<PAGE>   1

                                                                    Exhibit 10.4


                                          TDH Document No.  7526032317 * 2000-01





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





                                                           AMERICAID Texas, Inc.
                                                             Dallas Service Area
<PAGE>   2
                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                                       <C>
APPENDICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi

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

ARTICLE II      DEFINITIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3

ARTICLE III     PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.1    ORGANIZATION AND ADMINISTRATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2    NON-PROVIDER SUBCONTRACTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3    MEDICAL DIRECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4    PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.5    RECORDS REQUIREMENTS AND RECORDS RETENTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.6    HMO REVIEW OF TDH MATERIALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ARTICLE IV      FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4.1    FISCAL SOLVENCY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2    MINIMUM EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3    PERFORMANCE BOND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.4    INSURANCE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   19
4.5    FRANCHISE TAX  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6    AUDIT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7    PENDING OR THREATENNG LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.8    MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO OPERATIONS . . . . . . . . . . . . . . . . . . . . . .   20
4.9    THIRD PARTY RECOVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10   CLAIMS PROCESSING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.11   INDEMNIFICATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

ARTICLE V       STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

5.1    COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.2    PROGRAM INTEGRITY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3    FRAUD AND ABUSE COMPLIANCE PLAN  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.4    SAFEGUARDING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.5    NON-DISCRIMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.6    HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.7    BUY TEXAS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8    CHILD SUPPORT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.9    REQUESTS FOR PUBLIC INFORMATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.10   NOTICE AND APPEAL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ARTICLE VI      SCOPE OF SERVICES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

6.1    SCOPE OF SERVICES - GENERAL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2    PRE-EXISTING CONDITIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.3    SPAN OF ELIGIBILITY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.4    CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5    EMERGENCY SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.6    BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.7    FAMILY PLANNING - SPECIFIC REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.8    TEXAS HEALTH STEPS (EPSDT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.9    PERINATAL SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.10   EARLY CHILDHOOD INTERVENTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.11   SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND CHILDREN (WIC) - SPECIFIC REQUIREMENTS  . . . . . . 40
6.12   TUBERCULOSIS (TB)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.13   PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>





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<TABLE>
<S>                                                                                                                       <C>
6.14    HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.15    SEXUALLY TRANSMITTED DISEASES (STDs) AND HUMAN IMMUNODEFICIENCY VIRUS (HIV) . . . . . . . . . . . . . . . . . . . 46
6.16    BLIND AND DISABLED MEMBERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

ARTICLE VII        PROVIDER NETWORK REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

7.1     PROVIDER ACCESSIBILITY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2     PROVIDER CONTRACTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.3     PHYSICIAN INCENTIVE PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.4     PROVIDER MANUAL AND PROVIDER TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.5     MEMBER PANEL REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.6     PROVIDER COMPLAINT AND APPEAL PROCEDURES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.7     PROVIDER QUALIFICATIONS - GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.8     PRIMARY CARE PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.9     OB/GYN PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.10    SPECIALTY CARE PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.11    SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.12    SIGNIFICANT TRADITIONAL PROVIDERS (STPs)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.13    RURAL HEALTH PROVIDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.14    FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH CLINICS (RHC)  . . . . . . . . . . . . . . . . . . . . 63
7.15    COORDINATION WITH PUBLIC HEALTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.16    COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY SERVICES..... . . . . . . . . . . . . . . . . . . 67
7.17    PROVIDER NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs) . . . . . . . . . . . . . . . . . . . . . . . . . . 68

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

8.1     MEMBER EDUCATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.2     MEMBER HANDBOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.3     ADVANCE DIRECTIVES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.4     MEMBER ID CARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.5     MEMBER HOTLINE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.6     MEMBER COMPLAINT PROCESS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.7     MEMBER NOTICE, APPEALS AND FAIR HEARINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.8     MEMBER ADVOCATES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
8.9     MEMBER CULTURAL AND LINGUISTIC SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

ARTICLE IX         MARKETING AND PROHIBITED PRACTICES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

9.1     MARKETING MATERIAL MEDIA AND DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.2     MARKETING ORIENTATION AND TRAINING  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.3     PROHIBITED MARKETING PRACTICES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.4     NETWORK PROVIDER DIRECTORY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

ARTICLE X          MIS SYSTEM REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

10.1    MODEL MIS REQUIREMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.2    SYSTEM-WIDE FUNCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.3    ENROLLMENT/ELIGIBILITY SUBSYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.4    PROVIDER SUBSYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.5    ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.6    FINANCIAL SUBSYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
10.7    UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
10.8    REPORT SUBSYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
10.9    DATA INTERFACE SUBSYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
10.10   TPR SUBSYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
10.11   YEAR 2000 COMPLIANCE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

ARTICLE XI         QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM  . . . . . . . . . . . . . . . . . . . . . . . . . . 92

11.1    QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.2    WRITTEN QIP PLAN  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.3    QIP SUBCONTRACTING  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.4    ACCREDITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
</TABLE>





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<TABLE>
<S>                                                                                                                      <C>
11.5     BEHAVIORAL HEALTH INTEGRATION INTO QIP   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.6     QIP REPORTING REQUIREMENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

ARTICLE XII        REPORTING REQUIREMENTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

12.1     FINANCIAL REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
12.2     STATISTICAL REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
12.3     ARBITRATION/LITIGATION CLAIMS REPORT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
12.4     SUMMARY REPORT OF PROVIDER COMPLAINTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
12.5     PROVIDER NETWORK REPORTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
12.6     MEMBER COMPLAINTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.7     FRAUDULENT PRACTICES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.8     UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.9     UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.10    QUALITY IMPROVEMENT REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.11    HUB REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
12.12    THSTEPS REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
12.13    REPORTING REQUIREMENTS DUE DATES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  100

ARTICLE XIII       PAYMENT PROVISIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  100

13.1     CAPITATION AMOUNTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  100
13.2     EXPERIENCE REBATE TO STATE   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  103
13.3     PERFORMANCE OBJECTIVES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  104
13.4     PAYMENT OF PERFORMANCE OBJECTIVE BONUSES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  105
13.5     ADJUSTMENTS TO PREMIUM   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  106

ARTICLE XIV        ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  107

14.1     ELIGIBILITY DETERMINATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  107
14.2     ENROLLMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  109
14.3     DISENROLLMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  109
14.4     AUTOMATIC RE-ENROLLMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  110
14.5     ENROLLMENT REPORTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  111

ARTICLE XV         GENERAL PROVISIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  111

15.1     INDEPENDENT CONTRACTOR   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  111
15.2     AMENDMENT    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  111
15.3     LAW, JURISDICTION AND VENUE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.4     NON-WAIVER   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.5     SEVERABILITY   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.6     ASSIGNMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.7     NON-EXCLUSIVE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.8     DISPUTE RESOLUTION   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.9     DOCUMENTS CONSTITUTING CONTRACT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  112
15.10    FORCE MAJEURE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113
15.11    NOTICES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113
15.12    SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113

ARTICLE XVI        DEFAULT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113

16.1     FAILURE TO PROVIDE COVERED SERVICES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  113
16.2     FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.3     HMO CERTIFICATE OF AUTHORITY   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.4     INSOLVENCY   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.5     FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.6     EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  114
16.7     MISREPRESENTATION, FRAUD OR ABUSE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  115
16.8     FAILURE TO MAKE CAPITATION PAYMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  115
16.9     FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS   . . . . . . . . . . . . . . . . . . . . . .  115
16.10    FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS   . . . . . . . . . . . . . . . . . . . . . .  115
16.11    FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR NETWORK PROVIDERS   . . . . . . . . . . . . .  115
</TABLE>





                                       iv

                                                    Dallas Service Area Contract
<PAGE>   5
<TABLE>
<S>                                                                                                                      <C>
ARTICLE XVII       NOTICE OF DEFAULT AND CURE OF DEFAULT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  115

ARTICLE XVIII      REMEDIES AND SANCTIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  116

18.1     TERMINATION BY TDH   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  116
18.2     TERMINATION BY HMO   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  117
18.3     TERMINATION BY MUTUAL CONSENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  117
18.4     DUTIES UPON TERMINATION OF CONTRACTING PARTIES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  118
18.5     STATE AND FEDERAL DAMAGES, PENALTIES AND SANCTIONS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  118
18.6     SUSPENSION OF NEW ENROLLMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  119
18.7     TDH INITIATED DISENROLLMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  119
18.8     LIQUIDATED MONEY DAMAGES - WITHHOLDING PAYMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  119
18.9     FORFEITURE OF TDI PERFORMANCE BOND   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  122

ARTICLE XIX        TERM   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  122
</TABLE>

                                       V

                                                    Dallas Service Area Contract
<PAGE>   6

                                   APPENDICES


APPENDIX A
                 Standards For Quality Improvement Programs

APPENDIX B
                 HUB Progress Assessment Reports

APPENDIX C
                 Scope of Services

APPENDIX D
                 Family Planning Providers

APPENDIX E
                 Transplant Facilities

APPENDIX F
                 Trauma Facilities

APPENDIX G
                 Hemophilia Treatment Centers And Programs

APPENDIX H
                 Utilization Management Report - Behavioral Health

APPENDIX I
                 Managed Care Financial-Statistical Report

APPENDIX J
                 Utilization Management Report - Physical Health

APPENDIX K
                 Preventive Health Performance Objectives

APPENDIX L
                 Cost Principles For Administrative Expenses

APPENDIX M
                 Required Critical Elements





                                       vi

                                                    Dallas Service Area Contract
<PAGE>   7
                                                       TDH Document No. ________


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




This contract is entered into between the Texas Department of Health (TDH) and
AMERICAID Texas, Inc.  (HMO).  The purpose of this contract is to set forth the
terms and conditions for HMO's participation as a managed care organization in
the TDH STAR Program (STAR or STAR Program).  Under the terms of this contract
HMO will provide comprehensive health care services to qualified and eligible
Medicaid recipients through a managed care delivery system.  This is a
risk-based contract.  HMO was selected to provide services under this contract
under the Professional Services Procurement Act, Government Code, Title 10,
Section 2254.001 et. seq.  HMO's selection for this contract was based upon
HMO's Application submitted in response to TDH's 1998 Request for Application
(RFA). Representations and responses contained in HMO's Application are
incorporated into and are enforceable provisions of this contract.

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


ARTICLE I                 PARTIES AND AUTHORITY TO CONTRACT


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

1.2              HMO is a corporation with authority to conduct business in the
                 State of Texas and has a certificate of authority from the
                 Texas Department of Insurance (TDI) to operate as a Health
                 Maintenance Organization (HMO) under Chapter 20A of the





                                       1

                                                    Dallas Service Area Contract
<PAGE>   8
                 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 enrolled provider in the Texas
                 Medical Assistance Program (Medicaid).

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

1.4              Readiness Review.  This contract is subject to TDH's Readiness
                 Review of HMO. Under the provisions of Human Resources Code
                 Section 32.043(a), TDH is required to review all HMOs with
                 whom it contracts to determine whether HMO has complied with
                 the TDH/HMO contract and/or can continue to meet all contract
                 obligations.

1.4.1            Readiness review will be conducted through:  on-site
                 inspection of service authorization, claims payment systems,
                 complaint-processing systems, and other processes or systems
                 required by the contract, as determined by TDH; and, by review
                 of HMO's compliance with contract requirements in the
                 preceding and existing contract, including claims payment,
                 complaints received/resolved, encounter data submission and
                 other required reports.

1.4.2            TDH will provide HMO with written notice of the elements and
                 scheduling of the reviews, any deficiencies which must be
                 corrected, and the timeline by which deficiencies must be
                 corrected.

1.4.3            TDH may discontinue enrollment of Members into HMO if the
                 Readiness Review reveals that HMO is not currently prepared to
                 meet its contractual obligations or has failed to correct or
                 cure defaults under the provisions of Article XVII.

1.5              Implementation Plan.  Texas Government Code Section 533.007(b)
                 requires that each HMO that contracts with TDH to provide
                 health care services to recipients in a service area must
                 submit an implementation plan not later than the 90th day
                 before the Implementation Date in the service area.

1.5.1            The implementation plan must include, but not be limited to:
                 1) staffing patterns by function for all operations, including
                 enrollment, information systems, member services, quality
                 improvement, claims management, case management, and provider
                 and recipient training, and, 2) specific time frames for
                 demonstrating preparedness for implementation before the
                 Implementation Date in the service area.

1.5.2            TDH will respond to an implementation plan not later than the
                 10th day after the date HMO submits the plan if the plan does
                 not adequately meet preparedness guidelines.





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                                                    Dallas Service Area Contract
<PAGE>   9
1.5.3            HMO must submit status reports on the implementation plan not
                 later than the 60th day and the 30th day before the
                 Implementation Date in the service area every 30th day after
                 the Implementation Date, until the 180th day after the
                 Implementation Date.

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


ARTICLE II                DEFINITIONS


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.

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

Adjudicate means to deny or pay a clean claim.

AFDC and AFDC-related means the federally funded program that provides
financial assistance to single-parent families with children who meet the
categorical requirements for aid.  This program is now called Temporary
Assistance to Needy Families (TANF).

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

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

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

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





                                       3

                                                    Dallas Service Area Contract
<PAGE>   10
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 services used by the enrolled Member.

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

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

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

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

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

Complaint means any dissatisfaction, expressed by a complainant orally or in
writing to HMO, with any aspect of HMO's operation, including but not limited
to dissatisfaction with plan administration; an appeal of an adverse
determination to HMO; the way a service is provided; or disenrollment decisions
expressed by a complainant.  A complaint is not a misunderstanding or
misinformation that is resolved promptly by supplying the appropriate
information or clearing up the misunderstanding to the satisfaction of the
Member, or a request for a fair hearing to TDH.

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

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

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





                                       4

                                                    Dallas Service Area Contract
<PAGE>   11
Contract anniversary date means September 1 of each year after the first year
of this contract, regardless of the date of execution or effective date of the
contract.

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

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

Day means calendar day unless specified otherwise.

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

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

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

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

Effective date of the contract means the day on which this contract is signed
and the 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.

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:





                                       5

                                                    Dallas Service Area Contract
<PAGE>   12
         (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 group of services delivered by a provider
to a Member during a visit between the Member and provider.  This also includes
value-added services.

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

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

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

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

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

Fair hearing means a due process hearing conducted by the Texas Department of
Health that complies with 25 TAC Section 1.51 et. seq.  and federal rules found
at 42 CFR Subpart E, relating to Fair Hearings for Applicants and Recipients.

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

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.





                                       6

                                                    Dallas Service Area Contract
<PAGE>   13
Health care services or health services means physical medicine and
health-related services which an enrolled population might reasonably require
in order to be maintained in good health, including, as a minimum, emergency
services and inpatient and outpatient services.

Implementation Date means the first date that Medicaid managed care services
are delivered to Members in each of the counties 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.

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 tuberculosis control program means a tuberculosis program that is managed
by a local or regional health department.

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

Major population group is defined by federal guidelines as a group comprising
10% or more of HMO's Medicaid service population.

Medical education refers to the State-supported allopathic medical schools and
schools of osteopathic medicine, their teaching institutions and faculties,
those entities that have Primary Care Residency Programs approved by the
Accreditation Council for Graduate Medical Education.

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

Medically necessary behavioral health 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 or supply of service which can safely
         be provided; and





                                       7

                                                    Dallas Service Area Contract
<PAGE>   14
(e)      could not be omitted without adversely affecting the Member's mental
         and/or physical health or the quality of care rendered.

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

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

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

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

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

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

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

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

MIS means management information system.

NorthSTAR means a behavioral health carve-out program operating only in the
Dallas Service Area and administered by the Texas Commission on Alcohol and
Drug Abuse and the Texas Department of Mental Health and Mental Retardation.

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

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

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





                                       8

                                                    Dallas Service Area Contract
<PAGE>   15
Primary care physician or primary care provider (PCP) means a physician or
provider who has agreed with HMO to provide a medical home to Members and who
is responsible for providing initial and primary care to patients, maintaining
the continuity of patient care, and initiating referral for care (also see
Medical home).

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

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

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.

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

RFA means Request For Application issued by TDH on June 17, 1998, and all RFA
addenda, corrections or modifications.

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

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

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

Significant traditional provider (STP) means all hospitals receiving
disproportionate share hospital funds (DSH) in FY '95 and all other providers
in a county that, when listed by provider type in descending order by the
number of recipient encounters, provided the top 80 percent of recipient
encounters for each provider type in FY '95.

Special hospital means an establishment that:

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





                                       9

                                                    Dallas Service Area Contract
<PAGE>   16
(b)      has clinical laboratory facilities, diagnostic x-ray facilities,
         treatment facilities, or other definitive medical treatment;

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

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

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

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

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

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

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

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

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

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

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

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

Texas Health Steps (THSteps) is the name adopted by the State of Texas for the
federally mandated Early and Periodic Screening, Diagnosis and Treatment
(EPSDT) program.  It includes the State's Comprehensive Care Program extension
to EPSDT, which adds benefits to the federal EPSDT





                                       10

                                                    Dallas Service Area Contract
<PAGE>   17
requirements contained in 42 United States Code Section 1396d(r), and defined
and codified at 42 C.F.R. Section 440.40 and Sections 441.56-62. TDH's rules
are contained in 25 TAC, Chapter 33 (relating to Early and Periodic Screening,
Diagnosis and Treatment).

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

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

THHSC means the Texas Health and Human Services Commission.

THSteps means Texas Health Steps.

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

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

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

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

Urgent behavioral health situations means conditions which require attention
and assessment within 24 hours but which do not place the Member in immediate
danger to themselves or others and the Member is able to cooperate with
treatment.

Urgent condition means a health condition 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 services which were not included in the RFA as
mandatory covered services, but which were submitted by HMO with its response
to the RFA and which have been approved by TDH to be included in this contract
as value-added services in Appendix C - Scope of Services.  These services must
be provided to all mandatory Members as part of the covered services





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under this contract.  No additional capitation will be paid for these services,
under the current capitation rate.


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.  Member Advocates for the service area must be
                 located in this office.  (See Article 8.8.)

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

3.1.5            By Phase I of Readiness Review, HMO submit a current
                 organizational chart showing basic functions, the number of
                 employees for those functions, and a list of key managers in
                 HMO who are responsible for the basic functions of the
                 organization. HMO must notify TDH within fifteen (15) working
                 days of any change in key managers or Subcontractors.  This
                 information must be updated annually or when there is a
                 significant change in organizational structure or personnel.

                 HMO shall submit a description and organizational chart which
                 illustrates how physical health services administration will
                 be coordinated with behavioral health administration in
                 NorthStar plans, including individuals assigned to be liaisons
                 to NorthSTAR plans.

3.1.6            Participation in Regional Advisory Committee.  HMO must
                 participate on a Regional Advisory Committee established in
                 the service area in compliance with the Texas Government Code,
                 Sections 533.021-533.029.  The Regional Advisory Committee in
                 each managed care service area must include representatives
                 from at least the following entities: hospitals; managed care
                 organizations; primary care providers; state agencies;
                 consumer advocates; Medicaid recipients; rural providers;
                 long-term care





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                 providers; specialty care providers, including pediatric
                 providers; and political subdivisions with a constitutional or
                 statutory obligation to provide health care to indigent
                 patients.  HHSC and TDH will determine the composition of each
                 Regional Advisory Committee.

