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                                                                    Exhibit 10.3

                                Texas Department
                                       Of
                                 Human Services

                                     [SEAL]

                               STAR+PLUS CONTRACT
--------------------------------------------------------------------------------

                              AMERICAID Texas, Inc.

                               HARRIS SERVICE AREA





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                                TABLE OF CONTENTS



ARTICLE                 I           PARTIES AND AUTHORITY TO CONTRACT.........1

ARTICLE                 II          DEFINITION............................... 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....17
         3.5            RECORDS REQUIREMENTS AND RECORDS RETENTION...........19
         3.6            HMO REVIEW OF TDHS MATERIALS.........................20
         3.7            REQUIRMENTS FOR EDUCATION, TRAINING, AND ADVISORY
                        COMMITTEE ACTIVITIES.................................20

ARTICLE                 IV          FISCAL, FINANCIAL AND SOLVENCY
                                    REQUIREMENTS.............................20

         4.1            FISCAL SOLVENCY......................................20
         4.2            MINIMUM NET WORTH....................................21
         4.3            PERFORMANCE BOND.....................................21
         4.4            INSURANCE............................................21
         4.5            FRANCHISE TAX........................................22
         4.6            AUDIT................................................22
         4.7            PENDING OR THREATENED LITIGATION.....................22
         4.8            MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA.......22
         4.9            THIRD PARTY RECOVERY.................................23
         4.10           CLAIMS PROCESSING REQUIREMENTS.......................24
         4.11           INDEMNIFICATION......................................26

ARTICLE                 V           STATUTORY AND REGULATORY COMPLIANCE
                                    REQUIREMENTS.............................26

         5.1            COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS.......26
         5.2            PROGRAM INTEGRITY....................................27
         5.3            FRAUD AND ABUSE COMPLIANCE PLAN......................27
         5.4            SAFEGUARDING INFORMATION.............................29
         5.5            NON-DISCRIMINATION...................................30
         5.6            HISTORICALLY UNDERUTILIZED BUSINESS (HUBs)...........30
         5.7            AFFIRMATIVE ACTION...................................31
         5.8            BUY TEXAS............................................31
         5.9            CHILD SUPPORT........................................31
         5.10           REQUEST FOR PUBLIC INFORMATION.......................32
         5.11           NOTICE AND APPEAL....................................32

ARTICLE                 VI          SCOPE OF SERVICES........................33

         6.1            SCOPE OF SERVICES....................................33
         6.2            PRE-EXISTING CONDITIONS..............................35
         6.3            SPAN OF ELIGIBILITY..................................35
         6.4            CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS......36


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         6.5            EMERGENCY CARE.......................................36
         6.6            BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS...37
         6.7            FAMILY PLANNING - SPECIFIC REQUIREMENTS..............39
         6.8            TEXAS HEALTH STEPS (EPSDT)...........................41
         6.9            PERINATAL SERVICES...................................43
         6.10           EARLY CHILDHOOD INTERVENTION.........................44
         6.11           SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN
                        INFANTS, AND CHILDREN (WIC)- SPECIFIC REQUIREMENTS,..45
         6.12           TUBERCULOSIS (TB)....................................45
         6.13           HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS...46
         6.14           CARE COORDINATION AND TRANSITION PLANS
                        FOR LONG TERM CARE SERVICES..........................47
         6.15           1915 (C) WAIVER SERVICE(COMMUNITY BBASED
                        ALTERNATIVES)....................................... 51

ARTICLE                 VII         PROVIDER NETWORK REQUIREMENTS............52

         7.1            NETWORK PROVIDER DIRECTORY...........................52
         7.2            PROVIDER ACCESSIBILITY...............................53
         7.3            PROVIDER CONTRACTS...................................54
         7.4            PHYSICIAN INCENTIVE PLANS............................58
         7.5            PROVIDER MANUAL AND PROVIDER TRAINING................59
         7.6            MEMBER PANEL REPORTS.................................60
         7.7            PROVIDER COMPLAINT AND APPEAL PROCEDURES.............60
         7.8            PROVIDER QUALIFICATIONS - GENERAL....................61
         7.9            PRIMARY CARE PROVIDERS...............................62
         7.10           OB/GYN PROVIDERS.....................................66
         7.11           SPECIALTY CARE PROVIDERS.............................66
         7.12           SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES......67
         7.13           BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY
                        (LMHA)...............................................67
         7.14           SIGNIFICANT TRADITIONAL PROVIDERS (STPS).............69
         7.15           FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND
                        RURAL HEALTH CLINICS (RHC) ..........................70

ARTICLE                 VIII        MEMBER SERVICES REQUIREMENTS.............70

         8.1            MEMBER EDUCATION.....................................70
         8.2            MEMBER HANDBOOK......................................71
         8.3            ADVANCE DIRECTIVES...................................71
         8.4            MEMBER ID CARDS......................................73
         8.5            MEMBER HOTLINE.......................................73
         8.6            MEMBER COMPLAINT PROCESS.............................73
         8.7            MEMBER NOTICES, APPEALS AND FAIR HEARINGS............75
         8.8            MEMBER CULTURAL AND LINGUISTIC SERVICES..............77

ARTICLE                 IX          MARKETING AND PROHIBITED PRACTICES.......78

         9.1            MARKETING MATERIALS..................................78
         9.2            ADHERENCE TO MARKETING GUIDELINES....................78

ARTICLE                 X           MIS SYSTEM REQUIREMENTS..................78

         10.1           MODEL MIS REQUIREMENTS...............................78
         10.2           SYSTEM WIDE FUNCTIONS................................79
         10.3           ENROLLMENT/ELIGIBILITY SUBSYSTEM.....................80
         10.4           PROVIDER SUBSYSTEM...................................81
         10.5           ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM................81

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         10.6           FINANCIAL SUBSYSTEM..................................82
         10.7           UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM............83
         10.8           REPORT SUBSYSTEM.....................................84
         10.9           DATA INTERFACE SUBSYSTEM.............................85
         10.10          TPR SUBSYSTEM........................................86
         10.11          YEAR 2000 COMPLIANCE.................................87

ARTICLE                 XI          QUALITY ASSURANCE AND QUALITY IMPROVEMENT
                                    PROGRAM..................................87

         11.1           QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM.............87
         11.2           WRITTEN QIP PLAN.....................................87
         11.3           QUI SUBCONTRACTING ..................................87
         11.4           BEHAVIORAL HEALTH INTEGRATION INTO QIP...............88
         11.5           QIP REPORTING REQUIREMENTS...........................88

ARTICLE                 XII         REPORTING REQUIREMENTS...................88

         12.1           FINANCIAL REPORTS....................................88
         12.2           STATISTICAL REPORTS..................................89
         12.3           ARBITRATION/LITIGATION CLAIMS REPORT.................90
         12.4           SUMMARY REPORT OF PROVIDER COMPLAINTS................90
         12.5           PROVIDER NETWORK REPORTS.............................91
         12.6           MEMBER COMPLAINTS....................................91
         12.7           FRAUDULENT PRACTICES.................................91
         12.8           UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH...91
         12.9           UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH.....92
         12.10          UTILIZATION MANAGEMENT REPORTS - LONG TERM CARE......92
         12.11          QUALITY IMPROVEMENT REPORTS..........................92
         12.12          HUB QUARTERLY REPORTS................................93
         12.13          THSTEPS REPORTS......................................93

ARTICLE                 XIII        PAYMENT PROVISIONS.......................93

         13.1           CAPATATION AMOUNTS...................................93
         13.2           EXPERIENCE REBATE TO STATE...........................95
         13.3           ADJUSTMENTS TO PREMIUM...............................96

ARTICLE                 XIV         ELIGIBILITY, ENROLLMENT, AND
                                    DISENROLLMENT............................97

         14.1           ELIGIBILITY DETERMINATION............................97
         14.2           ENROLLMENT...........................................98
         14.3           PLAN CHANGES FROM HMO AND DISENROLLMENT FROM
                        MANAGED CARE.........................................99
         14.4           AUTOMATIC RE-ENROLLMENT.............................100
         14.5           ENROLLMENT REPORTS..................................100

ARTICLE                 XV          GENERAL PROVISIONS......................100

         15.1           INDEPENDENT CONTRACTOR..............................100
         15.2           AMENDMENT...........................................100
         15.3           LAW, JURISDICTION AND VENUE.........................101
         15.4           NON-WAIVER..........................................101
         15.5           SEVERABILITY........................................101
         15.6           ASSIGNMENT..........................................101
         15.7           MAJOR CHANGE IN CONTRACTING.........................101

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         15.8           NON-EXCLUSIVE.......................................102
         15.9           DISPUTE RESOLUTION..................................102
         15.10          DOCUMENTS CONSTITUTING CONTRACT.....................102
         15.11          FORCE MAJEURE.......................................102
         15.12          NOTICES.............................................102
         15.13          SURVIVAL............................................102

ARTICLE                 XVI         DEFAULT AND REMEDIES....................103

         16.1           DEFAULT BY TDHS.....................................103
         16.2           REMEDIES AVAILABLE TO HMO FOR TDHS DEFAULT..........103
         16.3           DEFAULT BY HMO......................................103

ARTICLE                 XVII        NOTICE OF DEFAULT AND CURE OF DEFAULT...110

ARTICLE                 XVIII       EXPLANATION OF REMEDIES.................111

         18.1           TERMINATION.........................................111
         18.2           DUTIES OF CONTRACTING PARTIES UPON TERMINATION......113
         18.3           SUSPENSION OF NEW ENROLLMENT........................114
         18.4           LIQUIDATED MONEY DAMAGES............................114
         18.5           APPOINTMENT OF TEMPORARY MANAGEMENT.................116
         18.6           TDHS-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS
                        WITHOUT CAUSE.......................................116
         18.7           RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN
                        AGAINST HMO.........................................117
         18.8           CIVIL MONETARY PENALTIES............................117
         18.9           FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE
                        BOND................................................117
         18.10          REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED..........117

ARTICLE                 XIX         TERM....................................118

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                                   ATTACHMENTS


ATTACHMENT A
           Value Added Services
ATTACHMENT B
           HUB Reporting Requirements and Forms
ATTACHMENT C
           Behavioral Health Value-added Services
ATTACHMENT D
           Required Critical Elements
ATTACHMENT E
           Cost Principles for Administrative Expenses

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                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HUMAN SERVICES
                                       AND
                                       HMO

This Contract is entered into between the Texas Department of Human Services
("TDHS") and AMERICIAD TEXAS, INC. ("HMO"). The purpose of this Contract is to
set forth the terms and conditions for HMO participation as a managed care
organization in the TDHS STAR+PLUS Program ("STAR+PLUS"). Under the terms of
this Contract HMO will provide comprehensive health care services to qualified
and eligible Medicaid recipients through a managed care delivery system. This is
a risk-based Contract. HMO was selected to provide services under this Contract
pursuant to Human Resources Code Section 22.002(f). The HMO's original selection
for this Contract was based on HMOs Application to TDH/TDHS Request for
Application (RFA). Representation 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 the population
      covered by this Contract to TDHS. TDHS has authority to contract with HMO
      to carry out the duties and functions of the Medicaid managed care program
      for the population served by this Contract under the Human Resources Code,
      chapter 32.

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 TDHS and has received a Vendor Identification
      number from the Texas Comptroller of Public Accounts.

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

1.4   TDHS is required by Human Resources Code Section 32.043(a) and Government
      Code Section 533.007 to conduct readiness review of HMO's performance and
      compliance with this contract as a condition for retention and renewal.

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

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

1.4.3 The State reserves the right to conduct on-site inspection of any or all
      of HMO's systems and processes as often as necessary to ensure compliance
      with contract requirements. TDHS may conduct at least one complete on-site
      inspection of all systems and processes every three years.

      The State will provide six weeks advance notice to HMO of the three year
      on-site inspection, unless the State enters into an MOU with the Texas
      Department of Insurance to accept the TDI report in lieu of an on-site
      inspection. The State 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, the State
      reserves the right to conduct an onsite review without advance notice if
      the State believes there may be potentially serious or life-threatening
      deficiencies.

1.5   AUTHORITY OF HMO TO ACT ON BEHALF OF THE STATE. HMO is given express,
      limited authority to exercise the State's right of recovery, for expenses
      incurred related to acute care services, 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 the State
      has authority to require under State or federal laws.

      The HMO is obligated to pursue recovery for expenses related to long-term
      care services or to assist the state in pursuit of recovery as required in
      Article 4.9.

ARTICLE II              DEFINITIONS

TERMS USED THROUGHOUT THIS CONTRACT HAVE THE FOLLOWING MEANING, UNLESS THE
CONTEXT CLEARLY INDICATES OTHERWISE:

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

Acute Care means medical care provided under the direction of a physician for a
condition having a relatively short duration.

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Adjudicate means to deny or pay a clean claim.

Adverse action means a denial, termination, suspension, reduction of covered
services, denial of a continued stay in a health facility, a retrospective
denial of a continued service or a denial of prior authorization for covered
services affecting a Member. This term does not include reaching the end of
prior authorized services.

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; or, any parent entity; or any subsidiary entity of HMO,
regardless of the organizational structure of the entity.

Allowable Expenses means all expenses related to the Contract for Services
between TDHS 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 TDHS.

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.

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

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

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

Care Coordination means a specialized care management service that is performed
by a Care Coordinator and that includes but is not limited to:

      (a)   Identification of needs, including physical health, mental health
            services and long term support services, and development of a Care
            Plan (CP) to address those needs;

      (b)   Assistance to ensure timely and a coordinated access to an array of
            providers and services;

      (c)   Attention to addressing unique needs of Members; and

      (d)   Coordination of Plan services with social and other services
            delivered outside the Plan, as necessary and appropriate.

Care Coordinator means the person with primary responsibility for providing care
coordination/management to members with complex care needs including long term

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care. The Care Coordinator need not be a medical professional. This person is
authorized by HMO to authorize the provision and delivery of long term care
services.

Care Plan (CP) means an individualized plan of care developed with and for
Members who have chronic or complex conditions. A CP includes, but is not
limited to, the following:

      (a)   A Member's history;

      (b)   A summary of current medical and social needs and concerns;

      (c)   Short and long term care needs and goals; and

      (d)   A list of services required their frequency, and a description of
            who will provide the services.

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 TDHS approved or identified claim format that contains all
data fields required by HMO and TDHS 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 TDHS required data fields are
identified in TDHS "HMO Encounter Data Claims Submission Manual".

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

Community Based Alternatives (CBA) Waiver is the TDHS waiver program, which
provides home and community-based services to aged and disabled adults as
cost-effective alternatives to institutional care in nursing homes.

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-problem" 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-

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making and ensures that children and adolescents receive the integrated
combination of social, medical and other services needed to address their
individual problems.

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

Complaint means any dissatisfaction, expressed by a complainant orally or in
writing to the 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 the State.

Complex Need means a condition or situation that results in a need for
coordination or access to services beyond what a PCP would normally provide, and
which triggers the HMO's determination that a Care Coordinator is required.

Comprehensive Care Program See definition for Texas Health Steps.

Continuity of Care means care provided to a Member by the same primary care
provider, specialty provider or other auxiliary 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 TDHS and HMO and documents included by
reference and any of its written amendments, corrections or modifications.

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

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+PLUS Member to a
psychiatric facility for treatment that is ordered by the court of law pursuant
to the Texas Health and Safety Code, Title VII Subtitle C.

