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                                                                Exhibit 10.37

             HEALTHCHOICES LEHIGH/CAPITAL PHYSICAL HEALTH AGREEMENT

                                    BETWEEN

                          COMMONWEALTH OF PENNSYLVANIA

                                      AND

                          HRM HEALTH PLANS (PA), INC.

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             HEALTHCHOICES LEHIGH/CAPITAL PHYSICAL HEALTH AGREEMENT

      THIS AGREEMENT made effective as of the 1st day of April 2001 by and
between the Commonwealth of Pennsylvania, acting through its Department of
Public Welfare (the "Department") and HRM Health Plans (PA), Inc., (the
"Contractor").

WITNESSETH:

      WHEREAS, the Pennsylvania Medical Assistance Program ("MA Program") is
organized under Title XIX of the Social Security Act, 42 U.S.C.A. 1396 et seq.
and under the Public Welfare Code, 62 P.S. 101 et seq. to provide payment for
medical services to persons eligible for medical assistance; and

      WHEREAS, Section 443.5 of the Public Welfare Code (62 P.S. 443.5)
authorizes the Department to provide prepaid capitation payments for services
provided under contracts with Physical Health Maintenance Organizations; and

      WHEREAS, the Hearth Care Financing Administration ("HCFA") approved the
Department's waiver request under Section 1915(b) of the Social Security Act,
42 U.S.C.A. 1396n, to implement a mandatory managed care program, under the name
HealthChoices Lehigh/Capital (the "HC-L/C Program") for Medical Assistance (MA)
consumers in Adams, Berks, Cumberland, Dauphin, Lancaster, Lebanon, Lehigh,
Northampton, Perry and York Counties (the "HC-L/C Counties"); (see Appendix 3)
and

      WHEREAS, the Department issued Request for Proposal Number 11-00 (the
"RFP") containing the participation requirements and the terms and conditions of
the HC-L/C Physical Health Program and soliciting proposals from Physical Health
Managed Care Organizations (PH-MCOs) to participate in the program (including
all technical amendments, appendices and exhibits attached thereto); and

      WHEREAS, the Contractor submitted a proposal in response to the RFP and
such Proposal was selected by the Department as responsive to the requirements
of the RFP. (The proposal submitted by the Contractor, including all appendices
and exhibits attached thereto, shall be referred to as the "Proposal"); and

      WHEREAS, the Department and the Contractor desire to enter into this
Agreement for the time period April 01, 2001 through December 31, 2005.

      NOW, THEREFORE, the parties intending to be legally bound hereby agree as
follows:

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                    LEHIGH/CAPITAL PHYSICAL HEALTH AGREEMENT

SECTION I:      INCORPORATION OF DOCUMENTS ....................................2

     A. Operative Documents ...................................................2

SECTION II:     DEFINITIONS ...................................................2

                AGREEMENT AND RFP ACRONYMS ...................................20

SECTION III:    RELATIONSHIP OF PARTIES ......................................23

     A. Basic Relationship ...................................................23
     B. Nature of Contract ...................................................23

SECTION IV:     APPLICABLE LAWS AND REGULATIONS ..............................23

     A. Certification and Licensing ..........................................23
     B. Specific to MA Program ...............................................24
     C. General Laws and Regulations .........................................24
     D. Limitation on the Department's Obligations ...........................25

SECTION V:      PROGRAM REQUIREMENTS .........................................25

     A. In-Plan Services .....................................................25
        1.  Amount, Duration and Scope .......................................25
        2.  Program Exception ................................................26
        3.  Expanded Benefits ................................................26
        4.  Referrals ........................................................27
        5.  Self Referral/Direct Access ......................................27
        6.  Behavioral Health Services .......................................28
        7.  Pharmacy Services ................................................28
        8.  EPSDT Services ...................................................31
        9.  Emergency Room (ER) Services .....................................32
        10. Post-Stabilization Services ......................................33
        11. Examinations to Determine Abuse or Neglect .......................33
        12. Hospice Services .................................................34
        13. Organ Transplants ................................................34
        14. Transportation ...................................................34
        15. Waiver Services/State Plan Amendments ............................35
        16. Nursing Facility Services ........................................36

     B. Prior Authorization of Services ......................................37
        1.  General Prior Authorization Requirements .........................37
        2.  Prior Authorization for Outpatient Prescription Drugs ............39

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     C. Continuity of Care ...................................................40

     D. Coordination of Care .................................................40
        1.  Nursing Facility Care ............................................41
        2.  Special Services .................................................41
        3.  Out-of-Plan Services .............................................41
        4.  Coordination of Care/Letters of Agreement ........................42
        5.  PH-MCO and BH-MCO Coordination ...................................43

     E. Contractor Responsibility for Reportable Conditions ..................44

     F. Member Enrollment and Disenrollment ..................................44
        1.  General ..........................................................44
        2.  Contractor Outreach Materials ....................................45
        3.  Contractor Outreach Activities ...................................46
        4.  Alternative Language Requirement .................................48
        5.  Contractor Enrollment Procedures .................................49
        6.  Enrollment of Newborns ...........................................49
        7.  Transitioning Members Between PH-MCOs ............................49
        8.  Change in Status .................................................50
        9.  Monthly Membership ...............................................50
        10. Enrollment and Disenrollment Updates .............................50
        11. Services for New Members .........................................51
        12. New Member Orientation ...........................................52
        13. Eligibility Verification System (EVS) ............................53
        14. Contractor Identification Cards ..................................53
        15. Member Handbook ..................................................53
        16. Provider Directories .............................................54
        17. HC-L/C Member Disenrollment ......................................55

     G. Member Services ......................................................55
        1.  General ..........................................................55
        2.  Contractor Internal Member Dedicated Hotline .....................56
        3.  Education and Outreach Health Education Advisory Committee .......57
        4.  Informational Materials ..........................................57
        5.  Member Encounter Listings ........................................58

     H. Additional Addressee .................................................59

     I.  Member Complaint, Grievance and DPW Fair Hearing Process ............59
        1.  Member Complaint, Grievance and DPW Fair Hearing Process .........59
        2.  DPW Fair Hearing Process for Members .............................60


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     J. Clinical Sentinel ....................................................60

     K. Provider Dispute Resolution System ...................................61

     L. Certification of Authority ...........................................62

     M. Executive Management .................................................62

     N. Other Administrative Components ......................................64

     O. Administration .......................................................65
        1.  Responsibility to Employ MA Consumers ............................66
        2.  Recipient Restriction Program ....................................66
        3.  Contracts and Subcontracts .......................................66
        4.  Lobbying Disclosure ..............................................67
        5.  Records Retention ................................................67
        6.  Fraud and Abuse ..................................................67
        7.  Information Systems and Encounter Data ...........................69
        8.  Department Access and Availability ...............................71

     P. Special Needs Unit (SNU) .............................................72
        1.  Establishment of Special Needs Unit ..............................72
        2.  Special Needs Coordinator ........................................73
        3.  Responsibilities of Special Needs Unit Staff .....................73

     Q. Assignment of PCPs.. .................................................74

     R. Provider Services ....................................................75
        1.  Provider Manual ..................................................76
        2.  Provider Education ...............................................76

     S. Provider Network/Services Access .....................................77
        1.  Network Composition ..............................................78
        2.  Provider Agreements ..............................................82
        3.  Cultural Competence ..............................................85
        4.  Primary Care Practitioner (PCP) Responsibilities .................85
        5.  Specialists as PCPs ..............................................86
        6.  Any Willing Pharmacy .............................................87
        7.  Hospital Related Party ...........................................88
        8.  Mainstreaming ....................................................88
        9.  Network Changes ..................................................89
        10. Other Provider Enrollment Standards ..............................89
        11. Twenty-Four Hour Coverage ........................................90
        12. Appointment Standards ............................................90
        13. Policies and Procedures for Appointment Standards ................93
        14. Compliance with Access Standards .................................93


                                                                             iii
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     T. QM and UM Program Requirements .......................................94
        1.  Overview .........................................................94
        2.  General ..........................................................95
        3.  Additional Utilization Management Program Requirements ...........95
        4.  Healthplan Employer Data Information Set (HEDIS) .................96
        5.  External Quality Review (EQR) ....................................97
        6.  QM and UM Program Reporting Requirements .........................97
        7.  Collaboration Between Contractor QM and UM Departments
            and Special Needs Unit ...........................................98
        8.  Delegated Quality Management and Utilization Management
            Functions ........................................................98
        9.  Consumer Involvement in the Quality Management and
            Utilization Management Programs ..................................99
        10. Confidentiality ..................................................99
        11. Department Oversight .............................................99

SECTION VI:     PROGRAM OUTCOMES AND DELIVERABLES ...........................100

SECTION VII:    FINANCIAL REQUIREMENTS ......................................100

     A. Financial Standards .................................................100
        1.  Risk Protection Reinsurance for High Cost Cases .................100
        2.  Equity Requirements and Insolvency Protection ...................101
        3.  Secondary Liability .............................................103
        4.  Limitation of Liability .........................................103
        5.  Medical Cost Accruals ...........................................103
        6.  Claims Processing and MIS .......................................104
        7.  DSH/GME Payment for Disproportionate Share Hospitals
            (DSH)/Graduate Medical Education (GME) ..........................104
        8.  Member Liability ................................................104

     B. Commonwealth Capitation Payments ....................................105
        1.  Payments for In-Plan Services ...................................105
        2.  Voluntary Risk Adjustment .......................................107
        3.  Maternity Care Payment ..........................................107
        4.  Program Changes .................................................108
        5.  Supplemental Payments ...........................................108

     C. HIV/AIDS Risk Pool ..................................................109

     D. Claims Processing Standards, Monthly Report and Penalties ...........109
        1.  Timeliness Standards ............................................109
        2.  Sanctions .......................................................111
        3.  Physician Incentive Arrangements ................................112
        4.  Retroactive Eligibility Period ..................................114
        5.  In-Network Services .............................................114


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        6.  Payments for Out-of-Network Providers ...........................114
        7.  Payments to FQHCs and Rural Health Centers (RHCs) ...............115
        8.  Liability During an Active Grievance or Appeal ..................115
        9.  Financial Responsibility for Dual Eligibles .....................115
        10. Third Party Liability (TPL) .....................................116
        11. Health Insurance Premium Payment (HIPP) Program .................119
        12. Requests for Additional Data ....................................120
        13. Accessibility to TPL Data .......................................120
        14. Damage Liability ................................................120
        15. Estate Recovery .................................................120
        16. Audits ..........................................................121
        17. Restitution .....................................................121

SECTION VIII:   REPORTING REQUIREMENTS ......................................121

     A. General .............................................................121

     B. Systems Reports .....................................................121
        1.  Encounter Data and Subcapitation Data Reports ...................121
        2.  Federalizing GA Data Reporting ..................................124
        3.  Third Party Resource Identification .............................125

     C. Operations Reports ..................................................125
        1.  Continuous Quality Improvement ..................................125
        2.  Federal Waiver Reporting Requirements ...........................125
        3.  Complaint, Grievance and DPW Fair Hearing Data ..................125
        4.  EPSDT Reports ...................................................126
        5.  Healthy Beginnings Plus Reporting ...............................126
        6.  Member Hotline Activities Report ................................127
        7.  Fraud and Abuse .................................................127
        8.  Provider Network ................................................127
        9.  Provider Dispute Resolution Process .............................127
        10. Reports Submission Schedule .....................................127
        11. HEDIS including CAHPS ...........................................128
        12. SERB ............................................................128

     D. Financial Reports ...................................................128
     E. Equity ..............................................................128
     F. Claims Processing Reports ...........................................129
     G. Presentation of Findings ............................................129
     H. Reference Information ...............................................129
     I. Sanctions ...........................................................130
     J. Non-Duplication of Financial Penalties ..............................131


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SECTION IX:     REPRESENTATIONS AND WARRANTIES OF THE CONTRACTOR ............132

     A. Accuracy of Proposal ................................................132
     B. Disclosure of Interests .............................................132
     C. Disclosure of Change in Circumstances ...............................132
     D. SERB Commitment .....................................................133

SECTION X:      DURATION OF AGREEMENT AND RENEWAL ...........................134

     A. Initial Term ........................................................134
     B. Renewal .............................................................134

SECTION XI:     TERMINATION AND DEFAULT .....................................134

     A. Termination by the Department .......................................134
        1.  Termination for Convenience Upon Notice .........................134
        2.  Termination for Cause ...........................................135
        3.  Termination Due to Unavailability of Funds/Approvals ............135

     B. Termination by the Contractor .......................................136

     C. Responsibilities of the Contractor Upon Termination .................136
        1.  Continuing Obligations ..........................................136
        2.  Notice to Members ...............................................136
        3.  Submission of Invoices ..........................................136
        4.  Failure to Perform ..............................................136

     D. Transition at Expiration and/or Termination of Agreement ............138

SECTION XII:    RECORDS .....................................................138

     A. Financial Records Retention .........................................138
     B. Operational Data Reports ............................................139
     C. Medical Records Retention ...........................................139
     D. Review of Records ...................................................139

SECTION XIII:   SUBCONTRACTUAL RELATIONSHIPS ................................140

     A. Compliance with Program Standards ...................................140
     B. Consistency with Policy Statements ..................................141

SECTION XIV:    CONFIDENTIALITY .............................................141

SECTION XV:     INDEMNIFICATION AND INSURANCE ...............................142

     A. Indemnification .....................................................142


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     B. Insurance ...........................................................143

SECTION XVI:    DISPUTES ....................................................143

SECTION XVII:   FORCE MAJEURE ...............................................144

SECTION XVIII:  GENERAL .....................................................144

     A. Suspension From Other Programs ......................................144
     B. Rights of the Department and the Contractor .........................145
     C. Waiver ..............................................................145
     D. Invalid Provisions ..................................................145
     E. Governing Law .......................................................145
     F. Expansion of the Zone ...............................................145
     G. Notice ..............................................................146
     H. Counterparts ........................................................146
     I. Headings ............................................................146
     J. Assignment ..........................................................147
     K. No Third Party Beneficiaries ........................................147
     L. News Releases .......................................................147
     M. Entire Agreement: Modification ......................................147


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<PAGE>

SECTION I: INCORPORATION OF DOCUMENTS

      A.    Operative Documents

            The RFP, a copy of which is attached hereto as Appendix 1, and the
            Proposal, a copy of which is attached hereto as Appendix 2, are
            incorporated herein and are made a part of this Agreement. With
            regard to the governance of such documents, it is agreed that:

            1.    In the event that any of the terms of this Agreement conflict
                  with, are inconsistent with, or are in addition to the terms
                  of the RFP, the terms of this Agreement shall govern;

            2.    In the event that any of the terms of this Agreement conflict
                  with, are inconsistent with, or are in addition to the terms
                  of the Proposal, the terms of this Agreement shall govern;

            3.    In the event that any of the terms of the RFP conflict with,
                  are inconsistent with, or are in addition to the terms of the
                  Proposal, the terms of the RFP shall govern.

SECTION II: DEFINITIONS

Abuse - Any Provider practices that are inconsistent with sound fiscal,
business, or medical practices, and result in an unnecessary cost to the MA
Program, or in reimbursement for services that are not medically necessary or
that fail to meet professionally recognized standards or contractual obligations
(including the terms of the RFP, Agreement, and the requirements of state or
federal regulations) for health care in a managed care setting. The abuse can be
committed by the Contractor, subcontractor, Provider, State employee, or a
Member, among others. Abuse also includes enrollee practices that result in
unnecessary cost to the MA Program, the Contractor, a subcontractor, or
Provider.

ACCESS Card - Medical Assistance Identification (MAID) Card. The individual card
issued to enrolled consumers in the MA Program.

ACCESS Program - A system used by school districts, intermediate units,
state-owned schools or approved private schools to bill Medicaid for services
for special education students who are enrolled in the MA Program.

Adjudicated Claim - A claim that has been processed to payment or denial.

Affiliate - Any individual, corporation, partnership, joint venture, trust,
unincorporated organization or association, or other similar organization
(hereinafter "Person"), controlling, controlled by or under common control with
the Contractor or its parent(s), whether such common control be direct or
indirect. Without limitation, all officers, or persons, holding


                                                                               2
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five percent (5%) or more of the outstanding ownership interests of Contractor
or its parent(s), directors or subsidiaries of Contractor or parent(s) shall be
presumed to be affiliates for purposes of the RFP and Agreement. For purposes of
this definition, "control" means the possession, directly or indirectly, of the
power (whether or not exercised) to direct or cause the direction of the
management or policies of a person, whether through the ownership of voting
securities, other ownership interests, or by contract or otherwise including but
not limited to the power to elect a majority of the directors of a corporation
or trustees of a trust, as the case may be.

Alternate Payment Name - The person to whom benefits are issued on behalf of an
MA Consumer.

Amended Claim - A Provider request to adjust the payment of a previously
adjudicated claim.

Area Agency on Aging (AAA) - The single local agency designated by the
Pennsylvania Department of Aging within each planning and service area to
administer the delivery of a comprehensive and coordinated plan of social and
other services and activities.

Behavioral Health Managed Care Organization (BH-MCO) - An entity, operated by
county government or licensed by the Commonwealth as a risk-bearing Health
Maintenance Organization (HMO) or Preferred Provider Organization (PPO), which
manages the purchase and provision of behavioral health services under a
contract with the Department.

Behavioral Health Rehabilitation Services for Children and Adolescents (formerly
EPSDT "Wraparound") - Individualized, therapeutic mental health, substance abuse
or behavioral interventions/services developed and recommended by an interagency
team and prescribed by a physician or licensed psychologist.

Behavioral Health (BH) Services - Mental health and/or drug and alcohol
services which are provided by the BH-MCO.

Business Days - A business day includes Monday through Friday except for those
days recognized as federal holidays and/or Pennsylvania State holidays.

Capitation - A fee the Department pays periodically to a Contractor for each MA
Consumer enrolled under a contract for the provision of medical services,
whether or not the MA Consumer receives the services during the period covered
by the fee.

Case Management Services - Services which will assist individuals in gaining
access to necessary medical, social, educational and other services.

Case Payment Name - The person in whose name benefits are issued.


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Certificate of Authority - A document issued jointly by the Departments of
Health and Insurance authorizing a corporation to establish, maintain and
operate an HMO in Pennsylvania.

Certified Nurse Midwife - An individual licensed under the laws within the scope
of Chapter 6 of Professions & Occupations, 63 P.S. 171-176.

Certified Registered Nurse Practitioner (CRNP) - A registered nurse licensed in
the Commonwealth of Pennsylvania who is certified by the boards in a particular
clinical specialty area and who, while functioning in the expanded role as a
professional nurse, performs acts of medical diagnosis or prescription of
medical therapeutic or corrective measures in collaboration with and under the
direction of a physician licensed to practice medicine in Pennsylvania.

Children in Substitute Care - Children who have been adjudicated dependent or
delinquent and who are in the legal custody of a public agency and/or under the
jurisdiction of the juvenile court and are living outside their homes, in any of
the following settings: shelter homes, foster homes, group homes, supervised
independent living, and Residential Treatment Facilities for Children (RTFs).

Claim - A bill from a provider of a medical service or product that is assigned
a unique identifier (i.e. claim reference number). A Claim does not include an
encounter form for which no payment is made or only a nominal payment is made.

Clean Claim - A Claim that can be processed without obtaining additional
information from the Provider of the service or from a third party. A Clean
Claim includes a Claim with errors originating in the Contractor's claims
system. Claims under investigation for fraud or abuse or under review to
determine if they are Medically Necessary are not clean claims.

Client Information System (CIS) - The Department's database of MA Consumers. The
database contains demographic and eligibility information for all MA Consumers.

Complaint - A dispute or objection regarding a participating health care
provider or the coverage, operations, or management policies of a managed care
plan, which has not been resolved by the managed care plan and has been filed
with the plan or with the Department of Health or the Insurance Department of
the Commonwealth. The term does not include a Grievance.

Concurrent Review - A review conducted by the Contractor during a course of
treatment to determine whether the prescribed services should continue in
amount, duration and scope or whether a modification is necessary.

Contractor - A successful proposer or its successor approved by the Department.


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<PAGE>

County Assistance Office (CAO) - The county offices of the Department that
administer all benefit programs, including MA, on the local level. Department
staff in these offices perform necessary functions such as determining and
maintaining MA Consumer eligibility.

Cultural Competency - The ability of individuals, as reflected in personal and
organizational responsiveness, to understand the social, linguistic, moral,
intellectual and behavioral characteristics of a community or population, and
translate this understanding systematically to enhance the effectiveness of
healthcare delivery to diverse populations.

Daily Membership File - An electronic file generated by the Department using CIS
on a daily basis, exclusive of weekends and Department holidays, that is
transmitted to the Contractor. The Daily Membership File contains information on
changes made to MA Consumer records on CIS, and may include retroactive, current
or prospective MA eligibility, and PH-MCO coverage information.

Deliverables - Those documents, records and reports required to be furnished to
the Department for review and/or approval pursuant to the terms of the RFP and
this Agreement.

Denial of Services - Any determination made by the Contractor in response to a
provider's request for approval to provide MA covered services of a specific
duration and scope which: disapproves the request completely; approves provision
of the requested service(s), but for a lesser scope or duration than requested
by the Provider; or disapproves provision of the requested service(s), but
approves provision of an alternative service(s). An approval of a requested
service which includes a requirement for a concurrent review by the Contractor
during the authorized period does not constitute a denial of service.

Denied Claim - An Adjudicated Claim that does not result in a payment to a
Provider.

Department - The Department of Public Welfare (DPW) of the Commonwealth of
Pennsylvania.

Deprivation Qualifying Code - The code specifying the condition which determines
an MA Consumer to be eligible in nonfinancial criteria.

Developmental Disability - A severe, chronic disability of an individual that
is:

      o     Attributable to a mental or physical impairment or combination of
            mental or physical impairments.

      o     Manifested before the individual attains age 22.

      o     Likely to continue indefinitely.


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<PAGE>

      o     Manifested in substantial functional limitations in three or more of
            the following areas of life activity:
            -     Self care;
            -     Receptive and expressive language;
            -     Learning;
            -     Mobility:
            -     Capacity for independent living; and
            -     Economic self-sufficiency.

      o     Reflective of the individual's need for special, interdisciplinary
            or generic services, supports, or other assistance that is of
            lifelong or extended duration, except in the cases of infants,
            toddlers, or preschool children who have substantial developmental
            delay or specific congenital or acquired conditions with a high
            probability of resulting in developmental disabilities if services
            are not provided.

Disease Management - An integrated treatment approach that includes the
collaboration and coordination of patient care delivery systems and that focuses
on measurably improving clinical outcomes for a particular medical condition
through the use of appropriate clinical resources such as preventive care,
treatment guidelines, patient counseling, education and outpatient care; and
that includes evaluation of the appropriateness of the scope, setting and level
of care in relation to clinical outcomes and cost of a particular condition.

DPW Fair Hearing - A hearing conducted by the Department of Public Welfare.
Bureau of Hearings and Appeals or its subcontractor, based on a PH-MCO Member's
filing of an appeal from a termination, suspension or a reduction in MA
eligibility or MA covered services.

Drug Efficacy Study Implementation (DESI) -Drug products that have been
classified as less-than-effective by the Food and Drug Administration (FDA).

Dual Eligibles - An individual who is eligible to receive services through both
Medicare and the MA Program (Medicaid).

Early Intervention Program -The provision of specialized services through
family-centered intervention for a child, birth to age three (3), who has been
determined to have a developmental delay of twenty-five percent (25%) of the
child's chronological age or has documented test performance of 1.5 standard
deviation below the mean in standardized tests in one or more areas: cognitive
development; physical development, induding vision and hearing; language and
speech development; psycho-social development; or self-help skills or has a
diagnosed condition which may result in developmental delay.

Eligibility Period - A period of time during which a consumer is eligible to
receive MA benefits. An eligibility period is indicated by the eligibility start
and end dates on CIS. A blank eligibility end date signifies an open-ended
eligibility period.


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<PAGE>

Eligibility Verification System (EVS) - An automated system available to
Providers and other specified organizations for on-line verification of MA
eligibility, prepaid capitation, PH-MCO or BH-MCO enrollment, third party
resources, and the applicable benefit package under the MA Fee-for-Service (FFS)
Program.

Emergency Medical Condition - 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 attention to result in: (a)
placing the health of the individual (or with respect to a pregnant woman, the
health of the woman or her unborn child) in serious jeopardy, (b) serious
impairment to bodily functions, or (c) serious dysfunction of any bodily organ
or part.

Emergency Member Issue - A problem of a PH-MCO Member (including problems
related to whether an individual is a Member), the resolution of which should
occur immediately or before the beginning of the next business day in order to
prevent a denial or significant delay in care to the Member that could
precipitate a Medical Emergency Condition or need for urgent care.

Emergency Services - Covered inpatient and outpatient services that: (a) are
furnished by a Provider that is qualified to furnish such service under Title
XIX of the Social Security Act and (b) are needed to evaluate or stabilize an
Emergency Medical Condition.

Encounter Data - Any health care service provided to a PH-MCO Member. Encounters
whether reimbursed through capitation, fee-for-service, or another method of
compensation must result in the creation and submission of an encounter record
to the Department. The information provided on these records represents the
encounter data provided by the MCO.

Enrollee - A person eligible to receive services under the MA Program in the
Commonwealth of Pennsylvania and who is mandated to be enrolled in the
HealthChoices Lehigh/Capital (HC-L/C) Program.

Enrollment - The process by which a Member's entitlement tb receive services
from a PH-MCO is initiated.

Enrollment Specialist - The individual responsible to assist MA Consumers with
selecting a PH-MCO and PCP as well as providing information regarding physical
and behavioral health services and service providers under the HealthChoices
Program.

EPSDT - Early and Periodic Screening, Diagnosis and Treatment. Items and
services which must be made available to persons age twenty-one (21) and under
upon a determination of medical necessity and required by federal law at 42
U.S.C. ss.1396d(r).


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<PAGE>

Expanded Services - Any Medically Necessary service, covered under Title XIX of
the Social Security Act, 42 U.S.C.A. 1396 et seq., but not included in the
State's Medicaid Plan, which is provided to an enrollee.

Expedited Grievance - A process for reviewing and resolving Grievances within
forty-eight (48) hours.

Experimental Treatment - A course of treatment, procedure, device or other
medical intervention that is not yet recognized by the professional medical
community as an effective, safe and proven treatment for the condition for which
it is being used.

External Quality Review (EQR) - A requirement under Section 1902(a)(30)(C) of
Title XIX of the Social Security Act, 42 U.S.C.A. 1396a(a)(30)(C) for states to
obtain an independent, external review body to perform an annual review of the
quality of services furnished under state contracts with managed care
organizations, including the evaluation of quality outcomes, timeliness and
access to services.

Family Planning Services - Services which enable individuals voluntarily to
determine family size, to space children and to prevent or reduce the incidence
of unplanned pregnancies. They are made available without regard to marital
status, age, sex or parenthood.

Federally Qualified Health Center (FQHC) - An entity which is receiving a grant
as defined under the Social Security Act, 42 U.S.C.A. 1396d(I) or is receiving
funding from such a grant under a contract with the recipient of such a grant,
and meets the requirements to receive a grant under the above-mentioned sections
of the Act.

Fee-for-Service (FFS) - Payment by the Department to providers on a per-service
basis for health care services provided to MA Consumers.

Formulary - An exclusive list of drug products for which the Contractor will
provide coverage to its Members, as approved by the Department.

Fraud - Any type of intentional deception or misrepresentation made by an entity
or person with the knowledge that the deception could result in some
unauthorized benefit to the entity, him/herself, or some other person in a
managed care setting. The fraud can be committed by many entities, including the
Contractor, a subcontractor, a State employee, or a Member, among others.

Generally Accepted Accounting Principles (GAAP) - A technical term in financial
accounting. It encompasses the conventions, rules, and procedures necessary to
define accepted accounting practice at a particular time.

Government Liaison - The Department's primary point of contact within the
PH-MCO. This individual acts as the day-to-day manager of contractual and
operational issues and works within PH-MCO and with DPW to facilitate
compliance, solve problems, and


                                                                               8
<PAGE>

implement corrective action. The Government Liaison negotiates internal plan,
policy and operational issues.

Grievance - A request by an enrollee or a health care provider, with written
consent of the enrollee, to have the managed care plan or utilization review
entity reconsider a decision solely concerning medical necessity and
appropriateness of health care services. If the managed care plan is unable to
resolve the matter, a Grievance may be filed regarding a decision that: (1)
disapproves full or partial payment for requested health care services; (2)
approves a provision of a requested health care service for a lesser scope or
duration than requested; or (3) disapproves payment for provisions of a
requested health care service but approves payment for provision of an
alternative health care service. The term does not include a Complaint.

Health Care Financing Administration (HCFA) - The federal agency within the
Department of Health and Human Services responsible for oversite of MA programs.

Health Care Professional - A physician or other health care
provider/practitioner whose professional services are covered and provided for
under the professional scope of practice, and are included under the contract
for the services of the professional. This term includes, but is not limited
to: podiatrist, optometrist, chiropractor, psychologist, dentist, pharmacist,
physician assistant, physical or occupational therapist and therapy assistant,
speech-language pathologist, audiologist, registered or licensed practical nurse
(including nurse practitioner, clinical nurse specialist, certified registered
nurse anesthetist and certified nurse-midwife), licensed certified social
worker, registered respiratory therapist and certified respiratory therapy
technician.

Health Maintenance Organization (HMO) - A Commonwealth licensed risk-bearing
entity which combines delivery and financing of health care and which provides
basic health services to enrolled Members for a fixed, prepaid fee.

HealthChoices Disenrollment - Action taken by the Department to remove a
Member's name from the monthly Enrollment Report following the Department's
receipt of a determination that the Member is no longer eligible for enrollment
in HealthChoices.

HealthChoices Lehigh/Capital (HC-L/C) Program - The mandatory Medical Assistance
managed care program in Adams, Berks, Cumberland, Dauphin, Lancaster, Lebanon,
Lehigh, Northampton, Perry and York counties.

HealthChoices Proposers' Library - A collection of reference documents and
materials, relevant to the HC-L/C Program, available for use by proposers.

HealthChoices Program - The name of Pennsylvania's 1915(b)-waiver program to
provide mandatory managed health care to MA Consumers.

HIV/AIDS Waiver Program - A home and community based waiver that provides for
expanded services to MA Consumers who are diagnosed with Acquired
Immunodeficiency


                                                                               9
<PAGE>

Syndrome (AIDS) or symptomatic Human Immunodeficiency Virus (HIV) as a
cost-effective alternative to inpatient care.

Home and Community Based Services - Necessary and cost effective services, not
otherwise furnished under the State's Medicaid Plan, or services already
furnished under the State's Medicaid Plan but in expanded amount, duration, or
scope which are furnished to an individual in his/her home or community in order
to prevent institutionalization.

Immediate Need - A situation in which, in the professional judgment of the
dispensing registered pharmacist and/or prescriber, the dispensing of the drug
at the time when the prescription is presented is necessary to reduce or prevent
the occurrence or persistence of a serious adverse health condition.

Independent Enrollment Assistance Program (IEAP) - The program that provides
enrollment specialists to assist MA Consumers in selecting the PH-MCO and
Primary Care Practitioner (PCP) and obtaining information regarding
HealthChoices physical and behavioral health services and service providers.

In-Plan Services - Services which are the payment responsibility of the
Contractor under the HC-L/C Program.

Inquiry - Any Member's request for administrative service, information or to
express an opinion.

Interagency Team for Adults - A multi-system planning team consisting of the
individual, family member(s), legal guardian, advocate(s), county mental
health/mental retardation and/or drug and alcohol case manager(s), PCP, treating
specialist(s), residential and/or day service provider(s) and any other
participant(s) necessary and appropriate to assess the needs and strengths of
the individual, formulate treatment and service goals, approaches and methods,
recommend and monitor services and develop discharge plans. Representation on
the team is based on expertise necessary to determine and meet each individual's
needs and, therefore, is developed on a case-by-case basis.

Interagency Team for Individuals Under the Age of Twenty-One (21) - A
multi-system planning team comprised of the child, when appropriate, at least
one (1) accountable family member, a representative of the County Mental Health
and/or Drug and Alcohol Program, the case manager, the prescribing physician or
psychologist, and as applicable, the County Children and Youth, Juvenile
Probation, Mental Retardation, and Drug and Alcohol agencies, a representative
of the school district, BH-MCO, PH-MCO and/or PCP, other agencies that are
providing services to the child, and other community resource persons identified
by the family. The purpose of the interagency team is to collaboratively assess
the needs and strengths of the child and family, formulate the measurable goals
for treatment, recommend the services, treatment approaches and methods,
intensity and frequency of interventions and develop the discharge goals and
plans.


                                                                              10
<PAGE>

intermediate Care Facility for the Mentally Retarded and Other Related
Conditions (ICF/MR/ORC) - An institution (or distinct part of an institution)
that 1) is primarily for the diagnosis, treatment or rehabilitation for persons
with mental retardation or persons with other related conditions; and 2)
provides, in a residential setting, ongoing evaluation, planning, twenty-four
(24) hour supervision, coordination and integration of health or rehabilitative
services to help each individual function at his/her maximum capacity.

Issuing Office - The Department's Division of Procurement.

Juvenile Detention Center - A publicly or privately administered, secure
residential facility for:

      o     Children alleged to have committed delinquent acts who are awaiting
            a court hearing;

      o     Children who have been adjudicated delinquent and are awaiting
            disposition or awaiting placement; and

      o     Children who have been returned from some other form of disposition
            and are awaiting a new disposition (i.e., court order regarding
            custody of child, placement of child, or services to be provided to
            the child upon discharge from the Juvenile Detention Center).

Lock-In - If a MA Consumer is identified as abusing services provided under the
MA Program, they are restricted (locked-in) to a specific Provider(s) to obtain
all of his/her services to ensure they receive comprehensiveness of care.

MA Consumer - A person enrolled to receive services under the MA Program in the
Commonwealth of Pennsylvania.

Managed Care Organization (MCO) - An entity which manages the purchase and
provision of physical or behavioral health services under the HC-L/C Program.

Market Share - The percentage of members enrolled with a particular PH-MCO when
compared to the total of members enrolled in all the PH-MCOs within a zone.

Medical Assistance (MA) - The Medical Assistance Program authorized by Title XIX
of the federal Social Security Act, 42 U.S.C.A 1396 et seq., and regulations
promulgated thereunder, and 62 P.S. 101 et seq.

Medical Assistance Transportation Program (MATP) - A non-emergency medical
transportation service provided to eligible persons who need to make trips
to/from a MA reimbursable service for the purpose of receiving treatment,
medical evaluation, or purchasing prescription drugs or medical equipment.