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

3.2              NON-PROVIDER SUBCONTRACTS

3.2.1            HMO must enter into written contracts with all Subcontractors
                 and maintain copies of the subcontracts in HMO's
                 administrative office.  HMO must make non-provider
                 subcontracts available to TDH upon request, at the time and
                 location requested by TDH.  Additionally, all HMO non-provider
                 subcontracts, including all intermediary subcontracts down to
                 the actual provider of services, relating to the delivery or
                 payment of covered health services must be submitted to TDH no
                 later than 120 days prior to the Implementation Date.

3.2.1.1          HMO must notify TDH 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 TDH approval. TDH may require HMO to
                 provide a transition plan describing how care will continue to
                 be provided to Members.   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 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 with 48 hours of the
                 request.  All requested records must be provided free of
                 charge.

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





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

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

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

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

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

3.2.4.5          This contract 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 within the form and the
                 language requested.  HMO employees and contractors and
                 Subcontractors and their employees and contractors must
                 cooperate fully in making themselves available in person for
                 interviews, consultation, grand jury proceedings, pretrial
                 conference, hearings, trial and in any other process,
                 including investigations.  Compliance with this Article is at
                 HMO's and subcontractors' own expense.

3.2.6            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





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

3.3              MEDICAL DIRECTOR

3.3.1            HMO must have a full-time physician (M.D. or D.O.) licensed in
                 Texas, to serve as Medical Director.  HMO must enter into a
                 written contract or written employment agreement with the
                 Medical Director describing the following authority, duties
                 and responsibilities:

3.3.1.1          Ensure that medical decisions, including prior authorization
                 protocols, are rendered by qualified medical personnel and are
                 based on TDH's definition of medical necessity.

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 TDH fair hearing process.

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

3.4              PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS

3.4.1            HMO and its subcontractors must receive written approval from
                 TDH for all written materials containing information about the
                 STAR Program prior to distribution to Members, prospective
                 Members, providers within HMO's network, or potential
                 providers who HMO intends to recruit as network providers.

3.4.2            Member materials must meet cultural and linguistic
                 requirements as stated in Article VIII. Unless otherwise
                 required, Member materials must:





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<PAGE>   22

3.4.2.1          be written at a 4th - 6th grade reading comprehension level;
                 and

3.4.2.2          be translated into the language of any major population group.

3.4.3            All materials regarding the STAR Program must be submitted to
                 TDH for approval prior to distribution.  TDH has 15 working
                 days to review the materials and recommend any suggestions or
                 required changes.  If TDH has not responded to HMO by the
                 fifteenth day, HMO may submit a written request for deemed
                 approval.  Requests for deemed approval must clearly identify
                 the materials for which deemed approval is requested by title
                 of document, date of submission, and the timelines for
                 publication and distribution.  TDH must respond in writing
                 within two working days from the date a deemed approval
                 request is received.  TDH reserves the right to request HMO to
                 modify plan materials.

3.4.4            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.

3.4.5            HMO must provide TDH with at least five copies of all written
                 materials that HMO is required to submit under this contract,
                 unless otherwise specified by TDH.

3.5              RECORDS REQUIREMENTS AND RECORDS RETENTION

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

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





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<PAGE>   23
                 accessible and made available within 10 calendar days from the
                 date of a request by TDH or the requesting agency or at a time
                 and place specified by the requesting entity.

3.5.3            Accounting Records.  HMO must create and keep accurate and
                 complete accounting records in compliance with 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, providers to create and keep medical records in
                 compliance with the medical records standards contained in the
                 Standards for Quality Improvement Programs in Appendix A.  All
                 medical records must be kept for at least five (5) years,
                 except for records of rural health clinics, which must be kept
                 for a period of six (6) years from the date of service.

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

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

3.6              HMO REVIEW OF TDH MATERIALS

                 TDH will submit all studies or audits that relate or refer to
                 HMO for review and comment to HMO 15 days prior to releasing
                 the report to the public or to Members.


ARTICLE IV                FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS


4.1              FISCAL SOLVENCY





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<PAGE>   24
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, provide services under this contract,
                 or if HMO becomes aware of a take-over or assignment which
                 would require approval of TDI or TDH, HMO must notify TDH
                 immediately in writing.

4.1.3            HMO must not have been placed under state conservatorship or
                 receivership or filed for protection under federal bankruptcy
                 laws.  None of HMO's property, plant or equipment must have
                 been subject to foreclosure or repossession within the
                 preceding 10-year period.  HMO must not have any debt declared
                 in default and accelerated to maturity within the preceding
                 10-year period.  HMO represents that these statements are true
                 as of the contract execution date.  HMO must inform TDH within
                 24 hours of a change in any of the preceding representations.

4.2              MINIMUM EQUITY

4.2.1            HMO has minimum equity equal 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.
                 Equity is calculated by subcontracting accrued liabilities
                 from admitted assets, as those terms are defined in 28 TAC
                 Section 11.806 and Section 11.2(b) respectively.

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

4.3              PERFORMANCE BOND

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

4.4              INSURANCE





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                                                    Dallas Service Area Contract
<PAGE>   25
4.4.1            HMO must maintain or cause to be maintained general liability
                 insurance in the amounts of at least $1,000,000 per occurrence
                 and $5,000,000 in the aggregate.

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

4.4.3            HMO must maintain an umbrella professional liability insurance
                 policy for the greater of $3,000,000 or an amount (rounded to
                 the next $100,000) which represents the number of STAR Members
                 enrolled in HMO in the first month of the contract year
                 multiplied by $150, not to exceed $10,000,000.

4.4.4            Any exceptions to the requirements of this Article must be
                 approved in writing by TDH prior to the contract
                 Implementation Date.  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 contract
                 Implementation Date.  State and federal units of government
                 are required to comply with and are subject to the provisions
                 of the Texas or Federal Tort Claims Act.

4.5              FRANCHISE TAX

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

4.6              AUDIT

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

4.6.2            TDH is required to conduct an audit of HMO at least once every
                 three years.  HMO is responsible for paying the costs of an
                 audit conducted under this Article.  The costs of the audit
                 may be allowed as a credit against premium taxes paid by HMO
                 under the provisions of the Texas Insurance Code.

4.7              PENDING OR THREATENING LITIGATION

                 HMO must require disclosure from Subcontractors and network
                 providers of all pending or potential litigation or
                 administrative actions against the Subcontractor or network
                 provider and must disclose this information to TDH, in
                 writing, prior to the





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                                                    Dallas Service Area Contract
<PAGE>   26
                 execution of prior contracts and this renewal.  HMO must make
                 reasonable investigation and inquiry that there is not pending
                 or potential litigation or administrative action against the
                 providers or Subcontractors in HMO's provider network.  HMO
                 must notify TDH of any litigation which is initiated or
                 threatened after the Implementation Date within seven days of
                 receiving service or becoming aware of the threatened
                 litigation.

4.8              MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO
                 OPERATIONS

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

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

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

4.9              THIRD PARTY RECOVERY

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

4.9.2            Identification.  HMO must develop and implement systems and
                 procedures to identify potential third parties who may be
                 liable for payment of all or part of the costs for providing
                 medical services to Members under this contract.  Potential
                 third parties must include any of the sources identified in 42
                 C.F.R. 433.138, relating to identifying third parties, except
                 workers' compensation, uninsured and underinsured motorist





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                                                    Dallas Service Area Contract
<PAGE>   27
                 insurance, first and third party liability insurance and
                 tortfeasors.  HMO must coordinate with TDH to obtain
                 information from other state and federal agencies and HMO must
                 cooperate with TDH in obtaining information from commercial
                 third party resources.  HMO must require all providers to
                 comply with the provisions of 25 TAC Section 28, relating to
                 Third Party Recovery in the Medicaid program.

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

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

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

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

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

4.9.6            Accountability.  HMO must report all third party recovery
                 efforts and amounts recovered as required in 12.1.10.  If HMO
                 fails to pursue and recover from third parties no later 180
                 days after the date of service, TDH may pursue third party
                 recoveries and retain all amounts recovered without accounting
                 to HMO for the amounts recovered.  Amounts recovered by TDH
                 will be added to expected third





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<PAGE>   28
                 party recoveries to reduce future capitation rates, except
                 recoveries from those excepted third party resources listed in
                 4.9.3.

4.10             CLAIMS PROCESSING REQUIREMENTS

4.10.1           HMO and claims processing subcontractors must comply with
                 TDH's Texas Managed Care Claims Manual (Claims Manual), which
                 contains TDH's claims processing requirements.

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

4.10.3           HMO must not pay any claim submitted by a provider who is
                 under investigation for or has been excluded or suspended from
                 the Medicare or Medicaid programs for fraud and abuse when HMO
                 is on actual or constructive notice of the investigation,
                 exclusion or suspension.

4.10.4           All provider clean claims must be adjudicated (finalized as
                 paid or denied adjudicated) within 30 days from the date the
                 claim is received by HMO. HMO must pay providers interest on
                 a clean claim which is not adjudicated within 30 days from the
                 date the claim is received by HMO or becomes clean at a rate
                 of 1.5% per month (18% annual) for each month the clean claim
                 remains unadjudicated.

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

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

4.10.4.3         HMO must identify each data field of each claim form that is
                 required from the provider in order for HMO to adjudicate the
                 claim.  HMO must inform all network providers about the
                 required fields at least 30 days prior to the service area
                 Implementation Date or as a provision within HMO/provider
                 contract.  Out of network providers must be informed of all
                 required fields if the claim is denied for





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                 additional information.  The required fields must include
                 those required by HMO and TDH.

4.10.5           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.

4.10.6           HMO must offer to its Subcontractors the option of submitting
                 and receiving claims information through electronic data
                 interchange (EDI) that allows for automated processing and
                 adjudication of claims.  EDI processing must be offered as an
                 alternative to the filing of paper claims.

4.11             INDEMNIFICATION

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

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

4.11.1.2         Claims arising from HMO's, HMO's network provider's or other
                 Subcontractor's negligent or intentional conduct in providing
                 services under this contract.

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

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

ARTICLE V                 STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

5.1              COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS

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





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

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

5.2              PROGRAM INTEGRITY

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

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

5.3              FRAUD AND ABUSE COMPLIANCE PLAN

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

5.3.2            HMO must submit a written compliance plan to TDH for approval
                 at least 150 days prior to the Implementation Date.  HMO must
                 submit any updates or modifications to TDH for approval at
                 least 30 days prior to modifications going into effect.

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





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                 plan must contain procedures designed to prevent and detect
                 potential or suspected abuse and fraud in the administration
                 and delivery of services under this contract. The plan must
                 contain provisions for the confidential reporting of plan
                 violations to the designated person.  The plan must contain
                 provisions for the investigation and follow-up of any
                 compliance plan reports.  The fraud and abuse compliance plan
                 must ensure that the identity of individuals reporting
                 violations of the plan is protected.  The plan must contain
                 specific and detailed internal procedures for officers,
                 directors, managers and employees for detecting, reporting,
                 and investigating fraud and abuse compliance plan violations.
                 The compliance plan must require that confirmed violations be
                 reported to TDH.

5.3.2.2          The plan must require any confirmed or suspected fraud and
                 abuse under state or federal law be reported to TDH, the
                 Medicaid Program Integrity section of the Office of
                 Investigations and Enforcement of the Texas Health and Human
                 Services Commission, and/or the Medicaid Fraud Control Unit of
                 the Texas Attorney General.   The written plan must ensure
                 that no individual who reports plan violations or suspected
                 fraud and abuse is retaliated against.

5.3.3            HMOs must comply with the requirements of the Model Compliance
                 Plan for HMOs when this model plan is issued by the U.S.
                 Department of Health and Human Services, the Office of
                 Inspector General (OIG).  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.  Training must be scheduled not later than 150 days
                 before the Implementation Date, and completed by all
                 designated personnel not later than 60 days before the
                 Implementation Date.

5.3.4            HMO must designate an officer or director in its organization
                 who has the responsibility and authority for carrying out the
                 provisions of the fraud and abuse compliance plan.

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

5.3.6            HMO must allow the Texas Medicaid Fraud Control Unit 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.

5.4              SAFEGUARDING INFORMATION





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

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

5.4.3            HMO is responsible for educating Members and providers
                 concerning the Human Immunodeficiency Virus (HIV) and its
                 related conditions including Acquired Immunodeficiency
                 Syndrome (AIDS). PCP must develop and implement a policy for
                 protecting the confidentiality of AIDS and HIV- related
                 medical information and an anti-discrimination policy for
                 employees and Members with communicable diseases.  See also
                 Health and Safety Code, Chapter 85, Subchapter E relating to
                 Duties of State Agencies and State Contractors.

5.4.4            HMO must require, through contractual provisions, 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).





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

5.5.4            HMO SHALL NOT DISCRIMINATE WITH RESPECT TO PARTICIPATION,
                 REIMBURSEMENT, OR INDEMNIFICATION AS TO ANY PROVIDER WHO IS
                 ACTING WITHIN THE SCOPE OF THE PROVIDER'S LICENSE OR
                 CERTIFICATION UNDER APPLICABLE STATE LAW, SOLELY ON THE BASIS
                 OF SUCH LICENSE OR CERTIFICATION.  THIS REQUIREMENT SHALL NOT
                 BE CONSTRUED TO PROHIBIT HMO FROM INCLUDING PROVIDERS ONLY TO
                 THE EXTENT NECESSARY TO MEET THE NEEDS OF THE HMO'S MEMBERS OR
                 FROM ESTABLISHING ANY MEASURE DESIGNED TO MAINTAIN QUALITY AND
                 CONTROL COSTS CONSISTENT WITH HMO'S RESPONSIBILITIES.

5.6              HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)

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

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

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

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

5.7              BUY TEXAS

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

5.8              CHILD SUPPORT

5.8.1            The Texas Family Code Section 231.006 requires TDH to withhold
                 contract payments from any for-profit entity or individual who
                 is at least 30 days delinquent in child support obligations.
                 It is HMO's responsibility to determine and verify that no
                 owner, partner, or shareholder who has at least at 25%
                 ownership interest is delinquent in





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<PAGE>   34
                 child support obligations.  HMO must attach a list of the
                 names and Social Security numbers of all shareholders,
                 partners or owners who have at least a 25% ownership interest
                 in HMO.

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

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

5.9              REQUESTS FOR PUBLIC INFORMATION

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

5.9.2            If HMO believes that the requested information qualifies as a
                 trade secret, commercial or financial information, HMO must,
                 within two (2) working days of HMO's receipt of the request,
                 notify TDH of the specific text, or portion of text, which HMO
                 claims is excepted from required public disclosure.  HMO is
                 required to identify the specific provisions of the Act which
                 HMO believes are applicable, and is required to include a
                 detailed written explanation of how the exceptions apply to
                 the specific information identified by HMO as confidential and
                 excepted from required public disclosure.

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





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                 with specific reasons why the requested information is exempt
                 from the required public disclosure.  TDH or the Office of the
                 Attorney General will notify all interested parties if an AG
                 opinion is requested.

5.10             NOTICE AND APPEAL

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


ARTICLE VI                SCOPE OF SERVICES


6.1              SCOPE OF SERVICES - GENERAL

                 HMO must provide or arrange to have provided to Members all
                 health care services listed in Appendix C - Scope of Services,
                 which is attached and incorporated into this contract.  HMO
                 must also provide or arrange to have provided to mandatory
                 Members all value-added services listed in HMO's response to
                 the RFA for this contract.  The RFA and responses are
                 incorporated into this contract by reference.

6.2              PRE-EXISTING CONDITIONS

                 HMO is responsible for providing all covered services to each
                 eligible Member beginning on the Implementation Date 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

                 HMO must provide all services to Members assigned to HMO under
                 this contract for all periods for which HMO has received
                 payment, except as follows:

6.3.1            Inpatient admission prior to enrollment in HMO.  HMO is
                 responsible for payment of physician and non-hospital services
                 from the date of enrollment in HMO. HMO is not responsible for
                 hospital charges for Members admitted prior to enrollment.

6.3.2            Inpatient admission after enrollment in HMO.  HMO is
                 responsible for all services until the Member is discharged
                 from the hospital, unless the Member loses Medicaid or STAR
                 eligibility.  In such cases, HMO is liable for all services
                 during the period HMO is paid capitation for the Member.





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<PAGE>   36
6.3.3            Discharge after voluntary disenrollment from HMO and
                 re-enrollment into a new HMO.  HMO remains responsible for
                 payment of hospital charges until the Member is discharged.
                 HMO to whom Member transfers is responsible for payment of all
                 physician and non-hospital charges beginning on the effective
                 date of enrollment into the new HMO.

6.3.4            Newborns.  HMO is responsible for all costs, including
                 hospital, physician and non-hospital costs attributed to the
                 care to a newborn child if the mother was enrolled in HMO on
                 the date of birth.

6.3.5            Hospital Transfer.  Discharge from one hospital and
                 readmission or admission to another hospital within 24 hours
                 for continued treatment shall not be considered discharge
                 under this Article.

6.3.6            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
                 the 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.  Payment amounts must be the amount HMO
                 pays a comparable network provider, an amount negotiated
                 between the out-of-network provider and HMO, or the Medicaid
                 fee-for-service amount.  This Article does not extend the
                 obligation of HMO to reimburse existing out-of-network
                 providers of ongoing care for more than 90 days after Member
                 enrolls in HMO or for more than nine months in the case of
                 Member who at the time of enrollment in HMO, have been
                 diagnosed with a terminal illness.  However, the obligation of
                 HMO to reimburse the existing out-of-network provider for
                 services provided to a pregnant Member with 12 weeks or less





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<PAGE>   37
                 remaining before the expected delivery date extends through
                 delivery of the child, immediate postpartum care, and the
                 follow-up checkup within the first six weeks of delivery.

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

6.5              EMERGENCY SERVICES

6.5.1            HMO must provide or arrange to have provided, and pay for
                 emergency services.  Emergency services includes all emergency
                 facility charges related to behavioral health diagnoses except
                 those charges by specialized behavioral health emergency
                 facilities.  HMO cannot require prior authorization as a
                 condition for payment for emergency services.  HMO must have a
                 system for providers to verify Member enrollment in HMO 24
                 hours a day, 7 days a week.

6.5.2            HMO must provide emergency services 24 hours a day, 7 days a
                 week, at a hospital, by access to physician consultation or
                 emergency medical care through HMO's own facilities or through
                 arrangements approved by TDH with other providers.  HMO must
                 provide conveniently located emergency services sites for
                 providing after-hour emergency services.

6.5.3            HMO must have emergency and crisis hotline services available
                 24 hours a day, 7 days a week toll-free throughout the service
                 area.  Staff must be qualified to assess the immediate health
                 care needs and determine whether an emergency condition exists
                 and provide triage, advice, and referral and, if necessary,
                 arrange for treatment of the Member.  Crisis hotline staff
                 must include or have access to qualified behavioral health
                 professionals to assess behavioral health emergencies.  It is
                 not acceptable for an emergency intake line to be answered by
                 an answering machine.

6.5.4            HMO must develop and maintain an educational program to ensure
                 that Members understand what is an emergency medical condition
                 and know where and how to obtain medically necessary services
                 in emergency situations, 24 hours a day, seven days a week.

6.5.5            HMO must include in its provider network TDH designated trauma
                 centers which are within the service area.

6.5.6            HMO must coordinate with emergency response systems in the
                 community, including the police, fire and EMS departments,
                 child protective services, and chemical dependency emergency
                 services.





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6.5.7            HMO must pay for emergency services provided to Members inside
                 or outside of HMO's provider network and service area.  HMO
                 must pay reasonable and customary reimbursement amounts for
                 providers and emergency services required to assess whether an
                 emergency exists, and deliver emergency services required.