Covered Services means health care services and health related services the HMO
must provide to Members, including all services required by this Contract and
state and federal law, and all value-added services described by the HMO and
approved by TDHS.

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.

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Day mean 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.

Disabled Person or Person with Disability means a person under 65 years of age,
including a child, who qualifies for Medicaid services because of a disability.

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

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 developmental
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 of the Contract means the day on which all parties are bound by
the terms and conditions of this Contract.

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 and emergency behavioral health condition.

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

      (a)   placing the patient's health in serious jeopardy;
      (b)   serious impairment to bodily functions;
      (c)   serious dysfunction of any bodily organ or part; or
      (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 a group of services delivered by a provider
to a Member during a visit between the Member and provider. This also includes
value-added services.

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

Enrollment Broker means an entity contracting with the State to carry out
specific functions related to Member services (i.e., enrollment/disenrollment,
complaints, etc.) under the State'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 United States Code 1396d(r). (See definition
for Texas Health Steps.) The name has been changed to Texas Health Steps
(THSteps) in the State of Texas.

Execution Date means the date this Contract is signed by persons with the
authority to contract for TDHS and HMO.

Experience Rebate means excess of allowable HMO STAR+PLUS revenues over
allowable HMO STAR+PLUS 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 for Acute Care Services, found at 42
CFR Part 431, Subpart E, and 1 TAC, Chapter 357., or a hearing conducted under
the rules set forth in 40 TAC chapter 79, Subchapters L, M and N for Long Term
Care services.

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

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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 or 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
services to persons with mental illness in one or more local service areas.

Long term care is a continuum of care and assistance ranging from in-home and
community based services for elderly people and people with disabilities who
need help in maintaining their independence, to institutional care for those who
require that level of support, seeking to maintain independence for the
individual while providing the support required. Long term care services are
listed in Appendices KK and LL of the RFA.

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 Assistance Only (MAO) means one of the three primary classes of Texas
Medicaid clients. The other two are Public Assistance and SSI. MAO clients
receive no cash assistance but receive "Medical Assistance Only." MAO clients
are related to the financial assistance programs in that, except for some
eligibility criteria, they would be eligible for money payments. This means that
they are in one of the categories of aged, blind, disabled or families with
dependent children.

Medical Home means a primary care provider or specialty care provider who has
accepted the responsibility to act as a PCP for providing accessible,
continuous, comprehensive and coordinated care to Members participating in the
TDHS Medicaid managed care program.

Medically Necessary Behavioral Health Services means those behavioral health
services which:

      (a)   are reasonable and necessary for the diagnosis or treatment of a
            mental health or chemical dependency disorder or to improve or to
            maintain or to prevent deterioration of functioning resulting from
            such a disorder;
      (b)   are in accordance with professionally accepted clinical guidelines
            and standards of practice in behavioral health care;
      (c)   are furnished in the most appropriate and least restrictive setting
            in which services can be safely provided;
      (d)   are the most appropriate level of supply or 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 services means health services other than behavioral
health services which are:

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      (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.

Medicare is a health insurance program for people 65 and older and some people
under age 65 who are disabled. It is a federal government program authorized
under Title XVIII of the Social Security Act and is administered by the Health
Care Financing Administration (HCFA). For people with very low incomes, state
Medicaid programs may pay the amounts Medicare does not pay and may pay some
health care expenses not covered by Medicare if the individual is also eligible
for Medicaid.

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+PLUS Program, and is enrolled
in the STAR+PLUS Program.

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

Mental health priority population means those individuals served by TXMHMR who
meet the definition of the priority population. The priority population for
mental health 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.

Minimum Data Set for Home Care (MDS-HC) is the screening component of the
Resident Assessment Instrument for Home Care (RAI-HC) that enables a home care
provider to briefly assess multiple key domains of function, health, social
support, and service use. Particular MDS-HC items also identify clients who
could benefit from further evaluation of specific problems and risks for
functional decline. These items, known as "triggers", link the MDS-HC to a
series of problem-oriented Client Assessment Protocols (CAPs). The MDS-HC
instrument is included in Appendix NN of the RFA.


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Minimum Data Set 2.0 for Nursing Facilities (MDS-NF) is a comprehensive
screening component of the Resident Assessment Instrument for long term care
facilities certified to participate in Medicare or Medicaid that is administered
to all residents upon admission to the nursing facility to facilitate
development of a care plan. The items in the MDS-NF standardize communication
about resident problems and conditions within facilities, between facilities,
and between facilities and outside agencies.

MIS means management information system.

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

Nursing Facility Level of Care is the determination that a Medicaid recipient
requires the services of licensed nurses in an institutional setting to carry
out the physician's planned regimen for total care. In the STAR+PLUS Program
these services can be provided in the home or in community-based programs as a
cost-effective, least restrictive alternative to institutional care in a nursing
home.

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

Premium means the amount paid by the TDHS 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 referrals for care (see also Medical
Home).

Provider means an individual or entity and its employees and Subcontractors that
directly provide health care services to HMOs Members under TDHS Medicaid
managed care program.

Provider contract means an agreement entered into by a direct provider of health
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 for a governmental body and the governmental
body owns the information or has a right of access.

Qualified Disabled and Working Individual (QDWI) is one whose only Medicaid
benefit is payment of the Medicare Part A premium. The Omnibus Budget
Reconciliation Act of 1989 requires the state to pay the Medicare Part A
premiums for certain disabled and working individuals who are enrolled in
Medicare Part A, who are not otherwise eligible for Medicaid, who have countable
income of no more than 200% of the Federal poverty

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level, and whose countable resources do not exceed twice the resource limit of
the SSI program.

Qualified Medicare Beneficiary (QMB) is an individual who does not receive
Medicaid benefits other than Medicare premiums, deductible, and coinsurance
liabilities. The Medicare Catastrophic Coverage Act of 1988 requires TDHS to pay
Medicare premiums, deductibles, and coinsurance for individuals who are entitled
to Medicare Part A, whose income does not exceed 100% of the federal poverty
level, and whose resources do not exceed twice the resource limit of the SSI
program.

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.

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

Representative means a person who can make care-related decisions for a Member
who is not able to make such decisions alone. A representative may, in the
following order of priority, be a person who is:

      (a)   A court-appointed guardian of the person;
      (b)   A spouse or other family Member (parent) as designated by the Member
            or the State's surrogate decision maker statute; or
      (c)   Designated as the Member's health care Representative

RFA means the Request for Application issued by TDH/TDHS on January 7, 1997, and
all RFA addenda, appendices, corrections or modifications.

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

SED means severe emotional disturbance.

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

Significant Traditional Provider (STP). For acute care services, STP means all
hospitals receiving disproportionate share hospital funds (DSH) in FY'97 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'97. For Long Term Care
services STP means a provider with whom Medicaid recipients have
well-established or longstanding provider/client relationships, or to whom the
recipients have typically or traditionally gone for health care, emergency care
or family planning advice. A provider falling within this definition shall be
determined by criteria established by the State.

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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;
      (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.

Specified Low-Income Medicare Beneficiary (SLMB) is an individual whose only
Medicaid benefit is payment of the Medicare Part B premium. The Omnibus Budget
Reconciliation Act of 1990 requires the state to pay the Medicare Part B
premiums for individuals who are enrolled in Medicare Part A, whose income is
more than 100% of the federal poverty level (FPL) but less than 120% of the FPL,
and whose resources do not exceed twice the resource limit of the SSI program.
SLMB is considered an extension of QMB.

SPMI means severe and persistent mental illness.

STAR+PLUS is the name of the State of Texas Medicaid managed care program which
provides and coordinates preventive, primary, acute and long term care services
to persons of all ages with disabilities and elderly persons 65 and over who
qualify for Medicaid through SSI/MAO.

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.

Supplemental Security Income (SSI) a federal cash assistance program of direct
financial payments to the aged, blind, and disabled. It is federally
administered by the Social Security Administration under Title XVI of the Social
Security Act and funded through general federal tax revenues. All persons who
are certified as eligible for SSI in Texas are eligible for Medicaid. SSI
eligibility determinations are made by local Social Security Administration
(SSA) claims representatives. The transactions are forwarded to SSA in
Baltimore, who then notifies the states through the State Data Exchange (SDX).

Supplemental Security Income (SSI) beneficiary is a person that receives
supplemental security income cash assistance as cited in 42 USCA Section 1320
a-6.

TAC means Texas Administration Code.

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

TCMHP stands for Texas Children's Mental Health Plan and means an 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

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.

THSteps means Texas Health Steps which is the name adopted by the State of Texas
for the federally mandated Early and Periodic Screening, Diagnostic 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 Code of Federal Regulations Section 440.40 and Sections 441.56-62. TDHS rules
are contained in 25 TAC, Chapter 33 (relating to Early and Periodic Screening,
and Diagnosis and Treatment).

Texas Medicaid Provider Procedures Manual means the policy and procedures manual
published by or on behalf of the State 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 Texas Health & 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 TDHS 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.

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Unclean claim means a claim that does not contain accurate and complete data in
all claim fields that are required by HMO and TDHS 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, 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 the 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 requirements for public buildings.

3.1.4     HMO will maintain full-time medical and administrative staff with
          experience in delivering services to pediatric, geriatric, and
          disabled populations.

3.1.5     HMO will ensure that medical, functional, and/or long term care
          decisions are based on the assessed needs of the member and that
          access to services is not influenced solely by fiscal management
          decisions

3.1.6     The HMO must provide upon request a current organizational chart
          showing:

          -         basic functions
          -         the number of employees for those functions
          -         a list of key managers in the HMO who are responsible for
                    the basic functions of the organization

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          HMO must also submit a description and organizational chart which
          illustrates how behavioral health service administration is integrated
          into the overall administrative structure of the HMO, including
          individuals assigned to be behavioral health liaisons with the State.
          The HMO must notify TDHS within fifteen (15) working days of any
          change in key managers or behavioral health subcontractors. This
          information must be updated when there is a significant change in
          organizational structure or personnel.

3.1.7     Participation in Regional Advisory Committee. HMO must participate on
          a Regional Advisory Committee established in the service area in
          compliance with the Texas Government Code Section 533.021-533.029.

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 TDHS
          for approval no later than 60 days after the effective date of this
          contract, unless the contract has already been submitted to and
          approved by TDHS. 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 TDHS upon request, at the time and location
          requested by TDHS.

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

3.2.1.2   HMO must notify TDHS not less than 90 days prior to terminating any
          Subcontract affecting a major performance function of this contract.
          All major Subcontractor terminations or substitutions require TDHS
          approval. TDHS 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
          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 TDHS' 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 TDHS. TDHS retains the authority
          to reject or require changes to any provisions of the subcontract

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          that do not comply with the requirements or duties and
          responsibilities of this contract or create significant barriers for
          TDHS 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 which will be
          acceptable by TDHS.

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
          TDHS/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   The Contractor understands and agrees that the 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 the HMO through the
          bankruptcy or receivership estate of the HMO.

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

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

3.2.4.5   This contract is subject to state and federal fraud and abuse
          statutes. The Contractor is subject to state and federal fraud and
          abuse statutes. The 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


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<PAGE>   23
          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 the 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 TDHS' 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.

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 State Medicaid 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. The State 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 TDHS for all updated written
          materials, produced or authorized by HMO, containing information about
          the STAR+PLUS 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.

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<PAGE>   24


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 4th - 6th grade reading comprehension level and
          translated into the language of any major population group, except
          when the State requires plan to use statutory language (i.e. advanced
          directives, medical necessity, etc.).

3.4.3     All materials regarding the STAR+PLUS Program, including Member
          education materials, must be submitted to TDHS for approval prior to
          distribution. TDHS has 15 working days to review the materials and
          recommend any suggestions or required changes. If TDHS has not
          responded to the HMO by the fifteenth day, HMO may print and
          distribute these materials. TDHS 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.

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
          TDHS for TDHS to translate into Spanish. TDHS must provide the written
          and approved translation into Spanish to HMO no later than 15 working
          days after receipt of the English version by TDHS. HMO must
          incorporate the approved translation into these materials. If TDHS has
          not responded to HMO by the fifteenth day, HMO may print and
          distribute these materials. TDHS 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 TDHS 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 TDHS with at least three paper copies and one
          electronic copy in a format approved by TDHS of their Member Handbook,
          Provider Manual and Member Provider Directory. If electronic format
          not available, five paper copies are required.

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

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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 TDHS.
          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 is 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 TDHS, 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 an audit, inspection or production is
          requested by TDHS, TDHS' designee or TDHS 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, which have been stored or archived must be accessible and made
          available within 10 calendar days from the date of a request by TDHS
          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 to 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 (pages 76-116 of the
          Medicaid Managed Care RFA for the Harris Service Area). 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.

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3.5.6     Matters in Litigation. HMO must retain 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 TDHS for processing.

3.6       HMO REVIEW OF TDHS MATERIALS

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

3.7       REQUIREMENTS FOR EDUCATION, TRAINING, AND ADVISORY COMMITTEE
          ACTIVITIES

          HMO is required to participate in education and training activities
          provided for HMO's staff to educate and train regarding the special
          needs populations and services included in the STAR+PLUS Project. HMO
          is also required to attend regular meetings with THHSC and TDHS, and
          for HMO, CEO staff, the medical director staff, and the care
          coordinator staff.

ARTICLE IV     FISCAL, FINANCIAL AND SOLVENCY 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 TDHS immediately in writing. In addition, if HMO
          becomes aware of a take-over or assignment which would require
          approval of TDI or TDHS, HMO must notify TDHS 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 execution date. HMO must inform
          TDHS 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 TDHS with a performance bond in the form prescribed
          by TDHS and approved by TDI, naming TDHS 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 TDHS at the same time
          the signed HMO contract is delivered to TDHS.

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+PLUS 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
          writing by TDHS 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

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          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     TDHS, TDI or their designee have the right from time to time to
          examine and audit books and records of the HMO or of 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 TDHS deems to be necessary to perform its
          regulatory function and/or to enforce the provisions of this contract.

4.6.2     TDHS 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 TDHS, 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 TDHS of any litigation which is initiated or threatened
          during the contract period within seven days of receiving service or
          becoming aware of the threatened litigation.

4.8       MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA

4.8.1     HMO was awarded the original Contract based upon the responses and
          representations contained in its application. All responses and
          representations upon which scoring was based were considered material
          to the decision of whether to award the original Contract to HMO and
          are thus incorporated by reference into this Contract. If there is any
          difference between HMOs RFA responses and this Contract, the Contract
          shall control.

4.8.2     This Contract was awarded in part based upon HMOs representation of
          its current equity, deposits and financial ability to bear the risks
          under this Contract. TDHS will consider any misrepresentations of
          equity at any time, its ability to bear financial risks of this
          Contract or otherwise inflating the equity of HMO, solely for the
          purpose of being awarded this Contract, a material misrepresentation
          and fraud under this Contract.

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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

          FOR ACUTE CARE SERVICES

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 the state to obtain information
          from other state and federal agencies and HMO must cooperate with the
          State 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
          resources of uninsured and underinsured motorist insurance, first and
          third party liability insurance and tortfeasors ("excepted resources")
          to the State for the State to pursue collection and recovery from
          these resources. The State will forward information on all third party
          resources identified by the State to HMO. HMO must coordinate with the
          State 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 the State 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 4.9.3. HMO must report the identity
          of these resources to the State, even if HMO will pursue collection
          and recovery from the excepted resources.

