<PAGE>   1

                                                                    Exhibit 10.2


                                             TDH Document No. 7526032317*2001-01

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



                                                           1999 Renewal Contract
                                                            Tarrant Service Area
                                                                  August 9, 1999

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>                 <C>                                                                                <C>
ARTICLE I           PARTIES AND AUTHORITY TO CONTRACT....................................................1

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

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

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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                                                            Tarrant Service Area
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<PAGE>   3

<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..........................................................................73
        ----------------------
7.15    FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH CLINICS (RHC)........................74
        ------------------------------------------------------------------------
7.16    COORDINATION WITH PUBLIC HEALTH.................................................................75
        -------------------------------
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..............................................................................82
        ------------------
8.4     MEMBER ID CARDS.................................................................................84
        ---------------
8.5     MEMBER HOTLINE..................................................................................85
        --------------
8.6     MEMBER COMPLAINT PROCESS........................................................................85
        ------------------------
8.7     MEMBER NOTICE, APPEALS AND FAIR HEARINGS........................................................87
        ----------------------------------------
8.8     MEMBER ADVOCATES................................................................................89
        ----------------
8.9     MEMBER CULTURAL AND LINGUISTIC SERVICES.........................................................89
        ---------------------------------------

ARTICLE IX          MARKETING AND PROHIBITED PRACTICES..................................................91

9.1     MARKETING MATERIAL MEDIA AND DISTRIBUTION.......................................................91
        -----------------------------------------
9.2     MARKETING ORIENTATION AND TRAINING..............................................................92
        ----------------------------------
9.3     PROHIBITED MARKETING PRACTICES..................................................................92
        ------------------------------
9.4     NETWORK PROVIDER DIRECTORY......................................................................93
        --------------------------

ARTICLE X           MIS SYSTEM REQUIREMENTS.............................................................93

10.1    MODEL MIS REQUIREMENTS..........................................................................93
        ----------------------
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.............................................................................99
        -------------------
</TABLE>


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                                                                  August 9, 1999
<PAGE>   4

<TABLE>
<S>     <C>                                                                                            <C>
10.7    UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM......................................................100
        -----------------------------------------
10.8    REPORT SUBSYSTEM...............................................................................102
        ----------------
10.9    DATA INTERFACE SUBSYSTEM.......................................................................103
        ------------------------
10.10   TPR SUBSYSTEM..................................................................................104
        -------------
10.11   YEAR 2000 (Y2K) COMPLIANCE.....................................................................105
        --------------------------

ARTICLE XI          QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM..................................105

11.1    QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM.......................................................105
        ----------------------------------------
11.2    WRITTEN QIP PLAN...............................................................................105
        ----------------
11.3    QIP SUBCONTRACTING.............................................................................105
        ------------------
11.4    ACCREDITATION..................................................................................106
        -------------
11.5    BEHAVIORAL HEALTH INTEGRATION INTO QIP.........................................................106
        --------------------------------------
11.6    QIP REPORTING REQUIREMENTS.....................................................................106
        --------------------------

ARTICLE XII         REPORTING REQUIREMENTS.............................................................106

12.1    FINANCIAL REPORTS..............................................................................106
        -----------------
12.2    STATISTICAL REPORTS............................................................................108
        -------------------
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..............................................................................110
        -----------------
12.7    FRAUDULENT PRACTICES...........................................................................111
        --------------------
12.8    UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH.............................................111
        --------------------------------------------------
12.9    UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH...............................................111
        ------------------------------------------------
12.10   QUALITY IMPROVEMENT REPORTS....................................................................111
        ---------------------------
12.11   HUB REPORTS....................................................................................113
        -----------
12.12   THSTEPS REPORTS................................................................................113
        ---------------

ARTICLE XIII        PAYMENT PROVISIONS.................................................................113

13.1    CAPITATION AMOUNTS.............................................................................113
        ------------------
13.2    EXPERIENCE REBATE TO STATE.....................................................................117
        --------------------------
13.3    PERFORMANCE OBJECTIVES.........................................................................118
        ----------------------
13.4    ADJUSTMENTS TO PREMIUM.........................................................................119
        ----------------------