6.5.8            HMO may establish reasonable deadlines for providers to submit
                 claims for out-of-network and out of service area emergency
                 services.  HMO must pay out-of-network and service-area
                 provider clean claims within 30 days from HMO's receipt of a
                 clean claim.

6.5.9            HMO must provide a written copy of its policies and procedures
                 for emergency admissions to TDH for approval not later than 90
                 days prior to the Implementation Date.  Modifications or
                 amendments to policies and procedures must be submitted to TDH
                 for approval at least 60 days prior to the implementation of
                 the modification or amendment.

6.6              BEHAVIORAL HEALTH SERVICES - SPECIFIC REQUIREMENTS

6.6.1            HMO must provide or arrange to provide to Members all
                 Behavioral Health Services listed in Appendix C - Scope of
                 Services, which is attached and incorporated into this
                 contract.

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

6.6.3            HMO must require its PCPs to have medical history, screening
                 and evaluation procedures for behavioral health problems and
                 disorders and either treat or refer the Member for evaluation
                 and treatment of known or suspected behavioral health problems
                 and disorders.  PCPs may provide any clinically appropriate
                 behavioral health services within the scope of their practice.

6.6.4            HMO must establish policies and procedures that require PCP
                 and behavioral health providers to coordinate HMO and
                 behavioral health organization (BHO) covered services.

6.6.5            HMO must have policies and procedures which allow confidential
                 information to be shared by the PCP and the primary behavioral
                 health care provider.

6.6.6            HMO must execute a Memorandum of Agreement (MOA) with
                 NorthStar-contracted BHOs in the service area.  The MOA must
                 contain provisions for coordination of care and must address
                 the following:

6.6.6.1          How HMO and BHO will provide education to Members regarding
                 the services that each will provide and how the Member can
                 access the services;





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<PAGE>   39
6.6.6.2          How HMO and BHO will provide education and information to
                 providers regarding which entity is responsible for claims
                 processing and payment;

6.6.6.3          How emergency services will be paid and coordinated;

6.6.6.4          Guidelines and procedures to monitor accessibility,
                 availability, referral and coordination to medically necessary
                 and appropriate physical and behavioral health care for
                 Members with both physical and behavioral health problems; and
                 how claims will be processed and paid;

6.6.6.5          Members utilization of prescribed medicines from both HMO and
                 BHO to monitor psychopharmacological medications and prevent
                 adverse drug reactions;

6.6.6.6          Identify persons in HMO and BHO to coordinate services and
                 provide assistance to their respective providers;

6.6.6.7          How each entity will provide guidelines and education to
                 providers regarding the exchange of confidential medical
                 record information, with Member permission, between the PCPs
                 and the primary behavioral health providers, including
                 mechanisms to protect confidentiality of medical records;

6.6.6.8          Collaboration on any joint Quality Improvement studies,
                 reviews or other State required projects.

6.6.7            HMO must establish and implement policies and procedures to
                 allow its network PCPs to refer Members for BHO services by
                 contacting HMO's contact person with the BHO.

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

6.7              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 provided counseling and
                 education.  HMO must provide 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 of the





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                 community in developing, planning and implementing family
                 planning outreach programs.

6.7.2            Freedom of Choice.  HMO must ensure that the Member has the
                 right to choose any Medicaid participating family planning
                 provider in or out of its network (family planning providers
                 are listed in Appendix D).  HMO must provide Member access to
                 information about the providers of family planning services
                 available in the network 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 TDH Family Planning
                 Service Delivery Standards.  HMO must provide, at minimum, the
                 full scope of services available under the Texas Medicaid
                 program for family planning services.  HMO will reimburse
                 out-of- network family planning providers the Medicaid fee-for
                 service amounts for family planning services only.

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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<PAGE>   41
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).

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

6.8              TEXAS HEALTH STEPS (THSteps - formerly EPSDT)

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

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

6.8.3            Provider education and training.  HMO must provide appropriate
                 training to all network providers and provider staff in the
                 providers' area of practice regarding the scope of benefits
                 available and the THSteps program.  Training must include
                 THSteps benefits, the periodicity schedule for THSteps
                 checkups and immunizations, and services available under the
                 THSteps program which are not available to all Medicaid
                 recipients and are available to ensure that Members can comply
                 with the periodicity schedule, including but not limited to
                 transportation, dental checkups, and CCP.  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.





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6.8.4            Member Outreach.  HMO must provide an outreach unit that works
                 with Members to ensure they receive prompt services and are
                 knowledgeable about available Texas Health Step services.
                 Outreach staff must coordinate with TDH Texas Health Step
                 outreach staff to ensure that Members have access to the
                 Medical Transportation Program, and that any coordination with
                 other agencies is maintained.  MTP will not transport Members
                 to value-added services offered by HMO.

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

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

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

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

6.8.9            Immunizations and Laboratory Tests.  HMO must require
                 providers to comply with the THSteps program requirements for
                 submitting laboratory tests to the TDH Bureau of Laboratories
                 or the Texas Center for Infectious Disease Cytopathology
                 Laboratory Department.

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





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6.8.9.2          Vaccines for Children Program.  Registered providers can also
                 receive the vaccines free from TDH through the Vaccines for
                 Children Program (VFC).   These vaccines are supplied to
                 provider offices through local and state public health
                 departments. (Please refer to Texas Medicaid Service Delivery
                 Guide, pages 4-9.)

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

6.8.11           Compliance with THSteps performance milestones.  TDH will
                 establish performance milestones against which HMO's full
                 compliance with the THSteps periodicity schedule will be
                 measured. The performance milestones will establish minimum
                 compliance measures which will increase over time.  HMO must
                 meet all performance milestones required for THSteps services.
                 HMO must submit all THSteps reports and encounters as required
                 under this contract.  Failure to meet or exceed the
                 performance milestones 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 milestones 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.

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

6.9              PERINATAL SERVICES

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

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

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





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

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

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

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

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

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

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

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

6.9.4.1          48 hours following an uncomplicated vaginal delivery and,

6.9.4.2          96 hours for an uncomplicated caesarian delivery.

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

6.9.6            HMO is responsible for all services provided to the newborn
                 unless and until the newborn is enrolled into another plan.

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





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<PAGE>   45
                 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. 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 (See Article
                 7.15.4.2).





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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           HMO may use the nutrition education provided by WIC to satisfy
                 health education and promotion 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 listed in Appendix C
                 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 or
                 environmental conditions.  HMO must consult with the local TB
                 control program to ensure that all services and treatments
                 provided by HMO are in compliance with the guidelines
                 recommended by the American Thoracic Society (ATS) and the
                 Centers for Disease Control and Prevention (CDC) and TDH
                 policies and standards.

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

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

6.12.4           Coordination and cooperation with the local TB control
                 program.  HMO must coordinate with the local TB control
                 program to ensure that Members with confirmed or suspected TB
                 have a contact investigation and receive directly observed
                 therapy. HMO must require, through contract provisions, that
                 providers report any Member who is non-compliant, drug
                 resistant, or who is or may be posing a public health threat
                 to TDH or the local TB control program. HMO must cooperate
                 with local TB





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                                                    Dallas Service Area Contract
<PAGE>   47
                 control program in enforcing the control measures and
                 quarantine procedures contained in Chapter 81 of the Texas
                 Health and Safety Code.

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

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

6.12.4.3         HMO may contract with the local TB control programs to perform
                 any of the capitated services required in this Article.

6.13             PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS

6.13.1           HMO shall provide the following services to persons with
                 disabilities or chronic or complex conditions.  These services
                 are in addition to the services listed in Appendix C - Scope
                 of Services.

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

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

6.13.4           HMO must provide primary care and specialty care provider
                 network for persons with disabilities or chronic or complex
                 conditions.  Specialty and subspecialty providers serving all
                 Members must be Board Certified/Board Eligible in their
                 specialty.  HMO





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                                                    Dallas Service Area Contract
<PAGE>   48
                 may request exceptions from TDH for approval of traditional
                 providers who are not board-certified or board-eligible but
                 who otherwise meet HMO's credentialing requirements.

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

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

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

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

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

6.13.9.1         Participate in hospital discharge planning;

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





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                                                    Dallas Service Area Contract
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6.13.9.3         Develop specialty care and support service recommendations to
                 be incorporated into the primary care provider's plan of care;

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

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

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

6.13.11          HMO must assist eligible Members in accessing providers of
                 non-capitated Medicaid services listed in Appendix C, as
                 applicable.

6.13.12          HMO must require, through contract provisions, that Members
                 who require routine or regular laboratory and ancillary
                 medical tests or procedures to monitor disabilities or chronic
                 or complex conditions are provided the services by the
                 provider ordering the procedure or at a lab located at or near
                 the provider's office.

6.14             HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS

6.14.1           Group Needs Assessment.  HMO must conduct a group needs
                 assessment of enrolled STAR Members to determine Member health
                 education needs and literacy levels. HMO may cooperatively
                 conduct a group needs assessment of all enrolled STAR Members
                 with one or more HMOs also contracting with TDH in the service
                 area to provide services to Medicaid recipients.

6.14.2           Group Needs Assessment Report.  The Group Needs Assessment
                 Report is due six months after the Implementation Date.  The
                 Needs Assessment Report would include, but not be limited to,
                 demographic information, prevalence of health conditions, and
                 stated preferences for health education.

6.14.2.1         Group Needs Assessment Methodology Report and Preliminary
                 Health Education Plan.  The Group Needs Assessment Methodology
                 Report and the Preliminary Health Education Plan are due no
                 later than 30 days following the Implementation Date.  They
                 should be combined into one document.

6.14.2.1.1       Group Needs Assessment Methodology Report.  HMO must submit a
                 report to TDH summarizing the methodology, key activities,
                 timeline for implementation and HMO personnel responsible for
                 analyzing and interpreting results of the assessment and
                 establishing health education priorities.  The Group Needs
                 Assessment Methodology





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                                                    Dallas Service Area Contract
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                 must evidence use or planned use of local and/or state public
                 health department information resources and how HMO will
                 coordinate with the TDH regional office.

6.14.2.1.2       Preliminary Health Education Plan.  The Group Needs Assessment
                 Methodology Report must also include a preliminary health
                 education plan that uses local and/or state public health
                 department information resources.

6.14.3           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.  HMO must submit health education plan updates
                 annually.  The final Health Education Plan is due 30 days
                 after the Group Needs Assessment Report has been completed and
                 filed with TDH.

6.14.3.1         Member Education Materials.  Member education materials must
                 be approved in advance by TDH and must meet language and
                 reading level requirements.  Materials must be submitted to
                 TDH for approval not later than 90 days prior to the
                 Implementation Date.  Modifications or amendments to these
                 materials must be submitted for approval within 60 days prior
                 to their implementation.

6.14.3.2         Wellness Promotion Programs.  HMO must conduct wellness
                 promotion programs to improve the health status of its
                 Members.  HMO may cooperatively conduct Health Education
                 classes of all enrolled STAR members with one or more HMOs
                 also contracting with TDH in the service area to provide
                 services to Medicaid recipients in contiguous 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.

6.14.4           Implementation of Health Education and Wellness Plan.  HMO
                 must implement its health education and wellness plan.  The
                 plan could include health education classes targeted to the
                 needs of the Members, distribution of health education and
                 wellness promotion pamphlets, audiovisual programs, health
                 fairs, case management and one-





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                                                    Dallas Service Area Contract
<PAGE>   51
                 on-one education.  HMO staff has the option to provide the
                 education directly or through contracted vendors and/or
                 referrals to community agencies.  HMO may use the nutrition
                 education provided to WIC participants to satisfy nutrition
                 counseling requirements.

6.14.5           Health Education Activities Schedule.  HMO must submit a
                 proposed Health Education Activities Schedule to TDH or its
                 designee on the last day of the month prior to the beginning
                 of each State fiscal year quarter.  The schedule should
                 include the time and location of classes, health fairs or
                 other events covering all areas of the service area. HMO must
                 submit quarterly summary reports of health education
                 activities.  HMO must coordinate and integrate the health
                 education system with the quality improvement program.

                 HMO may cooperatively conduct Health Education classes of all
                 enrolled STAR members with one or more HMOs also contracting
                 with TDH in the service area to provide services to Medicaid
                 recipients in contiguous counties of the service area.

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

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

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

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

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

6.15.4           HMO must make education available to providers and Members on
                 the prevention, detection and effective treatment of STDs,
                 including HIV.

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





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

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

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

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

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

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

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





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6.16             BLIND AND DISABLED MEMBERS

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

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

6.16.2.1         Prior authorization of services;

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

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

6.16.2.4         Health education;

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

6.16.2.6         Quality assurance activities as needed and focused studies as
                 required by TDH;

6.16.2.7         Coordination to link Blind and Disabled Members with
                 applicable community resources and targeted case management
                 programs (see Non-Capitated Services in Scope of Services,
                 Appendix C).

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

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

ARTICLE VII            PROVIDER NETWORK REQUIREMENTS

7.1              PROVIDER ACCESSIBILITY





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

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

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

7.1.3.1          Urgent Care within 24 hours of request;

7.1.3.2          Routine care within 2 weeks of request;

7.1.3.3          Physical/Wellness Exams for adults must be provided within 8
                 to 10 weeks of the request;

7.1.3.4          HMO must establish policies and procedures to ensure that
                 THSteps Checkups be provided within 90 days of new enrollment,
                 except newborns should be seen within 2 weeks of enrollment,
                 and in all cases be consistent with the American Academy of
                 Pediatrics and/or THSteps periodicity schedule.  If the Member
                 does not request a checkup, HMO must establish a procedure for
                 contacting the Member to schedule the checkup.

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

7.2              PROVIDER CONTRACTS

7.2.1            HMO must enter into written contracts with all providers
                 (provider contracts) and maintain copies of the contracts at
                 HMO's administrative office.  Provider contracts include all
                 contracts between intermediary entities and the direct
                 provider of health services. HMO must make all contracts
                 available to TDH, at the time and location requested by TDH.
                 All standard formats of provider contracts must be submitted
                 to TDH for approval no later than 120 days prior to the
                 Implementation Date.  Standard formats of provider contracts
                 that are executed





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                 later than the 120 days prior to the Implementation Date must
                 be submitted to TDH within 5 working days after the date of
                 execution of the provider contract.  All  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 3.2.4.  HMO must
                 notify TDH not less than 90 days prior to terminating any
                 subcontract affecting a major performance function of this
                 contract. All major Subcontractor terminations and/or
                 substitutions require TDH approval.

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

7.2.3            Provider contracts that are requested by any agency with
                 authority to investigate and prosecute fraud and abuse must be
                 produced at the time and the place required by TDH or the
                 requesting agency. Provider contracts requested in response to
                 public information request must be produced within 48 hours of
                 the request.  Requested contracts and all related records must
                 be provided free of charge to the requesting agency.

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

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

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

7.2.7            HMO, all IPAs, and other intermediary entities must include
                 contract language which substantially complies with the
                 following standard contract provisions in each Medicaid
                 provider contract.  This language must be included in each
                 contract with an actual provider of services, whether through
                 a direct contract or through intermediary provider contracts:





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

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

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

7.2.7.4          [Provider] agrees that any modification, addition, or deletion
                 of the provisions of this contract will become effective no
                 earlier than 30 days after HMO notifies TDH of the change in
                 writing.  If TDH does not provide written approval within 45
                 days from receipt of notification from HMO, changes can be
                 considered provisionally approved, and will become effective.
                 Modifications, additions or deletions which are required by
                 TDH or by changes in state or federal law are effective
                 immediately.

7.2.7.5          This contract is subject to all state and federal laws and
                 regulations relating to fraud and abuse in health care and the
                 Medicaid program. [Provider] must cooperate and assist TDH and
                 any state or federal agency that is charged with the duty of
                 identifying, investigating, sanctioning or prosecuting
                 suspected fraud and abuse. [Provider] must provide originals
                 and/or copies of any and all information, allow access to
                 premises and provide records to TDH or its authorized
                 agent(s), THHSC, HCFA, the U.S. Department of Health and Human
                 Services, FBI, TDI, and the Texas Attorney General's Medicaid
                 Fraud Control Unit, upon request, and free of charge.
                 [Provider] must report any suspected fraud or abuse including
                 any suspected fraud and abuse committed by HMO or a recipient
                 to TDH for referral to THHSC.





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

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

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

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

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

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

7.2.8            HMO must comply with the provisions of Chapter 20A Section 18A
                 of HMO Act relating to Physician and Provider contracts,
                 except Subpart (e), which relates to capitation payments.

7.2.9            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.

7.3              PHYSICIAN INCENTIVE PLANS





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

7.3.2            HMO must disclose to TDH information required by federal
                 regulations found at 42 C.F.R. Section 417.479.  The
                 information must be disclosed in sufficient detail to
                 determine whether the incentive plan complies with the
                 requirements at 42 C.F.R. Section 417.479. The disclosure must
                 contain the following information:

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

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

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

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

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

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

7.3.3            HMO must submit the information required in 7.3.2.1 - 7.3.2.5
                 to TDH 90 days prior to the Implementation Date of the program
                 in the service area and each anniversary date of the contract.

7.3.4            HMO must submit the information required in 7.3.2.6 one year
                 after the effective date of initial contract or effective date
                 of renewal contract, and annually each subsequent year under
                 the contract.

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

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

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

7.3.5.3          whether stop-loss protection is provided; and,





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

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

7.4              PROVIDER MANUAL AND PROVIDER TRAINING

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

                 HMO must submit a Provider Manual to TDH for approval 120 days
                 prior to the Implementation Date.  (See Article 3.4.1
                 regarding process for plan materials review.)

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

7.4.2.1          HMO training for all providers must be completed within 30
                 days of placing  a newly contracted provider on active status.
                 HMO must provide on-going training to new and existing
                 providers as required by HMO or TDH to comply with this
                 contract.

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

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

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

7.4.5            HMO must have its written policies and procedures for the
                 screening, assessment and referral processes between
                 behavioral health providers and physical medicine providers
                 available for TDH review not later than 120 days before the
                 Implementation Date.

7.5              MEMBER PANEL REPORTS





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                 HMO must furnish each Provider with a current list of enrolled
                 Members enrolled or assigned to that Provider within 5 days
                 from HMO receiving the Member list from the Enrollment Broker
                 each month.

7.6              PROVIDER COMPLAINT AND APPEAL PROCEDURES

7.6.1            HMO must establish a written provider complaint and appeal
                 procedure for network providers. HMO must submit the written
                 complaint and appeal procedure to TDH by Phase II of Readiness
                 Review.  The complaint and appeals procedure must be the same
                 for all providers and must comply with Texas Insurance Code,
                 Art. 20A.12.

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

7.6.3            HMO's complaint and appeal process cannot contain provisions
                 referring the complaint or appeal to TDH for resolution.

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

7.7              PROVIDER QUALIFICATIONS - GENERAL

                 The providers in HMO network must meet the following
                 qualifications:



<TABLE>
<S>                       <C>
FQHC                      A Federally Qualified Health Center meets the standards established by federal rules and procedures.  The
                          FQHC must also be an eligible provider enrolled in the Medicaid.