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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 the State 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 the 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 12.1.10. If HMO fails to pursue and
          recover from third parties no later 180 days after the date of
          service, the State may pursue third party recoveries and retain all
          amounts recovered without accounting to HMO for the amounts recovered.
          Amounts recovered by the State will be added to expected third party
          recoveries to reduce future capitation rate, except recoveries from
          those excepted third party resources listed in 4.9.3.


          FOR LONG-TERM CARE SERVICES

4.9.7     HMO is expected to identify members who have insurance coverage that
          should pay for all or part of the expenses related to the long-term
          care needs of the client. The use of this process will result in a
          cost avoidance to hold down costs to the Medicaid program. The HMO may
          retain any amounts recovered, if the HMO must pursue collection of
          these benefits after the expenses are incurred.

4.9.8     TDHS retains the right and responsibility to pursue recovery of
          amounts from subrogation claims arising out of tort claims and
          recovery from OBRA 93 trusts and annuities. HMO must assist TDHS in
          these activities by providing information to TDHS related to costs
          paid on behalf of the member in these situations.

4.10      CLAIMS PROCESSING REQUIREMENTS

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

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4.10.2    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 the HMO has knowledge of the exclusion or suspension.

4.10.3    All provider clean claims must be adjudicated (finalized as paid or
          denied adjudicated) within 30 days from the date the claim is received
          by the 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
          the 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.

4.10.3.1  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 the HMO to adjudicate the
          claim, and the date by which the requested information must be
          received from the provider.

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

4.10.3.3  HMO must identify each data field of each claim form that is required
          from the provider in order for the 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 the 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 the HMO and TDHS.

4.10.4    HMO is subject to the Remedies and Sanctions Article of this contract
          for claims that are not processed on a timely basis as required by
          this contract and the Claims Manual. Not withstanding the provisions
          of Articles 4.10.3, 4.10.3.1 and 4.10.3.2, sanctions will be applied
          if at least ninety percent (90%) of all claims are not adjudicated
          (paid, denied, or external pended) within thirty (30) days of receipt
          and ninety nine percent (99%) with in ninety (90) days of receipt for
          the contract year to date.

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4.10.5    HMO agrees that when it receives written notification from TDHS that a
          provider's funds be held because the provider has changed ownership,
          has an unpaid judgment, sanction, monetary penalty or audit exception,
          or has failed to meet some other legal requirement, the HMO will place
          the provider's funds on hold until it receives further notification
          from TDHS. Upon notification to the HMO, the HMO must either pay the
          claim or remit the held funds to TDHS.

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.

4.11      INDEMNIFICATION

4.11.1    HMO/TDHS: HMO must agree to indemnify TDHS and its agents for any and
          all claims, cost, damages and expenses, including court costs and
          reasonable attorney 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, HMOs network providers or other
          Subcontractors 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.

4.11.2    HMO/Provider: HMO is prohibited from requiring any providers to
          indemnify HMO for HMOs 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 TDHS, TDI, TDH, 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

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          relating to the Texas Medicaid program and all rules relating to the
          Medicaid Managed Care program adopted by TDHS, TDI, TDH, 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 TDHS
          within 3 days of the time it receives notice that any action being
          taken against HMO or any person defined under the provision 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
          USC 1352, relating to use of federal funds for lobbying for or
          obtaining federal contracts.

5.3       FRAUD AND ABUSE COMPLIANCE PLAN

5.3.1     This contract is subject to all state and federal laws and regulations
          relating to fraud and abuse in health care and the Medicaid program.
          HMO must cooperate and assist TDHS 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 TDHS 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 TDHS 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 TDHS for approval at least 30
          days prior to the modifications going into effect. HMO's fraud and
          abuse compliance plan must:

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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, 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 TDHS, 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, TDHS 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

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          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. 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 TDHS.
          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. 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 TDHS 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.

5.4.2     HMO is responsible for informing Members and providers regarding the
          provisions of 42 CFR 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.

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

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

5.5       NON-DISCRIMINATION

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

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

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

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

5.6       HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs)

5.6.1     TDHS 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). TDHS requires its
          HMOs and Subcontractors to make a good faith effort to assist HUBs in
          receiving a portion of the total contract value of this Contract.

5.6.2     The HUB good faith effort goal for this Contract is 18.1%. 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 TDHS 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 to TDHS quarterly reports of its HUB
          programs efforts and accomplishments during the Contract period as
          required in 12.11 of this Contract. The quarterly reports must include
          a narrative

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          report describing HMO's HUB efforts and accomplishments and a
          financial report reflecting expenditures made with HUBs. Included in
          Attachment B of this Contract is the format which must be used for the
          quarterly reports.

5.6.4     TDHS will assist HMO in meeting the contracting and reporting
          requirements of this section.

5.7       AFFIRMATIVE ACTION

5.7.1     HMO must have in place, to the extent required by federal or state
          law, an "Affirmative Action Plan," which is a written document that
          details an affirmative action program. Key parts of an affirmative
          action plan are:

          (a)       a policy statement pledging nondiscrimination and
                    affirmative action in employment;
          (b)       internal and external dissemination of the policy;
          (c)       assignment of a key employee as the equal opportunity
                    officer;
          (d)       a work force analysis that identifies job classifications
                    where representation of women, minorities and the disabled
                    is deficient;
          (e)       goals and timetables that are specific and measurable, and
                    that are set to correct deficiencies and to reach a balance
                    of work force;
          (f)       revision of all employment practices to ensure that they do
                    not have discriminatory effects; and
          (g)       establishment of internal monitoring and reporting systems
                    to regularly measure progress.

5.8       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.

5.9       CHILD SUPPORT

5.9.1     The Texas Family Code Section 231.006 requires the State to withhold
          contract payments from any for profit entity or individual who is at
          least thirty (30) days delinquent in child support obligations. It is
          HMOs responsibility to determine and verify that no owner, partner, or
          shareholder who has at least a 25% ownership interest in HMO 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.

5.9.2     Under Section 231.006 of the Family Code, 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 thirty (30) days delinquent in paying
          child support or a

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          business entity in which the obligor is a sole proprietor, partner,
          shareholder, or owner with an ownership interest of at least 25
          percent is not eligible to receive the specified grant, loan or
          payment.

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

5.10      REQUEST FOR PUBLIC INFORMATION

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

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

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

5.11      NOTICE AND APPEAL

          For Acute care services, 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 the HMO intends
          to take an action affecting the Member benefits and services under
          this contract. See also the Member appeal requirements contained in
          Article 8.7 of this contract.

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          For Long Term Care services, HMO must comply with the notice
          requirements contained in 40 TAC, Section 79.1204, and the appeal
          requirements of 40 TAC ch.79, whenever HMO intends to take an adverse
          action affecting Member benefits and services under this Contract. HMO
          agrees to provide information regarding fair hearings to TDHS within
          fifteen (15) days of the date of appeal and agrees to provide an HMO
          staff member to represent HMO at the hearing. See also the Member
          appeal requirements containing in paragraph 8.7 of this Contract.

ARTICLE VI     SCOPE OF SERVICES

6.1       SCOPE OF SERVICES

          HMO is paid capitation for all services included in the State of Texas
          Title XIX State Plan and the 1915(b) and 1915(c) waiver applications
          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     HMO must provide Acute care 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.

6.1.3     Long Term care covered services include attendant care, day activity
          and health services, and required services under the 1915 (c) waiver.

          6.1.3.1.  HMO is responsible for the Medicare co-payment for days
                    21-100 in a skilled nursing facility.

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 State has obtained a waiver to the State Plan to include three
          enhanced benefits to all 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 for Medicaid only recipients; 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 TDHS
          during the contracting process are included in the Scope of Services
          under this contract.

6.1.6.1   The approval request must include:

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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.

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.

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 eligible 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 and Contact Investigation)
          Vendor Drugs (out of office drugs)
          Medical Transportation
          TDHS Hospice Services

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

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          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 the State 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 the 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 the 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 the HMO at the time the Member was admitted to the hospital, the
          HMO is responsible for charges as follows:

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

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

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

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

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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 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 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 CARE

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
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          emergency provider and HMO, or a reasonable and customary amount
          determined by the HMO.

6.5.2     The 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 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 SERVICES - SPECIFIC REQUIREMENTS

6.6.1     HMO must provide or arrange to have provided to Members all Behavioral
          Health Services included as covered services. These services are
          described in detail in the Texas Medicaid Provider Procedures Manual

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          (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 State upon request.

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

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

6.6.5     When assessing Members for behavioral health services, the HMO and
          network behavioral health providers must use the DSM-IV multi-axial
          classification and report axes I, II, III, IV, and V to the State. The
          State 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. The 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 the State. Changes or amendments
          to those policies and procedures must be submitted to the State 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.

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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 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 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 the HMO's complaint or appeals
          process.

6.6.12    HMO must comply with 28 TAC Sections 3.8001 et seq., regarding
          utilization 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.

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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 the 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 Subcontractors
          who are family planning agencies to deliver family planning services
          according to the State 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. The 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.

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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 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 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 TDHS
          Medicaid Transportation programs 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 Texas
          Health Steps program. Training must include THSteps benefits, the
          periodicity schedule for THSteps check-ups and immunizations, and
          Comprehensive Care Program (CCP) services that are available under the
          THSteps program to member 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 the HMO must
          retrieve from the Enrollment Broker BBS a list of members who are due

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          and overdue THSteps services. Using these lists and their own
          internally generated lists, HMOs will contact members and encourage
          members who are periodically due or overdue a THSteps service to
          obtain the service as soon as possible. HMO outreach staff must
          coordinate with TDH THSteps outreach staff to ensure that Members have
          access to the Medical Transportation Program, and that any
          coordination with other agencies is maintained.

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

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

6.8.7     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 requirement that
          members participating in Head Start receive their THSteps checkup no
          later than 45 days after enrolling into either program.

6.8.8     Immunizations. HMO must educate providers of the Immunization standard
          requirements set forth in Chapter 161, Health and Safety Code,
          standard in the ACIP Immunization Schedule and AAP Periodicity
          Schedule.

6.8.8.1   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.

6.8.9     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 TDHS.

6.8.10    Compliance with THSteps performance benchmarks. The State 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

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          benchmarks required for THSteps services. HMO must submit all THSteps
          reports and encounters as required under this contract. Failure to
          meet or exceed the performance benchmarks may result in: removal of
          THSteps component of the capitation amounts paid to HMO; or any of the
          Remedies contained in Article XVIII. Repeated non-compliance with the
          THSteps performance benchmarks is a major breach of the terms of this
          contract and could result in termination of the contract, or non-
          renewal of the contract, in addition to all money damages and
          sanctions assessed against HMO for non-compliance with reporting
          administrative requirements.

6.8.11    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 the State 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 the 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 who are Members of HMO. The 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;

6.9.2.2   perinatal risk assessment of nonpregnant women, pregnant and
          postpartum women;

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 to tertiary care facilities when
          necessary;

6.9.2.5   availability and accessibility of obstetrician/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

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

6.9.3     HMO must provide inpatient care for its pregnant/delivering 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:

6.9.3.1   48 hours following an uncomplicated vaginal delivery and,

6.9.3.2   96 hours for an uncomplicated caesarian delivery.

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

6.10      EARLY CHILDHOOD INTERVENTION

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 conditions(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 ongoing case management and
          other non-capitated services required by the Member's IFSP.

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          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 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 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.

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 (WIC), or HMO must provide these services.

6.11.4    The 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 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

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          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 TDHS (25 TAC Chapter 97). HMO must require
          that in-state or out-of-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
          TDHS 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 TDHS 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 TDHS 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 this Article.

6.13      HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS

6.13.1    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.

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6.13.2    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+PLUS members with one or more HMOs also contracting with TDHS 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, 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.

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

6.14      CARE COORDINATION AND TRANSITION PLANS FOR LONG TERM CARE SERVICES

6.14.1    For STAR+PLUS Members that are receiving all preventive, primary,
          acute, and long term care services from the same HMO (this includes
          Members that are eligible for Medicaid only and Members that are
          Medicare eligible who select the STAR+PLUS HMO to also provide
          Medicare covered services), HMO shall ensure that each Member has a
          qualified PCP who is responsible for overall clinical direction and
          serves as a central point of integration and coordination of covered
          primary, acute, and long term care services. HMO will furnish a Care
          Coordinator to all Members who request one, or when HMO has determined
          through an assessment of the Member's health and support needs, that a
          Care Coordinator is required. The Care Coordinator shall be
          responsible for working with the Member or his representative and
          service providers to develop a seamless package of care in which
          primary, acute, and long

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          term care service needs are met through a single, understandable,
          rational plan. Each Member's plan must also be well coordinated with
          the Member's family and community support systems. The Care
          Coordinator shall work as a team with the PCP, and coordinate all
          STAR+PLUS services with the PCP. HMO must identify and train certain
          Members or their families to coordinate their own care, to the extent
          of the Member's capability. HMO must empower its Care Coordinators to
          authorize and refer Members for all long term care services.

6.14.2    For dually eligible Members who obtain their Medicare services outside
          the STAR+PLUS HMO's Medicare network, HMO is responsible for meeting
          the Member's long term care service needs. HMO's Care Coordinator
          shall be responsible for providing a seamless package of long term
          care services for each Member, and for coordinating preventive,
          primary, and acute care services provided elsewhere into an
          integrated, single, understandable, rational plan. Each Member's plan
          must also be coordinated with the Member's family and community
          support systems. In integrating each Member's care, the Care
          Coordinator shall work with the Members physician as a team in
          furnishing and coordinating a comprehensive long term care package.
          HMO must empower its Care Coordinators to authorize and refer Members
          for all long term care services. In order to integrate the Members
          acute and primary care, and stay abreast of the Members needs and
          condition, the Care Coordinator shall also actively involve and
          coordinate with the Members primary and specialty care providers and
          work cooperatively together.

6.14.3    HMO shall provide information about and referral to community
          organizations that may not be providing STAR+PLUS covered services,
          but are otherwise important to the health and well-being of Members.
          These organizations include, but are not limited to:

          1)        State/Federal agencies (e.g., those agencies with
                    jurisdiction over children's services, aging, protective
                    services, public health, substance abuse, mental
                    health/retardation, rehabilitation, developmental
                    disabilities, income support, nutritional assistance, school
                    districts, family support agencies, etc.);

          2)        Social Service agencies (e.g., Area Agencies on Aging,
                    residential support agencies, independent living centers,
                    supported employment agencies, etc.) and ECI providers;

          3)        City and County agencies (e.g., welfare departments, Women,
                    Infants, and Children (WIC), housing programs, etc.);

          4)        Civic and religious organizations; and

          5)        Consumer groups, advocates, and councils (e.g., legal aid
                    offices, consumer/family support groups, permanency
                    planning, etc.).

6.14.4    HMO must have a protocol for quickly assessing the needs of Members
          who are discharged from a hospital or other care or treatment
          facility. HMO must ensure that social workers and discharge planners
          in hospitals and hospital care coordinators are knowledgeable about
          the mandatory requirement for Medicaid Members to receive their long
          term care

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          services under managed care. HMO Care Coordinator must work with the
          Members PCP (whether or not the PCP is in HMOs network), the hospital
          discharge planner(s), the Member, and the Members family to assess and
          plan for the Members discharge. When long term care is needed, HMO
          must ensure that the Members discharge plan includes arrangements for
          receiving community-based care whenever possible. HMO must ensure that
          the Member, the Members family, and the Members PCP are all
          well-informed of all service options that are available to meet the
          Members needs in the community.

