands
          that any violation by a provider of a State or federal law relating
          to the delivery of services by the provider under this HMO/Provider
          contract, or any violation of the TDH/HMO contract could result in
          liability for money damages, and/or civil or criminal penalties and
          sanctions under state and/or federal law.

7.2.8.2       [Provider] understands and agrees that HMO has the sole
          responsibility for payment of covered services rendered by the
          provider under HMO/Provider contract.  In the event of HMO insolvency
          or cessation of operations, [Provider's] sole recourse is against HMO
          through the bankruptcy, conservatorship, or receivership estate of
          HMO.

7.2.8.3       [Provider] understands and agrees TDH is not liable or
          responsible for payment for any Medicaid covered services provided to
          mandatory Members under HMO/Provider contract.  Federal and State
          laws provide severe penalties for any provider who attempts to
          collect any payment from or bill a Medicaid recipient for a covered
          service.

7.2.8.4       [Provider] agrees that any modification, addition, or deletion of
          the provisions of this contract will become effective no earlier than
          30 days after HMO notifies TDH of the change in writing.  If TDH does
          not provide written approval within 30 days from receipt of
          notification from HMO, changes can be considered provisionally
          approved, and will become effective.  Modifications, additions or
          deletions which are required by TDH or by changes in state or federal
          law are effective immediately.

7.2.8.5       This contract is subject to all state and federal laws and
          regulations relating to fraud and abuse in health care and the
          Medicaid program.  [Provider] must cooperate and assist TDH and any
          state or federal agency that is charged with the duty of identifying,
          investigating, sanctioning or prosecuting suspected fraud and abuse.
          [Provider] must provide originals and/or copies of any and all
          information, allow access to premises and provide records to TDH or
          its authorized agent(s), THHSC, HCFA, the U.S. Department of Health
          and Human


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          Services, FBI, TDI, and the Texas Attorney General's Medicaid Fraud
          Control Unit, upon request, and free-of-charge. [Provider] must
          report any suspected fraud or abuse including any suspected fraud and
          abuse committed by HMO or a Medicaid recipient to TDH for referral to
          THHSC.

7.2.8.6       [Provider] is required to submit proxy claims forms to HMO for
          services provided to all STAR Members that are capitated by HMO in
          accordance with the encounter data submissions requirements
          established by HMO and TDH.

7.2.8.7       HMO is prohibited from imposing restrictions upon the
          [Provider's] free communication with Members about a Member's medical
          conditions, treatment options, HMO referral policies, and other HMO
          policies, including financial incentives or arrangements and all STAR
          managed care plans with whom [Provider] contracts.

7.2.8.8       The Texas Medicaid Fraud Control Unit must be allowed to conduct
          private interviews of [Providers] and the [Providers'] employees,
          contractors, and patients. Requests for information must be complied
          with, in the form and language requested. [Providers] and their
          employees and contractors must cooperate fully in making themselves
          available in person for interviews, consultation, grand jury
          proceedings, pre-trial conference, hearings, trial and in any other
          process, including investigations. Compliance with this Article is at
          HMO's and [Provider's] own expense.

7.2.8.9       HMO must include the method of payment and payment amounts in all
          provider contracts.

7.2.8.10  All provider clean claims must be adjudicated within 30 days. HMO
          must pay provider interest on all clean claims that are not paid
          within 30 days at a rate of 1.5% per month (18% annual) for each
          month the claim remains unadjudicated.

7.2.8.11  HMO must prohibit network providers from interfering with or placing
          liens upon the state's right or HMO's right, acting as the state's
          agent, to recovery from third party resources. HMO must prohibit
          network providers from seeking recovery in excess of the Medicaid
          payable amount or otherwise violating state and federal laws.

7.2.9         HMO must follow the procedures outlined in article 20A.18A of the
          Texas Insurance Code if terminating a contract with a provider,
          including an STP.  At least 30 days before the effective date of the
          proposed termination of the provider's contract, HMO must provide a
          written explanation to the provider of the reasons for termination.
          HMO may immediately terminate a provider contract if the provider
          presents imminent harm to patient health, actions against a license

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          or practice, or fraud.

7.2.9.1       Within 60 days of the termination notice date, a provider may
          request a review of HMO's proposed termination by an advisory review
          panel, except in a case in which there is imminent harm to patient
          health, an action against a private license, or fraud. The advisory
          review panel must be composed of physicians and providers, as those
          terms are defined in article 20A.02(r) and (t), including at least
          one representative in the provider's specialty or a similar
          specialty, if available, appointed to serve on the standing quality
          assurance committee or utilization review committee of HMO.  The
          decision of the advisory review panel must be considered by HMO but
          is not binding on HMO.  HMO must provide to the affected provider, on
          request, a copy of the recommendation of the advisory review panel
          and HMO's determination.

7.2.9.2       A provider who is terminated is entitled to an expedited review
          process by HMO on request by the provider.  HMO must provide
          notification of the provider's termination to HMO's Members receiving
          care from the terminated provider at least 30 days before the
          effective date of the termination.  If a provider is terminated for
          reasons related to imminent harm to patient health, HMO may notify
          its Members immediately.

7.2.10        HMO must notify TDH no later than 90 days prior to terminating
          any subcontract affecting a major performance function of this
          contract.  If HMO seeks to terminate a provider's contract for
          imminent harm to patient health, actions against a license or
          practice, or fraud, contract termination may be immediate. TDH will
          require assurances that any contract termination will not result in
          an interruption of an essential service or major contract function.

7.2.11        HMO must include a complaint and appeals process which complies
          with the requirements of Article 20A.12 of the Texas Insurance Code
          relating to Complaint Systems in all provider contracts. HMO's
          complaint and appeals process must be the same for all providers.

7.3           PHYSICIAN INCENTIVE PLANS

7.3.1         HMO may operate a physician incentive plan only if:  (1) no
          specific payment may be made directly or indirectly under a physician
          incentive plan to a physician or physician group as an inducement to
          reduce or limit medically necessary services furnished to a Member;
          and (2) the stop-loss protection, enrollee surveys and disclosure
          requirements of this Article are met.

7.3.2         HMO must disclose to TDH information required by federal
          regulations

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          found at 42 C.F.R. Section 417.479.  The information must be
          disclosed in sufficient detail to determine whether the incentive
          plan complies with the requirements at 42 C.F.R. Section 417.479. The
          disclosure must contain the following information:

7.3.2.1       Whether services not furnished by a physician or physician group
          (referral services) are covered by the incentive plan. If only
          services furnished by the physician or physician group are covered by
          the incentive plan, disclosure of other aspects of the incentive plan
          are not required to be disclosed.

7.3.2.2       The type of incentive arrangement (e.g. withhold, bonus,
          capitation).

7.3.2.3       The percent of the withhold or bonus, if the incentive plan
          involves a withhold bonus.

7.3.2.4       Whether the physician or physician group has evidence of a
          stop-loss protection, including the amount and type of stop-loss
          protection.

7.3.2.5       The panel size and the method used for pooling patients, if
          patients are pooled.

7.3.2.6       The results of Member and disenrollee surveys, if HMO is required
          under 42 C.F.R. Section 417.479 to conduct Member and disenrollee
          surveys.

7.3.3         HMO must submit the information required in Articles 7.3.2.1 -
          7.3.2.5 to TDH by the effective date of this contract and each
          anniversary date of the contract.

7.3.4         HMO must submit the information required in Article 7.3.2.6 one
          year after the effective date of initial contract or effective date
          of renewal contract, and annually each subsequent year under the
          contract.  HMO's who put physicians or physician groups at
          substantial financial risk must conduct a survey of all Members who
          have voluntarily disenrolled in the previous year.  A list of
          voluntary disenrollees may be obtained from the Enrollment Broker.

7.3.5         HMO must provide Members with information regarding Physician
          Incentive Plans upon request. The information must include the
          following:

7.3.5.1       whether HMO uses a physician incentive plan that covers referral
          services;

7.3.5.2       the type of incentive arrangement (i.e., withhold, bonus,
          capitation);

7.3.5.3       whether stop-loss protection is provided; and


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7.3.5.4       results of enrollee and disenrollee surveys, if required under 42
          C.F.R. Section 417.479.

7.3.5.5       HMO must ensure that IPAs and ANHCs with whom HMO contracts
          comply with the requirements above. HMO is required to meet the
          requirements above for all levels of subcontracting.

7.4           PROVIDER MANUAL AND PROVIDER TRAINING

7.4.1         HMO must prepare and issue a Provider Manual(s),  including any
          necessary specialty manuals (e.g. behavioral health) to the providers
          in the HMO network and to newly contracted providers in the HMO
          network within five (5) working days from inclusion of the provider
          into the network.  The Provider Manual must contain sections relating
          to special requirements of the STAR Program as required under this
          contract.  See Appendix D, Required Critical Elements, for specific
          details regarding content requirements.

          Provider Manual and any revisions must be approved by TDH prior to
          publication and distribution to providers (see Article 3.4.1
          regarding the process for plan materials review).

7.4.2         HMO must provide training to all network providers and their
          staff regarding the requirements of the TDH/HMO contract and special
          needs of STAR Members.

7.4.2.1       HMO training for all providers must be completed no later than 30
          days after placing a newly contracted provider on active status. HMO
          must provide on-going training to new and existing providers as
          required by HMO or TDH to comply with this contract.

7.4.2.2       HMO must include in all PCP training how to screen for and
          identify behavioral health disorders, HMO's referral process to
          behavioral health care services and clinical coordination
          requirements for behavioral health.  HMO must include in all training
          for behavioral health providers how to identify physical health
          disorders, HMO's referral process to primary care and clinical
          coordination requirements between physical medicine and behavioral
          health providers.  HMO must include training on coordination and
          quality of care such as behavioral health screening techniques for
          PCPs and new models of behavioral health interventions.

7.4.3         HMO must provide primary care and behavioral health providers
          with screening tools and instruments approved by TDH.


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7.4.4         HMO must maintain and make available upon request enrollment or
          attendance rosters dated and signed by each attendee or other written
          evidence of training of each network provider and their staff.

7.4.5         HMO must have its written policies and procedures for the
          screening, assessment and referral processes between behavioral
          health providers and physical medicine providers available for TDH
          review prior to the effective date of the contract.

7.5           MEMBER PANEL REPORTS

          HMO must furnish each PCP with a current list of enrolled Members
          enrolled or assigned to that Provider no later than 5 days after HMO
          receives the Enrollment File from the Enrollment Broker each month.
          If the 5th day falls on a weekend or state holiday, the file must be
          provided by the following working day.

7.6           PROVIDER COMPLAINT AND APPEAL PROCEDURES

7.6.1         HMO must develop, implement and maintain a provider complaint
          system.  The complaint and appeal procedures must be in compliance
          with all applicable state and federal law or regulations.  All Member
          complaints and/or appeals of an adverse determination requested by
          the enrollee, or any person acting on behalf of the enrollee, or a
          physician or provider acting on behalf of the enrollee must comply
          with the provisions of this Article.  Modifications and amendments to
          the complaint system must be submitted to TDH no later than 30 days
          prior to the implementation of the modification or amendment.

7.6.2         HMO must include the provider complaint and appeal procedure in
          all network provider contracts or in the provider manual.

7.6.3         HMO's complaint and appeal process cannot contain provisions
          requiring a Member to submit a complaint or appeal to TDH for
          resolution in lieu of the HMO's process.

7.6.4         HMO must establish mechanisms to ensure that network providers
          have access to a person who can assist providers in resolving issues
          relating to claims payment, plan administration, education and
          training, and complaint procedures.

7.7           PROVIDER QUALIFICATIONS - GENERAL

          The providers in HMO network must meet the following qualifications:


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<TABLE>
<S>          <C>
--------------------------------------------------------------------------------
FQHC          A Federally Qualified Health Center meets the standards
              established by federal rules and procedures. The FQHC must also
              be an eligible provider enrolled in the Medicaid program.
--------------------------------------------------------------------------------
Physician     An individual who is licensed to practice medicine as an M.D. or
              a D.O. in the State of Texas either as a primary care provider or
              in the area of specialization under which they will provide
              medical services under contract with HMO; who is a provider
              enrolled in the Medicaid program; and who has a valid Drug
              Enforcement Agency registration number and a Texas Controlled
              Substance Certificate, if either is required in their practice.
--------------------------------------------------------------------------------
Hospital      An institution licensed as a general or special hospital by the
              State of Texas under Chapter 241 of the Health and Safety Code
              and Private Psychiatric Hospitals under Chapter 577 of the Health
              and Safety Code (or is a provider which is a component part of a
              State or local government entity which does not require a license
              under the laws of the State of Texas), which is enrolled as a
              provider in the Texas Medicaid Program. HMO will require that all
              facilities in the network used for acute inpatient specialty care
              for people under age 21 with disabilities or chronic or complex
              conditions will have a designated pediatric unit; 24-hour
              laboratory and blood bank availability; pediatric radiological
              capability; meet JCAHO standards; and have discharge planning and
              social service units.
--------------------------------------------------------------------------------
Non-Physician An individual holding a license issued by the applicable
Practitioner  licensing agency of the State of Texas who is enrolled in the
Provider      Texas Medicaid Program or an individual properly trained to
              provide behavioral health support services who practices under
              the direct supervision of an appropriately licensed professional.
--------------------------------------------------------------------------------
Clinical      An entity having a current certificate issued under the Federal
Laboratory    Clinical Laboratory Improvement Act (CLIA), and enrolled in the
              Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health  An institution which meets all of the criteria for designation as
Clinic (RHC)  a rural health clinic, and enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Local         A local health department established pursuant to Health and
Health        Safety Code, Title 2, Local Public Health Reorganization Act
Department    Section 121.031ff.
--------------------------------------------------------------------------------
</TABLE>


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<TABLE>
<S>          <C>
--------------------------------------------------------------------------------
Local         Under Section 531.002(8) of the Health and Safety Code, the local
Mental        component of the TXMHMR system designated by TDMHMR to carry out
Health        the legislative mandate for planning, policy development,
Authority     coordination, and resource development/allocation and for
(LMHA)        supervising and ensuring the provision of mental health care
              services to persons with mental illness in one or more local
              service areas.
--------------------------------------------------------------------------------
Non-Hospital  A provider of health care services which is licensed and
Facility      credentialed to provide services, and enrolled in the Texas
Provider      Medicaid Program.
--------------------------------------------------------------------------------
School Based  Clinics located at school campuses that provide on-site
Health        primary and preventive care to children and adolescents.
Clinic
(SBHC)
--------------------------------------------------------------------------------
</TABLE>


7.8           PRIMARY CARE PROVIDERS

7.8.1         HMO must have a system for monitoring Member enrollment into its
          plan to allow HMO to effectively plan for future needs and recruit
          network providers as necessary to ensure adequate access to primary
          care and specialty care.  The Member enrollment monitoring system
          must include the length of time required for Members to access care
          within the network.  The monitoring system must also include
          monitoring after-hours availability and accessibility of PCPs.

7.8.2         HMO must maintain a primary care provider network in sufficient
          numbers and geographic distribution to serve a minimum of forty-five
          percent (45%) of the mandatory STAR eligibles in each county of the
          service area.  HMO is required to increase the capacity of the
          network as necessary to accommodate enrollment growth beyond the
          forty-fifth percentile (45%).

7.8.3         HMO must maintain a provider network that includes pediatricians
          and physicians with pediatric experience in sufficient numbers and
          geographic distribution to serve eligible children and adolescents in
          the service area and provide timely access to the full scope of
          benefits, especially THSteps checkups and immunizations.

7.8.4         HMO must comply with the access requirements as established by
          the Texas Department of Insurance for all HMOs doing business in
          Texas, except as otherwise required by this contract.

7.8.5         HMO must have physicians with board eligibility/certification in
          pediatrics available for referral for Members under the age of 21.


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7.8.5.1       Individual PCPs may serve more than 2,000 Members. However, if
          TDH determines that a PCP's Member enrollment exceeds the PCP's
          ability to provide accessible, quality care, TDH may prohibit the PCP
          from receiving further enrollments. TDH may direct HMOs to assign or
          reassign Members to another PCP's panel.

7.8.6         HMO must have PCPs available throughout the service area to
          ensure that no Member must travel more than 30 miles to access the
          PCP, unless an exception to this distance requirement is made by TDH.

7.8.7         HMO'S PRIMARY CARE PROVIDER NETWORK MAY INCLUDE PROVIDERS FROM
          ANY OF THE FOLLOWING PRACTICE AREAS:  GENERAL PRACTITIONERS; FAMILY
          PRACTITIONERS; INTERNISTS; PEDIATRICIANS; OBSTETRICIANS/GYNECOLOGISTS
          (OB/GYN); PEDIATRIC AND FAMILY ADVANCED PRACTICE NURSES (APNS) AND
          CERTIFIED NURSE MIDWIVES WOMEN HEALTH (CNMS) PRACTICING UNDER THE
          SUPERVISION OF A PHYSICIAN; PHYSICIAN ASSISTANTS (PAS) PRACTICING
          UNDER THE SUPERVISION OF A PHYSICIAN SPECIALIZING IN FAMILY PRACTICE,
          INTERNAL MEDICINE, PEDIATRICS OR OBSTETRICS/GYNECOLOGY WHO ALSO
          QUALIFIES AS A PCP UNDER THIS CONTRACT; OR FEDERALLY QUALIFIED HEALTH
          CENTERS (FQHCS), RURAL HEALTH CLINICS (RHCS) AND SIMILAR COMMUNITY
          CLINICS; AND SPECIALISTS WHO ARE WILLING TO PROVIDE MEDICAL HOMES TO
          SELECTED MEMBERS WITH SPECIAL NEEDS AND CONDITIONS (SEE ARTICLE
          7.9.4).

7.8.8         The PCP for a Member with disabilities or chronic or complex
          conditions may be a specialist who agrees to provide PCP services to
          the Member.  The specialty provider must agree to perform all PCP
          duties required in the contract and PCP duties must be within the
          scope of the specialist's license.  Any interested person may
          initiate the request for a specialist to serve as a PCP for a Member
          with disabilities or chronic or complex conditions.

7.8.9         PCPs must either have admitting privileges at a hospital, which
          is part of HMO network of providers, or make referral arrangements
          with an HMO provider who has admitting privileges to a network
          hospital.

7.8.10        HMO must require, through contract provisions, that PCPs are
          accessible to Members 24 hours a day, 7 days a week. The following
          are acceptable and unacceptable phone arrangements for contacting
          PCPs after normal business hours.

          Acceptable:


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<PAGE>   75

          (1) Office phone is answered after-hours by an answering service
              which meets language requirements of the major population groups
              and which can contact the PCP or another designated medical
              practitioner. All calls answered by an answering service must be
              returned within 30 minutes.

          (2) Office phone is answered after normal business hours by a
              recording in the language of each of the major population groups
              served directing the patient to call another number to reach the
              PCP or another provider designated by the PCP. Someone must be
              available to answer the designated provider's phone. Another
              recording is not acceptable.

          (3) Office phone is transferred after office hours to another
              location where someone will answer the phone and be able to
              contact the PCP or another designated medical practitioner, who
              can return the call within 30 minutes.

          Unacceptable:

          (1) Office phone is only answered during office hours.

          (2) Office phone is answered after-hours by a recording which tells
              patients to leave a message.

          (3) Office phone is answered after-hours by a recording which directs
              patients to go to an Emergency Room for any services needed.