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; who has a valid Drug Enforcement
                          Agency registration number, and a Texas Controlled Substance Certificate, if either is required in their
                          practice.
</TABLE>





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                                                    Dallas Service Area Contract
<PAGE>   61
<TABLE>
<S>                       <C>
Hospital                  An institution licensed as a general or special hospital by the State of Texas under Chapter 241 of the
                          Health and Safety Code which is enrolled as a provider in the Texas Medicaid Program.  HMO will require
                          that all facilities in the network used for acute inpatient specialty care for people under age 21 with
                          disabilities or chronic or complex conditions will have a designated pediatric unit; 24 hour laboratory
                          and blood bank availability; pediatric radiological capability; meet JCAHO standards; and have discharge
                          planning and social service units.

Non-Physician             An individual holding a license issued by the applicable licensing agency of the State of Texas who is
Practitioner              enrolled in the Texas Medicaid Program.
Provider

Clinical                  An entity having a current certificate issued under the Federal Clinical Laboratory Improvement Act
Laboratory                (CLIA), and is enrolled in the Texas Medicaid Program.

Rural Health              An institution which meets all of the criteria for designation as a rural health clinic and is enrolled in
Clinic (RHC)              the Texas Medicaid Program.

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

Non-Hospital              A provider of health care services which is licensed and credentialed to provide services and is enrolled
Facility Provider         in the Texas Medicaid Program.

School Based              Clinics located at school campuses that provide on site primary and preventive care to children and
Health Clinic             adolescents.
(SBHC)
</TABLE>

7.8              PRIMARY CARE PROVIDERS

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

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





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

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

7.8.5            HMO must have the equivalent of one full-time equivalent (FTE)
                 primary care provider (PCP) for every 2,000 Members.  HMO must
                 have one FTE PCP with pediatric training or experience for
                 every 2,500 Members under the age of 21.  Each PCP may be
                 assigned no more than 1,500 Members across all participating
                 managed care plans in the service area.

7.8.5.1          Exceptions to this requirement may be made by TDH when a
                 provider can demonstrate a capacity and capability to provide
                 access to quality managed care to more than 1,500 managed care
                 Members.  TDH will notify a PCP directly when the PCP is
                 approaching the 1,500 STAR Member limitation.  The PCP must
                 then request an exception to the 1,500 Member limitation by
                 submitting certain information to TDH:

                 (1)      Names, Medicaid provider numbers (if required), Texas
                          professional licensure and general responsibilities
                          of any providers supplementing the PCP's practice
                          such as other physicians; Pediatric, Women's Health
                          Care and Family Advanced Nurse Practitioners;
                          Certified Nurse mid-wives; Physician Assistants
                          specializing in Family Medicine, Internal Medicine,
                          Pediatrics or Obstetrics/Gynecology;

                 (2)      Patient office hours and office locations, and

                 (3)      A description for after-hours coverage arrangements
                          and a telephone number available for their STAR
                          patients.  If the PCP does not provide the
                          information or if TDH cannot verify the information
                          provided by the PCP, then TDH will deny the increased
                          capacity.  If TDH determines that the PCP does not
                          have or fails to maintain the capacity of providing
                          quality accessible care, the number of Members will
                          be reduced through a freeze on new enrollments for
                          that PCP.  TDH may disenroll Members if required
                          accessibility and quality of care to all Members is
                          jeopardized.

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





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                                                    Dallas Service Area Contract
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7.8.7            HMO's primary care provider network may include providers from
                 any of the following practice areas:  General Practitioners;
                 Family Practitioners; Internists; Pediatricians;
                 Obstetricians/Gynecologists (OB/GYN); Pediatric and Family
                 Advanced Practice Nurses (APNs); Certified Nurse Midwives
                 Women Health (CNMs); Physician Assistants (PAs) practicing
                 under the supervision of a specialist in Internal Medicine,
                 Pediatric or Obstetric/Gynecology provider; or Federally
                 Qualified Health Centers (FQHCs); Rural Health Clinics (RHCs)
                 and similar community clinics; and specialists who are willing
                 to provide medical homes to selected Members with special
                 needs and conditions (see 7.8.8).

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

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

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

                 Acceptable:

                 (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.





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                                                    Dallas Service Area Contract
<PAGE>   64
                 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.

7.8.11           HMO must require PCPs, through contract provisions, 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,
                 to provide children under the age of 21 services in accordance
                 with the American Academy of Pediatric recommendations and the
                 THSteps periodicity schedule and provide adults services in
                 accordance with the U.S. Preventive Services Task Force's
                 publication Put Prevention Into Practice.

7.8.11.1         HMO must require PCPs, through contract provisions, 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.

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

7.8.11.3         HMO must require, through contract provisions, 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, that PCP assess
                 the advisability and availability of outpatient treatment
                 alternatives to inpatient admissions.  HMO must require,
                 through contract provisions, 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





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                 with relevant information about the Member.  PCP must provide
                 or arrange for follow-up care after emergency or inpatient
                 care.

7.8.11.4         HMO must require PCPs for children under the age of 21 to
                 provide or arrange to have provided all services required
                 under Article 6.8 relating to Texas Health Steps, Article 6.9
                 relating to Perinatal Services, Article 6.10 relating to Early
                 Childhood Intervention, Article 6.11 relating to WIC, Article
                 6.13 relating to persons with disabilities or chronic or
                 complex conditions, and Article 6.14 relating to Health
                 Education and Wellness are provided to Members who qualify for
                 the services.  PCP must cooperate and coordinate with HMO to
                 provide Member and the Member's family with knowledge of and
                 access to available services.

7.8.12           All Medicaid recipients who are eligible for participation in
                 the STAR program have the right to select the PCP and HMO to
                 whom they will be assigned.  Female recipients also have the
                 right to select an OB/GYN in addition to a PCP.  Recipients
                 who are mandatory STAR participants who do not select a PCP or
                 HMO during the time period allowed will be defaulted to a PCP
                 and/or HMO using the TDH default process.  Members may change
                 PCPs at any time, but these changes are limited to four (4)
                 times per year.  If a PCP or OB/GYN who has been selected by
                 or assigned to a Member is no longer in HMO's 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 provider in HMO network,
                 the Member must be directed to Enrollment Broker for
                 resolution or reselection.  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 Member's PCP or OB/GYN.

7.9              OB/GYN PROVIDERS

                 HMO must allow a female Member to select an OB/GYN within its
                 network or 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, in accordance with Article 21.53D of the Texas
                 Insurance Code and rules promulgated under the law.  A Member
                 who selects an OB/GYN must have direct access to the health
                 care services of the OB/GYN without a referral by the woman's
                 PCP or prior authorization or precertification from HMO.
                 Health care services must include, but not be limited to:

7.9.1            One well-woman examination per year;

7.9.2            Care related to pregnancy;

7.9.3            Care for all active gynecological conditions; and





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

7.9.5            HMO must allow Members to change OB/GYNs up to four times per
                 year.

7.10             SPECIALTY CARE PROVIDERS

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

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

7.10.3           HMO must ensure availability and accessibility to appropriate
                 specialists.

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

7.11             SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES

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

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

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

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





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7.12             SIGNIFICANT TRADITIONAL PROVIDERS (STPS)

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

7.12.2           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:

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

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

7.12.2.3         HMO must demonstrate a good faith effort to include STPs in
                 its provider network. HMO's compliance with the TDH's good
                 faith effort requirement for STPs must be reported using
                 report requirements defined by TDH.  HMO must submit quarterly
                 reports, in a format provided by TDH, documenting HMOs
                 compliance with TDH's good faith effort requirement for STPs.

7.12.3           Failure to demonstrate a good faith effort to meet TDH's
                 compliance objectives to include STPs in HMO's provider
                 network, or failure to report efforts and compliance as
                 required in 7.12.2.3, are defaults under this contract and may
                 result in any or all of the sanctions and remedies included in
                 Article XVIII of this contract.

7.13             RURAL HEALTH PROVIDERS

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

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

7.13.1.2         are Significant Traditional Providers.

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





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

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

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

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

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

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

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

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

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





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

7.14.2.3         TDH will cost settle with each FQHC and RHC annually, based on
                 the FQHC or the RHC fiscal year cost report and the
                 methodology described in paragraph 7.14.2.2. TDH will make
                 additional payments or recoup payments from the FQHC or the
                 RHC based on reasonable costs less prior interim payment
                 settlements.

7.15             COORDINATION WITH PUBLIC HEALTH

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

7.15.1.1         Sexually Transmitted Diseases (STDs) Services (See Article
                 6.15);

7.15.1.2         Confidential HIV Testing (See Article 6.15);

7.15.1.3         Immunizations (See relevant paragraphs in Article 6.8.9); and,

7.15.1.4         Tuberculosis (TB) Care (See Article 6.12).

7.15.2           The subcontract must include any covered services, which the
                 public health department has agreed to provide:

7.15.2.1         Family Planning Services (See Article 6.7);

7.15.2.2         THSteps checkups (See Article 6.8);

7.15.2.3         Prenatal services.

7.15.3           HMO must enter into subcontracts with public health entities
                 at least 90 days prior to the Implementation Date for the
                 service area.  The subcontracts must be available for review
                 by TDH or its designated agent(s) on the same basis as all
                 other subcontracts.  If an HMO is unable to enter into a
                 contract with any of the public health entities, HMO must
                 submit documentation substantiating its reasonable efforts to
                 enter into such an agreement, to TDH. The subcontracts must
                 include the following areas:

7.15.3.1         The general relationship between HMO and the Public Health
                 entity.  The subcontracts must specify the scope and
                 responsibilities of both parties, the methodology and





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                 agreements regarding billing and reimbursements, reporting
                 responsibilities, Member and provider educational
                 responsibilities, and the methodology and agreements regarding
                 sharing of confidential medical record information between the
                 public health entity and the PCP.

7.15.3.2         Public Health Entity responsibilities:

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

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

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

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

7.15.3.3         HMO Responsibilities:

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

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

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

7.15.4           Non-Reimbursed Arrangements with Public Health Entities.

7.15.4.1         Coordination with Public Health Entities.  HMOs must enter
                 into a Memorandum of Understanding (MOU) with Public Health
                 Entities regarding the provision of services for essential
                 public health services.  These MOUs must be entered into at
                 least 90 days before the Implementation Date in the service
                 area and are subject to TDH approval.  These MOUs must contain
                 the roles and responsibilities of HMO and the public health
                 department for the following services:





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

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

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

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

                 (5)      Referral for WIC services and information sharing;

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

7.15.4.2         Coordination with Other TDH Programs.  HMOs must enter into a
                 Memorandum of Understanding (MOU) with other TDH programs
                 regarding the provision of services for essential public
                 health services.  These MOUs must be entered into at least 90
                 days before the Implementation Date in the service area and
                 are subject to TDH approval.  These MOUs must delineate the
                 roles and responsibilities of HMO and the public health
                 department for the following services:

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

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

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

                 (4)      Referral for WIC services and information sharing;

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

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

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

                 (8)      Referral to the TDH Medical Transportation Program;
                          and,





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

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

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

7.16             COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND
                 REGULATORY SERVICES

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

7.16.2           HMO must comply with all provisions of a court order or TDPRS
                 service plan with respect to a child in the conservatorship of
                 TDPRS (Order) entered by a Court of continuing jurisdiction
                 placing a child under the protective custody of the TDPRS or a
                 service plan voluntarily entered into by the parents or person
                 having legal custody of a minor and TDPRS, which relates to
                 the health and behavioral health services required to be
                 provided to the Member.

7.16.3           HMO cannot deny, reduce, or controvert the medical necessity
                 of any health services included in an Order.  Any modification
                 or termination of ordered services must be presented and
                 approved by the court with jurisdiction over the matter for
                 decision.

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

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

7.16.5.1         providing medical records,

7.16.5.2         scheduling medical and behavioral health appointments within
                 14 days unless requested earlier by TDPRS,

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

7.16.6           HMO must continue to provide all covered services to a Member
                 receiving services from or in the protective custody of TDPRS
                 until the Member has been disenrolled





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                 from HMO as a result of loss of eligibility in Medicaid
                 managed care or placement into foster care.

7.17             PROVIDER NETWORKS (IPAS, LIMITED PROVIDER NETWORKS AND ANHCS)

7.17.1           All HMO contracts with independent physician, provider
                 associations or similar provider groups, organizations, or
                 networks (IPA contracts) and standard IPA contracts with
                 contracted providers (IPA/Provider contracts) must be
                 submitted to TDH no later than 120 days prior to the
                 Implementation Date.  The form and substance of all HMO/IPA
                 and IPA/Provider contracts are subject to approval by TDH.
                 TDH retains the authority to reject and require changes to any
                 HMO/IPA or IPA/Provider contract which:

7.17.1.1         does not contain the mandatory contract provisions for all
                 subcontractors in this contract,

7.17.1.2         does not comply with the requirements, duties and
                 responsibilities of this contract,

7.17.1.3         creates a barrier for full participation to significant
                 traditional providers,

7.17.1.4         interferes with TDH's oversight and audit responsibilities
                 including collection and validation of encounter data, or

7.17.1.5         is inconsistent with the federal requirement for simplicity in
                 the administration of the Medicaid program.

7.17.1.6         HMO must include this contract as an attachment to any IPA
                 contract for Medicaid managed care services.

7.17.2           HMO cannot delegate claims payment to an IPA, even under a
                 capitated partial or full risk arrangement.  This provision
                 does not apply to single limited or basic service HMOs.

7.17.3           In addition to the mandatory provisions for all subcontracts
                 under Articles 3.2 and 7.2, all HMO/IPA contracts must include
                 the following mandatory standard provisions:

7.17.3.1         HMO is required to include subcontract provisions in its IPA
                 contracts which require the UM protocol used by an IPA to
                 produce substantially similar outcomes, as approved by TDH, as
                 the UM protocol employed by the contracting HMO.  The
                 responsibilities of an HMO in delegating UM functions to an
                 IPA will be governed by Article 16.11 of this contract.





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7.17.3.2         The IPA must comply with the same encounter, utilization,
                 quality, and financial reporting requirements as HMO under
                 this contract.  The IPA must comply with the same report
                 filing timelines and include the same information and use the
                 same format as HMO under this contract.

7.17.3.3         The IPA must comply with the same records retention and
                 production requirements as HMO under this contract, including
                 public information requests.

7.17.3.4         The IPA is subject to the same marketing restrictions and
                 requirements as HMO under this contract.

7.17.3.5         HMO is responsible for ensuring that IPAs comply with the
                 requirements and provisions of the TDH/HMO contract.  TDH will
                 impose appropriate sanctions and remedies upon HMO for any
                 default under the TDH/HMO contract which is caused directly or
                 indirectly by the acts or omissions of the IPA.  Sanctions
                 imposed by TDH upon HMO cannot be passed through or recouped
                 from the IPA or network providers unless specifically allowed
                 by TDH in the Notice of Default and the pass through or
                 recoupment is disclosed as a HMO/IPA contract provision.

7.17.4           HMO cannot enter into contracts with IPAs to provide services
                 under this contract which require the participating providers
                 to enter into exclusive contracts with the IPA as a condition
                 for participation in the IPA.

7.17.4.1         Provision 7.17.4 does not apply to providers who are employees
                 or participants in limited or closed panel provider networks.

7.17.5           All limited provider or closed panel IPA networks with whom
                 HMO contracts must either independently meet the access
                 provisions of 28 Texas Administrative Code Section 11.1607,
                 relating to access requirements, or HMO must provide for
                 access through other network providers outside the closed
                 panel IPA.

7.17.6           HMO cannot delegate to an IPA the enrollment, reenrollment,
                 assignment or reassignment of a Member.

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

7.17.8           HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
                 RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS
                 OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS CONTRACTED
                 OR DELEGATED TO ANOTHER.  HMO MUST PROVIDE A COMPLETE COPY OF
                 THIS CONTRACT TO ANY PROVIDER NETWORK





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                 OR GROUP WITH WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE
                 SERVICES ON A RISK SHARING OR CAPITATED BASIS OR TO PROVIDE
                 HEALTH CARE SERVICES OTHER THAN MEDICAL CARE SERVICE OR
                 ANCILLARY SERVICES.

ARTICLE VIII           MEMBER SERVICES REQUIREMENTS

8.1              MEMBER EDUCATION

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

8.2              MEMBER HANDBOOK

8.2.1            HMO must mail each Member a Member Handbook within five (5)
                 days from the date that the Member's name appears on the
                 Enrollment Report.  The Member Handbook must be written at a
                 4th - 6th grade reading comprehension level.  The Member
                 Handbook must contain all critical elements specified by TDH.
                 See Appendix M, Required Critical Elements, for specific
                 details regarding content requirements.  HMO must submit a
                 Member Handbook to TDH for approval not later than 90 days
                 before the Implementation Date.  (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 above
                 policies.  HMO must make the Member Handbook available in the
                 languages of the major populations and in a format accessible
                 to blind or visually impaired Members.

8.2.3            THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE
                 APPROVED BY TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO
                 MEMBERS.

8.3              ADVANCE DIRECTIVES

8.3.1            Federal law requires HMOs and providers to maintain written
                 policies and procedures for informing and providing written
                 information to all adult Members 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).  These must contain procedures for providing
                 written information regarding the Member's right to refuse,
                 withhold or withdraw medical treatment advance directives.
                 HMO's policies and procedures must comply with provisions
                 contained in 42 CFR Section 434.28 and 42 CFR Section 489,
                 SubPart I, relating to advance directives for all hospitals,
                 critical access hospitals, skilled nursing





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                 facilities, home health agencies, providers of home health
                 care, providers of personal care services and hospices, as
                 well as 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 Member's rights under the Natural Death Act (Texas Health
                 and Safety Code, Chapter 672) to execute an advance written
                 Directive to Physicians, or to make a non-written directive
                 regarding their right to withhold or withdraw life sustaining
                 procedures in the event of a terminal condition;

8.3.1.3          the Member's rights under Texas Health and Safety Code,
                 Chapter 674, relating to written and non-written
                 Out-of-Hospital Do-Not-Resuscitate Orders;

8.3.1.4          the Member's right to execute a Durable Power of Attorney for
                 Health Care regarding their right to appoint an agent to make
                 medical treatment decisions on their behalf if the Member
                 becomes incapacitated (Civil Practice and Remedies Code,
                 Chapter 135); and

8.3.1.5          HMO's policies for implementing a Member's advance directives,
                 including a clear and concise statement of limitations if HMO
                 or a participating provider cannot or will not be able to
                 carry out a Member's advance directive.

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

8.3.2.1          clarify any differences between HMO's conscience objections
                 and those which may be raised by the Member's PCP or other
                 providers;

8.3.2.2          identify the state legal authority permitting HMO's conscience
                 objections to carrying out an advance directive;

8.3.2.3          describe the range of medical conditions or procedures
                 affected by the conscience objection.

8.3.3            The policies and procedures must require HMO and Subcontractor
                 to comply with the requirements of state and federal laws
                 relating to advance directives.  HMO must provide education
                 and training to employees, Members and the community on issues
                 concerning advance directives.

8.3.4            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





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                 "as written" in the state or federal law.  HMO must submit any
                 revisions to existing approved advanced directive materials.

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

8.4              MEMBER ID CARDS

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

8.4.2            HMO must issue a Member Identification Card to the Member
                 within five (5) days from receiving notice of enrollment of
                 the Member into HMO.  The Member Identification Card must
                 include, at a minimum, the following: Member's name; Member's
                 Medicaid number; the effective date of the card; 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; and directions for what to do in an emergency.
                 Identification 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 Identification Card.