6.14.5    Within thirty (30) days of receiving the Member's enrollment package,
          HMO must review the screening information and any existing care plan,
          and develop a transition plan for that Member Until such time as HMO
          contacts the Member and coordinates modifications to the Members
          current treatment/long term care services plan, HMO must ensure that
          the current services continue and that there are no breaks in
          services/treatment.

6.14.6    HMO must have assessment instruments. For infants and children, HMO
          must have an instrument appropriate for the assessment of children.
          The instrument(s) must be used to identify Members with significant
          health problems, requiring immediate attention, and which can be used
          to identify Members who need or are at risk of needing long term care
          services. The appropriate Minimum Data Set (MDS) instrument must be
          completed for every Member receiving long term care services, either
          in the community or in a facility, in addition to any assessment
          instrument HMO might use with the exception that for children under 21
          do not have to be assessed using the MDS-HC. The instrument may be
          completed by HMO Subcontractor, or service provider, but HMO remains
          responsible for the data recorded. As specialized MDS instruments are
          developed for other living arrangements (e.g., assisted living), TDHS
          will notify HMO of the availability of the instrument and the date by
          which data collection for using the instrument would be required.

6.14.7    For Members residing in nursing facilities, HMO must ensure that the
          NF provider uses the MDS version required by HCFA regulations for
          assessment and care planning and submits the MDS data electronically
          to TDHS

6.14.8    All Members who qualify for nursing facility level of care must be
          given the freedom to choose their setting of care, i.e., nursing
          facility, within HMO's network. HMO shall ensure that the Member or
          his representative is aware of all available options.

6.14.9    HMO must ensure that Members needing home and community based long
          term care services are identified and referred to services in a timely
          manner.

          No individual under 21 should be admitted to a nursing facility
          without completion of the following:

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          1)        Information about all available community-based long-term
                    care services appropriate to the individual's needs provided
                    to the individual and parent/guardian; and

          2)        A CRCG (Community Resource Coordination Group) meeting has
                    been held in which all other available options have been
                    considered and rejected.

6.14.10   When a need for nursing facility level of care is indicated, HMO must
          refer the Member to TDHS for determination of Members eligibility.
          HMO, at its discretion, may provide this level of care to Members not
          determined eligible by TDHS.

6.14.11   HMO must develop a system to have a centralized record for each Member
          reflecting current service plan and showing all services received by
          the Member from providers within HMO network and from providers
          external to the network. The centralized record will ensure that all
          Plan providers, including specialty and long term care service
          providers, make appropriate and timely entries regarding care
          provided, diagnosis, medications prescribed, and treatment plans
          developed. The PCP, or when applicable, the Care Coordinator, shall
          determine the appropriate physical location of the Member record. In
          most cases, the most appropriate location will be with the PCP or the
          Care Coordinator. However, the location may vary depending on
          residence (e.g., nursing homes or group homes) and particular care
          needs of the Member. The HMO shall ensure that the organization of and
          documentation included in the centralized Member record shall meet all
          applicable professional standards ensuring confidentiality of Member
          records, referrals, and documentation of information.

          HMO must have a systematic process for generating or receiving
          referrals and sharing confidential medical, treatment, and planning
          information across providers.

6.14.12   HMO must assure that the Member is involved in the assessment process
          and fully informed about options, is included in the development of
          the service plan and is in agreement with the plan of care that is
          developed.

6.14.13   HMO must provide a transition plan for Members currently receiving
          Medicaid services. TDHS and/or previous health plan will provide
          current HMO with detailed service plans, names of current providers,
          etc. for Members receiving long term care services at the time of
          enrollment. The transition planning process includes, but is not
          limited to, the following:

          (a)       Review of existing TDHS care plans;
          (b)       Preparation of a transition plan that ensures continuous
                    care under the Member's current care plan during the
                    transfer into HMOs network while HMO conducts an appropriate
                    assessment and development of a new plan if needed; and

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            (c)       If Durable Medical Equipment had been ordered prior to
                      enrollment but not received by the time of enrollment,
                      coordination and follow through to ensure that the Member
                      receives other necessary supportive equipment and supplies
                      without undue delay.

6.14.14     HMO will hire as Care Coordinators persons experienced in meeting
            the needs of vulnerable populations who have chronic or complex
            conditions. These include, but are not limited to, persons with an
            undergraduate and/or graduate degree in either social work or
            nursing with relevant work experience. HMO may subcontract the Care
            Coordination function to other entities or agencies, as long as the
            Subcontractor's Care Coordinators meet these requirements.

6.15        1915 (c) WAIVER SERVICE (COMMUNITY BASED ALTERNATIVES)

6.15.1      The HMO must provide to members the array of services allowable
            through the HCFA approved 1915 (c) waiver.

6.15.1.1    1915 (c) Waiver services must be available to all members who meet
            CBA eligibility requirements based on their assessment and medical
            necessity.

6.15.1.2    1915 (c) Waiver services may be made available to members who do not
            meet the CBA eligibility requirements based on assessment and
            medical necessity as a value added service.

6.15.2      Waiver Service eligibility for members of the HMO

6.15.2.1    The HMO must notify the TDHS when CBA eligibility testing is
            initiated on a member of the HMO.

6.15.2.2    The HMO must apply risk criteria, complete the 3652 for medical
            necessity determination, complete the assessment documentation and
            prepare a CBA Individual Service Plan (ISP) for each member
            requesting CBA services or for members identified as needing CBA
            services.

6.15.2.3    The HMO must provide TDHS the results of the assessment activities.

6.15.2.4    TDHS will notify the member and the HMO of the results of their
            eligibility determination based on the information provider by the
            HMO.

6.15.2.4.1  If the member is eligible, the member will be notified of the
            effective date of eligibility. A copy of the notice will be sent to
            the HMO.

6.15.2.4.2  If the member is not eligible, the notification will provide
            information on the member's right to appeal the adverse
            determination. A copy of the notice will be sent to the HMO.

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6.15.3       Waiver Service eligibility for Medical Assistance Only non-member
             applicants.

6.15.3.1     TDHS will inform the applicant that services are provided through
             an HMO and allow the applicant to select the HMO.

6.15.3.2     TDHS will notify the selected HMO to initiate pre-enrollment
             assessment services required under the waiver for the non-member.

6.15.3.3     The HMO must complete the 3652 for medical necessity determination,
             complete the assessment documentation and prepare a CBA Individual
             Service Plan (ISP) for each applicant referred by TDHS.

6.15.3.4     The HMO must provide information to TDHS reflecting the results of
             the assessment activities.

6.15.3.5     The HMO will be authorized payment for the assessment activities in
             accordance with the fee-for-services schedule in effect at the time
             of the assessment regardless of final determination of applicant
             eligibility.

6.15.3.6     TDHS will notify the client and the HMO of the results of their
             eligibility determination.

6.15.3.6.1   If the applicant is eligible,

6.15.3.6.1.1 The HMO will be notified of their eligibility and the effective
             date of eligibility will be the first day of the month following
             the determination of eligibility.

6.15.3.6.1.2 The HMO will be notified of client eligibility and the client will
             be enrolled in the HMO on the date that eligibility is effective.
             The HMO will initiate the ISP on the date of enrollment.

6.15.3.6.2   If the applicant is not eligible, the notification will provide
             information on the applicant's right to appeal the adverse
             determination. No notification will be sent to the HMO if the
             client is not eligible for CBA services.

6.15.4       Annual Reassessment

             Prior to the end date of the annual ISP, the HMO must initiate the
             annual reassessment to determine and validate continued eligibility
             for CBA services for each CBA client. The HMO will be expected to
             complete the same activities and submit the same documentation to
             TDHS for the annual reassessment as required for the initial
             determination of eligibility. The HMO is responsible for assessment
             activities for members and no additional compensation will be paid
             for the annual reassessment for members.

ARTICLE VII             PROVIDER NETWORK REQUIREMENTS

7.1          NETWORK PROVIDER DIRECTORY

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7.1.1     HMO must submit a provider directory to TDHS prior to the effective
          date of this contract unless already approved. HMO must provide the
          provider directory to the Enrollment Broker for prospective members.
          The directory must contain all critical elements specified in
          Attachment D, Required Critical Elements.

7.1.2     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.

7.1.3     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 TDHS 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 TDHS each quarter. If an electronic format is
          not available, five paper copies must be sent. TDHS will forward two
          updated provider directories, along with its approval notice, to the
          Enrollment Broker to facilitate the distribution of the directories.

7.2       PROVIDER ACCESSIBILITY

7.2.1     HMO must enter into written contracts with properly credentialed
          health care service providers. The names of all providers must be
          submitted to TDHS 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 Section 11.1902, relating to credentialing of providers in
          HMOs.

7.2.2     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.

7.2.3     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:

7.2.3.1   Urgent Care within 24 hours of request;

7.2.3.2   Routine care within 2 weeks of request;

7.2.3.3   Physical/Wellness Exams for adults must be provided within 10 weeks of
          the request;

7.2.3.4   HMO must establish policies and procedures to ensure that THSteps
          Checkups be provided within 90 days of new enrollment, except newborn

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          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
          also 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.

7.2.4     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.

7.3       PROVIDER CONTRACTS

7.3.1     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 TDHS
          upon request, at the time and location requested by TDHS. All standard
          formats of provider contracts must be submitted to TDHS for approval
          no later than 60 days after the execution date of this contract,
          unless previously filed with TDHS. HMO must submit 1 paper copy and 1
          electronic copy in a form specified by TDHS. Any change to the
          standard format must be submitted to TDHS 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.

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

7.3.2     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 7.9 relating to Primary Care Providers.

7.3.3     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 TDHS or the requesting agency. Provider
          contracts requested in response to a Public Information request must
          be produced within 48 hours of the request. Requested contracts and
          all related records must be provided free-of-charge to the requesting
          agency.

7.3.4     The form and substance of all provider contracts are subject to
          approval by TDHS. TDHS retains the authority to reject or require
          changes to any contract that do not comply with the requirements or
          duties and

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                                       54
<PAGE>   61

          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.

7.3.5     TDHS 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 services under this contract. TDHS may
          impose appropriate sanctions and contract remedies to ensure HMO
          compliance with the provisions of this contract.

7.3.6     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.

7.3.7     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 the 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.

7.3.8     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:

7.3.8.1   [Provider] is being contracted to deliver Medicaid managed care under
          the TDHS STAR+PLUS program. HMO must provide copies of the TDHS/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 TDHS/HMO contract could

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<PAGE>   62

          result in liability for money damages, and/or civil or criminal
          penalties and sanctions under state and/or federal law.

7.3.8.2   [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.

7.3.8.3   [Provider] understands and agrees TDHS 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.

7.3.8.4   [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 TDHS of the change in writing. If TDHS 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 TDHS or by changes in state or federal
          law are effective immediately.

7.3.8.5   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 TDHS 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 TDHS 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 Medicaid recipient to TDHS for referral to
          THHSC.

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

7.3.8.7   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+PLUS
          managed care plans with whom [Provider] contracts.

7.3.8.8   The Texas Medicaid Fraud Control Unit must be allowed to conduct
          private interviews of [Providers] and the [Providers'] employees,

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          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.

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

7.3.8.10  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.

7.3.8.11  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.

7.3.9     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 the 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.

7.3.9.1   Within 60 days of the termination notice date, a provider may request
          a review of the 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 the HMO. The decision of
          the advisory review panel must be considered by the HMO but is not
          binding on the HMO. The HMO must provide to the affected provider, on
          request, a copy of the recommendation of the advisory review panel and
          the HMO's determination.

7.3.9.2   A provider who is terminated is entitled to an expedited review
          process by the HMO on request by the provider. The HMO must provide
          notification of the provider's termination to the HMO's Members
          receiving care from the terminated provider at least 30 days before
          the effective date of the

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<PAGE>   64


          termination. If a provider is terminated for reasons related to
          imminent harm to patient health, HMO may notify its Members
          immediately.

7.3.10    HMO must notify TDHS no later than 90 days prior to terminating any
          subcontract affecting a major performance function of this contract.
          If the 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. TDHS will require assurances
          that any contract termination will not result in an interruption of an
          essential service or major contract function.

7.3.11    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 System in all subcontracts. HMO's complaint and
          appeals process must be the same for all Contractors.

7.4       PHYSICIAN INCENTIVE PLANS

7.4.1     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.

7.4.2     HMO must disclose to TDHS 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:

7.4.2.1   Whether services not furnished by a 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.

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

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

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

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

7.4.2.6   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.

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7.4.3     HMO must submit the information required in 7.4.2.1 - 7.4.2.5 to TDHS
          by the effective date of this contract and each anniversary date of
          the contract.

7.4.4     HMO must submit the information required in 7.4.2.6 one year after
          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.

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

7.4.5.1   whether the HMO uses physician incentive plan that covers referral
          services;

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

7.4.5.3   whether stop-loss protection is provided; and,

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

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

7.5       PROVIDER MANUAL AND PROVIDER TRAINING

7.5.1     HMO must prepare and issue a Provider Manual(s) including any
          necessary specialty manuals (e.g. behavioral health) to the providers
          in 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+PLUS Program as required under this Contract.
          See Attachment D, Required Critical Elements, for specific details
          regarding content requirements. The HMO Provider Manual containing the
          new required critical elements must be distributed no later than March
          1, 2000. HMO must submit a Provider Manual to TDHS for approval prior
          to use. See Article 3.4.1 regarding the process for plan materials
          review.

7.5.2     HMO must provide training to all network providers and their staff
          regarding the requirements of the contract and special needs of
          STAR+PLUS Members.

7.5.2.1   HMO training for all providers must be completed within 30 days of
          placing a newly contracted provider on active status. HMO must provide


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                                       59
<PAGE>   66
          on-going training to new and existing providers as required by HMO or
          TDHS to comply with this contract.

7.5.2.2   HMO must provide training to PCPs on screening for and identifying
          behavioral health disorders, HMOs referral process for behavioral
          health services and clinical coordination requirements for behavioral
          health. HMO must provide training to behavioral health providers to
          identify physical health disorders, HMOs referral process to primary
          care and clinical coordination requirements between physical medicine
          and behavioral health providers. HMO must include topics on
          coordination and quality of care such as behavioral health screening
          techniques for PCPs and new models of behavioral health interventions.

7.5.3     HMO must provide primary care and behavioral health providers with
          screening instruments approved by TDHS.

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

7.5.5     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 TDHS review upon
          request.

7.6       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.

7.7       PROVIDER COMPLAINT AND APPEAL PROCEDURES

7.7.1     HMO must develop, implement and maintain a provider complaint system.
          The complaint and appeal procedure must be in compliance with all
          applicable State and federal law or regulations. Modifications and
          amendments to the complaint system must be submitted to TDHS no later
          than 30 days prior to the implementation of the modification or
          amendment.

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

7.7.3     HMO s complaint and appeal process cannot contain provisions referring
          the complaint or appeal to TDHS for resolution. HMO providers and
          other subcontractors are not "contractors" for purposes of 40 TAC Sec.
          79.1601.

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7.7.4     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.