                                                                              11
<PAGE>

Medically Necessary - A service or benefit is medically necessary if it is
compensable under the MA Program and if it meets any one of the following
standards:

      o     The service or benefit will, or is reasonably expected to, prevent
            the onset of an illness, condition or disability.

      o     The service or benefit will, or is reasonably expected to, reduce or
            ameliorate the physical, mental or developmental effects of an
            illness, condition, injury or disability.

      o     The service or benefit will assist the Member to achieve or maintain
            maximum functional capacity in performing daily activities, taking
            into account both the functional capacity of the Member and those
            functional capacities that are appropriate for members of the same
            age.

Determination of medical necessity for covered care and services, whether made
on a prior authorization, concurrent review, post-utilization, or exception
basis, must be in writing.

The determination is based on medical information provided by the Member, the
member's family/caretaker and the primary care practitioner, as well as any
other providers, programs, agencies that have evaluated the Member.

All such determinations must be made by qualified and trained providers.

Member - An individual who is enrolled with a PH-MCO under the HC-L/C Program
and for whom the PH-MCO is responsible to provide physical health services
under the provisions of the HealthChoices Program.

Member Record - A record contained on the Daily Membership File or the Monthly
Membership File that contains information on MA eligibility, managed care
coverage, and the category of assistance, which help establish the covered
services for which a MA Consumer is eligible.

Mental Retardation - An impairment in intellectual functioning which is lifelong
and originates during the developmental period (birth to 22 years). It results
in substantial limitations in three or more of the following areas: learning,
self-direction; self care; expressive and/or receptive language; mobility;
capacity for independent living; and economic self-sufficiency.

Michael Dallas Waiver (MOW) - A program operating under a federal waiver that
provides essential home care services to technology-dependent individuals.

Midwifery Practice - Management of the care of essentially healthy women and
their healthy neonates (initial twenty-eight [28] day period). This includes
intrapartum, postpartum and gynecological care.


                                                                              12
<PAGE>

Minority Business Enterprise - A business concern that is:

      o     A sole proprietorship, owned and controlled by a minority;

      o     A partnership or joint venture controlled by minorities in which
            fifty-one percent (51%) of the beneficial ownership interest is
            held by minorities; or

      o     A corporation or other entity controlled by minorities in which
            fifty-one percent (51%) of the voting interest and fifty-one percent
            (51%) of the beneficial ownership interest are held by minorities.

Monthly Membership File - An electronic file generated by the Department using
CIS that is transmitted to the Contractor. The Monthly Membership File lists
retroactive, current and prospective members, specifying for each Member the
corresponding eligibility period, PH-MCO coverage and BH-MCO coverage.

Network - All contracted or employed providers in the PH-MCO who are providing
covered services to Members.

Network Provider - A health care professional who has a written Provider
Agreement with a HC-L/C PH-MCO and is credentialed by and who participates in
the PH-MCO's provider network to serve HealthChoices members.

Net Worth (Equity) - The residual interest in the assets of an entity that
remains after deducting its liabilities.

Nursing Facility - A facility licensed by the DOH as a MA provider type 35 or
type 36 or a facility licensed by DOH as such and certified for Medicare
participation.

Ongoing Medication - A medication that has been previously dispensed to the
Member for the treatment of an illness that is chronic in nature or for an
illness for which the medication is required for a length of time to complete a
course of treatment, until the medication is no longer considered necessary by
the physician/prescriber. If the current prescription is for a higher dosage
than previously prescribed, the prescription is for an ongoing medication at
least to the extent of the previous dosage.

Open-ended - A period of time that has a start date but no definitive end date.

OPTIONS - The long-term care pre-admission assessment program operated by the
Department of Aging under contract with the Department of Public Welfare.

Other Related Conditions (ORC) - A physical disability such as cerebral palsy,
epilepsy, spina bifida or similar conditions which occur before the age of
twenty-two (22), is likely to continue indefinitely and results in three (3) or
more substantial functional limitations.


                                                                              13
<PAGE>

Other Resources - All other resources include, but are not limited to,
recoveries from personal injury claims, liability insurance, first-party
automobile medical insurance, accident-indemnity insurance, and the assigned
claims plan.

Out-of-Area Covered Services - Medical services provided to MA Consumers that
meet one (1) or more of the following criteria:

      o     An emergency medical condition that occurs while outside the zone;

      o     The health of the MA consumer would be endangered if the MA consumer
            returned to the zone for needed services;

      o     The provider is located outside the zone, but is nonetheless a
            subcontractor regularly providing medical services to MA consumers
            at the request of the PH-MCO; or

      o     The needed medical services are not available in the zone.

Out-of-Network Provider - A health care professional who has not been
credentialed by and does not have a signed Provider Agreement with a HC-L/C
PH-MCO.

Out-of-Plan Services - Services which are non-plan, non-capitated and are not
the responsibility of the Contractor under the HC-L/C Program comprehensive
benefit package.

Physical Health Managed Care Organization (PH-MCO) -A risk bearing entity, also
referred to as the "plan", which has contracted with the Department to manage
the purchase and provision of physical health services under the HC-L/C Program.

Physician Incentive Plan - Any compensation arrangement between an MCO and a
physician or physician group that may directly or indirectly have the effect of
reducing or limiting services furnished to Medicaid recipients enrolled in the
MCO.

PH-MCO Coverage Period - A period of time during which an individual is eligible
for MA coverage and a PH-MCO coverage period exists on CIS.

PH-MCO Disenrollment - The process by which a Member's ability to receive
services from a PH-MCO is terminated.

Physical Health (PH) Services - Medical and other related services which the
Contractor is responsible to provide to its Members.

Physician Incentive Plan-Any compensation arrangement between an MCO and a
physician or physician group that may directly or indirectly have the effect of
reducing or limiting services furnished to Medicaid recipients enrolled in the
MCO.


                                                                              14
<PAGE>

POSNet - The Pennsylvania Open Systems Network (POSNet) which is a peer-to-peer
network based on open systems products and protocols.

Post-Stabilization Services - Medically necessary non-emergency services
furnished to a Member after the Member is stabilized following an Emergency
Medical Condition.

Preferred Provider Organization (PPO) - A Commonwealth licensed person,
partnership, association or corporation which establishes, operates, maintains
or underwrites in whole or in part a preferred provider arrangement as defined
in 31 Pa. Code 152.2.

Primary Care Case Management (PCCM) - A program under which the Department
contracts directly with primary care providers who agree to be responsible for
the provision and/or coordination of medical services to MA Consumers under
their care.

Primary Care Practitioner (PCP) - A specific physician, physician group or a
CRNP operating under the scope of his/her licensure who has received an
exception from the Department of Health, and who is responsible for supervising,
prescribing, and providing primary care services; locating, coordinating and
monitoring other medical care and rehabilitative services and maintaining
continuity of care on behalf of an MA Consumer.

Prior Authorization - A determination made by a Contractor to approve or deny a
Provider's request to provide a service or course of treatment of a specific
duration and scope to a member prior to the Provider's initiating provision of
the requested service.

Prior Authorization Review Panel (PARP) - A panel of representatives from within
the Department who have been assigned organizational responsibility for the
review, approval and denial of all PH-MCO prior authorization policies and
procedures.

Prior Authorized Services - In-plan services for which a physical health service
Provider must obtain, pursuant to Department-approved PH-MCO policies and
procedures, the PH-MCO's approval in advance of the Provider's initiating
provision of the service.

Provider - A person, firm or corporation, enrolled in the Pennsylvania MA
Program, which provides services or supplies to MA Consumers.

Provider Agreement - Any Department-approved written agreement between the
Contractor and a Provider to provide medical or professional services to MA
Consumers to fulfill the requirements of this Agreement.

Provider Appeal - A request from a Provider for reversal of a denial by the
Contractor, with regard to the three (3) major types of issues that are to be
addressed in a provider appeal system as outlined in this Agreement at Section
V.K, Provider Dispute Resolution System. The three (3) types of Provider appeals
issues are:


                                                                              15
<PAGE>

      1.    Provider credentialing denial by the PH-MCO

      2.    Claims denied by the PH-MCO for Providers participating in the
            PH-MCOs network. This includes payment denied for services already
            rendered by the Provider to the Member; and

      3.    Provider termination by the PH-MCO.

Provider Dispute - A written communication to a PH-MCO, made by a Provider,
expressing dissatisfaction with a PH-MCO decision that directly impacts the
Provider. This does not include decisions concerning medical necessity.

Quality Management - An ongoing, objective and systematic process of monitoring,
evaluating and improving the quality, appropriateness and effectiveness of care.

Recipient - A person eligible to receive physical and/or behavioral health
services under the MA Program of the Commonwealth of Pennsylvania.

Recipient Month - One MA Consumer covered by the HC-L/C Program for one (1)
calendar month.

Rejected Claim - A non-HealthChoices Claim or a Claim that has erroneously been
assigned a unique identifier and is removed from the claims processing system
prior to adjudication.

Related Parties - Any entity that is related to the Contractor or subcontracting
PH-MCO by common ownership or control, (see definition of "Affiliate"), and (1)
performs some of the Contractor or subcontracting PH-MCO's management functions
under contract or delegation; (2) furnishes services to Members under a written
agreement; or (3) leases real property or sells materials to the Contractor or
subcontracting PH-MCO at a cost of more than $2,500.00 during any year of a
HC-L/C physical health contract with the Department.

Residential Treatment Facility (RTF) - A facility licensed by the Department of
Public Welfare that provides twenty-four (24) hour out-of-home care, supervision
and medically necessary mental health services for individuals under twenty-one
(21) years of age with a diagnosed mental illness or severe emotional disorder.

Retrospective Review - A review conducted by the Contractor to determine whether
services were delivered as prescribed and consistent with the Contractor's
payment policies and procedures.

Rural - Consists of territory, persons and housing units in areas throughout the
Commonwealth which are designated as having less than 2,500 persons.


                                                                              16
<PAGE>

School-Based Health Center - A health care site located on school building
premises which provides, at a minimum, on-site, age-appropriate primary and
preventive health services with parental consent, to children in need of primary
health care and which participate in the MA Program and adhere to EPSDT
standards and periodicity schedule.

School-Based Health Services - An array of Medically Necessary health services
performed by licensed professionals that may include, but are not limited to,
immunization, well child care and screening examinations in a school-based
setting.

Socially/Economically Restricted Business (SERB) - A business whose economic
growth and development has been restricted based on social and economic bias.

Special Needs - The circumstances for which a Member will be classified as
having a special need will be based on a non-categorical or generic perspective
that identifies key attributes of physical, developmental, emotional or
behavioral conditions, as determined by DPW and as described in this Agreement
at Section V.P, Special Needs Unit (SNU) and Exhibit NN, Special Needs Unit.

Spend-down - A process of establishing eligibility for MA whereby consumers
spend their excess net income on certain incurred or paid medical expenses.
Eligibility may need to be redetermined monthly.

Start Date - The first date on which MA Consumers are eligible for medical
services under this Agreement, and on which the Contractors are operationally
responsible and financially liable for providing Medically Necessary services to
MA Consumers.

Stop-Loss Protection - Coverage designed to limit the amount of financial loss
experienced by a health care provider.

Subcapitation - A fixed per capita amount that is paid by the PH-MCO to a
network provider for each Member identified as being in their capitation group,
whether or not the Member received medical services.

Subcontract - Any contract between the PH-MCO and an individual, business,
university, governmental entity, or nonprofit organization to perform part or
all of the PH-MCO's responsibilities under this Agreement. Exempt from this
definition are salaried employees, utility agreements and Provider Agreements,
which are not considered Subcontracts for the purpose of this Agreement and,
unless otherwise specified herein, are not subject to the provisions governing
Subcontracts.

Sustained Improvement - Improvement in performance documented through continued
measurement of quality indicators after the performance project/study/quality
initiative is completed.

Substantial Financial Risk- Financial risk set at greater than 25% of potential
payments for covered services, regardless of the frequency of assessment (i.e.,
collection) or


                                                                              17
<PAGE>

distribution of payments. The term "potential payments" means simply the maximum
anticipated total payments that the physician or physician group could receive
if the use or cost of referral services were significantly low. The cost of
referrals, then, must not exceed that 25% level, or else the financial
arrangement is considered to put the physician or group at substantial financial
risk.

Targeted Case Management (TCM) Program -- A case management program for MA
Consumers who are diagnosed with AIDS or symptomatic HIV.

Third Party Liability (TPL) -- The financial responsibility for all or part of a
Member's healthcare expenses of an individual entity or program (e.g., Medicare)
other than the Contractor.

Third Party Resource (TPR) -- Any individual, entity or program that is liable
to pay all or part of the medical cost of injury, disease or disability of a MA
Consumer. Examples of third party resources include: government insurance
programs such as Medicare or CHAMPUS (Civilian Health and Medical Program of the
Uniformed Services); private health insurance companies, or carriers; liability
or casualty insurance; and court-ordered medical support.

Title XVIII (Medicare) -- A federally-financed health insurance program
administered by the Health Care Financing Administration (HCFA) pursuant to 42
U.S.C.A. 1395 et seq., covering almost all Americans sixty-five (65) years of
age and older and certain individuals under sixty-five (65) who are disabled or
have chronic kidney disease.

Transitional Care Home -- A tertiary care center which provides medical and
personal care services to children upon discharge from the hospital who require
intensive medical care for an extended period of time. This transition allows
for the caregiver to be trained in the care of the child, so that the child can
eventually be placed in the caregiver's home.

Urban -- Consists of territory, persons and housing units in places which are
designated as 2,501 persons or more. These places must be in close proximity to
one another.

Urgent Medical Condition -- Any illness, injury or severe condition which under
reasonable standards of medical practice, would be diagnosed and treated within
a twenty-four (24) hour period and if left untreated, could rapidly become a
crisis or Emergency Medical Condition. The terms also include situations where a
person's discharge from a hospital will be delayed until services are approved
or a person's ability to avoid hospitalization depends upon prompt approval of
services.

Utilization Management -- An objective and systematic process for planning,
organizing, directing and coordinating health care resources to provide
Medically Necessary, timely and quality health care services in the most
cost-effective manner.

Utilization Review Criteria -- Detailed standards, guidelines, decision
algorithms, models, or informational tools that describe the clinical factors to
be considered relevant to


                                                                              18
<PAGE>

making determinations of medical necessity including, but not limited to, level
of care, place of service, scope of service, and duration of service.

Ventilator Dependent -- A person who requires respiratory support through the
use of a mechanical ventilator in order to replace or support normal
musculo-skeletal respiratory function to support the adequate exchange of oxygen
and carbon dioxide. A Member is considered ventilator dependent if he/she:

      (1)   Demonstrates an inability to maintain adequate respiratory function
            without the assistance of a mechanical ventilator and therefore the
            mechanical ventilator is needed for its cyclic mechanical support or
            replacement of the inspiratory phase of respiration,

      (2)   Requires more than twelve hours per day of continuous support from
            the mechanical ventilator to sustain life in order to prevent
            significant abnormalities in the physiologic parameters associated
            with respiration, and

      (3)   Is maintained on a mechanical ventilatory support via a
            tracheostomy.

Voided Member Record -- A Member Record used by the Department to advise the
Contractor that a certain related Member Record previously submitted by the
Department to the Contractor should be voided. A Voided Member Record can be
recognized by its illogical sequence of PH-MCO membership start and end dates
with the end date preceding the Start Date.

Women's Business Enterprise -- A business concern that is:

      o     A sole proprietorship, owned and controlled by a woman;

      o     A partnership or joint venture controlled by women in which
            fifty-one percent (51%) of the beneficial ownership interest is held
            by women; or

      o     A corporation or other entity controlled by women in which fifty-one
            percent (51%) of the voting interest and fifty-one percent (51%) of
            the beneficial ownership interest are held by women.


                                                                              19
<PAGE>

AGREEMENT and RFP ACRONYMS:

For the purpose of this Agreement and RFP, the acronyms set forth shall apply.

AAA -- Area Agency on Aging.
AIDS -- Acquired Immunodeficiency Syndrome.
ADA -- Americans with Disabilities Act.
BBS -- Bulletin Board System.
BCABD -- Bureau of Contract Administration and Business Development.
BH -- Behavioral Health.
BHA -- Bureau of Hearings and Appeals.
BH-MCO -- Behavioral Health Managed Care Organization.
CAHPS -- Consumer Assessment of Health Plans Study.
CAO -- County Assistance Office.
CASSP -- Children and Adolescent Support Services Program.
CDC -- Centers for Disease Control (and Prevention).
CFO -- Chief Financial Officer.
CFR -- Code of Federal Regulations.
CIS -- Client Information System.
CLIA -- Clinical Laboratory Improvement Amendment.
CLPPP -- Childhood Lead Poisoning Prevention Project.
COB -- Coordination of Benefits.
CSP -- Community Support Program.
CRNP -- Certified Registered Nurse Practitioner.
CRR -- Community Residential Rehabilitation.
DEA -- Drug Enforcement Agency.
DESI -- Drug Efficacy Study Implementation.
DSH -- Disproportionate Share.
DME -- Durable Medical Equipment.
DOH -- Department of Health (of the Commonwealth of Pennsylvania).
DOI -- Department of Insurance (Pennsylvania Insurance Department).
DUR -- Drug Utilization Review.
EMS -- Emergency Medical Services.
EQR -- External Quality Review.
EVS -- Eligibility Verification System.
EPSDT -- Early and Periodic Screening, Diagnosis and Treatment.
ER -- Emergency Room.
ERISA -- Employees Retirement Income Security Act of 1974.
FDA -- Food and Drug Administration.
FFS -- Fee-for-Service.
FQHC -- Federally Qualified Health Center.
FTE -- Full Time Equivalent.
FTP -- File Transfer Protocol.
GA -- General Assistance.
GAAP -- Generally Accepted Accounting Principles.
GME -- Graduate Medical Education.


                                                                              20
<PAGE>

HBP -- Healthy Beginnings Plus.
HCFA -- Health Care Financing Administration.
HEDIS -- Healthplan Employer Data and Information Set.
HC-L/C -- HealthChoices Lehigh/Capital (Program).
HIPAA -- Health Insurance Portability and Accountability Act.
HIPP -- Health Insurance Premium Payment.
HIV -- Human Immunodeficiency Virus.
HMO -- Health Maintenance Organization.
IBNP -- Incurred But Not Paid.
ICF/MR -- Intermediate Care Facility for the Mentally Retarded.
ICF/ORC -- Intermediate Care Facility/Other Related Conditions.
lEAP -- Independent Enrollment Assistance Program.
JCAHO -- Joint Commission for the Accreditation of Healthcare Organizations.
JDC -- Juvenile Detention Center.
LAAM -- Levo-Alpha-acetyl-Methadol, now known as Levomethadyl Acetate
Hydrochloride.
LTCCAP -- Long Term Care Capitation.
MA -- Medical Assistance.
MAAC -- Medical Assistance Advisory Committee.
MAID -- Medical Assistance Identification Number.
MATP -- Medical Assistance Transportation Program.
MBE -- Minority Business Enterprise.
MCO -- Managed Care Organization.
MDW -- Michael Dallas Waiver.
MIS -- Management Information System.
NCQA -- National Committee for Quality Assurance.
NPDB -- National Practitioner Data Bank.
OBRA -- Omnibus Budget Reconciliation Act.
OCYF -- Office of Children, Youth and Families.
OIP -- Other Insurance Paid.
OMAP -- Office of Medical Assistance Programs.
OMHSAS -- Office of Mental Health and Substance Abuse Services.
OMR -- Office of Mental Retardation.
ORC -- Other Related Conditions.
OSP -- Office of Social Programs.
PARP -- Prior Authorization Review Panel.
PBM -- Pharmacy Benefit Manager.
PCP -- Primary Care Practitioner.
PDA -- Pennsylvania Department of Aging.
PERT -- Program Evaluation and Review Technique.
PH -- Physical Health.
PH-MCO -- Physical Health Managed Care Organization.
PMPM -- Per Member, Per Month.
QARI -- Quality Assurance Reform Initiative.
QM -- Quality Management.
QMC -- Quality Management Committee.


                                                                              21
<PAGE>

QM/UMP -- Quality Management and Utilization Management Program.
RBUC -- Reported But Unpaid Claim.
RFP -- Request for Proposal.
RPAA -- Risk Pool Allocation Amount.
RTF -- Residential Treatment Facility.
SAP -- Statutory Accounting Principles.
SERB -- Socially/Economically Restricted Business.
SNU -- Special Needs Unit.
SPR -- Systems Performance Review.
SSA -- Social Security Act.
SSI -- Supplemental Security Income.
STD -- Sexually Transmitted Disease.
TANF -- Temporary Assistance for Needy Families.
TCM -- Targeted Case Management.
TPL -- Third Party Liability.
TTY -- Text Telephone Typewriter.
UM -- Utilization Management.
URCAP -- Utilization Review Criteria Assessment Process.
U.S. DHHS -- United States Department of Health and Human Services.
WBE -- Women's Business Enterprise.
WIC -- Women's, Infants' and Children (Program).


                                                                              22
<PAGE>

SECTION III: RELATIONSHIP OF PARTIES

      A.    Basic Relationship

            The relationship between the Department and the Contractor is that
            of independent contracting parties. The Contractor, its employees,
            servants, agents, and representatives shall not be considered and
            shall not hold themselves out as the employees, servants, agents or
            representatives of the Department or the Commonwealth of
            Pennsylvania. The Contractor, its employees, servants, agents and
            representatives do not have the authority to bind the Department or
            the Commonwealth of Pennsylvania and they shall not make any claim
            or demand for any right or privilege applicable to an officer or
            employee of the Department or the Commonwealth of Pennsylvania. In
            furtherance of the foregoing, the Contractor acknowledges that no
            workers' compensation or unemployment insurance coverage shall be
            provided by the Department to the Contractor's employees, servants,
            agents and representatives. The Contractor shall be responsible for
            maintaining for its employees, and for requiring of its agents and
            representatives, malpractice, workers' compensation and unemployment
            compensation insurance in such amounts as required by law.

            The Contractor acknowledges and agrees that it shall have full
            responsibility for all taxes and withholdings of all of its
            employees. In the event that any employee or representative of the
            Contractor is deemed an employee of the Department by any taxing
            authority or other governmental agency, the Contractor agrees to
            indemnify the Department for any taxes, penalties or interest
            imposed upon the Department by such taxing authority or other
            governmental agency.

      B.    Nature of Contract

            Pursuant to this Agreement, the Contractor shall arrange for the
            provision of medical and related services to MA Consumers through
            qualified health care Providers in accordance with the terms and
            conditions of this Agreement. In administering the HealthChoices
            Program, the Contractor shall comply fully with the terms and
            conditions set forth in this Agreement, including but not limited
            to, the operational and financial standards.

SECTION IV: APPLICABLE LAWS AND REGULATIONS

      A.    Certification and Licensing

            During the term of this Agreement, the Contractor shall require that
            each of the health care professionals with which it contracts comply
            with all certification and licensing laws and regulations applicable
            to the profession. The Contractor agrees not to employ or enter into
            a contractual relationship


                                                                              23
<PAGE>

            with a Provider or practitioner who is precluded from participation
            in the MA program.

      B.    Specific to MA Program

            The Contractor agrees to participate in the MA Program and to
            arrange for the provision of those medical and related services
            essential to the medical care of those individuals being served, and
            to comply with all federal and Pennsylvania laws generally and
            specifically governing participation in the MA Program. The
            Contractor agrees that all services provided hereunder shall be
            provided in the manner prescribed by 42 U.S.C.A. 300e(b), and
            warrants that the organization and operation of the Contractor is in
            compliance with 42 U.S.C.A. 300e(c). The Contractor agrees to comply
            with all applicable rules, regulations, and Bulletins promulgated
            under such laws including, but not limited to, 42 U.S.C.A. 300e,
            1396 et seq.; 62 P.S. 101 et. seq.; 42 C.F.R. Parts 431 through 481
            and 45 C.F.R. Parts 74, 80, and 84, and the Department of Public
            Welfare regulations as specified in Exhibit A of this Agreement,
            General Guidelines for Managed Care Regulatory Review, and, the
            HealthChoices Proposers' Library, Exhibit C of this Agreement for a
            list of applicable regulations.

      C.    General Laws and Regulations

            The Contractor must comply with Tifles VI and VII of the Civil
            Rights Act of 1964, 42 U.S.C.A. Section 2000d et seq. and 2000e et
            seq.; Section 504 of the Rehabilitation Act of 1973, 29 U.S.C.A.
            Section 701 et seq.; the Age Discrimination Act of 1975, 42 U.S.C.A.
            6101 et seq.; the Americans with Disabilities Act, 42 US.C.A. 12101
            et seq.; and the Pennsylvania Human Relations Act of 1955, 71 P.S.
            941 et seq.; and Article XXI of the Insurance Company Law of 1921,
            as amended, 40 P.S. 991.2102 et seq.

            The Contractor must comply with the Commonwealth's Contract
            Compliance Regulations that are set forth at 16 Pa. Code 49.191 and
            on file with the Contractor.

            The Contractor must comply with the Standard Contract Terms and
            Conditions found in Exhibit D of this Agreement, Standard Contract
            Terms and Conditions for Services.

            The Contractor must comply with all applicable laws, regulations,
            and policies of the Pennsylvania Department of Health and the
            Pennsylvania Insurance Department.

            In addition, the Contractor and its subcontractors must respect the
            conscience rights of individual providers and provider
            organizations, and comply with the current Pennsylvania laws
            prohibiting discrimination on the


                                                                              24
<PAGE>

            basis of the refusal or willingness to participate in certain
            abortion and sterilization-related activities as outlined in 43 P.S.
            955.2 and 18 Pa. C.S.A. 3213(d).

            Nothing in this Agreement shall be construed to permit or require
            the Department to pay for any services or items which are not or
            have ceased to be compensable under the laws, rules and regulations
            governing the MA Program at the time such services are provided.

            The Contractor shall maintain the highest standards of integrity in
            the performance of this Agreement and shall take no action in
            violation of state or federal laws, regulations, or other
            requirements that govern contracting with the Commonwealth. The
            requirements regarding Contractor Integrity Provisions, are
            contained in Exhibit D of this Agreement, Standard Contract Terms
            and Conditions for Services.

      D.    Limitation on the Department's Obligations

            The obligations of the Department under this Agreement are limited
            and subject to the availability of funds appropriated by the General
            Assembly of the Commonwealth of Pennsylvania, and certified by the
            Comptroller for Public Health and Human Services.

SECTION V: PROGRAM REQUIREMENTS

      A.    In-Plan Services

            The Contractor must ensure that all services provided are Medically
            Necessary.

            1.    Amount, Duration and Scope

                  At a minimum, In-Plan Services shall be provided in the
                  amount, duration and scope set forth in the MA FFS Program and
                  be based on the MA Consumer's benefit package, unless
                  otherwise specified by the Department. If new services or
                  eligible consumers are added to the Pennsylvania MA Program,
                  or if covered services or eligible consumers are expanded or
                  eliminated, implementation by the Contractor shall be on the
                  same day as the Department's, unless the Contractor is
                  notified by the Department of an alternative implementation
                  date. When new services are added, the Department shall
                  conduct an actuarial analysis including appropriate input by
                  the Contractor, to determine if there is a need for a rate
                  change and if necessary, adjust the rates to appropriately
                  reflect the addition of the new services.


                                                                              25
<PAGE>

                  The Department has established benefit packages based on
                  category of assistance, program status code, age, and, for
                  some packages, the existence of Medicare coverage or a
                  deprivation qualifying code. In cases where the Member
                  benefits are determined by the benefit package, the most
                  comprehensive package is to be honored.

            2.    Program Exception

                  The Contractor is also required to establish a process,
                  reviewed and approved by the Department, whereby a Provider
                  may request coverage for items or services, which while
                  included under the MA Consumer's benefit package, are not
                  currently listed on the MA Program Fee Schedule. These
                  requests are recognized by the Department as a Program
                  Exception and described in 55 Pa. Code 1150.63.

            3.    Expanded Benefits

                  The Contractor may provide expanded benefits subject to
                  advance written approval by the Department. These must be
                  benefits that are generally considered to have a direct
                  relationship to the maintenance or enhancement of a Member's
                  health status. Examples of potentially approvable benefits
                  include various seminars and educational programs promoting
                  healthy living or illness prevention, memberships in health
                  clubs and/or facilities promoting physical fitness and
                  expanded eyeglass or eye care benefits. These benefits must be
                  generally available to all Members and must be made available
                  at all appropriate Contractor Network Providers. Such benefits
                  cannot be tied to specific Member performance. However, the
                  Department may grant exceptions in areas where it believes
                  that such tie-ins shall produce significant health
                  improvements for Members.

                  In order for information about expanded benefits to be
                  included in any Member information provided by the Contractor,
                  the expanded benefits must apply for a minimum of one full
                  year or until the Member information is revised, whichever is
                  later. Upon approval by the Department, the Contractor may
                  modify or eliminate any expanded benefits, which exceed the
                  benefits provided for under the MA FFS Program. Such
                  benefit(s) as modified or eliminated shall supersede those
                  specified in the Proposal. The Contractor must send written
                  notice to Members and affected Providers at least thirty (30)
                  days prior to the effective date of the change in covered
                  benefits and shall simultaneously amend all written materials
                  describing its covered benefit or provider network. A change
                  in covered benefits


                                                                              26
<PAGE>

                  includes any reduction in benefits or a substantial change to
                  the Provider network.

                  For information to be included in materials to be used by the
                  Independent Enrollment Assistance Program (IEAP), the expanded
                  benefits must be in effect for the full calendar year for
                  which the IEAP information applies. IEAP information will be
                  updated annually on a calendar year basis.

            4.    Referrals

                  The Contractor is required to establish and maintain a
                  referral process to effectively utilize and manage the care of
                  its Members. The Contractor may require a referral for any
                  medical services, which cannot be provided by the PCP except
                  where specifically provided for in this Agreement.

            5.    Self Referral/Direct Access

                  There are some services, which can be accessed without a
                  referral from the PCP. Vision, dental care, obstetrical and
                  gynecological (OB/GYN) services and chiropractor services may
                  be self-referred, providing the Member obtains the services
                  from the PH-MCO's Provider Network.

                  The referral authorization process must not apply to the
                  delivery of family planning services. The right of the Member
                  to choose a provider for family planning services shall not be
                  restricted. Members may access at a minimum, health education
                  and counseling necessary to make an informed choice about
                  contraceptive methods, pregnancy testing and counseling,
                  breast cancer screening services, basic contraceptive supplies
                  such as oral birth control pills, diaphragms, foams, creams,
                  jellies, condoms (male and female), Norplant, injectibles,
                  intrauterine devices, and other family planning procedures as
                  described in Exhibit F of this Agreement, Family Planning
                  Services Procedures, and the Contractor must pay for the
                  Out-of-Plan Services.

                  Under Section 2111(7) of the Insurance Company Law of 1921, as
                  amended, 40 P.S. 991.72111(7), Members are to be provided
                  direct access to OB/GYN services. The Contractor must have a
                  system in place that does not erect barriers to care for
                  pregnant women and does not involve a time-consuming
                  authorization process or unnecessary travel.


                                                                              27
<PAGE>

                  Members must be permitted to select a healthcare Provider,
                  including nurse midwives participating in the PH-MCO's
                  Network, to obtain maternity and gynecological care without
                  prior approval from a PCP. This includes selecting a
                  healthcare Provider to provide Medically Necessary follow-up
                  care, an annual well-woman gynecological visit, primary and
                  preventive gynecology care, including a PAP smear and
                  referrals for diagnostic testing related to maternity and
                  gynecological care.

                  In situations where a new (and pregnant) enrollee is already
                  receiving care from an out-of-network OB-GYN specialist at the
                  time of enrollment, the member may continue to receive
                  services from that specialist throughout the pregnancy and
                  postpartum care related to the delivery.

            6.    Behavioral Health Services

                  The Contractor is not responsible to provide any services as
                  set forth in the Behavioral Health RFP and/or in the contracts
                  between the Department and the Behavioral Health Managed Care
                  Organizations (BH-MCOs).

            7.    Pharmacy Services

                  a.    General

                        The Contractor must cover, at a minimum, those
                        therapeutic categories currently covered by the
                        Department's FFS Pharmaceutical Services Program.

                        Under no circumstances will the Contractor permit the
                        therapeutic substitution of a prescription drug by a
                        pharmacist without explicit authorization from the
                        licensed prescriber.

                        The Contractor must also comply with the requirements
                        for Prior Authorization for Outpatient Prescription
                        Drugs, Section V. B.2 of this Agreement.

                  b.    Formularies

                        Formulary guidelines and approval criteria are listed in
                        Exhibit G of this Agreement, Drug Formulary Guidelines.

                        The Contractor may use a formulary as long as it meets
                        the clinical needs of the MA population and allows
                        access to all other MA FFS drug products not on the
                        formulary through


                                                                              28
<PAGE>

                        some exception process such as prior authorization in
                        accordance with Exhibit H of this Agreement, Prior
                        Authorization Guidelines. The Contractor must submit the
                        request for advance written approval by the Department
                        of the exception or prior authorization process related
                        to pharmacy services together with the request for
                        formulary approval. Pharmacy prior authorization
                        policies and procedures must be submitted to the Prior
                        Authorization Review Panel (PARP) for review and
                        approval prior to implementation. Clinical guidelines to
                        prior authorize non-formulary drugs require advance
                        written approval under the Department's Utilization
                        Review Criteria Assessment Process (URCAP) process which
                        can be found in the HealthChoices Proposers' Library.
                        All formularies must conform to the formulary guidelines
                        and approval criteria established by the Department and
                        may not be implemented prior to receiving advance
                        written approval from the Department. For additional
                        clarification on formulary guidelines, see Exhibit G of
                        this Agreement, Drug Formulary Guidelines.

                  c.    Coverage Exclusions

                        In accordance with Section 1927 of the Social Security
                        Act, 42 U.S.C.A. 1396r-8, the Contractor must exclude
                        coverage for any drug marketed by a drug company (or
                        labeler) who does not participate in the MA FFS Medicaid
                        Drug Rebate Program. Therefore, the Contractor is not
                        permitted to provide coverage for any drug product,
                        brand name or generic, legend or non-legend, sold or
                        distributed by a company that did not sign an agreement
                        with the federal government to provide rebates to the
                        Medicaid agency.