          (4) Returning after-hours calls outside of 30 minutes.

7.8.11        HMO must require PCPs, through contract provisions or provider
          manual, to provide primary care services and continuity of care to
          Members who are enrolled with or assigned to the PCP.  Primary care
          services are all services required by a Member for the prevention,
          detection, treatment and cure of illness, trauma, disease or
          disorder, which are covered and/or required services under this
          contract. All services must be provided in compliance with generally
          accepted medical and behavioral health standards for the community in
          which services are rendered.  HMO must require PCPs, through contract
          provisions or provider manual, to provide children under the age of
          21 services in accordance with the American Academy of Pediatric
          recommendations and the THSteps periodicity schedule and provide
          adults services in accordance with the U.S. Preventive Services Task
          Force's publication "Put Prevention Into Practice".

7.8.11.1  HMO must require PCPs, through contract provisions or provider
          manual, to assess the medical needs of Members for referral to
          specialty care providers and


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          provide referrals as needed. PCP must coordinate care with specialty
          care providers after referral.

7.8.11.2  HMO must require PCPs, through contract provisions or provider
          manual, to make necessary arrangements with home and community
          support services to integrate the Member's needs. This integration
          may be delivered by coordinating the care of Members with other
          programs, public health agencies and community resources which
          provide medical, nutritional, behavioral, educational and outreach
          services available to Members.

7.8.11.3  HMO must require, through contract provisions or provider manual,
          that the Member's PCP or HMO provider through whom PCP has made
          arrangements, be the admitting or attending physician for inpatient
          hospital care, except for emergency medical or behavioral health
          conditions or when the admission is made by a specialist to whom the
          Member has been referred by the PCP. HMO must require, through
          contract provisions or provider manual, that PCP assess the
          advisability and availability of outpatient treatment alternatives to
          inpatient admissions. HMO must require, through contract provisions
          or provider manual, that PCP provide or arrange for pre-admission
          planning for non-emergency inpatient admissions, and discharge
          planning for Members. PCP must call the emergency room with relevant
          information about the Member. PCP must provide or arrange for
          follow-up care after emergency or inpatient care.

7.8.11.4  HMO must require PCPs for children under the age of 21 to provide or
          arrange to have provided all services required under Article 6.8
          relating to Texas Health Steps, Article 6.9 relating to Perinatal
          Services, Article 6.10 relating to Early Childhood Intervention,
          Article 6.11 relating to WIC, Article 6.13 relating to People With
          Disabilities or Chronic or Complex Conditions, and Article 6.14
          relating to Health Education and Wellness and Prevention Plans. PCP
          must cooperate and coordinate with HMO to provide Member and the
          Member's family with knowledge of and access to available services.

7.8.12        PCP Selection and Changes.  All Medicaid recipients who are
          eligible for participation in the STAR program have the right to
          select their PCP and HMO.  Medicaid recipients who are mandatory STAR
          participants who do not select a PCP and/or HMO during the time
          period allowed will be assigned to a PCP and/or HMO using the TDH
          default process.  Members may change PCPs at any time, but these
          changes are limited to four (4) times per year.

7.8.12.1  Voluntary SSI Members. PCP changes cannot be performed retroactively
          for voluntary SSI Members. If an SSI Member requests a PCP change on
          or before the 15th of the month, the change will be effective the
          first day of the next month.


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          If an SSI Member requests a PCP change after the 15th of the month,
          the change will be effective the first day of the second month that
          follows. Exceptions to this policy will be allowed for reasons of
          medical necessity or other extenuating circumstances.

7.8.12.2  Mandatory Members. Retroactive changes to a Member's PCP should only
          be made if it is medically necessary or there are other circumstances
          which necessitate a retroactive change. HMO must pay claims for
          services provided by the original PCP. If the original PCP is paid on
          a capitated basis and services were provided during the period for
          which capitation was paid, HMO cannot recoup the capitation.

7.9           OB/GYN PROVIDERS

          HMO must allow a female Member to select an OB/GYN within its
          provider network or within a limited provider network in addition to
          a PCP, to provide health care services within the scope of the
          professional specialty practice of a properly credentialed OB/GYN.
          See Article 21.53D of the Texas Insurance Code and 28 TAC Sections
          11.506, 11.1600 and 11.1608. A Member who selects an OB/GYN must be
          allowed direct access to the health care services of the OB/GYN
          without a referral by the woman's PCP or a prior authorization or
          precertification from HMO. HMO must allow Members to change OB/GYNs
          up to four times per year. Health care services must include, but not
          be limited to:

7.9.1         One well-woman examination per year;

7.9.2         Care related to pregnancy;

7.9.3         Care for all active gynecological conditions; and

7.9.4         Diagnosis, treatment, and referral for any disease or condition
          within the scope of the professional practice of a properly
          credentialed obstetrician or gynecologist.

7.9.5         HMOs which allow its Members to directly access any OB/GYN
          provider within its network, must ensure that the provisions of
          Articles 7.9.1 through 7.9.4 continue to be met.

7.9.6         OB/GYN providers must comply with HMO's procedures contained in
          HMO's provider manual or provider contract for OB/GYN providers,
          including but not limited to prior authorization procedures.

7.10          SPECIALTY CARE PROVIDERS


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7.10.1        HMO must maintain specialty providers, including pediatric
          specialty providers, within the network in sufficient numbers and
          areas of practice to meet the needs of all Members requiring
          specialty care or services.

7.10.2        HMO must require, through contract provisions or provider manual,
          that specialty providers send a record of consultation and
          recommendations to a Member's PCP for inclusion in Member's medical
          record and report encounters to the PCP and/or HMO.

7.10.3        HMO must ensure availability and accessibility to appropriate
          specialists.

7.10.4        HMO must ensure that no Member is required to travel in excess of
          75 miles to secure initial contact with referral specialists; special
          hospitals, psychiatric hospitals; diagnostic and therapeutic
          services; and single service health care physicians, dentists or
          providers.  Exceptions to this requirement may be allowed when an HMO
          has established, through utilization data provided to TDH, that a
          normal pattern for securing health care services within an area
          exists or HMO is providing care of a higher skill level or specialty
          than the level which is available within the service area such as,
          but not limited to, treatment of cancer, burns, and cardiac diseases.

7.11          SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES

7.11.1        HMO must include all medically necessary specialty services
          through its network specialists, subspecialists and specialty care
          facilities (e.g., children's hospitals, and tertiary care hospitals).

7.11.2        HMO must include requirements for pre-admission and discharge
          planning in its contracts with network hospitals. Discharge plans for
          a Member must be provided by HMO or the hospital to the
          Member/family, the PCP and specialty care physicians.

7.11.3        HMO must have appropriate multidisciplinary teams for people with
          disabilities or chronic or complex medical conditions. These teams
          must include the PCP and any individuals or providers involved in the
          day-to-day or on-going care of the Member.

7.11.4        HMO must include in its provider network a TDH-designated
          perinatal care facility, as established by Section 32.042, Texas
          Health and Safety Code, once the designated system is finalized and
          perinatal care facilities have been approved for the service area
          (see Article 6.9.1).


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7.12          BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)

7.12.1        Assessment to determine eligibility for rehabilitative and
          targeted MHMR case management services is a function of the LMHA. HMO
          must provide all covered services described in detail in the Texas
          Medicaid Provider Procedures Manual (Provider Procedures Manual) and
          the Texas Medicaid Bulletins which is the bi-monthly update to the
          Provider Procedures Manual. Clinical information regarding covered
          services are published by the Texas Medicaid program in the Texas
          Medicaid Service Delivery Guide. Covered services must be provided to
          Members with SPMI and SED, when medically necessary, whether or not
          they are also receiving targeted case management or rehabilitation
          services through the LMHA.

7.12.2        HMO will coordinate with the LMHA and state psychiatric facility
          regarding admission and discharge planning, treatment objectives and
          projected length of stay for Members committed by a court of law to
          the state psychiatric facility.

7.12.3        HMO must enter into written agreements with all LMHAs in the
          service area which describes the process(es) which HMO and LMHA will
          use to coordinate services for STAR Members with SPMI or SED. The
          agreement will contain the following provisions:

7.12.3.1  Describe the behavioral health covered services indicated in detail
          in the Provider Procedures Manual and the Texas Medicaid Bulletins
          which is the bi-monthly update to the Provider Procedures Manual.
          Clinical information regarding covered services are published by the
          Texas Medicaid program in the Texas Medicaid Service Delivery Guide.
          Also include the amount, duration, and scope of basic and value-added
          services, and HMO's responsibility to provide these services;

7.12.3.2  Describe criteria, protocols, procedures and instrumentation for
          referral of STAR Members from and to HMO and LMHA;

7.12.3.3  Describe processes and procedures for referring Members with SPMI or
          SED to LMHA for assessment and determination of eligibility for
          rehabilitation or targeted case management services;

7.12.3.4  Describe how the LMHA and HMO will coordinate providing behavioral
          health care services to Members with SPMI or SED;

7.12.3.5  Establish clinical consultation procedures between HMO and LMHA
          including


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          consultation to effect referrals and on-going consultation regarding
          the Member's progress;

7.12.3.6  Establish procedures to authorize release and exchange of clinical
          treatment records;

7.12.3.7  Establish procedures for coordination of assessment, intake/triage,
          utilization review/utilization management and care for persons with
          SPMI or SED;

7.12.3.8  Establish procedures for coordination of inpatient psychiatric
          services (including court ordered commitment of Members under 21) in
          state psychiatric facilities within the LMHA's catchment area;

7.12.3.9  Establish procedures for coordination of emergency and urgent
          services to Members; and

7.12.3.10 Establish procedures for coordination of care and transition of care
          for new HMO Members who are receiving treatment through the LMHA.

7.12.4        HMO must offer licensed practitioners of the healing arts, who
          are part of the Member's treatment team for rehabilitation services,
          the opportunity to participate in HMO's network. The practitioner
          must agree to accept the standard provider reimbursement rate, meet
          the credentialing requirements, comply with all the terms and
          conditions of the standard provider contract of HMO.

7.12.5        Members receiving rehabilitation services must be allowed to
          choose the licensed practitioners of the healing arts who are
          currently a part of the Member's treatment team for rehabilitation
          services.  If the Member chooses to receive these services from
          licensed practitioners of the healing arts who are part of the
          Member's rehabilitation services treatment team, HMO must reimburse
          the LMHA at current Medicaid fee-for-service amounts.

7.13          SIGNIFICANT TRADITIONAL PROVIDERS (STPS)

          HMO must seek participation in its provider network from:

7.13.1        Each health care provider in the service area who has
          traditionally provided care to Medicaid recipients;

7.13.2        Each hospital in the service area that has been designated as a
          disproportionate share hospital under Medicaid; and

7.13.3        Each specialized pediatric laboratory in the service area,
          including those


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          laboratories located in children's hospitals.

7.13.4        HMO must include significant traditional providers as designated
          by TDH in its provider network to provide primary care and specialty
          care services. HMO must include STPs in its provider network for at
          least three (3) years following the Implementation Date in the
          service area.

7.13.5        STPs must agree to the contract requirements contained in Article
          7.2, unless exempted from a requirement by law or rule. STPs must
          also agree to the following contract requirements:

7.13.5.1  STP must agree to accept the standard reimbursement rate offered by
          HMO to other providers for the same or similar services.

7.13.5.2  STP must meet the credentialing requirements of HMO. HMO must not
          require STPs to meet a different or higher credentialing standard
          than is required of other providers providing the same or similar
          services. HMO must not require STPs to contract with a subcontractor
          which requires a different or higher credentialing standard than the
          HMO's if the application of the higher standard results in a
          disproportionate number of STPs being excluded from the
          subcontractor.

7.13.6        Failure to demonstrate a good faith effort to meet TDH's
          compliance objectives to include STPs in HMO's provider network, or
          failure to report efforts and compliance as required in Article
          7.13.2.3, are defaults under this contract and may result in any or
          all of the sanctions and remedies included in Article XVIII of this
          contract.

7.14          RURAL HEALTH PROVIDERS

7.14.1        In rural areas of the service area, HMO must seek the
          participation in its provider network of rural hospitals, physicians,
          home and community support service agencies, and other rural health
          care providers who:

7.14.1.1  are the only providers located in the service area; and

7.14.1.2  are Significant Traditional Providers.

7.14.2        In order to contract with HMO, rural health providers must:

7.14.2.1  agree to accept the prevailing provider contract rate of HMO based on
          provider type; and

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7.14.2.2  have the credentials required by HMO, provided that lack of board
          certification or accreditation by JCAHO may not be the only grounds
          for exclusion from the provider network.

7.14.3        HMO must reimburse rural hospitals with 100 or fewer licensed
          beds in counties with fewer than 50,000 persons for acute care
          services at a rate calculated using the higher of the prospective
          payment system rate or the cost reimbursed methodology authorized
          under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).
          Hospitals reimbursed under TEFRA cost principles shall be paid
          without the imposition of the TEFRA cap.

7.14.4        HMO must reimburse physicians who practice in rural counties with
          fewer than 50,000 persons at a rate using the current Medicaid fee
          schedule, including negotiated fee-for-service.

7.15          FEDERALLY QUALIFIED HEALTH CENTERS (FQHCS) AND RURAL HEALTH
          CLINICS (RHCS)

7.15.1        HMO must make reasonable efforts to include FQHCs and RHCs
          (Freestanding and hospital-based) in its provider network.

7.15.2        FQHCs or RHCs will receive a cost settlement from TDH and must
          agree to accept initial payments from HMO in an amount that is equal
          to or greater than HMO's payment terms for other providers providing
          the same or similar services.

7.15.2.1  HMO must submit monthly FQHC and RHC encounter and payment reports to
          all contracted FQHCs and RHCs, and FQHCs and RHCs with whom there
          have been encounters, not later than 21 days from the end of the
          month for which the report is submitted. The format will be developed
          by TDH. The FQHC and RHC must validate the encounter and payment
          information contained in the report(s). HMO and the FQHC/RHC must
          both sign the report(s) after each party agrees that it accurately
          reflects encounters and payments for the month reported. HMO must
          submit the signed FQHC and RHC encounter and payment reports to TDH
          not later than 45 days from the end of the month for which the report
          is submitted.

7.15.2.2  For FQHCs, TDH will determine the amount of the interim settlement
          based on the difference between: an amount equal to the number of
          Medicaid allowable encounters multiplied by the rate per encounter
          from the latest settled FQHC fiscal year cost report, and the amount
          paid by HMO to the FQHC for the quarter. For RHCs, TDH will determine
          the amount of the interim settlement based on the difference between
          a reasonable cost amount methodology provided by TDH and


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          the amount paid by HMO to the RHC for the quarter. TDH will pay the
          FQHC or the RHC the amount of the interim settlement, if any, as
          determined by TDH or collect and retain the quarterly recoupment
          amount, if any.

7.15.2.3  TDH will cost settle with each FQHC and RHC annually, based on the
          FQHC or the RHC fiscal year cost report and the methodology described
          in Article 7.15.2.2. TDH will make additional payments or recoup
          payments from the FQHC or the RHC based on reasonable costs less
          prior interim payment settlements.

7.15.2.4  Cost settlements for RHCs, and HMO's obligation to provide RHC
          reporting described in Article 7.15, are retroactive to October 1,
          1997.

7.16          COORDINATION WITH PUBLIC HEALTH

7.16.1        Reimbursed Arrangements.  HMO must make a good faith effort to
          enter into a subcontract for the covered health care services as
          specified below with TDH Public Health Regions, city and/or county
          health departments or districts in each county of the service area
          that will be providing these services to the Members (Public Health
          Entities), who will be paid for services by HMO, including any or all
          of the following services or any covered service which the public
          health department and HMO  have agreed to provide:

7.16.1.1  Sexually Transmitted Diseases (STDs) Services (see Article 6.15);

7.16.1.2  Confidential HIV Testing (see Article 6.15);

7.16.1.3  Immunizations;

7.16.1.4  Tuberculosis (TB) Care (see Article 6.12);

7.16.1.5  Family Planning Services (see Article 6.7);

7.16.1.6  THSteps checkups (see Article 6.8); and

7.16.1.7  Prenatal services (see Article 6.9).

7.16.2         HMO must make a good faith effort to enter into subcontracts
          with public health entities in the service area.  The subcontracts
          must be available for review by TDH or its designated agent(s) on the
          same basis as all other subcontracts.  If any changes are made to the
          contract, it must be resubmitted to TDH.   If an HMO is unable to
          enter into a contract with public health entities, HMO must document
          current and past efforts to TDH.  Documentation must be submitted no
          later than


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          120 days after the execution of this contract.  Public health
          subcontracts must include the following areas:

7.16.2.1  The general relationship between HMO and the Public Health entity.
          The subcontracts must specify the scope and responsibilities of both
          parties, the methodology and agreements regarding billing and
          reimbursements, reporting responsibilities, Member and provider
          educational responsibilities, and the methodology and agreements
          regarding sharing of confidential medical record information between
          the public health entity and the PCP.

7.16.2.2  Public Health Entity responsibilities:

          (1) Public health providers must inform Members that confidential
              health care information will be provided to the PCP.

          (2) Public health providers must refer Members back to PCP for any
              follow-up diagnostic, treatment, or referral services.

          (3) Public health providers must educate Members about the importance
              of having a PCP and accessing PCP services during office hours
              rather than seeking care from Emergency Departments, Public
              Health Clinics, or other Primary Care Providers or Specialists.

          (4) Public health entities must identify a staff person to act as
              liaison to HMO to coordinate Member needs, Member referral,
              Member and provider education, and the transfer of confidential
              medical record information.

7.16.2.3  HMO Responsibilities:

          (1) HMO must identify care coordinators who will be available to
              assist public health providers and PCPs in getting efficient
              referrals of Members to the public health providers, specialists,
              and health-related service providers either within or outside
              HMO's network.

          (2) HMO must inform Members that confidential healthcare information
              will be provided to the PCP.

          (3) HMO must educate Members on how to better utilize their PCPs,
              public health providers, emergency departments, specialists, and
              health-related service providers.

7.16.2.4  Existing contracts must include the provisions in Articles 7.16.2.1
          through

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          7.16.2.3.

7.16.3        Non-Reimbursed Arrangements with Public Health Entities.

7.16.3.1  Coordination with Public Health Entities. HMOs must make a good faith
          effort to enter into a Memorandum of Understanding (MOU) with Public
          Health Entities in the service area regarding the provision of
          services for essential public health care services. These MOUs must
          be entered into in each service area and are subject to TDH approval.
          If any changes are made to the MOU, it must be resubmitted to TDH. If
          an HMO is unable to enter into an MOU with a public health entity,
          HMO must document current and past efforts to TDH. Documentation must
          be submitted no later than 120 days after the execution of this
          contract. MOUs must contain the roles and responsibilities of HMO and
          the public health department for the following services:

          (1) Public health reporting requirements regarding communicable
              diseases and/or diseases which are preventable by immunization as
              defined by state law;

          (2) Notification of and referral to the local Public Health Entity,
              as defined by state law, of communicable disease outbreaks
              involving Members;

          (3) Referral to the local Public Health Entity for TB contact
              investigation and evaluation and preventive treatment of persons
              whom the Member has come into contact;

          (4) Referral to the local Public Health Entity for STD/HIV contact
              investigation and evaluation and preventive treatment of persons
              whom the Member has come into contact; and,

          (5) Referral for WIC services and information sharing;

          (6) Coordination and follow-up of suspected or confirmed cases of
              childhood lead exposure.