7.8       PROVIDER QUALIFICATIONS - GENERAL

          The providers in HMO network must meet the following qualifications:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
<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.
--------------------------------------------------------------------------------------------------------
Physician                         An individual who is licensed to practice medicine
                                  as an MD or a DO 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
Practitioner                      applicable licensing agency of the State of
Provider                          Texas who is enrolled in the Texas Medicaid
                                  Program or an individual properly trained to
                                  provide behavioral health support services who
                                  practices under the direct supervision of an
                                  appropriately licensed professional.
--------------------------------------------------------------------------------------------------------
Clinical                          An entity having a current certificate issued
Laboratory                        under the Federal Clinical Laboratory
                                  Improvement Act (CLIA), and is enrolled in the
                                  Texas Medicaid Program.
--------------------------------------------------------------------------------------------------------
Rural                             An institution which meets all of the criteria
Health                            for designation as a rural health clinic and
Clinic (RHC)                      is enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------------------------------
Local                             A local health department established pursuant
Health                            to Health and Safety Code, Title 2, Local
Department                        Public Health Reorganization Act Section
                                  121.031ff.
--------------------------------------------------------------------------------------------------------
Local                             Under Section 531.002(8) of the Health and
Mental                            Safety Code, the local component of the TXMHMR
Health                            system designated by TDMHMR to carry out the
Authority                         legislative mandate for planning, policy
(LMHA)                            development, coordination, and resource
                                  development/allocation and for supervising and
                                  ensuring the provision of mental health
                                  services to persons with mental illness in one
                                  or more local service areas.
--------------------------------------------------------------------------------------------------------
</TABLE>

                                                              TDHS/HMO CONTRACT
                                                                August 11, 1999


                                       61
<PAGE>   68

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
<S>                               <C>
Non-Hospital                      A provider of health care services which is
Facility                          licensed and credentialed to provide services
Provider                          and is enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------------------------------
School                            Clinics located at school campuses that
Based                             provide on site primary and preventive care to
Health                            children and adolescents.
Clinic
(SBHC)
--------------------------------------------------------------------------------------------------------
Home and                          A provider licensed by the Texas Department of
Community                         Health as a Home and Community Support
Support                           services Agency.  The level of licensure
Service                           required depends on the type of service
Agency                            delivered.  NOTE:  For Primary Home Care and
                                  Client Managed Attendant Care, the agency may
                                  have only the Personal Assistance Services
                                  level of licensure.
--------------------------------------------------------------------------------------------------------
Nursing                           A provider licensed and Medicaid
Home                              certified by the Texas Department of Human
                                  Services, Long Term Care Regulatory Division.
--------------------------------------------------------------------------------------------------------
Personal                          A provider licensed by the Texas Department of
Care Home                         Human Services, Long Term Care Regulatory
                                  Division.  The type of licensure determines
                                  what services may be provided.   NOTE:  Adult
                                  Foster Homes providing care for 4 individuals
                                  must be licensed as a Type C Personal Care
                                  Home.
--------------------------------------------------------------------------------------------------------
Adult Day                         A provider licensed by the Texas Department of
Care                              Human Services, Long Term Care Regulatory
Facility                          Division as an adult day care provider.  To
                                  provide Day Activity and Health Services, the
                                  provider must provide the range of services
                                  required for DAHS.
--------------------------------------------------------------------------------------------------------
Emergency                         A provider licensed by the Texas Board of
Response                          Private Investigators and Private Security
Service                           Agencies unless specifically exempt from such
Provider                          licensure.
--------------------------------------------------------------------------------------------------------
Respiratory                       A provider certified by the Texas Department
Care                              of Health as a certified Respiratory Care
Practitioner                      Practitioner.
--------------------------------------------------------------------------------------------------------
Adult                             A Provider serving 3 or less clients, must be
Foster Home                       certified by the Applicant/HMO using
                                  guidelines from the Texas Department of Human
                                  Services.
--------------------------------------------------------------------------------------------------------
</TABLE>


7.9       PRIMARY CARE PROVIDERS

7.9.1     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
          evaluating the length of time required for Members to access care
          within the network. The monitoring system must also include a means
          for routinely monitoring after-hours availability and accessibility of
          PCPs.

7.9.2     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+PLUS eligibles in each county of
          the service area. HMO is required to increase the capacity of the
          network as

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                                       62
<PAGE>   69

          necessary to accommodate enrollment growth beyond the forty-fifth
          percentile (45%).

7.9.3     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.

7.9.4     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.

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

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

7.9.6     HMO must have PCPs available throughout the service area to ensure
          that no Member must travel more than 30 miles, or 45 minutes which
          ever is less, to access the PCP, unless an exception to this distance
          requirement is made by TDHS.

7.9.7     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.

7.9.8     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. HMO, specialty providers, for the
          member or his representative may initiate the request for a specialist
          to serve as a PCP for a Member with disabilities or chronic or complex
          conditions.

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7.9.9     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.

7.9.10    HMO must require 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:

          (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-hour calls outside of 30 minutes.

7.9.11    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.

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7.9.11.1  HMO must require PCPs, through contract provisions or provider manual,
          to assess the medical needs of Members for referral to specialty care
          providers and provide referrals as needed. PCP must coordinate care
          with specialty care providers after referral.

7.9.11.2  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.

7.9.11.3  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.

7.9.11.4  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 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.

7.9.12    PCP selection, OB/GYN selection, and PCP default

7.9.12.1  Medicaid only recipients

          Members who are not covered by Medicare have the right to select the
          PCP and HMO to whom they will be assigned. Female members also have
          the right to select an OB/GYN in addition to a PCP. An HMO may limit a
          Members request to change PCP or OB/GYN to no more than four changes
          in any 12-month period. If a PCP or OB/GYN who has been selected by or
          assigned to a Member is not longer in HMOs provider network, HMO must
          contact the member and provide them an opportunity to reselect. If the
          Member does not want to change the PCP or OB/GYN to another network
          provider the Member must be directed to the

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          enrollment broker to select an alternative plan. If a PCP or OB/GYN
          who has been selected by or assigned to a member is no longer in an
          IPA's provider network but continues to participate in HMO network,
          HMO or IPA may not change the members PCP or OB/GYN.

7.9.12.2  Dual eligible Members

          Members covered by Medicare have the right to select the HMO to whom
          they will be assigned. Failure to select an HMO will result in the
          clients be defaulted to an HMO. Because the STAR+PLUS HMO is not
          responsible for primary and acute care services for dual eligible
          members, requirements related to PCP and OB/GYN selection and default
          are not applicable.

7.10      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:

7.10.1    One well-woman examination per year;

7.10.2    Care related to pregnancy;

7.10.3    Care for all active gynecological conditions; and

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

7.10.5    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.

7.10.6    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.

7.11      SPECIALTY CARE PROVIDERS

7.11.1    HMO must maintain specialty providers and facilities in sufficient
          numbers and areas of practice to meet the needs of all Members
          requiring specialty care or services.

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7.11.2    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.

7.11.3    HMO must ensure availability and accessibility to appropriate
          specialists.

7.11.4    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 TDHS, 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.

7.12      SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES

7.12.1    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).

7.12.2    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 the HMO or the hospital to the Member/family, the
          PCP and specialty care physicians.

7.12.3    The 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 ongoing care of the Member.

7.12.4    The HMO must include in its provider network a TDHS-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
          also Article 6.9.1 of this contract.

7.13      BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)

7.13.1    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


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          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.

7.13.2    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.

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

7.13.3.1  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;

7.13.3.2  Describe criteria, protocols, procedures and instrumentation for
          referral of STAR+PLUS Members from and to the HMO and LMHA;

7.13.3.3  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;

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

7.13.3.5  Establish clinical consultation procedures between the HMO and LMHA
          including consultation to effect referrals and on-going consultation
          regarding the Member's progress;

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

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

7.13.3.8  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;

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

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

7.13.4    The 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 the 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 the HMO.

7.13.5    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, the HMO must reimburse the
          LMHA at current Medicaid fee-for-service amounts.

7.14      SIGNIFICANT TRADITIONAL PROVIDERS (STPS)

          HMO must seek participation in its provider network from:

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

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

7.14.3    Each specialized pediatric laboratory in the service area, including
          those laboratories located in children's hospitals.

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

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

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

7.14.5.2  STP must meet the credentialing requirements of the HMO. HMO must not
          require STPs to meet a different or higher credentialing standard than
          is required of other providers providing the same or similar services.
          HMO must not require STPs to contract with a subcontractor which

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          requires a different or higher credentialing standard than the HMO's
          if the application of the higher standard results in a
          disproportionate number of STPs being excluded from the Subcontractor.

7.15      FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH CLINICS
          (RHC)

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 TDHS and must agree
          to accept initial payments from the HMO in an amount that is equal to
          or greater than the HMO's payment terms for other providers providing
          the same or similar services.

7.15.2.1  HMO must submit monthly FQHC and RHC encounter and payment reports to
          all contracted FQHCs and RHCs and FQHCs and RHCs with whom there have
          been encounters, not later than 21 days from the end of the month for
          which the report is submitted. The format will be developed by TDHS.
          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. The HMO must submit
          the signed FQHC and RHC encounter and payment reports to TDHS not
          later than 45 days from the end of the month for which the report is
          submitted.

7.15.2.2  For FQHCs, TDHS 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 FQHC for the quarter. For RHCs, TDHS will determine the
          amount of the interim settlement based on the difference between a
          reasonable cost amount methodology provided by TDHS and the amount
          paid by HMO to the RHC for the quarter. TDHS will pay the FQHC or the
          RHC the amount of the interim settlement, if any, as determined by
          TDHS or collect and retain the quarterly recoupment amount, if any.

7.15.2.3  TDHS will cost settle with each FQHC and RHC annually, based on the
          FQHC or RHC state fiscal year cost report and the methodology
          described in Article 7.15.2.2. TDHS 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.

ARTICLE VIII   MEMBER SERVICES REQUIREMENTS

8.1       MEMBER EDUCATION

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          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, 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 TDHS. See
          Attachment D, Required Critical Elements, for specific details
          regarding content requirements. HMO must submit a Member Handbook to
          TDHS 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
          Attachment D. HMO must make the Member Handbook available in the
          languages of the major populations and the visually impaired served by
          HMO.

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

8.3       ADVANCE DIRECTIVES

8.3.1     Federal and state law require HMOs and providers to maintain written
          policies and procedures for informing and providing written
          information to all adult Members 18 years of age and older about their
          rights under state and federal law, in advance of their receiving care
          (Social Security Act Section 1902(a)(57) and Section 1903(m)(1)(A)).
          The written policies and procedures must contain procedures for
          providing written information regarding the Member's right to refuse,
          withhold or withdraw medical treatment advance directives. HMO's
          policies and procedures must comply with provisions contained in 42
          CFR Section 434.28 and 42 CFR Section 489, Sub Part 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   the Member's right to self-determination in making health care
          decisions;

8.3.1.2   the Advance Directives includes:

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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 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;

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 TDHS 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

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          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+PLUS" 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+PLUS indicator.

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

8.5       MEMBER HOTLINE

8.5.1     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.

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 changes must be submitted to TDHS at
          least 30 days prior to the implementation of the modification or
          changes.

8.6.2     HMO must have written policies and procedures for taking, tracking,
          reviewing, and reporting and resolving of member complaints. Any
          changes to the procedures must be submitted to TDHS for approval
          thirty (30) days prior to the effective date of the change.

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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 the
          president, a vice president, the secretary, the treasurer, or the
          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
          plan changes and involve management and supervisory staff to develop
          policy and procedural improvements to address the complaints. HMO must
          cooperate with the state and its contractors in resolving Member
          complaints.

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

8.6.6     HMOs 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     HMOs process must include a requirement that the governing body of the
          HMO reviews the written record (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 the HMO's
          complaint procedures. Requests for disenrollments must be referred to
          TDHS 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 TDHS 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

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          adverse determination, HMO or UR agent must regard the expression of
          dissatisfaction as a request to appeal an adverse determination.

8.6.11    If a complaint or appeal of an adverse determination relates to the
          denial, delay, reduction, termination or suspension of covered
          services by either HMO or a utilization review agent contracted to
          perform utilization review by HMO, HMO must inform Members they have
          the right to access the States 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 States Medicaid 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 regulations
          (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 and the IRO requirement is not applicable to
          this contract.

8.6.14    HMO will cooperate with the Enrollment Broker and TDHS or its designee
          to resolve all Member complaints.

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 assist Members in understanding and using HMO s complaint
          system.

8.6.17    HMO s must assist Members in writing or filing a complaint and
          monitoring the complaint through the Contractor s complaint process
          until the issue is resolved.

8.7       MEMBER NOTICES, APPEALS AND FAIR HEARINGS

8.7.1     HMO must send a Member notice whenever the HMO takes an adverse action
          to deny, delay, reduce or terminate covered services to a Member.

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          Upon request, HMO will make available to the State a copy of all
          adverse action notices.

          For acute care services 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 or through the
          provider's office.

          For long term care services the notice must be mailed to the Member no
          less than 30 days before the HMO intends to take an action.

8.7.2     The notice must contain the following information:

8.7.2.1   the Members right to immediately access the State Medicaid Fair
          Hearing process including where written requests may be sent and the
          toll free number the member can call for a fair hearing;

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 regulation or HMO criteria or
          guidelines which support HMOs 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 State Medicaid Fair Hearing;

8.7.2.7   a procedure by which Member may appeal HMO's action through either
          HMO's complaint process or the State Fair Hearing process;

8.7.2.8   an explanation that the Member may represent himself or herself, or be
          represented by a representative, a third party ombudsman, 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 State Medicaid Fair Hearing is requested;

8.7.2.10  a statement that if the Member wants a State Medicaid 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  an explanation that the Member may request that the State Medicaid
          Fair Hearing be conducted based on written information without the
          necessity of taking oral testimony; and

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

8.7.2.13  a statement explaining that a final decision must be made by the State
          within ninety (90) days from the date a State Medicaid Fair Hearing is
          requested.

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8.8       MEMBER CULTURAL AND LINGUISTIC SERVICES

8.8.1     HMO must have a written plan describing how HMO will meet the
          linguistic and cultural needs of Members. The Cultural Competency Plan
          must describe how the individuals and systems within HMO will
          effectively provide services to people of all cultures, races, ethnic
          backgrounds, and religions in a manner that recognizes, values,
          affirms, and respects the worth of the individuals and protects and
          preserves the dignity of each. The plan must also be made available to
          HMOs network of providers.

8.8.2     HMO must provide interpreter services to members as necessary to
          ensure availability of effective communication regarding treatment,
          medical history, or health education. HMO must provide 24 hour access
          to interpreter services for members to access emergency medical
          services within HMOs network, either through telephone language
          services or interpreters. HMO must include individuals who can
          translate Spanish and American Sign Language and additional languages
          of major population groups. HMO must include individuals skilled in
          communication and services for the cognitively impaired. In addition,
          HMO must have capabilities to provide TDD access.

8.8.3     Experienced professional interpreters must be used when technical,
          medical, or treatment information is to be discussed, or where use of
          a family member or friend as interpreter is inappropriate. Family
          members, especially children, should not be used as interpreters in
          assessments, therapy and other situations where impartiality is
          critical unless specifically requested by the Member. 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; the Member is advised that a free interpreter
          is available; and, the Member expresses a preference to rely on the
          family member or friend.

8.8.3.1   HMO must adhere to and provide to Members the Member Bill of Rights
          and Responsibilities as adopted by the Texas Health and Human Services
          Commission and contained at 1 Texas Administrative Code (TAC) Sections
          353.202--353.203.