                        In addition, the Contractor must allow access to all
                        drug products covered by the MA FFS Program. This
                        includes brand name and generic products, as well as all
                        outpatient legend drugs, sold or distributed by
                        companies that participate in the rebate program for all
                        medically accepted indications, as described in Section
                        1927(k)(6) of the Social Security Act, 42 U.S.C.A.
                        1396r-8(k)(6). The Contractor must include coverage for
                        non-legend drugs as required under formulary guidelines
                        and covered by the MA FFS Program. This includes any use
                        which is approved under the Federal Food, Drug, and
                        Cosmetic Act, 21 U.S.C.A. 301 et seq. or, whose use is
                        supported by the American Hospital Formulary Service -
                        Drug Information, American Medical Association Drug
                        Evaluations, United States Pharmacopoeia -- Drug
                        Information, and


                                                                              29
<PAGE>

                        DRUGDEX.

                  d.    DESI Drugs

                        The Contractor shall not provide coverage for Drug
                        Efficacy Study Implementation (DESI) drugs under any
                        circumstances. DESI drugs are those drug products that
                        have been classified as less-than-effective by the Food
                        and Drug Administration (FDA).

                  e.    Pharmacy Rebate Program

                        Under the provisions of Section 1927 of the Social
                        Security Act 42 U.S.C.A. 1396r-8, drug companies that
                        wish to have their products covered through the MA
                        Program (both fee-for-service and managed care) must
                        sign an agreement with the federal government to provide
                        rebates to the State. Any drug company that does not
                        sign a rebate agreement may not have their products
                        covered through the MA Program.

                        The Contractor must negotiate with drug companies to
                        collect rebates for pharmaceutical products.

                  f.    Drug Utilization Review (DUR) Program

                        The Contractor must have written polices and procedures
                        to adhere to a DUR Program prior approved by the
                        Department. This system must be based on federal law and
                        regulation at Section 1927 of the Social Security Act,
                        42 U.S.C.A. 1396r-8 and 42 C.F.R. 456 and state
                        guidelines adopted from the existing MA FFS DUR Program.
                        DUR state guidelines can be found in Exhibit I of this
                        Agreement, Drug Utilization Review Guidelines.

                        The Contractor must have a procedure to compare pharmacy
                        encounter data use against predetermined therapeutic
                        drug criteria standards consistent with the official
                        compendia and the peer-reviewed medical literature. The
                        official compendia shall consist of the American
                        Hospital Formulary Service Drug Information, the United
                        States Pharmacopoeia - Drug Information, the DRUGDEX
                        Information System, and the American Medical Association
                        Drug Evaluations. These standards must be consistent
                        with medical practices that have been developed by
                        unbiased, independent experts through an open
                        professional consensus process. This procedure must also
                        include an ongoing review for current drug criteria


                                                                              30
<PAGE>

                        standards. All drug criteria standards must be submitted
                        to the Department for advance written approval before
                        its usage by the Contractor, under the Utilization
                        Review Criteria Assessment Process (URCAP). The URCAP
                        manual may be found in the HealthChoices Proposers'
                        Library.

                        The Contractor must have a process for the communication
                        of counseling for Members based on standards established
                        by state pharmacy law related to patient counseling and
                        to the maintenance of patient profiles.

                        The Contractor must have procedures for retrospective
                        DUR through mechanized drug claims processing and an
                        information retrieval system in accordance with Exhibit
                        I of this Agreement, Drug Utilization Review Guidelines.

                        In no case shall the Contractor's DUR Program provide
                        any financial or other incentive to a pharmacist for
                        encouraging the physician to change his/her prescription
                        order. A change to a prescription order is only
                        acceptable when warranted by clinical reasons of Member
                        safety and approved efficacy.

                  g.    Pharmacy Benefit Manager (PBM)

                        The Contractor may use a PBM to process prescription
                        claims only if the PBM Subcontract has received advance
                        written approval by the Department. The Contractor must
                        indicate the intent to use a PBM, identify the proposed
                        PBM Subcontract and the ownership of the proposed PBM
                        subcontractor. If the PBM is owned wholly or in part by
                        a retail pharmacy Provider, chain drug store or
                        pharmaceutical manufacturer, the Contractor will submit
                        a written description of the assurances and procedures
                        that shall be put in place under the proposed PBM
                        Subcontract, such as an independent audit, to assure
                        confidentiality of proprietary information. These
                        assurances and procedures must be submitted and receive
                        advance written approval by the Department prior to
                        initiating the PBM Subcontract. The Department will
                        allow the continued operation of pre-existing PBM
                        subcontracts while the Department is reviewing such
                        pre-existing contracts.

            8.    EPSDT Services

                  The Contractor must comply with the requirements regarding
                  EPSDT services as set forth in Exhibit J of this Agreement,
                  EPSDT Guidelines.


                                                                              31
<PAGE>

                  The Contractor must also adhere to specific Department
                  regulations at 55 Pa. Code Chapters 3700 and 3800 as they
                  relate to EPSDT examination for individuals under the age of
                  21 and entering substitute care or a child residential
                  facility placement.

            9.    Emergency Room (ER) Services

                  The Contractor agrees to comply with the program standards
                  regarding Emergency Room (ER) Services that are set forth in
                  Exhibit K of this Agreement, Emergency Room Services.

                  The Contractor must comply with the provisions of the Balanced
                  Budget Act of 1997 (BBA) and Sections 2102 & 2116 of the
                  Insurance Company Law of 1921 as amended, 40 P.S. 991.2102 &
                  991.2116, pertaining to coverage and payment of Medically
                  Necessary Emergency Services. In addition:

                  o     Emergency Providers may initiate the necessary
                        intervention to stabilize an Emergency Medical Condition
                        of the patient without seeking or receiving prospective
                        authorization by the Contractor.

                  o     The Contractor shall be responsible for all ER services
                        including those categorized as mental health or drug and
                        alcohol. Exception: ER evaluations for voluntary and
                        involuntary commitments pursuant to the Mental Health
                        Procedures Act of 1976, 50 P.S. 7101 et seq. shall be
                        the responsibility of the BH-MCO.

                  Nothing in the above section shall be construed to imply that
                  the Contractor shall not:

                  o     track, trend and profile ER utilization;

                  o     retrospectively review and where appropriate, deny
                        payment for inappropriate ER use; or

                  o     use all appropriate methods to encourage members to use
                        PCPs rather than ERs for minor acute conditions;

                  o     use a recipient restriction methodology for members with
                        a history of significant inappropriate ER usage.


                                                                              32
<PAGE>

            10.   Post-Stabilization Services

                  The Contractor must cover Post-Stabilization Services,
                  pursuant to 42 C.F.R. 422.100(b)(iv).

                  The Contractor must cover Post-Stabilization Services without
                  requiring authorization, and regardless of whether the Member
                  obtains the services within or outside the Contractor's
                  Provider Network if any of the following situations exist:

                  a.    The Post-Stabilization Services were pre-approved by the
                        Contractor.

                  b.    The Post-Stabilization Services were not pre-approved by
                        the Contractor because the Contractor did not respond to
                        the Provider's request for these Post-Stabilization
                        Services within one (1) hour of the request.

                  c.    The Post-Stabilization Services were not pre-approved by
                        the Contractor because the Contractor could not be
                        reached by the Provider to request pre-approval for
                        these Post-Stabilization Services.

            11.   Examinations to Determine Abuse or Neglect

                  a.    The Contractor must ensure that Members who are MA
                        Consumers under evaluation for suspected child abuse or
                        neglect by the County Children and Youth Agency system,
                        and who present for physical examinations for
                        determination of abuse or neglect, shall receive such
                        services. These services must be performed by trained
                        examiners in a timely manner according to the Child
                        Protective Services Law, 23 Pa. C.S.A. 6301 et seq. and
                        Department regulations.

                  b.    The Contractor is responsible to ensure that ER staff
                        and physicians know the procedures for reporting
                        suspected abuse and neglect in addition to performing
                        exams for the county. This requirement must be included
                        in all applicable Provider Agreements.

                  c.    Should the PCP determine that a mental health assessment
                        is needed, s/he must inform the MA consumer or the
                        County Children and Youth Agency representative how to
                        access these mental health services and coordinate
                        access to these services, when necessary.


                                                                              33
<PAGE>

            12.   Hospice Services

                  The Contractor must provide hospice care and use certified
                  hospice providers in accordance with the provisions outlined
                  at 42 C.F.R. 418.1 et seq.

                  MA Consumers who are enrolled in the Department's Hospice
                  Program and were not previously enrolled in the HC L/C Program
                  will not be enrolled in HC-L/C. However, if a PH-MCO Member is
                  determined eligible for the Department's Hospice Program after
                  being enrolled in the PH-MCO, the Member will remain the
                  responsibility of the PH-MCO and will not be disenrolled from
                  HC-L/C.

            13.   Organ Transplants

                  The Contractor is responsible to pay for transplants to the
                  extent that the MA FFS Program pays for such transplants. When
                  Medically Necessary, the following transplants shall be the
                  responsibility of the Contractor: Kidney (cadaver and living
                  donor), kidney/pancreas, cornea, heart, heart/lung, single
                  lung, double lung, liver (cadaver and living donor),
                  liver/pancreas, small bowel, pancreas/small bowel, bone
                  marrow, stem cell, pancreas, liver/small bowel transplants,
                  and multi-visceral transplants.

            14.   Transportation

                  The Contractor is responsible to provide all Medically
                  Necessary emergency transportation. In addition, all ambulance
                  costs, which include emergency and non-emergency Medically
                  Necessary transportation, are the responsibility of the PH-MCO
                  even when the service is provided by the BH-MCO.

                  Regulations set forth at 55 Pa. Code 1150.6 and 1245.52(l)
                  outline the conditions required for ambulance transportation
                  to be considered Medically Necessary.

                  Any non-emergency transportation (excluding Medically
                  Necessary non-emergency ambulance) for Members to and from MA
                  compensable services must be arranged through the Medical
                  Assistance Transportation Program (MATP). A complete
                  description of MATP responsibilities can be found in Exhibit L
                  of this Agreement, Transportation.


                                                                              34
<PAGE>

            15.   Waiver Services/State Plan Amendments

                  a.    HIV/AIDS Waiver Program

                        The Contractor must arrange for and provide services to
                        persons with AIDS or symptomatic HIV the same as those
                        provided under the Department's AIDS Waiver Program.
                        Individuals enrolled in the Department's AIDS Waiver
                        Program who would not otherwise be eligible for MA, are
                        included in HealthChoices. The Contractor shall be
                        responsible for tracking these Members in accordance
                        with federal reporting requirements. A full description
                        of the AIDS Waiver Program can be found in the
                        HealthChoices Proposers' Library.

                  b.    HIV/AIDS Targeted Case Management (TCM) Program

                        The Contractor must ensure the provision of TCM services
                        for persons with AIDS or symptomatic HIV, including
                        access to needed medical and social services using the
                        existing TCM program standards of practice followed by
                        the Department or comparable standards approved by the
                        Department. In addition, individuals within the PH-MCO
                        who provide the TCM services must meet the same
                        qualifications as those under the Department's TCM
                        Program. A full description of the TCM Program including
                        practice standards for case managers, can be found in
                        the HealthChoices Proposers' Library.

                  c.    Michael Dallas Waiver (MDW) Program

                        The Contractor must arrange for and provide enhanced
                        medical benefits to technology-dependent individuals
                        under age twenty-one (21), equal or in addition to that
                        provided under the Department's MDW Program, to minimize
                        hospitalization/institutionalization of the child. MA
                        Consumers currently receiving services through the MDW
                        Program and deemed MA eligible solely through the MDW in
                        the future are exempt from the HC-L/C Program.

                        MA Consumers age 21 years and older currently receiving
                        home and community based services through the MDW, will
                        be enrolled in HealthChoices but all waiver services
                        will be covered under the MA FFS delivery system.


                                                                              35
<PAGE>

                  d.    Healthy Beginnings Plus (HBP) Program

                        The Contractor must provide services that meet or exceed
                        HBP standards in effect as defined in current MA
                        Bulletins. The Contractor must also assure that the
                        coordinated prenatal activities of the HBP Program
                        continue by utilizing enrolled HBP Providers or
                        developing comparable resources. Such comparable
                        programs will be subject to review and approval by the
                        Department based on the likelihood that such programs
                        will be of greater effectiveness in meeting the goals of
                        the HBP Program. The Contractor must provide a full
                        description of its plan to provide prenatal care for
                        pregnant women and infants in fulfillment of the HBP
                        Program objectives for review and advance written
                        approval by the Department. This plan must include
                        comprehensive postpartum care.

                  e.    Pennsylvania Department of Aging (PDA) Waivers

                        The Department reserves the right to expand the scope of
                        services to include MA Consumers in the PDA Waiver in
                        HealthChoices. Please refer to Section VII.B.4 of this
                        Agreement for further information on program changes.

            16.   Nursing Facility Services

                  The PH-MCO is responsible for payment for up to thirty (30)
                  days of nursing home care (including hospital reserve or bed
                  hold days) if a Member is admitted to a Nursing Facility.
                  Members are disenrolled from HealthChoices thirty (30) days
                  following the admission date to the nursing facility as long
                  as the Member has not been discharged (from the nursing
                  facility).

                  A PH-MCO may not deny or otherwise limit Medically Necessary
                  services, such as home health services, on the grounds that
                  the Member needs, but is not receiving, a higher level of
                  care. A PH-MCO may not offer financial or other incentives to
                  obtain or expedite a Member's admission to a nursing facility
                  except as short-term nursing care, not to exceed thirty (30)
                  days.

                  The PH-CMO must abide by the decision of the OPTIONS
                  assessment process determination letter related to the need
                  for nursing facility services.

                  MA Consumers who are placed into a nursing facility from a
                  hospital and who were not previously enrolled in the HC-L/C
                  Program or individuals who enter a nursing facility from a
                  hospital


                                                                              36
<PAGE>

                  and are then determined eligible for MA will not be enrolled
                  in HC-L/C. However, should an individual leave the nursing
                  facility to reside in the HC-L/C Zone and then be determined
                  eligible for enrollment into HC-L/C, they will then be
                  required to enroll into the HC-L/C Program.

                  Individuals who are residing in nursing facilities and are
                  subsequently found eligible for MA will not be enrolled in the
                  HealthChoices Program. individuals eligible for MA, but not
                  mandated into the HC-L/C Program when they enter nursing
                  facilities, or MA Consumers who are placed in nursing
                  facilities inside the HC-L/C Zone, who previously resided
                  outside the HC-L/C Zone, will not be enrolled in the HC-L/C
                  Program.

      B.    Prior Authorization of Services

            1.    General Prior Authorization Requirements

                  The Contractor must provide Emergency Services without regard
                  to prior authorization or the emergency care provider's
                  contractual relationship with the Contractor.

                  If the Contractor wishes to require prior authorization of any
                  services which are not required to be prior authorized under
                  the MA FFS Program, the Contractor must establish and maintain
                  written policies and procedures which must have advance
                  written approval by the Department. In addition, the
                  Contractor must include a list and scope of services for
                  referral and prior authorization, which must be included in
                  the Contractor's Provider Manual and Member Handbook.
                  Contractors must receive advance written approval of the list
                  and scope of services to be referred or prior authorized by
                  the Department as outlined in Exhibit H of this Agreement,
                  Prior Authorization Guidelines and Exhibit M(1) of this
                  Agreement, Quality Management and Utilization Management
                  Program Requirements. Prior authorization policies and
                  procedures approved under previous HealthChoices contracts
                  will be considered approved under this Agreement.

                  The Contractor shall not implement prior authorization
                  policies without having sought and obtained advance written
                  approval by the Department. Denials issued under unapproved
                  prior authorization policies may be subject to retrospective
                  review and reversal at the Department's sole discretion. The
                  Department may, at its discretion, impose sanctions and/or
                  corrective action plans in the event that the Contractor
                  improperly implements any prior authorization policy or
                  procedure.


                                                                              37
<PAGE>

                  The Department will make its best efforts to review and
                  provide feedback to the Contractor (e.g., written approval,
                  request for corrective action plan, denial, etc.) within sixty
                  (60) days from the date the Department receives the request
                  for review by the Contractor. For minor updates to existing
                  approved prior authorization plans, the Department will make
                  its best efforts to review updates within forty-five (45) days
                  from the date the Department receives the request for review
                  by the Contractor.

                  The Contractor is required to process each request for prior
                  authorization of a covered service and ensure that the Member
                  is notified of the decision within two (2) business days of
                  receiving the request. If the Member does not receive written
                  notification of a decision on a request for a covered service
                  or item within twenty-one (21) days of the date the Contractor
                  received the request, the service or item is automatically
                  approved. To satisfy the twenty-one (21) day time period, the
                  Contractor must mail to the Member, the Member's PCP, and the
                  prescribing Provider a notice of partial approval or denial of
                  the request on or before the eighteenth (18th) day from the
                  date the request is received. If the notice is not mailed by
                  the eighteenth (18th) day after the request is received, the
                  request is automatically authorized (i.e., deemed approved).
                  If additional information is needed to review the request, the
                  Contractor must request such information from the appropriate
                  Provider within forty-eight (48) hours of receiving the
                  request for prior authorization of a covered service. If the
                  Contractor requests additional information, the request may be
                  pended for a reasonable time period. However, a prospective
                  utilization review decision must be communicated to the Member
                  within two (2) business days of the receipt of all supporting
                  information reasonably necessary to complete the review.

                  The Contractor may waive the prior authorization requirements
                  for services, which are required by the Department to be prior
                  authorized.

                  If a HCFA determination that an HMO has committed a violation
                  described in paragraph (a) of 42 C.F.R. Chapter IV Subsection
                  434.67 (Sanctions Against HMOs with Risk Comprehensive
                  Contracts) is affirmed on review of paragraph (d) (Informal
                  Reconsideration), or is not timely contested by the HMO under
                  paragraph (c) (Notice of Sanction), HCFA, based upon this
                  recommendation of the agency, may deny payment for new
                  enrollees of the HMO under Section 1903 (m)(5)(B)(ii) of the
                  Act. Under Subsections 434.22 and 434.42, HCFA's denial of
                  payment for new enrollees automatically results in a denial of
                  agency


                                                                              38
<PAGE>

                  payments to the HMO for the same enrollees. A new enrollee is
                  an enrollee that applies for enrollment after the effective
                  date as found in 42 C.F.R. Section 434.67(f)(l).

            2.    Prior Authorization for Outpatient Prescription Drugs

                  The Contractor may require prior authorization as a condition
                  of coverage or payment for an outpatient prescription drug
                  provided that 1) a decision whether to approve or deny the
                  prescription is made within twenty-four (24) hours, and 2) if
                  a Member's prescription for a medication is not filled when a
                  prescription is presented to the pharmacist, the PH-MCO must
                  allow the pharmacist to dispense either a seventy-two (72)
                  hour supply for a new medication, or a fifteen (15) day supply
                  for an ongoing medication if there is an Immediate Need for
                  the medication. Immediate Need is a situation in which, in the
                  professional judgment of the dispensing registered pharmacist
                  and/or prescriber, the dispensing of the drug at the time when
                  the prescription is presented is necessary to reduce or
                  prevent the occurrence or persistence of a serious adverse
                  health condition. The Contractor must issue a written denial
                  notice, in the form attached as Exhibit N of this Agreement,
                  Denial Notices, within twenty-four (24) hours from the time
                  that the prescription is presented at the pharmacy. In the
                  event that the Contractor cannot issue a written denial notice
                  within twenty-four (24) hours, the Contractor must have
                  procedures in place so as to permit the Member to receive a
                  supply of the new medication such that the supply will not be
                  exhausted prior to receipt of the notice. For drugs not able
                  to be divided and dispensed into individual doses, the
                  Contractor will make provisions to allow the pharmacist to
                  dispense the smallest amount that will provide at least a
                  seventy-two (72) hour or fifteen (15) day supply, whichever is
                  applicable. The Department will waive the seventy-two (72)
                  hour supply requirement for medications and treatments under
                  concurrent clinical review and treatments that are outside the
                  parameter of use approved by the FDA or accepted standards of
                  care.

                  The Contractor must have procedures in place to assure that if
                  a prescription for an Ongoing Medication is not authorized
                  when presented at the pharmacy, the pharmacist shall dispense
                  a fifteen (15) day supply of the prescription, unless the
                  Contractor or its designated subcontractor issued a proper
                  written notice of benefit reduction or termination at least
                  ten (10) days prior to the end of the period for which the
                  medication was previously authorized and a Grievance or DPW
                  Fair Hearing request has not been filed. If the Member files a
                  Grievance or DPW Fair Healing request from a denial of an
                  Ongoing Medication, the Contractor must authorize the


                                                                              39
<PAGE>

                  medication until the Grievance or DPW Fair Hearing request is
                  resolved. When medication is authorized due to the
                  Contractor's obligation to continue services while a member's
                  grievance or fair hearing is pending, and the final binding
                  decision is in favor of the Contractor, a request for
                  subsequent refill of the prescribed medication does not
                  constitute an ongoing medication.

                  The requirement that the Member be given at least a
                  seventy-two (72) hour supply for a new medication or a fifteen
                  (15) day supply for an Ongoing Medication does not apply when
                  a pharmacist determines that the taking of the prescribed
                  medication, either alone or along with other medication that
                  the Member may be taking, would jeopardize the health or
                  safety of the Member. In such event, the Contractor and/or its
                  subcontractor must require that its participating pharmacist
                  make good faith efforts to contact the prescriber. In such
                  instances, however, the requirement that the Contractor issue
                  a written denial notice within twenty-four (24) hours still
                  applies.

      C.    Continuity of Care

            The Contractor must comply with the procedures outlined in MA
            Bulletin #99-96-01, Continuity of Prior Authorized Services Between
            FFS and Managed Care Plans and Between Managed Care Plans for
            Individuals Under Twenty-one (21), to ensure continuity of prior
            authorized services whenever an individual under the age of
            twenty-one (21) transfers from one PH-MCO to another, from a PH-MCO
            to the MA FFS Program, or from the MA FFS Program to a PH-MCO.

            The PH-MCO must comply with Section 2117 of Article XXI of the
            Insurance Company Law of 1921, as amended, 40 P.S. 991.2117
            regarding continuity of care requirements. A bulletin detailing the
            continuity of care requirements applicable to prior authorized
            services to adult members, as well as continuity of treatment for
            non-prior authorized services for all Members will be issued by the
            Department in the near future. A draft of this bulletin can be found
            in the HealthChoices Proposers' Library.

      D.    Coordination of Care

            The PH-MCO is responsible for coordination of care for individuals
            enrolled in HC-L/C. The PH-MCO must ensure seamless and continuous
            coordination of care across a continuum of services for the
            individual member with a focus on improving health care outcomes.
            The continuum of services may include the in-plan comprehensive
            benefits package, out-of-plan benefits, and non-MA covered services
            provided by other community resources such as:


                                                                              40
<PAGE>

            1.    Nursing Facility Care

                  The PH-MCO must ensure the decisions related to placement in
                  Nursing Facilities are coordinated with the Member and, where
                  appropriate, the Member's family.

            2.    Special Services

                  Through a variety of mechanisms including Quality Management
                  and Utilization Management (QM/UM) and Special Needs Unit
                  (SNU) functions, the PH-MCO is responsible to coordinate
                  special In-Plan Services.

                  Special In-Plan Services include but are not limited to:

                  o     ICF/MR/ORC Intermediate Care Facility for the Mentally
                        Retarded/Other Related Conditions

                  o     Residential Treatment Facility (RTF)

                  o     Acute and Extended Acute Psychiatric Facility

                  o     Non-Hospital Residential Detoxification, Rehabilitation,
                        and Half-Way House Facilities for Drug/Alcohol
                        Dependence/Addiction

                  o     Area Agencies on Aging (AAA)/Options Assessment and
                        Pre-admission Screening Requirements

                  o     Pennsylvania Department of Aging (PDA) Waiver

                  o     Members Admitted to Juvenile Detention Centers (JDCs)

                  o     Children in Substitute Care Transition

                  o     Adoption Assistance Children/Adolescents

                  o     Dual Eligibles (Medicare/Medicaid)

                  The HealthChoices Program requirements covering special
                  services are outlined In Exhibit O of this Agreement,
                  Description of Special Services.

            3.    Out-of-Plan Services

                  The PH-MCO is responsible to interact/coordinate with the
                  entity responsible for the Out-of-Plan Services to promote a
                  seamless


                                                                              41
<PAGE>

                  continuum of care coordination.

                  Out-of-Plan Services include, but are not limited to:

                  o     Transitional Care Homes

                  o     Medical Foster Care Services

                  o     Early Intervention Services

                  o     The Home and Community Based Waiver Program for Nursing
                        Facility Residents with other related conditions
                        (OSP/OBRA Waiver)

                  o     The Home and Community Based Waiver Program for Nursing
                        Facility Applicants with other related conditions
                        (OSP/lndependence Waiver)

                  o     Home and Community Based Waiver for Attendant Care
                        Services (OSP/AC Waiver)

                  o     Home and Community Based Waiver for Persons with Mental
                        Retardation

                  Out-of-Plan Services are described in Exhibit P of this
                  Agreement, Out-of-Plan Services.

            4.    Coordination of Care/Letters of Agreement

                  The Contractor is responsible to coordinate the comprehensive
                  in-plan package of services with entities providing
                  Out-of-Plan Services. To clearly define the roles of the
                  entities involved in the coordination of services, the
                  Contractor must enter into coordination of care letters of
                  agreement with all school districts. County Children and Youth
                  Agencies (CCYAs) and Juvenile Probation Offices (refer to
                  Sample Model Agreement, Exhibit Q of this Agreement), and the
                  BH-MCOs (refer to Exhibit R of this Agreement, Coordination
                  with BH-MCOs). The Department encourages the Contractor to
                  make a good faith effort to enter into coordination of care
                  letters of agreement with other public, governmental, county,
                  and community-based service providers.

                  Should the Contractor be unable to enter into coordination of
                  care letters of agreement as required under this Agreement,
                  the Contractor must submit wntten justification to the
                  Department. Justification must include all the steps taken by
                  the Contractor to attempt to secure coordination of care
                  letters of agreement, or must demonstrate an existing,
                  ongoing, and cooperative relationship with the entity. The
                  Department will then determine whether or not this requirement
                  will be deemed met.


                                                                              42
<PAGE>

            All written coordination documents developed and maintained by the
            Contractor must have advance written approval by the Department and
            must be reviewed/revised at least annually by the Contractor.
            Coordination documents must be available for review by the
            Department at the time of Readiness Review and upon request
            thereafter. The written coordination documents must be submitted to
            the Department for final review and approval at least thirty (30)
            days prior to the initial transition in the HC-L/C Program. All
            written coordination documents entered into between a service
            Provider and the Contractor after implementation must also be
            approved by the Department. These written coordination documents,
            including operational procedures, must be submitted for final review
            and approval at least thirty (30) days prior to the initial
            transition in HC-L/C.

            Any written coordination documents entered into between the
            Contractor and service Providers must contain, but are not limited
            to, the provisions outlined in Exhibit S of this Agreement, Written
            Agreements Between PH-MCO and Service Providers. Under no
            circumstances may these coordination documents contain any
            definition of Medically Necessary other than the definition found in
            this Agreement.

      5.    PH-MCO and BH-MCO Coordination

            The HC-L/C PH-MCOs and the BH-MCOs are required to develop and
            implement written agreements regarding the interaction and
            coordination of services provided to MA Consumers enrolled in the
            HC-L/C Program. These agreements must be submitted and approved by
            the Department. The PH Contractors and BH Contractors in the HC-L/C
            Zone are encouraged to develop uniform coordination agreements to
            promote consistency in the delivery and administration of services.

            Program requirements covering PH/BH Provider Agreements are outlined
            in Exhibit T of this Agreement, PH/BH Provider Agreements. The
            HealthChoices Program requirements covering behavioral health
            services requirements are outlined in Exhibit U of this Agreement,
            Behavioral Health Services.

            The Contractor agrees to comply with the requirements regarding
            Coordination with Out-of-Plan Services, which are set forth in
            Section V.D.3 of this Agreement, including those pertaining to
            behavioral health.

            a.    The Contractor agrees, and the Department will use its best


                                                                              43
<PAGE>

                  efforts to require HC-L/C BH-MCOs to agree, to submit to a
                  binding independent arbitration process in the event of a
                  dispute between the Contractor and any such BH-MCOs concerning
                  their respective obligations pursuant to this Agreement and a
                  Behavioral HC-L/C contract. The mutual agreement of the
                  Contractor and a BH-MCO to such an arbitration process must be
                  evidenced by and included in the written agreement between the
                  Contractor and the BH-MCO.

            b.    All pharmacy services are the payment responsibility of the
                  Member's PH-MCO. The only exception is that the BH-MCO is
                  responsible for the payment of methadone and Levomethadyl
                  Acetate Hydrocchloride (LAAM). All prescribed medications are
                  to be dispensed through the Contractor's Network pharmacies.
                  This includes drugs prescribed by both the PH-MCO and the
                  BH-MCO Providers. The Contractor must follow the PH/BH
                  Pharmacy Services guidelines in Exhibit V of this Agreement,
                  PH-MCO Pharmacy Guidelines. The Department will issue a list
                  of BH-MCO Providers to the Contractor prior to the effective
                  date of this Agreement. Should the Contractor receive a
                  request to dispense medication from a BH Provider not listed
                  on the BH-MCO's Provider file, the Contractor must work
                  through the appropriate BH-MCO to identify the Provider. The
                  Contractor is prohibited from denying prescribed medications
                  solely in cases where the BH-MCO Provider is not clearly
                  identified on the BH-MCO Provider file.

      E.    Contractor Responsibility for Reportable Conditions

            The Contractor will work with State Department of Health (DOH) State
            and District Office Epidemiologists in partnership with the
            designated county/municipal health department staffs to ensure that
            reportable conditions are appropriately reported in accordance with
            Department regulations, in accordance with 28 Pa. Code 27.1 et seq.
            The Contractor will designate a single contact person to facilitate
            the implementation of this requirement.

            The Contractor is not responsible for the payment of Environmental
            Lead Investigations.

      F.    Member Enrollment and Disenrollment

            1.    General

                  The Contractor is prohibited from restricting its Members from


                                                                              44
<PAGE>

                  changing PH-MCOs for any reason. The MA Consumer has the right
                  to initiate a change in PH-MCOs at any time.

                  The Contractor is prohibited from offering or exchanging
                  financial payments, incentives, commissions, etc., to any
                  other PH-MCO (not receiving a contract to operate under the
                  HC-L/C Program or not choosing to continue a contractual
                  relationship with the Department) for the exchange of
                  information on the terminating PH-MCO's membership. This
                  includes offering incentives to a terminating PH-MCO to
                  recommend that its membership join the PH-MCO offering the
                  incentives.

                  The Department may disenroll members from a PH-MCO when there
                  is a change in residence which places the member outside the
                  HC Zone, as indicated on the individual county file maintained
                  by the Department's Office of Income Maintenance.

            2.    Contractor Outreach Materials

                  The Contractor must develop outreach materials such as
                  pamphlets and brochures which can be used by the IEAP
                  contractor to assist MA Consumers in choosing a PH-MCO and
                  PCP. These materials must be developed in the form and context
                  required by the Department. The Department must approve of
                  such materials in writing prior to their use. The Department's
                  review will be conducted within thirty (30) days and approval
                  will not be unreasonably withheld. The Contractor is required
                  to print and provide to the IEAP contractor an adequate supply
                  of previously approved materials within five (5) business days
                  from the request of the IEAP contractor. The Contractor
                  brochure must follow the guidelines outlined in Exhibit W of
                  this Agreement, PH-MCO Guidelines for Outreach Materials.

                  The Contractor is prohibited from distributing directly or
                  through any agent or independent contractor, outreach
                  materials without advance written approval of the Department.
                  In addition, the Contractor must comply with the following
                  guidelines and/or restrictions.

                  a.    The Contractor may not seek to influence an individual's
                        enrollment with the PH-MCO in conjunction with the sale
                        of any other insurance.

                  b.    The Contractor must comply with the enrollment
                        procedures established by the Department in order to
                        ensure that, before the individual is enrolled with the
                        PH-MCO, the individual is provided accurate oral and
                        written information sufficient to make an informed
                        decision on whether to enroll.


                                                                              45
<PAGE>

                  c.    In accordance with the federal Balanced Budget Act of
                        1997, Section 1 932(d)(2)(E), the Contractor shall not
                        directly or indirectly conduct door-to-door, telephone
                        or other cold-call marketing activities.

                  d.    The Contractor must ensure that all outreach plans,
                        procedures and materials are accurate and do not
                        mislead, confuse or defraud either the MA Consumer or
                        the Department.

            3.    Contractor Outreach Activities

                  The Contractor must comply with the following principles for
                  all Contractor outreach activities:

                  a.    Due to the Department's use of HealthChoices Enrollment
                        Specialists, the Contractor will be prohibited from
                        engaging In any marketing activities associated with
                        enrollment into a PH-MCO in any HealthChoices Zone. The
                        Contractor will be prohibited from engaging in any
                        marketing activities associated with enrollment into
                        their PH-MCO program upon notification by the Department
                        prior to commencement of this Agreement, but in no case
                        after the IEAP contractor commences enrollment
                        activities.