7.16.3.2  Coordination with Other TDH Programs. HMOs must make a good faith
          effort to enter into a Memorandum of Understanding (MOU) with other
          TDH programs regarding the provision of services for essential public
          health care services. These MOUs must be entered into in each service
          area and are subject to TDH approval. If any changes are made to the
          MOU, it must be resubmitted to TDH. If an HMO is unable to enter into
          an MOU with other TDH programs, HMO must document current and past
          efforts to TDH. Documentation must be submitted no later than 120
          days after the execution of this contract. MOUs must delineate the
          roles and


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          responsibilities of HMO and the TDH programs for the following
          services:

          (1)  Use of the TDH laboratory for THSteps newborn screens; lead
               testing; and hemoglobin/hematocrit tests;

          (2)  Availability of vaccines through the Vaccines for Children
               Program;

          (3)  Reporting of immunizations provided to the statewide ImmTrac
               Registry including parental consent to share data;

          (4)  Referral for WIC services and information sharing;

          (5)  Pregnant, Women and Infant (PWI) Targeted Case Management;

          (6)  THSteps outreach, informing and Medical Case Management;

          (7)  Participation in the community-based coalitions with the
               Medicaid-funded case management programs in MHMR, ECI, TCB, and
               TDH (PWI, CIDC and THSteps Medical Case Management);

          (8)  Referral to the TDH Medical Transportation Program;

          (9)  Cooperation with activities required of public health
               authorities to conduct the annual population and community based
               needs assessment; and

          (10) Coordination and follow-up of suspected or confirmed cases of
               childhood lead exposure.

7.16.4         All public health contracts must contain provider network
          requirements in Article VII, as applicable.

7.17           COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY
          SERVICES

7.17.1         HMO must cooperate and coordinate with the Texas Department of
          Protective and Regulatory Services (TDPRS) for the care of a child
          who is receiving services from or has been placed in the
          conservatorship of TDPRS.

7.17.2         HMO must comply with all provisions of a Court Order or TDPRS
          Service Plan with respect to a child in the conservatorship of TDPRS
          (Order) entered by a Court of Continuing Jurisdiction placing a child
          under the protective


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          custody of TDPRS or a Service Plan voluntarily entered into by the
          parents or person having legal custody of a minor and TDPRS, which
          relates to the health and behavioral health care services required to
          be provided to the Member.

7.17.3        HMO cannot deny, reduce, or controvert the medical necessity of
          any health or behavioral health care services included in an Order
          entered by a court.  HMO may participate in the preparation of the
          medical and behavioral care plan prior to TDPRS submitting the health
          care plan to the Court. Any modification or termination of court
          ordered services must be presented and approved by the court with
          jurisdiction over the matter.

7.17.4        A Member or the parent or guardian whose rights are subject to an
          Order or Service Plan cannot appeal the necessity of the services
          ordered through HMO's complaint or appeal processes, or to TDH for a
          Fair Hearing.

7.17.5        HMO must include information in its provider training and manuals
          regarding:

7.17.5.1  providing medical records;

7.17.5.2  scheduling medical and behavioral health appointments within 14 days
          unless requested earlier by TDPRS; and

7.17.5.3  recognition of abuse and neglect and appropriate referral to TDPRS.

7.17.6        HMO must continue to provide all covered services to a Member
          receiving services from or in the protective custody of TDPRS until
          the Member has been disenrolled from HMO as a result of loss of
          eligibility in Medicaid managed care or placement into foster care.

7.18          DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs)

7.18.1        All HMO contracts with any of the entities described in Texas
          Insurance Code Article 20A.02(ee) and a group of providers who are
          licensed to provide the same health care services or an entity that
          is wholly-owned or controlled by one or more hospitals and physicians
          including a physician-hospital organization (delegated network
          contracts) must:

7.18.1.1  contain the mandatory contract provisions for all subcontractors in
          Article 3.2 of this contract;

7.18.1.2  comply with the requirements, duties and responsibilities of this
          contract;

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7.18.1.3  not create a barrier for full participation to significant
          traditional providers;

7.18.1.4  not interfere with TDH's oversight and audit responsibilities
          including collection and validation of encounter data; or

7.18.1.5  be consistent with the federal requirement for simplicity in the
          administration of the Medicaid program.

7.18.2        In addition to the mandatory provisions for all subcontracts
          under Articles 3.2. and 7.2, all HMO/delegated network contracts must
          include the following mandatory standard provisions:

7.18.2.1  HMO is required to include subcontract provisions in its delegated
          network contracts which require the UM protocol used by a delegated
          network to produce substantially similar outcomes, as approved by
          TDH, as the UM protocol employed by the contracting HMO. The
          responsibilities of an HMO in delegating UM functions to a delegated
          network will be governed by Article 16.3.11 of this contract.

7.18.2.2  Delegated networks that are delegated claims payment responsibilities
          by HMO must also have the responsibility to submit encounter,
          utilization, quality, and financial data to HMO. HMO remains
          responsible for integrating all delegated network data reports into
          HMO's reports required under this contract. If HMO is not able to
          collect and report all delegated network data for HMO reports
          required by this contract, HMO must not delegate claims processing to
          the delegated network.

7.18.2.3  The delegated network must comply with the same records retention and
          production requirements, including Open Records requirements, as the
          HMO under this contract.

7.18.2.4  The delegated network is subject to the same marketing restrictions
          and requirements as the HMO under this contract.

7.18.2.5  HMO is responsible for ensuring that delegated network contracts
          comply with the requirements and provisions of the TDH/HMO contract.
          TDH will impose appropriate sanctions and remedies upon HMO for any
          default under the TDH/HMO contract which is caused directly or
          indirectly by the acts or omissions of the delegated network.

7.18.3        HMO cannot enter into contracts with delegated networks to
          provide services under this contract which require the delegated
          network to enter into


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          exclusive contracts with HMO as a condition for participation with
          HMO.

7.18.3.1  Article 17.18.3 does not apply to providers who are employees or
          participants in limited provider networks.

7.18.4        All delegated networks that limit Member access to those
          providers contracted with the delegated network (closed or limited
          panel networks) with whom HMO contracts must either independently
          meet the access provisions of 28 Texas Administrative Code Section
          11.1607, relating to access requirements for those Members enrolled
          or assigned to the delegated network, or HMO must provide for access
          through other network providers outside the closed panel delegated
          network.

7.18.5        HMO cannot delegate to a delegated network the enrollment,
          re-enrollment, assignment or reassignment of a Member.

7.18.6        In addition to the above provision HMO and approved Non-Profit
          Health Corporations must comply with all of the requirements
          contained in 28 TAC Section 11.1604, relating to Requirements of
          Certain Contracts between Primary HMOs and ANHCs and Primary HMOs and
          Provider HMOs.

7.18.7        HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
          RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS OF
          WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS CONTRACTED OR
          DELEGATED TO ANOTHER.  HMO MUST PROVIDE A COPY OF THE CONTRACT
          PROVISIONS THAT SET OUT HMO'S DUTIES, RESPONSIBILITIES, AND SERVICES
          TO ANY PROVIDER NETWORK OR GROUP WITH WHOM HMO CONTRACTS TO PROVIDE
          HEALTH CARE SERVICES ON A RISK SHARING OR CAPITATED BASIS OR TO
          PROVIDE HEALTH CARE SERVICES.


ARTICLE VIII  MEMBER SERVICES REQUIREMENTS

8.1           MEMBER EDUCATION

          HMO must provide the Member education requirements as contained in
          Article VI at 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13, and
          6.14, and this Article of the contract.

8.2           MEMBER HANDBOOK


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8.2.1         HMO must mail each newly enrolled Member a Member Handbook no
          later than five (5) days after HMO receives the Enrollment File.  If
          the 5th day falls on a weekend or state holiday, the Member Handbook
          must be mailed by the following working day.  The Member Handbook
          must be written at a 4th - 6th grade reading comprehension level. The
          Member Handbook must contain all critical elements specified by TDH.
          See Appendix D, Required Critical Elements, for specific details
          regarding content requirements.  HMO must submit a Member Handbook to
          TDH for approval prior to the effective date of the contract unless
          previously approved (see Article 3.4.1 regarding the process for plan
          materials review).

8.2.2         Member Handbook Updates. HMO must provide updates to the Handbook
          to all Members as changes are made to the Required Critical Elements
          in Appendix D. HMO must make the Member Handbook available in the
          languages of the major population groups and the visually impaired
          served by HMO.

8.2.3         THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE APPROVED
          BY TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO MEMBERS (see Article
          3.4.1 regarding the process for plan materials review).

8.3           ADVANCE DIRECTIVES

8.3.1         Federal and state law require HMOs and providers to maintain
          written policies and procedures for informing and providing written
          information to all adult Members 18 years of age and older about
          their rights under state and federal law, in advance of their
          receiving care (Social Security Act Section 1902(a)(57) and Section
          1903(m)(1)(A)).  The written policies and procedures must contain
          procedures for providing written information regarding the Member's
          right to refuse, withhold or withdraw medical treatment advance
          directives.  HMO's policies and procedures must comply with
          provisions contained in 42 CFR Section 434.28 and 42 CFR Section 489,
          SubPart I, relating to advance directives for all hospitals, critical
          access hospitals, skilled nursing facilities, home health agencies,
          providers of home health care, providers of personal care services
          and hospices, as well as the following state laws and rules:

8.3.1.1       a Member's right to self-determination in making health care
          decisions; and

8.3.1.2       the Advance Directives Act, Chapter 166, Texas Health and Safety
          Code,


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          which includes:

8.3.1.2.1 a Member's right to execute an advance written directive to
          physicians and family or surrogates, or to make a non-written
          directive to administer, withhold or withdraw life-sustaining
          treatment in the event of a terminal or irreversible condition;

8.3.1.2.2 a Member's right to make written and non-written Out-of-Hospital
          Do-Not-Resuscitate Orders; and

8.3.1.2.3 a Member's right to execute a Medical Power of Attorney to appoint an
          agent to make health care decisions on the Member's behalf if the
          Member becomes incompetent.

8.3.2         HMO must maintain written policies for implementing a Member's
          advance directive. Those policies must include a clear and precise
          statement of limitations if HMO or a participating provider cannot or
          will not implement a Member's advance directive.

8.3.2.1       A statement of limitation on implementing a Member's advance
          directive should include at least the following information:

8.3.2.1.1 a clarification of any differences between HMO's conscience
          objections and those which may be raised by the Member's PCP or other
          providers;

8.3.2.1.2 identification of the state legal authority permitting HMO's
          conscience objections to carrying out an advance directive; and

8.3.2.1.3 a description of the range of medical conditions or procedures
          affected by the conscience objection.

8.3.3         HMO cannot require a Member to execute or issue an advance
          directive as a condition for receiving health care services.

8.3.4         HMO cannot discriminate against a Member based on whether or not
          the Member has executed or issued an advance directive.

8.3.5         HMO's policies and procedures must require HMO and subcontractor
          to comply with the requirements of state and federal law relating to
          advance directives. HMO must provide education and training to
          employees, Members, and the community on issues concerning advance
          directives.

8.3.6         All materials provided to Members regarding advance directives
          must be


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          written at a 7th - 8th grade reading comprehension level, except
          where a provision is required by state or federal law and the
          provision cannot be reduced or modified to a 7th- 8th grade reading
          level because it is a reference to the law or is required to be
          included "as written" in the state or federal law.  HMO must submit
          to TDH any revisions to existing approved advance directive
          materials.

8.3.7         HMO must notify Members of any changes in state or federal laws
          relating to advance directives within 90 days from the effective date
          of the change, unless the law or regulation contains a specific time
          requirement for notification.

8.4           MEMBER ID CARDS

8.4.1         A Medicaid Identification Form (Form 3087) is issued monthly by
          the TDHS. The form includes the "STAR" Program logo and the name and
          toll free number of the Member's health plan. A Member may have a
          temporary Medicaid Identification (Form 1027-A) which will include a
          STAR indicator.

8.4.2         HMO must issue a Member Identification Card (ID) to the Member
          within five (5) days from receiving the Enrollment File from the
          Enrollment Broker.  If the 5th day falls on a weekend or state
          holiday, the ID Card must be issued by the following working day. The
          ID Card must include, at a minimum, the following: Member's name;
          Member's Medicaid number; either the issue date of the card or
          effective date of the PCP assignment; PCP's name, address, and
          telephone number; name of HMO; name of IPA to which the Member's PCP
          belongs, if applicable; the 24-hour, seven (7) day a week toll-free
          telephone number operated by HMO; the toll-free number for behavioral
          health care services; and directions for what to do in an emergency.
          The ID Card must be reissued if the Member reports a lost card, there
          is a Member name change, if Member requests a new PCP, or for any
          other reason which results in a change to the information disclosed
          on the ID Card.

8.5           MEMBER HOTLINE

          HMO must maintain a toll-free Member telephone hotline 24 hours a
          day, seven days a week for Members to obtain assistance in accessing
          services under this contract. Telephone availability must be
          demonstrated through an abandonment rate of less than 10%.

8.6           MEMBER COMPLAINT PROCESS

8.6.1         HMO must develop, implement and maintain a Member complaint
          system that complies with the requirements of Article 20A.12 of the
          Texas Insurance Code, relating to the Complaint System, except where
          otherwise provided in this


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          contract and in applicable federal law.  The complaint and appeals
          procedure must be the same for all Members and must comply with Texas
          Insurance Code, Article 20A.12 or applicable federal law.
          Modifications and amendments must be submitted to TDH at least 30
          days prior to the implementation of the modification or amendment.

8.6.2         HMO must have written policies and procedures for receiving,
          tracking, reviewing, and reporting and resolving of Member
          complaints.  The procedures must be reviewed and approved in writing
          by TDH.  Any changes or modifications to the procedures must be
          submitted to TDH for approval thirty (30) days prior to the effective
          date of the amendment.

8.6.3         HMO must designate an officer of HMO who has primary
          responsibility for ensuring that complaints are resolved in
          compliance with written policy and within the time required.  An
          "officer" of HMO means a president, vice president, secretary,
          treasurer, or chairperson of the board for a corporation, the sole
          proprietor, the managing general partner of a partnership, or a
          person having similar executive authority in the organization.

8.6.4         HMO must have a routine process to detect patterns of complaints
          and disenrollments and involve management and supervisory staff to
          develop policy and procedural improvements to address the complaints.
          HMO must cooperate with TDH and TDH's Enrollment Broker in Member
          complaints relating to enrollment and disenrollment.

8.6.5         HMO's complaint procedures must be provided to Members in writing
          and in alternative communication formats.  A written description of
          HMO's complaint procedures must be in appropriate languages and easy
          for Members to understand. HMO must include a written description in
          the Member Handbook.  HMO must maintain at least one local and one
          toll-free telephone number for making complaints.

8.6.6         HMO's process must require that every complaint received in
          person, by telephone or in writing, is recorded in a written record
          and is logged with the following details: date; identification of the
          individual filing the complaint; identification of the individual
          recording the complaint; nature of the complaint; disposition of the
          complaint; corrective action required; and date resolved.

8.6.7         HMO's process must include a requirement that the Governing Body
          of HMO reviews the written records (logs) for complaints and appeals.

8.6.8         HMO is prohibited from discriminating against a Member because
          that


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          Member is making or has made a complaint.

8.6.9         HMO cannot process requests for disenrollments through HMO's
          complaint procedures. Requests for disenrollments must be referred to
          TDH within five (5) business days after the Member makes a
          disenrollment request.

8.6.10        HMO must develop, implement and maintain an appeal of adverse
          determination procedure that complies with the requirements of
          Article 21.58A of the Texas Insurance Code, relating to the
          utilization review, except where otherwise provided in this contract
          and in applicable federal law.  The appeal of an adverse
          determination procedure must be the same for all Members and must
          comply with Texas Insurance Code, Article 21.58A or applicable
          federal law. Modifications and amendments must be submitted to TDH no
          less than 30 days prior to the implementation of the modification or
          amendment.  When an enrollee, a person acting on behalf of an
          enrollee, or an enrollee's provider of record expresses orally or in
          writing any dissatisfaction or disagreement with an adverse
          determination, HMO or UR agent must regard the expression of
          dissatisfaction as a request to appeal an adverse determination.

8.6.11        If a complaint or appeal of an adverse determination relates to
          the denial, delay, reduction, termination or suspension of covered
          services by either HMO or a utilization review agent contracted to
          perform utilization review by HMO, HMO must inform Members they have
          the right to access the TDH Fair Hearing process at any time in lieu
          of the internal complaint system provided by HMO.  HMO is required to
          comply with the requirements contained in 1 TAC Chapter 357, relating
          to notice and Fair Hearings in the Medicaid program, whenever an
          action is taken to deny, delay, reduce, terminate or suspend a
          covered service.

8.6.12        If Members utilize HMO's internal complaint or appeal of adverse
          determination system and the complaint relates to the denial, delay,
          reduction, termination or suspension of covered services by either
          HMO or a utilization review agent contracted to perform utilization
          review by HMO, HMO must inform the Member that they continue to have
          a right to appeal the decision through the TDH Fair Hearing process.

8.6.13        The provisions of Article 21.58A, Texas Insurance Code, relating
          to a Member's right to appeal an adverse determination made by HMO or
          a utilization review agent by an independent review organization, do
          not apply to a Medicaid recipient.  Federal fair hearing requirements
          (Social Security Act Section 1902a(3), codified at 42 C.F.R. 431.200
          et. seq.) require the agency to make a final decision after a fair
          hearing, which conflicts with the State requirement that the IRO make
          a final decision. Therefore, the State requirement is pre-empted by
          the federal


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          requirement.

8.6.14        HMO will cooperate with the Enrollment Broker and TDH to resolve
          all Member complaints. Such cooperation may include, but is not
          limited to, participation by HMO or Enrollment Broker and/or TDH
          internal complaint committees.

8.6.15        HMO must have policies and procedures in place outlining the role
          of HMO's Medical Director in the Member Complaint System and appeal
          of an adverse determination. The Medical Director must have a
          significant role in monitoring, investigating and hearing complaints.

8.6.16        HMO must provide Member Advocates to assist Members in
          understanding and using HMO's complaint system and appeal of an
          adverse determination.

8.6.17        HMO's Member Advocates must assist Members in writing or filing a
          complaint or appeal of an adverse determination and monitoring the
          complaint or appeal through the Contractor's complaint or appeal of
          an adverse determination process until the issue is resolved.

8.7           MEMBER NOTICE, APPEALS AND FAIR HEARINGS

8.7.1         HMO must send Members the notice required by 1 Texas
          Administrative Code Section 357.5, whenever HMO takes an action to
          deny, delay, reduce or terminate covered services to a Member.  The
          notice must be mailed to the Member no less than 10 days before HMO
          intends to take an action.  If an emergency exists, or if the time
          within which the service must be provided makes giving 10 days notice
          impractical or impossible, notice must be provided by the most
          expedient means reasonably calculated to provide actual notice to the
          Member, including by phone, direct contact with the Member, or
          through the provider's office.