ARTICLE XIV         ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT.........................................119

14.1    ELIGIBILITY DETERMINATION......................................................................119
        -------------------------
14.2    ENROLLMENT.....................................................................................121
        ----------
14.3    DISENROLLMENT..................................................................................122
        -------------
14.4    AUTOMATIC RE-ENROLLMENT........................................................................122
        -----------------------
14.5    ENROLLMENT REPORTS.............................................................................123
        ------------------

ARTICLE XV          GENERAL PROVISIONS.................................................................123

15.1    INDEPENDENT CONTRACTOR.........................................................................123
        ----------------------
15.2    AMENDMENT......................................................................................123
        ---------
15.3    LAW, JURISDICTION AND VENUE....................................................................124
        ---------------------------
15.4    NON-WAIVER.....................................................................................124
        ----------
15.5    SEVERABILITY...................................................................................124
        ------------
15.6    ASSIGNMENT.....................................................................................124
        ----------
15.7    MAJOR CHANGE IN CONTRACTING....................................................................125
        ---------------------------
15.8    NON-EXCLUSIVE..................................................................................125
        -------------
15.9    DISPUTE RESOLUTION.............................................................................125
        ------------------
15.10   DOCUMENTS CONSTITUTING CONTRACT................................................................125
        -------------------------------
15.11   FORCE MAJEURE..................................................................................125
        -------------
</TABLE>


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                                                                  August 9, 1999
<PAGE>   5

<TABLE>
<S>     <C>                                                                                           <C>
15.12   NOTICES........................................................................................126
        -------
15.13   SURVIVAL.......................................................................................126
        --------

ARTICLE XVI         DEFAULT AND REMEDIES...............................................................126

16.1    DEFAULT BY TDH.................................................................................126
        --------------
16.2    REMEDIES AVAILABLE TO HMO FOR TDH's DEFAULT....................................................126
        -------------------------------------------
16.3    DEFAULT BY HMO.................................................................................127
        --------------
ARTICLE XVII        NOTICE OF DEFAULT AND CURE OF DEFAULT..............................................135

ARTICLE XVIII       EXPLANATION OF REMEDIES............................................................136

18.1    TERMINATION....................................................................................136
        -----------
18.2    DUTIES OF CONTRACTING PARTIES UPON TERMINATION.................................................138
        ----------------------------------------------
18.3    SUSPENSION OF NEW ENROLLMENT...................................................................139
        ----------------------------
18.4    LIQUIDATED MONEY DAMAGES.......................................................................139
        ------------------------
18.5    APPOINTMENT OF TEMPORARY MANAGEMENT............................................................141
        -----------------------------------
18.6    TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE...............................142
        ----------------------------------------------------------------
18.7    RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO.....................................142
        ----------------------------------------------------------
18.8    CIVIL MONETARY PENALTIES.......................................................................142
        ------------------------
18.9    FORFEITURE OF ALL OR PART OF THE TDI PERFORMANCE BOND..........................................143
        -----------------------------------------------------
18.10   REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED.....................................................143
        ------------------------------------------

ARTICLE XIX         TERM...............................................................................143
</TABLE>

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                                                            Tarrant Service Area
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                                                                  August 9, 1999
<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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                                                                  August 9, 1999

<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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                                                                  August 9, 1999
<PAGE>   8

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

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

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                                                            Tarrant Service Area
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                                                                  August 9, 1999
<PAGE>   9

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 cognitive or other disabilities affecting communication.

Behavioral health care services means covered services for the treatment of
mental or emotional

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                                                                  August 9, 1999
<PAGE>   10

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 AHMO 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
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

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                                                                  August 9, 1999
<PAGE>   11

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.

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

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                                                                  August 9, 1999
<PAGE>   12

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 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.

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                                                                  August 9, 1999
<PAGE>   13

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 '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.

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

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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.

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

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(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.

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

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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 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

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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 '95 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 '95.

Special hospital means an establishment that:

(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;

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(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.