8.5              MEMBER HOTLINE

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

8.6              MEMBER COMPLAINT PROCESS

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

8.6.2            HMO must have written policies and procedures for taking,
                 tracking, reviewing, and reporting and resolving of member
                 complaints.  The procedures must be reviewed and approved in
                 writing by TDH before Phase I of Readiness Review.  Any
                 amendments to the procedures must be submitted to TDH for
                 approval thirty (30) days prior to the effective date of the
                 amendment.



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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 a president, vice president,
                 secretary, treasurer, or chairperson of the board for a
                 corporation, the sole proprietor, the managing general partner
                 of a partnership, or a person having similar executive
                 authority in the organization.

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

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

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

8.6.7            HMO's process must include a requirement that the Governing
                 Body of HMO reviews the written records (logs) for complaints
                 and appeals.  An officer of the HMO must be designated to have
                 direct responsibility for the complaint system.

8.6.8            HMO is prohibited from discriminating against a Member because
                 that Member is making or has made a complaint.

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

8.6.10           If a 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 Members they have the right to
                 access the TDH fair hearing process at any time in lieu of the
                 internal complaint system provided by HMO.  HMO is required to
                 comply with the notice requirements





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                 contained in 25 TAC Chapter 36, 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.

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

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

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

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

8.6.15           HMO must provide Member Advocates to assist Members in
                 understanding and using HMO's complaint system.

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

8.6.17           Member Advocates must file a Member Advocate Report of their
                 review and participation in the complaint procedure for each
                 complaint brought by a Member and a summary of each complaint
                 resolution.  A copy of the Member Advocate Report must be
                 included in HMO's quarterly report.  (See Article 12.6.)

8.7              MEMBER NOTICE, APPEALS AND FAIR HEARINGS

8.7.1            HMO must send Members the notice required by 25 TAC, Chapter
                 36, whenever HMO takes an action to deny, delay, reduce or
                 terminate covered services to a Member.  The notice must be
                 mailed to the Member no less than 10 days before HMO intends
                 to take an action.  If an emergency exists, or if the time
                 within which the service must be provided makes giving 10 days
                 notice impractical or impossible,





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                 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.

8.7.2            The notice must contain the following information:

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

8.7.2.2          a statement of the action HMO will take;

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

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

8.7.2.5          a procedure by which the Member may appeal HMO's action
                 through either HMO's complaint process or TDH's fair hearings
                 process and include an address where a written request may be
                 sent and toll-free number the Member can call to request the
                 assistance of a Member representative or to file a complaint
                 or request a fair hearing;

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

8.7.2.7          an explanation of whether and under what circumstances
                 services may be continued if a complaint is filed or a fair
                 hearing requested;

8.7.2.8          a statement that if the Member wants a TDH Fair Hearing on the
                 action, the Member must make the request for a Fair Hearing
                 within 90 days of the date the notice was mailed;

8.7.2.9          an explanation that the Member may request that resolution
                 through HMO complaint process or TDH Fair Hearing be conducted
                 based on written information without the necessity of taking
                 oral testimony; and

8.7.2.10         a statement explaining that HMO must make a decision or a
                 final decision must be made by TDH within 90 days from the
                 date the complaint is filed or a Fair Hearing requested.

8.8              MEMBER ADVOCATES

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





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

8.8.3            Member Advocates are responsible for making recommendations to
                 management on any changes needed to improve either the care
                 provided or the way care is delivered. Advocates are also
                 responsible for helping or referring Members to community
                 resources available to meet Member needs that are not
                 available from HMO as Medicaid covered services.

8.8.4            Member Advocates must provide outreach to Members and
                 participate in TDH-sponsored enrollment activities and
                 participate in the Group Needs Assessment process.

8.9              MEMBER CULTURAL AND LINGUISTIC SERVICES

8.9.1            Linguistic Services and Cultural Competency Plan.  HMO must
                 have a comprehensive written Linguistic Services and Cultural
                 Competency Plan describing how HMO will meet the linguistic
                 and cultural needs of Members.  The Plan must describe how the
                 individuals and systems within HMO will effectively provide
                 services to people of all cultures, races, ethnic backgrounds,
                 and religions in a manner that recognizes, values, affirms,
                 and respects the worth of the individuals and protects and
                 preserves the dignity of each.  HMO must submit a written plan
                 to TDH not later than 90 days prior to the Implementation
                 Date.  The Plan must also be made available to HMO's network
                 of providers.

8.9.2            HMO must develop and implement written policies and procedures
                 for the provision of linguistic services following Title VI of
                 the Civil Rights Act guidelines and must monitor the
                 performance of the individuals who provide linguistic
                 services.  HMO must disseminate these policies and procedures
                 to ensure that both Staff and subcontractors are aware of
                 their responsibilities under Title VI.

8.9.3            The Linguistic Services and Cultural Competency Plan must
                 include but not be limited to the following:

8.9.3.1          A description of how HMO will educate its staff on linguistic
                 and cultural needs and the characteristics of its Members;

8.9.3.2          A description of how HMO will implement the plan in its
                 organization, including the designation of staff responsible
                 for carrying out all portions of the Linguistic Services and
                 Cultural Competency Plan;





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8.9.3.3          A description of how HMO will develop standards and
                 performance requirements for the delivery of linguistic
                 services and culturally competent care, and monitor adherence
                 with those standards and requirements;

8.9.3.4          A description of how HMO will assist Members in writing/filing
                 a complaint and monitoring the complaint through the
                 Contractor's complaint process until the issue is resolved;

8.9.3.5          Recommendations to HMO management on any changes needed to
                 improve either the care provided or the way care is delivered;

8.9.3.6          A description of how HMO will provide outreach to Members and
                 participate in TDH-sponsored enrollment activities;

8.9.3.7          A description of how HMO will help Members access community
                 health or social services resources that are not covered under
                 the contract with TDH;

8.9.3.8          A description of how HMO will participate in the Group Needs
                 Assessment process.

8.9.4            HMO must provide the following types of linguistic services:
                 interpreters, translated signage, and referrals to culturally
                 and linguistically appropriate community services programs.

8.9.5            HMO must forward all approved English versions of materials to
                 DHS for DHS to translate into Spanish.  DHS must provide the
                 written and approved translation into Spanish to HMO within 15
                 days from receipt of the English version.  HMO must
                 incorporate the approved translations into all materials
                 distributed to Members.  TDH reserves the right to require
                 revisions to materials if inaccuracies are discovered, or if
                 changes are required by changes in policy or law.

8.9.6            Interpreter Services.  HMO must provide trained, professional
                 interpreters when technical, medical, or treatment information
                 is to be discussed.

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

8.9.6.2          HMO must have in place policies and procedures that outline
                 how Members can access face-to-face interpreter services in a
                 provider's office if necessary to ensure the





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                 availability of effective communication regarding treatment,
                 medical history or health education for a Member.

8.9.6.3          A current copy of the list of interpreters must be provided to
                 each provider in HMO's provider network and updated as
                 necessary.  This list must be available to Members and TDH or
                 its agent(s) upon request.  A competent interpreter is defined
                 as someone who is:

8.9.6.3.1        proficient in both English and the other language, and

8.9.6.3.2        has had orientation or training in the ethics of interpreting,
                 and

8.9.6.3.3        has fundamental knowledge in both languages of any specialized
                 medical terms and concepts.

8.9.6.4          HMO must provide 24-hour access to interpreter services for
                 Members to access emergency medical services within HMO's
                 network.

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

8.9.7            All Member orientation presentations and education classes
                 must be conducted in the languages of the major population
                 groups, as specified by TDH, in the service area(s) as the
                 identified need arises.

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


ARTICLE IX             MARKETING AND PROHIBITED PRACTICES


9.1              MARKETING MATERIAL MEDIA AND DISTRIBUTION

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





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9.2              MARKETING ORIENTATION AND TRAINING

                 HMO must require that all HMO staff having direct contact with
                 Members as part of their job duties and their supervisors have
                 satisfactorily completed TDH's marketing orientation and
                 training program prior to engaging in marketing activities on
                 behalf of HMO.  TDH will notify HMO of scheduled orientations.

9.3              PROHIBITED MARKETING PRACTICES

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

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

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

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

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

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

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

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

9.4              NETWORK PROVIDER DIRECTORY

9.4.1            HMO must submit a provider directory to TDH no later than 180
                 days prior to the Implementation Date.  HMO must provide the
                 provider directory to the Enrollment





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                 Broker for prospective members.  The directory must contain
                 all critical elements specified by TDH. See Appendix M,
                 Required Critical Elements, for specific details regarding
                 content requirements.

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

9.4.3            Updates to the provider directory must be provided to the
                 Enrollment Broker at the beginning of each state fiscal year
                 quarter.  This includes the months of September, December,
                 March and June.  HMO is responsible for submitting draft
                 updates to TDH only if changes other than PCP information are
                 incorporated.  HMO is responsible for sending five final
                 copies of the updated provider directory to TDH each quarter.
                 TDH will forward two updated provider directories, along with
                 its approval notice, to the Enrollment Broker to facilitate
                 their distribution.

ARTICLE X                 MIS SYSTEM REQUIREMENTS


10.1             MODEL MIS REQUIREMENTS

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

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

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

10.1.4           HMO is required to submit and receive data as specified in
                 this contract and HMO Encounter Data Submissions Manual.  The
                 MIS must provide encounter data for all capitated services
                 within the scope of services of the contract between HMO and
                 TDH.  Encounter data must follow the format, data elements and
                 method of transmission specified in the contract and HMO
                 Encounter Data Submissions Manual.  HMO must submit encounter
                 data, including adjustments to encounter data, by the 10th day
                 of each month.  The Encounter transmission will include all
                 encounter data and encounter data adjustments processed by HMO
                 for the previous month.  Data quality validation will
                 incorporate assessment standards developed jointly by HMO and
                 TDH.  Original records will be made available for inspection
                 by TDH for





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                 validation purposes.  Data which does not meet quality
                 standards must be corrected and returned within a time period
                 specified by TDH.

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

10.1.6           HMO must maintain accounting records for all claim payments,
                 refunds and adjustments of payments to providers, and all
                 premium payments, interest income and any administrative fees
                 paid to Subcontractors for services under this contract.
                 Provider payments for health or health related services must
                 be reported separately from administrative payments.  HMO must
                 submit periodic reports and data to TDH as required by TDH.

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

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

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

10.1.9.1         Eight subsystems are used in the Model MIS Requirements to
                 identify specific functions or features required by HMO's MIS.
                 These subsystems focus on the individual systems functions or
                 capabilities to support the following operational and
                 administrative areas:

                 (1)      Enrollment/Eligibility Subsystem

                 (2)      Provider Subsystem

                 (3)      Encounter/Claims Processing Subsystem

                 (4)      Financial Subsystem

                 (5)      Utilization/Quality Improvement Subsystem





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                 (6)      Reporting Subsystem

                 (7)      Interface Subsystem

                 (8)      TPR Subsystem

10.2             SYSTEM-WIDE FUNCTIONS

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

                 (1)      Ability to update and edit data.

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

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

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

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

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

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

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

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

10.3             ENROLLMENT/ELIGIBILITY SUBSYSTEM

                 The Enrollment/Eligibility Subsystem is the central processing
                 point for the entire MIS.  It must be constructed and
                 programmed to secure all functions which require





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                 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 TDH.

                 (3)      Maintain data on enrollments/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 TDH requirements prior to inclusion
                          in HMO's MIS.  Updates will be received from TDH's
                          agent and processed within two working days after
                          receipt.

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

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

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

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

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

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

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

10.4             PROVIDER SUBSYSTEM

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

                 Functions and Features:





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

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

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

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

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

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

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

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

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

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

10.5             ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM

                 The encounter/claims processing subsystem must collect,
                 process, and store data on all health services delivered for
                 which HMO is responsible.  The functions of these subsystems
                 are claims/encounter processing and capturing health service
                 utilization data.  The subsystem must capture all health
                 related services, including medical supplies, using standard
                 codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92 Revenue Codes)
                 rendered by health-care providers to an eligible enrollee
                 regardless of payment arrangement (e.g. capitation or fee-
                 for-service).  It approves, prepares for payment, or may
                 return or deny claims submitted. This subsystem may integrate
                 manual and





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                 automated systems to validate and adjudicate claims and
                 encounters.  HMO must use encounter data validation
                 methodologies prescribed by TDH.

                 Functions and Features:

                 (1)      Accommodate multiple input methods - electronic
                          submission, tape, claim document, and media.

                 (2)      Support entry and capture of a minimum of two
                          diagnosis codes for each individual service as
                          defined by TDH.

                 (3)      Edit and audit to ensure allowed services are
                          provided by eligible providers for eligible
                          recipients.

                 (4)      Interface with Member and provider subsystems.

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

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

                 (7)      Submit data to TDH through electronic transmission
                          using specified formats.

                 (8)      Support multiple fee schedule benefit packages and
                          capitation rates for all contract periods for
                          individual providers, groups, services, etc.  A claim
                          encounter must be initially adjudicated and all
                          adjustments must use the fee applicable to the date
                          of service.

                 (9)      Provide timely, accurate, and complete data for
                          monitoring claims processing performance.

                 (10)     Provide timely, accurate, and complete data for
                          reporting medical service utilization.

                 (11)     Maintain and apply prepayment edits to verify
                          accuracy and validity of claims data for proper
                          adjudication.

                 (12)     Maintain and apply edits and audits to verify timely,
                          accurate, and complete encounter data reporting.

                 (13)     Submit reimbursement to non-contracted providers for
                          emergency care rendered to enrollees in a timely and
                          accurate fashion.





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                 (14)     Validate approval and denials of precertification and
                          prior authorization requests during adjudication of
                          claims/encounters.

                 (15)     Track and report the exact date a service was
                          performed.  Use of date ranges must have State
                          approval.

                 (16)     Receive and capture claim and encounter data from
                          TDH.

                 (17)     Receive and capture value-added services codes.

10.6             FINANCIAL SUBSYSTEM

                 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, financial statement presentation, and any additional
                 data required by TDH. The financial subsystem must provide
                 management with information that can demonstrate that the
                 proposed or existing HMO is meeting, exceeding, or falling
                 short of fiscal goals. The information must also provide
                 management with the necessary data to spot the early signs of
                 fiscal distress, far enough in advance to allow management to
                 take corrective action where appropriate.

                 Functions and Features:

                 (1)      Provide information on HMO's economic resources,
                          assets, and liabilities and present accurate
                          historical data and projections based on historical
                          performance and current assets and liabilities.

                 (2)      Produce financial statements in conformity with
                          Generally Accepted Accounting Principles and in the
                          format prescribed by TDH.

                 (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 from third party
                          resources.





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10.7             UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM

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

                 The subsystem tracks utilization control function(s) and
                 monitoring inpatient admissions, emergency room use,
                 ancillary, and out-of-area services.  It provides provider
                 profiles, occurrence reporting, monitoring and evaluation
                 studies, and enrollee satisfaction survey compilations.  The
                 subsystem may integrate HMO's manual and automated processes
                 or incorporate other software reporting and/or analysis
                 programs.

                 The subsystem incorporates and summarizes information from
                 enrollee surveys, provider and enrollee complaints, and appeal
                 processes.

                 Functions and Features:

                 (1)      Supports provider credentialing and recredentialing
                          activities.

                 (2)      Supports HMO processes to monitor and identify
                          deviations in patterns of treatment from established
                          standards or norms.  Provides feedback information
                          for monitoring progress toward goals, identifying
                          optimal practices, and promoting continuous
                          improvement.

                 (3)      Supports development of cost and utilization data by
                          provider and service.

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

                 (5)      Supports focused quality of care studies.

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

                 (7)      Monitors primary care provider referral patterns.





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                 (8)      Supports functions of reviewing access, use and
                          coordination of services (i.e. actions of Peer Review
                          and alert/flag for review and/or follow-up;
                          laboratory, x-ray and other ancillary service
                          utilization per visit).

                 (9)      Stores and reports patient satisfaction data through
                          use of enrollee surveys.

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

                 (11)     Meets minimum report/data collection/analysis
                          functions of Article XI and Appendix A of this
                          Contract.

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

10.8             REPORT SUBSYSTEM

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

                 Functions and Capabilities:

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

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

                 (3)      Generate reports that provide unduplicated counts of
                          enrollees, providers, payments and units of service
                          unless otherwise specified.

                 (4)      Generate an alphabetic Member listing.

                 (5)      Generate a numeric Member listing.

                 (6)      Generate a client eligibility listing by PCP (panel
                          report).

                 (7)      Report on PCP change by reason code.

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

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





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                 (10)     Generate or produce 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 listed in the Interface Manual.

10.9.2           HMO must obtain access to the TexMedNet BBS.  Some file
                 transfers and E-mail will be handled through this mechanism.

10.9.3           Provider Network File.  The provider file shall supply Network
                 Provider data between an HMO and TDH.  This process shall
                 accomplish the following:

                 (1)      Provide identifying information for all managed care
                          providers (e.g. name, address, etc.).

                 (2)      Maintain history on provider enrollment/disenrollment.

                 (3)      Identify PCP capacity.

                 (4)      Identify any restrictions (e.g., age, sex, etc.).

                 (5)      Identify number and types of specialty providers
                          available to Members.

10.9.4           Eligibility/Enrollment Interface.  The enrollment interface
                 must provide eligibility data between TDH and HMOs.

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

                 (2)      Provides PCP assignments.

                 (3)      Provides Member eligibility status data.

                 (4)      Provides Member demographics data.

                 (5)      Provides HMOs with cross-reference data to identify
                          duplicate Members.





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10.9.5           Encounter/Claim Data Interface.  The encounter/claim interface
                 must transfer paid fee-for-service claims data to HMOs and
                 capitated services/encounters from HMO, including adjustments.
                 This file will include all service types, such as inpatient,
                 outpatient, and medical services.  TDH's agent will process
                 claims for non-capitated services.

10.9.6           Capitation Interface.  The capitation interface must transfer
                 premium and Member information to HMO.  This interface's basic
                 purpose is to balance HMO's Members and premium amount.

10.9.7           TPR Interface.  TDH will provide a data file that contains
                 information on enrollees that have other insurance.  Because
                 Medicaid is the payer of last resort, all services and
                 encounters should be billed to the other insurance companies
                 for recovery.  TDH will also provide an insurance company data
                 file which contains the name and address of each insurance
                 company.

10.9.8           TDH will provide a diagnosis file which will give the code and
                 description of each diagnosis permitted by TDH.

10.9.9           TDH will provide a procedure file which contains the
                 procedures which must be used on all claims and encounters.
                 This file contains HCPCS, revenue, and ICD9-CM surgical
                 procedure codes.

10.9.10          TDH will provide a provider file that will contain the
                 Medicaid provider numbers, name, and address of each Medicaid
                 provider.  The Medicaid number authorized by TDH 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 TDH as specified by
                          TDH.

                 (3)      Receive TPL data from TDH to be used in claim and
                          encounter processing.

10.11            YEAR 2000 COMPLIANCE

                 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,





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                 perform in the same manner and with the same functionality,
                 data integrity and performance, as dates falling on or before
                 December 31, 1999, at no added cost to TDH.  HMO must take all
                 appropriate measures to ensure that the software will not
                 lose, alter or destroy records containing dates falling on or
                 after January 1, 2000.  HMO will ensure that all software will
                 interface and operate with all TDH, or its agent's, data
                 systems which exchange data, including but not limited to
                 historical and archived data.  In addition, HMO guarantees
                 that the year 2000 leap year calculations will be accommodated
                 and will not result in software, firmware or hardware
                 failures.