8.8.3.2   HMO must have policies and procedures in place 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.

8.8.4     HMO must maintain a current list of interpreters who maintain
          "on-call" status to provide interpreter services to members.

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8.8.5       Orientation presentations or education classes must be presented in
            the languages of the major population groups, as specified by TDHS,
            in the proposed service area(s) as the identified need arises.

ARTICLE IX              MARKETING AND PROHIBITED PRACTICES

9.1         MARKETING MATERIALS

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

9.2         ADHERANCE TO MARKETING GUIDELINES

9.2.1       HMO must abide by Texas Medicaid Marketing Guidelines as provided by
            the State.

ARTICLE X               MIS SYSTEM REQUIREMENTS

10.1        MODEL MIS REQUIREMENTS

10.1.1      HMO must maintain an MIS that will provide support for all functions
            of HMOs 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, etc.), and when any action was taken
            in real time.

10.1.3      HMO must have a system that can be adapted to changes 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. The MIS must
            provide complete acute and long term care encounter data of all
            capitated services within the scope of services of the contract
            between HMO and TDHS. 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

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

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 provided by the State. Any exceptions will be considered on
          a code-by-code basis after TDHS receives written notice from HMO
          requesting an exception. HMO must also use the provider numbers as
          directed by the State for both encounter and fee-for-service claims
          submission.

10.1.6    HMO must have hardware, software, network and communications system
          with the capability and capacity to handle and operate all MIS
          subsystems as specified in 10.1.8.1.

10.1.7    HMO must provide upon request an organizational chart and description
          of responsibilities of HMO's MIS department dedicated to or supporting
          this Contract. Any updates to the organizational chart and the
          description of responsibilities must be provided to TDHS within 15
          days of the effective date of the change. Official points of contact
          must be provided to TDHS on an ongoing basis. An Internet e-mail
          address must be provided for each point of contact.

10.1.8    HMO must operate and maintain an 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 HMOs MIS. The HMO systems must use file format, edit validation
          techniques as specified by TDHS or its designee. 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

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          apply across all subsystems as follows:

          (1)       Able to update and edit data.
          (2)       Maintain a history of changes and adjustments and audit
                    trails for current and retroactive data. Audit trails will
                    capture date, time, and reasons for the change, as well as
                    who made the change.
          (3)       Allow input mechanisms through manual and electronic
                    transmissions.
          (4)       Have procedures and processes for accumulating, archiving,
                    and restoring data in the event of a system or subsystem
                    failure.
          (5)       Maintain automated or manual linkages between and among all
                    MIS subsystems and interfaces.
          (6)       Able to relate Member and provider data with utilization,
                    service, accounting data, and reporting functions.
          (7)       Able to relate and extract data elements into summary and
                    reporting formats as required by TDHS.
          (8)       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 function
          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 the State.
          (3)       Maintain data on enrollment/disenrollments and complaint
                    activities. This data must include reason or type of
                    disenrollment, complaint and resolution by incidence.
          (4)       Receive, translate, edit and update files in accordance with
                    TDHS requirements prior to inclusion in HMOs MIS. Updates
                    will be received from the TDHS agent and processed within
                    two business days of receipt.
          (5)       Provide error reports and a reconciliation process between
                    new data and data existing in MIS.
          (6)       Identify enrollee changes in PCP 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 an exception
                    report when capacity and limitations are exceeded.
          (8)       Verify enrollee eligibility for medical services rendered or
                    for other enrollee inquires.

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          (9)       Generate and track referrals, e.g.,
                    Hospitals/Specialists/Long Term Care Providers.

          (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 TDHS or its agent in the
                    format as specified by TDHS

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, re-credentialing, and credential
                    tracking processes; incorporate or links information to
                    provider record.

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

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

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

          (8)       Provide updated provider network files monthly. Format will
                    be provided by TDHS to contracted entities.

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

          (10)      Exclude providers from participation that have been
                    identified by TDHS 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 collects, processes, and
          stores data on all health services delivered for which HMO is
          responsible. The functions of these subsystems are claims/encounter
          processing and capturing health service utilization data. The
          subsystem captures all health related services, including medical
          supplies, using standard codes


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          (e.g. CPT-4, HCPCS, ICD9-CM, UB92 Revenue Codes, State Specific Code),
          rendered by health care providers to an eligible enrollee regardless
          of payment arrangement (e.g. capitation or fee-for-service). This
          subsystem captures long term care and value added services using codes
          provided by TDHS. It approves and prepares claims for payment, or
          denies 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 the
          State.

          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 eligible members.

          (4)       Interface with Member and provider subsystems.

          (5)       Capture and report TPL potential, reimbursement or denial.

          (6)       Edit for utilization and service criteria, medical policy,
                    fee schedules, multiple contracts, contract periods,
                    conditions, etc.

          (7)       Submit data to TDHS or its designee 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 TDHS approval.

          (16)      Receive and capture claim and encounter data from TDHS or
                    its designee.

          (17)      Receive and capture value-added services codes, (18)
                    Capability of identifying adjustments and linking them to
                    the original claims/encounters.

10.6      FINANCIAL SUBSYSTEM

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          The financial subsystem must provide the necessary data for all
          accounting functions including cost accounting, inventory, fixed
          assets, payroll, general ledger, accounts receivable and payable, and
          financial statement presentation. The financial subsystem must provide
          management with information that can demonstrate that 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 and in the format prescribed
                    by TDHS.

          (3)       Provide information on potential third party payers;
                    information specific to the client; 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 of Third Party Recovery.

10.7      UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM

          The quality management/quality improvement/utilization review
          subsystem combines data from other subsystems, and/or external
          systems, to produce reports for analysis which focus on the review and
          assessment of quality of care given, detection of over and under
          utilization, and the development of user defined reporting criteria
          and standards. This system profiles utilization of providers and
          enrollees and compares them against experience and norms for
          comparable individuals. This subsystem also supports the quality
          assessment function.

          The subsystem tracks utilization control function(s) and monitoring
          inpatient admissions, emergency room use, ancillary, Long Term Care
          and out-of-area services. It provides provider profiles, occurrence
          reporting, 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


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          surveys, provider and enrollee complaints, and appeal processes.

          Functions and Features:

          (1)       Support provider credentialing and recredentialing
                    activities.

          (2)       Support 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)       Support development of cost and utilization data by provider
                    and service.

          (4)       Provide aggregate performance and outcome measures using
                    standardized quality indicators similar to HEDIS or as
                    specified by TDHS.

          (5)       Supports focused quality of care studies.

          (6)       Support the management of referral/utilization control
                    processes and procedures, including prior authorization and
                    precertifications and denials of services.

          (7)       Monitor PCP referral patterns.

          (8)       Support 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, Long Term Care,
                    and other ancillary service utilization per visit).

          (9)       Store and report patient satisfaction data through use of
                    enrollee surveys.

          (10)      provides fraud and abuse detection, monitoring and
                    reporting.

          (11)      Meet minimum reporting/data collection/analysis functions of
                    Section 7.5 of the RFA.

          (12)      Monitor and track provider and enrollee complaints and
                    appeals from receipt to disposition or resolution by
                    provider.

          (13)      TDHS will provide to HMO Social Security applied income
                    information for any Member residing in a Nursing Facility.
                    It is HMOs responsibility to manage applied income
                    appropriately with the nursing facility.

          (14)      HMO will ensure the accuracy of and electronically transmit
                    MDS-HC information on any Member living in the community and
                    receiving long term care services.

          (15)      HMO will ensure that the appropriate document, as specified
                    by TDHS, to determine medical necessity for nursing facility
                    level of care is transmitted to TDHS or its designee.

10.8      REPORT SUBSYSTEM

          The reporting subsystem supports reporting requirements of all HMO
          operations to HMO management and TDHS. It allows HMO to develop
          various reports to enable HMO management and TDHS to make decisions
          regarding HMO activity.

          Functions and Capabilities:


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          (1)       Produces standard, TDHS-required reports and ad hoc reports
                    from the data available in all MIS subsystems. All reports
                    will be submitted on hard copy or electronically in a format
                    approved by TDHS.

          (2)       Have system flexibility to permit the development of reports
                    at irregular periods as needed.

          (3)       Generate reports which 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 client eligibility listing by PCP (panel report).

          (7)       Report on PCP change by reason code.

          (8)       Report on TPL (COB) information to TDHS.

          (9)       Report on provider capacity and assignment from date of
                    service to date received.

          (10)      Generate an aged outstanding liability report.

          (11)      Produce a Member ID Card .

          (12)      Produce client/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
          provided by the state and as amended.

10.9.2    HMO must obtain access to the TexMedNet BBS or other site. 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 HMO and TDHS and its designee. 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 any restrictions (e.g, age, sex, etc.)

          (4)       Identify PCP capacity

          (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 TDHS or its designee and HMO.

          (1)       Provides benefit package data to HMO in accordance with
                    capitated services.


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          (2)       Provides PCP assignments.
          (3)       Provides Member eligibility status data.
          (4)       Provides Member demographics data.
          (5)       Provides HMO with cross reference data to identify
                    duplicate Members.

10.9.5    Encounter/ClaimData Interface - The encounter/claim interface must
          transfer paid fee-for-service claims data to HMO and capitated
          services/encounters from HMO, including adjustments. This file will
          include all service types, such as, inpatient, outpatient, long term
          care services and medical services. The State or its designee 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 - TDHS will provide a data file that contains
          information on enrollees that have other insurance. Because Medicaid
          is the payor of last resort, all services and encounters should be
          billed to the other insurance companies for recovery. TDHS will also
          provide an insurance company data file which contains the name and
          address of each insurance company.

10.9.8    The State will provide a diagnosis file which will give the code and
          description of each diagnosis permitted by the State or its designee.

10.9.9    The State or its designee 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 and
          codes specified by the state.

10.9.10   The State or its designee will provide a provider file which will
          contain the Medicaid provider numbers, name, and address of each
          Medicaid provider. The Medicaid number authorized by the State or its
          designee will 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 TDHS as specified by TDHS.
          (3)       Receive TPL data from TDHS to be used in claim and
                    encounter processing.


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10.11     YEAR 2000 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 TDHS. 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 TDHS, 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   TDHS and all subcontracted entities are required by state and federal
          law to meet Y2K compliance standards. Failure of TDHS or TDHS
          contractor other than an HMO to meet Y2K compliance standards which
          results in an HMOs failure to meet the Y2K requirements of this
          contract is a defense against a declaration of default 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 the Medicaid Managed Care (RFA) for Harris Service Area
          (pages 79-116 and 270-276).

11.2      WRITTEN QIP PLAN

          HMO must have ON FILE WITH TDHS an approved plan describing its
          Quality Improvement Plan (QIP), including how HMO will accomplish the
          activities pertaining to each Standard (I-XVI) in the Medicaid Managed
          Care (RFA) for Harris Service Area (pages 79-116 and 270-276).
          MODIFICATIONS AND AMENDMENTS MUST BE SUBMITTED TO TDHS NO LATER THAN
          60 DAYS PRIOR TO THE IMPLEMENTATION OF THE MODIFICATION OR AMENDMENT.

11.3      QIP SUBCONTRACTING

          If HMO subcontracts any of the essential functions or reporting
          requirements of QIP to another entity, HMO must MAINTAIN A FILE of the
          Subcontractors and a description of how the Subcontractor will meet
          the standards and reporting requirements of this contract. THE LIST
          MUST BE AVAILABLE FOR REVIEW BY TDHS OR ITS DESIGNEE UPON REQUEST. HMO
          must notify TDHS no later than



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          90 days prior to terminating any subcontract affecting a major
          performance function of this contract (see Article 3.2.1.2).

11.4      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
          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.

11.5      QIP REPORTING REQUIREMENTS

          The HMO must meet all of the QIP Reporting Requirements contained in
          Article XII.

ARTICLE XII            REPORTING REQUIREMENTS

12.1      FINANCIAL REPORTS

12.1.1    HMO must file the Managed Care Financial Statistical Report on a
          quarterly basis using the format prescribed by the State. The report
          must be submitted to the State 30 days after the end of each State
          Fiscal Quarter and must include complete financial and statistical
          information for each month.

12.1.2    HMO must file two annual Managed Care Financial Statistical Reports.
          The reports must be in the format prescribed by the State. The first
          annual report must reflect expenses incurred through the ninetieth
          (90th) day after the end of the contract year and must be filed on or
          before the one hundred and twentieth (120th) day after the end of the
          contract year. The second annual report must reflect data completed
          through the 334th day after the end of the contract year and must be
          filled on or before the 365th day following the end of the Contract
          year.

12.1.3    Administrative expenses must be reported in accordance with Attachment
          E, 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 the State.

12.1.4    HMO must file a duplicate of HMO Annual Statement and Supplemental
          Exhibits required by the Texas Department of Insurance (TDI) within
          thirty (30) days after the TDI filing deadline.

12.1.5    On or before June 30 of each year, HMOs shall submit to the State a
          copy of the annual audited financial report filed with TDI.

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                                       88
<PAGE>   95

12.1.6    HMO must file an updated Form HCFA-1513 regarding control, ownership,
          or affiliation of HMO thirty (30) days prior to the end of the
          contract year. An updated Form HCFA must also be filed within thirty
          (30) days of any change in control, ownership, or affiliation of HMO.

12.1.7    HMO must file an updated HCFA Public Health Service ("PHS") "Section
          1318 Financial Disclosure Report" within thirty (30) days of entering
          into, renewing, or terminating a relationship with an affiliated
          party.

12.1.8    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.

12.1.9    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 the State no later than 60 days after the effective date
          of the contract unless previously submitted to the State. Changes to
          the IBNR plan and description must be submitted to the State no later
          than 30 days before changes to the plan are implemented by HMO.

12.1.10   HMO must file quarterly third party recovery (TPR) reports in
          accordance with a format developed by the State. TPR reports must
          include total dollars recovered from third party payers for services
          to HMOs Members for each month and the total dollars recovered through
          coordination of benefits, subrogation, and workers compensation.

12.1.11   Each report required under this section must be mailed to:

          Texas Department of Human Services (TDHS)
          Managed Care Section
          701 West 51st Street
          P.O. Box 149030, Mail Code W516
          Austin, Texas
          78714-9030

12.2      STATISTICAL REPORTS

12.2.1    HMO must electronically file the following monthly reports: (1)
          encounter; (2) encounter detail; (3) institutional; (4) institutional
          detail; and (5) claims detail for cost-reimbursed services filed, if
          any, with HMO. Encounter data must include the data elements, follow
          the format, and use the transmission method specified by the state in
          the Encounter Data Submission Manual. Encounters must be submitted by
          HMO to the State no later than 45 days after the date of adjudication
          (finalization) of the claims.

12.2.2    Monthly reports must include current months encounter data and
          encounter data adjustments to the previous months data.


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<PAGE>   96

12.2.3    Data quality standards will be developed jointly by HMO and the State.
          Encounter data must meet or exceed data quality standards. Data which
          does not meet quality standards must be corrected and returned within
          the period specified by the State. 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
          within ninety-five (95) days from 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 Medicaid Provider
          Procedures Manual (and as otherwise provided by the State.) Exceptions
          or additional codes must be submitted for approval before HMO uses the
          codes.

12.2.6    HMO must use its State specified identification numbers on all
          encounter data submissions. Please refer to the Encounter Data
          Submission Manual for further specifications.