                        The Contractor is also prohibited from subcontracting
                        with an outside entity to engage in marketing activities
                        associated with any form of enrollment to eligible or
                        potential MA Consumers. The Contractor must not engage
                        in marketing activities associated with enrollments,
                        which include but are not limited to, the following
                        locations and activities:

                        o     County Assistance Offices (CAOs)
                        o     Providers' offices
                        o     Malls/Commercial or retail establishments
                        o     Hospitals
                        o     Check cashing establishments
                        o     Door-to-door visitations
                        o     Telemarketing
                        o     Community Centers
                        o     Churches
                        o     Direct Mail

                  b.    The Contractor may use but not be limited to commonly
                        accepted media methods to advertise. These include


                                                                              46
<PAGE>

                        television, radio, billboard, the Internet and printed
                        media. All such advertising is subject to advance
                        written approval by the Department.

                  c.    The Contractor may participate in or sponsor health
                        fairs or community events. The Department reserves the
                        right to set limits on contributions and/or payments
                        made to non-profit groups in connection with health
                        fairs or community events. Advance written approval is
                        required for contributions of $2,000.00 or more. The
                        Department will make every reasonable effort to respond
                        to the Contractor's request for advance written approval
                        within ten (10) business days. All contributions are
                        subject to financial audit by the Department

                  d.    Items of little or no intrinsic value (i.e., trinkets
                        with promotional Contractor logos), may be offered at
                        health fairs or other approved community events. Such
                        items must be made available to the general public, not
                        to exceed $3.00 in retail value and must not be
                        connected in any way to Contractor enrollment activity.
                        All such items are subject to advance written approval
                        by the Department.

                  e.    The Contractor will be permitted to offer Members
                        health-related benefits in excess of those required by
                        the Department, and are permitted to feature such
                        expanded benefits in approved marketing materials. All
                        such expanded benefits are subject to advance written
                        approval by the Department and must meet the
                        requirements of Section V.A.3 of this Agreement,
                        Expanded Benefits.

                  f.    Contractors may not offer Member coupons for products of
                        value.

                  g.    Unless approved by the Department, Contractors are not
                        permitted to directly provide products of value unless
                        they are health related and are prescribed by a licensed
                        Provider.

                  h.    The PH-MCO will be responsible for bearing the cost of
                        reprinting HealthChoices outreach materials, if a major
                        change involving content is made prior to the IEAP's
                        annual revision of materials. These changes include, but
                        are not limited to, change in product names, program
                        benefits and services.

                  i.    The Department reserves the right to review any and all
                        outreach activities and advertising materials and
                        procedures used by the Contractor for its personnel. In
                        addition to any


                                                                              47
<PAGE>

                        other sanctions, the Department may impose monetary or
                        restricted enrollment penalties should the Contractor be
                        found to be using marketing materials or engaging in
                        marketing practices. The Department reserves the right
                        to suspend all outreach activities and the completion of
                        applications for new Members. Such suspensions may be
                        imposed for a period of sixty (60) days from
                        notification by the Department to the Contractor citing
                        the violation.

                  j.    The Contractor is prohibited from distributing, directly
                        or through any agent or independent Contractor,
                        marketing materials that contain false or misleading
                        information.

                  k.    The Contractor must not, under any conditions use the
                        Department's Client Information System (CIS) to identify
                        and market to MA Consumers participating in the MA FFS
                        Program or enrolled in another PH-MCO. The Contractor
                        shall not share or sell MA Consumer lists with other
                        organizations for any purpose.

                  l.    The Contractor must submit a plan for advertising,
                        sponsorship and outreach procedures to the Department
                        for advance written approval in accordance with the
                        guidelines outlined in Exhibit X of this Agreement,
                        HealthChoices PH-MCO Guidelines for Advertising,
                        Sponsorship and Outreach.

            4.    Alternative Language Requirement

                  During the enrollment process, the Department and/or its
                  HealthChoices Enrollment Specialists shall seek to identify
                  program Members who speak a language other than English as
                  their first language. The Department and/or its HealthChoices
                  Enrollment Specialists shall notify the Contractor when it
                  knows of Members who do not speak English as a first language
                  and who have either selected or been assigned to the
                  Contractor.

                  If five percent (5%) or more of MA Consumers in a County
                  Assistance/District Office speak a language other than English
                  as a first language, the Contractor must make available in
                  that language all information that is disseminated to English
                  speaking Members. This information includes, but is not
                  limited to, member handbooks, hardcopy provider directories,
                  education and outreach materials, written notifications, etc.
                  Materials must include appropriate instructions on how to
                  access or receive assistance with accessing desired materials
                  in an alternate language or format.


                                                                              48
<PAGE>

            5.    Contractor Enrollment Procedures

                  The Contractor must have in effect written administrative
                  policies and procedures for newly enrolled Members. The
                  Contractor must also provide written policies and procedures
                  for coordinating enrollment information with the Department's
                  lEAP contractor. The Contractor must receive advance written
                  approval from the Department regarding these policies and
                  procedures.

                  The Contractor must take necessary administrative steps
                  consistent with the Enrollment/Disenrollment Dating Rules that
                  are determined by and provided by the Department in Exhibit Y
                  of this Agreement, Managed Care Enrollment/Disenrollment
                  Dating Rules.

                  The Contractor must enroll any eligible MA Consumer who
                  selects the Contractor or is assigned in accordance with
                  Exhibit Z of this Agreement, Automatic Assignment, to the
                  Contractor regardless of the MA Consumer's race, color, creed,
                  religion, age, sex, national origin, ancestry, marital status,
                  sexual orientation, income status, program membership,
                  grievance status, MA category status, health status,
                  pre-existing condition, physical or mental handicap or
                  anticipated need for health care. See Exhibit AA of this
                  Agreement, Category/Program Status Coverage Chart.

            6.    Enrollment of Newborns

                  The Contractor must have written administrative policies and
                  procedures to enroll and provide all necessary services to
                  newborn infants of members, effective from the time of birth,
                  without delay, in accordance with to Section V.F.11, Services
                  for New Members, and Exhibit BB of this Agreement, PH-MCO
                  Recipient Coverage Document. The Contractor must receive
                  advance written approval from the Department regarding these
                  policies and procedures.

                  The Contractor is not responsible for the payment of newborn
                  metabolic screenings.

            7.    Transitioning Members Between PH-MCOs

                  It may be necessary to transition a Member between PH-MCOs.
                  Members with special needs should be assisted by the SNU(s) to
                  facilitate a seamless transition. The Contractor must follow
                  the Department's established procedures as outlined in Exhibit
                  BB of this Agreement, PH-MCO Recipient Coverage Document.


                                                                              49
<PAGE>

            8.    Change in Status

                  The Contractor must report to the Department on a weekly
                  enrollment/disenrollment file the following:

                  o     Pregnancies not on CIS;
                  o     Newborns not on CIS; and
                  o     Return mail

                  The Contractor must report to the appropriate CAO any changes
                  in the status of families or individual Members within ten
                  (10) business days of their becoming known, including changes
                  in family size and residence, and new phone numbers.

            9.    Monthly Membership

                  The Department will provide an electronic file, on a monthly
                  basis, that lists program eligibles who are prior, current or
                  future Contractor Members. The Contractor agrees to reconcile
                  this membership list against its internal membership
                  information and notify the Department of any discrepancies
                  found within the data on the file within thirty (30) business
                  days, in order to resolve problems.

                  MA Consumers not included on this file with an indication of
                  prospective coverage will not be the responsibility of the
                  PH-MCO unless a subsequent Daily Membership File indicates
                  otherwise. Those with an indication of future month coverage
                  will not be the responsibility of the PH-MCO if a Daily
                  Membership File received by the PH-MCO prior to the beginning
                  of the future month Indicates otherwise.

            10.   Enrollment and Disenrollment Updates

                  a.    Daily File

                        The Department will provide to the Contractor by
                        electronic file transmission, a daily file that lists
                        demographic changes, eligibility changes, enrollment
                        changes and Members enrolled through the automatic
                        assignment process.

                        The Contractor must reconcile this file against its
                        internal membership information and notify the
                        Department within thirty (30) business days in order to
                        resolve problems.


                                                                              50
<PAGE>

                  b.    Weekly Enrollment/Disenrollment Reconciliation File

                        The Department will provide, every week by electronic
                        file transmission, information on Members voluntarily
                        enrolled or disenrolled. This file also provides
                        dispositions on alerts submitted by the Contractor.

                  c.    Disenrollment Effective Dates

                        Member disenrollments will become effective on the date
                        specified by the Department. The Contractor must have
                        written policies and procedures for complying with
                        Department disenrollment orders.

                  d.    Discharge/Transition Planning

                        When any Member is disenrolled from the PH-MCO because
                        of:

                        o     admission to or length of stay in a facility,
                        o     a waiver program eligibility, or
                        o     a child's placement in substitute care outside the
                              HC-L/C Zone,

                        the Contractor from which the Member disenrolled must
                        remain responsible for participating in
                        discharge/transition planning for up to six (6) months
                        from the initial date of disenrollment. The Contractor
                        will remain the MA Consumer's PH-MCO upon discharge
                        (upon returning to the HC-L/C Zone), unless the MA
                        Consumer chooses a different PH-MCO or is determined to
                        no longer be eligible for participation in
                        HealthChoices.

                        If the MA Consumer chooses a different PH-MCO, that
                        PH-MCO must participate in the discharge/transition
                        planning upon notification that the MA Consumer is
                        enrolled.

            11.   Services for New Members

                  The Contractor must make available the full scope of benefits
                  to which a Member is entitled from the effective enrollment
                  date provided by the Department. Detailed descriptions of
                  those services can be found in the HealthChoices Proposers'
                  Library in the materials describing the MA FFS Program for
                  those services.


                                                                              51
<PAGE>

                  The Contractor must ensure that pertinent demographic
                  information about the MA Consumer, i.e., special needs data
                  collected through the IEAP or directly indicated to the
                  Contractor by the MA Consumer after enrollment, will be used
                  by the Contractor upon the new Member's effective enrollment
                  date in the PH-MCO. If a special need is indicated, the
                  Contractor is required to place a special needs indicator on
                  the Member's record and must outreach to that Member to
                  identify their special need or circumstance. For any Member
                  with a special needs indicator, the Contractor must perform a
                  health needs assessment within forty-five (45) days; provide
                  results of the same to the assigned PCP; and track and
                  follow-up outcomes to assure the Member's needs are adequately
                  addressed.

                  The Contractor must comply with access standards as required
                  in Section V.S. of this Agreement, Provider Network/Services
                  Access and follow the appointment standards described in
                  Section V.S.12 of this Agreement, Appointment Standards, when
                  an appointment is requested by a Member.

            12.   New Member Orientation

                  The Contractor must have written policies and procedures for:

                  o     Orienting new Members to their benefits (e.g., prenatal
                        care, dental care, and specialty care),
                  o     Educational and preventative care programs,
                  o     The proper use of the PH-MCO identification card and the
                        Department's ACCESS card,
                  o     The role of the PCP,
                  o     What to do in an emergency or urgent medical situation,
                  o     How to utilize services in other circumstances, and
                  o     How to register a Complaint, file a Grievance or request
                        a DPW Fair Hearing.

                  These policies and procedures must receive advance written
                  approval by the Department.

                  The Contractor is prohibited from contacting a potential
                  enrollee who is identified on the daily file with an automatic
                  assignment indicator (either an "A" auto assigned or "M"
                  member assigned) until ten (10) business days before the
                  effective date of the Member enrollment, unless it is the
                  Contractor responsibility under this Agreement.


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<PAGE>

            13.   Eligibility Verification System (EVS)

                  The Contractor must provide a file, via the Department's
                  Pennsylvania Open Systems Network (POSNet), to the
                  Department's EVS contractor of PCP assignments for all its
                  Members. The Contractor must provide this file at least weekly
                  or more frequently if requested by the Department. The
                  Contractor must ensure that the PCP assignment information is
                  consistent with all requirements specified by the Department.
                  The file layout and data dictionary for this file are located
                  in the Exhibit CC of this Agreement, Data Support for PH-MCOs.

            14.   Contractor Identification Cards

                  The Contractor may issue its own identification card to
                  enrolled Members. However, the Department issues an
                  identification card, called an ACCESS card, to each MA
                  Consumer, which the Member is required to use when accessing
                  services. Providers must use this card to access the
                  Department's EVS and to verify the Members eligibility. The
                  ACCESS card shall allow the Provider the capacity to access
                  the most current eligibility information without contacting
                  the Contractor directly.

            15.   Member Handbook

                  The Contractor agrees to mail a member handbook, or other
                  written materials, with information on how to access services,
                  in the appropriate language or alternate format to Members
                  within five (5) business days of being notified of a Member's
                  enrollment. The Contractor must maintain documentation
                  verifying that the member handbook is reviewed for accuracy at
                  least once a year, and that all necessary modifications have
                  been made and all Members notified.

                  a.    Member Handbook Requirements

                        The Contractor must ensure that the member handbook is
                        written at no higher than a fourth grade level and
                        include, at a minimum, the information outlined in
                        Exhibit DD of this Agreement, HealthChoices PH-MCO
                        Member Handbook.

                  b.    Department Approval

                        The Contractor must submit member handbook language to
                        the Department for advance written approval prior to
                        distribution to Members. The Contractor must make
                        modifications in the language contained in the member


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<PAGE>

                        handbook if ordered by the Department so as to comply
                        with the requirements described in a., Member Handbook
                        Requirements, above.

                  c.    Languages Other than English

                        The Contractor must follow the Member access standards
                        for member handbooks outlined in Section V.F.4 of this
                        Agreement, Alternative Language Requirement.

            16.   Provider Directories

                  Directories must be available for all types of Providers in
                  the Contractors Network, including, but not limited to: PCPs,
                  hospitals, specialists, providers of ancillary services,
                  nursing facilities, etc. The Contractor must provide the IEAP
                  contractor with an adequate supply of hardcopy provider
                  directories (including updates) on a continual basis. Hardcopy
                  provider directories must be updated annually.

                  The Contractor must provide the IEAP contractor with an
                  updated electronic version of their provider directory on a
                  weekly basis beginning with the IEAP contractor's voluntary
                  conversion outreach education campaign. This will provide
                  information regarding terminations, additions, PCPs and
                  specialists not accepting new assignments, and other
                  information determined by the Department to be necessary. The
                  Contractor must provide the file layout and format specified
                  by the Department. The format shall include, but not be
                  limited to the following:

                        o     Correct Provider Medical Assistance Identification
                              (MAID) number
                        o     All providers in the Contractor's network
                        o     Wheel chair accessibility of provider sites
                        o     Language indicators

                  To comply with this provision, the Contractor must submit a
                  test file to the IEAP contractor and receive advanced written
                  approval by the Department prior to the end of the Readiness
                  Reviews. A Contractor will not be certified as "ready" without
                  the completion of the electronic provider directory component.
                  See Exhibit EE of this Agreement, Online Provider Directory
                  File Layout.

                  The Contractor must provide its Members with directories for
                  PCPs, dentists, specialists and providers of ancillary
                  services, upon request, which include, at a minimum, the
                  information listed in Exhibit FF of this Agreement, PCP,
                  Dentists, Specialists and Providers of


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<PAGE>

                  Ancillary Services Directories. The Contractor must submit
                  PCP, specialists, and provider of ancillary services
                  directories to the Department for advance written approval
                  before distribution to its Members. The Contractor must submit
                  provider directories to the Department for review and approval
                  thirty (30) days prior to the initial transition or as
                  determined by the Department. The Contractor also agrees to
                  make modifications to its provider directories if ordered by
                  the Department to do so.

            17.   HC-L/C Member Disenrollment

                  The PH-MCO may not reassign or remove Members involuntarily
                  from Network Providers who are willing and able to serve the
                  Member.

      G.    Member Services

            1.    General

                  The Contractor's Member services functions shall be
                  operational at least during regular business hours (9:00 a.m.
                  to 5:00 p.m., Monday through Friday) and one (1) evening per
                  week (5:00 p.m. to 8:00 p.m.) or one (1) weekend per month to
                  address non-emergency problems encountered by members.
                  Arrangements must be made to receive, identify, and resolve
                  Emergency Member Issues, including prior authorization and
                  medical necessity determinations for urgent/Emergency Services
                  on a twenty-four (24) hour, seven (7) day-a-week basis. The
                  Contractor's Member services functions shall include, but are
                  not limited to, the following Member services standards:

                  o     Explaining the operation of the Contractor and assisting
                        Members in the selection of a PCP.

                  o     Assisting Members with making appointments and obtaining
                        services.

                  o     Assist with arranging transportation for members through
                        the MATP. See Section V.A.14 of this Agreement,
                        Transportation and Exhibit L of this Agreement,
                        Transportation.

                  o     Receiving, identifying and resolving Emergency Member
                        Issues.

                  o     Under no circumstances will unlicensed members services
                        staff provide health-related advice to members
                        requesting clinical information. The Contractor must
                        ensure that all such inquires


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<PAGE>

                        are addressed by clinical personnel acting within the
                        scope of their licensure to practice a health related
                        profession.

            2.    Contractor Internal Member Dedicated Hotline

                  The Contractor must maintain and staff a twenty-four (24)
                  hour, seven (7) day-a-week toll-free dedicated hotline to
                  respond to Members' inquiries, Complaints and problems raised
                  regarding services. The Contractor internal Member hotline
                  staff are required to ask the caller whether or not they are
                  satisfied with the response given to their call. All calls
                  must be documented and if the caller is not satisfied, the
                  Contractor must ensure that the call is referred to the
                  appropriate individual within the PH-MCO for follow-up and/or
                  resolution. This referral must take place within forty-eight
                  (48) hours of the call. The Contractor must provide the
                  Department with the capability to monitor the Contractor's
                  Member services and internal Member dedicated hotline from
                  both the Department's headquarters and at each of the
                  Contractor's offices The Contractor is not permitted to
                  utilize electronic call answering methods, as a substitute for
                  staff persons, to perform this service. The Contractor must
                  ensure that its dedicated hotline meets the following Member
                  services performance standards:

                  o     Provide for a dedicated phone line for its Members.

                  o     Provide for necessary translation assistance including
                        provisions for Members who have hearing impairments.

                  o     Be staffed by individuals trained in:
                        --    cultural competence;
                        --    addressing the needs of special populations;
                        --    the availability of the functions of the SNU;
                        --    the services which the Contractor is required to
                              make available to children; and
                        --    the availability of social services within the
                              community.

                  o     Be staffed with representatives familiar with accessing
                        medical transportation.

                  o     Be staffed with adequate service representatives to
                        accommodate a delay in answering no greater than five
                        (5) rings and three (3) minutes hold time.

                  o     Provide for TTY and/or Pennsylvania Telecommunication
                        Relay Service availability.


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<PAGE>

            3.    Education and Outreach Health Education Advisory Committee

                  The Contractor must develop and implement effective Member
                  education and outreach programs which may include health
                  education programs focusing on the leading causes of
                  hospitalization and emergency room use and health initiatives
                  which target members with special needs including but not
                  limited to: HIV/AIDS, mental retardation/developmental
                  disabilities, eligibility (Medicare/ Medicaid), etc.

                  The Contractor must establish and maintain a Health Education
                  Advisory Committee that includes MA Consumers and Providers of
                  the community to advise on the health education needs of
                  managed care members. Representation on this Committee shall
                  include, but not be limited to, women, minorities, persons
                  with special needs and at least one (1) person with expertise
                  on the medical needs of children with special needs.

                  The Contractor must provide for and document coordination of
                  health education materials, activities and programs with
                  public health entities, particularly as they relate to public
                  health priorities and population-based interventions. The
                  Contractor must also work with the Department to ensure that
                  its Health Education Advisory Committees are provided with an
                  effective means to consult with each other and, when
                  appropriate, coordinate efforts and resources for the benefit
                  of the entire HC-L/C population or populations with special
                  needs. Provider representation includes physical health,
                  behavioral health, and dental health providers on the
                  Contractor's Health Education Advisory Committees.

                  The Contractor must provide the Department with a written
                  description of all planned health education activities and
                  targeted implementation dates on an annual basis.

            4.    Informational Materials

                  All information given to Members and potential Members must be
                  easily understood and must comply with all requirements
                  outlined in the RFP and Agreement and the provisions of
                  Section 2136 of the Insurance Company Law of 1921, as amended,
                  40 P.S. 991.2136. Informational material distributed to
                  HealthChoices Members, including but not limited to provider
                  directories and member handbooks, shall be available, upon
                  request, in Braille, large print, and audio tape and must be
                  provided in the format requested by the person with a visual
                  impairment. The information contained in the provider
                  directories may cover only those zip codes or other


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<PAGE>

                  geographic locations that the person with a visual impairment
                  requests. The Contractor must pay particular attention for the
                  provision of the following items:

                  o     Identity, location, qualifications and availability of
                        health care providers within the organization.

                  o     Members' rights and responsibilities.

                  o     Complaint, Grievances, and DPW Fair Hearing procedures.

                  o     Instructions for Members to access or receive assistance
                        in accessing materials in an alternate language or
                        format. Instructions should include both phone and TTY
                        numbers.

                  o     Information on services covered directly or through
                        referral and prior authorization.

                  o     Information regarding how an individual who is deaf can
                        access interpreter services for medical appointments.

                  The Contractor must obtain advance written approval from the
                  Department of all Member newsletters. In addition, the
                  Contractor must send Member newsletters to all Members.

                  The Contractor must obtain advance written approval from the
                  Department to use Member related HealthChoices information, on
                  their electronic web sites and bulletin boards.

            5.    Member Encounter Listings

                  The Contractor must include, in its PCP Provider Agreements,
                  language which requires PCPs to contact new Members Identified
                  in the quarterly encounter lists who have not had an encounter
                  during the first six (6) months of enrollment, or who have not
                  complied with the scheduling requirements outlined in the RFP
                  and this Agreement. The Contractor must require the PCP to
                  contact Members identified in the quarterly encounter lists as
                  not complying with EPSDT periodicity and immunization
                  schedules for children. The PCP must be required to identify
                  to the Contractor any such Members who have not come into
                  compliance with the EPSDT periodicity and immunization
                  schedules within one (1) month of such notification to the
                  site by the Contractor. The PCP must also be required to
                  document the reasons for non-compliance, and to document its
                  efforts to bring the Member's care into compliance with the
                  standards.


                                                                              58
<PAGE>

                  The Contractor must distribute quarterly lists to each PCP in
                  Its Provider networks which identify new Members and Members
                  who have not had an encounter during the previous six (6)
                  months or within the time frames set forth in Section V.F.11
                  of this Agreement, Services for New Members, or Members who
                  have not complied with EPSDT periodicity and immunization
                  schedules for children. PCPs shall be required to contact
                  these Members to arrange appointments. The Contractor is
                  responsible for contacting such Members, documenting the
                  reasons for noncompliance and documenting its efforts for
                  bringing the Member's care into compliance.

            H.    Additional Addressee

                  The Contractor must have administrative mechanisms for sending
                  copies of information, notices and other written materials to
                  a third party upon the request and signed consent of the
                  Member. The Contractor must develop plans to process such
                  individual requests and for obtaining the necessary releases
                  signed by the Member to ensure that the Member's rights
                  regarding confidentiality are maintained.

            I.    Member Complaint. Grievance and DPW Fair Hearing Process

                  1.    Member Complaint, Grievance and DPW Fair Hearing Process

                        The Contractor must develop, implement, and maintain a
                        Complaint and Grievance process that provides for
                        settlement of Members' Complaints and Grievances and the
                        processing of requests for DPW Fair Hearings as outlined
                        in Exhibit GG of this Agreement. Complaints, Grievances,
                        and DPW Fair Hearing Process. The Contractor must have
                        written policies and procedures approved by the
                        Department, for resolving Member Complaints and for
                        processing Grievances and DPW Fair Hearing requests,
                        that meet the requirements established by the Department
                        and the provisions of Article XXI of the Insurance
                        Company Law of 1921, as amended by the Act of June 17,
                        1998, (P.L. 464, No. 68), 40 P.S. 991.2101-991.2361)
                        known as Act 68 and corresponding Act 68 regulations and
                        and 42 C.F.R. 431.200 et seq of the Federal Regulations.
                        The Contractor must also comply with 55 Pa. Code 275
                        regarding DPW Fair Hearing Requests.

                        The Contractor must require each of its subcontractors
                        to comply with the Member Complaint, Grievance, and DPW
                        Fair Hearing Process. This includes reporting
                        requirements established by the Contractor, which have
                        received advance written approval by the Department. The
                        Contractor must provide to the Department for


                                                                              59
<PAGE>

                        approval, its written procedures governing the
                        resolution of Complaints and Grievances and the
                        processing of DPW Fair Hearing requests.

                        The standard notice required and outlined in Exhibit N
                        of this Agreement, Denial Notices, must be used in the
                        Contractor's Complaint, Grievance and DPW Fair Hearing
                        process and must be in accessible formats for
                        individuals with vision impairments. In addition, the
                        notice must be available for persons who do not speak
                        English.

                        For children in substitute care, notices must be sent to
                        the County Children and Youth Agency with legal custody
                        of a child or to the court authorized juvenile probation
                        office with primary supervision of a juvenile, provided
                        the PH-MCO knows that the child is in substitute care
                        and the address of the custodian of the child.

                        The Contractor must abide by the final decision of the
                        Departments of Health or Insurance (as applicable) when
                        a Member has filed an external appeal of a second level
                        complaint decision. When a Member files an external
                        appeal of a second level grievance decision, the
                        Contractor must abide by the decision of the Department
                        of Health certified utilization review entity (URE),
                        which was assigned to conduct the independent external
                        review, unless appealed to the court of competent
                        jurisdiction. The Contractor must abide by the final
                        decision of the Department of Public Welfare's Bureau of
                        Hearings and Appeals for those cases when an MA Consumer
                        has requested a DPW Fair Hearing, unless requesting
                        reconsideration by the Secretary of the Department of
                        Public Welfare or appealing to the court of competent
                        jurisdiction.

                  2.    DPW Fair Hearing Process for Members

                        During all phases of the PH-MCO Complaint/Grievance
                        process, the Member has the right to request a Fair
                        Hearing with the Department. The Contractor must comply
                        with the DPW Fair Hearing Process requirements defined
                        in Exhibit GG of this Agreement, Complaints, Grievances
                        and DPW Fair Hearing Process.

                        A request for a DPW Fair Hearing does not prevent a
                        Member from also utilizing the plan's Grievance process.

            J.    Clinical Sentinel

                  The Contractor agrees to cooperate with the functions of the
                  Department's Clinical Sentinel Hotline which is designed to
                  address clinically related


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<PAGE>

                  systems issues encountered by MA Consumers and their advocates
                  or Providers. The Clinical Sentinel Hotline facilitates
                  resolution according to Contractor policies and procedures and
                  does not impose additional obligations on the Contractor.

            K.    Provider Dispute Resolution System

                  The Contractor shall develop, implement, and maintain a
                  Provider Dispute Resolution Process, which provides for
                  informal settlement of Providers' disputes at the lowest level
                  and a formal process for appeal. The resolution of all issues
                  regarding the interpretation of Department approved provider
                  PH-MCO contracts shall be handled between the two entities and
                  shall not involve the Department. The Department's Bureau of
                  Hearings and Appeals or its designee is not an appropriate
                  forum for dispute decisions with PH-MCO.

                  Prior to implementation, the PH-MCO shall submit to the
                  Department, their policies and procedures relating to the
                  resolution of Provider disputes/appeals for approval. Any
                  changes made to the Provider disputes/appeals policies and
                  procedures shall be submitted to the Department for approval
                  prior to implementation of the changes.

                  The PH-MCO's policies and procedures shall include at a
                  minimum:

                        o     Informal and formal processes for settlement of
                              Provider disputes;

                        o     Acceptance and usage of the Department's
                              definition/delineation of disputes;

                        o     Submission and resolution of timeframes for
                              disputes/appeals;

                        o     Processes to ensure equitability for all
                              Providers;

                        o     Mechanisms and time-frames for reporting Provider
                              appeal decisions to PH-MCO administration, QM
                              Provider Relations and the Department; and

                        o     Establishment of a PH-MCO Committee to process
                              Provider formal disputes/appeals which shall
                              include:

                        o     At least one-fourth (1/4") of the membership of
                              the Committee shall be composed of
                              providers/peers;

                        o     Committee members who have the authority,
                              training, and expertise to address and resolve
                              Provider dispute/appeal issues;

                        o     Access to data necessary to assist committee
                              members in making decisions; and

                        o     Documentation of meetings and decisions of the
                              Committee.

                  In addition to Provider Dispute Resolution System covering
                  contractual issues between the Provider and the managed care
                  plan, Article XXI of the Insurance Company Law of 1921, as
                  amended, 40 P.S. 991.2101 et seq.


                                                                              61
<PAGE>

                  and the regulations promulgated by the Pennsylvania Insurance
                  Department, 31 Pa. Code Chapters 154 and 301 to afford
                  Providers the opportunity to file Clean Claim disputes with
                  the Insurance Department.

            L.    Certification of Authority

                  The Contractor will be required to maintain operating
                  authority in all HC-L/C counties throughout the term of this
                  Agreement. The Contractor must provide to the Department a
                  copy of Certificates of Authority verifying the counties in
                  which it is licensed to operate, upon request.

            M.    Executive Management

                  The Contractor must provide the following management
                  personnel:

                  o     Designated administrator/program manager empowered to
                        make day-to-day decisions about the administration of
                        the program.

                  o     Member services supervisor/manager and adequate
                        qualified member service staff to interact by phone or
                        in person with MA Consumers.

                  o     Qualified medical personnel to oversee QA, UM, Special
                        Needs, Maternal Health/EPSDT functions.

                  o     Personnel with access to the MIS system and the ability
                        to produce ad hoc reports to assist in the
                        administration of the program.

                  The Contractor must document minority participation in
                  executive level decision making positions within its corporate
                  structure. In addition, the Contractor's staffing should
                  represent the cultural and ethnic diversity of the Program and
                  comply with all requirements of Exhibit D of this Agreement,
                  Standard Contract Terms and Conditions for Services. Cultural
                  competency may be reflected by the Contractor's pursuit to:

                  o     Identify and value differences;

                  o     Acknowledge the interactive dynamics of cultural
                        differences;

                  o     Continually expand cultural knowledge and resources with
                        regard to the populations served;

                  o     Recruit minority staff in proportion to the populations
                        served;

                  o     Collaborate with the community regarding service
                        provisions and delivery; and


                                                                              62
<PAGE>

                  o     Commit to cross-cultural training of staff and the
                        development of policies to provide relevant, effective
                        programs for the diversity of people served.

                  The Contractor must have in place sufficient administrative
                  staff and organizational components to comply with the
                  requirements of this Agreement. The Contractor must include in
                  its organizational structure, the components outlined below.
                  The functions must be staffed by qualified persons in numbers
                  appropriate to the PH-MCO's size of enrollment. The Department
                  has the right to make the final determination regarding
                  whether or not the Contractor is in compliance.

                  The Contractor may combine functions or split the
                  responsibility for a function across multiple departments,
                  unless otherwise indicated, as long as it can demonstrate that
                  the duties of the function are being carried out. Similarly,
                  the Contractor may contract with a third party to perform one
                  (1) or more of these functions, subject to the subcontractor
                  conditions described in Section XIII of this Agreement,
                  Subcontractual Relationships. The Contractor is required to
                  keep the Department informed at all times of the management
                  individual(s) whose duties include each of the
                  responsibilities outlined in this section.

                  The Contractor must include in its Executive Management
                  structure:

                  o     A full-time Administrator with authority over the entire
                        operation of the PH-MCO.

                  o     A full-time HC-L/C Program Manager to oversee the
                        operation of the Agreement, if different than the
                        Administrator of the PH-MCO.

                  o     A full-time Medical Director who is a current
                        Pennsylvania-licensed physician. The Medical Director
                        must be actively involved in all major clinical program
                        components of the PH-MCO and directly accountable within
                        the organization for management of the QM Department, UM
                        Department, and Special Needs Unit. The Medical Director
                        and his/her staff/consultant physicians shall devote
                        sufficient time to the PH-MCO to ensure timely medical
                        decisions, including after-hours consultation, as
                        needed.

                  o     A full-time Chief Financial Officer (CFO) to oversee the
                        budget and accounting systems implemented by the PH-MCO.
                        The CFO must ensure the timeliness and accurateness of
                        all financial reports.

                  o     A full-time Information Systems (IS) Coordinator, who
                        would be the single point of contact for all information
                        systems issues with the Department. The IS Coordinator
                        must have a good working knowledge of the PH-MCO's
                        entire program and operation, as well as the technical


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<PAGE>

                        expertise to answer questions related to the operation
                        of the information system.

                  o     Clerical and support staff to ensure appropriate
                        functioning of the PH-MCO's operation.

            N.    Other Administrative Components

                  The Contractor must address each of the administrative
                  functions listed below. These functions may be combined or
                  split as long as the Contractor can demonstrate that the
                  duties of these functions will conform to the work statement
                  described herein.

                  o     A QM Coordinator who is a Pennsylvania-licensed
                        physician, registered nurse or physician's assistant
                        with past experience or education in quality management
                        systems. The Department may consider other advanced
                        degrees relevant to quality management in lieu of
                        professional licensure.

                  o     A UM Coordinator who is a Pennsylvania-licensed
                        physician, registered nurse or physician's assistant
                        with past experience or education in utilization
                        management systems. The Department may consider other
                        advanced degrees relevant to utilization management in
                        lieu of professional licensure.

                  o     A full-time SNU Coordinator who is a
                        Pennsylvania-licensed or certified medical professional,
                        social worker, teacher or psychologist with a minimum of
                        three (3) years past experience in dealing with special
                        needs populations similar to those served by Medicaid
                        and in implementing the principles of case management.

                  o     A full-time Government Liaison who will serve as the
                        Department's primary point of contact with the PH-MCO
                        for the day-to-day management of contractual and
                        operational issues.

                  o     A Maternal Health/EPSDT Coordinator who is a
                        Pennsylvania-licensed physician, registered nurse or
                        physician's assistant; or has a Master's degree in
                        Health Services, Public Health, or Health Care
                        Administration to coordinate maternity and prenatal care
                        services.

                  o     A Member Services Manager who will oversee staff to
                        coordinate communications with Members and act as Member
                        advocates. There must be sufficient Member Services
                        staff to enable Members to receive prompt resolution to
                        their complaints, problems or inquiries.

                  o     A Provider Services Manager who will oversee staff to
                        coordinate communications between the Contractor and its
                        Providers. There shall


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<PAGE>

                        be sufficient Provider Services staff to enable
                        Providers to receive prompt resolution to their
                        complaints, problems or inquiries.

                  o     A Grievance Coordinator whose qualifications demonstrate
                        the ability to manage and facilitate Member Grievances.

                  o     A Member Advocate or Ombudsman whose qualifications
                        demonstrate the ability to exercise independent judgment
                        to assist Members in navigating the Grievance and DPW
                        Fair Hearing process.

                  o     A Claims Administrator who will oversee staff to ensure
                        the timely and accurate processing of claims, encounter
                        forms and other information necessary for meeting
                        contract requirements and the efficient management of
                        the PH-MCO.

                  The Contractor must ensure that all staff has appropriate
                  training, education, experience and orientation to fulfill the
                  requirements of the position.

            O.    Administration

                  The Contractor agrees to comply with the program standards
                  regarding PH-MCO Administration, which are set forth in this
                  Agreement and in Exhibit D of this Agreement, Standard
                  Contract Terms and Conditions for Services and in Exhibit E of
                  this Agreement, DPW Addendum to Standard Contract Terms and
                  Conditions. In addition, it is agreed that the Department must
                  approve the location of the Contractor's administrative
                  offices. Once approved, the Contractor will not relocate such
                  administrative offices without the Department's advance
                  written approval, which approval will not be unreasonably
                  withheld.

                  The Contractor must have an administrative office within the
                  zone from which the HC-L/C Program is operated. However,
                  exceptions to this requirement will be considered on an
                  individual basis if the Contractor has administrative offices
                  elsewhere in Pennsylvania and the Contractor is in compliance
                  with all standards set forth by the Departments of Health and
                  Insurance.