8.7.2         The notice must contain the following information:

8.7.2.1       Member's right to immediately access TDH's Fair Hearing process;

8.7.2.2       a statement of the action HMO will take;

8.7.2.3       the date the action will be taken;

8.7.2.4       an explanation of the reasons HMO will take the action;


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8.7.2.5       a reference to the state and/or federal regulations which support
          HMO's action;

8.7.2.6       an address where written requests may be sent and a toll-free
          number Member can call to: request the assistance of a Member
          representative, or file a complaint, or request a Fair Hearing;

8.7.2.7       a procedure by which Member may appeal HMO's action through
          either HMO's complaint process or TDH's Fair Hearings process;

8.7.2.8       an explanation that Members may represent themselves, or be
          represented by HMO's representative, a friend, a relative, legal
          counsel or another spokesperson;

8.7.2.9       an explanation of whether, and under what circumstances, services
          may be continued if a complaint is filed or a Fair Hearing requested;

8.7.2.10  a statement that if the Member wants a TDH Fair Hearing on the
          action, Member must make the request for a Fair Hearing within 90
          days of the date on the notice or the right to request a hearing is
          waived;

8.7.2.11  a statement explaining that HMO must make its decision within 30 days
          from the date the complaint is received by HMO; and

8.7.2.12  a statement explaining that a final decision must be made by TDH
          within 90 days from the date a Fair Hearing is requested.

8.8           MEMBER ADVOCATES

8.8.1         HMO must provide Member Advocates to assist Members. Member
          Advocates must be physically located within the service area. Member
          Advocates must inform Members of their rights and responsibilities,
          the complaint process, the health education and the services
          available to them, including preventive services.

8.8.2         Member Advocates must assist Members in writing complaints and
          are responsible for monitoring the complaint through HMO's complaint
          process until the Member's issues are resolved or a TDH Fair Hearing
          requested (see Articles 8.6.15, 8.6.16, and 8.6.17).

8.8.3          Member Advocates are responsible for making recommendations to
          management on any changes needed to improve either the care provided
          or the


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          way care is delivered. Member Advocates are also responsible for
          helping or referring Members to community resources available to meet
          Member needs that are not available from HMO as Medicaid covered
          services.

8.8.4         Member Advocates must provide outreach to Members and participate
          in TDH-sponsored enrollment activities.

8.9           MEMBER CULTURAL AND LINGUISTIC SERVICES

8.9.1         Cultural Competency Plan.  HMO must have a comprehensive written
          Cultural Competency Plan describing how HMO will ensure culturally
          competent services, and provide linguistic and disability-related
          access.  The Plan must describe how the individuals and systems
          within HMO will effectively provide services to people of all
          cultures, races, ethnic backgrounds, and religions as well as those
          with disabilities in a manner that recognizes, values, affirms, and
          respects the worth of the individuals and protects and preserves the
          dignity of each.  HMO must submit a written plan to TDH prior to the
          effective date of this contract unless previously submitted.
          Modifications and amendments to the written plan must be submitted to
          TDH no later than 30 days prior to implementation of the modification
          or amendment. The Plan must also be made available to HMO's network
          of providers.

8.9.2         The Cultural Competency Plan must include the following:

8.9.2.1       HMO's written policies and procedures for ensuring effective
          communication through the provision of linguistic services following
          Title VI of the Civil Rights Act guidelines and the provision of
          auxiliary aids and services, in compliance with the Americans with
          Disabilities Act, Title III, Department of Justice Regulation 36.303.
          HMO must disseminate these policies and procedures to ensure that
          both Staff and subcontractors are aware of their responsibilities
          under this provision of the contract.

8.9.2.2       A description of how HMO will educate and train its staff and
          subcontractors on culturally competent service delivery, and the
          provision of linguistic and/or disability-related access as related
          to the characteristics of its Members;

8.9.2.3       A description of how HMO will implement the plan in its
          organization, identifying a person in the organization who will serve
          as the contact with TDH on the Cultural Competency Plan;

8.9.2.4       A description of how HMO will develop standards and performance
          requirements for the delivery of culturally competent care and
          linguistic access,


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          and monitor adherence with those standards and requirements;

8.9.2.5       A description of how HMO will provide outreach and health
          education to Members, including racial and ethnic minorities,
          non-English speakers or limited-English speakers, and those with
          disabilities; and

8.9.2.6       A description of how HMO will help Members access culturally and
          linguistically appropriate community health or social service
          resources;

8.9.3         Linguistic, Interpreter Services, and Provision of Auxiliary Aids
          and Services.  HMO must provide experienced, professional
          interpreters when technical, medical, or treatment information is to
          be discussed. See Title VI of the Civil Rights Act of 1964, 42 U.S.C.
          Sections 2000d, et seq.  HMO must ensure the provision of auxiliary
          aids and services necessary for effective communication, as per the
          Americans with Disabilities Act, Title III, Department of Justice
          Regulations 36.303.

8.9.3.1       HMO must adhere to and provide to Members the Member Bill of
          Rights and Responsibilities as adopted by the Texas Health and Human
          Services Commission and contained at 1 Texas Administrative Code
          (TAC) Sections 353.202-353.203.  The Member Bill of Rights and
          Responsibilities assures Members the right "to have interpreters, if
          needed, during appointments with their providers and when talking to
          their health plan.  Interpreters include people who can speak in
          their native language, assist with a disability, or help them
          understand the information."

8.9.3.2       HMO must have in place policies and procedures that outline how
          Members can access face-to-face interpreter services in a provider's
          office if necessary to ensure the availability of effective
          communication regarding treatment, medical history or health
          education for a Member.  HMOs must inform its providers on how to
          obtain an updated list of participating, qualified interpreters.

8.9.3.3       A competent interpreter is defined as someone who is:

8.9.3.4       proficient in both English and the other language;

8.9.3.5       has had orientation or training in the ethics of interpreting;
          and

8.9.3.6       has the ability to interpret accurately and impartially.

8.9.3.7       HMO must provide 24-hour access to interpreter services for
          Members to


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          access emergency medical services within HMO's network.

8.9.3.8   Family Members, especially minor children, should not be used as
          interpreters in assessments, therapy or other medical situations in
          which impartiality and confidentiality are critical, unless
          specifically requested by the Member.  However, a family member or
          friend may be used as an interpreter if they can be relied upon to
          provide a complete and accurate translation of the information being
          provided to the Member; provided that the Member is advised that a
          free interpreter is available; and the Member expresses a preference
          to rely on the family member or friend.

8.9.4         All Member orientation presentations education classes and
          materials must be presented in the languages of the major population
          groups making up 10% or more of the Medicaid population in the
          service area, as specified by TDH.  HMO must provide auxiliary aids
          and services, as needed,  including materials in alternative formats
          (i.e., large print, tape or Braille), and interpreters or real-time
          captioning to accommodate the needs of persons with disabilities that
          affect communication.

8.9.5         HMO must provide or arrange access to TDD to Members who are deaf
          or hearing impaired.

8.10          On the date of the new Member's enrollment, TDH will provide HMOs
          with the Member's Medicaid certification date.

ARTICLE IX    MARKETING AND PROHIBITED PRACTICES

9.1           MARKETING MATERIAL MEDIA AND DISTRIBUTION

          HMOs may present their marketing materials to eligible Medicaid
          recipients through any method or media determined to be acceptable by
          TDH. The media may include but are not limited to: written materials,
          such as brochures, posters, or fliers which can be mailed directly to
          the Member or left at Texas Department of Human Services eligibility
          offices; TDH-sponsored community enrollment events; and paid or
          public service announcements on radio. All marketing materials must
          be approved by TDH prior to distribution (see Article 3.4).

9.2           MARKETING ORIENTATION AND TRAINING

          HMO must require that all HMO staff having direct contact with
          Members as part

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          of their job duties and their supervisors satisfactorily complete
          TDH's marketing orientation and training program prior to engaging in
          marketing activities on behalf of HMO. TDH will notify HMO of
          scheduled orientations.

9.3           PROHIBITED MARKETING PRACTICES

9.3.1         HMO and its agents, subcontractors and providers are prohibited
          from engaging in the following marketing practices:

9.3.1.1       conducting any direct-contact marketing to prospective Members
          except through TDH-sponsored enrollment events;

9.3.1.2       making any written or oral statement containing material
          misrepresentations of fact or law relating to HMO's plan or the STAR
          program;

9.3.1.3       making false, misleading or inaccurate statements relating to
          services or benefits of HMO or the STAR program;

9.3.1.4       offering prospective Members anything of material or financial
          value as an incentive to enroll with a particular PCP or HMO; and

9.3.1.5       discriminating against an eligible Member because of race, creed,
          age, color, sex, religion, national origin, ancestry, marital status,
          sexual orientation, physical or mental handicap, health status, or
          requirements for health care services.

9.3.2         HMO may offer nominal gifts with a retail value of no more than
          $10 and/or free health screens to potential Members, as long as these
          gifts and free health screenings are offered whether or not the
          potential Member enrolls in their HMO.  Free health screenings cannot
          be used to discourage less healthy potential Members from joining
          HMO.  All gifts must be approved by TDH prior to distribution to
          Members.  The results of free screenings must be shared with the
          Member's PCP if the Member enrolls with HMO providing the screen.

9.3.3         Marketing representatives may not conduct or participate in
          marketing activities for more than one HMO.

9.4           NETWORK PROVIDER DIRECTORY

9.4.1         The provider directory and any revisions must be approved by TDH
          prior to publication and distribution to prospective Members (see
          Article 3.4.1 regarding the process for plan materials review).  The
          directory must contain all critical elements specified by TDH.  See
          Appendix D, Required Critical Elements,

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          for specific details regarding content requirements.

9.4.2         If HMO contracts with limited provider networks, the provider
          directory must comply with the requirements of 28 TAC 11.1600(b)(11),
          relating to the disclosure and notice of limited provider networks.

9.4.3         Updates to the provider directory must be provided to the
          Enrollment Broker at the beginning of each State fiscal year quarter.
          This includes the months of September, December, March and June.  HMO
          is responsible for submitting draft updates to TDH only if changes
          other than PCP information are incorporated. HMO is responsible for
          sending three final paper copies and one electronic copy of the
          updated provider directory to TDH each quarter.  If an electronic
          format is not available, five paper copies must be sent.  TDH will
          forward two updated provider directories, along with its approval
          notice, to the Enrollment Broker to facilitate the distribution of
          the directories.


ARTICLE X           MIS SYSTEM REQUIREMENTS

10.1          MODEL MIS REQUIREMENTS

10.1.1        HMO must maintain an MIS that will provide support for all
          functions of HMO's processes and procedures related to the flow and
          use of data within HMO.  The MIS must enable HMO to meet the
          requirements of this contract.  The MIS must have the capacity and
          capability of capturing and utilizing various data elements to
          develop information for HMO administration.

10.1.2        HMO must maintain a claim retrieval service processing system
          that can identify date of receipt, action taken on all provider
          claims or encounters (i.e., paid, denied, other), and when any action
          was taken in real time.

10.1.3        HMO must have a system that can be adapted to the change in
          Business Practices/Policies within a short period of time.

10.1.4        HMO is required to submit and receive data as specified in this
          contract and HMO Encounter Data Submissions Manual.  HMO must provide
          complete encounter data of all capitated services within the scope of
          services of the contract between HMO and TDH.  Encounter data must
          follow the format, data elements and method of transmission specified
          in the contract and HMO Encounter Data Submissions Manual.  HMO must
          submit encounter data, including adjustments to encounter data. The
          Encounter transmission will include all encounter data and


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          encounter data adjustments processed by HMO for the previous month.
          Data quality validation will incorporate assessment standards
          developed jointly by HMO and TDH.  Original records will be made
          available for inspection by TDH for validation purposes.  Data which
          do not meet quality standards must be corrected and returned within a
          time period specified by TDH.

10.1.5        HMO must use the procedure codes, diagnosis codes, and other
          codes used for reporting encounters and fee-for-service claims in the
          most recent edition of the Medicaid Provider Procedures Manual or as
          otherwise directed by TDH.  Any exceptions will be considered on a
          code-by-code basis after TDH receives written notice from HMO
          requesting an exception.  HMO must also use the provider numbers as
          directed by TDH for both encounter and fee-for-service claims
          submissions.

10.1.6        HMO must have hardware, software, network and communications
          system with the capability and capacity to handle and operate all MIS
          subsystems.

10.1.7        HMO must notify TDH of any changes to HMO's MIS department
          dedicated to or supporting this contract by Phase I of Renewal
          Review.  Any updates to the organizational chart and the description
          of responsibilities must be provided to TDH at least 30 days prior to
          the effective date of the change.  Official points of contact must be
          provided to TDH on an on-going basis. An Internet E-mail address must
          be provided for each point of contact.

10.1.8        HMO must operate and maintain a MIS that meets or exceeds the
          requirements outlined in the Model MIS Guidelines that follow:

10.1.8.1  The Contractor's system must be able to meet all eight MIS Model
          Guidelines as listed below. The eight subsystems are used in the
          Model MIS Requirements to identify specific functions or features
          required by HMO's MIS. These subsystems focus on the individual
          systems functions or capabilities to support the following
          operational and administrative areas:

          (1) Enrollment/Eligibility Subsystem

          (2) Provider Subsystem

          (3) Encounter/Claims Processing Subsystem

          (4) Financial Subsystem

          (5) Utilization/Quality Improvement Subsystem


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          (6) Reporting Subsystem

          (7) Interface Subsystem

          (8) TPR Subsystem

10.2          SYSTEM-WIDE FUNCTIONS

          HMO MIS system must include functions and/or features which must
          apply across all subsystems as follows:

          (1) Ability to update and edit data.

          (2) Maintain a history of changes and adjustments and audit trails
              for current and retroactive data. Audit trails will capture date,
              time, and reasons for the change, as well as who made the change.

          (3) Allow input mechanisms through manual and electronic
              transmissions.

          (4) Have procedures and processes for accumulating, archiving, and
              restoring data in the event of a system or subsystem failure.

          (5) Maintain automated or manual linkages between and among all MIS
              subsystems and interfaces.

          (6) Ability to relate Member and provider data with utilization,
              service, accounting data, and reporting functions.

          (7) Ability to relate and extract data elements into summary and
              reporting formats attached as Appendices to contract.

          (8) Must have written process and procedures manuals which document
              and describe all manual and automated system procedures and
              processes for all the above functions and features, and the
              various subsystem components.

          (9) Maintain and cross-reference all Member-related information with
              the most current Medicaid number.

10.3          ENROLLMENT/ELIGIBILITY SUBSYSTEM

          The Enrollment/Eligibility Subsystem is the central processing point
          for the entire

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          MIS. It must be constructed and programmed to secure all functions
          which require Membership data. It must have functions and/or features
          which support requirements as follows:

          (1)  Identify other health coverage available or third party
               liability (TPL), including type of coverage and effective dates.

          (2)  Maintain historical data (files) as required by TDH.

          (3)  Maintain data on enrollments/disenrollments and complaint
               activities. The data must include reason or type of
               disenrollment, complaint, and resolution--by incident.

          (4)  Receive, translate, edit and update files in accordance with TDH
               requirements prior to inclusion in HMO's MIS. Updates will be
               received from TDH's agent and processed within two working days
               after receipt.

          (5)  Provide error reports and a reconciliation process between new
               data and data existing in MIS.

          (6)  Identify enrollee changes in primary care provider and the
               reason(s) for those changes and effective dates.

          (7)  Monitor PCP capacity and limitations prior to connecting the
               enrollee to PCP in the system, and provide a kick-out report
               when capacity and limitations are exceeded.

          (8)  Verify enrollee eligibility for medical services rendered or for
               other enrollee inquiries.

          (9)  Generate and track referrals, e.g., Hospitals/Specialists.

          (10) Search records by a variety of fields (e.g., name, unique
               identification numbers, date of birth, SSN, etc.) for
               eligibility verification.

          (11) Send PCP assignment updates to TDH in the format as specified by
               TDH.

10.4           PROVIDER SUBSYSTEM

          The provider subsystem must accept, process, store and retrieve
          current and historical data on providers, including services, payment
          methodology, license information, service capacity, and facility
          linkages.


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          Functions and Features:

          (1)  Identify specialty(s), admission privileges, enrollee linkage,
               capacity, facility linkages, emergency arrangements or contact,
               and other limitations, affiliations, or restrictions.

          (2)  Maintain provider history files to include audit trails and
               effective dates of information.

          (3)  Maintain provider fee schedules/remuneration agreements to
               permit accurate payment for services based on the financial
               agreement in effect on the date of service.

          (4)  Support HMO credentialing, recredentialing, and credential
               tracking processes; incorporates or links information to
               provider record.

          (5)  Support monitoring activity for physician to enrollee ratios
               (actual to maximum) and total provider enrollment to physician
               and HMO capacity.

          (6)  Flag and identify providers with restrictive conditions (e.g.,
               limits to capacity, type of patient, age restrictions, and other
               services if approved out- of-network).

          (7)  Support national provider number format (UPIN, NPIN, CLIA, etc.,
               as required by TDH).

          (8)  Provide provider network files 90 days prior to implementation
               and updates monthly. Format will be provided by TDH to
               contracted entities.

          (9)  Support the national CLIA certification numbers for clinical
               laboratories.

          (10) Exclude providers from participation that have been identified
               by TDH as ineligible or excluded. Files must be updated to
               reflect period and reason for exclusion.

10.5           ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM

          The encounter/claims processing subsystem must collect, process, and
          store data on all health care services delivered for which HMO is
          responsible. The functions of these subsystems are claims/encounter
          processing and capturing health service utilization data. The
          subsystem must capture all health care services, including medical
          supplies, using standard codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92


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          Revenue Codes), rendered by health-care providers to an eligible
          enrollee regardless of payment arrangement (e.g. capitation or
          fee-for-service). It approves, prepares for payment, or may reject or
          deny claims submitted. This subsystem may integrate manual and
          automated systems to validate and adjudicate claims and encounters.
          HMO must use encounter data validation methodologies prescribed by
          TDH.

          Functions and Features:

          (1)  Accommodate multiple input methods: electronic submission, tape,
               claim document, and media.

          (2)  Support entry and capture of a minimum of all required data
               elements specified in the Encounter Data Submission Manual.

          (3)  Edit and audit to ensure allowed services are provided by
               eligible providers for Members.

          (4)  Interface with Member and provider subsystems.

          (5)  Capture and report TPL potential, reimbursement or denial.

          (6)  Edit for utilization and service criteria, medical policy, fee
               schedules, multiple contracts, contract periods and conditions.

          (7)  Submit data to TDH through electronic transmission using
               specified formats.

          (8)  Support multiple fee schedule benefit packages and capitation
               rates for all contract periods for individual providers, groups,
               services, etc. A claim encounter must be initially adjudicated
               and all adjustments must use the fee applicable to the date of
               service.

          (9)  Provide timely, accurate, and complete data for monitoring
               claims processing performance.

          (10) Provide timely, accurate, and complete data for reporting
               medical service utilization.

          (11) Maintain and apply prepayment edits to verify accuracy and
               validity of claims data for proper adjudication.

          (12) Maintain and apply edits and audits to verify timely, accurate,
               and


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               complete encounter data reporting.

          (13) Submit reimbursement to non-contracted providers for emergency
               care rendered to enrollees in a timely and accurate fashion.

          (14) Validate approval and denials of precertification and prior
               authorization requests during adjudication of claims/encounters.

          (15) Track and report the exact date a service was performed. Use of
               date ranges must have State approval.