12.2.7    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 TDHS in a format specified by TDHS.

12.2.8    HMO must validate all encounter data using the encounter data
          methodology prescribed by the State prior to submission of encounter
          data to the State.

12.2.9    HMO must file preliminary and final Medicaid Disproportionate Share
          Hospital (DSH) Reports, required by the State to identify and
          reimburse hospitals which qualify for Medicaid disproportionate share
          funds. The preliminary and final DSH reports must include the data
          elements and be submitted in the form and format specified by the
          State. The preliminary DSH reports are due on or before June 1 of the
          year following the State fiscal year for which data is being reported.
          The final DSH reports are due on or before August 15 of the year
          following the state fiscal year for which data is being reported.

12.3      ARBITRATION/LITIGATION CLAIMS REPORT

          HMO must submit an Arbitation/Litigation Claims Report in a format
          provided by the State identifying all provider or HMO request 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

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                                       90
<PAGE>   97

          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 TDHS.

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 the State 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 the State in the format specified by the State. 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 TDHS 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 TDHS.

12.7      FRAUDULENT PRACTICES

          HMO must report to TDHS 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

          HMO must submit Behavioral Health (BH) utilization management (UM)
          reports to TDHS or its designee semi-annually using a format and
          instructions provided by TDHS. HMO's UM data file (raw data) is due in
          a file format specified by TDHS quarterly (TDHS prefers and encourages

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                                       91
<PAGE>   98

          monthly submission of the data file to BBS). The semi-annual BH UM
          reports and quarterly data submission are due no later than 150 days
          following the reporting as specified by TDHS.

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 TDHS or its designee on a quarterly basis no later
          than 150 days following the end of the period. The State will provide
          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 TDHS to facilitate clear communication to the health plan.

12.10     UTILIZATION MANAGEMENT REPORTS - LONG TERM CARE

          Long Term Care (LTC) utilization management reports are required on a
          semi-annual basis with submission of data files that are, at a
          minimum, due to TDHS or its designee on a quarterly basis no later
          than 150 days following the end of the period. The State will provide
          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 LTC Utilization
          Management Report and data file submission instructions may
          periodically be updated by TDHS to facilitate clear communication to
          the health plan.

12.11     QUALITY IMPROVEMENT REPORTS

12.11.1   The HMO must conduct at a minimum, three focused studies. One study
          will be specified by TDHS, the second will be selected by the HMO and
          approved by TDHS, and the third study will be a behavioral study
          specified by TDHS. These studies shall be conducted and data collected
          using criteria, methods and reporting format developed by the state.

12.11.2   Focused study reports must be submitted to the state according to due
          dates established by the State.

12.11.3   Annual QIP Summary Report. An annual QIP summary report must be
          conducted yearly. The annual QIP summary report must be submitted
          within 30 days after approved by HMO QIP committee. This report must
          provide summary information on HMOs 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 in the Standards for
                    Quality Improvement Programs (pages 79-116 and pages
                    270-276) of the


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                                       92
<PAGE>   99

                    Medicaid Managed Care Request for Application (RFA) for the
                    Harris Service Area.

          (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
                    providers and staff.

          (7)       Outcomes and/or action plan.

12.11.4   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 the State or its designee during an
          on-site review.

12.12     HUB QUARTERLY REPORTS

          HMO must submit quarterly reports documenting HMOs HUB program efforts
          and accomplishments. The report must include a narrative description
          of HMOs program efforts and a financial report reflecting payments
          made to HUB. HMO must use the format included in Attachment B of this
          Contract for HUB quarterly reports.

12.13     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 State's 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    TDHS will pay HMO monthly premiums calculated by multiplying the
          number of Member months by the 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 except
          for costs for health care services or long term care services not
          covered by this Contract, in which case the Member must be informed of
          such costs prior to providing non-covered services.

13.1.2.   The capitation amount by Member risk group has been calculated to be
          less than the amount payable for providing the same services for an
          actuarially equivalent population in the regular Medicaid
          fee-for-service


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                                       93
<PAGE>   100

          program. The following capitation payments will be effective for the
          first year of this Contract. The monthly capitation amounts for the
          Harris County Service Area are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                 FY 2000
        Member Risk Groups                  Monthly Capitation
                                                  Amounts
                                            9/1/1999 - 8/31/2000
--------------------------------------------------------------------------------------
<S>                                            <C>
  CBA Waiver Clients-Dual Eligible               $1523.62
--------------------------------------------------------------------------------------
  CBA Waiver Clients-Medicaid Only               $3012.60
--------------------------------------------------------------------------------------
  Other Community Clients-Dual Eligible            $96.13
--------------------------------------------------------------------------------------
  Other Community Clients-Medicaid only           $597.34
--------------------------------------------------------------------------------------
  Nursing Facility Clients-Dual Eligible         $1819.89
--------------------------------------------------------------------------------------
  Nursing Facility Clients-Medicaid Only         $3327.78
--------------------------------------------------------------------------------------

</TABLE>



13.1.3    The monthly premium payments will be made to HMO not later than the
          tenth (10) state working day of the month for which premiums are made.
          HMO must accept payment for premiums by direct deposit into HMOs
          account.

13.1.4    Payment of monthly capitation amounts is subject to availability of
          appropriations. If appropriations are not available to pay the full
          monthly capitation amounts, TDHS will equitably adjust capitation
          amounts, for all participating HMOs, and reduce scope of service
          requirements as appropriate.

13.1.5    TDHS 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.

13.1.5.1  Once HMO has received their capitation rates established by TDHS for
          the second year of this contract, HMO may terminate this contract as
          provided in Article 18.1.6 of this contract.

13.1.6    For HMO members who upgrade to a higher risk group, the adjustment to
          the higher risk group will be delayed by 120 days as an incentive for
          the


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                                       94
<PAGE>   101

          HMO to maintain members at the least restrictive setting that meets
          the client's health and safety needs.

13.1.7    For SSI members that upgrade to CBA eligibility by for whom the
          annualized cost of the plan of care is less than $ 9,000, the risk
          group will remain at the Other Community Care level.

13.1.8    HMO renewal rates reflect program increases appropriated by the 76
          legislature for physician (to include THSteps providers) and
          outpatient facility services. HMO must report to TDHS any change in
          rates for participating physicians (to include THSteps providers) and
          outpatient facilities resulting from this increase. The report must be
          submitted to TDHS at the end of the first quarter of the FY2000 and
          FY2001 contract years according to the deliverables matrix scheduled
          set for HMO.

13.2      EXPERIENCE REBATE TO STATE

13.2.1    The HMO must pay to TDHS an experience rebate calculated in accordance
          with the tiered rebate method listed below based on the excess of
          allowable HMO STAR+PLUS revenues over allowable HMO STAR+PLUS expenses
          as measured by any positive amount on Line 8 of "Part 1: Financial
          Summary, All Coverage Groups Combined" of the final (Contract period)
          Managed Care Financial-Statistical Report as reviewed and confirmed by
          the State.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                     Graduated Rebate Method
------------------------------------------------------------------------------------------
Experience Rebate                        HMO Share                  State Share
as a Percentage of Revenues
------------------------------------------------------------------------------------------
<S>                                  <C>                      <C>
     0% - 3%                          100%                     0%
------------------------------------------------------------------------------------------
     Over 3% - 7%                     75%                      25%
------------------------------------------------------------------------------------------
     Over 7% - 10%                    50%                      50%
------------------------------------------------------------------------------------------
     Over 10% - 15%                   25%                      75%
------------------------------------------------------------------------------------------
     Over 15%                         0%                       100%
------------------------------------------------------------------------------------------
</TABLE>


13.2.2    Allowable start-up costs (pre-implementation costs) are costs incurred
          between the contract effective date and the implementation date as
          defined in the "Cost Principles for Administrative Expenses"
          (Attachment E).

13.2.3    Carry Forward of Prior Contract Period Losses: Losses incurred for one
          contract period can only be carried forward to the next contract
          period.

13.2.4    Experience rebate will be based on a pre-tax basis.

13.2.5    There will be two settlements for payment of the experience rebate.
          The first settlement shall equal 100 percent of the experience rebate
          as derived from Line 7 of Part 1 (Net Income Before Taxes) of the
          contract period Managed Care Financial Statistical (MCFS) Report and
          shall be paid on the same day the first contract period MCFS Report is
          submitted to TDHS. The second settlement shall be an adjustment to the
          first


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                                       95
<PAGE>   102

          settlement and shall be paid to TDHS on the same day that the second
          contract period MCFS Report is submitted to TDHS if the adjustment is
          a payment from HMO to TDHS. TDHS or its agent may audit or review the
          MCFS reports. If TDHS determines that corrections to the MCFS reports
          are required, based on a TDHS audit/review or other documentation
          acceptable to TDHS, to determine an adjustment to the amount of the
          second settlement, then final adjustment shall be made within two
          years from the date that the HMO submits the second contract period
          MCFS report. HMO must pay the first and second settlements on the due
          dates for the first and second MCFS reports respectively as identified
          in Article 12.1.3. TDHS may adjust the experience rebate if TDHS
          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. TDHS will have final authority in
          assessing the amount of the experience rebate.

13.3      ADJUSTMENTS TO PREMIUM

13.3.1    TDHS may recoup premiums paid to HMO in error. Error may be either
          human or machine error on the part of TDHS or an agent or contractor
          of TDHS. TDHS 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.

13.3.2    TDHS may recoup premium paid to HMO if a Member for whom premium is
          paid moves outside the United States, and the HMO has not provided
          covered services to the Member for the period of time for which
          premium has been paid. TDHS will not recoup premium if HMO has
          provided covered services to the Member during the period of time for
          which premium has been paid.

13.3.3    TDHS 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.

13.3.4    TDHS may recoup or adjust premium paid to HMO for a Member if the
          Members eligibility status or program type is changed, corrected as a
          result of error, or is retroactively adjusted.

13.3.5    Recoupment or adjustment of premium under 13.3.1 through 13.3.4 may be
          appealed using the TDHS dispute resolution process.

13.3.6    TDHS may adjust premiums for all Members within an eligibility status
          or program type if adjustment is required by reductions in
          appropriations 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 15.2.2


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                                       96
<PAGE>   103

          Adjustment to premium under this subsection may not be appealed using
          the TDHS dispute process.

ARTICLE XIV            ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1      ELIGIBILITY DETERMINATION

14.1.1    DHS will identify Medicaid recipients who are eligible for
          participation in the STAR+PLUS program using the eligibility status
          described below.

14.1.2    MANDATORY - Individuals in the following must enroll in one of the
          STAR+PLUS HMOs providing services in the Service Area:

          SUPPLEMENTAL SECURITY INCOME (SSI) RECIPIENTS 21 AND OLDER SSI
          Eligible clients 21 and older living in the community, except for
          those individuals listed as "voluntary" or "non-participant."

          CLIENTS IN SOCIAL SECURITY (RSDI) EXCLUSIONS PROGRAMS Clients denied
          SSI because of specified increases (e.g., cost-of-living adjustments,
          etc.) in Social Security (RSDI or Title II) benefits.

          CLIENTS ENTERING TITLE-XIX NURSING FACILITIES (NFs)
          Clients entering Title-XIX NFs who qualify for nursing facility level
          of care, as determined by DHS after the date of implementation.

          COMMUNITY-BASED ALTERNATIVES (CBA) WAIVER CLIENTS Clients who qualify
          for nursing facility level of care, as determined by DHS, but who
          elect to receive services in the community.

          SPEND DOWN CLIENTS
          Adult Clients in nursing facilities who spend down to Medicaid
          eligibility (SSI/MAO) in less than twelve (12) months after date of
          implementation and qualify for nursing facility level of care as
          determined by DHS.

14.1.3    VOLUNTARY - The following individuals are not required to enroll in a
          STAR+PLUS HMO, but have the option to enroll in an HMO. HMO will be
          required to accept enrollment of any clients in these groups who elect
          to enroll:

          SSI ELIGIBLE CHILDREN
          SSI eligible children under age 21 may choose two types of managed
          care models (HMO or PCCM).

          SSI ELIGIBLE CLIENTS WITH SEVERE AND PERSISTENT MENTAL ILLNESS AND
          CHILDREN/ADOLESCENTS WITH SERIOUS EMOTIONAL DISTURBANCE (SED)
          SSI eligible clients with severe and persistent mental illness and
          children/adolescents with SEA who are receiving Medicaid- funded


                                                               TDHS/HMO CONTRACT
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                                       97
<PAGE>   104

          rehabilitation services through the local mental health authority may
          choose two types of Managed Care models (HMO or PCCM).

          MEDICAID RECIPIENTS IN NURSING FACILITIES (NFs) ON DATE OF
          IMPLEMENTATION
          Individuals eligible for SSI/MAO and residing in NFs on
          date of implementation.

          SPEND DOWN NF RESIDENTS WHO SPEND DOWN RESOURCES AFTER TWELVE (12)
          MONTHS IN NF
               Individuals residing in NFs who spend down to MAO after twelve
               (12) months or more in the NF.

14.1.4    NON-PARTICIPANTS - The following individuals are not affected by
          STAR+PLUS and will not be included in the project:

          COMMUNITY LIVING ASSISTANCE AND SUPPORT SERVICES (CLASS) WAIVER
          CLIENTS
          Individuals receiving CLASS waiver services.

          MEDICALLY DEPENDENT CHILDREN'S WAIVER PROGRAM (MDCP) CLIENTS
          Individuals receiving MDCP waiver services.

          HOME AND COMMUNITY SERVICES (HAS and HAS-O) WAIVER CLIENTS
          Individuals receiving HAS services.

          DEAF-BLIND MULTIPLE DISABLED (DBMD) WAIVER CLIENTS
          Individuals receiving DBMD services.

          HOSPICE - Individuals who exercise their option to participate in a
          Hospice program.

14.2      ENROLLMENT

14.2.1    TDHS has the right and responsibility to enroll and disenroll eligible
          individuals into the STAR+PLUS program. HMO must accept all persons
          who chose to enroll as Members in HMO, without regard to the Members
          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 TDHS. TDHS has the authority to limit enrollment into HMO
          if the number and distance limitations are exceeded.

14.2.3    TDHS makes no guarantees or representations to HMO regarding the
          number of eligible Medicaid recipients who will ultimately be enrolled
          as STAR+PLUS Members of HMO.

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<PAGE>   105

14.2.4    HMO must cooperate and participate in all TDHS sponsored and announced
          enrollment activities. HMO must have a representative at all TDHS
          enrollment activities unless an exception is given by TDHS. HMOs
          representative must comply with HMOs cultural and linguistic
          competency plan (see Cultural and Linguistic in section 8.8 of this
          Contract). HMO must provide marketing materials, HMO pamphlets, Member
          handbooks, a list of network providers, HMOs linguistic and cultural
          capabilities and other information requested or required by TDHS or
          its Contract administrator to assist potential Members in making
          informed choices.

14.2.5    TDHS will provide HMO with at least ten (10) days written notice of
          all TDHS planned activities. Failure to participate in, or send a HMO
          representative to a TDHS sponsored enrollment activity is a default of
          the terms of the Contract. Default may be excused if HMO can show that
          TDHS failed to provided the required notice, or if HMOs absence is
          excused by TDHS.