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

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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 Section 1396d(r), and defined and codified at 42 C.F.R. Section
440.40 and Section 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 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,

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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 personnel.

3.1.6                Participation in Regional Advisory Committee. HMO must
              participate on a Regional Advisory Committee established in the
              service area in compliance

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              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 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

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              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.

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

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              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.

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

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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.

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

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              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 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

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              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

              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

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              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 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.

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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 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

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              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 IN HMO
              OPERATIONS

4.8.1                HMO was awarded this contract based upon the responses and

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              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 Recovery in the Medicaid
              program.

4.9.3                Exchange of Identified Resources.  HMO must forward
              identified

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              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 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.

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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.
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.

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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

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

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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.

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

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              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.

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,

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              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.

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.

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              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 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

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              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 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

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              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.

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

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              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.

ARTICLE VI                  SCOPE OF SERVICES

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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.

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

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              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)
                     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 andContact Investigation)
                     Vendor Drugs (out-of-office drugs)

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                     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 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.

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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.

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. HMO may pay any out-of-network provider a reasonable
              and customary amount determined by the HMO. This Article does not
              extend the obligation of HMO to reimburse the Member's existing
              out-of-network providers of on-going care for more than 90 days
              after Member enrolls in HMO or for more than nine months in the
              case of a Member who at the time of enrollment in HMO has been
              diagnosed with and receiving treatment for a terminal illness. The
              obligation of HMO to reimburse the Member's existing
              out-of-network

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              provider for services provided to a pregnant Member with 12 weeks
              or less remaining before the expected delivery date extends
              through delivery of the child, immediate postpartum care, and the
              follow-up checkup within the first six weeks of delivery.

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 hospital's emergency
              services including the emergency room and its ancillary services.
              With respect to an emergency medical condition, to stabilize is to

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              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.

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

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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 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

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              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 to confidential family
              planning services.

6.7.3                Provider Standards and Payment.  HMO must require all

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              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 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

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              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 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

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              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 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.

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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.

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;

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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. HMO must develop policies and procedures to ensure that
              Members who may be

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              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 capitated services required in Article 6.12.

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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 into the primary care provider's plan of care;

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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:

              (1)    develop, maintain and distribute health education services
                     standards,

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

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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 resources and targeted case management programs (see
              Non-Capitated Services in

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              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 VII          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 weeks of the request;

7.1.3.4              HMO must establish policies and procedures to ensure that
              THSteps

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              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 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

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              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 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:

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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 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

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              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 or practice, or fraud.

7.2.9.1              Within 60 days of the termination notice date, a provider
              may request a

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              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 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:

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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

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

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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.

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

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              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 licensing
Practitioner     agency of the State of Texas who is enrolled in the Texas Medicaid
Provider         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 Health     A local health department established pursuant to Health and
Department       Safety Code, Title 2, Local Public Health Reorganization Act
                 Section 121.031ff.
-----------------------------------------------------------------------------------
</TABLE>

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<TABLE>
<S>              <C>
-----------------------------------------------------------------------------------
Local Mental     Under Section 531.002(8) of the Health and Safety Code, the local
Health           component of the TXMHMR system designated by TDMHMR to carry out
Authority        the legislative mandate for planning, policy development,
(LMHA)           coordination, and resource development/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.
-----------------------------------------------------------------------------------
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 primary
Health           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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              (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.

7.14                 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

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.

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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 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);

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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 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.

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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 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;

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              (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 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

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              (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 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.

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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;

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

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              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 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

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              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

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

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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, 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 limitation 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;

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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 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

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              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 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

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              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 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

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              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 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

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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;

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

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              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 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.

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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, 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-

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              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 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

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              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 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

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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, 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

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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 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

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              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

              (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.

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              (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 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.

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              (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.

              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.

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              (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 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.

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              (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 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.

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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.

              (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

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              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.

              (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.

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              (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.

              (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.

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              (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.

              (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.

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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.

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.

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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.


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

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              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.

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

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              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 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.

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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 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

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              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 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

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              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, 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.


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<PAGE>   118

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

              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.