          (16) Receive and capture claim and encounter data from TDH.

          (17) Receive and capture value-added services codes.

          (18) Capability of identifying adjustments and linking them to the
               original claims/encounters.

10.6           FINANCIAL SUBSYSTEM

          The financial subsystem must provide the necessary data for 100% of
          all accounting functions including cost accounting, inventory, fixed
          assets, payroll, general ledger, accounts receivable, accounts
          payable, financial statement presentation, and any additional data
          required by TDH. The financial subsystem must provide management with
          information that can demonstrate that the proposed or existing HMO is
          meeting, exceeding, or falling short of fiscal goals. The information
          must also provide management with the necessary data to spot the
          early signs of fiscal distress, far enough in advance to allow
          management to take corrective action where appropriate.

          Functions and Features:

          (1)  Provide information on HMO's economic resources, assets, and
               liabilities and present accurate historical data and projections
               based on historical performance and current assets and
               liabilities.

          (2)  Produce financial statements in conformity with Generally
               Accepted Accounting Principles (GAAP) and in the format
               prescribed by TDH.

          (3)  Provide information on potential third party payers; information
               specific to the Member; claims made against third party payers;
               collection amounts and dates; denials, and reasons for denials.


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          (4) Track and report savings by category as a result of cost
              avoidance activities.

          (5) Track payments per Member made to network providers compared to
              utilization of the provider's services.

          (6) Generate Remittance and Status Reports.

          (7) Make claim and capitation payments to providers or groups.

          (8) Reduce/increase accounts payable/receivable based on adjustments
              to claims or recoveries from third party resources.

10.7          UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM

          The quality management/quality improvement/utilization review
          subsystem combines data from other subsystems, and/or external
          systems, to produce reports for analysis which focus on the review
          and assessment of quality of care given, detection of over and under
          utilization, and the development of user defined reporting criteria
          and standards. This system profiles utilization of providers and
          enrollees and compares them against experience and norms for
          comparable individuals. This system also supports the quality
          assessment function.

          The subsystem tracks utilization control function(s) and monitoring
          inpatient admissions, emergency room use, ancillary, and out-of-area
          services. It provides provider profiles, occurrence reporting, and
          monitoring and evaluation studies. The subsystem may integrate HMO's
          manual and automated processes or incorporate other software
          reporting and/or analysis programs.

          The subsystem incorporates and summarizes information from enrollee
          surveys, provider and enrollee complaints, and appeal processes.

          Functions and Features:

          (1) Supports provider credentialing and recredentialing activities.

          (2) Supports HMO processes to monitor and identify deviations in
              patterns of treatment from established standards or norms.
              Provides feedback information for monitoring progress toward
              goals, identifying optimal practices, and promoting continuous
              improvement.


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          (3)  Supports development of cost and utilization data by provider
               and service.

          (4)  Provides aggregate performance and outcome measures using
               standardized quality indicators similar to HEDIS or as specified
               by TDH.

          (5)  Supports quality-of-care Focused Studies.

          (6)  Supports the management of referral/utilization control processes
               and procedures, including prior authorization and
               precertifications and denials of services.

          (7)  Monitors primary care provider referral patterns.

          (8)  Supports functions of reviewing access, use and coordination of
               services (i.e. actions of Peer Review and alert/flag for review
               and/or follow-up; laboratory, x-ray and other ancillary service
               utilization per visit).

          (9)  Stores and reports patient satisfaction data through use of
               enrollee surveys.

          (10) Provides fraud and abuse detection, monitoring and reporting.

          (11) Meets minimum report/data collection/analysis functions of
               Article XI and Appendix A - Standards For Quality Improvement
               Programs.

          (12) Monitors and tracks provider and enrollee complaints and appeals
               from receipt to disposition or resolution by provider.

10.8           REPORT SUBSYSTEM

          The reporting subsystem supports reporting requirements of all HMO
          operations to HMO management and TDH. It allows HMO to develop
          various reports to enable HMO management and TDH to make decisions
          regarding HMO activity.

          Functions and Capabilities:

          (1)  Produces standard, TDH-required reports and ad hoc reports from
               the data available in all MIS subsystems. All reports will be
               submitted as a paper copy or electronically in a format approved
               by TDH.

          (2)  Have system flexibility to permit the development of reports at
               irregular periods as needed.


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          (3)  Generate reports that provide unduplicated counts of enrollees,
               providers, payments and units of service unless otherwise
               specified.

          (4)  Generate an alphabetic Member listing.

          (5)  Generate a numeric Member listing.

          (6)  Generate a Member eligibility listing by PCP (panel report).

          (7)  Report on PCP change by reason code.

          (8)  Report on TPL (COB) information to TDH.

          (9)  Report on provider capacity and assignment from date of service
               to date received.

          (10) Generate or produce an aged outstanding liability report.

          (11) Produce a Member ID Card.

          (12) Produce Member/provider mailing labels.

10.9           DATA INTERFACE SUBSYSTEM

10.9.1         The interface subsystem supports incoming and outgoing data from
          and to other organizations. It allows HMO to maintain enrollee,
          benefit package, eligibility, disenrollment/enrollment status, and
          medical services received outside of capitated services and
          associated cost. All interfaces must follow the specifications
          frequencies and formats listed in the Interface Manual.

10.9.2         HMO must obtain access to the TexMedNet BBS.  Some file
          transfers and E-mail will be handled through this mechanism.

10.9.3         Provider Network File.  The provider file shall supply Network
          Provider data between an HMO and TDH.  This process shall accomplish
          the following:

          (1)  Provide identifying information for all managed care providers
               (e.g. name, address, etc.).

          (2)  Maintain history on provider enrollment/disenrollment.

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          (3) Identify PCP capacity.

          (4) Identify any restrictions (e.g., age, sex, etc.).

          (5) Identify number and types of specialty providers available to
              Members.

10.9.4        Eligibility/Enrollment Interface. The enrollment interface must
          provide eligibility data between TDH and HMOs.

          (1) Provides benefit package data to HMOs in accordance with
              capitated services.

          (2) Provides PCP assignments.

          (3) Provides Member eligibility status data.

          (4) Provides Member demographics data.

          (5) Provides HMOs with cross-reference data to identify duplicate
              Members.

10.9.5        Encounter/Claim Data Interface.  The encounter/claim interface
          must transfer paid fee-for-service claims data to HMOs and capitated
          services/encounters from HMO, including adjustments. This file will
          include all service types, such as inpatient, outpatient, and medical
          services.  TDH's agent will process claims for non-capitated
          services.

10.9.6        Capitation Interface. The capitation interface must transfer
          premium and Member information to HMO. This interface's basic purpose
          is to balance HMO's Members and premium amount.

10.9.7        TPR Interface.  TDH will provide a data file that contains
          information on enrollees that have other insurance.  Because Medicaid
          is the payer of last resort, all services and encounters should be
          billed to the other insurance companies for recovery.  TDH will also
          provide an insurance company data file which contains the name and
          address of each insurance company.

10.9.8        TDH will provide a diagnosis file which will give the code and
          description of each diagnosis permitted by TDH.

10.9.9        TDH will provide a procedure file which contains the procedures
          which must be used on all claims and encounters. This file contains
          HCPCS, revenue, and ICD9-CM surgical procedure codes.

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10.9.10       TDH will provide a provider file that contains the Medicaid
              provider numbers, and the provider's names and addresses. The
              provider number authorized by TDH must be submitted on all
              claims, encounters, and network provider submissions.

10.10                     TPR SUBSYSTEM

              HMO's third party recovery system must have the following
              capabilities and capacities:

              (1)   Identify, store, and use other health coverage available to
                    eligible Members or third party liability (TPL) including
                    type of coverage and effective dates.

              (2)   Provide changes in information to TDH as specified by TDH.

              (3)   Receive TPL data from TDH to be used in claim and encounter
                    processing.

10.11               YEAR 2000 (Y2K) COMPLIANCE

10.11.1       HMO must take all appropriate measures to make all software which
              will record, store, and process and present calendar dates
              falling on or after January 1, 2000, perform in the same manner
              and with the same functionality, data integrity and performance,
              as dates falling on or before December 31, 1999, at no added cost
              to TDH.  HMO must take all appropriate measures to ensure that
              the software will not lose, alter or destroy records containing
              dates falling on or after January 1, 2000.  HMO will ensure that
              all software will interface and operate with all TDH, or its
              agent's, data systems which exchange data, including but not
              limited to historical and archived data.  In addition, HMO
              guarantees that the year 2000 leap year calculations will be
              accommodated and will not result in software, firmware or
              hardware failures.

10.11.2       TDH and all subcontracted entities are required by state and
              federal law to meet Y2K compliance standards.  Failure of TDH or
              a TDH contractor other than an HMO to meet Y2K compliance
              standards which results in an HMO's failure to meet the Y2K
              requirements of this contract is a defense of an HMO against a
              declaration by TDH of default by an HMO under this contract.




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ARTICLE XI          QUALITY ASSURANCE AND QUALITY IMPROVEMENT
              PROGRAM

11.1          QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM

          HMO must develop, maintain, and operate a Quality Improvement Program
          (QIP) system which complies with federal regulations relating to
          Quality Assurance systems, found at 42 C.F.R. Section 434.34. The
          system must meet the Standards for Quality Improvement Programs
          contained in Appendix A.

11.2          WRITTEN QIP PLAN

          HMO must have on file with TDH an approved plan describing its
          Quality Improvement Plan (QIP), including how HMO will accomplish the
          activities pertaining to each Standard (I-XVI) in Appendix A.
          Modifications and amendments must be submitted to TDH no later than
          60 days prior to the implementation of the modification or amendment.

11.3          QIP SUBCONTRACTING

          If HMO subcontracts any of the essential functions or reporting
          requirements of QIP to another entity, HMO must maintain a file of
          the subcontractors. The file must be available for review by TDH or
          its designee upon request. HMO must notify TDH no later than 90 days
          prior to terminating any subcontract affecting a major performance
          function of this contract (see Article 3.2.1.2).

11.4          ACCREDITATION

          If HMO is accredited by an external accrediting agency, documentation
          of accreditation must be provided to TDH. HMO must provide TDH with
          their accreditation status upon request.

11.5          BEHAVIORAL HEALTH INTEGRATION INTO QIP

          HMO must integrate behavioral health into its QIP system and include
          a systematic and on-going process for monitoring, evaluating, and
          improving the quality and appropriateness of behavioral health care
          services provided to Members. HMO's QIP must enable HMO to collect
          data, monitor and evaluate for improvements to physical health
          outcomes resulting from behavioral health integration into the
          overall care of the Member.

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11.6                QIP REPORTING REQUIREMENTS

          HMO must meet all of the QIP Reporting Requirements contained in
          Article XII.

ARTICLE XII         REPORTING REQUIREMENTS

12.1                FINANCIAL REPORTS

12.1.1              Monthly MCFS Report.  HMO must submit the Managed Care
          Financial-Statistical Report (MCFS) included in Appendix I.  The
          report must be submitted to TDH no later than 30 days after the end
          of each state fiscal year quarter (i.e., Dec. 30, March 30, June 30,
          Sept. 30) and must include complete financial and statistical
          information for each month.  The MCFS Report must be submitted for
          each claims processing subcontractor in accordance with this Article.
          HMO must incorporate financial and statistical data received by its
          delegated networks (IPAs, ANHCs, Limited Provider Networks) in its
          MCFS Report.

12.1.2              For any given month in which an HMO has a net loss of
          $200,000 or more for the contract period to date, HMO must submit an
          MCFS Report for that month by the 30th day after the end of the
          reporting month. The MCFS Report must be completed in accordance with
          the Instructions for Completion of the Managed Care
          Financial-Statistical Report developed by TDH.

12.1.3              An HMO must submit monthly reports for each of the first 6
          months following the Implementation Date. If the cumulative net loss
          for the contract period to date after the 6th month is less than
          $200,000, HMO may submit quarterly reports in accordance with the
          above provisions unless the condition in Article 12.1.2 exists, in
          which case monthly reports must be submitted.

12.1.4              Final MCFS Reports.  HMO must file two Final Managed Care
          Financial-Statistical Reports.  The first final report must reflect
          expenses incurred through the 90th day after the end of the contract
          year.  The first final report must be filed on or before the 120th
          day after the end of the contract year.  The second final report must
          reflect data completed through the 334th day after the end of the
          contract year and must be filed on or before the 365th day following
          the end of the contract year.

12.1.5              Administrative expenses reported in the monthly and Final
          MCFS Reports must be reported in accordance with Appendix L, Cost
          Principles for



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          Administrative Expenses.  Indirect administrative expenses must be
          based on an allocation methodology for Medicaid managed care
          activities and services that is developed or approved by TDH.

12.1.6              Affiliate Report. HMO must submit an Affiliate Report to
          TDH if this information has changed since the last report was
          submitted. The report must contain the following information:

12.1.6.1  A listing of all Affiliates; and

12.1.6.2  A schedule of all transactions with Affiliates which, under the
          provisions of this Contract, will be allowable as expenses in either
          Line 4 or Line 5 of Part 1 of the MCFS Report for services provided to
          HMO by the Affiliates for the prior approval of TDH. Include financial
          terms, a detailed description of the services to be provided, and an
          estimated amount which will be incurred by HMO for such services
          during the Contract period.

12.1.7              Annual Audited Financial Report. On or before June 30th of
          each year, HMO must submit to TDH a copy of the annual audited
          financial report filed with TDI.

12.1.8              Form HCFA-1513. HMO must file an updated Form HCFA-1513
          regarding control, ownership, or affiliation of HMO 30 days prior to
          the end of the contract year. An updated Form HCFA 1513 must also be
          filed no later than 30 days after any change in control, ownership, or
          affiliation of HMO. Forms may be obtained from TDH.

12.1.9                Section 1318 Financial Disclosure Report.  HMO must file
          an updated HCFA Public Health Service (PHS) "Section 1318 Financial
          Disclosure Report" no later than 30 days after the end of the
          contract year and no later than 30 days after entering into,
          renewing, or terminating a relationship with an affiliated party.
          These forms may be obtained from TDH.

12.1.10   TDI Examination Report. HMO must furnish a copy of any TDI Examination
          Report no later than 10 days after receipt of the final report from
          TDI.

12.1.11   IBNR Plan.  HMO must furnish a written IBNR Plan to manage
          incurred-but-not-reported (IBNR) expenses, and a description of the
          method of insuring against insolvency, including information on all
          existing or proposed insurance policies.  The Plan must include the
          methodology for estimating IBNR.  The plan and description must be
          submitted to TDH no later than 60 days after the effective date of
          this contract, unless previously submitted to TDH.  Changes to the
          IBNR plan and description must be submitted to TDH no later than 30
          days before



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          changes to the plan are implemented by HMO.

12.1.12   Third Party Recovery (TPR) Reports.  HMO must file quarterly Third
          Party Recovery (TPR) Reports in accordance with the format developed
          by TDH.  TPR reports must include total dollars recovered from third
          party payers for services to HMO's Members for each month and the
          total dollars recovered through coordination of benefits, subrogation,
          and worker's compensation.

12.1.13   Each report required under this Article must be mailed to: Bureau of
          Managed Care; Texas Dept. of Health; 1100 West 49th Street; Austin, TX
          78756-3168 (Exception:  The MCFS Report may be submitted to TDH via
          E-mail).  HMO must also mail a copy of the reports, except for items
          in Article 12.1.7 and Article 12.1.10 to Texas Department of
          Insurance, Mail Code 106-3A, HMO Division, Attention:  HMO Division
          Director, P.O. Box 149104, Austin, TX 78714-9104.

12.2                STATISTICAL REPORTS

12.2.1              HMO must electronically file the following monthly reports:
          (1) encounter; (2) encounter detail; (3) institutional; (4)
          institutional detail; and (5) claims detail for cost-reimbursed
          services filed, if any, with HMO.  Encounter data must include the
          data elements, follow the format, and use the transmission method
          specified by TDH in the Encounter Data Submission Manual.  Encounters
          must be submitted by HMO to TDH no later than 45 days after the date
          of adjudication (finalization) of the claims.

12.2.2              Monthly reports must include current month encounter data
          and encounter data adjustments to the previous month's data.

12.2.3              Data quality standards will be developed jointly by HMO and
          TDH. Encounter data must meet or exceed data quality standards. Data
          that does not meet quality standards must be corrected and returned
          within the period specified by TDH. Original records must be made
          available to validate all encounter data.

12.2.4              HMO must require providers to submit claims and encounter
          data to HMO no later than 95 days after the date services are
          provided.

12.2.5              HMO must use the procedure codes, diagnosis codes and other
          codes contained in the most recent edition of the Texas Medicaid
          Provider Procedures Manual and as otherwise provided by TDH.
          Exceptions or additional codes must be submitted for approval before
          HMO uses the codes.

12.2.6              HMO must use its TDH-specified identification numbers on all
          encounter

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          data submissions. Please refer to the TDH Encounter Data Submission
          Manual for further specifications.

12.2.7              HMO must validate all encounter data using the encounter
          data validation methodology prescribed by TDH prior to
          submission of encounter data to TDH.

12.2.8              All Claims Summary Report.  HMO must submit the "All Claims
          Summary Report" identified in the Texas Managed Care Claims Manual as
          a contract year-to-date report.  The report must be submitted
          quarterly by the last day of the month following the reporting
          period. The report must be submitted to TDH in a format specified by
          TDH.

12.2.9              Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
          must file preliminary and final Medicaid Disproportionate Share
          Hospital (DSH) reports, required by TDH to identify and reimburse
          hospitals that qualify for Medicaid DSH funds.  The preliminary and
          final DSH reports must include the data elements and be submitted in
          the form and format specified by TDH.  The preliminary DSH reports
          are due on or before June 1 of the year following the state fiscal
          year for which data is being reported.  The final DSH reports are due
          on or before August 15 of the year following the state fiscal year
          for which data is being reported.

12.3                ARBITRATION/LITIGATION CLAIMS REPORT

          HMO must submit an Arbitration/Litigation Claims Report in a format
          provided by TDH (see Appendix M) identifying all provider or HMO
          requests for arbitration or matters in litigation. The report must be
          submitted within 30 days from the date the matter is referred to
          arbitration or suit is filed, or whenever there is a change of status
          in a matter referred to arbitration or litigation.

12.4                SUMMARY REPORT OF PROVIDER COMPLAINTS

          HMO must submit a Summary Report of Provider Complaints. HMO must
          also report complaints submitted to its subcontracted risk groups
          (e.g., IPAs). The complaint report must be submitted in two paper
          copies and one electronic copy on or before the 45 days following the
          end of the state fiscal quarter using a form specified by TDH.

12.5                PROVIDER NETWORK REPORTS

12.5.1              Provider Network Report.  HMO must submit to the Enrollment
          Broker an electronic file summarizing changes in HMO's provider
          network including PCPs,

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          specialists, ancillary providers and hospitals.  The file must
          indicate if the PCPs and specialists participate in a closed network
          and the name of the delegated network.  The electronic file must be
          submitted in the format specified by TDH and can be submitted as
          often as daily but must be submitted at least weekly.

12.5.2              Provider Termination Report.  HMO must submit a monthly
          report which identifies any providers who cease to participate in
          HMO's provider network, either voluntarily or involuntarily.  The
          report must be submitted to TDH in the format specified by TDH.  HMO
          will submit the report no later than thirty (30) days after the end
          of the reporting month.  The information must include the provider's
          name, Medicaid number, the reason for the provider's termination, and
          whether the termination was voluntary or involuntary.