                  The Contractor must submit for approval by the Department its
                  organizational structure listing the function of each
                  executive as well as administrative staff members. Staff
                  positions outlined in this Agreement must be maintained in
                  accordance with the Department's requirements. The
                  HealthChoices Program Manager must be accessible to the
                  Department and may not be reassigned without advance approval
                  by the Department, which approval shall not be unreasonably
                  withheld.


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            1.    Responsibility to Employ MA Consumers

                  The Contractor must provide a plan approved by the CAO
                  Employment Unit Coordinator for the recruitment and hiring of
                  MA Consumers as described in Exhibit HH of this Agreement,
                  Contractor Responsibility to Employ MA Consumers.

            2.    Recipient Restriction Program

                  The Contractor agrees to maintain a recipient restriction
                  program to interface with the Department's recipient
                  restriction program and provide for appropriate professional
                  resources to identify and monitor Member abuse and perform the
                  necessary administrative activities to maintain accurate
                  records and comply with state and federal requirements.

                  A centralized recipient restriction process is in place for
                  the MA FFS Program and the managed care programs and is
                  managed by the Department. The Department maintains a lock-in
                  database that is accessible to all PH-MCOs. The Contractor
                  will cooperate with the Department in all procedures necessary
                  to restrict Members who are misutilizing medical services or
                  pharmacy benefits and to provide the appropriate resources to
                  enforce and monitor the restrictions.

            3.    Contracts and Subcontracts

                  In fulfilling its obligations hereunder, the Contractor has
                  the right to utilize the services of persons or entities by
                  means of subcontractual relationships. The Contractor
                  acknowledges and agrees that the execution of Subcontracts
                  does not diminish or alter the Contractor's responsibilities
                  under this Agreement.

                  The Contractor must make all Subcontracts available to the
                  Department within five (5) days of a request by the
                  Department. Contracts and Subcontracts entered into by the
                  Contractor does not terminate the Contractor's obligations
                  under this Agreement. All contracts and Subcontracts must be
                  in writing and must include, at a minimum, the provisions
                  contained in Exhibit II of this Agreement, Required Contract
                  Terms for Subcontractors.

                  Subcontracts which must be submitted to the Department for
                  advance written approval are:

                  o     Any subcontract between the Contractor and any
                        individual, firm, corporation or any other entity to
                        perform part or all of the selected Contractor's
                        responsibilities under this Agreement. This


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                        provision includes, but is not limited to, contracts for
                        vision services, dental services, claims processing,
                        member services, pharmacy services and lobbying
                        activities. This provision does not include, for
                        example, purchase orders.

                  o     Any transaction with a related party, regardless of its
                        stated purpose, including, but not limited to, loans,
                        advances and/or lease arrangements. The Contractor must
                        inform the Department that the subcontractor is a
                        related party at the time approval is requested.

            4.    Lobbying Disclosure

                  The Contractor agrees to the terms and conditions for lobbying
                  disclosure defined in Exhibit D of this Agreement, Standard
                  Contract Terms and Conditions for Services.

                  The Contractor will be required to complete and return a
                  "Lobbying Certification Form" and a "Disclosure of Lobbying
                  Activities Form" found in Exhibit JJ of this Agreement,
                  Lobbying Certification and Disclosure of Lobbying Activities
                  Forms.

            5.    Records Retention

                  The Contractor agrees to comply with the program standards
                  regarding records retention, which are set forth in Exhibit D,
                  Standard Terms and Conditions of Services, of this Agreement.
                  Upon thirty (30) days notice from the Department, the
                  Contractor must provide copies of all records to the
                  Department at the Contractor's site, if requested, so long as
                  the Department requests access to those records during the
                  retention period prescribed by this Agreement. This thirty
                  (30) days notice does not apply to records requested by the
                  state or federal government for purposes of fiscal audits or
                  fraud and/or abuse. The retention requirements in this section
                  do not apply to DPW-generated Remittance Advices.

            6.    Fraud and Abuse

                  The Contractor shall be required to establish written policies
                  and procedures for the detection and prevention of fraud and
                  abuse in its program. Such written policies and procedures
                  must be reviewed and approved by the Department.

                  Within the Contractor's written policies and procedures, the
                  Contractor shall identify the corporate officer responsible
                  for the proactive detection, prevention and elimination of
                  fraud or abuse in its


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                  program. The designated corporate officer must have direct
                  access to the CEO and be granted independent authority to
                  refer instances of suspected fraud and abuse directly to the
                  Department.

                  The Contractor and its employees shall cooperate fully with
                  centralized oversight agencies responsible for fraud and abuse
                  detection and prospecution activities. Such agencies include,
                  but are not limited to, the Departments Bureau of Program
                  Integrity, the Governor's Office of the Budget, the Office of
                  the Attorney General's Medicaid Fraud Control Section, the
                  Pennsylvania State Inspector General, the HCFA Office of
                  Inspector General, and the United States Justice Department.
                  Such cooperation may include participating in periodic fraud
                  and abuse training sessions and joint reviews of subcontracted
                  providers or members.

                  The Contractor must also ensure that the Department's
                  toll-free fraud and abuse hotline and accompanying explanatory
                  statement (which will be established in the near future) is
                  distributed to its Members and Providers through its Member
                  and Provider handbooks. Notwithstanding this requirement, the
                  Contractor will not be required to re-print handbooks for the
                  sole purpose of revising them to include fraud and abuse
                  hotline information. The Contract must, however, include such
                  information in any new version of these documents to be
                  distributed to Members and Providers.

                  The Contractor, including the designated corporate officer,
                  shall have an affirmative responsibility to refer suspected
                  fraud or abuse to relevant oversight agencies.

                  Contractors who do not report such information are subject to
                  sanctions, penalties, or other actions. A standardized
                  referral process is outlined in Exhibit II of this Agreement,
                  Standardized Referrals, to expedite information for
                  appropriate disposition. The requirements of the standardized
                  referral process are incorporated by reference into this
                  Agreement.

                  The Department shall provide the Contractor with immediate
                  notice via electronic transmission or access to Medicheck
                  listings or upon request if a provider with whom the
                  Contractor has entered into an agreement is subsequently
                  suspended or terminated from participation in the Medicaid or
                  Medicare Programs. Such notification will not include the
                  basis for the departmental action, due to confidentiality
                  issues. Upon notification from the Department that a provider
                  with whom the Contractor has entered into an agreement is
                  suspended or terminated from participation in the Medicaid or
                  Medicare Programs, the Contractor shall immediately act to
                  terminate


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                  the provider from participation. Terminations for loss of
                  licensure and criminal convictions must coincide with the MA
                  effective date of the action.

                  The Contractor must immediately notify the Department, in
                  writing, if a provider or subcontractor with whom the
                  Contractor has entered into an agreement is subsequently
                  suspended, terminated or voluntarily withdraws from
                  participation in the program as a result of suspected or
                  confirmed fraud or abuse. The Contractor must also immediately
                  notify the Department, in writing, if it terminates or
                  suspends an employee as a result of suspected or confirmed
                  fraud or abuse. The Contractor shall inform the Department, in
                  writing, of the specific underlying conduct that lead to the
                  suspensions, or voluntary withdrawal. Provider agreements
                  shall carry notification of the prohibition and sanctions for
                  submission of false claims and statements. Contractors who
                  fail to report such information are subject to sanctions,
                  penalties, or other actions. The Department's enforcement
                  guidelines are outlined in Exhibit JJ of this Agreement,
                  Guidelines for Sanctions Regarding Fraud and Abuse in the
                  HealthChoices Program.

                  The Department reserves the right to impose sanctions,
                  penalties, or take other actions when it identifies fraud and
                  abuse within a Contractors program.

                  The Contractor agrees to ensure that all of the health care
                  providers and others with whom it subcontracts agree to comply
                  with the Program Standards regarding Fraud and Abuse.

            7.    Information Systems and Encounter Data

                  The Contractor must have a comprehensive, automated and
                  integrated health management information system (MIS) that is
                  capable of meeting the requirements listed below and
                  throughout this Agreement.

                  a.    The Contractor must ensure that its data system is
                        linked throughout all of its internal departments. In
                        addition, the Contractor must have an authorization
                        system that links with claims processing.

                  b.    The membership management system must have the
                        capability to receive, update and maintain the
                        Contractor's membership files consistent with
                        information provided by the Department. The Contractor
                        must have the capability to provide daily updates of
                        membership information to subcontractors or Providers
                        with responsibility for processing


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                        claims or authorizing services based on membership
                        information.

                  c.    The Contractor's claims processing system must have the
                        capability to process claims consistent with timeliness
                        and accuracy requirements identified in this Agreement.
                        Claims history must be maintained with sufficient detail
                        to meet all Department reporting and encounter
                        requirements.

                  d.    The Contractor's provider management system must have
                        the capability to receive, store, analyze, and report on
                        provider specific data sufficient to meet the Provider
                        credentialing, auditing, quality improvement, and
                        profiling requirements of this Agreement.

                  e.    The Contractor's Provider file must be maintained with
                        detailed information on each Provider sufficient to meet
                        the Department's reporting and encounter data
                        requirements.

                  f.    The Contractor must have sufficient telecommunication
                        capabilities, including electronic mail, to meet the
                        requirements of this Agreement.

                  g.    The Contractor must have the capability to
                        electronically transfer data files with the Department
                        and the IEAP contractor.

                  h.    The encounter data system must be bi-directionally
                        linked to the other operational systems listed in this,
                        in order to ensure that data captured in encounter
                        records accurately matches data in member, provider and
                        claims files, and in order to enable encounter data to
                        be utilized for member profiling, provider profiling,
                        claims validation, and fraud and abuse monitoring
                        activities.

                  i.    The Contractor's MIS must be compatible with the
                        Department's POSNet system. The Contractor must comply
                        with the policies and procedures governing the operation
                        of the Department's POSNet system, as defined in the
                        POSNet Interface Specifications and Data Exchange
                        Guidelines, which can be found in the HealthChoices
                        Proposers' Library. In addition, the Contractor must
                        comply with changes made to the POSNet Interface
                        Specifications and the Data Exchange Guidelines of the
                        Department. The Contractor must make changes to their
                        MIS system, in order to remain compatible with the
                        Department's data system. Whenever possible, the


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                        Department will provide advance notice of at least sixty
                        (60) days prior to the implementation of changes. For
                        more complex changes, every effort will be made to
                        provide additional notice.

                  j.    The Contractor must have a claims processing system and
                        MIS sufficient to support the Provider payment and data
                        reporting requirements specified in this Agreement. See
                        Exhibit MM of this Agreement, Management Information
                        System and System Performance Review Standards, for MIS
                        and Systems Performance Review (SPR) standards. The
                        Contractor must be prepared to document its ability to
                        expand claims processing or MIS capacity should either
                        or both are exceeded through the enrollment of program
                        Members.

                  k.    The Contractor will designate appropriate staff to
                        participate in DPW directed development and
                        implementation activities. The Contractor will make all
                        necessary systems changes to migrate to the new EPSDT
                        reporting system consistent with timeframes to be
                        established by the Department to the extent possible, to
                        be consistent with federal reporting/claims formats and
                        to avoid duplication of data collection.

                  l.    Subcontractors must meet the same MIS requirements as
                        the Contractor and the Contractor will be held
                        responsible for MIS errors or noncompliance resulting
                        from the action of a subcontractor.

                  m.    The Contractor's MIS shall be subject to review and
                        approval during the Department's HC-L/C Readiness Review
                        process as referenced in Section VI of this Agreement,
                        Program Outcomes and Deliverables.

            8.    Department Access and Availability

                  The Contractor is responsible for providing Department staff
                  with access to appropriate on-site private office space and
                  equipment including, but not limited to, the following:

                  o     Two (2) desks and two (2) chairs;
                  o     Two (2) telephones, one (1) of which has speaker phone
                        capabilities;
                  o     One (1) personal computer and printer with on-line
                        access to the Contractor's MIS;
                  o     FAX machine; and
                  o     Bookcase.


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                  The Contractor must ensure Department access to administrative
                  policies and procedures, including, but not limited to;

                  o     Personnel policies and procedures
                  o     Procurement policies and procedures
                  o     Public relations policies and procedures
                  o     Operations policies and procedures
                  o     Policies and procedures developed to ensure compliance
                        with requirements under this Agreement.

      P.    Special Needs Unit (SNU)

            1.    Establishment of Special Needs Unit

                  a.    The Contractor must develop, train, and maintain a
                        "special" dedicated unit within its organizational
                        structure to deal with issues relating to Members with
                        special needs ("Special Needs Unit" (SNU)). The purpose
                        of the SNU is to ensure that each Member with special
                        needs receives access to PCPs, dentists, and specialists
                        trained and skilled in the special needs of the Member;
                        information about the access to a specialist, as
                        appropriate; information about and access to all covered
                        services appropriate to the Member's condition or
                        circumstance, including pharmaceuticals and Durable
                        Medical Equipment (DME); access to sign language
                        interpreter services; and access to needed community
                        services. The Contractor must show evidence they can
                        execute agreements with individuals who have expertise
                        in the treatment of special needs to provide
                        consultation to the SNU staff, as needed.

                  b.    The Contractor agrees to comply with the Department's
                        requirements and determination of whether a Member shall
                        be classified as having a special need, which
                        determination will be based on criteria set forth in
                        Exhibit NN of this Agreement, Special Needs Unit.

                  c.    It is the responsibility of the SNU to arrange for and
                        ensure coordination between the PH-MCO and other health,
                        education, and human service systems for Members with
                        special needs. See Exhibit OO of this Agreement,
                        Coordination of Care Entities, for an example but not an
                        all-inclusive list. The Contractor is responsible to
                        coordinate the comprehensive in-plan package of services
                        with entities providing Out-of-Plan Services.


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                  d.    The Contractor must assure that outpatient case
                        management for services for Members under age twenty-one
                        (21) are not provided through any individual employed by
                        the Contractor or through a subcontractor of the
                        Contractor if the individual's responsibilities include
                        outpatient utilization review or otherwise include
                        reviews of requests for authorization of outpatient
                        benefits. In addition, if the Contractor provides case
                        management services to members under the age of
                        twenty-one (21) through the SNU, the Contractor must
                        assure that the SNU assists individuals in gaining
                        access to necessary medical, social, education, and
                        other services in accordance with Medical Assistance
                        Bulletin #1239-94-01 Medical Assistance Case Management
                        Services for Recipients Under the Age of 21.

                  e.    The Contractor must comply with SNU reporting
                        requirements as specified by the Department and
                        described in Exhibit NN of this Agreement, Special Needs
                        Unit.

            2.    Special Needs Coordinator

                  The Contractor must employ a full-time SNU Coordinator whose
                  qualifications include, among other things; experience with
                  special needs populations similar to those served by Medicaid.
                  The SNU Coordinator must report directly and be accountable to
                  the Contractor's Medical Director and be responsible for the
                  management and supervision of the SNU and SNU staff. The
                  Contractor agrees to notify the Department within thirty (30)
                  days of a change in the SNU Coordinator. See also Section V.M
                  of this Agreement, Executive Management.

            3.    Responsibilities of Special Needs Unit Staff

                  a.    The Contractor agrees that the staff members which it
                        employs within the SNU must assist MA Consumers in
                        accessing services and benefits and act as liaisons with
                        various government offices, providers, public entities,
                        and county entities which shall include, but shall not
                        be limited to the list of Providers in Exhibit OO of
                        this Agreement, Coordination of Care Entities.

                  b.    The staff members of this unit must work in close
                        collaboration with the SNU operated by the Department
                        and the IEAP contractor's SNU.

                  c.    The Contractor must demonstrate to the Department that
                        its


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                        SNU staff is qualified to perform the functions outlined
                        in Exhibit NN of this Agreement, Special Needs Unit.

      Q.    Assignment of PCPs

            The Contractor must have written policies and procedures for
            Members, including parents and guardians, or attending staff for
            special needs populations, who require assistance in the selection
            of a PCP. The Contractor must receive advance written approval by
            the Department regarding these policies and procedures. The
            Contractor must ensure that the process includes at a minimum the
            following features:

            o     The Contractor must ensure that a Member's selection of a PCP
                  through the IEAP contractor is honored upon commencement of
                  PH-MCO coverage. If the Contractor is not able to honor the
                  selection, the Contractor is required to follow the guidelines
                  described further under this provision.

            o     Should the Contractor permit selection of a PCP group and the
                  Member has selected a PCP group in the PH-MCO's Network
                  through the Enrollment Specialist, the PH-MCO must ensure that
                  upon commencement of the PH-MCO coverage, the Member's
                  selection is honored. In addition, the PH-MCO will have three
                  (3) months to outreach to this Member to make an individual
                  PCP selection within the PCP group. If the Member does not
                  make a selection within the three (3) month period, the PH-MCO
                  must ensure that the Member is assigned to a PCP within that
                  PCP group the Member initially selected. The PH-MCO must then
                  notify the Member by telephone or in writing of his/her PCP's
                  name, location and office telephone number. In addition, at no
                  time is the Contractor permitted to assign a PCP group to a
                  Member if the Member has not selected a PCP or a PCP group at
                  the time of enrollment.

            o     If the Member has not selected a PCP--through the Enrollment
                  Specialist, the PH-MCO must make contact with the Member
                  within seven (7) business days of his or her enrollment and
                  provide information on options for selecting a PCP, unless the
                  PH-MCO has information that the Member should be immediately
                  contacted due to a medical condition requiring immediate care.
                  To the extent practical, the PH-MCO must offer freedom of
                  choice to Members in making a PCP selection.

            o     If a Member does not select a PCP within fourteen (14)
                  business days of enrollment, the PH-MCO must make an automatic
                  assignment. The Contractor must consider such factors (to the
                  extent they are known), as current Provider relationships,
                  need of children to be followed by a


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                  pediatrician, special medical needs, physical disabilities of
                  the Member, language needs, area of residence and access to
                  transportation. The PH-MCO must then notify the Member by
                  telephone or in writing of his/her PCP's name, location and
                  office telephone number. The PH-MCO must make every effort to
                  determine PCP choice and confirm this with the Member prior to
                  the commencement of the PH-MCO coverage in accordance with
                  Section V.F so that new Members do not go without a PCP for a
                  period of time after enrollment begins.

            o     The Contractor must take into consideration, language and
                  cultural compatibility between the Member and the PCP.

            o     If a Member requests a change in his or her PCP selection
                  following the initial visit, the Contractor must promptly
                  grant the request and process the change timely.

            o     The Contractor must have written policies and procedures for
                  allowing Members to select or be assigned to a new PCP
                  whenever requested by the Member, when a PCP is terminated
                  from the Contractor's network or when a PCP change is ordered
                  as part of the resolution to a Grievance proceeding. The
                  policies and procedures must receive advance written approval
                  by the Department.

            o     In cases where a PCP has been terminated, the Contractor must
                  immediately inform Members assigned to that PCP in order to
                  allow them to select another PCP prior to the PCP's
                  termination effective date. In cases where an MA Consumer
                  fails to select a new PCP, reassignment must take place prior
                  to the PCP's termination effective date.

            o     The Contractor must consider that a Member with special needs
                  can request a specialist as a PCP. Denial of such requests are
                  appealable.

            Should the Contractor choose to implement a process for the
            assignment of a primary dentist, the Contractor must submit the
            process for advance written approval from the Department prior to
            its implementation.

      R.    Provider Services

            Provider services functions shall be required to be operated at
            least during regular business hours (9:00 am. to 5:00 p.m., Monday
            through Friday). Provider services functions include, but are not
            limited to, the following:

            o     Assisting Providers with questions concerning Member
                  eligibility status.


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            o     Assisting Providers with Contractor prior authorization and
                  referral procedures.

            o     Assisting Providers with claims payment procedures and
                  handling Provider complaints.

            o     Facilitating transfer of Member medical records among medical
                  Providers, as necessary.

            o     Providing to PCPs a monthly list of Members who are under
                  their care, including identification of new and deleted
                  Members. An explanation guide detailing use of the list must
                  also be provided to PCPs.

            o     Developing a process to respond to Provider inquiries
                  regarding current enrollment.

            o     Coordinating the administration of Out-of-Plan Services.

            1.    Provider Manual

                  The Contractor must keep its Network Providers up-to-date with
                  the latest policy and procedures changes as they affect the MA
                  Program. The key to maintaining this level of communication is
                  the publication of a provider manual. Copies of the provider
                  manual shall be distributed in a manner that makes them easily
                  accessible to all participating practitioners. The Contractor
                  may specifically delegate this responsibility to large
                  providers in its Provider Agreement. The provider manual must
                  be updated annually. The Department may grant an exception to
                  this annual requirement upon written request from the PH-MCO
                  provided there are no major changes to the manual. For a
                  complete description of the provider manual contents and
                  information requirements, refer to Exhibit PP of this
                  Agreement, Provider Manuals.

            2.    Provider Education

                  The Contractor must demonstrate that its Provider Network is
                  knowledgeable and experienced in treating Members with special
                  needs. The Contractor must submit a plan to the Department
                  that outlines its plans to educate and train Providers. This
                  training plan can be done in conjunction with the SNU training
                  requirements as outlined in Section V.P of this Agreement,
                  Special Needs Unit, and must also include special needs MA
                  Consumers, advocates and family members in developing the
                  design and implementation of the training plan.


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<PAGE>

                  The Contractor must submit its plan for measuring training
                  outcomes including the tracking of training schedules and
                  Provider attendance to the Department for approval at least
                  annually.

                  At a minimum, the Provider training must be conducted for PCPs
                  and dentists as appropriate, and include the following areas:

                  a.    EPSDT training for any Providers who serve Members under
                        age twenty-one (21).

                  b.    Identification and appropriate referral for mental
                        health, drug and alcohol and substance abuse services.

                  c.    Sensitivity training on diverse and special needs
                        populations such as persons who are deaf and hard of
                        hearing.

                  d.    Cultural competence.

                  e.    Treating special needs populations, including the right
                        to treatment for individuals with disabilities.

                  f.    Administrative processes that include, but are not
                        limited to: coordination of benefits, dual eligibles,
                        and encounter reporting.

                  The Contractor may submit an alternate Provider training and
                  education plan should the Contractor wish to combine its
                  activities with other Contractors operating in the HC-L/C zone
                  or wish to develop and implement new and innovative methods
                  for Provider training and education. However, this alternative
                  plan must have advance written approval by the Department.
                  Should the Department approve an alternative plan, the
                  Contractor must have the ability to track and report on the
                  components included in the Contractor's alternative Provider
                  training and education plan.

      S.    Provider Network/Services Access

            The Contractor must establish and maintain adequate Provider
            networks to serve all of the eligible HC-L/C populations. Provider
            networks must include, but not be limited to: hospitals, children's
            tertiary care hospitals, specialty clinics, trauma centers,
            facilities for high-risk deliveries and neonates, specialists,
            dentists orthodontists, physicians, pharmacies, emergency
            transportation services, long-term care facilities, rehab
            facilities, home health agencies and DME suppliers in sufficient
            numbers to make available all services in a timely manner.


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<PAGE>

            1.    Network Composition

                  The Contractor must ensure that its Provider network is
                  adequate to provide its Members in the HC-L/C zone with access
                  to quality Member care through participating professionals, in
                  a timely manner, and without the need to travel excessive
                  distances. Upon request from the Department, the Contractor
                  must supply geographic access maps detailing the number,
                  location and specialties of their Provider network to the
                  Department in order to verify accessibility of Providers
                  within their network. The Department may require additional
                  numbers of specialists and ancillary providers should it be
                  determined that geographic access is not adequate.

                  The Contractor must make all reasonable efforts to honor a
                  Member's choice of Providers who are credentialed in the
                  network.

                  Additional requirements for establishing and maintaining an
                  acceptable Provider network are as follows:

                  a.    The Contractor must ensure the provision of services to
                        persons who have special health needs or who face access
                        barriers to health care. If the Contractor does not have
                        at least two (2) specialists or sub-specialists
                        qualified to meet the particular needs of the
                        individuals, then the Contractor must allow Members to
                        pick an Out-of-Network Provider if not satisfied with
                        the Network Provider. The Contractor must develop a
                        system to determine prior authorization for Out-of-Plan
                        Services, including provisions for informing the MA
                        Consumer of how to request this authorization for
                        Out-at-Plan Services. For children with special health
                        needs, the Contractor must offer at least two (2)
                        pediatric specialists or pediatric sub-specialists.

                  b.    The Contractor must ensure and must demonstrate its
                        ability to:

                        i.    Make available to every Member a choice of at
                              least two (2) appropriate PCPs whose offices are
                              located within a travel time no greater than
                              thirty (30) minutes (urban) and sixty (60) minutes
                              (rural). This travel time is measured via public
                              transportation, where available. Members may, at
                              their discretion, select PCPs located further from
                              their homes.

                        ii.   Ensure an adequate number of pediatricians to
                              permit all Members who want a pediatrician as a
                              PCP to


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                              have a choice of two (2) for their children within
                              the travel time limits (30 minutes urban, 60
                              minutes rural).

                        iii.  Demonstrate its attempts to contract in good faith
                              with a sufficient number of Certified Registered
                              Nurse Practitioners (CRNP) to ensure access to
                              CRNP services. While the Contractor may contract
                              with a primary care practice in which the majority
                              of primary care services are performed by CRNP's,
                              the number of CRNPs in such practices may not
                              exceed 10 percent of the total number of PCPs in
                              the Contractor's network.

                        iv.   Limit its PCP network to appropriately qualified
                              Providers. The PH-MCO's PCP network must meet the
                              following:

                              o     Seventy-five to one hundred percent
                                    (75-100%) of the Network consists of PCPs
                                    who have completed an approved primary care
                                    residency in family medicine, osteopathic
                                    general medicine, internal medicine or
                                    pediatrics;

                              o     No more than twenty-five percent (25%) of
                                    the Network consists of PCPs without
                                    appropriate residencies but who have, within
                                    the past seven (7) years, five (5) years of
                                    post-training clinical practice experience
                                    in family medicine, osteopathic general
                                    medicine, internal medicine or pediatrics.
                                    Post-training experience is defined as
                                    having practiced at least as a 0.5 full-time
                                    equivalent in the practice areas described;
                                    and

                              o     No more than ten percent (10%) of the
                                    Network consists of PCPs who were previously
                                    trained as specialist physicians and changed
                                    their areas of practice to primary care, and
                                    who have completed Department-approved
                                    primary care retraining programs.

                  c.    The Contractor must ensure a choice of at least two (2)
                        pharmacies (excluding mail-order entities) within the
                        travel time limits (30 minutes urban, 60 minutes rural).

                  d.    The Contractor must ensure a choice of at least two
                        hospitals within the Provider Network, at least one (1)
                        of


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                        which must be within the travel limits (30 minutes
                        urban, 60 minutes rural).

                  e.    The Contractor must ensure a choice of at least two (2)
                        home health agencies within the HC-L/C zone.

                  f.    The Contractor must ensure a choice of at least two (2)
                        DME suppliers within the zone.

                  g.    The Contractor must ensure a choice of at least two (2)
                        rehabilitation facilities within the Provider network,
                        at least one (1) of which must be located within the
                        zone.

                  h.    The Contractor must ensure a choice of at least two (2)
                        nursing facilities within the Provider network.

                  i.    The Contractor must ensure a choice of at least two (2)
                        general practice dentists within the Provider Network.
                        For members needing anesthesia for dental care, the
                        Contractor must ensure a choice of at least two (2)
                        dentists within the Provider Network with privileges or
                        certificates to perform specialized dental procedures
                        under general anesthesia.

                  j.    The Contractor must ensure access to Certified Nurse
                        Midwives (CNMs) and CRNPs.

                  k.    The Contractor must demonstrate its ability to offer its
                        Members freedom of choice in selecting a PCP. At a
                        minimum, the Contractor must have or provide one (1)
                        full-time equivalent (FTE) PCP who serves no more than
                        one thousand (1,000) MA Consumers (cumulative across all
                        HC-L/C PH-MCO plans) and PCP sites which serve no more
                        than five thousand (5,000) MA Consumers (cumulative
                        across all HC-L/C PH-MCO plans). The Department will
                        develop a system to notify the Contractor of a Provider
                        reaching maximum panel limits. The number of Members
                        assigned to a PCP may be decreased by the Contractor if
                        necessary to maintain the appointment availability
                        standards.

                  l.    The Contractor and the Department will work together to
                        avoid the PCP having a caseload or medical practice
                        composed predominantly of HC-L/C Members. In addition,
                        the Contractor must organize its PCP sites so as to
                        ensure continuity of care to Members and must identify a
                        specific PCP within the site for each Member. The
                        Contractor may


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                        apply to the Department for a waiver of these
                        requirements on a site-specific basis. The Department
                        may waive these requirements for good cause demonstrated
                        by the Contractor.

                  m.    The Contractor must demonstrate its ability to provide
                        adequate access to physician specialists for PCP
                        referrals, and must employ or contract with adult and
                        pediatric specialists in sufficient numbers to ensure
                        that specialty services are made available in a timely,
                        geographically, and physically accessible manner,
                        particularly for those Members in special needs
                        populations. The Contractor must ensure Members a choice
                        of at least two (2) appropriate specialists.

                  n.    The Contractor must contract with a sufficient number of
                        Federally Qualified Health Centers (FQHCs) to ensure
                        access to FQHC services, provided FQHC services are
                        available, within a travel time of thirty (30) minutes
                        (urban) and sixty (60) minutes (rural). If the
                        Contractor's primary care network includes FQHCs, these
                        sites may be designated as PCP sites. A listing of FQHCs
                        for the HC-L/C project area is included in Exhibit QQ of
                        this Agreement, HealthChoices Federally Qualified Health
                        Centers (FQHCs) and Rural Health Clinics. If a
                        Contractor cannot contract with a sufficient number of
                        FQHCs, the Contractor must demonstrate in writing it has
                        attempted to reasonably contract in good faith.

                  o.    The Contractor must comply with the provisions of Act
                        112 of 1996 (H.B. 1415, P.N. 3853, signed July 11,
                        1996), The Balanced Budget Reconciliation Act of 1997
                        and Act 68 or 1998, the Quality Health Care
                        Accountability and Protection Provisions, 40 P.S.
                        991.2101 et seq., pertaining to coverage and payment of
                        medically necessary emergency services. The definition
                        of such services is set forth herein at Section II.

                  p.    The Contractor must inspect the office of any PCP or
                        dentist who seeks to participate in Contractor's
                        provider network (excluding offices located in
                        hospitals) to determine whether the office is
                        architecturally accessible to persons with mobility
                        impairments. Architectural accessibility means
                        compliance with ADA accessibility guidelines with
                        reference to parking (if any), path of travel to an
                        entrance, and the entrance to both the building and the
                        office of the provider, if different from the building
                        entrance. If the office or facility is


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                        not accessible, the PCP or dentist may not participate
                        in the Contractor's provider network until the barrier
                        has been removed and the office or facility is
                        accessible to persons with mobility impairments or the
                        provider presents proof of an exemption under Title III
                        of the ADA.

                  q.    The Department shall notify the Contractor and the
                        Provider of the office of any PCP or dentist that the
                        Department has determined is not architecturally
                        accessible to persons with mobility impairments. Such
                        Provider shall have ninety (90) days from the date of
                        notification that a barrier exists to remove the barrier
                        unless the Department expressly agrees to extend the
                        time for compliance. If the PCP or dentist falls to
                        remove the barrier, the Contractor shall initiate
                        appropriate action to promptly terminate the Provider's
                        participation in the Contractor's Network unless
                        notified by the Department that termination is not
                        necessary.

                  r.    The PH-MCO must ensure that all laboratory testing sites
                        providing services have either a Clinical Laboratory
                        Improvement Amendment (CLIA) certificate of waiver or a
                        certificate of registration along with a CLIA
                        identification number in accordance with CLIA 1988.
                        Those laboratories with certificates of waiver will
                        provide only the eight types of tests permitted under
                        the terms of their waiver. Laboratories with
                        certificates of registration may perform a full range of
                        laboratory tests. The PCP must provide all required
                        demographics to the laboratory when submitting a
                        specimen for analysis.

            2.    Provider Agreements

                  The Contractor is required to have written Provider Agreements
                  with a sufficient number of Providers to ensure Member access
                  to all Medically Necessary services covered by the
                  HealthChoices Program.

                  The Contractor's Provider Agreements must include the
                  following provisions:

                  a.    A requirement that the Contractor will not exclude or
                        terminate a Provider from participation in the
                        Contractor's provider network due to the fact that the
                        Provider has a practice that includes a substantial
                        number of patients with expensive medical conditions.

                  b.    A requirement that the Contractor will not exclude a
                        Provider


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                        from the Contractor's Provider network because the
                        Provider advocated on behalf of a Member for Medically
                        Necessary and appropriate health care consistent with
                        the degree of learning and skill ordinarily possessed by
                        a reputable health care Provider practicing according to
                        the applicable legal standard of care.

                  c.    A provision that prohibits the Provider from denying
                        services to an MA Consumer during the MA FFS eligibility
                        window prior to the effective date of the PH-MCO
                        enrollment.

                  d.    Notification of the prohibition and sanctions for
                        submission of false claims and statements.

                  e.    The definition of Medically Necessary as defined in
                        Section II of this Agreement, Definitions.

                  j.    A requirement that the Contractor cannot prohibit or
                        restrict a health care professional from discussing
                        Medically Necessary and appropriate care with or on
                        behalf of an enrollee, including information regarding
                        the nature of treatment; risks of treatment; alternative
                        treatments; or the availability of alternative
                        therapies, consultation or tests.

                  g.    A requirement that the Contractor cannot terminate a
                        contract or employment with a health care Provider for
                        filing a Grievance on a Member's behalf.

                  h.    A clause which specifies that the agreement will not be
                        construed as requiring the Contractor to provide,
                        reimburse for, or provide coverage of, a counseling or
                        referral service if the Provider objects to the
                        provision of such services on moral or religious
                        grounds.

                  i.    A requirement securing cooperation with the QM/UM
                        Program standards outlined in Exhibit M(1) of this
                        Agreement, Quality Management & Utilization Management
                        Program Requirements.

                  j.    A requirement for cooperation for the submission of
                        encounter data for all services provided within the
                        timeframes required in Section VIII of this Agreement,
                        Reporting Requirements, no matter whether reimbursement
                        for these services is made by the Contractor either
                        directly or indirectly through capitation.