ARTICLE XI                QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM


11.1             QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM

                 HMO must develop, maintain, and operate a Quality Improvement
                 Program (QIP) system which complies with federal regulations
                 relating to Quality Assurance systems, found at 42 C.F.R.
                 Section 434.34.  The system must meet the Standards for
                 Quality Improvement Programs contained in Appendix A.

11.2             WRITTEN QIP PLAN

                 HMO must have an approved plan describing its Quality
                 Improvement Plan (QIP), including how HMO will accomplish the
                 activities pertaining to each Standard (I-XVI) in Appendix A
                 on file with TDH.

11.3             QIP SUBCONTRACTING

                 If HMO subcontracts any of the essential functions or
                 reporting requirements of QIP to another entity, HMO must
                 submit a list of the subcontractors and a description of how
                 the Subcontractor will meet the standards and reporting
                 requirements of this contract 60 days prior to the
                 Implementation Date.  HMO must notify TDH no later than 90
                 days prior to terminating any subcontract affecting a major
                 performance function of this contract (see Article 3.2).

11.4             ACCREDITATION

                 If HMO is accredited by an external accrediting agency,
                 documentation of accreditation must be provided to TDH.  HMO
                 must provide TDH with their accreditation status upon request.

11.5             BEHAVIORAL HEALTH INTEGRATION INTO QIP





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                 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.

11.6             QIP REPORTING REQUIREMENTS

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

ARTICLE XII            REPORTING REQUIREMENTS

12.1             FINANCIAL REPORTS

12.1.1           Monthly MCFS Report.  HMO must submit the Managed Care
                 Financial Statistical Report (MCFS) included in Appendix I as
                 may be modified or amended by TDH. The report must be
                 submitted to TDH 30 days after the end of each state fiscal
                 year quarter and must include complete financial and
                 statistical information for each month.  The MCFS Report must
                 be submitted for each claims processing subcontractor in
                 accordance with this Article.  HMO must incorporate financial
                 and statistical data received by its provider networks (IPAs,
                 ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.2           For any given month in which an HMO has a net loss of $200,000
                 or more for the contract period to date, HMO must submit an
                 MCFS Report for that month by the 30th day after the end of
                 the reporting month.  The MCFS Report must be completed in
                 accordance with the Instructions for Completion of the Managed
                 Care Financial-Statistical Report developed by TDH.

12.1.3           An HMO must submit monthly reports for each of the first 6
                 months following the Implementation Date of the contract
                 between TDH and HMO.  If the cumulative net loss for the
                 contract period to date after the 6th month is less than
                 $200,000, HMO may submit quarterly reports in accordance with
                 the above provisions unless conditions 12.1.2 or 12.1.3 exist,
                 in which case monthly reports must be submitted.

12.1.4           Annual MCFS Report.  HMO must file two annual Managed Care
                 Financial Statistical Reports. The first annual report must
                 reflect expenses incurred through the 90th day after the end
                 of the contract year.  The first annual report must be filed
                 on or before the 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
                 filed on or before the 365th day following the end of the
                 contract year.





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12.1.5           Administrative expenses reported in the monthly and annual
                 MCFS Reports must be reported in accordance with Appendix L,
                 Cost Principles for Administrative Expenses.  Indirect
                 administrative expenses must be based on an allocation
                 methodology for Medicaid managed care activities and services
                 that is developed or approved by TDH.

12.1.6           Affiliated Related Parties Report.  HMO must submit an
                 Affiliated Related Parties Report to TDH not later than 90
                 days prior to the Implementation Date.  The report must
                 contain the following information:

12.1.6.1         A listing of all Affiliates/Related parties;

12.1.6.2         A schedule of all transactions with Affiliates which, under
                 the provisions of this Contract, will be allowable as expenses
                 in either Line 4 or Line 5 of Part 1 of the MCFS Report for
                 services provided to HMO by the Affiliate, including financial
                 terms, a detailed description of the services to be provided
                 and an estimated amount which will be incurred by HMO for such
                 services during the Contract period for the prior approval of
                 TDH.

12.1.7           Annual Audited Financial Report.  On or before June 30th of
                 each year, HMO must submit to TDH a copy of the annual audited
                 financial report filed with TDI.

12.1.8           Form HCFA-1513.  HMO must file an updated Form HCFA-1513
                 regarding control, ownership, or affiliation of HMO 30 days
                 prior to the end of the contract year.  An updated Form
                 HCFA-1513 must also be filed within 30 days of any change in
                 control, ownership, or affiliation of HMO.  Forms may be
                 obtained from TDH.

12.1.9           Section 1318 Financial Disclosure Report.  HMO must file an
                 updated HCFA Public Health Service (PHS) "Section 1318
                 Financial Disclosure Report" within 30 days from the end of
                 the contract year and within 30 days of entering into,
                 renewing, or terminating a relationship with an affiliated
                 party.  These forms may be obtained from TDH.

12.1.10          TDI Examination Report.  HMO must furnish a copy of any TDI
                 Examination Report within 10 days after receipt from TDI.

12.1.11          IBNR Plan.  HMO must furnish a written IBNR Plan to manage
                 incurred-but-not-reported (IBNR) expenses, and a description
                 of the method of insuring against insolvency, including
                 information on all existing or proposed insurance policies.
                 The Plan must include the methodology for estimating IBNR.
                 The plan and description must be submitted to TDH not later
                 than 60 days prior to the Implementation Date of this
                 contract.





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12.1.12          Third Party Recovery (TPR) Reports.  HMO must file quarterly
                 Third Party Recovery (TPR) Reports in accordance with the
                 format developed by TDH. TPR reports must include total
                 dollars recovered from third party payers for services to
                 HMO's Members for each month and the total dollars recovered
                 through coordination of benefits, subrogation, and worker's
                 compensation.

12.1.13          Pre-implementation Expenses.  Pre-implementation expenses
                 (i.e., expenses incurred between the effective date of the
                 contract and the Implementation Date) will be allowable
                 expenses as determined by TDH.  Such expenses must be reported
                 for each month in which the expenses were incurred.  Such
                 expenses shall be counted toward the calculation of total
                 expenses for the first contract year for purposes of
                 calculating the net income before taxes.  Such expenses shall
                 not be allocated or amortized beyond the first contract year.

12.1.14          Each report required under this Article must be mailed to:
                 Bureau of Managed Care; Texas Dept. of Health; 1100 West 49th
                 Street; Austin, TX 78756-3168.  HMO must also mail a copy of
                 the reports, except for items in Article 12.1.7 and Article
                 12.1.10, to Texas Department of Insurance, Mail Code 106-3A,
                 HMO Division, Attention: HMO Division Director, P.O. Box
                 149104, Austin, TX 78714-9104.

12.2             STATISTICAL REPORTS

12.2.1           HMO must electronically file the following monthly reports:
                 (1) encounter; (2) encounter detail; (3) institutional; (4)
                 institutional detail; and (5) claims detail for cost-
                 reimbursed services filed, if any, with HMO.  Monthly reports
                 must be submitted by the 10th day following the end of the
                 reporting month.  Encounter data must include the data
                 elements, follow the format, and use the transmission method
                 specified by TDH.

12.2.2           Monthly reports must include current month encounter data and
                 encounter data adjustments to the previous month's data.

12.2.3           Data quality standards will be developed jointly by HMO and
                 TDH.  Encounter data must meet or exceed data quality
                 standards.  Data that does not meet quality standards must be
                 corrected and returned within the period specified by TDH.
                 Original records must be made available to validate all
                 encounter data.

12.2.4           HMO must require providers to submit claims and encounter data
                 to HMO within 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 Texas
                 Medicaid Provider Procedures Manual and as otherwise provided
                 by TDH.  Exceptions or additional codes must be submitted for
                 approval before HMO uses the codes.





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12.2.6           HMO must use Medicaid provider numbers on all encounter and
                 fee-for-service claim submissions.  Any exceptions must be
                 approved by TDH.

12.2.7           Claims Aging and Summary Report.  HMO must submit the monthly
                 Claims Aging and Summary Reports identified in the Texas
                 Managed Care Claims Manual by the third Monday of the month
                 following the reporting period.  The reports must be submitted
                 to TDH in a format using the instructions specified by TDH.

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

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

12.3             ARBITRATION/LITIGATION CLAIMS REPORT

                 HMO must submit a monthly Arbitration/Litigation Claims Report
                 in a form developed by TDH identifying all provider complaints
                 that are in arbitration or litigation.  The report is to be
                 submitted by the last working day of the month following the
                 reporting month.

12.4             SUMMARY REPORT OF PROVIDER COMPLAINTS

                 HMO must submit a Summary Report of Provider Complaints.  The
                 report must include a copy of any complaints submitted to
                 either HMO or an arbitrator, or both. The report must also
                 include a copy of the provider complaint log.  HMO must also
                 report complaints submitted to its subcontracted risk groups
                 (e.g., IPAs).  The report must be submitted on or before the
                 fifteenth of the month following the end of the state fiscal
                 quarter using a form specified by TDH.

12.5             PROVIDER NETWORK REPORTS

12.5.1           Provider Network Change Reports.  HMO must submit a monthly
                 report summarizing changes in HMO's provider network.  The
                 report must be submitted to TDH in the format specified by
                 TDH. HMO will submit the report thirty (30) days following the
                 end of the reporting month.  The report must identify provider
                 additions and deletions and the impact to the following:





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                 (1)      geographic access for the Members;

                 (2)      cultural and linguistic services;

                 (3)      the ethnic composition of providers;

                 (4)      the number of Member assigned to PCPs;

                 (5)      the change in the ratio of providers with pediatric
                          experience to the number of Members under age 21; and

                 (6)      number of specialists serving as PCPs.

12.5.1.1         Provider Termination Report.  HMO must also include in the
                 Provider Network Change Report information identifying any
                 providers who cease to participate in HMO's provider network,
                 either voluntarily or involuntarily.  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.

12.5.2           PCP Network and Capacity Report.  HMO must submit
                 electronically to Enrollment Broker a weekly report that shows
                 changes to the PCP network and PCP capacity.

12.6             MEMBER COMPLAINTS

                 HMO must submit a quarterly summary report of Member
                 complaints.  The report must show the date upon which each
                 complaint was filed, a summary of the facts surrounding the
                 complaint, the date of the resolution of the complaint, an
                 explanation of the procedure followed, and the outcome of the
                 complaint process.  It should also include the Member Advocate
                 Report (refer to Article 8.6.17).  The complaint report format
                 must be approved by TDH and submitted in hard copy and
                 diskette.  HMO must also report complaints submitted to its
                 subcontracted risk groups (e.g., IPAs).

12.7             FRAUDULENT PRACTICES

                 HMO must report all fraud and abuse enforcement actions or
                 investigations taken against HMO and/or any of its
                 Subcontractors or providers by any state or federal agency for
                 fraud or abuse under Title XVIII or Title XIX of the Social
                 Security Act or any State law or regulation and any basis upon
                 which an action for fraud or abuse may be brought by a State
                 or federal agency as soon as such information comes to the
                 attention of HMO.

12.8             UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH





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                 HMO will be required to report behavioral health (BH)
                 utilization information in a format specified by TDH on a
                 quarterly basis.  This report is due 120 days following the
                 end of the State Fiscal Quarter.  The utilization report
                 instructions may periodically be updated by TDH to include new
                 codes and to facilitate clear communication to the health
                 plan.

12.9             UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH

                 Physical health (PH) utilization management reports are
                 required on a quarterly basis and are due 120 days following
                 the end of the State Fiscal Quarter and are to be provided in
                 hard copy and in a format specified by TDH.  Refer to Appendix
                 J for the standardized reporting format for each report and
                 detailed instructions for obtaining specific data required in
                 the report.  The PH Utilization Management Report instructions
                 may periodically be updated by TDH to include new codes and to
                 facilitate clear communication to the health plan.

12.10            QUALITY IMPROVEMENT REPORTS

12.10.1          HMO must conduct focused health studies in pregnancy and
                 prenatal care, THSteps, asthma (or another chronic disease as
                 required by TDH).  HMO will be required to conduct no more
                 than two focused studies, as instructed by TDH.  These studies
                 shall be conducted and data collected using criteria and
                 methods developed by TDH.  The following format shall be
                 utilized:

                 (1)      Executive Summary.

                 (2)      Definition of the population and health areas of
                          concern.

                 (3)      Clinical guidelines/standards, quality indicators,
                          and audit tools.

                 (4)      Sources of information and data collection
                          methodology.

                 (5)      Data analysis and information/results.

                 (6)      Corrective actions if any, implementation, and follow
                          up plans including monitoring, assessment of
                          effectiveness, and methods for provider feedback.

12.10.2          Annual Focus Studies.  Focus studies on well child, asthma and
                 ADHD must be submitted to TDH no later than March 1, 2000.
                 Focus studies on pregnancy and substance abuse in pregnancy
                 must be submitted no later than June 1, 2000.

12.10.3          Annual QIP Summary Report.  An annual QIP summary report must
                 be conducted yearly based on the state fiscal year.  The
                 annual QIP summary report must be





                                       96

                                                    Dallas Service Area Contract
<PAGE>   103
                 submitted by December 31 of each year. This report must
                 provide summary information on HMO's QIP system and include
                 the following:

                 (1)      Executive summary of QIP - include results of all QI
                          reports and interventions.

                 (2)      Activities pertaining to each standard (I through
                          XVI) in Appendix A. Report must list each standard.

                 (3)      Methodologies for collecting, assessing data and
                          measuring outcomes.

                 (4)      Tracking and monitoring quality of care.

                 (5)      Role of health professionals in QIP review.

                 (6)      Methodology for collection data and providing
                          feedback to provider and staff.

                 (7)      Outcomes and/or action plan.

12.10.4          HMO must submit an annual provider medical record audit of its
                 PCPs that conform to the medical record requirements found in
                 Standard XII in Appendix A.

12.10.4.1        HMO must submit a written plan for correcting the
                 noncompliance (<80% compliance rate) and a time line for
                 achieving compliance if audits reveal noncompliance with TDH
                 medical records standards.

12.10.5          HMO must submit to TDH semi-annual reports on its subspecialty
                 network.

12.11            HUB REPORTS

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

12.12            THSTEPS REPORTS

                 Minimum reporting requirements.  HMO must submit, at a
                 minimum, 80% of all THSteps checkups on HCFA 1500 claim forms
                 as part of the encounter file submission to the TDH Claims
                 Administrator within 120 days from the date of service.
                 Failure to comply with these minimum reporting requirements
                 will result in Article XVIII sanctions and money damages.

12.13            REPORTING REQUIREMENTS DUE DATES





                                       97

                                                    Dallas Service Area Contract
<PAGE>   104
                 TDH will provide HMO with a matrix of all contract
                 deliverables with due dates.  The due dates for deliverables
                 may be changed by TDH.  TDH will provide HMO with 30 days
                 notice of any deliverable due date change.

ARTICLE XIII           PAYMENT PROVISIONS

13.1             CAPITATION AMOUNTS

13.1.1           TDH will pay HMO monthly premiums calculated by multiplying
                 the number of Member months by Member risk group times the
                 monthly capitation amount by Member risk group.  HMO and
                 network providers are prohibited from billing or collecting
                 any amount from a Member for health care services covered by
                 this contract, in which case the Member must be informed of
                 such costs prior to providing non-covered services.

13.1.2           Delivery Supplemental Payment (DSP).  TDH has submitted the
                 delivery supplemental payment methodology to HCFA for
                 approval.   THE MONTHLY CAPITATION AMOUNTS FOR SEPTEMBER 1,
                 1999, THROUGH AUGUST 31, 2000 AND THE DSP AMOUNT ARE LISTED
                 BELOW. THESE AMOUNTS ARE EFFECTIVE SEPTEMBER 1, 1999.  THE
                 MONTHLY CAPITATION AMOUNTS ESTABLISHED FOR EACH RISK GROUP IN
                 THE DALLAS SERVICE AREA USING THE STANDARD METHODOLOGY (LISTED
                 IN ARTICLE 13.1.3) WILL APPLY IF THE DSP METHODOLOGY IS NOT
                 APPROVED BY HCFA.


<TABLE>
<CAPTION>
------------------------------------------------------------------------------
 RISK GROUP                         MONTHLY CAPITATION AMOUNTS
                                    SEPTEMBER 1, 1999 - AUGUST 31, 2000
------------------------------------------------------------------------------
 <S>                                               <C>
 TANF ADULTS                                       $131.03
------------------------------------------------------------------------------
 TANF CHILDREN > 12                                 $57.99
 MONTHS OF AGE -
------------------------------------------------------------------------------
 EXPANSION CHILDREN > 12                           $136.81
 MONTHS OF AGE
------------------------------------------------------------------------------
 NEWBORNS (< 12 MONTHS OF                          $276.74
 AGE)      -
------------------------------------------------------------------------------
</TABLE>





                                       98

                                                    Dallas Service Area Contract
<PAGE>   105
<TABLE>
------------------------------------------------------------------------------
 <S>                                              <C>
 TANF CHILDREN < 12                               $276.74
 MONTHS OF AGE -
------------------------------------------------------------------------------
 EXPANSION CHILDREN < 12                          $276.74
 MONTHS OF AGE      -
------------------------------------------------------------------------------
 FEDERAL MANDATE CHILDREN                          $55.40
------------------------------------------------------------------------------
 CHIP PHASE 1                                      $94.27
------------------------------------------------------------------------------
 PREGNANT WOMEN                                    $232.66
------------------------------------------------------------------------------
 DISABLED/BLIND                                    $14.00
 ADMINISTRATION
------------------------------------------------------------------------------
</TABLE>


                 DELIVERY SUPPLEMENTAL PAYMENT: A ONE-TIME PER PREGNANCY
                 SUPPLEMENTAL PAYMENT FOR EACH DELIVERY SHALL BE PAID TO HMO AS
                 PROVIDED BELOW IN THE FOLLOWING AMOUNT: $3,076.23.

13.1.2.1         HMO will receive a DSP for each live or still birth.  The
                 one-time payment is made regardless of whether there is a
                 single or multiple births at time of delivery.  A delivery is
                 the birth of a liveborn infant, regardless of the duration of
                 the pregnancy or, a stillborn (fetal death) infant of 20 weeks
                 or more gestation.  A delivery does not include a spontaneous
                 or induced abortion, regardless of the duration of the
                 pregnancy.

13.1.2.2         For an HMO Member who is classified in the Pregnant Women,
                 TANF Adults, or TANF CHILDREN  > 12 MONTHS, EXPANSION CHILDREN
                 >12 MONTHS, FEDERAL MANDATE CHILDREN, OR CHIP risk group, HMO
                 will be paid the monthly capitation amount identified in
                 section 13.1.2 for each month of classification, plus the DSP
                 amount identified in Article 13.1.2.

13.1.2.3         HMO must submit a  MONTHLY DSP Report (report) that includes
                 the data elements specified by TDH   TDH will consult with
                 contracted HMOs prior to revising the report data elements and
                 requirements.  The reports must be submitted to TDH in the
                 format and time specified by TDH.  The report must include
                 only unduplicated deliveries.  The report must include only
                 deliveries for which HMO has made a payment for the delivery,
                 to either a hospital or other provider.  No DSP will be made
                 for deliveries which are not reported BY HMO TO TDH within 210
                 days AFTER the date of delivery, or WITHIN





                                       99

                                                    Dallas Service Area Contract
<PAGE>   106
                 30 DAYS FROM THE DATE OF discharge from the hospital FOR THE
                 STAY RELATED TO THE DELIVERY, whichever is later.