12.6                MEMBER COMPLAINTS

          HMO must submit a quarterly summary report of Member complaints. HMO
          must also report complaints submitted to its subcontracted risk
          groups (e.g., IPAs). The complaint report format must be submitted to
          TDH as two paper copies and one electronic copy on or before 45 days
          following the end of the state fiscal quarter using a form specified
          by TDH.

12.7                FRAUDULENT PRACTICES

          HMO must report all fraud and abuse enforcement actions or
          investigations taken against HMO and/or any of its subcontractors or
          providers by any state or federal agency for fraud or abuse under
          Title XVIII or Title XIX of the Social Security Act or any State law
          or regulation and any basis upon which an action for fraud or abuse
          may be brought by a State or federal agency as soon as such
          information comes to the attention of HMO.

12.8                UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH

          Behavioral health (BH) utilization management reports are required on
          a semi-annual basis with submission of data files that are, at a
          minimum, due to TDH or its designee, on a quarterly basis no later
          than 150 days following the end of the period. Refer to Appendix H
          for the standardized reporting format for each report and detailed
          instructions for obtaining the specific data required in the report
          and for data file submission specifications. The BH utilization
          report and data file submission instructions may periodically be
          updated by TDH to facilitate clear communication to the health plan.

12.9                UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH



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          Physical health (PH) utilization management reports are required on a
          semi-annual basis with submission of data files that are, at a
          minimum, due to TDH or its designee on a quarterly basis no later
          than 150 days following the end of the period. Refer to Appendix J
          for the standardized reporting format for each report and detailed
          instructions for obtaining specific data required in the report and
          for data file submission specifications. The PH Utilization
          Management Report and data file submission instructions may
          periodically be updated by TDH to facilitate clear communication to
          the health plan.

12.10                 QUALITY IMPROVEMENT REPORTS

12.10.1   HMO must conduct health Focused Studies in well child and pregnancy,
          and a study chosen by HMO that may be performed in the areas of
          behavioral health care, asthma, or other chronic conditions.  Well
          child and pregnancy studies shall be conducted and data collected
          using criteria and methods developed by TDH.  The following format
          shall be utilized:

          (1) Executive Summary.

          (2) Definition of the population and health areas of concern.

          (3) Clinical guidelines/standards, quality indicators, and audit
              tools.

          (4) Sources of information and data collection methodology.

          (5) Data analysis and information/results.

          (6) Corrective actions if any, implementation, and follow-up plans
              including monitoring, assessment of effectiveness, and methods
              for provider feedback.

12.10.2   Annual Focused Studies. Focused Studies on well child , pregnancy,
          and a study chosen by the plan, must be submitted to TDH according to
          due dates established by TDH.

12.10.3   Annual QIP Summary Report. An annual QIP summary report must be
          conducted yearly based on the state fiscal year. The annual QIP
          summary report must be submitted by March 31 of each year. This
          report must provide summary information on HMO's QIP system and
          include the following:

          (1) Executive summary of QIP - include results of all QI reports and


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              interventions.

          (2) Activities pertaining to each standard (I through XVI) in
              Appendix A. Report must list each standard.

          (3) Methodologies for collecting, assessing data and measuring
              outcomes.

          (4) Tracking and monitoring quality of care.

          (5) Role of health professionals in QIP review.

          (6) Methodology for collection data and providing feedback to
              provider and staff.

          (7) Outcomes and/or action plan.

12.10.4   Provider Medical Record Audit and Report.  HMO is required to conform
          to commonly accepted medical record standards such as those used by,
          NCQA, JCAHO, or those used for credentialing review such as the Texas
          Environment of Care Assessment Program (TECAP), and have
          documentation on file at HMO for review by TDH or its designee during
          an on-site review.

12.11               HUB REPORTS

          HMO must submit quarterly reports documenting HMO's HUB program
          efforts and accomplishments. The report must include a narrative
          description of HMO's program efforts and a financial report
          reflecting payments made to HUB. HMO must use the format included in
          Appendix B for HUB quarterly reports. For HUB Certified Entities: HMO
          must include the General Service Commission (GSC) Vendor Number and
          the ethnicity/gender under which a contracting entity is registered
          with GSC. For HUB Qualified (but not certified) Entities: HMO must
          include the ethnicity/gender of the major owner(s) (51%) of the
          entity. Any entities for which HMO cannot provide this information,
          cannot be included in the HUB report. For both types of entities, an
          entity will not be included in the HUB report if HMO does not list
          ethnicity/gender information.

12.12                 THSTEPS REPORTS

          Minimum reporting requirements. HMO must submit, at a minimum, 80% of
          all THSteps checkups on HCFA 1500 claim forms as part of the
          encounter file submission to the TDH Claims Administrator no later
          than thirty (30) days after the date of final adjudication
          (finalization) of the claims. Failure to comply with these minimum
          reporting requirements will result in Article XVIII sanctions and

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          money damages.

ARTICLE XIII        PAYMENT PROVISIONS

13.1                CAPITATION AMOUNTS

13.1.1              TDH will pay HMO monthly premiums calculated by multiplying
          the number of Member months by Member risk group times the monthly
          capitation amount by Member risk group.  HMO and network providers
          are prohibited from billing or collecting any amount from a Member
          for health care services covered by this contract, in which case the
          Member must be informed of such costs prior to providing non-covered
          services.

13.1.2              DELIVERY SUPPLEMENTAL PAYMENT (DSP).  TDH HAS SUBMITTED THE
          DELIVERY SUPPLEMENTAL PAYMENT METHODOLOGY TO HCFA FOR APPROVAL.  THE
          MONTHLY CAPITATION AMOUNTS FOR SEPTEMBER 1, 1999, THROUGH AUGUST 31,
          2000 AND THE DSP AMOUNT ARE LISTED BELOW. THESE AMOUNTS ARE EFFECTIVE
          SEPTEMBER 1, 1999. THE MONTHLY CAPITATION AMOUNTS ESTABLISHED FOR
          EACH RISK GROUP IN THE HARRIS SERVICE AREA USING THE STANDARD
          METHODOLOGY (LISTED IN ARTICLE 13.1.3)  WILL APPLY IF THE DSP
          METHODOLOGY IS NOT APPROVED BY HCFA.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
RISK GROUP                                               MONTHLY CAPITATION AMOUNTS
                                                         September 1, 1999 -
                                                         August 31, 2000
------------------------------------------------------------------------------------------------------
<S>                                                      <C>
TANF Adults                                                        $164.53

------------------------------------------------------------------------------------------------------
TANF Children > 12                                                  $61.18
Months of Age
------------------------------------------------------------------------------------------------------
</TABLE>



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<TABLE>
------------------------------------------------------------------------------------------------------
<S>                                                              <C>
Expansion Children >                                                $76.64
12 Months of Age
------------------------------------------------------------------------------------------------------
Newborns (<  12                                                    $500.73
          -
Months of Age)
------------------------------------------------------------------------------------------------------
TANF Children < 12                                                  $500.73
              -
Months of Age
------------------------------------------------------------------------------------------------------
Expansion Children <                                                $500.73
                   -
12 Months of Age
------------------------------------------------------------------------------------------------------
Federal Mandate                                                      $51.51
Children
------------------------------------------------------------------------------------------------------
CHIP Phase I                                                         $92.67
------------------------------------------------------------------------------------------------------
Pregnant Women                                                      $209.67
------------------------------------------------------------------------------------------------------
Disabled/Blind                                                       $14.00
Administration
------------------------------------------------------------------------------------------------------
</TABLE>

          Delivery Supplemental Payment: A one-time per pregnancy supplemental
          payment for each delivery shall be paid to HMO as provided below in
          the following amount: $3,060.18.

13.1.2.1  HMO will receive a DSP for each live or still birth. The one-time
          payment is made regardless of whether there is a single or multiple
          births at time of delivery.  A delivery is the birth of a liveborn
          infant, regardless of the duration of the pregnancy, or a stillborn
          (fetal death) infant of 20 weeks or more gestation.  A delivery does
          not include a spontaneous or induced abortion, regardless of the
          duration of the pregnancy.





13.1.2.2  For an HMO Member who is classified in the Pregnant Women, TANF
          Adults, TANF Children >12 months, Expansion Children >12 months,
          Federal Mandate Children, or CHIP risk group, HMO will be paid the
          monthly capitation amount identified in Article 13.1.2 for each month
          of classification, plus the DSP amount identified in Article 13.1.2.

13.1.2.3  HMO must submit a monthly DSP Report (report) that includes the data
          elements specified by TDH.  TDH will consult with contracted HMOs
          prior to revising the report data elements and requirements.  The
          reports must be submitted to TDH in


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          the format and time specified by TDH.  The report must include only
          unduplicated deliveries.  The report must include only deliveries for
          which HMO has made a payment for the delivery, to either a hospital
          or other provider.  No DSP will be made for deliveries which are not
          reported by HMO to TDH within 210 DAYS AFTER THE DATE OF DELIVERY,
          or within 30 days from the date of discharge from the hospital for
          the stay related to the delivery, whichever is later.

13.1.2.4  HMO must maintain complete claims and adjudication disposition
          documentation, including paid and denied amounts for each delivery.
          HMO must submit the documentation to TDH within five (5) days from
          the date of a TDH request for documents.

13.1.2.5  The DSP will be made by TDH to HMO within twenty (20) state working
          days after receiving an accurate report from HMO.

13.1.2.6  All infants of age equal to or less than twelve months (Newborns) in
          the TANF Children, Expansion Children, and Newborns risk groups will
          be capitated at the Newborns classification capitation amount in
          Article 13.1.2.

13.1.3              Standard Methodology. If the DSP methodology is not
          approved by HCFA, the monthly capitation amounts established for each
          risk group in the Harris Service Area using the Methodology set forth
          in Article 13.1.1, without the DSP, are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
RISK GROUP                                               MONTHLY CAPITATION
                                                         AMOUNTS
                                                         September 1, 1999 -
                                                         August 31, 2000
------------------------------------------------------------------------------------------------
<S>                                                          <C>
TANF Adults                                                  $188.64
------------------------------------------------------------------------------------------------
TANF Children                                                 $78.75
------------------------------------------------------------------------------------------------
Expansion Children                                           $100.40
------------------------------------------------------------------------------------------------
Newborns                                                     $588.10
------------------------------------------------------------------------------------------------
Federal Mandate                                               $51.97
Children
------------------------------------------------------------------------------------------------
CHIP Phase I                                                  $94.83
------------------------------------------------------------------------------------------------
Pregnant Women                                               $648.91
------------------------------------------------------------------------------------------------
</TABLE>


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<PAGE>   124


<TABLE>
------------------------------------------------------------------------------------------------
<S>                                                           <C>
Disabled/Blind                                                $14.00
Administration
------------------------------------------------------------------------------------------------
</TABLE>


13.1.4              TDH will re-examine the capitation rates paid to HMO under
          this contract during the first year of the contract period and will
          provide HMO with capitation rates for the second year of the contract
          period no later than 30 days before the date of the one-year
          anniversary of the contract's effective date. Capitation rates for
          state fiscal year 2001 will be re-examined based on the most recent
          available traditional Medicaid cost data for the contracted risk
          groups in the service area, trended forward and discounted.

13.1.4.1  Once HMO has received their capitation rates established by TDH for
          the second year of this contract, HMO may terminate this contract as
          provided in Article 18.1.6 of this contract.  HMO may also terminate
          this contract as provided in Article 18.1.6 if HCFA does not approve
          the Delivery Supplemental Payment Methodology described in Article
          13.1.2.

13.1.5              The monthly premium payment to HMO is based on monthly
          enrollments adjusted to reflect money damages set out in Article 18.8
          and adjustments to premiums in Article 13.5.

13.1.6              The monthly premium payments will be made to HMO no later
          than the 10th working day of the month for which premiums are paid.
          HMO must accept payment for premiums by direct deposit into an HMO
          account.

13.1.7              Payment of monthly capitation amounts is subject to
          availability of appropriations. If appropriations are not available
          to pay the full monthly capitation amounts, TDH will equitably adjust
          capitation amounts for all participating HMOs, and reduce scope of
          service requirements as appropriate.

13.1.8              HMO renewal rates reflect program increases appropriated by
          the 76th legislature for physician (to include THSteps providers) and
          outpatient facility services.  HMO must report to TDH any change in
          rates for participating physicians (to include THSteps providers) and
          outpatient facilities resulting from this increase.  The report must
          be submitted to TDH at the end of the first quarter of the FY2000 and
          FY2001 contract years according to the deliverables matrix schedule
          set for HMO.

13.2                EXPERIENCE REBATE TO STATE

13.2.1              For fiscal year 2000, HMO must pay to TDH an experience
          rebate





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          calculated in accordance with the tiered rebate method listed below
          based on the excess of allowable HMO STAR revenues over allowable HMO
          STAR expenses as measured by any positive amount on Line 7 of "Part
          1:  Financial Summary, All Coverage Groups Combined" of the annual
          Managed Care Financial-Statistical Report set forth in Appendix I, as
          reviewed and confirmed by TDH.  TDH reserves the right to have an
          independent audit performed to verify the information provided by
          HMO.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                          Graduated Rebate Method
----------------------------------------------------------------------------------------------------------
                Experience                       HMO Share                                     State Share
               Rebate as a
              Percentage of
                 Revenues
----------------------------------------------------------------------------------------------------------
<S>                                           <C>                                             <C>
0% - 3%                                       100%                                            0%
----------------------------------------------------------------------------------------------------------

Over 3% - 7%                                  75%                                             25%
----------------------------------------------------------------------------------------------------------

Over 7% - 10%                                 50%                                             50%
----------------------------------------------------------------------------------------------------------

Over 10% - 15%                                25%                                             75%
----------------------------------------------------------------------------------------------------------

Over 15%                                      0%                                              100%
----------------------------------------------------------------------------------------------------------
</TABLE>



13.2.2              Carry Forward of Prior Contract Period Losses: Losses
          incurred for one contract period can only be carried forward to the
          next contract period.

13.2.2.1  Carry Forward of Loss from one Service Delivery Area to Another: If
          HMO operates in multiple Service Delivery Areas (SDAs), losses in one
          SDA cannot be used to offset net income before taxes in another SDA.

13.2.3              Experience rebate will be based on a pre-tax basis.

13.2.4              Population-Based Initiatives (PBIs) and Experience Rebates:
          HMO may subtract from an experience rebate owed to the State,
          expenses for population-based health initiatives that have been
          approved by TDH. A population-based initiative (PBI) is a project or
          program designed to improve some aspect of quality of care, quality
          of life, or health care knowledge for the community as a whole.
          Value-added service does not constitute a PBI. Contractually required
          services and activities do not constitute a PBI.




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13.2.5              There will be two settlements for payment(s) of the state
          share of the experience rebate.  The first settlement shall equal 100
          percent of the state share of the experience rebate as derived from
          Line 7 of Part 1 (Net Income Before Taxes) of the FINAL Managed Care
          Financial Statistical (MCFS) Report and shall be paid on the same day
          the first FINAL MCFS Report is submitted to TDH.  The second
          settlement shall be an adjustment to the first settlement and shall be
          paid to TDH on the same day that the second FINAL MCFS Report is
          submitted to TDH if the adjustment is a payment from HMO to TDH. TDH
          or its agent may audit or review the MCFS reports.  If TDH determines
          that corrections to the MCFS reports are required, based on a TDH
          audit/review or other documentation acceptable to TDH, to determine an
          adjustment to the amount of the second settlement, then final
          adjustment shall be made within two years from the date that HMO
          submits the second FINAL MCFS report.  HMO must pay the first and
          second settlements on the due dates for the first and second FINAL
          MCFS reports respectively as identified in Article 12.1.5.  TDH may
          adjust the experience rebate if TDH determines HMO has paid affiliates
          amounts for goods or services that are higher than the fair market
          value of the goods and services in the service area. Fair market value
          may be based on the amount HMO pays a non-affiliate(s) or the amount
          another HMO pays for the same or similar service in the service area
          AND WILL BE DETERMINED ON A CASE-BY-CASE BASIS.  TDH has final
          authority in auditing and determining the amount of the experience
          rebate.

13.3                PERFORMANCE OBJECTIVES

13.3.1              Preventive Health Performance Objectives are contained in
          this contract at Appendix K. These reports are submitted annually and
          must be submitted no later than 150 days after the end of the State
          fiscal year.

13.4                ADJUSTMENTS TO PREMIUM

13.4.1              TDH may recoup premiums paid to HMO in error. Error may be
          either human or machine error on the part of TDH or an agent or
          contractor of TDH.  TDH may recoup premiums paid to HMO if a Member
          is enrolled into HMO in error, and HMO provided no covered services
          to Member for the period of time for which premium was paid.  If
          services were provided to Member as a result of the error, recoupment
          will not be made.

13.4.2              TDH may recoup premium paid to HMO if a Member for whom
          premium is paid moves outside the United States, and HMO has not
          provided covered services to the Member for the period of time for
          which premium has been paid.  TDH will not recoup premium if HMO has
          provided covered services to the Member during the period of time for
          which premium has been paid.




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13.4.3              TDH may recoup premium paid to HMO if a Member for whom
          premium is paid dies before the first day of the month for which
          premium is paid.

13.4.4              TDH may recoup or adjust premium paid to HMO for a Member
          if the Member's eligibility status or program type is changed,
          corrected as a result of error, or is retroactively adjusted.

13.4.5              Recoupment or adjustment of premium under Articles 13.4.1
          through 13.4.4 may be appealed using the TDH dispute resolution
          process.

13.4.6              TDH may adjust premiums for all Members within an
          eligibility status or program type if adjustment is required by
          reductions in appropriations and/or if a benefit or category of
          benefits is excluded or included as a covered service.  Adjustment
          must be made by amendment as required by Article 15.2. Adjustment to
          premium under this subsection may not be appealed using the TDH
          dispute resolution process.


ARTICLE XIV         ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1                ELIGIBILITY DETERMINATION

14.1.1              TDH will identify Medicaid recipients who are eligible for
          participation in the STAR program using the eligibility status
          described below.

14.1.2              Individuals in the following categories who reside in any
          part of the Service Area must enroll in one of the health plans
          providing services in the Service Areas:

14.1.2.1  TANF ADULTS - Individuals age 21 and over who are eligible for the
          TANF program. This category may also include some pregnant women.

14.1.2.2  TANF CHILDREN - Individuals under age 21 who are eligible for the
          TANF program. This category may also include some pregnant women and
          some children less than one year of age.

14.1.2.3  PREGNANT WOMEN receiving Medical Assistance Only (MAO) - Pregnant
          women whose families' income is below 185% of the Federal Poverty
          Level (FPL).





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14.1.2.4  NEWBORN (MAO) - Children under age one born to Medicaid-eligible
          mothers.

14.1.2.5  EXPANSION CHILDREN (MAO) - Children under age 18, ineligible for TANF
          because of the applied income of their stepparents or grandparents.

14.1.2.6  EXPANSION CHILDREN (MAO) - Children under age 1 whose families'
          income is below 185% FPL.

14.1.2.7  EXPANSION CHILDREN MAO - Children age 1- 5 whose families' income is
          at or below 133% of FPL.

14.1.2.8  FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born before
          October 10, 1983, whose families' income is below the TANF income
          limit.