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                  k.    A continuation of benefits provision which states that
                        the Provider agrees that in the event of the
                        Contractor's insolvency or other cessation of
                        operations, the Provider must continue to provide
                        benefits to the Contractor's Members through the period
                        for which the premium has been paid, including Members
                        in an inpatient setting.

                  l.    A continuation of benefits provision which states the
                        Provider must continue to provide benefits to the
                        Contractor's Members through the period for which the
                        premium has been paid, including Members in an inpatient
                        facility.

                  m.    A requirement that the PCPs who serve Members under the
                        age of twenty-one (21) are responsible for conducting
                        all EPSDT screens for individuals on their panel under
                        the age of twenty-one (21). Should the PCP be unable to
                        conduct the necessary EPSDT screens, the PCP is
                        responsible for arranging to have the necessary EPSDT
                        screens conducted by another Network Provider and ensure
                        that all relevant medical information, including the
                        results of the EPSDT screens, are incorporated into the
                        Member's PCP medical record. For details on access
                        requirements, see Section V.S.1 of this Agreement,
                        Network Composition.

                  n.    A requirement that PCPs who serve Members under the age
                        of twenty-one (21) report encounter data associated with
                        EPSDT screens, using a format approved by the
                        Department, to the Contractor within ninety (90) days
                        from the date of service.

                  o.    A requirement that the Contractor include in all
                        capitated Provider Agreements a clause which requires
                        that should the Provider terminate its agreement with
                        the Contractor, for any reason, that the Provider
                        provide services to the contracted Members up to the end
                        of the month in which the effective date of termination
                        falls.

                  p.    A requirement that the Contractor must 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 paragraph must not be
                        construed to prohibit an organization from including
                        Providers only to the extent necessary to meet the needs
                        of the organization's enrollees or from establishing any
                        measure designed to maintain quality and


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                        control costs consistent with the responsibilities of
                        the organization.

                  q.    A requirement that ensures each physician providing
                        services to enrollees eligible for medical assistance
                        under the State Plan to have a unique identifier in
                        accordance with the system established under section
                        1173(b) of the Balanced Budget Act.

                  The Contractor must make all necessary revisions to its
                  Provider Agreements to be in compliance with the requirements
                  set forth in this Section. Revisions may be completed as
                  Provider Agreements become due for renewal provided that all
                  Provider Agreements are amended within one (1) year of the
                  effective date of this Agreement with the exception of the
                  encounter data requirements which must be amended immediately,
                  if necessary, to ensure that all Providers are submitting
                  encounter data to the Contractor within the timeframes
                  specified in Section VIII.B.1 of this Agreement, Encounter
                  Data and Subcapitation Data Reports.

            3.    Cultural Competence

                  Both the Contractor and Providers must demonstrate cultural
                  competency and must understand that cultural differences
                  between Provider and Member cannot be permitted to present
                  barriers to accessing and receiving quality health care; must
                  demonstrate the willingness and ability to make the necessary
                  distinctions between traditional treatment methods and/or
                  non-traditional treatment methods that are consistent with the
                  Member's cultural background and which may be equally or more
                  effective and appropriate for the particular Member; and
                  demonstrate consistency in providing quality care across a
                  variety of cultures. For example, language, religious beliefs,
                  cultural norms, social-economic conditions, diet, etc., may
                  make one treatment method more palatable to a member of a
                  particular culture than to another of a differing culture.

            4.    Primary Care Practitioner (PCP) Responsibilities

                  The Contractor must have written policies and procedures for
                  assigning every Member to a PCP. The PCP must serve as the
                  Member's initial and most important point of contact regarding
                  health care needs. As such, PCP responsibilities include at a
                  minimum:


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                  a.    Providing primary and preventive care and acting as the
                        Member's advocate, providing, recommending and arranging
                        for care.

                  b.    Documenting all care rendered in a complete and accurate
                        encounter record that meets or exceeds the DPW data
                        specifications.

                  c.    Maintaining continuity of each Member's health care.

                  d.    Making referrals for specialty care and other Medically
                        Necessary services, both in and out-of-plan.

                  e.    Maintaining a current medical record for the Member,
                        including documentation of all services provided to the
                        member by the PCP, as well as any specialty or referral
                        services.

                  f.    Arranging for behavioral health services in accordance
                        with Exhibit U of this Agreement, Behavioral Health
                        Services.

                  The Contractor agrees to retain responsibility for monitoring
                  PCP actions to ensure they comply with the provisions of this
                  Agreement.

            5.    Specialists as PCPs

                  A Member may qualify to select a specialist to act as PCP if
                  s/he has a disease or condition that is life threatening,
                  degenerative, or disabling.

                  The PH-MCO must adopt and maintain procedures by which an
                  enrollee with a life-threatening, degenerative or disabling
                  disease or condition shall, upon request, receive an
                  evaluation and, if the Contractor's established standards are
                  met, be permitted to receive:

                  a.    A standing referral to a specialist with clinical
                        expertise in treating the disease or condition; or

                  b.    The designation of a specialist to provide and
                        coordinate the enrollee's primary and specialty care.

                  The referral to or designation of a specialist must be
                  pursuant to a treatment plan approved by the Contractor, in
                  consultation with the PCP, the enrollee and, as appropriate,
                  the specialist. When possible,


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                  the specialist must be a health care Provider participating in
                  the Contractor's Network.

                  Information for MA Consumers must include a description of the
                  procedures that a Member with a life-threatening, degenerative
                  or disabling disease or condition shall follow and satisfy to
                  be eligible for:

                  o     A standing referral to a specialist with clinical
                        expertise in treating the disease or condition; or

                  o     The designation of a specialist to provide and
                        coordinate the enrollee's primary and specialty care.

                  It is the responsibility of the Contractor to ensure adequate
                  Network capacity of qualified specialists as PCPs. These
                  physicians may be predetermined and listed in the directory
                  but may also be determined on an as needed basis. All
                  determinations must comply with specifications set out by DOH
                  in Exhibit SS of this Agreement, HMO Technical Advisory
                  #96-1. The Contractor must establish and maintain its own
                  credentialing and recredentialing policies and procedures to
                  ensure compliance with these specifications.

                  The Contractor must ensure that Providers credentialed as
                  specialists and as PCPs agree to meet all of the Contractor's
                  standards for credentialing PCPs and specialists, including
                  compliance with record keeping standards, the Department's
                  access and availability standards and other QM/UM Program
                  standards. The specialist as a PCP must agree to provide or
                  arrange for all primary care, consistent with Contractor
                  preventive care guidelines, including routine preventive care,
                  and to provide those specialty medical services consistent
                  with the Member's "special need" in accordance with the
                  Contractor's standards and within the scope of the specialty
                  training and clinical expertise. In order to accommodate the
                  full spectrum of care, the specialist as a PCP also must have
                  admitting privileges at a hospital in the Contractor's
                  Network.

            6.    Any Willing Pharmacy

                  The Contractor must contract on an equal basis with any
                  pharmacy qualified to participate in the MA FFS Program that
                  is willing to comply with the Contractor's payment rates and
                  terms and to adhere to quality standards established by the
                  Contractor as required by 62 P.S. 449.


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            7.    Hospital Related Party

                  The Department requires that a hospital that is a Related
                  Party to a Contractor shall be willing to negotiate in good
                  faith with other contractors regarding the provision of
                  services to MA Consumers. The Department reserves the right to
                  terminate this Agreement with the Contractor if it determines
                  that a hospital related to the Contractor has refused to
                  negotiate in good faith with other contractors.

            8.    Mainstreaming

                  The Contractor must ensure that Network Providers do not
                  intentionally segregate their Members in any way from other
                  persons receiving services.

                  The Contractor must investigate complaints and take
                  affirmative action so that Members are provided covered
                  services without regard to race, color, creed, sex, religion,
                  age, national origin, ancestry, marital status, sexual
                  orientation, language. MA status, health status, disease or
                  pre-existing condition, anticipated need for health care or
                  physical or mental handicap, except where medically indicated.
                  Example of prohibited practices include, but are not limited
                  to, the following:

                  o     Denying or not providing a Member any MA covered service
                        or availability of a facility within the Contractor's
                        Network. The Contractor must have explicit policies to
                        provide access to complex interventions such as
                        cardiopulmonary resuscitations, intensive care,
                        transplantation and rehabilitation when medically
                        indicated and must educate its Providers on these
                        policies. Health care and treatment necessary to
                        preserve life shall be provided to all persons who are
                        not terminally ill or permanently unconscious, except
                        where a competent Member objects to such care on his/her
                        own behalf.

                  o     Subjecting a Member to segregated, separate, or
                        different treatment, including a different place or time
                        from that provided to other members, public or private
                        patients, in any manner related to the receipt of any MA
                        covered service, except where Medically Necessary.

                  o     The assignment of times or places for the provision of
                        services on the basis of the race, color, creed,
                        religion, age, sex, national origin, ancestry, marital
                        status, sexual orientation, income status, program
                        membership, language, MA status, health status, disease
                        or pre-existing condition, anticipated need for


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                        health care or physical or mental disability of the
                        participants to be served.

                  If the Contractor knowingly executes an agreement with a
                  Provider with the intent of allowing or permitting the
                  Provider to implement barriers to care (i.e. the terms of the
                  Provider Agreement are more restrictive than this Agreement),
                  the Contractor shall be in breach of this Agreement.

            9.    Network Changes

                  The Contractor must notify the Department promptly of any
                  changes to the composition of its Provider Network that
                  materially affects the Contractor's ability to make available
                  all services covered by this Agreement in a timely manner. The
                  Contractor also must have procedures to address changes in its
                  Network that negatively affect the ability of Members to
                  access services. Material changes in network composition that
                  negatively affect Member access to services may be grounds for
                  termination of this Agreement.

                  a.    For PCP terminations, the Contractor must provide thirty
                        (30) days advance written notice to Members assigned to
                        the PCP and must provide for or assist with those
                        assignments of the Member to another PCP. The Contractor
                        must ensure the timely and complete transfer of medical
                        records to the new PCP.

                  b.    For hospital terminations, the Contractor must provide
                        thirty (30) days advance notice to Members assigned to
                        any PCPs or PCP groups that will be terminated as a
                        result of the hospital termination. In addition, the
                        Department may require notification to all Members of a
                        hospital change.

                  c.    The Department will work with the Contractor to identify
                        those situations in which advance notification to
                        Members of an ancillary Provider termination is
                        necessary, with special consideration given to Members
                        with special needs.

                  d.    The advance notice requirement will not apply to
                        terminations by the Contractor due to quality of care or
                        other "for cause" reasons.

            10.   Other Provider Enrollment Standards

                  The Contractor agrees to comply with the program standards
                  regarding Provider enrollment that are set forth in this
                  Agreement.


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                  All Providers operating within the Contractor's network who
                  provide services to MA Consumers must be enrolled in the
                  Commonwealth's MA Program and possess an active Medical
                  Assistance Identification (MAID) number.

                  The Contractor must enroll a sufficient number of Providers
                  qualified to conduct the specialty evaluations necessary for
                  conducting alleged physical and/or sexual abuse
                  investigations.

                  The Department encourages the use of providers currently
                  contracting with the County Children and Youth Agencies who
                  have experience with the foster care population and who have
                  been providing services to children and youth MA Consumers for
                  many years.

            11.   Twenty-Four Hour Coverage

                  It is the responsibility of the Contractor to have coverage
                  available directly or through its PCPs either directly or
                  through on-call arrangements with other qualified Providers
                  for Urgent or Emergency Care on a twenty-four (24) hour, seven
                  (7) day-a-week basis. The Contractor shall not use central
                  services without knowledge of the Member in lieu of the above
                  PCP emergency coverage requirements. For Emergency or Urgent
                  Medical Conditions, the Contractor must have written policies
                  and procedures on how Members and Providers can make contact
                  to receive instruction or prior authorization for treatment.
                  If it is determined that emergency care is not required by the
                  PCP or the Contractor, the PCP must immediately arrange to see
                  the Member or refer the Member to an urgent care clinic which
                  can immediately see the Member in accordance with Section
                  V.S.12 of the Agreement, Appointment Standards.

            12.   Appointment Standards

                  The Contractor agrees to require the PCP, dentist, or
                  specialist to conduct affirmative outreach whenever a Member
                  misses an appointment and to document this in the medical
                  record. Such an effort shall be deemed to be reasonable if it
                  includes three (3) attempts to contact the Member. Such
                  attempts may include, but are not be limited to: written
                  attempts, telephone calls and home visits. At least one (1)
                  such attempt must be written.

                  a.    General

                        PCP scheduling procedures must ensure that:


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                        i.    Emergency cases must be seen immediately or
                              referred to an emergency facility. If it is
                              determined that Emergency Medical Condition care
                              is not required, the Member must be seen at once
                              by the PCP or referred to an open urgent care
                              clinic.

                        ii.   Urgent Medical Condition cases must be scheduled
                              within twenty-four (24) hours.

                        iii.  Routine appointments must be scheduled within ten
                              (10) business days.

                        iv.   Health assessment/general physical examinations
                              and first examinations must be scheduled within
                              three (3) weeks of enrollment.

                        v.    The Contractor must provide the Department with
                              its protocol for ensuring that a Member's average
                              office waiting time is no more than twenty (20)
                              minutes or at any time no more than up to one (1)
                              hour when the physician encounters an
                              unanticipated Urgent Medical Condition visit or is
                              treating a Member with a difficult medical need.
                              The Member will be informed of scheduling time
                              frames through educational outreach efforts.

                        vi.   The Contractor must monitor the adequacy of its
                              appointment processes and reduce the unnecessary
                              use of emergency room visits.

                  b.    Persons with HIV/AIDS

                        The Contractor must have adequate PCP scheduling
                        procedures in place to ensure that an appointment with a
                        PCP or specialist must be scheduled within seven (7)
                        days from the effective date of enrollment for any
                        person known to the Contractor to be HIV positive or
                        diagnosed with AIDS (e.g. self-identification), unless
                        the enrollee is already in active care with a PCP or
                        specialist.

                  c.    SSI

                        The Contractor must make a reasonable effort to schedule
                        an appointment with a PCP or specialist within
                        forty-five (45) days of enrollment for any Member who is
                        an SSI or SSI-related consumer unless the member is
                        already in active


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                        care with a PCP or specialist.

                  d.    Specialty Referrals

                        For specialty referrals, the Contractor must be able to
                        provide:

                        i.    Emergency Medical Condition appointments
                              immediately upon referral.

                        ii.   Urgent Medical Condition care appointments within
                              twenty-four (24) hours of referral.

                        iii.  Routine appointments within ten (10) business days
                              of referral.

                  e.    Pregnant Women

                        Should the IEAP contractor or Member notify the
                        Contractor that a new Member is pregnant or there is a
                        pregnancy indication on the files transmitted to the
                        Contractor by the Department, the Contractor must
                        contact the Member within five (5) days of the effective
                        date of enrollment to assist the woman in obtaining an
                        appointment with an OB/GYN or Nurse Midwife. For
                        maternity care, the Contractor must be able to provide
                        initial prenatal care appointments for enrolled pregnant
                        members as follows:

                        i.    First trimester -- within ten (10) business days
                              of the Member being identified as being pregnant.

                        ii.   Second trimester -- within five (5) business days
                              of the Member being identified as being pregnant.

                        iii.  Third trimester -- within four (4) business days
                              of the Member being identified as being pregnant.

                        iv.   High-risk pregnancies -- within twenty-four (24)
                              hours of identification of high risk to the
                              Contractor or maternity care provider, or
                              immediately if an emergency exists.

                  f.    EPSDT

                        EPSDT screens for any new enrollee under the age of
                        twenty-one (21) must be scheduled within forty-five (45)
                        days from the effective date of enrollment unless the
                        child is


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                        already under the care of a PCP and the child is current
                        with screens and immunizations.

                  The Contractor must ensure that PCPs follow-up with those
                  Members described in the above Section V.S.12 for any missed
                  appointments. The PCP or specialist must send two (2) notices
                  of missed appointments and make a follow-up telephone call to
                  the Member for any missed appointments and the PCP or
                  specialist must document these in the medical record.

            13.   Policies and Procedures for Appointment Standards

                  The Contractor agrees to comply with the program standards
                  regarding service accessibility standards that are set forth
                  in Section V.S. of this Agreement, Provider Network/Services
                  Access.

                  The Contractor must have written policies and procedures for
                  disseminating its appointment standards to all Members through
                  its member handbook and through other means. In addition, the
                  Contractor must have written policies and procedures to
                  educate its Provider Network about appointment standard
                  requirements. The Contractor must monitor compliance with
                  appointment standards and shall have a corrective action plan
                  when appointment standards are not met.

            14.   Compliance with Access Standards

                  a.    Mandatory Compliance

                        The Contractor must comply with the access standards in
                        accordance with Section V.S of this Agreement, Provider
                        Network/Services Access. If the Contractor fails to meet
                        any of the access standards by the dates specified by
                        the Department, the Department may terminate this
                        Agreement.

                  b.    Reasonable Efforts and Assurances

                        The Contractor must make reasonable efforts to honor a
                        Member's choice of Providers among Network Providers as
                        long as:

                        i.    The PH-MCO's agreement with the Network Provider
                              covers the services required by the Member; and

                        ii.   The Contractor has not determined that the
                              Member's choice is clinically inappropriate.


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                        The Contractor must provide the Department adequate
                        assurances that the Contractor, with respect to the
                        HC-L/C zone, has the capacity to serve the expected
                        enrollment in the HC-L/C zone by providing assurances
                        that the Contractor offers the full scope of covered
                        services as set forth in this Agreement and access to
                        preventive and primary care services and maintains a
                        sufficient number, mix and geographic distribution of
                        Providers and services in accordance with the standards
                        set forth in Section V.S of this Agreement, Provider
                        Network/Services Access.

                  c.    Contractor's Corrective Action

                        The Contractor must take all necessary steps to resolve,
                        in a timely manner, its failure to comply with the
                        access standards. Prior to a termination action or other
                        sanction by the Department, the Contractor will be given
                        the opportunity to institute a corrective action plan.
                        The Contractor must submit a corrective action plan to
                        the Department for approval within thirty (30) days of
                        notification of such failure to comply, unless
                        circumstances warrant and the Department demands a
                        shorter response time. The Department's approval of the
                        Contractor's corrective action plan will not be
                        unreasonably withheld. The Department will make its best
                        effort to respond to the Contractor within thirty (30)
                        days from the submission date of the corrective action
                        plan. If the Department rejects the corrective action
                        plan, the Contractor shall be notified of the
                        deficiencies of the corrective action plan. In such
                        event, the Contractor shall submit a revised corrective
                        action plan within fifteen (15) days of notification. If
                        the Department does not receive an acceptable corrective
                        action plan, the Department may impose sanctions against
                        the Contractor, in accordance with Section VIII.I of
                        this Agreement, Sanctions. Failure to implement the
                        corrective action plan may result in the imposition of a
                        sanction as provided in this Agreement.

      T.    QM and UM Program Requirements

            1.    Overview

                  The Contractor must comply with the Department's QM and UM
                  program standards and requirements described in Exhibit M(1)
                  of this Agreement, Quality Management and Utilization
                  Management Program Requirements. The Department retains the
                  right of advance written approval and to review on an ongoing
                  basis all aspects of the


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                  Contractor QM and UM programs, including subsequent changes.
                  The Contractor must comply with all QM and UM program
                  reporting requirements and must submit data in formats to be
                  determined by the Department.

            2.    General

                  The QM and UM programs must include a written program
                  description and annual work plan with a timetable of all
                  activities and performance improvement initiatives for the
                  coming year. The Department, in collaboration with the
                  Contractor, retains the right to determine and prioritize QM
                  and UM activities and initiatives based on areas identified as
                  being of importance to the Department and areas identified
                  through its analysis of external quality review (EQR)
                  findings, Health Plan Employer Data and Information Set
                  (HEDIS) measures, and encounter data submitted by the
                  Contractor. The Contractor must implement and abide by the
                  program description and work plan or amended plan as approved
                  by the Department. The QM and UM programs must:

                  a.    Include methodologies that allow for statistically valid
                        performance based monitoring of the QM and UM programs
                        and include documentation that all QM and UM activities
                        and initiatives undertaken by the plan are selected
                        through clinical and financial analysis of encounter,
                        Member demographic and other data.

                  b.    Provide evidence of evaluation and re-measurement of the
                        Contractor QM and UM activities and initiatives in order
                        to determine sustained improvement or the need for
                        further action.

                  c.    Address development, implementation, and performance
                        measurement of disease management programs that are
                        intended for selected conditions among targeted
                        populations in order to improve outcomes through the
                        quality of care provided while effectively managing
                        utilization.

            3.    Additional Utilization Management Program Requirements

                  The Contractor agrees to provide twenty-four (24) hour staff
                  availability to authorize emergency/weekend services,
                  including but not limited to: home health care, pharmacy, DME,
                  and medical supplies. The Contractor must have written
                  policies and procedures that address how Members and Providers
                  can make


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                  contact with the plan to receive instruction or prior
                  authorization, as necessary.

                  The Contractor must ensure that all utilization review
                  decisions are made using the HealthChoices definition of
                  Medically Necessary. In addition, the Contractor must take
                  steps to ensure that determinations made by individual
                  clinical reviewers on whether or not requested care and
                  services are Medically Necessary are consistent with
                  determinations for care and services that would be found to be
                  Medically Necessary consistent with the HealthChoices
                  definition of Medically Necessary.

                  The Contractor must develop polices and procedures that allow
                  for prospective, concurrent, and retrospective determination
                  of medical necessity, which are based on the HealthChoices
                  Program's definition of Medically Necessary and meet
                  HealthChoices Program's timeframes for the processing of
                  requests, for elective, urgent and Emergency Services as
                  outlined in Exhibit H of this Agreement, Prior Authorization
                  Guidelines.

                  In addition, the Contractor must submit utilization review
                  criteria and policies/procedures that contain utilization
                  review criteria used to determine medical necessity to the
                  Department for evaluation under the Utilization Review
                  Criteria Assessment Process (URCAP).

            4.    Healthplan Employer Data Information Set (HEDIS)

                  The Contractor must submit data to the Department by June 15th
                  of the current year. The calendar year is the standard
                  measurement year for HEDIS data. HEDIS measures are specified
                  for one of three data collection methodologies:
                  administrative, hybrid or survey. The administrative
                  methodology requires that contractors identify the denominator
                  and numerator using transaction data or other administrative
                  databases. The denominator includes all eligible Members.

                  The Contractor will report a rate based on all Members who
                  meet the criteria who are found through administrative data to
                  have received the service identified in the numerator data.

                  The hybrid methodology requires that the Contractor identify
                  the denominator and the numerator through both administrative
                  and medical record data. The denominator consists of a
                  systematic sample of members drawn from the measure's eligible
                  population.


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                  The Contractor will report a rate based on those Members in
                  the sample who are found through either administrative or
                  medical record data to have received the service identified in
                  the numerator. The Contractor may not report a measure using
                  the hybrid method when the numerator is derived solely from
                  administrative data.

            5.    External Quality Review (EQR)

                  The Contractor agrees to cooperate fully with any external
                  evaluations and assessments of its performance authorized by
                  the Department under this Agreement. Independent assessments
                  will include, but not be limited to, any independent
                  evaluation required or allowed by federal or state statute or
                  regulation. See Exhibit M(2) of this Agreement, External
                  Quality Review.

                  The Contractor agrees to cooperate fully with external
                  clinical record reviews that assess the Contractor's quality
                  of care, access to care, and timeliness of care i.e., any
                  studies as determined by the Department.

                  The Contractor agrees to assist in the identification and
                  collection of any data or clinical records to be reviewed by
                  the independent evaluation team members. In addition, the
                  Contractor must provide to the External Quality Review
                  Organization (EQRO) complete medical records in the timeframe
                  allowed by the EQRO.

                  The Contractor must ensure that data, clinical records and
                  workspace located at the Contractor's work site are available
                  to the independent review team and to the Department, upon
                  request.

                  The Contractor must demonstrate how the results of the EQR are
                  incorporated into the overall Quality and Utilization
                  Management Programs.

            6.    QM and UM Program Reporting Requirements

                  The Contractor agrees to:

                  a.    Provide the Department with uniform QM, UM, and Member
                        satisfaction/complaint data, in a format to be
                        determined by the Department, on a regular basis;

                  b.    Collaborate with the Department in carrying out data
                        validation steps;


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                  c.    Maintain and make available to the Department, upon
                        request, studies, reports, protocols, standards,
                        worksheets, minutes or other such documentation as may
                        be appropriate; and

                  d.    Submit reports based on the most current version of
                        HEDIS measures.

                  The Contractor agrees to comply with all QM and UM program
                  reporting requirements and time frames outlined in Exhibit
                  M(1) or this Agreement, Quality Management & Utilization
                  Management Program Requirements. The Department will, on a
                  periodic basis, review the required reports and make changes
                  to the information/data and/or formats requested based on the
                  changing needs of the HealthChoices Program. The Contractor
                  must comply with all requested changes to the report
                  information and formats as deemed necessary by the Department.
                  Copies of current QM and UM reporting requirements can be
                  found in the HealthChoices Proposers' Library.

            7.    Collaboration Between Contractor QM and UM Departments and
                  Special Needs Units

                  The Contractor must provide evidence of ongoing collaboration
                  and coordination between its QM and UM Departments and its SNU
                  regarding quality initiatives, case management and/or disease
                  management activities directed toward or involving care of
                  special needs populations. Collaboration must include, but not
                  be limited to, quality improvement studies; UM referrals;
                  discharge planning/case management, identification of and
                  outreach to MA Consumers with special needs and special needs
                  populations.

            8.    Delegated Quality Management and Utilization Management
                  Functions

                  The Contractor must demonstrate that it retains accountability
                  for all QM and UM programs functions, including those that are
                  delegated to other entities. The Contractor must make
                  available to the Department, any records, documents, and data
                  detailing its oversight of delegated QM and UM program
                  functions. In addition, the Contractor must ensure that
                  delegated entities make available to the Department, any
                  records, documents, and data detailing the delegated QM and UM
                  program functions undertaken by the entity of behalf of the
                  Contractor.


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            9.    Consumer Involvement in the Quality Management and Utilization
                  Management Programs

                  The Contractor agrees to participate and cooperate in the work
                  and review of the Department's formal advisory body through
                  participation in the Medical Assistance Advisory Committee
                  (MAAC) and its subcommittees.

            10.   Confidentiality

                  The Contractor must have written policies and procedures for
                  maintaining the confidentiality of data that addresses medical
                  records, Member information and Provider information and is in
                  compliance with the provisions set forth in Section 2131 of
                  the Insurance Company Law of 1921, as amended, 40 P.S.
                  991.2131 and 55 Pa. Code 105.

                  The Contractor must ensure that Provider offices/sites have
                  implemented mechanisms that guard against unauthorized or
                  inadvertent disclosure of confidential information to persons
                  outside the Contractor.

                  All clinical data related to HealthChoices Members is the
                  property of the Department. Release of data by the Contractor
                  to third parties, except for the purpose of individual care
                  and coordination among Providers as consented to by Members,
                  requires the Department's advance written approval.

            11.   Department Oversight

                  The Contractor and its subcontractor(s) agree to make
                  available to the Department upon request, data, clinical and
                  other records and reports for review of quality of care,
                  access and utilization issues including but not limited to
                  EQRO, HEDIS, Encounter Data Validation, and other related
                  activities.

                  The Contractor must submit a plan, as determined by the
                  Department, and within time frames established by the
                  Department, to resolve any performance or quality of care
                  deficiencies identified by the Department's ongoing monitoring
                  activities and any independent assessments or evaluations
                  requested by the Department.

                  The Contractor must obtain advance written approval from the
                  Department before releasing or sharing data, correspondence
                  and/or improvements from the Department regarding the
                  Contractor's


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                  internal QM and UM programs with any of the other
                  HealthChoices PH-MCOs or any external entity.

                  The Contractor must obtain advance written approval from the
                  Department before participating in or providing letters of
                  support for QM or UM data studies and/or any data related
                  external research projects related to HealthChoices with any
                  entity.

SECTION VI: PROGRAM OUTCOMES AND DELIVERABLES

            All deliverables must receive advance written approval by the
            Department prior to the implementation of the HC-L/C Program unless
            otherwise specified by the Department. Deliverables include, but are
            not limited to, operational policies and procedures; required
            materials; letters of agreement; provider agreements; reimbursement
            methodology and rates; coordination agreements; reports; tracking
            systems; required files; QM/UM documents (See Exhibit M(3) of this
            Agreement, Quality Management/Utilization Management Deliverables),
            and referral systems.

            The Department may conduct on-site Readiness Reviews as needed to
            document the Contractor's compliance with this Agreement. Upon
            request by the Department, as part of the Readiness Review, the
            Contractor must provide detailed written descriptions of how the
            Contractor is complying with Agreement requirements and standards.
            The Department retains the right to continue development of
            Readiness Review elements, program standards and forms prior to
            scheduling the actual on-site Readiness Review visits.
SECTION VII: FINANCIAL REQUIREMENTS

      A.    Financial Standards

            1.    Risk Protection Reinsurance for High Cost Cases

                  The Contractor must have a risk protection arrangement during
                  the term of this Agreement. This risk protection arrangement
                  must include reinsurance that covers, at a minimum, 80% of
                  inpatient costs incurred by one (1) Member in one (1) year in
                  excess of $150,000. The Department may alter or waive the
                  reinsurance requirement if the Contractor proposes an
                  alternative risk protection arrangement that the Department
                  determines is acceptable.

                  The Contractor may not change or discontinue the risk
                  protection arrangement without advance written approval from
                  the Department, which approval shall not be unreasonably
                  withheld. The Contractor


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                  must notify the Department thirty (30) days prior to any
                  change in the risk protection arrangement. The Department
                  reserves the right to review such risk protection arrangements
                  and require changes based on the Department's assessment of
                  the Contractor's overall financial condition.

                  The reinsurance threshold requirement shall be $75,000,
                  instead of $150,000, if any of the following criteria is met:

                  a.    The Contractor has been operational (providing medical
                        benefits to any type of consumer) for less than 3
                        (three) years; or,

                  b.    The Contractor's Statutory Accounting Principles (SAP)
                        basis equity is less than 4.2 percent of MA premiums
                        earned during the most recent calendar year for which
                        the due date has passed for submission of the unaudited
                        annual reports filed by the Contractor with the
                        insurance Department (DOI); or,

                  c.    The Contractor did not earn cumulative net surplus over
                        the previous three (3) years.

            2.    Equity Requirements and Insolvency Protection

                  The Contractor must meet, during the term of this Agreement,
                  the equity requirements set forth below. The Contractor shall
                  comply with all financial requirements included in this
                  Agreement in addition to those of the Pennsylvania Departments
                  of Health and Insurance. The Department reserves the right to
                  review such equity and financial requirements and require
                  changes based on the Department's assessment of the
                  Contractor's overall financial condition.

                  The Contractor must maintain SAP-basis equity equal to the
                  highest of the amounts determined by the following "Three (3)
                  Part Test":

                  o     $1.5 million.

                  o     4.2% of MA premiums earned during the most recent four
                        (4) calendar quarters.

                  o     4.2% of MA premiums earned during the current quarter
                        multiplied by three (3).


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<PAGE>

                  The amount of the requirement for equity shall be phased in as
                  follows:

<TABLE>
                  ====================================================================
<S>                                                    <C>
                  Equity as of the last day of the     50% of the amount determined
                  first contract calendar quarter.     by the Three (3) Part Test, but
                                                       not less than $1.5 million.
                  --------------------------------------------------------------------
                  Equity as of the last day of the     66% of the amount determined
                  second contract calendar             by the Three (3) Part Test, but
                  quarter.                             not less than $1.5 million.
                  --------------------------------------------------------------------
                  Equity as of the last day of the     80% of the amount determined
                  third contract calendar quarter.     by the Three (3) Part Test, but
                                                       not less than $1.5 million.
                  --------------------------------------------------------------------
                  Equity as of the last day of the     100% of the amount fourth
                  contract calendar quarter.           determined by the Three (3)
                                                       Part Test.
                  ====================================================================
</TABLE>

                  MA premiums are defined as all revenue received from the
                  Commonwealth for any and all Managed Care Medical Assistance
                  contracts.

                  For the purpose of this requirement, equity amounts, as of the
                  last day of each calendar quarter shall be determined in
                  accordance with statutory accounting principles as specified
                  or accepted by DOI. The Department shall accept DOI
                  determinations of equity amounts, and in the absence of such
                  determination, shall rely on required financial statements
                  filed by the Contractor with DOI to determine equity amounts.

                  The Contractor shall provide the Department with reports as
                  specified in Section VIII.D of this Agreement, Financial
                  Reports.

                  In addition to the Department's general sanction authority
                  specified in Section VIII.I of this Agreement, Sanctions, if
                  the Contractor fails to comply with the requirements of this
                  Section, the Department may take any or all of the following
                  actions:

                  o     Discuss fiscal plans with the Contractor's management.

                  o     Require the Contractor to submit and implement a
                        corrective action plan.

                  o     Suspend some or all enrollment of MA Consumers into the
                        Contractor's plan.


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                  o     Terminate this agreement effective the last day of the
                        calendar month after the Department notifies the
                        Contractor of termination.

            3.    Secondary Liability

                  The Contractor must have in place an acceptable plan to
                  provide for payment to Providers by a secondary liable party
                  after default in payment to Providers resulting from
                  bankruptcy or insolvency. The secondary liability must ensure
                  payment for all services performed by providers through the
                  last day for which the Department paid a capitation premium to
                  the Contractor. The requirements may be met by submission of
                  one or more of the following arrangements:

                  a.    Insolvency insurance.

                  b.    An irrevocable, unconditional, and automatically
                        renewable letter of credit for the benefit of the
                        Department which is in place for the entire term of
                        this Agreement.

                  c.    A guarantee from an entity acceptable to the Department,
                        with sufficient financial strength and creditworthiness
                        to assume the payment obligations of the Contractor in
                        the event of a default in payment resulting from
                        bankruptcy or insolvency.

                  d.    Other arrangements satisfactory to the Department, that
                        are sufficient to insure payment to Providers in the
                        event of default in payment resulting from bankruptcy or
                        insolvency.

                  The Department must approve all arrangements for secondary
                  liability. Such approval shall include approval of the
                  financial strength of the secondary liable parties and
                  approval of all legal forms for secondary liability.

            4.    Limitation of Liability

                  In accordance with 42 C.F.R. 434.20, the Contractor must
                  assure that MA Consumers shall not be liable for the
                  Contractor's debts if the Contractor becomes insolvent.

            5.    Medical Cost Accruals

                  As part of its accounting and budgeting function, the
                  Contractor must establish and maintain an actuarially sound
                  process for estimating and tracking Incurred But Not Paid
                  (IBNP) amounts. The Contractor must reserve funds by major
                  categories of service to cover IBNP


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                  amounts. As part of its reserving methodology, the Contractor
                  must conduct annual reviews to assess its reserving
                  methodology and make adjustments, as necessary.