13.1.2.4         HMO must maintain complete claims and adjudication disposition
                 documentation, including paid and denied amounts for each
                 delivery.  HMO must submit the documentation to TDH within
                 five (5) days from the date of a TDH request for documents.

13.1.2.5         The DSP will be made by TDH to HMO within  TWENTY (20) STATE
                 WORKING days after receiving an accurate report from HMO.

13.1.2.6         All infants of age equal to or less than twelve months
                 (Newborns) IN THE TANF CHILDREN, EXPANSION CHILDREN, AND
                 NEWBORNS RISK GROUPS will be capitated at the Newborns
                 classification capitation amount in paragraph 13.1.2

13.1.3           Standard Methodology.  If the DSP methodology is not approved
                 by HCFA, the monthly capitation amounts established for each
                 risk group in the Dallas Service Area using the methodology
                 set forth in 13.1.1, without the DSP, are as follows:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------
 RISK GROUP                         MONTHLY CAPITATION AMOUNTS
                                    SEPTEMBER 1, 1999 - AUGUST 31, 2000
--------------------------------------------------------------------------
 <S>                                               <C>
 TANF ADULTS                                       $155.91
--------------------------------------------------------------------------
 TANF CHILDREN                                      $68.09
--------------------------------------------------------------------------
 EXPANSION CHILDREN                                $136.73
--------------------------------------------------------------------------
 NEWBORNS                                          $322.45
--------------------------------------------------------------------------
 FEDERAL MANDATE CHILDREN                           $55.72
--------------------------------------------------------------------------
 CHIP PHASE 1                                      $99.35
--------------------------------------------------------------------------
 PREGNANT WOMEN                                    $646.38
--------------------------------------------------------------------------
</TABLE>





                                      100

                                                    Dallas Service Area Contract
<PAGE>   107

<TABLE>
--------------------------------------------------------------------------
 <S>                                                <C>
 DISABLED/BLIND ADMINISTRATION                      $14.00
--------------------------------------------------------------------------
</TABLE>


13.1.4           The monthly premium payment to HMO is based on monthly
                 enrollments adjusted to reflect money damages set out in
                 Article 18.8 and adjustments to premiums in Article 13.5.

13.1.5           The monthly premium payments will be made to HMO no later than
                 the 10th working day of the month for which premiums are paid.
                 HMO must accept payment for premiums by direct deposit into an
                 HMO account.

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

13.2             EXPERIENCE REBATE TO STATE

13.2.1           HMO must pay to TDH an experience rebate equal to fifty
                 percent (50%) of the excess of allowable HMO STAR revenues
                 over allowable HMO STAR expenses as measured by any positive
                 amount on Line 7 of "Part 1:  Financial Summary, All Coverage
                 Groups Combined" of the annual Managed Care Financial
                 Statistical Report set forth in Appendix I, as audited and
                 confirmed by TDH.

13.2.2           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 annual Managed Care Financial Statistical
                 (MCFS) Report. The second settlement shall be an adjustment to
                 the first settlement and shall be paid to TDH on the same day
                 that the second annual MCFS Report is submitted to TDH if the
                 adjustment is a payment from HMO to TDH. TDH or its agent may
                 audit or review the MCFS reports.  If TDH determines that
                 corrections to the MCFS reports are required, based on a TDH
                 audit/review or other documentation acceptable to TDH, to
                 determine an adjustment to the amount of the second
                 settlement, then final adjustment shall be made within two
                 years from the date that HMO submits the second annual 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 12.1.5.  TDH may adjust the
                 experience rebate if TDH determines HMO has paid affiliates
                 amounts for goods or services that are higher than the fair
                 market value of the goods and services in the service area.
                 Fair market value may be based on the amount HMO pays a
                 non-affiliate(s) or the amount another HMO pays for the same
                 or similar service in the service area.  TDH will have final
                 authority in assessing the amount of the experience rebate.





                                      101

                                                    Dallas Service Area Contract
<PAGE>   108
13.3             PERFORMANCE OBJECTIVES

13.3.1           Preventive Health Performance Objectives are contained in this
                 contract at Appendix K. HMO must accomplish the performance
                 objectives or a designated percentage in order to be eligible
                 for payment of financial incentives.  Performance objectives
                 are subject to change.  TDH will consult with HMO prior to
                 revising performance objectives.

13.3.2           HMO will receive credit for accomplishing a performance
                 objective upon receipt of accurate encounter data required
                 under paragraphs 10.5 and 12.2 of this contract and/or a
                 Detailed Data Element Report from HMO with report format as
                 determined by TDH and aggregate data reported by HMO in
                 accordance with a report format as determined by TDH
                 (Performance Objectives Report). Accuracy and completeness of
                 the detailed data element report and the aggregate data
                 Performance Objectives Report will be determined by TDH
                 through a TDH audit of HMO claims processing system.  If TDH
                 determines that the Detailed Data Element Report and
                 Performance Objectives Report are sufficiently supported by
                 the results of the TDH audit, the payment of financial
                 incentives will be made to HMO.  Conversely, if the audit
                 results do not support the reports as determined by TDH, HMO
                 will not receive payment of the financial incentive. TDH may
                 conduct provider chart reviews to validate the accuracy of the
                 claims data related to HMO accomplishment of performance
                 objectives.  If the results of the chart review do not support
                 HMO claims system data or HMO Detailed Data Element Report and
                 the Performance Objectives Report, TDH may recoup payments
                 made to HMO for performance objectives incentives.

13.3.3           HMO will also receive credit for performance objectives
                 performed by other organizations if a network primary care
                 provider or HMO retains documentation from the performing
                 organization which satisfies the requirements contained in
                 Appendix K of this contract.

13.3.4           HMO will receive performance objective bonuses for
                 accomplishing the following percentages of performance
                 objectives:


<TABLE>
<CAPTION>
----------------------------------------------------------------------------
 Percent of Each Performance          Percent of Performance Objective
 Objective Accomplished               Allocations Paid to HMO
----------------------------------------------------------------------------
             <S>                                         <C>
              60% to 65%                                  20%
----------------------------------------------------------------------------
              65% to 70%                                  30%
----------------------------------------------------------------------------
              70% to 75%                                  40%
----------------------------------------------------------------------------
              75% to 80%                                  50%
----------------------------------------------------------------------------
              80% to 85%                                  60%
----------------------------------------------------------------------------
              85% to 90%                                  70%
----------------------------------------------------------------------------
</TABLE>





                                      102

                                                    Dallas Service Area Contract
<PAGE>   109
<TABLE>
----------------------------------------------------------------------------
            <S>                                          <C>
              90% to 95%                                  80%
----------------------------------------------------------------------------
             95% to 100%                                  90%
----------------------------------------------------------------------------
                 100%                                    100%
----------------------------------------------------------------------------
</TABLE>

13.3.5         HMO must submit the Detailed Data Element Report and the
               Performance Objectives Report regardless of whether or not HMO
               intends to claim payment of performance objective bonuses.

13.4           PAYMENT OF PERFORMANCE OBJECTIVE BONUSES

13.4.1         Payment of performance objective bonus is contingent upon
               availability of appropriations.  If appropriations are not
               available to pay performance objective bonuses as set out below,
               TDH will equitably distribute all available funds to each HMO
               that has accomplished the performance objectives.

13.4.2         In addition to the capitation amounts set forth in Article
               13.1.2, a performance premium of two dollars ($2.00) per Member
               month will be allocated by TDH for the accomplishment of
               performance objectives.

13.4.3         HMO must submit the Performance Objectives Report and the
               Detailed Data Element Report as referenced in Article 13.3.2,
               within 150 days from the end of each State fiscal year.
               Performance premiums will be paid to HMO within 120 days after
               the State receives and validates the data contained in each
               required Performance Objectives Report.

13.4.4         The performance objective allocation for HMO shall be assigned
               to each performance objective, described in Appendix K, in
               accordance with the following percentages:



<TABLE>
<CAPTION>
-------------------------------------------------------------------------
            EPSDT SCREENS                    PERCENT OF PERFORMANCE
                                            OBJECTIVE INCENTIVE FUND
-------------------------------------------------------------------------
 <S>  <C>                                             <C>
 1.   <12 months                                        7%
-------------------------------------------------------------------------
 2.   12 to 24 months                                   7%
-------------------------------------------------------------------------
 3.   25 months - 20 years                             19%
-------------------------------------------------------------------------
 4.   <12 months = 3.8 screens                         21%
-------------------------------------------------------------------------
 5.   12 to 24 months = 2.8 screens                    14%
-------------------------------------------------------------------------
</TABLE>





                                      103

                                                    Dallas Service Area Contract
<PAGE>   110

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
            IMMUNIZATIONS                    PERCENT OF PERFORMANCE
                                            OBJECTIVE INCENTIVE FUND
-------------------------------------------------------------------------
 <S>  <C>                                            <C>
 6.   <12 months                                       6%
-------------------------------------------------------------------------
 7.   12 to 24 months                                  3%
-------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
-------------------------------------------------------------------------
         ADULT ANNUAL VISITS                 Percent of Performance
                                            Objective Incentive Fund
-------------------------------------------------------------------------
 <S>  <C>                                            <C>
 8.   Adult Annual Visits                              2%
-------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
           PREGNANCY VISITS                  Percent of Performance
                                            Objective Incentive Fund
-------------------------------------------------------------------------
 <S>  <C>                                            <C>
 9.   Initial prenatal exam                            6%
-------------------------------------------------------------------------
 10.  Visits by Gestational Age                        10%
-------------------------------------------------------------------------
 11.  Postpartum visit                                 5%
-------------------------------------------------------------------------
</TABLE>

13.5           ADJUSTMENTS TO PREMIUM

13.5.1         TDH may recoup premiums paid to HMO in error.  Error may be
               either human or machine error on the part of TDH or an agent or
               contractor of TDH.  TDH may recoup premiums paid to HMO if a
               Member is enrolled into HMO in error, and HMO provided no
               covered services to Member for the period of time for which
               premium was paid.  If services were provided to Member as a
               result of the error, recoupment will not be made.

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

13.5.3         TDH may recoup premium paid to HMO if a Member for whom premium
               is paid dies before the first day of the month for which premium
               is paid.

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





                                      104

                                                    Dallas Service Area Contract
<PAGE>   111
13.5.5         Recoupment or adjustment of premium under 13.5.1 through 13.5.4
               may be appealed using the TDH dispute resolution process.

13.5.6         TDH may adjust premiums for all Members within an eligibility
               status or program type if adjustment is required by reductions
               in appropriations and/or if a benefit or category of benefits is
               excluded or included as a covered service.  Adjustment must be
               made by amendment as required by Article 15.2.  Adjustment to
               premium under this subsection may not be appealed using the TDH
               dispute resolution process.


ARTICLE XIV               ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT


14.1           ELIGIBILITY DETERMINATION

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

14.1.2         Individuals in the following categories who reside in any part
               of the Service Area MUST enroll in one of the health plans
               providing services in the Service Areas:

14.1.2.1       TANF ADULTS - Individuals age 21 and over who are eligible for
               the TANF program.  This category may also include some pregnant
               women.

14.1.2.2       TANF CHILDREN - Individuals under age 21 who are eligible for
               the TANF program.  This category may also include some pregnant
               women and some children less than one year of age.

14.1.2.3       PREGNANT WOMEN receiving Medical Assistance Only (MAO) -
               Pregnant women whose families' income is below 185% of the
               Federal Poverty Level (FPL).

14.1.2.4       NEWBORN (MAO) - Children under age one born to Medicaid-eligible
               mothers.

14.1.2.5       EXPANSION CHILDREN (MAO) - Children under age 18, ineligible for
               TANF because of the applied income of their stepparents or
               grandparents.

14.1.2.6       EXPANSION CHILDREN (MAO) - Children under age 1 whose families'
               income is below 185% FPL.

14.1.2.7       EXPANSION CHILDREN MAO - Children age 1- 5 whose families'
               income is at or below 133% of FPL.

14.1.2.8       FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born
               before October 10, 1983, whose families' income is below the
               TANF income limit.





                                      105

                                                    Dallas Service Area Contract
<PAGE>   112
14.1.2.9       CHILDREN'S HEALTH INSURANCE PROGRAM (MAO) - Children under age
               19, born on or after October 1, 1979, whose families' income is
               between the medically needy standards limit and 100% FPL.

14.1.2.10      CHIP PHASE I - Children's Health Insurance Program Phase I
               (Federal Mandate Acceleration) Children are children under age
               nineteen (19) born before October 1, 1983, with family income
               below 100% Federal Poverty Income Level.

14.1.3         The following individuals are eligible for the STAR Program and
               ARE NOT required to enroll in a health plan, but have the option
               to enroll in a plan.  HMO will be required to accept enrollment
               of those recipients from this group who elect to enroll in HMO.

14.1.3.1       DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients
               with Supplemental Security Income (SSI) benefits who are not
               eligible for Medicare may elect to participate in the STAR
               program on a voluntary basis.

14.1.3.2       Certain blind or disabled individuals who lose SSI eligibility
               because of Title II income and who are not eligible for
               Medicare.

14.1.3.3       Non-institutionalized blind and disabled people enrolled in
               1915(c) waivers whose income is above SSI limits, whose
               eligibility was determined using the institutional cap (300%),
               and who are not Medicare eligible.  (TDH will be phasing out
               this population during FY 99.)

14.1.4         During the period after which the Medicaid eligibility
               determination has been made but prior to enrollment in HMO,
               Members will be enrolled under the traditional Medicaid program.
               All Medicaid eligible recipients will remain in the
               fee-for-service Medicaid program until enrolled in or assigned
               to an HMO.

14.2           ENROLLMENT

14.2.1         TDH has the right and responsibility to enroll and disenroll
               eligible individuals into the STAR program.  TDH will conduct
               continuous open enrollment for Medicaid recipients and HMO must
               accept all persons who chose to enroll as Members in HMO or who
               are assigned as Members in HMO by TDH, without regard to the
               Member's health status or any other factor.

14.2.2         All enrollments are subject to the accessibility and
               availability limitations and restrictions contained in the
               Section 1915(b) waiver obtained by TDH.  TDH has the authority
               to limit enrollment into HMO if the number and distance
               limitations are exceeded.





                                      106

                                                    Dallas Service Area Contract
<PAGE>   113
14.2.3         TDH makes no guarantees or representations to HMO regarding the
               number of eligible Medicaid recipients who will ultimately be
               enrolled as STAR Members of HMO.

14.2.4         HMO must cooperate and participate in all TDH sponsored and
               announced enrollment activities. HMO must have a representative
               at all TDH enrollment activities unless an exception is given by
               TDH.  The representative must comply with HMO's cultural and
               linguistic competency plan (see Cultural and Linguistic
               requirements in Paragraph 8.9 of this contract).  HMO must
               provide marketing materials, HMO pamphlets, Member handbooks, a
               list of network providers, HMO's linguistic and cultural
               capabilities and other information requested or required by TDH
               or its Enrollment Broker to assist potential Members in making
               informed choices.

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

14.3           DISENROLLMENT

14.3.1         HMO has a limited right to request a Member be disenrolled from
               HMO without the Member's consent.  TDH must approve any HMO
               request for disenrollment of a Member for cause. Disenrollment
               of a Member may be permitted under the following circumstances:

14.3.1.1       The Member misuses or loans the Member's HMO membership card to
               another person to obtain services.

14.3.1.2       The Member is disruptive, unruly, threatening or uncooperative
               to the extent that the Member's membership seriously impairs
               HMO's or provider's ability to provide services to the Member or
               to obtain Members, and the Member's behavior is not caused by a
               physical or behavioral health condition.

14.3.1.3       The Member steadfastly refuses to comply with managed care, such
               as repeated emergency room use combined with refusal to allow
               HMO to treat the underlying medical condition.

14.3.2         HMO must take reasonable measures to correct Member behavior
               prior to requesting disenrollment.  Reasonable measures may
               include providing education and counseling regarding the
               offensive acts or behaviors.

14.3.3         HMO must notify the Member of HMO's decision to disenroll the
               Member if all reasonable measures have failed to remedy the
               problem.





                                      107
                                                    Dallas Service Area Contract
<PAGE>   114
14.3.4         If the Member disagrees with the decision to disenroll the
               Member from HMO, HMO must notify the Member of the availability
               of the complaint procedure and TDH's fair hearing process.

14.3.5         HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN
               THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE
               MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.4           AUTOMATIC RE-ENROLLMENT

14.4.1         Members who are disenrolled because they are temporarily
               ineligible for Medicaid will be automatically re-enrolled into
               the same health plan.  Temporary loss of eligibility is defined
               as a period of 3 months or less.

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

14.5           ENROLLMENT REPORTS

14.5.1         TDH will provide HMO enrollment reports listing all STAR Members
               who have enrolled in or were assigned to HMO during the initial
               enrollment period.

14.5.2         TDH will provide monthly HMO Enrollment Reports to HMO on or
               before the first of the month.

14.5.3         TDH will provide Member verification to HMO and network
               providers through telephone verification or TexMedNet.


ARTICLE XV                GENERAL PROVISIONS


15.1           INDEPENDENT CONTRACTOR

               HMO, its agents, employees, network providers and subcontractors
               are independent contractors, and do not perform services under
               this contract as employees or agents of TDH. HMO is given
               express, limited authority to exercise the State's right of
               recovery as provided in 4.9.

15.2           AMENDMENT





                                      108

                                                    Dallas Service Area Contract
<PAGE>   115
15.2.1         This contract must be amended by TDH if amendment is required to
               comply with changes in state or federal laws, rules, or
               regulations.

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

15.2.3         This contract must be amended if either party discovers a
               material omission of a negotiated or required term, which is
               essential to the successful performance or maintaining
               compliance with the terms of the contract.  The party
               discovering the omission must notify the other party of the
               omission in writing as soon as possible after discovery.  If
               there is a disagreement regarding whether the omission was
               intended to be a term of the contract, the parties must submit
               the dispute to dispute resolution under paragraph 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 TDH.
               This provision does not prevent HMO from





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               subcontracting duties and responsibilities to qualified
               subcontractors.  All subcontracts, which would affect the
               delivery of medical care or services to TDH STAR Health Plan
               Members, must be approved by TDH.

15.7           NON-EXCLUSIVE

               This contract is a non-exclusive agreement.  Either party may
               contract with other entities for similar services in the same
               service area.

15.8           DISPUTE RESOLUTION

               All disputes arising under this contract shall be resolved
               through TDH's dispute resolution procedures, except where a
               remedy is provided for through TDH's administrative rules or
               processes.  All administrative remedies must be exhausted prior
               to other methods of dispute resolution.

15.9           DOCUMENTS CONSTITUTING CONTRACT

               This contract includes this document and all amendments and
               appendices to this document, the Request for Application, the
               Application submitted in response to the Request for
               Application, the Texas Medicaid Provider Procedures Manual and
               Texas Medicaid Bulletins addressed to HMOs, contract
               interpretation memoranda issued by TDH for this contract, and
               the federal waiver granting TDH authority to contract with HMO.
               If any conflict in provisions between these documents occurs,
               the terms of this contract and any amendments shall prevail.
               The documents listed above constitute the entire contract
               between the parties.

15.10          FORCE MAJEURE

               TDH and HMO are excused from performing the duties and
               obligations under this contract for any period that they are
               prevented from performing their services as a result of a
               catastrophic occurrence, or natural disaster, clearly beyond the
               control of either party, including but not limited to an act of
               war, but excluding labor disputes.