14.1.2.9  CHIP PHASE I - Children's Health Insurance Program Phase I (Federal
          Mandate Acceleration) Children under age nineteen (19) born before
          October 1, 1983, with family income below 100% Federal Poverty Income
          Level.

14.1.3              The following individuals are eligible for the STAR Program
          in the contiguous counties of the service area and are not required
          to enroll in a health plan but have the option to enroll in a plan.
          HMO will be required to accept enrollment of those Medicaid
          recipients from this group who elect to enroll in HMO.

14.1.3.1  DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE Recipients with
          Supplemental Security Income (SSI) benefits who are not eligible for
          Medicare may elect to participate in the STAR program on a voluntary
          basis.

14.1.3.2  Certain blind or disabled individuals who lose SSI eligibility because
          of Title II income and who are not eligible for Medicare.

14.1.4              During the period after which the Medicaid eligibility
          determination has been made but prior to enrollment in HMO, Members
          will be enrolled under the traditional Medicaid program. All
          Medicaid-eligible recipients will remain in the fee-for-service
          Medicaid program until enrolled in or assigned to an HMO.

14.2                ENROLLMENT

14.2.1              TDH has the right and responsibility to enroll and
          disenroll eligible individuals into the STAR program.  TDH will
          conduct continuous open enrollment for Medicaid recipients and HMO
          must accept all persons who chose to enroll as Members in HMO or who
          are assigned as Members in HMO by TDH,


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          without regard to the Member's health status or any other factor.

14.2.2              All enrollments are subject to the accessibility and
          availability limitations and restrictions contained in the Section
          1915(b) waiver obtained by TDH. TDH has the authority to limit
          enrollment into HMO if the number and distance limitations are
          exceeded.

14.2.3              TDH makes no guarantees or representations to HMO regarding
          the number of eligible Medicaid recipients who will ultimately be
          enrolled as STAR Members of HMO.

14.2.4              HMO must cooperate and participate in all TDH sponsored and
          announced enrollment activities.  HMO must have a representative at
          all TDH enrollment activities unless an exception is given by TDH.
          The representative must comply with HMO's cultural and linguistic
          competency plan (see Cultural and Linguistic requirements in Article
          8.9).  HMO must provide marketing materials, HMO pamphlets, Member
          Handbooks, a list of network providers, HMO's linguistic and cultural
          capabilities and other information requested or required by TDH or
          its Enrollment Broker to assist potential Members in making informed
          choices.

14.2.5              TDH will provide HMO with at least 10 days written notice
          of all TDH planned activities.  Failure to participate in, or send a
          representative to a TDH sponsored enrollment activity is a default of
          the terms of the contract.  Default may be excused if HMO can show
          that TDH failed to provide the required notice, or if HMO's absence
          is excused by TDH.

14.3                DISENROLLMENT

14.3.1              HMO has a limited right to request a Member be disenrolled
          from HMO without the Member's consent. TDH must approve any HMO
          request for disenrollment of a Member for cause. Disenrollment of a
          Member may be permitted under the following circumstances:

14.3.1.1  Member misuses or loans Member's HMO membership card to another
          person to obtain services.

14.3.1.2  Member is disruptive, unruly, threatening or uncooperative to the
          extent that Member's membership seriously impairs HMO's or provider's
          ability to provide services to Member or to obtain new Members, and
          Member's behavior is not caused by a physical or behavioral health
          condition.

14.3.1.3  Member steadfastly refuses to comply with managed care restrictions
          (e.g.,



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          repeatedly using emergency room in combination with refusing to allow
          HMO to treat the underlying medical condition).

14.3.2              HMO must take reasonable measures to correct Member
          behavior prior to requesting disenrollment. Reasonable measures may
          include providing education and counseling regarding the offensive
          acts or behaviors.

14.3.3              HMO must notify the Member of HMO's decision to disenroll
          the Member if all reasonable measures have failed to remedy the
          problem.

14.3.4              If the Member disagrees with the decision to disenroll the
          Member from HMO, HMO must notify the Member of the availability of
          the complaint procedure and TDH's Fair Hearing process.

14.3.5              HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE
          IN THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE
          MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.4                AUTOMATIC RE-ENROLLMENT

14.4.1              Members who are disenrolled because they are temporarily
          ineligible for Medicaid will be automatically re-enrolled into the
          same health plan. Temporary loss of eligibility is defined as a
          period of 6 months or less.

14.4.2              HMO must inform its Members of the automatic re-enrollment
          procedure. Automatic re-enrollment must be included in the Member
          Handbook (see Article 8.2.1).

14.5                ENROLLMENT REPORTS

14.5.1              TDH will provide HMO enrollment reports listing all STAR
          Members who have enrolled in or were assigned to HMO during the
          initial enrollment period.

14.5.2              TDH will provide monthly HMO Enrollment Reports to HMO on
          or before the first of the month.

14.5.3              TDH will provide Member verification to HMO and network
          providers through telephone verification or TexMedNet.



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ARTICLE XV          GENERAL PROVISIONS

15.1                INDEPENDENT CONTRACTOR

          HMO, its agents, employees, network providers, and subcontractors are
          independent contractors and do not perform services under this
          contract as employees or agents of TDH. HMO is given express, limited
          authority to exercise the State's right of recovery as provided in
          Article 4.9.

15.2                AMENDMENT

15.2.1              This contract must be amended by TDH if amendment is
          required to comply with changes in state or federal laws, rules, or
          regulations.

15.2.2              TDH and HMO may amend this contract if reductions in
          funding or appropriations make full performance by either party
          impracticable or impossible, and amendment could provide a reasonable
          alternative to termination. If HMO does not agree to the amendment,
          contract may be terminated under Article XVIII.

15.2.3              This contract must be amended if either party discovers a
          material omission of a negotiated or required term, which is
          essential to the successful performance or maintaining compliance
          with the terms of the contract.  The party discovering the omission
          must notify the other party of the omission in writing as soon as
          possible after discovery.  If there is a disagreement regarding
          whether the omission was intended to be a term of the contract, the
          parties must submit the dispute to dispute resolution under Article
          15.9.

15.2.4              This contract may be amended by mutual agreement at any
          time.

15.2.5              All amendments to this contract must be in writing and
          signed by both parties.

15.2.6              No agreement shall be used to amend this contract unless it
          is made a part of this contract by specific reference, and is
          numbered sequentially by order of its adoption.

15.3                LAW, JURISDICTION AND VENUE

          Venue and jurisdiction shall be in the state and federal district
          courts of Travis County, Texas. The laws of the State of Texas shall
          be applied in all matters of



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          state law.

15.4                NON-WAIVER

          Failure to enforce any provision or breach shall not be taken by
          either party as a waiver of the right to enforce the provision or
          breach in the future.

15.5                SEVERABILITY

          Any part of this contract which is found to be unenforceable,
          invalid, void, or illegal shall be severed from the contract. The
          remainder of the contract shall be effective.

15.6                ASSIGNMENT

          This contract was awarded to HMO based on HMO's qualifications to
          perform personal and professional services. HMO cannot assign this
          contract without the written consent of TDI and TDH. This provision
          does not prevent HMO from subcontracting duties and responsibilities
          to qualified subcontractors. If TDI and TDH consent to an assignment
          of this contract, a transition period of 90 days will run from the
          date the assignment is approved by TDI and TDH so that Members'
          services are not interrupted and, if necessary, the notice provided
          for in Article 15.7 can be sent to Members. The assigning HMO must
          also submit a transition plan, as set out in Article 18.2.1, subject
          to TDH's approval.

15.7                MAJOR CHANGE IN CONTRACTING

          TDH may send notice to Members when a major change affecting HMO
          occurs. A "major change" includes, but is not limited to, a
          substantial change of subcontractors and assignment of this contract.
          The notice letter to Members may permit the Members to re-select
          their plan and PCP. TDH will bear the cost of preparing and sending
          the notice letter in the event of an approved assignment of the
          contract. For any other major change in contracting, HMO will prepare
          the notice letter and submit it to TDH for review and approval. After
          TDH has approved the letter for distribution to Members, HMO will
          bear the cost of sending the notice letter.
15.8                NON-EXCLUSIVE

          This contract is a non-exclusive agreement. Either party may contract
          with other entities for similar services in the same service area.

15.9                DISPUTE RESOLUTION




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          The dispute resolution process adopted by TDH in accordance with
          Chapter 2260, Texas Government Code, will be used to attempt to
          resolve all disputes arising under this contract. All disputes
          arising under this contract shall be resolved through TDH's dispute
          resolution procedures, except where a remedy is provided for through
          TDH's administrative rules or processes. All administrative remedies
          must be exhausted prior to other methods of dispute resolution.

15.10                 DOCUMENTS CONSTITUTING CONTRACT

          This contract includes this document and all amendments and
          appendices to this document, the Request for Application, the
          Application submitted in response to the Request for Application, the
          Texas Medicaid Provider Procedures Manual and Texas Medicaid
          Bulletins addressed to HMOs, contract interpretation memoranda issued
          by TDH for this contract, and the federal waiver granting TDH
          authority to contract with HMO. If any conflict in provisions between
          these documents occurs, the terms of this contract and any amendments
          shall prevail. The documents listed above constitute the entire
          contract between the parties.

15.11                 FORCE MAJEURE

          TDH and HMO are excused from performing the duties and obligations
          under this contract for any period that they are prevented from
          performing their services as a result of a catastrophic occurrence,
          or natural disaster, clearly beyond the control of either party,
          including but not limited to an act of war, but excluding labor
          disputes.

15.12                 NOTICES

          Notice may be given by any means which provides for verification of
          receipt. All notices to TDH shall be addressed to Bureau Chief, Texas
          Department of Health, Bureau of Managed Care, 1100 W. 49th Street,
          Austin, TX 78756-3168, with a copy to the Contract Administrator.
          Notices to HMO shall be addressed to President/CEO,
                                James D. Donovan,Jr.
                      2730 N. Stemmons Freeway, Suite 608 West Tower
                      Dallas, TX 75207

15.13     SURVIVAL

          The provisions of this contract which relate to the obligations of
          HMO to maintain records and reports shall survive the expiration or
          earlier termination of this




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          contract for a period not to exceed six (6) years unless another
          period may be required by record retention policies of the State of
          Texas or HCFA.

ARTICLE XVI         DEFAULT AND REMEDIES

16.1                DEFAULT BY TDH

16.1.1              FAILURE TO MAKE CAPITATION PAYMENTS

          Failure by TDH to make capitation payments when due is a default
          under this contract.

16.1.2              FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES

          Failure by TDH to perform a material duty or responsibility as set
          out in this contract is a default under this contract.

16.2                REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT

          HMO may terminate this contract as set out in Article 18.1.5 of this
          contract if TDH commits either of the events of default set out in
          Article 16.1.

16.3                DEFAULT BY HMO

16.3.1              FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION

          Failure of HMO to perform an administrative function is a default
          under this contract. Administrative functions are any requirements
          under this contract that are not direct delivery of health care
          services, including claims payment; encounter data submission; filing
          any report when due; cooperating in good faith with TDH, an entity
          acting on behalf of TDH, or an agency authorized by statute or law to
          require the cooperation of HMO in carrying out an administrative,
          investigative, or prosecutorial function of the Medicaid program;
          providing or producing records upon request; or entering into
          contracts or implementing procedures necessary to carry out contract
          obligations.

16.3.1.1  REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or




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          consecutively. Exercise of any remedy in whole or in part does not
          limit TDH in exercising all or part of any remaining remedies.

          For HMO's failure to perform an administrative function under this
          contract, TDH may:

              -  Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3;

              -  Assess liquidated money damages as set out in Article 18.4;
              and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.2                ADVERSE ACTION AGAINST HMO BY TDI

          Termination or suspension of HMO's TDI Certificate of Authority or
          any adverse action taken by TDI that TDH determines will affect the
          ability of HMO to provide health care services to Members is a
          default under this contract.

16.3.2.1  REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For an adverse action against HMO by TDI, TDH may:

              -  Terminate the contract if the applicable conditions set out in
              Article  18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3; and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.3                INSOLVENCY

          Failure of HMO to comply with state and federal solvency standards or
          incapacity of HMO to meet its financial obligations as they come due
          is a default under this contract.

16.3.3.1  REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT


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          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's insolvency, TDH may:

              -  Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3; and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.4                FAILURE TO COMPLY WITH FEDERAL LAWS AND
          REGULATIONS

          Failure of HMO to comply with the federal requirements for Medicaid,
          including, but not limited to, federal law regarding
          misrepresentation, fraud, or abuse; and, by incorporation, Medicare
          standards, requirements, or prohibitions, is a default under this
          contract.

          The following events are defaults under this contract pursuant to 42
          U.S.C. Sections 1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1  HMO's substantial failure to provide medically necessary items and
          services that are required under this contract to be provided to
          Members;

16.3.4.2  HMO's imposition of premiums or charges on Members in excess of the
          premiums or charge permitted by federal law;

16.3.4.3  HMO's acting to discriminate among Members on the basis of their
          health status or requirements for health care services, including
          expulsion or refusal to enroll an individual, except as permitted by
          federal law, or engaging in any practice that would reasonably be
          expected to have the effect of denying or discouraging enrollment
          with HMO by eligible individuals whose medical condition or history
          indicates a need for substantial future medical services;

16.3.4.4  HMO's misrepresentation or falsification of information that is
          furnished to HCFA, TDH, a Member, a potential Member, or a health
          care provider;

16.3.4.5  HMO's failure to comply with the physician incentive requirements
          under 42 U.S.C. Section 1396b(m)(2)(A)(x); or


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16.3.4.6  HMO's distribution, either directly or through any agent or
          independent contractor, of marketing materials that contain false or
          misleading information, excluding materials prior approved by TDH.

16.3.5                REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. If HMO repeatedly fails
          to meet the requirements of Articles 16.3.4.1 through and including
          16.3.4.6, TDH must, regardless of what other sanctions are provided,
          appoint temporary management and permit Members to disenroll without
          cause. Exercise of any remedy in whole or in part does not limit TDH
          in exercising all or part of any remaining remedies.

          For HMO's failure to comply with federal laws and regulations, TDH
          may:

          Terminate the contract if the applicable conditions set out in
          Article 18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3;

              -  Appoint temporary management as set out in Article 18.5;

              -  Initiate disenrollment of a Member of Members without cause as
              set out in Article 18.6;

              -  Suspend or default all enrollment of individuals;

              -  Suspend payment to HMO;

              -  Recommend to HCFA that sanctions be taken against HMO as set
              out in Article 18.7;

              -  Assess civil monetary penalties as set out in Article 18.8;
              and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.6                FAILURE TO COMPLY WITH APPLICABLE STATE LAW

          HMO's failure to comply with Texas law applicable to Medicaid,
          including, but not limited to, Article 32.039 of the Texas Human
          Resources Code and state law regarding misrepresentation, fraud, or
          abuse, is a default under this contract.

16.3.6.1  REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT





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          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's failure to comply with applicable state law, TDH may:

              -  Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3;

              -  Assess administrative penalties as set out in Article 32.039,
              Government Code, with the opportunity for notice and appeal as
              required by Article 32.039; and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.7        MISREPRESENTATION OR FRAUD UNDER ARTICLE 4.8

          HMO's misrepresentation or fraud under Article 4.8 of this contract is
          a default under this contract.

16.3.7.1  REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT


          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's misrepresentation or fraud under Article 4.8, TDH may:

              -   Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              -   Suspend new enrollment as set out in Article 18.3; and/or

              -   Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.8        EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID

16.3.8.1  Exclusion of HMO or any of the managing employees or persons with an
          ownership interest whose disclosure is required by Section 1124(a) of
          the Social Security Act (the Act) from the Medicaid or Medicare
          program under the provisions of

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          Section 1128(a) and/or (b) of the Act is a default under this
          contract.

16.3.8.2  Exclusion of any provider or subcontractor or any of the managing
          employees or persons with an ownership interest of the provider or
          subcontractor whose disclosure is required by Section 1124(a) of the
          Social Security Act (the Act) from the Medicaid or Medicare program
          under the provisions of Section 1128(a) and/or (b) of the Act is a
          default under this contract if the exclusion will materially affect
          HMO's performance under this contract.

16.3.8.3  REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's exclusion from Medicare or Medicaid, TDH may:

          -  Terminate the contract if the applicable conditions set out in
          Article 18.1.1 are met;

          -  Suspend new enrollment as set out in Article 18.3;
          and/or

          -  Require forfeiture of all or part of the TDI performance bond
          as set out in Article 18.9.

16.3.9        FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS


          HMO's failure to make timely and appropriate payments to network
          providers and subcontractors is a default under this contract.
          Withholding or recouping capitation payments as allowed or required
          under other articles of this contract is not a default under this
          contract.

16.3.9.1  REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's failure to make timely and appropriate payments to network
          providers and subcontractors, TDH may:


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              -  Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3;

              -  Assess liquidated money damages as set out in Article 18.4;
              and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.10   FAILURE TO TIMELY ADJUDICATE CLAIMS

          Failure of HMO to adjudicate (paid, denied, or external pended) at
          least ninety (90%) of all claims within thirty (30) days of receipt
          and ninety-nine percent (99%) of all claims within ninety days of
          receipt for the contract year is a default under this contract.

16.3.10.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consequently. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's failure to timely adjudicate claims, TDH may:

              -  Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3; and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.11   FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS

          Failure to pass any of the mandatory system or delivery functions of
          the Readiness Review required in Article I of this contract is a
          default under the contract.

16.3.11.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or

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          consecutively. Exercise of any remedy in whole or in part does not
          limit TDH in exercising all or part of any remaining remedies.

          For HMO's failure to demonstrate the ability to perform contract
          functions, TDH may:

              - Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              - Suspend new enrollment as set out in Article 18.3; and/or

              - Require forfeiture of all or part of the TDI performance bond as
              set out in Article 18.9.

16.3.12   FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
          NETWORK PROVIDERS

16.3.12.1 Failure of HMO to audit, monitor, supervise, or enforce functions
          delegated by contract to another entity that results in a default
          under this contract or constitutes a violation of state or federal
          laws, rules, or regulations is a default under this contract.

16.3.12.2 Failure of HMO to properly credential its providers, conduct
          reasonable utilization review, or conduct quality monitoring is a
          default under this contract.

16.3.12.3 Failure of HMO to require providers and contractors to provide timely
          and accurate encounter, financial, statistical, and utilization data
          is a default under this contract.

16.3.12.4 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT


          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's failure to monitor and/or supervise activities of
          contractors or network providers, TDH may:

              -  Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;
              -  Suspend new enrollment as set out in Article
              18.3; and/or
              -  Require forfeiture of all or part of the TDI performance
              bond as set out in Article 18.9.

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16.3.13   PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY

          HMO's placing the health and safety of the Members in jeopardy is a
          default under this contract.

16.3.13.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's placing the health and safety of Members in jeopardy, TDH
          may:

              -  Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3; and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in Article 18.9.

16.3.14   FAILURE TO MEET ESTABLISHED BENCHMARK

          Failure of HMO to meet any benchmark established by TDH under this
          contract is a default under this contract.

16.3.14.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDH by law or in equity, are joint and several, and may
          be exercised concurrently or consecutively. Exercise of any remedy in
          whole or in part does not limit TDH in exercising all or part of any
          remaining remedies.