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                                                                  August 9, 1999
<PAGE>   119

              (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 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.

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                                                                  August 9, 1999
<PAGE>   120

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
              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.

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                                                                  August 9, 1999
<PAGE>   121

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 TARRANT 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                                         $154.34
--------------------------------------------------------------------------------
TANF Children > 12                                   $61.86
Months of Age
--------------------------------------------------------------------------------
Expansion Children >                                 $83.41
12 Months of Age
--------------------------------------------------------------------------------
Newborns <= 12 Months                               $425.28
of Age
--------------------------------------------------------------------------------
TANF Children <= 12                                 $425.28
Months of Age
--------------------------------------------------------------------------------
Expansion Children <= 12                            $425.28
Months of Age
--------------------------------------------------------------------------------
Federal Mandate Children                             $50.27
--------------------------------------------------------------------------------
CHIP Phase I                                         $75.06
--------------------------------------------------------------------------------
Pregnant Women                                      $151.51
--------------------------------------------------------------------------------
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: $3,164.40.

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                                                                  August 9, 1999
<PAGE>   122

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 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 Tarrant Service Area using the Methodology
              set forth in Article 13.1.1, without the DSP, are as follows:

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                                                            Tarrant Service Area
                                       122
                                                                  August 9, 1999
<PAGE>   123


<TABLE>
<CAPTION>
---------------------------------------------------------------
RISK GROUP                     MONTHLY CAPITATION AMOUNTS
                               September 1, 1999 - August 31,
                               2000
---------------------------------------------------------------
<S>                            <C>
TANF Adults                                 $187.16
---------------------------------------------------------------
TANF Children                                $75.97
---------------------------------------------------------------
Expansion Children                           $96.73
---------------------------------------------------------------
Newborns                                    $477.64
---------------------------------------------------------------
Federal Mandate Children                     $50.84
---------------------------------------------------------------
CHIP Phase I                                 $83.54
---------------------------------------------------------------
Pregnant Women                              $621.93
---------------------------------------------------------------
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.

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                                                                  August 9, 1999
<PAGE>   124

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 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 Rebate as a                  HMO Share                         State Share
    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

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                                                                  August 9, 1999
<PAGE>   125

              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.

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.

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                                                                  August 9, 1999
<PAGE>   126


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.

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

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                                                                  August 9, 1999
<PAGE>   127

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).

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
              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.

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                                                                  August 9, 1999
<PAGE>   128

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, 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

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                                                                  August 9, 1999
<PAGE>   129

              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., 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

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                                                                  August 9, 1999
<PAGE>   130

              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.

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

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              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 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

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              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

              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

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              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 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

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              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 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

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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 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

              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.
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              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

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;

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              - 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

              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

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              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 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

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              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:

              - 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;

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              - 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 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

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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 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.

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

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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 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 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;

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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

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

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              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.

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.
              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

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              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 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.

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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

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

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              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 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

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              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.

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.

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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 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 '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

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              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.

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.

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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 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.

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SIGNED             30TH              day of         August             , 1999.
       -----------------------------        ---------------------------

TEXAS DEPARTMENT OF HEALTH                     HMO Name

BY:                                            BY:
   ----------------------------                   ------------------------------
   William R. Archer III, M.D.       Printed Name:     JAMES D. DONOVAN, JR.
   Commissioner of Health                         ------------------------------
                                            Title:       PRESIDENT AND CEO
                                                  ------------------------------
Approved as to Form:

Office of General Counsel

                                   APPENDICES

Copies of the Appendices A-M will be available in the Regulatory Department upon
request.

                                                           OR# 024804
                                                           7526032317 * 2001 01A

                                 AMENDMENT NO. 1
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 1 is entered into between the Texas Department of Health and
AMERICAID Texas, Inc. dba AMERICAID Community Care (HMO), to amend the Contract
for Services between the Texas Deparment of Health and HMO, in the Tarrant
Service Area, dated August 26, 1999. The effective date of this Amendment is
September 1, 1999. All other contract provisions remain in full force and
effect.

(The amended sections which have been BOLDED are shown throughout the entire
contract)


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