15.11          NOTICES

               Notice may be given by any means which provides for verification
               of receipt.  All notices to TDH shall be addressed to Bureau
               Chief, Texas Department of Health, Bureau of Managed Care, 1100
               W. 49th Street, Austin, TX 78756-3168, with a copy to the
               Contract Administrator. Notices to HMO shall be addressed to
               CEO/President,
                          AMERICAID Texas, Inc.
               -----------------------------------------------------------------
                          617 Seventh Avenue, 2nd Floor
               -----------------------------------------------------------------
                          Fort Worth, TX 76104
               -----------------------------------------------------------------





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15.12          SURVIVAL

               The provisions of this contract which relate to the obligations
               of HMO to maintain records and reports shall survive the
               expiration or earlier termination of this contract for a period
               not to exceed six (6) years unless another period may be
               required by record retention policies of the State of Texas or
               HCFA.

ARTICLE XVI               DEFAULT


16.1           FAILURE TO PROVIDE COVERED SERVICES

               If a member requests a fair hearing before the department
               because the HMO has failed to provide a covered service, the
               Bureau of Managed Care may recommend to the hearing officer that
               a determination be made to impose sanctions upon the HMO, in
               addition to any remedy entered for an on behalf of the Member.
               The recommendation to impose sanctions must include an amount of
               recommended sanctions.  The amount of the sanction may be in any
               amount of not less than $1000 or more than $25,000 depending
               upon the nature of the denial and the hardship or health threat
               that the denial placed upon the Member.

16.2           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 which are not direct delivery
               of health or health-related services, including claims payment,
               encounter date submission, filing any report when due, providing
               or producing records upon request or failing to enter into
               contracts or implementing procedures necessary to carry out
               contract obligations.

16.3           HMO CERTIFICATE OF AUTHORITY

               Termination or suspension of HMO's TDI Certificate of Authority
               or any adverse action taken by TDI which TDH determines will
               affect the ability of HMO to provide health care services to
               Members is a default under this contract.

16.4           INSOLVENCY

               Failure of HMO to maintain against fiscal insolvency as required
               under State or federal law or incapacity of HMO to meet its
               financial obligation as they come due is a default under this
               contract.

16.5           FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS





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               Failure of HMO to comply with the federal requirements for
               Medicaid, or by incorporation, Medicare standards, requirements,
               or prohibitions, is a default of this contract.

16.6           EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID

16.6.1         Exclusion of HMO or any of the managing employees or persons
               with an ownership interest whose disclosure is required by
               Section 1124(a) of the Social Security Act (the Act), under the
               provisions of Section 1128(a) and/or (b) of the Act, is a
               default of this contract.

16.6.2         Exclusion of any provider or Subcontractor or any of the
               managing employees or persons with an ownership interest of the
               provider or Subcontractor whose disclosure is required by
               Section 1124(a) of the Social Security Act (the Act), under the
               provisions of Section 1128(a) and/or (b) of the Act, is a
               default of this contract if the exclusion will materially affect
               HMO's performance under this contract.

16.7           MISREPRESENTATION, FRAUD OR ABUSE

               Misrepresentation or fraud under the provisions of Article 4.8
               of this contract is a default under this contract.

               Misrepresentation or fraud and abuse under any state or federal
               law, regulation or rule or under the common law of the State of
               Texas, is a default under this contract.

16.8           FAILURE TO MAKE CAPITATION PAYMENTS

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

16.9           FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS

               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.

16.10          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 is a
               default under the contract.





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16.11          FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
               NETWORK PROVIDERS

16.11.1        Failure of HMO to audit, monitor, supervise, or enforce
               functions delegated by contract to another entity which 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.

16.11.2        Failure of HMO to properly credential, conduct reasonable
               utilization review, and quality monitoring is a default under
               this contract.

16.11.3        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.

ARTICLE XVII              NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1           TDH will provide HMO with written notice of default under this
               contract.  The written notice must contain the following
               information:

17.1.1         A clear and concise statement of the circumstances or conditions
               which constitute a default under this contract;

17.1.2         The contract provision(s) under which default is being declared;

17.1.3         A clear and concise statement of how and/or whether the default
               may be cured;

17.l.4         A clear and concise statement of the time period HMO will be
               allowed to cure the default;

17.1.5         The amount of damages or the types of sanctions which are being
               or will be imposed pending cure, and the date they began or will
               begin;

17.l.6         Whether any part of the damages or sanctions may be equipped or
               passed through to an individual or entity who is or may be
               responsible for the act or omission for which default is
               declared;

17.1.7         Whether failure to cure within the given time period will result
               in additional damages or sanctions and/or referral for
               investigation or action by another agency, and/or termination of
               the contract.

17.2           Sanctions and damages for acts or omissions which are events of
               default under Article XVI will be imposed from the date of
               occurrence until cured, unless otherwise stated in the notice of
               default.





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ARTICLE XVIII             REMEDIES AND SANCTIONS

18.l           TERMINATION BY TDH

18.1.1         TDH may terminate this contract if:

18.1.1.1       HMO repeatedly fails or refuses to provide services and perform
               administrative functions under this contract after notice and
               opportunity to cure;

18.1.1.2       HMO materially defaults under any of the provisions of Article
               XVI, or;

18.1.1.3       Federal or state funds for the Medicaid program are no longer
               available, or;

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

18.1.2         TDH must give HMO 30 days written notice of intent to terminate
               this contract if termination is a result of HMO's failure to
               cure a default under Article XVIII.  If termination is a result
               of 18.1.1.3, TDH will provide HMO with reasonable notice under
               the circumstances.  If termination is a result of 18.1.1.4, TDH
               will give the notice required under the provisions of the
               department's formal hearing procedures in 25 Texas
               Administrative Code Section 1.2.1.  Notice may be given by any
               means that gives verification of receipt.  The termination date
               will be calculated as 30 days following the date that HMO
               receives the notice of intent to terminate.

18.1.3         HMO must continue to perform services until the last day of the
               month following 30 days from the date of receipt of notice if
               the termination is a result of 18.1.1.1, 18.1.1.2, or 18.1.1.3
               above.  TDH may prohibit HMO's further performance of services
               under the contract if the reason for termination is 18.1.1.4
               above.

18.1.4         HMO may appeal the termination of this contract under the
               provision of the Texas Human Resources Code, Section 32.034.

18.1.5         The remedies available to TDH set forth above are in addition to
               all other remedies available to TDH by law or in equity, are
               joint and several, and may be exercised concurrently or
               consecutively.  Exercise of any remedy in whole or in part shall
               not limit TDH in exercising all or part of any remaining
               remedies.

18.2           TERMINATION BY HMO





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18.2.1         HMO may terminate this contract if TDH fails to pay HMO as
               required under Article XIII or otherwise materially defaults in
               its duties and responsibilities under this contract. Retaining
               premium, recoupment, sanctions, or penalties which are allowed
               under this contract or which result from HMO's failure to
               perform or a default under the terms of the contract are not
               cause for termination.

18.2.2         HMO must give TDH 60 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 60 days from
               the date the notice of intent to termination is received by TDH.

18.2.3         TDH must be given 30 days to pay all amounts due.  If TDH pays
               all amounts then due, HMO cannot terminate the contract under
               this Article.

18.2.4         This agreement may be terminated at any time and without cause
               by either party, upon at least (90) days prior written notice.
               During said ninety day notice period, both HMO and TDH shall use
               each of their best efforts to accommodate the smooth transition
               of health care services being rendered to HMO Members at time of
               termination of the Agreement, as outlined in Section 18.4

18.3           TERMINATION BY MUTUAL CONSENT

               This contract may be terminated at any time by mutual consent of
               both HMO and TDH.

18.4           DUTIES UPON TERMINATION OF CONTRACTING PARTIES

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

18.4.1         If the contract is terminated unilaterally by TDH, because of
               failure of HMO to perform duties and obligations required by the
               contract or by mutual consent with termination initiated by HMO:

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

18.4.1.2       HMO is responsible for all expenses related to giving notice to
               Members.

18.4.2         If the contract is terminated for any reason other than those
               included in 18.4.1:

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





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18.4.2.2       TDH is responsible for all expenses related to giving notice to
               Members.

18.5           STATE AND FEDERAL DAMAGES, PENALTIES AND SANCTIONS

18.5.1         TDH may recommend to HCFA that sanctions be taken against HMO
               for violations of 42 C.F.R. 434.67(a), relating to sanctions
               against HMOs with risk comprehensive contracts.  These
               violations are also defaults of Article XVI of this contract.
               If HCFA determines that HMO has violated one or more of these
               provisions of the regulations and determines that federal
               payments will be withheld, TDH will deny and withhold payments
               for new enrollees of HMO.

18.5.1.1       HMO must be given notice and opportunity to appeal a decision of
               TDH and HCFA as required in 42 C.F.R. 434.67(c) and (d).

18.5.1.2       HMO may be subject to civil money penalties under the provisions
               of 42 C.F.R. 1003 in addition to or in place of withholding
               payments under 18.5.1.

18.5.2         HMO may be subject to damages and penalties under the Human
               Resources Code, Section 32.039, relating to damages and
               penalties for events of default under this contract and
               violations of the provisions of Section 32.039.

18.5.2.1       HMO will be given notice of the default or violation upon which
               damages or penalties are based and an opportunity to appeal
               under the provision of Section 32.039.

18.6           SUSPENSION OF NEW ENROLLMENT

18.6.1         TDH may suspend new enrollment into HMO for any default under
               this contract.

18.6.2         TDH must give HMO 30 days written notice of intent to suspend
               new enrollment other than for defaults which are imposed as a
               result of fraud and abuse or imminent danger to the health or
               safety of Members.  Notice may be given by any means which gives
               verification of receipt. The suspension date will be calculated
               as 30 days following the date that HMO receives the notice of
               intent to suspend new enrollment. During the 30-day notice
               period, HMO will be given an opportunity to cure the defaults,
               if a cure is possible.

18.6.3         TDH may immediately suspend new enrollment into HMO for a
               default declared as a result of fraud and abuse or imminent
               danger to the health and safety of Members or investigation,
               prosecution, or suspension by an agency charged with the duty of
               investigation of state and federal laws.

18.6.4         The suspension of new enrollment may be for any duration, up to
               the termination date of the contract.  TDH will impose a
               duration of suspension based upon the type and severity of the
               default and HMO's ability to cure the default.





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18.7           TDH INITIATED DISENROLLMENT

18.7.1         TDH may initiate disenrollment of a Member or reduce the total
               number of Members enrolled in HMO through disenrollment if HMO
               fails to provide covered services to a Member or if TDH
               determines that HMO has a pattern or practice of failing to
               provide covered services to Members.

18.7.2         TDH must give HMO 30 days written notice of intent to initiate
               disenrollment of a Member. Notice may be given by any means
               which gives verification of receipt.  The TDH initiated
               disenrollment date will be calculated as 30 days following the
               date that HMO receives the notice of intent to disenroll.  HMO
               will not be given an opportunity to cure the default unless the
               right to cure is expressly authorized in the notice letter.

18.7.3         TDH may continue to reduce the number of Members enrolled in HMO
               until HMO demonstrates that it can and/or will provide covered
               services as required under this contract.

18.8           LIQUIDATED MONEY DAMAGES - WITHHOLDING PAYMENTS

18.8.1         TDH may impose liquidated money damages in addition to other
               remedies and sanctions provided under this contract.  If money
               damages are imposed, TDH may reduce the amount of any monthly
               premium payments otherwise due to HMO by the amount of the
               damages.  Money damages, which are withheld, 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.

18.8.2         Failure to perform or comply with an administrative function.
               TDH may impose and withhold the following money damages for each
               event of default:

18.8.2.1       Failure to file or filing incomplete or inaccurate annual or
               quarterly reports will result in money damages of not less than
               $3,000.00 or more than $11,000.00 for every month from the month
               the report is due until submitted in the form and format
               required by TDH.  These money damages apply separately to each
               report.

18.8.2.2       Failure to produce or provide records and information requested
               by TDH, or an entity acting on behalf of TDH, or an agency
               authorized by statute or law to require production of records at
               the time and place the records were required or requested, will
               result in money damages of not less than $1,000.00 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 $500.00 per day for each day records are not produced
               if the requesting entity or agency is conducting routine audits
               or monitoring activities.





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18.8.2.3       Failure to file or filing incomplete or inaccurate encounter
               data will result in money damages of not less than $10,000 nor
               more than $25,000 for each month HMO fails to submit encounter
               data in the form and format required by TDH.  These damages are
               in addition to the damages contained in 18.8.2.1 above.  TDH
               will use the encounter data validation methodology established
               by TDH to determine the numbers of encounter data and the number
               of days for which damages will be assessed.

18.8.2.4       Failing or refusing to cooperate with TDH, an entity acting on
               behalf of TDH, or an agency authorized by statute or law to
               require the cooperation of HMO, in carrying out an
               administrative, investigative, or prosecutorial function of the
               Medicaid program, will result in money damages of not less than
               $1,000.00 per day for each day HMO fails to cooperate.

18.8.3         Failure to provide or pay for covered services.  TDH will impose
               and withhold the following money damages for each event of
               default:

18.8.3.1       Failure to provide mandatory and/or benchmarked services.  If
               HMO fails to deliver services or to report encounter data
               documenting the delivery of services which are mandated by
               federal law or for which a benchmark is established under this
               contract, TDH will impose money damages.  Damages imposed will
               be not less than $10,000 nor more than $25,000 for each month
               that HMO substantially fails to deliver the services and/or
               report the encounter data documenting the delivery of the
               services, or fails to meet the established benchmark.  These
               damages are in addition to failure to document or submit
               encounter data and reports required elsewhere in this contract.

18.8.3.2       Failure to provide a covered service requested or required by a
               Member.  If a Member requests a fair hearing before TDH because
               HMO has substantially failed to provide a covered service, the
               Bureau of Managed Care may make a recommendation to the hearing
               officer conducting the fair hearing to impose sanctions upon
               HMO.  The recommendation of the Bureau of Managed Care to impose
               sanctions must include an amount of recommended sanctions, and
               the justification for entering a finding that HMO has
               substantially failed to deliver the requested service.  The
               amount of the sanction may be in any amount of not less than
               $1,000.00 nor more than $25,000.00 depending upon the nature of
               the denial and the hardship or health threat that the denial
               placed upon the Member.

18.8.3.3       If TDH has provided or paid for a service requested by a Member
               pending a decision after a fair hearing and the decision is
               adverse to HMO, TDH will withhold the entire amount TDH paid for
               the service in addition to the damages under 18.8.3.

18.8.3.4       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 will result in money damages of
               $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.





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18.8.3.5       Failing to pay providers claims for covered services.  TDH will
               impose and withhold the following money damages for each event
               of default.  These money damages are in addition to the interest
               HMO is required to pay to providers under the provisions of
               7.2.7.10, above.

18.8.3.6       If TDH determines that HMO has failed to pay a provider for a
               claim or claims for which provider should have been paid, TDH
               will 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.

18.8.3.7       If TDH determines that HMO has failed to pay a capitation amount
               to a provider who has contracted with HMO to provide services on
               a capitated basis, TDH will 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.

18.8.4         TDH must provide HMO with 7 days written notice of intent to
               withhold capitation amounts under this Article 18.8.  The notice
               will include the reason for the withhold, the amount that TDH
               intends to withhold, and facts and detail sufficient for HMO to
               determine the accuracy of the proposed withhold.  Notice may be
               given by any means that gives verification of receipt.

18.8.5         HMO may appeal the decision of TDH to withhold capitation
               amounts by filing a written response to the notice clearly
               stating the reason HMO disputes the withhold, and include any
               supporting documentation with the response.  HMO must file the
               appeal within 15 days from HMO's receipt of the notice.  Filing
               an appeal will not pend or suspend the withhold.

18.8.6         HMO and TDH must attempt to informally resolve the dispute.  If
               HMO and TDH are unable to informally resolve the dispute, HMO
               must notify the Bureau Chief of Managed Care that they are
               unable to come to an agreement.  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 the
               department's dispute resolution procedures.  The decision of the
               dispute resolution committee will be a final administrative
               decision of the department.

18.9           FORFEITURE OF TDI PERFORMANCE BOND

               TDH may require forfeiture of all or a portion of the face
               amount of the TDI performance bond if TDH determines that an
               event of default has occurred. Partial payment of the face
               amount shall reduce the total bond amount available pro rata.





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<PAGE>   126
ARTICLE XIX               TERM


19.1           The effective date of this contract is July 1, 1999.  This
               contract will terminate on August 31, 2000, unless terminated
               earlier as provided elsewhere in this contract.

19.2           The contract will not automatically renew beyond the initial
               term.  TDH will notify HMO not less than 60 days before the end
               of the contract term of its intent not to renew the contract.

19.3           If HMO does not intend to renew beyond the initial term of the
               contract, HMO must submit a written Notice of Intent Not to
               Renew, along with a transition plan for its existing Members,
               not less than 90 days before the end of the contract term in
               19.1. HMO will be responsible for paying all costs of providing
               notice to Members and any additional costs incurred by TDH to
               ensure that Members are reassigned to other plans without
               interruption of services.

19.4           HMO may enter into a new contract to continue to provide managed
               care services under the following terms and conditions:

19.4.1         HMO submits a written Request to Continue Operations Without
               Interruption not less than 90 days before the end of the
               contract term in 19.1;

19.4.2         HMO submits to a Readiness Review by TDH under the provisions of
               Gov. Code Section 533.107;

19.4.3         HMO cures any past default or deficiencies or submits a written
               plan documenting how past defaults or deficiencies will be
               avoided under a future contract, and the written plan is
               approved by TDH;

19.4.4         HMO submits all reports and encounter data currently due or past
               due under this contract before the termination date of this
               contract.

19.4.5         If HMO submits a Request to Continue Operations Without
               Interruption but either fails to meet the requirements of this
               Article or decides prior to execution of a renewal contract not
               to continue operations, HMO will be responsible for paying all
               costs of providing notice to Members and any additional costs
               incurred by TDH to ensure that Members are reassigned to other
               plans without interruption of services. HMO must continue to
               provide services to Members for 60 days or until all Members
               have been reassigned to other plans.

19.5           This contract may be extended on a temporary basis if the
               requirements of this section have been initiated but the
               requirements of 19.3 have not been completed and/or evaluated by
               TDH before the termination date.





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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.

<TABLE>
<S>                                      <C>
SIGNED             8th                   day of      February           , 1999.
       ---------------------------------        ------------------------

TEXAS DEPARTMENT OF HEALTH                           HMO NAME


BY:                                                  BY:
    ----------------------------                         ------------------------------
    William R. Archer III, M.D.            Printed Name:
    Commissioner of Health                               ------------------------------
                                                  Title:
                                                         ------------------------------
</TABLE>

Approved as to Form:

Office of General Counsel





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<PAGE>   128
                                   APPENDICES

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

--------------------------------------------------------------------------------

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

This Amendment No.1 is entered into between the Texas Department of Health and
AMERICAID Texas, Inc. (HMO), to amend the Contract for Services between the
Texas Department of Health and HMO in the Dallas Service Area, dated February
8, 1999.  The effective date of this Amendment is September 1, 1999.  All other
contract provisions remain in full force and effect.

(The amended sections, BOLD AND ITALICIZED, are shown throughout the entire
contract)


AGREED AND SIGNED by an authorized representative of the parties on November 1,
1999.


TEXAS DEPARTMENT OF HEALTH                               AMERICAID Texas, Inc.

By:  William R. Archer, III., M.D.                 By:   James D. Donovan, Jr.
     -----------------------------                       ---------------------
     Commissioner of Health                              President & CEO



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