          For HMO's failure to meet any benchmark established by
          TDH under this contract, TDH may:

              -  Remove the THSteps component from the capitation paid to HMO
              if the benchmark(s) missed is for THSteps;

              -  Terminate the contract if the applicable conditions set out in
              Article 18.1.1 are met;

              -  Suspend new enrollment as set out in Article 18.3;

              -  Assess liquidated money damages as set out in Article 18.4;
              and/or

              -  Require forfeiture of all or part of the TDI performance bond
              as set out in



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              Article 18.9.

ARTICLE XVII  NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1                TDH will provide HMO with written notice of default (Notice
              of Default) under this contract.  The Notice of Default may be
              given by any means that provides verification of receipt.  The
              Notice of Default must contain the following information:

17.1.1              A clear and concise statement of the circumstances or
              conditions that constitute a default under this contract;

17.1.2              The contract provision(s) under which default is being
              declared;

17.1.3              A clear and concise statement of how and/or whether the
              default may be cured;

17.l.4              A clear and concise statement of the time period during
              which HMO may cure the default if HMO is allowed to cure;

17.1.5              The remedy or remedies TDH is electing to pursue and when
              the remedy or remedies will take effect;

17.1.6              If TDH is electing to impose money damages and/or civil
              monetary penalties, the amount that TDH intends to withhold or
              impose and the factual basis on which TDH is imposing the chosen
              remedy or remedies;

17.l.7              Whether any part of money damages or civil monetary
              penalties, if TDH elects to pursue one or both of those remedies,
              may be passed through to an individual or entity who is or may be
              responsible for the act or omission for which default is
              declared;

17.1.8              Whether failure to cure the default within the given
              time period, if any, will result in TDH pursuing an additional
              remedy or remedies, including, but not limited to, additional
              damages or sanctions, referral for investigation or action by
              another agency, and/or termination of the contract.

ARTICLE XVIII  EXPLANATION OF REMEDIES

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18.1                TERMINATION

18.1.1                   TERMINATION BY TDH

                    TDH may terminate this contract if:

18.1.1.1            HMO substantially fails or refuses to provide medically
                    necessary services and items that are required under this
                    contract to be provided to Members after notice and
                    opportunity to cure;

18.1.1.2            HMO substantially fails or refuses to perform
                    administrative functions under this contract after notice
                    and opportunity to cure;

18.1.1.3            HMO materially defaults under any of the provisions of
                    Article XVI;

18.1.1.4            Federal or state funds for the Medicaid program are no
                    longer available; or

18.1.1.5            TDH has a reasonable belief that HMO has placed the health
                    or welfare of Members in jeopardy.

18.1.2                          TDH must give HMO 90 days written notice of
                    intent to terminate this contract if termination is the
                    result of HMO's substantial failure or refusal to perform
                    administrative functions or a material default under any of
                    the provisions of Article XVI.  TDH must give HMO
                    reasonable notice under the circumstances if termination is
                    the result of federal or state funds for the Medicaid
                    program no longer being available.  TDH must give the
                    notice required under TDH's formal hearing procedures set
                    out in Section 1.2.1 in Title 25 of the Texas
                    Administrative Code if termination is the result of HMO's
                    substantial failure or refusal to provide medically
                    necessary services and items that are required under the
                    contract to be provided to Members or TDH's reasonable
                    belief that HMO has placed the health or welfare of Members
                    in jeopardy.


18.1.2.1            Notice may be given by any means that gives verification of
                    receipt.

18.1.2.2            Unless termination is the result of HMO's substantial
                    failure or refusal to provide medically necessary services
                    and items that are required under this contract to be
                    provided to Members or is the result of TDH's reasonable
                    belief that HMO has placed the health or welfare of Members
                    in jeopardy, the termination date is 90 days following the
                    date that HMO receives the notice of intent to terminate.
                    For HMO's substantial failure or refusal to provide
                    services and items, HMO is entitled to request a
                    pre-termination hearing under TDH's formal hearing
                    procedures set out in Section 1.2.1 of Title 25, Texas
                    Administrative Code.

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18.1.3                          TDH may, for termination for HMO's substantial
                    failure or refusal to provide medically necessary services
                    and items, notify HMO's Members of any hearing requested by
                    HMO and permit Members to disenroll immediately without
                    cause. Additionally, if TDH terminates for this reason, TDH
                    may enroll HMO's Members with another HMO or permit HMO's
                    Members to receive Medicaid-covered services other than
                    from an HMO.

18.1.4                          HMO must continue to perform services under the
                    transition plan described in Article 18.2.1 until the last
                    day of the month following 90 days from the date of receipt
                    of notice if the termination is for any reason other than
                    TDH's reasonable belief that HMO is placing the health and
                    safety of the Members in jeopardy. If termination is due to
                    this reason, TDH may prohibit HMO's further performance of
                    services under the contract.

18.1.5                          If TDH terminates this contract, HMO may appeal
                    the termination under Section 32.034, Texas Human Resources
                    Code.

18.1.6                                                TERMINATION BY HMO

                    HMO may terminate this contract if TDH fails to pay HMO as
                    required under Article XIII of this contract or otherwise
                    materially defaults in its duties and responsibilities under
                    this contract, or by giving notice no later than 30 days
                    after receiving the capitation rates for the second contract
                    year or after disapproval by HCFA of the DSP Methodology
                    described in Article 13.1.2. Retaining premium, recoupment,
                    sanctions, or penalties that are allowed under this contract
                    or that result from HMO's failure to perform or HMO's
                    default under the terms of this contract is not cause for
                    termination.


18.1.7                          HMO must give TDH 90 days written notice of
                    intent to terminate this contract. Notice may be given by
                    any means that gives verification of receipt. The
                    termination date will be calculated as the last day of the
                    month following 90 days from the date the notice of intent
                    to terminate is received by TDH.

18.1.8                          TDH must be given 30 days from the date TDH
                    receives HMO's written notice of intent to terminate for
                    failure to pay HMO to pay all amounts due. If TDH pays all
                    amounts then due within this 30-day period, HMO cannot
                    terminate the contract under this article for that reason.

18.1.9                          TERMINATION BY MUTUAL CONSENT

                    This contract may be terminated at any time by mutual
                    consent of both HMO and



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              TDH.

18.2                DUTIES OF CONTRACTING PARTIES UPON TERMINATION

              When termination of the contract occurs, TDH and HMO must meet
              the following obligations:

18.2.1              TDH and HMO must prepare a transition plan, which is
              acceptable to and approved by TDH, to ensure that Members are
              reassigned to other plans without interruption of services. That
              transition plan will be implemented during the 90-day period
              between receipt of notice and the termination date unless
              termination is the result of TDH's reasonable belief that HMO is
              placing the health or welfare of Members in jeopardy.

18.2.2              If the contract is terminated by TDH for any reason other
              than federal or state funds for the Medicaid program no longer
              being available or if HMO terminates the contract based on lower
              capitation rates for the second contract year as set out in
              Article 13.1.4.1:

18.2.2.1      TDH is responsible for notifying all Members of the date of
              termination and how Members can continue to receive contract
              services;

18.2.2.2      HMO is responsible for all expenses related to giving notice to
              Members; and

18.2.2.3      HMO is responsible for all expenses incurred by TDH in
              implementing the transition plan.

18.2.3              If the contract is terminated by HMO for any reason other
              than based on lower capitation rates for the second contract year
              as set out in Article 13.1.4.1:

18.2.3.1      TDH is responsible for notifying all Members of the date of
              termination and how Members can continue to receive contract
              services;

18.2.3.2      TDH is responsible for all expenses related to giving notice to
              Members; and.

18.2.3.3      TDH is responsible for all expenses it incurs in implementing the
              transition plan.

18.2.4              If the contract is terminated by mutual consent:

18.2.4.1      TDH is responsible for notifying all Members of the date of
              termination and how Members can continue to receive contract
              services


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18.2.4.2      HMO is responsible for all expenses related to giving notice to
              Members; and

18.2.4.3      TDH is responsible for all expenses it incurs in implementing the
              transition plan.

18.3                SUSPENSION OF NEW ENROLLMENT

18.3.1              TDH must give HMO 30 days notice of intent to suspend new
              enrollment in the Notice of Default other than for default for
              fraud and abuse or imminent danger to the health or safety of
              Members. The suspension date will be calculated as 30 days
              following the date that HMO receives the Notice of Default.

18.3.2              TDH may immediately suspend new enrollment into HMO for a
              default declared as a result of fraud and abuse or imminent
              danger to the health and safety of Members.

18.3.3              The suspension of new enrollment may be for any duration,
              up to the termination date of the contract. TDH will base the
              duration of the suspension upon the type and severity of the
              default and HMO's ability, if any, to cure the default.

18.4                LIQUIDATED MONEY DAMAGES

18.4.1        The measure of damages in the event that HMO fails to perform its
              obligations under this contract may be difficult or impossible to
              calculate or quantify. Therefore, should HMO fail to perform in
              accordance with the terms and conditions of this contract, TDH
              may require HMO to pay sums as specified below as liquidated
              damages. The liquidated damages set out in this Article are not
              intended to be in the nature of a penalty but are intended to be
              reasonable estimates of TDH's financial loss and damage resulting
              from HMO's non-performance.

18.4.2              If TDH imposes money damages, TDH may collect those damages
              by reducing the amount of any monthly premium payments otherwise
              due to HMO by the amount of the damages. Money damages that are
              withheld from monthly premium payments are forfeited and will not
              be subsequently paid to HMO upon compliance or cure of default
              unless a determination is made after appeal that the damages
              should not have been imposed.

18.4.3              Failure to file or filing incomplete or inaccurate annual,
              semi-annual or



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              quarterly reports may result in money damages of not more than
              $11,000.00 for every month from the month the report is due until
              submitted in the form and format required by TDH. These money
              damages apply separately to each report.

18.4.4              Failure to produce or provide records and information
              requested by TDH, an entity acting on behalf of TDH, or an agency
              authorized by statute or law to require production of records at
              the time and place the records were required or requested may
              result in money damages of not more than $5,000.00 per day for
              each day the records are not produced as required by the
              requesting entity or agency if the requesting entity or agency is
              conducting an investigation or audit relating to fraud or abuse,
              and not more than $1,000.00 per day for each day records are not
              produced if the requesting entity or agency is conducting routine
              audits or monitoring activities.

18.4.5              Failure to file or filing incomplete or inaccurate
              encounter data may result in money damages of not more than
              $25,000 for each month HMO fails to submit encounter data in the
              form and format required by TDH. TDH will use the encounter data
              validation methodology established by TDH to determine the number
              of encounter data and the number of months for which damages will
              be assessed.

18.4.6              Failing or refusing to cooperate with TDH, an entity acting
              on behalf of TDH, or an agency authorized by statute or law to
              require the cooperation of HMO in carrying out an administrative,
              investigative, or prosecutorial function of the Medicaid program
              may result in money damages of not more than $8,000.00 per day
              for each day HMO fails to cooperate.

18.4.7              Failure to enter into a required or mandatory contract or
              failure to contract for or arrange to have all services required
              under this contract provided may result in money damages of not
              more than $1,000.00 per day that HMO either fails to negotiate in
              good faith to enter into the required contract or fails to
              arrange to have required services delivered.


18.4.8              Failure to meet the benchmark for benchmarked services
              under this contract may result in money damages of not more than
              $25,000 for each month that HMO fails to meet the established
              benchmark.

18.4.9              TDH may also impose money damages for a default under
              Article 16.3.9, Failure to Make Payments to Network Providers and
              subcontractors, of this contract. These money damages are in
              addition to the interest HMO is required to pay to providers
              under the provisions of Articles 4.10.4 and 7.2.7.10 of this
              contract.


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18.4.9.1      If TDH determines that HMO has failed to pay a provider for a
              claim or claims for which the provider should have been paid, TDH
              may impose money damages of $2 per day for each day the claim is
              not paid from the date the claim should have been paid
              (calculated as 30 days from the date a clean claim was received
              by HMO) until the claim is paid by HMO.

18.4.9.2      If TDH determines that HMO has failed to pay a capitation amount
              to a provider who has contracted with HMO to provide services on
              a capitated basis, TDH may impose money damages of $10 per day,
              per Member for whom the capitation is not paid, from the date on
              which the payment was due until the capitation amount is paid.

18.5                APPOINTMENT OF TEMPORARY MANAGEMENT

18.5.1              TDH may appoint temporary management to oversee the
              operation of HMO upon a finding that there is continued egregious
              behavior by HMO or there is a substantial risk to the health of
              the Members.

18.5.2              TDH may appoint temporary management to assure the health
              of HMO's Members if there is a need for temporary management
              while:

18.5.2.1      there is an orderly termination or reorganization of HMO; or

18.5.2.2      are made to remedy violations found under Article 16.3.4.

18.5.3              Temporary management will not be terminated until TDH has
              determined that HMO has the capability to ensure that the
              violations that triggered appointment of temporary management
              will not recur.

18.5.4              TDH is not required to appoint temporary management before
              terminating this contract.

18.5.5              No pre-termination hearing is required before appointing
              temporary management.


18.5.6              As with any other remedy provided under this contract, TDH
              will provide notice of default as is set out in Article XVII to
              HMO. Additionally, as with any other remedy provided under this
              contract, under Article 18.1 of this contract, HMO may dispute
              the imposition of this remedy and seek review of the proposed
              remedy.

18.6                TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS



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              WITHOUT CAUSE

              TDH must give HMO 30 days notice of intent to initiate
              disenrollment of a Member of Members in the Notice of Default.
              The TDH-initiated disenrollment date will be calculated as 30
              days following the date that HMO receives the Notice of Default.

18.7                RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO

18.7.1              If HCFA determines that HMO has violated federal law or
              regulations and that federal payments will be withheld, TDH will
              deny and withhold payments for new enrollees of HMO.

18.7.2              HMO must be given notice and opportunity to appeal a
              decision of TDH and HCFA pursuant to 42 CFR Section 434.67.

18.8          CIVIL MONETARY PENALTIES

18.8.1        For a default under Article 16.3.4.1, TDH may assess not more
              than $25,000 for each default;

18.8.2        For a default under Article 16.3.4.2, TDH may assess double the
              excess amount charged in violation of the federal requirements
              for each default. The excess amount shall be deducted from the
              penalty and returned to the Member concerned.

18.8.3        For a default under Article 16.3.4.3, TDH may assess not more
              than $100,000 for each default, including $15,000 for each
              individual not enrolled as a result of the practice described in
              Article 16.3.4.3.

18.8.4        For a default under Article 16.3.4.4, TDH may assess not more
              than $100,000 for each default if the material was provided to
              HCFA or TDH and not more than $25,000 for each default if the
              material was provided to a Member, a potential Member, or a
              health care provider.


18.8.5        For a default under Article 16.3.4.5, TDH may assess not more
              than $25,000 for each default.

18.8.6        For a default under Article 16.3.4.6, TDH may assess not more
              than $25,000 for each default.


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18.8.7        HMO may be subject to civil money penalties under the provisions
              of 42 CFR 1003 in addition to or in place of withholding payments
              for a default under Article 16.3.4.

18.9          FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND

              TDH may require forfeiture of all or a portion of the face amount
              of the TDI performance bond if TDH determines that an event of
              default has occurred. Partial payment of the face amount shall
              reduce the total bond amount available pro rata.

18.10         REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED

18.10.1       HMO may dispute the imposition of any sanction under this
              contract. HMO notifies TDH of its dispute by filing a written
              response to the Notice of Default, clearly stating the reason HMO
              disputes the proposed sanction. With the written response, HMO
              must submit to TDH any documentation that supports HMO's
              position. HMO must file the review within 15 days from HMO's
              receipt of the Notice of Default. Filing a dispute in a written
              response to the Notice of Default suspends imposition of the
              proposed sanction.

18.10.2       HMO and TDH must attempt to informally resolve the dispute. If
              HMO and TDH are unable to informally resolve the dispute, HMO
              must notify the Bureau Chief of Managed Care that HMO and TDH
              cannot agree. The Bureau Chief will refer the dispute to the
              Associate Commissioner for Health Care Financing who will appoint
              a committee to review the dispute under TDH's dispute resolution
              procedures. The decision of the dispute resolution committee will
              be TDH's final administrative decision.

ARTICLE XIX TERM

19.1          The effective date of this contract is August 30, 1999.  This
              contract will terminate on August 31, 2001, unless terminated
              earlier as provided for elsewhere in this contract.

19.2          This contract may be renewed for an additional one-year period by
              written amendment to the contract executed by the parties prior
              to the termination date of the present contract.  TDH will notify
              HMO no later than 90 days before the end of the contract period
              of its intent not to renew the contract.

19.3          If either party does not intend to renew the contract beyond its
              contract

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          period, the party intending not to renew must submit a written notice
          of its intent not to renew to the other party no later than 90 days
          before the termination date set out in Article 19.1.

19.4      If either party does not intend to renew the contract beyond its
          contract period and sends the notice required in Article 19.3, a
          transition period of 90 days will run from the date the notice of
          intent not to renew is received by the other party.  By signing this
          contract, the parties agree that the terms of this contract shall
          automatically continue during any transition period.

19.5      The party that does not intend to renew the contract beyond its
          contract period and sends the notice required by Article 19.3 is
          responsible for sending notices to all Members on how the Member can
          continue to receive covered services.  The expense of sending the
          notices will be paid by the non-renewing party. If TDH does not
          intend to renew and sends the required notice, TDH is responsible for
          any costs it incurs in ensuring that Members are reassigned to other
          plans without interruption of services.  If HMO does not intend to
          renew and sends the required notice, HMO is responsible for any costs
          TDH incurs in ensuring that Members are reassigned to other plans
          without interruption of services.  If both parties do not intend to
          renew the contract beyond its contract period, TDH will send the
          notices to Members and the parties will share equally in the cost of
          sending the notices and of implementing the transition plan.

19.6      Non-renewal of this contract is not a contract termination for
          purposes of appeal rights under the Human Resources Code Section
          32.034.



SIGNED            30th             day of         August               , 1999.
      -----------------------------       -----------------------------

TEXAS DEPARTMENT OF HEALTH                     HMO Name



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BY:                                            BY:
   -------------------------------                -----------------------------
      William R. Archer III, M.D.    Printed Name:
      Commissioner of Health                      -----------------------------
                                            Title:
                                                  -----------------------------

Approved as to Form:

Office of General Counsel



                                   APPENDICES

  Copies of the Appendices will be available in the Regulatory Department upon
                                    request.

                                                     OR# 024802

                                                     7526032317 * 2001A   01A

                                AMENDMENT NO. 1
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN



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                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 1 is entered into between the Texas Department of Health and
AMERICAID Texas, Inc. d/b/a AMERICAID Community Care (HMO), to amend the
Contract for Services between the Texas Department of Health and HMO in the
Harris Service Area, dated September 1, 1999. The effective date of this
Amendment is September 1, 1999. All other contract provisions remain in full
force and effective.

(The amended sections which have been BOLDED are shown throughout the entire
contract)

AGREED AND SIGNED by an authorized representative of the parties on November
18, 1999.

TEXAS DEPARTMENT OF HEALTH                      AMERICAID Texas, Inc.
                                                d/b/a AMERICAID

              Community Care

By:      William R. Archer, III., M.D.          By:    James D. Donovan, Jr.
         Commissioner of Health                        President & CEO




Approved as to Form:

Office of General Counsel

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