            6.    Claims Processing and MIS

                  The Contractor must have a claims processing system and MIS
                  sufficient to support the Provider payment and data reporting
                  requirements specified in Section VIII of this Agreement,
                  Reporting Requirements. See also Exhibit MM of this Agreement,
                  Management Information System and System Performance Review
                  Standards, for MIS and Systems Performance Review (SPR)
                  standards. The Contractor shall be prepared to document its
                  ability to expand claims processing or MIS capacity should
                  either or both be exceeded through the enrollment of program
                  Members.

            7.    DSH/GME Payment for Disproportionate Share Hospitals (DSH)/
                  Graduate Medical Education (GME)

                  The Department shall make direct payments of DSH/GME to
                  hospitals. DSH and GME amounts shall not be included in
                  fee-for-service cost equivalent projections or in capitation
                  payments paid by the Department to the Contractor.

            8.    Member Liability

                  The Contractor is prohibited from holding the Member liable
                  for the following:

                  a.    Debts of the Contractor in the event of the Contractor's
                        insolvency.

                  b.    Services provided to the Member in the event of the
                        Contractor failing to receive payment from the
                        Department for such services.

                  c.    Services provided to the Member in the event of a health
                        care Provider with a contractual, referral or other
                        arrangement with the Contractor failing to receive
                        payment from the Department or the Contractor for such
                        services.

                  d.    Payments to a Provider that furnishes covered services
                        under a contractual, referral or other arrangement with
                        the Contractor in excess of the amount that would be
                        owed by the Member if the Contractor had directly
                        provided the services.


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      B.    Commonwealth Capitation Payments

            1.    Payments For In-Plan Services

                  The obligation of the Department to make payments shall be
                  limited to capitation payments, maternity care payments, and
                  any other payments provided by this Agreement.

                  a.    Capitation Payments

                        i.    The Contractor shall receive capitated payments
                              for In-Plan Services as defined in Section VII.B.1
                              of this Agreement. Capitation rates and maternity
                              care rates, applicable to the agreement year
                              beginning October 1, 2001, are set forth in
                              Exhibit B of this Agreement, Capitated Rates. This
                              agreement year, for capitation purposes, begins
                              October 1, 2001, and extends 15 months to December
                              31. 2002.

                              For the agreement year beginning January 1, 2003,
                              and for each subsequent agreement year, the
                              Department will provide an initial schedule of
                              capitation rates, maternity care rates, and Risk
                              Pool Allocation Amounts (RPAAs), not later than
                              July 1 of the previous year. The Department will
                              provide the Contractor with information on
                              methodology and data used to develop the initial
                              schedule of rates. The Department will provide
                              the Contractor with the opportunity of a meeting,
                              in which the Department will consider questions
                              from the Contractor on development of the initial
                              schedule of rates. The Department will provide
                              the Contractor with a final schedule of
                              capitation rates; maternity care rates, and
                              RPAAs, by September 30 of the year prior to the
                              effective date of the rates. If the Contractor
                              does not notify the Department of its acceptance
                              of the final schedule of rates by October 15 of
                              the same year, the Department will, at its sole
                              discretion, decide on a schedule of rates for the
                              subsequent agreement year that will consist of
                              one of the following:

                                        1.    The final schedule of capitation
                                              rates, maternity care rates and
                                              RPAAs, applicable to the
                                              subsequent agreement year,
                                              previously provided by the


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                                              Department; or

                                        2.    The schedule of capitation rates,
                                              maternity care rates and RPAAs
                                              applicable to the prior agreement
                                              year.

                        ii.   The Department shall make a pre-paid capitation
                              payment, referenced in Section VII.B.1.a above,
                              for each Member whose enrollment on the first day
                              of the month is indicated on the Department's CIS
                              on the first day of the month. If the Contractor
                              is responsible to provide benefits to a MA
                              Consumer who does not appear on CIS on the first
                              day of the month, the Department shall initiate a
                              capitation payment on the first day of the first
                              subsequent month on which said enrollment appears
                              on CIS. The Department will compute capitation
                              payments using per diem rates. The Department will
                              make a monthly payment to the PH-MCO for each MA
                              Consumer enrolled in the PH-MCO, for the first day
                              in the month the MA Consumer is enrolled in the
                              PH-MCO and for each subsequent day through, and
                              including the last day of the month.

                        iii.  The Department shall make each monthly capitation
                              payment by the fifteenth of the month. The
                              Department shall seek to make arrangements for
                              payment by wire transfer or electronic funds
                              transfer. If such arrangements are not in place,
                              payment shall be made by U.S. Mail.

                        iv.   The Department shall not make a capitation payment
                              for a Recipient Month if it notifies the
                              Contractor before the first of the month that the
                              individual's MA eligibility or PH-MCO enrollment
                              ends prior to the first of the month.

                        v.    This Agreement provides for rates for SSI
                              consumers who have Medicare Part A benefits that
                              are distinct from rates for SSI consumers who do
                              not have Medicare Part A benefits. If the
                              Department's Third Party Liability (TPL) file is
                              updated to indicate Medicare Part A coverage
                              within four (4) months prior to the current month
                              for a MA Consumer at an SSI Without Medicare rate,
                              the Department shall adjust the payment to reflect
                              the rating group appropriate to the MA Consumer,
                              provided the TPL file indicates


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<PAGE>

                              Medicare Part A coverage as of the first day of
                              coverage by the Contractor for this MA Consumer
                              during the month for which payment was made. If
                              the Department's TPL file is updated to adjust or
                              delete indication of Medicare Part A coverage
                              within four (4) months of a payment to the
                              Contractor for a MA consumer at an SSI with
                              Medicare or Healthy Horizons rate, the Department
                              shall adjust the payment to reflect the rating
                              group appropriate to the MA Consumer, provided the
                              TPL file does not indicate Medicare Part A
                              coverage as of the first day of coverage by the
                              Contractor for this MA Consumer during the month
                              for which payment was made. The Department shall
                              provide information to the Contractor on this type
                              of payment adjustment on an electronic file. The
                              Contractor shall utilize this information to
                              adjust its payments to Providers and instruct its
                              Providers to bill Medicare.

                        vi.   The Department will recover capitation payments
                              made for Members who were later determined to be
                              ineligible for managed care for up to twelve (12)
                              months after the service month for which payment
                              was made. The Department will recover capitation
                              payments made for deceased recipients for up to
                              eighteen (18) months after the service month for
                              which payment was made. See Exhibit BB of this
                              Agreement, PH-MCO Recipient Coverage Document.

            2.    Voluntary Risk Adjustment

                  Exhibit B provides capitation rates and maternity care rates,
                  for the agreement year beginning October 1, 2001. Exhibit B
                  includes a distinct schedule of rates applicable to the first
                  six (6) months the Contractor is responsible to provide
                  medical benefits to recipients. These rates are computed to
                  reflect a voluntary risk adjustment. The voluntary risk
                  adjustment reflects the lesser financial risk associated with
                  voluntary enrollment in a managed care program.

            3.    Maternity Care Payment

                  For each live birth, the Department shall make a one-time
                  maternity care payment to the Contractor with whom the mother
                  is enrolled on the date of birth; however, if the mother is
                  admitted to a hospital and a change in the PH-MCO coverage
                  occurs during the hospital admission, the PH-MCO responsible
                  for the hospital stay at the


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                  time of birth shall receive the maternity care payment. The
                  amount of the maternity care payment for the agreement year
                  beginning October 1, 2001 is shown in Exhibit B of this
                  Agreement, Capitated Rates. The payment is a global fee to
                  cover all maternity expenses, including prenatal care,
                  delivery fees and post-partum care for the mother and all
                  services mandated by Act 85 of 1996 ("The Health Security
                  Act").

                  If required by the Department, the Contractor must submit
                  invoices or Data Files to the Department to receive maternity
                  care payments, consistent with specifications determined by
                  the Department.

            4.    Program Changes

                  Amendments, revisions, or additions to the State Medicaid Plan
                  or to state or federal regulations, laws, guidelines, or
                  policies shall, insofar as they affect the scope or nature of
                  benefits available to eligible persons, amend the Contractor's
                  obligations as specified herein, unless the Department
                  notifies the Contractor otherwise. The Department shall inform
                  the Contractor of any changes, amendments, revisions, or
                  additions to the State Medicaid Plan or changes in the
                  Department's regulations, guidelines, or policies in a timely
                  manner.

                  The Department shall adjust rates, as necessary, to maintain
                  the actuarial soundness of the rates to reflect the impact on
                  costs of program changes. If the Department makes an
                  adjustment to the rates, as provided by this paragraph, the
                  Department will provide information to the Contractor on the
                  methodology used to determine the amount of the rate
                  adjustment.

            5.    Supplemental Payments

                  Exhibit B provides capitation rates and maternity care rates
                  for the agreement year beginning October 1, 2001. The
                  Department will review pharmacy cost trends and changes to the
                  Medical Assistance program to determine whether any supplement
                  to the rates in Exhibit B is warranted. This determination
                  will be at the sole discretion of the Department. If the
                  Department determines a supplement is warranted, the
                  Department will make each capitation or maternity care payment
                  to the PH-MCO at the applicable rate included in Exhibit B, as
                  adjusted by the amount of the supplement. On or about July 1,
                  2001, the Department will notify the PH-MCO if the Department
                  has determined that any supplement is warranted.


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<PAGE>

      C.    HIV/AIDS Risk Pool

            The Department shall withhold the portion of each capitation payment
            that is designated as a Risk Pool Allocation Amount on each rate
            schedule. Funds so withheld shall be allocated to an HIV/AIDS Risk
            Pool and distributed to PH-MCOs in accordance with Exhibit VV of
            this Agreement, HIV/AIDS Risk Pool.

      D.    Claims Processing Standards, Monthly Report and Penalties

            1.    Timeliness Standards

                  The Contractor will adjudicate Provider claims consistent with
                  the requirements below. These requirements apply collectively
                  to claims processed by the Contractor and any subcontractor.
                  Subcapitation payments are excluded from these requirements.

                  The adjudication timeliness standards follow for each of three
                  categories of claims:

                  a.    Claims received from a hospital for inpatient admissions
                        ("Inpatient")

                        o     90.0% of Clean Claims must be adjudicated within
                              thirty (30) days of receipt.

                        o     100.0% of Clean Claims must be adjudicated within
                              forty-five (45) days of receipt.

                        o     100.0% of all claims must be adjudicated within
                              ninety (90) days of receipt.

                  b.    Drug claims

                        o     90.0% of Clean Claims must be adjudicated within
                              thirty (30) days of receipt.

                        o     100.0% of Clean Claims must be adjudicated within
                              forty-five (45) days of receipt.

                        o     100.0% of all claims must be adjudicated within
                              ninety (90) days of receipt.

                  c.    All claims other than inpatient and drug:


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<PAGE>

                        o     90.0% of Clean Claims must be adjudicated within
                              thirty (30) days of receipt.

                        o     100.0% of Clean Claims must be adjudicated within
                              forty-five (45) days of receipt.

                        o     100.0% of all claims must be adjudicated within
                              ninety (90) days of receipt.

                  The adjudication timeliness standards do not apply to claims
                  submitted by Providers under investigation for fraud or abuse
                  from the date of service to the date of adjudication of the
                  claims, Providers can be under investigation by a governmental
                  agency or the Contractor; however, if under investigation by
                  the Contractor, the Department must have immediate written
                  notification of the investigation.

                  Every claim entered into the Contractor's computer information
                  system that is not a Rejected Claim must be adjudicated. The
                  Contractor must maintain an electronic file of rejected
                  claims, inclusive of a reason or reason code for rejection.

                  The amount of time required to adjudicate a paid claim is
                  computed by comparing the date the claim was received with the
                  check date or the transmission date of an electronic payment.
                  The check date is the date printed on the check. The amount of
                  time required to adjudicate a denied claim is computed by
                  comparing the date the claim was received with the date the
                  denial notice was created or the transmission date of an
                  electronic denial notice. For an amended claim, the date the
                  Contractor received the request to adjust the payment from the
                  Provider must be recorded and counted as the date the claim
                  was received. Amended claims do not include provider appeals.

                  Checks must be mailed not later than three (3) working days
                  from the check creation date.

                  The Contractor must record, on every claim processed, the date
                  the claim was received. A date of receipt imbedded in a claim
                  reference number is acceptable for this purpose. This date
                  must be carried on claims records in the claims processing
                  computer system. Each hardcopy claim received by the
                  Contractor, or the electronic image thereof, must be
                  date-stamped with the date of receipt no later than the first
                  work day after the date of receipt. The Contractor must add a
                  date of receipt to each claim received in the form of an
                  electronic record or file within one work day of receipt.


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                  If responsibility to receive claims is subcontracted, the date
                  of initial receipt by the subcontractor determines the date of
                  receipt applicable to these requirements.

            2.    Sanctions

                  The Department will utilize the monthly report that is due
                  five (5) months and five (5) days after the end of the month
                  in which claims are received to determine claims processing
                  penalties. For example, the Department shall utilize the
                  monthly report that is due April 5, 2002, to determine claims
                  processing penalties for claims received in October 2001. The
                  Department shall utilize the monthly report that is due May 5,
                  2002, to determine claims processing penalties for claims
                  received in November 2001. The Department shall utilize the
                  monthly report that is due June 5, 2002, to determine claims
                  received in December 2001, and so on.

                  All claims received during the month, for which a penalty is
                  being computed, that remain unadjudicated at the time the
                  sanction is being determined, shall be considered a Clean
                  Claim.

                  If a Commonwealth audit, or an audit required or paid for by
                  the Commonwealth, determines claims processing timeliness data
                  that are different than data submitted by the Contractor, or
                  if the Contractor has not submitted required claims processing
                  data, the Department shall use the audit results to determine
                  the penalty amount.

                  The penalties included in the charts below shall apply
                  separately to:

                  a.    Inpatient claims.

                  b.    Claims other than inpatient and drug.

                  The penalties provided by this Section apply to all claims
                  included in each of the two (2) claim categories specified
                  above, including claims processed by any subcontractor.

                  Penalties in the charts below shall be reduced by one-third if
                  the Contractor has 25,000-50,000 MA Consumers. Penalties in
                  the charts below shall be reduced by two-thirds if the
                  Contractor has less than 25,000 MA Consumers.


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                  CLAIMS ADJUDICATION MONTHLY PENALTY CHART

                  This chart is used to compute any applicable penalty for
                  failure to adjudicate inpatient claims timely. This chart is
                  also used to compute any applicable penalty for failure to
                  adjudicate claims other than inpatient or drug.

                  --------------------------------------------------------------

                         Percentage of Clean Claims   Penalty
                         Adjudicated in 30 Days
                  --------------------------------------------------------------
                         88.0 - 89.9                  $1,000
                         80.0 - 87.9                  $5,000
                         70.0 - 79.9                  $10,000
                         60.0 - 69.9                  $30,000
                         50.0 - 59.9                  $50,000
                         40.0 - 49.9                  $70,000
                         30.0 - 39.9                  $90,000
                         Less than 30.0               $100,000
                  --------------------------------------------------------------

                         Percentage of Clean Claims
                         Adjudicated in 45 Days       Penalty
                  --------------------------------------------------------------
                         98.0 - 99.9                  $1,000
                         90.0 - 97.9                  $5,000
                         80.0 - 89.9                  $10,000
                         70.0 - 79.9                  $30,000
                         60.0 - 69.9                  $50,000
                         50.0 - 59.9                  $70,000
                         40.0 - 49.9                  $90,000
                         Less than 40.0               $100,000
                  --------------------------------------------------------------

                        Percentage of All Claims      Penalty
                        Adjudicated in 90 Days
                  --------------------------------------------------------------
                         98.0 - 99.9                  $1,000
                         90.0 - 97.9                  $5,000
                         80.0 - 89.9                  $10,000
                         70.0 - 79.9                  $30,000
                         60.0 - 69.9                  $50,000
                         50.0 - 59.9                  $70,000
                         40.0 - 49.9                  $90,000
                         Less than 40.0               $100,000
                  --------------------------------------------------------------

            3.    Physician Incentive Arrangements

                  a)    Federal financial participation is only available for
                        payments to Medicaid MCOs that are in compliance with
                        the Physician


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                        Incentive Plan (PIP) requirements included under 42
                        C.F.R. 417.479.

                  b)    42 C.F.R. 417.479(a) permits MCOs to operate PIPs only
                        if: 1) no specific payment is made directly or
                        indirectly to a physician or physician group as an
                        inducement to reduce or limit Medically Necessary
                        services furnished to an enrollee; and 2) the
                        disclosure, computation of Substantial Financial Risk,
                        Stop-Loss Protection, and enrollee survey requirements
                        of this section are met.

                  c)    MCOs must provide information specified in the
                        regulations to the Department and HCFA, upon request. In
                        addition, MCOs must provide the information on their
                        physician incentive plans to any Medicaid client, upon
                        request. MCOs that have PIPs placing a physician or
                        physician group at Substantial Financial Risk for the
                        cost of services the physician or physician group does
                        not furnish must assure that the physician or physician
                        group has adequate Stop-Loss Protection. MCOs that have
                        PIPs placing a physician or physician group at
                        Substantial Financial Risk for the cost of service the
                        physician or physician group does not furnish must also
                        conduct surveys of enrollees and disenrollees addressing
                        their satisfaction with the quality of services and
                        their degree of access to the services.

                  d)    MCOs must provide the following disclosure information
                        concerning its PIPs to the Department prior to approval
                        of the initial contract:

                        o     whether referral services are included in the PIP
                              plan,

                        o     the type of incentive arrangement used, i.e.
                              withhold bonus, capitation,

                        o     a determination of the percent of payment under
                              the contract that is based on the use of referral
                              services to determine if Substantial Financial
                              Risk exists,

                        o     panel size, and if patients are pooled, pooling
                              method used to determine if Substantial Financial
                              Risk exists,

                        o     assurance that the physician or physician group
                              has adequate stop-loss protection and the type of
                              coverage, if this requirement applies.


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                        Where enrollee/disenrollee survey requirements exist,
                        MCOs must provide the survey results. In addition, all
                        MCOs must subsequently provide the above disclosure
                        information annually to the Department.

                  e)    These PIP regulations apply to all MCOs and any of their
                        subcontracting arrangements that utilize a PIP in their
                        payment arrangements with individual physicians or
                        physician groups. PIP regulations require that
                        physicians and physician groups be protected from risk
                        beyond the stop-loss threshold.

            4.    Retroactive Eligibility Period

                  The Contractor shall not be responsible for any payments owed
                  to Providers for services that were rendered prior to the
                  effective date of a Member's enrollment into the PH-MCO.

            5.    In-Network Services

                  The Contractor shall be responsible for making timely payment
                  for Medically Necessary, covered services rendered by Network
                  Providers when:

                  a.    Services were rendered to treat a medical emergency;

                  b.    Services were rendered under the terms of the
                        Contractor's agreement with the Provider;

                  c.    Services were prior authorized; or

                  d.    It is determined by the Department, after a hearing,
                        that the services should have been authorized.

                  The Contractor will not be financially liable for services
                  rendered to treat a non-emergency condition in a hospital
                  emergency room (except to the extent required elsewhere by
                  law), unless the services were prior authorized or otherwise
                  conformed to the terms of the Contractor's agreement with the
                  Provider.

            6.    Payment for Out-of-Network Providers

                  The Contractor will be responsible for making timely payments
                  to Out-of-Network Providers for Medically Necessary, covered
                  services when:


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                  a.    Services were rendered to treat a medical emergency;

                  b.    Services were prior authorized;

                  c.    It is determined by the Department, after a hearing,
                        that the services should have been authorized; or

                  d.    A child enrolled in its plan is placed in emergency
                        substitute care and the county placement agency cannot
                        identify the child nor verify MA coverage See Exhibit O
                        of this Agreement, Description of Special Services.

                  The Contractor shall not be financially liable for services
                  rendered to treat a non-emergency condition in a hospital
                  emergency room (except to the extent required elsewhere in
                  law), unless the services were prior authorized.

                  The Contractor must assume financial responsibility and
                  provide reasonable reimbursement for emergency room services
                  and urgently needed services as defined in 42 C.F.R. Section
                  417.401 that are obtained by its Members from Providers and
                  suppliers outside the Contractor's Provider network even in
                  the absence of the Contractor's prior approval.

            7.    Payments to FQHCs and Rural Health Centers (RHCs)

                  The Contractor agrees to negotiate and pay rates to FQHCs and
                  RHCs comparable to other Providers who provide comparable
                  services in the Contractor's Provider network.

                  The Contractor may require that an FQHC comply with case
                  management procedures that apply to other entities that
                  provide similar benefits or services.

            8.    Liability During an Active Grievance or Appeal

                  The Contractor shall not be liable to pay claims to Providers
                  if the validity of the claim is being challenged by the
                  Contractor through a grievance or appeal, unless the
                  Contractor is obligated to pay the claim or a portion of the
                  claim through its agreement with the Provider.

            9.    Financial Responsibility for Dual Eligibles

                  The Contractor must pay Medicare deductibles and coinsurance
                  amounts relating to any Medicare-covered service for qualified


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                  Medicare beneficiaries in accordance with Section 4714 of the
                  Balanced Budget Act or 1997.

                  If no contracted PH-MCO rate exists or if the Provider of the
                  service is an Out-of-Network Provider, the Contractor must pay
                  deductibles and coinsurance up to the applicable MA fee
                  schedule for the service.

                  For Medicare services that are not covered by either MA or the
                  PH-MCO, the Contractor must pay cost-sharing to the extent
                  that the payment made under Medicare for the service and the
                  payment made by the PH-MCO do not exceed 80% of the
                  Medicare-approved amount.

                  The Contractor, its subcontractors and Providers are
                  prohibited from balance billing Members for Medicare
                  deductibles or coinsurance. The Contractor must ensure that a
                  Member who is eligible for both Medicaid and Medicare benefits
                  has the right to access a Medicare product or service from the
                  Medicare Provider of his/her choice. The Contractor is
                  responsible to pay any Medicare coinsurance and deductible
                  amount, whether or not the Medicare provider is included in
                  the Contractor's Provider network and whether or not the
                  Medicare provider has complied with the authorization
                  requirements of the Contractor.

            10.   Third Party Liability (TPL)

                  The Contractor must comply with the third party liability
                  procedures defined by Section 1902(a)(25) of the Social
                  Security Act, 42 U.S.C.A. 1396(a)(25) and implemented by the
                  Department. Under this Agreement, the third party liability
                  responsibilities of the Department will be allocated between
                  the Department and the Contractor.

                  a.    Cost Avoidance Activities

                        i.    The Contractor will have primary responsibility
                              for cost avoidance through the Coordination of
                              Benefits (COB) relative to federal and private
                              health insurance-type resources including, but
                              not limited to, Medicare, private health
                              insurance, Employees Retirement Income Security
                              Act of 1974 (ERISA), 29 U.S.C.A. 1396a(a)(25)
                              plans, and workers compensation. The Contractor
                              must attempt to avoid initial payment of claims,
                              whenever possible, where federal or private health
                              insurance-type resources are available. All
                              cost-avoided funds must be reported to the


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                              Commonwealth via encounter data submissions and
                              financial report 8A-D. The use of the COB flag,
                              Medicare fields, and the Other Insurance Paid
                              (OIP) field shall indicate that TPL has been
                              pursued and the amount which has been
                              cost-avoided. The Contractor shall not be held
                              responsible for any TPL errors in the Department's
                              Eligibility Verification System (EVS) or the
                              Department's TPL file.

                        ii.   The Contractor agrees to pay, and to require that
                              its subcontractors pay, all Clean Claims for
                              prenatal or preventive pediatric care (including
                              EPSDT services to children), and services to
                              children having medical coverage under a Title
                              IV-D child support order to the extent the
                              Contractor is notified by the Department of such
                              support orders or to the extent the Contractor
                              becomes aware of such orders, and then seek
                              reimbursement from liable third parties. The
                              Contractor recognizes that cost avoidance of these
                              claims is prohibited with the exception of
                              hospital delivery claims, which may be
                              cost-avoided.

                        iii.  The Contractor may not deny or delay approval of
                              otherwise covered treatment or services based upon
                              third party liability considerations. The
                              Contractor may neither unreasonably delay payment
                              nor deny payment of claims unless the probable
                              existence of third party liability is established
                              at the time the claim is filed.

                  b.    Post-Payment Recoveries

                        i.    Post-payment recoveries are categorized by (a)
                              health-related insurance resources and (b) other
                              resources. Health-related insurance resources are
                              ERISA health benefit plans, Blue Cross/Blue Shield
                              subscriber contracts, Medicare, private health
                              insurance, workers compensation, and health
                              insurance contracts.

                        ii.   The Department's TPL Section retains the sole and
                              exclusive right to investigate, pursue, collect,
                              and retain all "Other Resources" as defined in
                              Section II of this Agreement, Definitions. Any
                              correspondence or inquiry forwarded to the
                              Contractor (by an attorney, provider of service,
                              insurance carrier, etc.) relating to


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                              a personal injury accident or trauma-related
                              medical service, or which in any way indicates
                              that there is, or may be, legal involvement
                              regarding the MA Consumer and the services which
                              were provided, must be immediately forwarded to
                              the Department's TPL Section. The Contractor may
                              neither unreasonably delay payment nor deny
                              payment of claims because they involved an injury
                              stemming from an accident such as a motor vehicle
                              accident, where the services are otherwise
                              covered. Those funds recovered by the Commonwealth
                              under the scope of these "Other Resources" shall
                              be retained by the Commonwealth.

                        iii.  Due to potential time constraints involving cases
                              subject to litigation, the Department must ensure
                              that it identifies these cases and establishes its
                              claim before a settlement has been negotiated.
                              Should the Department fail to identify and
                              establish a claim prior to settlement due to the
                              Contractor's untimely submission of notice of
                              legal involvement where the Contractor has
                              received such notice, the amount of the
                              Department's actual loss of recovery shall be
                              assessed against the Contractor. The Department's
                              actual loss of recovery shall not include the
                              attorney's fees or other costs, which would not
                              have been retained by the Department.

                        iv.   The Contractor has the sole and exclusive right to
                              pursue, collect and retain all health-related
                              insurance resources for a period of nine (9)
                              months from the date of service or six (6) months
                              after the date of payment, whichever is later. The
                              Department's TPL Section may pursue, collect, and
                              retain recoveries of all health-related insurance
                              cases which are outstanding after the earlier of
                              nine (9) months from the date of service or six
                              (6) months after the date of payment. However, in
                              those cases subject to this paragraph where
                              payment is being pursued by the Contractor but,
                              for whatever reason, has not been collected by the
                              earlier of nine (9) months from the date of
                              service or six (6) months after the date of
                              payment, the Contractor shall notify the
                              Department if action to recover has been initiated
                              by the Contractor. In such cases, the Contractor
                              shall retain exclusive responsibility for the
                              cases while they are being


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                              actively pursued.

                        v.    Should the Department lose recovery rights to any
                              claim due to late or untimely filing of a claim
                              with the liable third party, and the untimeliness
                              in billing that specific claim is directly related
                              to untimely submission of encounter data or
                              additional records under special request, or
                              inappropriate denial of claims for accidents or
                              emergency care in casualty related situations. The
                              amount of the unrecoverable claim shall be
                              assessed against the Contractor.

                        vi.   Encounter data that is not submitted to the
                              Department in accordance with the data
                              requirements and/or timeframes identified in this
                              Agreement can possibly result in a loss of revenue
                              to the Department. Strict compliance with these
                              requirements and timeframes shall therefore be
                              enforced by the Department and could result in the
                              assessment of sanctions against the Contractor.

                        vii.  As part of its authority under paragraph iv.
                              above, the Contractor is responsible for pursuing,
                              collecting, and retaining recoveries of
                              health-related insurance resources where the
                              liable party has improperly denied payment based
                              upon either lack of a Medically Necessary
                              determination or lack of coverage. The Contractor
                              is encouraged to develop and implement
                              cost-effective procedures to identify and pursue
                              cases which are susceptible to collection through
                              either legal action or traditional subrogation and
                              collection procedures.

            11.   Health Insurance Premium Payment (HIPP) Program

                  The HIPP Program pays for employment-related health insurance
                  for MA Consumers when it is determined to be cost effective.
                  The cost effectiveness determination involves the review of
                  group health insurance benefits offered by employers to their
                  employees to determine if the anticipated expenditures in MA
                  payments are likely to be greater than the cost of paying the
                  premiums under a group plan for those services.

                  The Department shall not purchase Medigap policies for equally
                  eligible MA Consumers in the Zone.


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<PAGE>

            12.   Requests for Additional Data

                  The Contractor must provide, at the Department's request, such
                  information not included in the encounter data submissions
                  that may be necessary for the administration of TPL activity.
                  The Contractor shall use its best efforts to provide this
                  information within fifteen (15) calendar days of the
                  Department's request. There are certain urgent requests
                  involving cases for minors that require information within
                  forty-eight (48) hours. Such information may include, but is
                  not limited to, individual medical records for the express
                  purpose of determining TPL for the services rendered.
                  Confidentiality of the information shall be maintained as
                  required by federal and state regulations.

            13.   Accessibility to TPL Data

                  The Department shall provide the Contractor with access to
                  data maintained on the TPL file.

            14.   Damage Liability

                  Liability for damages is identified in Section VII.D.10 of
                  this Agreement, Third Party Liability, due to the large dollar
                  value of many claims which are potentially recoverable by the
                  Department's TPL Section.

            15.   Estate Recovery

                  Section 1412 of the Public Welfare Code, 62 P.S. 1412,
                  requires the Department to recover MA costs paid on behalf of
                  certain deceased individuals. Individuals age fifty-five (55)
                  and older who were receiving MA benefits for any of the
                  following services are affected:

                  a.    Public or private Nursing Facility services;

                  b.    Residential care at home or in a community setting; or

                  c.    Any hospital care and prescription drug services
                        provided while receiving Nursing Facility services or
                        residential care at home or in a community setting.

                  The applicable MA costs are recovered from the assets of the
                  individual's probate estate. The Department's TPL Section is
                  solely responsible for administering the Estate Recovery
                  Program.


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            16.   Audits

                  The Contractor is responsible to comply with audit
                  requirements as specified in Exhibit WW of this Agreement,
                  HealthChoices Audit Clause.

            17.   Restitution

                  The Contractor shall make full and prompt restitution to the
                  Department, as directed by the Department, for any payments
                  received in excess of amounts due to the Contractor under this
                  Agreement whether such overpayment is discovered by the
                  Contractor, the Department, or other third party.

SECTION VIII: REPORTING REQUIREMENTS

      A.    General

            The Contractor must comply with state and federal reporting
            requirements that are set forth in this section and throughout this
            Agreement.

      B.    Systems Reports

            The Contractor must submit electronic files and data as specified by
            the Department. To the extent possible, the Department shall provide
            reasonable advance notice of such reports. These reports include,
            but are not limited to, the following (Refer to Exhibit CC of this
            Agreement, Data Support for PH-MCOs):

            1.    Encounter Data and Subcapitation Data Reports

                  The Contractor must record for internal use and submit to the
                  Department a separate record each time a Member has an
                  encounter with a Provider. A service rendered under this
                  Agreement is considered an encounter regardless of whether or
                  not it has an associated claim. Every record that is provided
                  is considered to be an encounter and will require the
                  Contractor to submit a separate encounter data record for each
                  service received by a Member. The Provider's MAID number must
                  be used when submitting required encounter data.

                  The Contractor must maintain appropriate systems and
                  mechanisms to obtain all necessary data from its health care
                  Providers to ensure its ability to comply with the encounter
                  data reporting requirements. The failure of a health care
                  Provider to provide the Contractor with


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                  necessary encounter data shall not excuse the Contractor's
                  noncompliance with this requirement.

                  Effective on a date to be determined by the Department, the
                  Contractor must submit separate subcapitation records for each
                  advance payment made to a Contractor responsible for all or
                  part of a Member's medical care. If the payment is a
                  capitation payment, a separate record is required to report
                  the amount paid on behalf of each Member. Prior to the
                  effective date of this requirement, the Contractor must
                  provide a periodic report with summary information on
                  subcapitation payments, consistent with the content, format
                  and due date requirements specified by the Department.

                  The Contractor will be given a minimum of sixty (60) days
                  notification of any new edits or changes that DPW intends to
                  implement regarding encounter data.

                  a.    Data Format

                        The Contractor must submit encounter and subcapitation
                        data electronically over POSNet using file transfer
                        protocol (FTP). Subcapitation data reporting currently
                        being submitted via paper reports will, at a future
                        date, be required to be transmitted electronically.

                        Encounter data files must be provided in ASCII text
                        format using the appropriate format for the five
                        different record types.

                  b.    Timing of Data Submittal

                        Claims must be submitted by Providers to the Contractor
                        within one hundred and eighty (180) days after the date
                        of service. It is acceptable for the Contractor to
                        include a requirement for more prompt submissions of
                        claims or encounter records in Provider Agreements.
                        Claims adjudicated by a third party vendor must be
                        provided to the Contractor by the end of the month
                        following the month of adjudication.

                        An encounter must be submitted and found acceptable by
                        the Department on or before the last calendar day of the
                        third month after the encounter's Contractor
                        payment/adjudication calendar month in which the
                        Contractor paid/adjudicated the encounter. References to
                        "accepted by the Department" refer to encounter records
                        send to DPW by the Contractor that have passed all
                        Department edits: records that fail any Department


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<PAGE>

                        edits are returned to the Contractor and must be
                        corrected, resubmitted to the Department, and pass all
                        edits before they are accepted by the Department.

                        One "initial" file and one "correction" file may be
                        submitted each weekday. If a file is received at the DPW
                        mainframe computer before 6 p.m. (Eastern Time), it will
                        be processed that weekday. If a file is received at the
                        DPW mainframe computer after 6 p.m. (Eastern Time), it
                        will be processed on the next weekday. Files received at
                        the DPW mainframe computer after 6 p.m. on Friday are
                        not processed until the following Monday.

                        Acceptable subcapitation data must be submitted to the
                        Department within thirty (30) days after the end of the
                        month of the subcapitation payment data.

                  c.    Data Completeness

                        The Contractor shall monitor the completeness and
                        accuracy of the encounter data from all Providers and
                        shall initiate corrective action, as necessary.

                  d.    Financial Penalties

                        The Contractor is required to provide complete,
                        accurate, and timely encounter data to the Department,
                        and to maintain complete medical records. The Department
                        may withhold a portion of the monthly capitation payment
                        as reimbursement for financial penalties assessed.
                        Financial penalties shall be calculated monthly.