14.3      PLAN CHANGES FROM HMO AND DISENROLLMENT FROM MANAGED CARE

14.3.1    Members have a right to change HMOs at any time.

14.3.2    TDHS is responsible for disenrolling the Member from HMO. If a
          disenrollment request is received before the 15th of the month,
          disenrollment is effective on the first day of the next month. If a
          disenrollment request is received after the fifteenth (15) of the
          month, disenrollment will be effective the 1st day of the month
          following the next month.

14.3.3    HMO has a limited right to request a Member be disenrolled from HMO
          without the Members consent. Disenrollment of a Member may be
          permitted under the following circumstances:

          (1)       disruptive behavior at HMOs facility or a network providers
                    office, unrelated to a physical or behavioral health
                    condition;

          (2)       loaning or allowing another person to use HMOs Membership
                    card; or

          (3)       other circumstances approved by TDHS justifying
                    disenrollment.

14.3.4    HMO must take reasonable measures to work with the Member to
          ameliorate the situation prior to requesting disenrollment. Reasonable
          measures may include providing education and counseling regarding the
          offensive acts or behaviors.

14.3.5    HMO must notify the Member of HMOs decision to disenroll the Member if
          all reasonable measures have failed to remedy the problem.

14.3.6    If the Member disagrees with HMOs decision, HMO must notify the Member
          of the availability of the complaint procedure and the TDHS Fair
          Hearing process.

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                                       99
<PAGE>   106

14.3.7    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.

14.3.8    Members may not be disenrolled solely because of a disability or
          chronic or complex condition.

14.4      AUTOMATIC RE-ENROLLMENT

14.4.1    Members who are disenrolled because they are temporarily ineligible
          for Medicaid will be automatically re-enrolled into the same health
          plan. Temporary loss of eligibility is defined as a period of 6 months
          or less.

14.4.2    HMO must inform its Members of the automatic re-enrollment procedure.
          Automatic re-enrollment must be included in the Member Handbook (See
          Article 8.2.1).

14.5.     ENROLLMENT REPORTS

14.5.1    TDHS will provide monthly HMO Enrollment Reports to HMO on or before
          the first of the month.

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 TDHS. 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 TDHS if amendment is required to
          comply with changes in state or federal laws, rules, or regulations.

15.2.2    TDHS and HMO may amend this contract if reductions in funding or
          appropriations make full performance by either party impracticable or
          impossible, and amendment could provide a reasonable alternative to
          termination. If HMO does not agree to the amendment, contract may be
          terminated under Article XVIII.

15.2.3    This contract must be amended if either party discovers a material
          omission of a negotiated or required term, which is essential to the
          successful performance or maintaining compliance with the terms of the
          contract. The party discovering the omission must notify the other
          party of the omission in writing as soon as possible after discovery.
          If there is a


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          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 15.8 of this contract.

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 TDHS. This provision
          does not prevent HMO from subcontracting duties and responsibilities
          to qualified Subcontractors. If TDI and TDHS 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 TDHS so that Members'
          services are not interrupted and, if necessary, the notice provided
          for in Section 15.7 can be sent to Members. The assigning HMO must
          also submit a transition plan, as set out in Section 18.2.1, subject
          to TDHS approval.

15.7      MAJOR CHANGE IN CONTRACTING

          TDHS 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


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          letter to Members may permit the Members to re-select their plan and
          PCP. TDHS will bear the cost of preparing and 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

          All disputes arising under this contract shall be resolved through
          TDHS' dispute resolution procedures, except where a remedy is provided
          for through TDHS' 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 TDHS
          for this contract, and the federal waiver granting TDHS 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

          TDHS 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 TDHS 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


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          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 TDHS

16.1.1    FAILURE TO MAKE CAPITATION PAYMENTS

          Failure by TDHS to make capitation payments when due is a default
          under this contract.

16.1.2    FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES

          Failure by TDHS 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 TDHS DEFAULT

          HMO may terminate this contract as set out in Article 18.1.5 of this
          contract if TDHS 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 TDHS, an entity
          acting on behalf of TDHS, 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 TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to perform an administrative function under this
          contract, TDHS may:


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          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3;

          -         Assess liquidated money damages as set out in Article 18.4;
                    and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.2    ADVERSE ACTION AGAINST HMO BY TDI

          Termination or suspension of HMO's TDI Certificate of Authority or any
          adverse action taken by TDI that TDHS 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 TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For an adverse action against HMO by TDI, TDHS 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.

16.1.1.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's insolvency, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.


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16.3.4    FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS

          Failure of HMO to comply with the federal requirements for Medicaid,
          including, but not limited to, federal law regarding
          misrepresentation, fraud, or abuse; and, by incorporation, Medicare
          standards, requirements, or prohibitions, is a default under this
          contract.

          The following events are defaults under this contract pursuant to 42
          U.S.C. "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, TDHS, 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. '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 TDHS.

16.3.5    REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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, TDHS 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 TDHS
          in exercising all or part of any remaining remedies.

          For HMO's failure to comply with federal laws and regulations, TDHS
          may:


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          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3;

          -         Appoint temporary management as set out in Article 18.5;

          -         Initiate disenrollment of a Member of Members without cause
                    as set out in Article 18.6;

          -         Suspend or default all enrollment of individuals;

          -         Suspend payment to HMO;

          -         Recommend to HCFA that sanctions be taken against HMO as set
                    out in Article 18.7;

          -         Assess civil monetary penalties as set out in Article 18.8;
                    and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.6    FAILURE TO COMPLY WITH APPLICABLE STATE LAW

          HMO's failure to comply with Texas law applicable to Medicaid,
          including, but not limited to, Article 32.039 of the Texas Human
          Resources Code and state law regarding misrepresentation, fraud, or
          abuse, is a default under this contract.

16.3.6.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to comply with applicable state law, TDHS 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 TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.


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          For HMO's misrepresentation or fraud under Article 4.8, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         P Suspend new enrollment as set out in Article 18.3; and/or

          -         P 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 '1124(a) of the
          Social Security Act (the Act) from the Medicaid or Medicare program
          under the provisions of '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 '1124(a) of the Social
          Security Act (the Act) from the Medicaid or Medicare program under the
          provisions of '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 TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's exclusion from Medicare or Medicaid, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.9    FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS

          HMO's failure to make timely and appropriate payments to network
          providers and subcontractors is a default under this contract.
          Withholding or recouping capitation payments as allowed or required
          under other articles of this contract is not a default under this
          contract.

16.3.9.1  REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT


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          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to make timely and appropriate payments to network
          providers and subcontractors, TDHS 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 TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to timely adjudicate claims, TDHS may:

          -         Terminate the contract if the applicable conditions set out
                    in Article 18.1.1 are met;

          -         Suspend new enrollment as set out in Article 18.3; and/or

          -         Require forfeiture of all or part of the TDI performance
                    bond as set out in Article 18.9.

16.3.11   FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS

          Failure to pass any of the mandatory system or delivery functions of
          the Readiness Review required in Article I of this contract is a
          default under the contract.

16.3.11.1 REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS by law or in equity, are joint and several, and may
          be exercised


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          concurrently or consecutively. Exercise of any remedy in whole or in
          part does not limit TDHS in exercising all or part of any remaining
          remedies.

          For HMO's failure to demonstrate the ability to perform contract
          functions, TDHS 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 TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to monitor and/or supervise activities of
          contractors or network providers, TDHS 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 TDHS FOR THIS HMO DEFAULT


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          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's placing the health and safety of Members in jeopardy, TDHS
          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 TDHS under this
          contract is a default under this contract.

16.3.14.1 REMEDIES AVAILABLE TO TDHS FOR THIS HMO DEFAULT

          All of the listed remedies are in addition to all other remedies
          available to TDHS 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 TDHS in exercising all or part of any
          remaining remedies.

          For HMO's failure to meet any benchmark established by TDHS under this
          contract, TDHS 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      TDHS 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;


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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;

17.1.4    A clear and concise statement of the time period during which the HMO
          may cure the default if HMO is allowed to cure;

17.1.5    The remedy or remedies TDHS is electing to pursue and when the remedy
          or remedies will take effect;

17.1.6    If TDHS is electing to impose money damages and/or civil monetary
          penalties, the amount that TDHS intends to withhold or impose and the
          factual basis on which TDHS is imposing the chosen remedy or remedies;

17.1.7    Whether any part of money damages or civil monetary penalties, if TDHS
          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 TDHS 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 TDHS

18.1.1    TDHS 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  TDHS has a reasonable belief that HMO has placed the health or welfare
          of Members in jeopardy.


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18.1.2    TDHS 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. TDHS 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. TDHS must give the notice required under TDHS formal
          hearing procedures set out in Section 1.21 in Title 25 of the Texas
          Administrative Code if termination is the result of HMO's substantial
          failure or refusal to provide medically necessary services and items
          that are required under the contract to be provided to Members or
          TDHS' 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 TDHS' 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 TDHS' formal hearing procedures set out in Section 1.21
          of Title 25, Texas Administrative Code.

18.1.3    TDHS 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 TDHS terminates for this
          reason, TDHS may enroll HMO's Members with another HMO or permit the
          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 TDHS' reasonable belief that HMO is placing the
          health and safety of the Members in jeopardy. If termination is due to
          this reason, TDHS may prohibit HMO's further performance of services
          under the contract.

18.1.5    If the state terminates this contract, HMO may appeal the termination
          under 32.034, Texas Human Resources Code.

18.1.6    TERMINATION BY HMO

          HMO may terminate this contract if TDHS 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


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          HMO's default under the terms of this contract is not cause for
          termination.

18.7.1    HMO must give TDHS 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 TDHS.

18.1.8    TDHS must be given 30 days from the date TDHS receives HMO's written
          notice of intent to terminate for failure to pay HMO to pay all
          amounts due. If TDHS 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 TDHS.

18.2      DUTIES OF CONTRACTING PARTIES UPON TERMINATION

          When termination of the contract occurs, TDHS and HMO must meet the
          following obligations:

18.2.1    TDHS and HMO must prepare a transition plan, which is acceptable to
          and approved by TDHS, to ensure that Members are reassigned to other
          health 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 TDHS'
          reasonable belief that HMO is placing the health or welfare of Members
          in jeopardy.

18.2.2    If the contract is terminated by TDHS 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 13.1.2:

18.2.2.1  TDHS 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 TDHS in implementing
          the transition plan.

18.2.3    If the contract is terminated by HMO for any reason other than based
          on lower capitation rates for the second contract year as set out in
          Article 13.1.2:

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18.2.3.1  TDHS is responsible for notifying all Members of the date of
          termination and how Members can continue to receive contract services;

18.2.3.2  TDHS is responsible for all expenses related to giving notice to
          Members; and

18.2.3.3  TDHS 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  TDHS 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  TDHS is responsible for all expenses it incurs in implementing the
          transition plan.

18.3      SUSPENSION OF NEW ENROLLMENT

18.3.1    TDHS 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    TDHS 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. TDHS 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, TDHS may
          require HMO to pay sums as specified below as liquidated damages. The
          liquidated damages set out in this Article are not intended to be in
          the nature of a penalty but are intended to be reasonable estimates of
          TDHS' financial loss and damage resulting from HMO's non-performance.


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18.4.2    TDHS imposes money damages, TDHS 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 TDHS. These money damages
          apply separately to each report.

18.4.4    Failure to produce or provide records and information requested by
          TDHS, an entity acting on behalf of TDHS, 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
          TDHS. TDHS will use the encounter data validation methodology
          established by TDHS 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 TDHS, an entity acting on behalf
          of TDHS, or an agency authorized by statute or law to require the
          cooperation of HMO in carrying out an administrative, investigative,
          or prosecutorial function of the Medicaid program may result in money
          damages of not more than $8,000.00 per day for each day HMO fails to
          cooperate.

18.4.7    Failure to enter into a required or mandatory contract or failure to
          contract for or arrange to have all services required under this
          contract provided may result in money damages of not more than
          $1,000.00 per day that HMO either fails to negotiate in good faith to
          enter into the required contract or fails to arrange to have required
          services delivered.

18.4.8    Failure to meet the benchmark for benchmarked services under this
          contract may result in money damages of not more than $25,000 for each
          month that HMO fails to meet the established benchmark.


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18.4.9    TDHS may also impose money damages for a default under Article
          16.3.11, 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 Article 7.3.8.10 of this contract.

18.4.9.1  If TDHS determines that HMO has failed to pay a provider for a claim
          or claims for which the provider should have been paid, TDHS 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 TDHS 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, TDHS 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    TDHS may appoint temporary management to oversee the operation of the
          HMO upon a finding that there is continued egregious behavior by the
          HMO or there is a substantial risk to the health of the Members.

18.5.2    TDHS may appoint temporary management to assure the health of the
          HMO's Members if there is a need for temporary management while

18.5.2.1  there is an orderly termination or reorganization of the 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 TDHS has determined
          that HMO has the capability to ensure that the violations that
          triggered appointment of temporary management will not recur.

18.5.4    TDHS is not required to appoint temporary management before
          terminating this contract.

18.5.5    No pre-termination hearing is required before appointing temporary
          management.

18.6      TDHS-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE

          TDHS must give HMO 30 days notice of intent to initiate disenrollment
          of a Member or Members in the Notice of Default. The TDHS-initiated
          disenrollment date will be calculated as 30 days following the date
          that HMO receives the Notice of Default.


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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, TDHS 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 TDHS
          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, TDHS may assess not more than
          $25,000 for each default;

18.8.2    For a default under Article 16.3.4.2, TDHS 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, TDHS may assess not more than
          $100,000 for each default, including $15,000 for each individual not
          enrolled as a result of the practice described in Article 16.3.4.3.

18.8.4    For a default under Article 16.3.4.4, TDHS may assess not more than
          $100,000 for each default if the material was provided to HCFA or TDHS
          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, TDHS may assess not more than
          $25,000 for each default.

18.8.6    For a default under Article 16.3.4.6, TDHS 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
          TDHS may require forfeiture of all or a portion of the face amount of
          the TDI performance bond if TDHS 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


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18.10.1   HMO may dispute the imposition of any sanction under this contract.
          HMO notifies HMO 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 TDHS
          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 TDHS must attempt to informally resolve the dispute. If HMO
          and TDHS are unable to informally resolve the dispute, HMO must notify
          the Bureau Chief of Managed Care that HMO and TDHS 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 TDHS' dispute resolution procedures. The decision of the
          dispute resolution committee will be TDHS' final administrative
          decision.

ARTICLE XIX            TERM

19.1      The effective date of this contract is September 1, 1999. This
          contract will terminate on August 31, 2001, unless terminated earlier
          as provided for elsewhere in this contract.

19.2      The contract will not automatically renew beyond the contract period.

19.3      If either party does not intend to renew the contract beyond its
          initial term, 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
          initial term 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
          initial term 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 TDHS does not
          intend to renew and sends the required notice, TDHS 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
          TDHS 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 initial term, TDHS 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.


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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.

TEXAS DEPARTMENT OF                                        AMERICAID TEXAS, INC.
HUMAN SERVICES

BY:                                                BY:
   ----------------------                             -------------------------
        ERIC M. BOST                                       JAMES DONOVAN JR.
        COMMISSIONER                                       PRESIDENT AND CEO

DATE SIGNED:   9/1/99                             DATE SIGNED:    8/24/99
            ------------                                      ---------------
APPROVED AS TO FORM:

------------------------
Office of General Counsel


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                                       ATTACHMENTS

Copies of attachments A - E will be available in the Regulatory Department upon
request.


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