                        Assessment of financial penalties is based on the
                        identification of penalty occurrences. Encounter Data
                        Penalty occurrences/assessments of financial penalties
                        are outlined in Exhibit XX of this Agreement, Encounter
                        and Subcapitation Data Penalty Occurrences.

                  e.    Data Validation

                        The Contractor agrees to assist the Department in its
                        validation of encounter data by making available medical
                        records and a sample of its claims data. The validation
                        may be completed by Department staff and/or independent,
                        external review organizations.


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<PAGE>

                  f.    Secondary Release of Encounter Data

                        All encounter data recorded to document services
                        rendered to MA Consumers under this Agreement are the
                        property of the Department. Access to these data is
                        provided to the Contractor and its agents for the sole
                        purpose of operating the HealthChoices Program under
                        this Agreement. The Contractor and its agents are
                        prohibited from releasing any data resulting from this
                        Agreement to any third party without the advance written
                        approval of the Department. This prohibition does not
                        apply to internal quality improvement or disease
                        management activities undertaken by the Contractor or
                        its agents in the routine operation of a managed care
                        plan.

            2.    Federalizing GA Data Reporting

                  The Contractor shall be required to submit a properly
                  formatted monthly file to the Department regarding payments
                  applicable to state-only general assistance (GA) consumers.
                  The file shall include data on hospital claims paid by the
                  Contractor during the reporting month. The files shall include
                  data for three types of hospital services that are paid on a
                  capitated basis, as listed below:

                  o     Admissions to acute care hospitals
                  o     Admissions to rehabilitation hospitals
                  o     Outpatient hospital services, defined by the Department

                  The following types of information shall be included in each
                  record on the file:

                  o     Contractor
                  o     Provider
                  o     Consumer
                  o     Claim
                  o     Additional data elements as required.

                  Failure to comply with this requirement shall result in a
                  penalty equal to three (3) times the amount that applies to
                  other reporting requirements.

                  Additional Federalizing GA Data Reporting requirements can be
                  found in Exhibit CC of this Agreement, Data Support for
                  PH-MCOs.


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            3.    Third Party Resource Identification

                  Third party resources identified by the Contractor, which do
                  not appear on the Department's TPL database, must be supplied
                  to the Department's TPL Section by the Contractor on a monthly
                  basis. The method of reporting shall be electronic submission
                  or hardcopy document, whichever is deemed most convenient and
                  efficient by the Contractor for its individual use. For
                  electronic submissions, the Contractor must follow the
                  required report format, data elements, and tape specifications
                  supplied by the Department. For hardcopy submissions, the
                  Contractor must use an exact replica of the TPL resource
                  referral form supplied by the Department.

      C.    Operations Reports

            The Contractor is required to submit such reports as specified by
            the Department to enable the Department to monitor the Contractor's
            internal operations and service delivery. These reports include, but
            are not limited to, the following:

            1.    Continuous Quality Improvement

                  The Contractor agrees to provide the Department with uniform
                  data on services, QM, UM and Member satisfaction/complaint
                  data on a regular basis. All quality reports must be submitted
                  according to specifications defined by the Department. The
                  Contractor also agrees to cooperate with the Department in
                  carrying out data validation steps.

            2.    Federal Waiver Reporting Requirements

                  As a condition of approval of the Waiver for the operation of
                  HealthChoices in Pennsylvania, the Health Care Financing
                  Administration has imposed specific reporting requirements
                  related to the AIDS Home and Community Based Waiver and
                  special needs population, particularly related to special
                  needs services provided to children. The Contractor must
                  provide the information necessary to meet these reporting
                  requirements. To the extent possible the Department will
                  provide reasonable advance notice of such reports.

            3.    Complaint, Grievance and DPW Fair Hearing Data

                  The Contractor agrees to requirements governing the submission
                  of Complaint, Grievance and DPW Fair Hearing process data
                  found at


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                  Section VIII.C.3 of this Agreement, Complaint, Grievance and
                  DPW Fair Hearing Data.

                  The Contractor agrees to submit a quarterly Complaint,
                  Grievance and DPW Fair Hearing process report no later than
                  forty-five (45) days from the end of the quarter that conforms
                  to the Department's and DOH's specifications and includes at a
                  minimum:

                  o     Total informal Complaints and Member informal Complaint
                        rate by medical nature of Complaint (quality of care,
                        days to appointment, specialist referral, request for
                        interpreter, denial of ER claim, etc.); and by
                        non-medical nature of Complaint (PH-MCO office staff,
                        office waiting time, etc.).

                  o     Total Grievances and Grievance rate using the indicators
                        in the bullet above.

                  o     Total Provider appeals by nature of grievance (quality
                        of care, denial of referral request, denial of claim,
                        lack of timely payment, etc.) and resolution.

                  The Contractor agrees to report its Provider appeal data and
                  utilization management outcomes to the Department utilizing
                  the standardized report form specified by the Department.

            4.    EPSDT Reports

                  The Contractor must submit EPSDT reports in the time and
                  manner prescribed by the Department. The Contractor shall be
                  responsible for maintaining appropriate systems and mechanisms
                  to obtain all necessary encounter data from its health care
                  Providers to ensure its ability to comply with the EPSDT
                  reporting requirements. The failure of a health care Provider
                  to provide the Contractor with necessary EPSDT encounter data
                  shall not excuse the Contractor's compliance with this
                  requirement.

                  The Contractor must submit reports providing all data
                  regarding children in substitute care (e.g., the number of
                  children enrolled in substitute care who have received
                  comprehensive EPSDT screens, the number who have received
                  blood level assessments, etc.).

            5.    Healthy Beginnings Plus Reporting

                  The Contractor must report certain Healthy Beginnings Plus
                  (HBP) statistics to the Department. HBP reporting periods are
                  January 1 through June 30, and July 1 through December 31.
                  The Contractor


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                  must submit a semi-annual report to the Department within
                  sixty (60) days from the end of the six-month service period.
                  See Exhibit YY of this Agreement, HMO Obstetrical Reporting
                  Form.

            6.    Member Hotline Activities Report

                  The Contractor's Member services function shall: provide
                  reports/analyses of hotline activity in a format and frequency
                  to be established by the Department.

            7.    Fraud and Abuse

                  The Contractor must submit to the Department quarterly and
                  annual statistical reports which relate to its Fraud and Abuse
                  detection and sanctioning activities, as well as an annual
                  update in the aggregate.

            8.    Provider Network

                  The Contractor must report the composition of its Provider
                  network to the Department and receive advance written approval
                  from the Department prior to the end of the Readiness Review.
                  Updates to the Provider file must be provided to the
                  Department monthly. A list of Network composition requirements
                  are found in Section V.S.1 of this Agreement, Network
                  Composition. The file layout for the provider file can be
                  found in the HealthChoices Proposers' Library.

            9.    Provider Dispute Resolution Process

                  The Contractor must submit to the Department copies of the
                  completed Provider Dispute Resolution System Quarterly and
                  Annual Reports relating to Provider specific disputes and
                  resolutions.

            10.   Reports Submission Schedule

                  Reports as defined by the Department must be submitted
                  according to the following schedule:

                  Quarterly Reports:

                        Quarter Ending            Report Due
                        --------------            -----------

                        March 31                  May 15
                        June 30                   August 15
                        September 30              November 15
                        December 31               February 15


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                  Annual Reports:

                        The Annual Report is to be submitted ninety (90) days
                        after the end of the calendar year.

            11.   HEDIS including CAHPS

                  The Contractor must submit annual reports based on the
                  Medicaid HEDIS outcome measures, as outlined in the most
                  current version of the Medicaid HEDIS applicable to the
                  reporting year. See Exhibit M(4) of this Agreement, HEDIS. The
                  Consumer Assessment of Health Plan Satisfaction (CAHPS) 2.0H
                  surveys (Adult and Child) are part of the HEDIS required by
                  the Department. Those HEDIS measures related to behavioral
                  health issues are not the responsibility of the Contractor. In
                  addition, the Contractor's voluntary population is not
                  included in these reports since the HealthChoices Program does
                  not encompass the voluntary plans.

            12.   SERB

                  The Contractor's Quarterly Utilization Report (or similar type
                  document containing the same information) must be completed
                  and submitted to the Contracting Officer and the Bureau of
                  Contract Administration and Business Development within ten
                  (10) business days at the end of each quarter the contract is
                  in force. If there was no activity, the form must also be
                  completed, stating "No activity in this quarter."

      D.    Financial Reports

            The Contractor agrees to submit such reports as specified by the
            Department to assist the Department in assessing the Contractor's
            financial viability and to ensure compliance with this Agreement.

            The Department shall distribute financial data reporting
            requirements to the Contractor. The Contractor will furnish all
            financial reports timely and accurately, with content in the format
            prescribed by the Department.

      E.    Equity

            Not later than May 15, August 15, and November 15 of each agreement
            year, the Contractor shall provide the Department with:

            o     A copy of quarterly reports filed with DOI, for the quarter
                  ending the last day of the second previous month.


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            o     A statement that its equity is in compliance with the equity
                  requirements or is not in compliance with the equity
                  requirements.

            o     If equity is not in compliance with the equity requirements,
                  the Contractor shall supply a report that provides an analysis
                  of its fiscal health and steps that management plans to take,
                  if any, to improve fiscal health.

            Not later than March 10 of each agreement year, the Contractor shall
            provide the Department with:

            o     A copy of unaudited annual reports flied with DOI.

            o     A statement that its equity is in compliance with the equity
                  requirements or is not in compliance with the equity
                  requirements.

            o     If equity is not in compliance with the equity requirements,
                  the Contractor shall supply a report that provides an analysis
                  of its fiscal health and steps that management plans to take,
                  if any, to improve fiscal health.

      F.    Claims Processing Reports

            The Contractor shall provide the Department with monthly claims
            processing reports with content and in a format specified by DPW.
            The reports are due on the 5th calendar day of the second subsequent
            month.

            Failure to submit a claims processing report timely that is accurate
            and fully compliant with the reporting requirements shall result in
            the following penalties: $200 per day for the first 10 calendar days
            from the date that the report is due and $1,000 per day for each
            calendar day thereafter.

      G.    Presentation of Findings

            The Contractor must obtain advance written approval from the
            Department before publishing or making formal public presentations
            of statistical or analytical material based on its HC-L/C
            membership.

      H.    Reference Information

            The Department will make files available to the Contractor on a
            routine basis that allow the Contractor to effectively meet its
            obligation to provide services and record information consistent
            with this Agreement. See Exhibit CC of this Agreement, Data Support
            for PH-MCOs, for information on the data files the Department will
            provide to the Contractor.


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      I.    Sanctions

            1.    The Department may impose sanctions for non-compliance with
                  the requirements under this Agreement in addition to any
                  penalties described in Exhibit D of this Agreement, Standard
                  Contract Terms and Conditions for Services and in Exhibit E of
                  this Agreement, DPW Addendum to Standard Contract Terms and
                  Conditions. The sanctions which can be imposed shall depend on
                  the nature and severity of the breach, which the Department,
                  in its reasonable discretion, shall determine as follows:

                  a.    Imposing civil monetary penalties of a minimum of
                        $1,000.0O per day for non-compliance;

                  b.    Requiring the submission of a corrective action plan;

                  c.    Limiting enrollment of new MA Consumers;

                  d.    Suspension of payments:

                  e.    Temporary management subject to applicable federal or
                        state law; and/or

                  f.    Termination of the Agreement.

            2.    Where this Agreement provides for a specific sanction for a
                  defined infraction, the Department may, at its discretion,
                  apply the specific sanction provided for the non-compliance or
                  apply any of the general sanctions set forth in Section VIII.I
                  of this Agreement, Sanctions. Specific sanctions contained in
                  this Agreement include the following:

                  a.    Claims Processing: Sanctions related to claims
                        processing are provided in Section VIII.I of this
                        Agreement, Sanctions.

                  b.    Report or File, exclusive of Audit Reports: If the
                        Contractor fails to provide any report or file that is
                        specified by this Agreement by the applicable due date,
                        or if the Contractor provides any report or file
                        specified by this Agreement that does not meet
                        established criteria, a subsequent payment to the
                        Contractor may be reduced by the Department. The
                        reduction shall equal the number of days that elapse
                        between the due date and the day that the Department
                        receives a report or file that meets established
                        criteria, multiplied by the average Per-Member-Per-Month
                        capitation rate that applies to the first month of the
                        agreement year. If


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                        the Contractor provides a report or file on or before
                        the due date, and if the Department notifies the
                        Contractor after the 15th calendar day after the due
                        date that the report or file does not meet established
                        criteria, no reduction in payment shall apply to the
                        16th day after the due date through the date that the
                        Department notifies the Contractor.

                  c.    Federalizing GA Data Reporting: The penalty for failure
                        to comply with the Federalizing GA Data Reporting
                        requirement is defined in Section VIII.B.2 of this
                        Agreement, Federalizing GA Data Reporting.

                  d.    Encounter Data Reporting: The penalty for late reporting
                        of encounter data is set forth in Section VIII.B of this
                        Agreement, Systems Reports, and Exhibit XX of this
                        Agreement, Encounter and Subcapitation Data Penalty
                        Occurrences.

                  e.    Marketing: The sanctions for engaging in unapproved
                        marketing practices are set forth in Section V.F.3 of
                        this Agreement, Contractor Outreach Activities.

                  f.    Access Standard: The sanction for non-compliance with
                        the access standard is set forth in Section V.S.14 of
                        this Agreement, Compliant with Access Standards.

                  g.    Subcontractor Prior Approval: The Contractor's failure
                        to obtain advance written approval of a subcontract will
                        result in the application a penalty of one (1) month's
                        capitation rate for a categorically needy adult female
                        TANF consumer for each day that the subcontractor was in
                        effect without the Department's approval.

      J.    Non-Duplication of Financial Penalties

            If the Department assesses a financial penalty pursuant to one of
            the provisions of Section VIII.I, of this Agreement, Sanctions, it
            shall not impose a financial sanction pursuant to Section VIII.I
            with respect to the same infraction.


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SECTION IX: REPRESENTATIONS AND WARRANTIES OF THE CONTRACTOR

      A.    Accuracy of Proposal

            The Contractor represents and warrants that the representations made
            to the Department in the Proposal are true and correct. The
            Contractor further represents and warrants that all of the
            information submitted to the Department in or with the Proposal is
            accurate and complete in all material respects. The Contractor
            agrees that such representations shall be continuing ones, and that
            it is the Contractor's obligation to notify the Department within
            ten (10) business days, of any material fact, event, or condition
            which arises or is discovered subsequent to the date of the
            Contractor's submission of the Proposal, which affects the truth,
            accuracy, or completeness of such representations.

      B.    Disclosure of Interests

            The Contractor must disclose to the Department, in writing, the name
            of any person or entity having a direct or indirect ownership or
            control interest of five percent (5%) or more in the Contractor. The
            Contractor must inform the Department, in writing, of any change in
            or addition to the ownership or control of the Contractor. Such
            disclosure shall be made within thirty (30) days of any change or
            addition. The Contractor acknowledges and agrees that any failure to
            comply with this provision in any material respect, or making of any
            misrepresentation which would cause the Contractor's application to
            be precluded from participation in the MA Program, shall entitle the
            Department to recover all payments made to the Contractor subsequent
            to the date of the misrepresentation.

      C.    Disclosure of Change in Circumstances

            The Contractor agrees to report to the Department, as well as the
            Departments of Health and Insurance, within ten (10) business days
            of the Contractor's notice of same, any change in circumstances that
            may have a material adverse affect upon Contractor's or Contractor's
            parent(s)' financial or operational conditions. Such reporting shall
            be triggered by and include, by way of example and without
            limitation, the following events, any of which shall be presumed to
            be material and adverse:

            1.    Suspension or debarment of Contractor. Contractor's parent(s),
                  or any Affiliate or Related Party of either, by any state or
                  the federal government;

            2.    The Contractor may not knowingly have a person act as a
                  director, officer, partner or person with beneficial ownership
                  of more than five percent (5%) of the Contractor's equity who
                  has been debarred


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                  from participating in procurement activities under federal
                  regulations.

            3.    Notice of suspension or debarment or notice of an intent to
                  suspend/debar issued by any state or the federal government to
                  Contractor, Contractor's parent(s), or any Affiliate or
                  Related Party of either; and

            4.    Any new or previously undisclosed lawsuits or investigations
                  by any federal or state agency involving Contractor,
                  Contractor's parent(s), or any affiliate or related party of
                  either, which would have a material impact upon the
                  Contractor's financial condition or ability to perform under
                  this Agreement.

      D.    SERB Commitment

            Contractor's SERB commitment as set forth in Exhibit CCC of this
            Agreement, Contractor SERB Commitment, is hereby incorporated as a
            contractual obligation during the term of this Agreement. The
            Contractor shall make every reasonable effort to utilize SERB
            services. The Contractor shall submit quarterly reports to the
            Department outlining SERB utilization.

            All contracts containing SERB participation must also include a
            provision requiring the Contractor to meet and maintain those
            commitments made to SERBs at the time of submittal or contract
            negotiation, unless a change in the commitment is approved by the
            contracting Commonwealth agency upon recommendation by the Bureau of
            Contract Administration and Business Development (BCABD). All
            contracts containing SERB participation must include a provision
            requiring SERB subcontractors and SERBs in a joint venture to incur
            at least 50% of the cost of the subcontract or SERB portion of the
            joint venture, not including materials.

            Commitments to Minority Business Enterprise (MBE) and Women's
            Business Enterprise (WBE) firms made at the time of bidding must be
            maintained throughout the term of the contract. Any proposed change
            must be submitted to BCABD which will make a recommendation as to a
            course of action to the contracting officer.

            If a contract is assigned to another contractor, the new contractor
            must maintain the SERB participation of the original contract.


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SECTION X: DURATION OF AGREEMENT AND RENEWAL

      A.    Initial Term

            This Agreement shall have an initial term of [to be determined]
            commencing on April 1, 2001 (the "Initial Term"), unless sooner
            terminated in accordance with Section XI of this Agreement,
            Termination and Default; provided that no court order,
            administrative decision, or action by any other instrumentality of
            the United States Government or the Commonwealth of Pennsylvania is
            outstanding which prevents implementation of this Agreement.

       B.   Renewal

            The Department shall have the option to renew this Agreement for an
            additional three (3) year period after the expiration of the Initial
            Term. The Department shall give written notice to the Contractor one
            hundred twenty (120) days prior to the expiration of the Initial
            Term as to whether it wishes to renew this Agreement. If the
            Department exercises its option to renew this Agreement, rate
            discussions shall commence promptly after notice of the same.

            Upon expiration of the Initial Term, the Agreement currently in
            effect will continue to be effective for a period of one hundred and
            twenty (120) days if the Contractor and the Department agree to a
            renewal term, but cannot reach resolution of renewal contract terms,
            or if the parties have not proceeded to terminate the Agreement in
            accordance with Section XI of this Agreement, Termination and
            Default.

SECTION XI: TERMINATION AND DEFAULT

      A.    Termination by the Department

            This Agreement may be terminated by the Department upon the
            happening of any of the following events and upon compliance with
            the notice provisions set forth below:

            1.    Termination for Convenience Upon Notice

                  The Department may terminate this Agreement at any time for
                  convenience upon giving one hundred twenty (120) days advance
                  written notice to the Contractor. The effective date of the
                  termination shall be the last day of the month in which the
                  120th day falls.


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            2.    Termination for Cause

                  The Department may terminate this Agreement for cause upon
                  forty-five (45) days written notice, which notice shall set
                  forth the grounds for termination and, with the exception of
                  termination under Section VI.A.2.b below, shall provide the
                  Contractor with forty-five (45) days in which to implement
                  corrective action and cure the deficiency. If corrective
                  action is not implemented to the satisfaction of the
                  Department within the forty-five (45) day cure period, the
                  termination shall be effective at the expiration of the
                  forty-five (45) day cure period. "Cause" shall mean the
                  following for the purposes of termination under this
                  Agreement:

                  a.    The Contractor defaults in the performance of any
                        material duties or obligations hereunder or is in
                        material breach of any provision of this Agreement; or

                  b.    The Contractor commits an act of theft or Fraud against
                        the Department, any state agency, or the Federal
                        Government; or

                  c.    An adverse material change in circumstances as described
                        in Section IX.C of this Agreement, Disclosure of Change
                        in Circumstances.

            3.    Termination Due to Unavailability of Funds/Approvals

                  The Department may terminate this Agreement immediately upon
                  the happening of any of the following events:

                  a.    Notification by the United States Department of Health
                        and Human Services of the withdrawal of federal
                        financial participation in all or part of the cost
                        hereof for covered services/contracts; or

                  b.    Notification that there shall be an unavailability of
                        funds available for the HC-L/C Program; or

                  c.    Notification that the federal approvals necessary to
                        operate the HC-L/C Program shall not be retained; or

                  d.    Notification by the Pennsylvania Insurance Department or
                        Health Department that the authority under which the
                        Contractor operates is subject to suspension or
                        revocation proceedings or sanctions, has been suspended,
                        limited, or curtailed to any extent, or has been
                        revoked, or has expired


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<PAGE>

                        and shall not be renewed.

      B.    Termination by the Contractor

            The Contractor may terminate this Agreement at any time upon giving
            one hundred twenty (120) days advance written notice to the
            Department. The effective date of the termination shall be the last
            day of the month in which the 120th day falls.

      C.    Responsibilities of the Contractor Upon Termination

            1.    Continuing Obligations

                  Termination or expiration of this Agreement shall not
                  discharge the obligations of the Contractor with respect to
                  services or items furnished prior to termination, including
                  retention of records and verification of overpayments or
                  underpayments. Termination or expiration shall not discharge
                  the Department's payment obligations to the Contractor or the
                  Contractor's payment obligations to its subcontractors.

            2.    Notice to Members

                  In the event that this Agreement is terminated pursuant to
                  Sections XIII.A or XIII.B above, or expires without a new
                  contract in place, the Contractor shall notify all Members of
                  such termination or such expiration at least forty-five (45)
                  days in advance of the effective date of termination, if
                  practical. The Contractor shall be responsible for
                  coordinating the continuation of care for Members who are
                  undergoing treatment for an acute condition.

            3.    Submission of Invoices

                  Upon termination, the Contractor shall submit to the
                  Department all outstanding invoices for allowable services
                  rendered prior to the date of termination in the form
                  stipulated by the Department. Such invoices shall be submitted
                  promptly but in no event later than forty-five (45) days from
                  the effective date of termination. Invoices submitted later
                  than forty-five (45) days from the effective date of
                  termination shall not be payable.

            4.    Failure to Perform

                  If the Department terminates a contract due to failure to
                  perform, the Department may add that PH-MCO's responsibility
                  to the responsibilities of one (1) or more different PH-MCOs
                  who are also


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                  operating within the context of the HC-L/C Program, subject to
                  consent by the PH-MCO which would gain that responsibility.
                  The Department will develop a transition plan should it choose
                  to terminate or not extend a contract with one (1) or more
                  PH-MCOs operating the HC-L/C Program.

                  During the final quarter of this Agreement, the Contractor
                  will work cooperatively with, and supply program information
                  to, any subsequent contractors. Both the program information
                  and the working relationship among the PH-MCOs will be defined
                  by the Department.

                  Upon termination or expiration of this Agreement, the
                  Contractor must:

                  a.    Provide the Department with all information deemed
                        necessary by the Department within thirty (30) days of
                        the request;

                  b.    Be financially responsible for MA claims with dates of
                        service through the day of termination, except as
                        provided in c. below, including those submitted within
                        established time limits after the day of termination;

                  c.    Be financially responsible for hospitalized patients
                        through the date of discharge or thirty-one (31) days
                        after termination or expiration of this Agreement,
                        whichever is earlier;

                  d.    Be financially responsible for services rendered through
                        11:59 p.m. on the day of termination, except as provided
                        in c. above, for which payment is denied by the
                        Contractor and subsequently approved upon appeal by the
                        Provider;

                  e.    Be financially responsible for MA Consumer appeals of
                        adverse decisions rendered by the Contractor concerning
                        treatment of services requested prior to termination
                        which are subsequently overturned at a DPW Fair Hearing
                        or Grievance proceeding; and

                  f.    Arrange for the orderly transfer of patient care and
                        patient records to those Providers who will be assuming
                        care for the Member. For those Members in a course of
                        treatment for which a change of providers could be
                        harmful, the Contractor must continue to provide
                        services on a FFS basis until that treatment is
                        concluded or appropriate transfer of care can be
                        arranged.


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      D.    Transition at Expiration and/or Termination of Agreement

            A transition period shall begin prior to the last day the Contractor
            awarded this Agreement is responsible for operating under this
            Agreement, if no new contract is in place. During the transition
            period, the Contractor shall work cooperatively with any subsequent
            contractor and the Department. Both the program information and the
            working relationship between to the two contractors shall be defined
            by the Department. The length of the transition period shall be no
            less than three (3) months and no more than six (6) months in
            duration.

            All reasonable costs relating to the transfer of materials and
            responsibilities will be paid by the Contractor as a normal part of
            doing business with the Department.

            The Contractor shall be responsible for the provision of necessary
            information to the new contractor and/or the Department during the
            transition period to ensure a smooth transition of responsibility.
            The Department shall define the information required during this
            period and time frames for submission.

SECTION XII: RECORDS

      A.    Financial Records Retention

            1.    The Contractor shall maintain and shall cause its
                  subcontractors to maintain all books, records, and other
                  evidence pertaining to revenues, expenditures, and other
                  financial activity pursuant to this Agreement in accordance
                  with the standards and procedures specified in Section V.O.5
                  of this Agreement, Records Retention.

            2.    The Contractor agrees to submit to the Department or to the
                  Secretary of Health and Human Services or their designees,
                  within thirty-five (35) days of a request, information related
                  to the Contractor's business transactions which are related to
                  the provision of services for the HC-L/C Program pursuant to
                  this Agreement which shall include full and complete
                  information regarding:

                  a.    The Contractor's ownership of any subcontractor with
                        whom the Contractor has had business transactions
                        totaling more than $25,000 during the twelve (12) month
                        period ending on the date of the request; and

                  b.    Any significant business transactions between the
                        Contractor and any wholly-owned supplier or between the


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                        Contractor and any subcontractor during the five (5)
                        year period ending on the date of the request.

            3.    The Contractor agrees to include the requirements set forth in
                  Section XIII in this Agreement, Subcontractual Relationships,
                  in all contracts it enters with subcontractors under the
                  HealthChoices Program, and to ensure that all persons and/or
                  entities with whom it so contracts agree to comply with said
                  provisions.

      B.    Operational Data Reports

            The Contractor shall maintain and shall cause its subcontractors to
            maintain all source records for data reports in accordance with the
            procedures specified in Section V.O.5 of this Agreement, Records
            Retention.

      C.    Medical Records Retention

            The Contractor shall maintain and shall cause its subcontractors to
            maintain all medical records in accordance with the procedures
            outlined in Section V.O.5 of this Agreement, Records Retention.

            The Contractor must provide a MA Consumer's medical records to the
            Department or its contractor(s) within fifteen (15) business days of
            the Department's request.

      D.    Review of Records

            1.    The Contractor shall make all records relating to the HC-L/C
                  Program, including but not limited to, the records referenced
                  in this Section, available for audit, review, or evaluation by
                  the Department, or federal agencies. Such records shall be
                  made available on site at the Contractor's chosen location,
                  subject to the Department's approval, during normal business
                  hours or through the mail. The Department shall, to the
                  extent required by law, maintain as confidential any
                  confidential information provided by the Contractor.

            2.    In the event that the Department, or federal agencies request
                  access to records after the expiration or termination of this
                  Agreement or at such time that the records no longer are
                  required by the terms of this Agreement to be maintained at
                  the Contractor's location, but in any case, before the
                  expiration of the period for which the Contractor is required
                  to retain such records, the Contractor, at its own expense,
                  shall send copies of the requested records to the requesting
                  entity within thirty (30) days of such request.


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SECTION XIII: SUBCONTRACTUAL RELATIONSHIPS

      A.    Compliance with Program Standards

            As part of its contracting or subcontracting, with the exception of
            Provider Agreements which are outlined in Section V.S.2 of this
            Agreement, Provider Agreements, the Contractor agrees that it shall
            comply with the procedures set forth in Section V.O.3 of this
            Agreement, Contracts and Subcontracts.

            The written information that must be provided to the Department
            prior to the awarding of any contract or Subcontract must provide
            disclosure of ownership interests of five percent (5%) or more in
            any entity or subcontractor.

            All contracts and Subcontracts must be in writing and must contain
            all items set forth in this Agreement and Exhibit AAA, Internal
            Operations Contract Monitoring Guidelines.

            The Contractor shall require its subcontractors to provide written
            notification of a denial, partial approval, reduction, or
            termination of service or coverage, or a change in the level of
            care, using the standard form notice outlined in Exhibit M(1) of
            this Agreement, Quality Management and Utilization Management
            Program Requirements.

            In addition, all contracts or Subcontracts that cover the provision
            of medical services to the Contractor's Members must include the
            following provisions:

            1.    A requirement for cooperation for the submission of all
                  encounter data for all services provided within the timeframes
                  required in Section VIII of this Agreement, Reporting
                  Requirements, no matter whether reimbursement for these
                  services is made by the Contractor either directly or
                  indirectly through capitation.

            2.    Language which ensures compliance with all applicable federal
                  and state laws.

            3.    Language which prohibits gag clauses which would limit the
                  subcontractor from disclosure of Medically Necessary or
                  appropriate health care information or alternative therapies
                  to members, other health care professionals, or to the
                  Department.

            4.    A requirement that ensures that the Department has ready
                  access to any and all documents and records of transactions
                  pertaining to the provision of services to MA Consumers.


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            5.    The definition of Medically Necessary as outlined in Section
                  II, of this Agreement, Definitions.

            6.    The Contractor must ensure, if applicable, that its
                  Subcontracts adhere to the standards for Network composition
                  and adequacy.

            7.    Should the Contractor use a subcontracted utilization review
                  entity, the Contractor must ensure that its subcontractors
                  process each request for benefits in accordance with Section
                  V.B.1 of this Agreement, General Prior Authorization
                  Requirements.

            8.    Should the Contractor subcontract with an entity to provide
                  any information systems services, the Subcontract must include
                  provisions for a transition plan in the event that the
                  Contractor terminates the Subcontract or enters into a
                  Subcontract with a different entity. This transition plan must
                  include information on how the data shall be converted and
                  made available to the new subcontractor. The data must include
                  all historical claims and service data.

            The Contractor must make all necessary revisions to its contracts
            and Subcontracts to be in compliance with the requirements set forth
            in Section XIII.A of this Agreement, Compliance with Program
            Standards. Revisions may be completed as contracts and Subcontracts
            become due for renewal provided that all contracts and Subcontracts
            are amended within one (1) year of execution of this Agreement with
            the exception of the encounter data requirements, which must be
            amended immediately, if necessary, to ensure that all subcontractors
            are submitting encounter data to the Contractor within the
            timeframes specified in Section VIII.B of this Agreement, Systems
            Reports.

      B.    Consistency with Policy Statements

            The Contractor agrees that its agreements with all Providers shall
            be consistent, as may be applicable, with the policy statements
            governing HMO Contracting with Integrated Delivery Systems issued by
            the Pennsylvania Department of Health on April 6, 1996 and those
            issued by the Pennsylvania Department of Insurance on April 6, 1996.
            (26 Pa. Bulletin 1629, et seq. (04/06/96)).

SECTION XIV: CONFIDENTIALITY

      A.    The Contractor shall comply with all applicable federal and state
            laws regarding the confidentiality of medical records. The
            Contractor shall also cause each of its subcontractors to comply
            with all applicable federal and state laws regarding the
            confidentiality of medical records. The Contractor


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<PAGE>

            shall comply with Exhibit M(1), of this Agreement, Quality
            Management & Utilization Management Program Requirements, regarding
            maintaining confidentiality of data. The federal and state laws with
            regard to confidentiality of medical records include, but are not
            limited to: Mental Health Procedures Act, 50 P.S. 7101 et seq.;
            Confidentiality of HIV-Related Information Act, 35 P.S. 7601 et
            seq.; and the Pennsylvania Drug and Alcohol Abuse Contract Act, 71
            P.S. 1690.101 et seq., 42 U.S.C. 1396a(a) (7); P.S. 404(a): 55 Pa.
            Code 105.1 et seq.; and 42 C.F.R. 431.300.

      B.    The Contractor shall be liable for any state or federal fines,
            financial penalties, or damages levied upon the Department for a
            breach of confidentiality due to the negligent or intentional
            conduct of the Contractor in relation to the Contractor's systems,
            staff, or other area of responsibility.

      C.    The Contractor agrees to return all data and material obtained in
            connection with this Agreement and the implementation thereof,
            including confidential data and material, at the Department's
            request. No material can be used by the Contractor for any purpose
            after the expiration or termination of this Agreement. The
            Contractor also agrees to transfer all such information to a
            subsequent contractor at the direction of the Department.

      D.    The Contractor considers its financial reports and information,
            marketing plans, provider rates, trade secrets, information or
            materials relating to the Contractor's software, databases or
            technology, and information or materials licensed from, or otherwise
            subject to contractual nondisclosure rights of third parties, which
            would be harmful to the Contractor's competitive position to be
            confidential information. This information shall not be disclosed by
            the Department to other parties except as required by law or except
            as may be determined by the Department to be related to the
            administration and operation of the HealthChoices Program.

      E.    The Contractor is entitled to receive all information relating to
            the health status of its members in accordance with applicable
            confidentiality laws.

SECTION XV: INDEMNIFICATION AND INSURANCE

      A.    Indemnification

            1.    The Contractor shall indemnify and hold the Department and the
                  Commonwealth of Pennsylvania, their respective employees,
                  agents, and representatives free and harmless against any and
                  all liabilities, losses, settlements, claims, demands, and
                  expenses of any kind (including, but not limited to,
                  attorneys' fees) which may result or arise out of any dispute
                  of any kind by and between the


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<PAGE>

                  Contractor and its subcontractors with Members, agents,
                  clients, or any defamation, malpractice, fraud, negligence, or
                  intentional misconduct caused or alleged to have been caused
                  by the Contractor or its agents, subcontractors, employees, or
                  representatives in the performance or omission of any act or
                  responsibility assumed by the Contractor pursuant to this
                  Agreement.

            2.    The Contractor shall indemnify and hold harmless the
                  Department and the Commonwealth of Pennsylvania from any audit
                  disallowance imposed by the federal government resulting from
                  the Contractor's failure to follow state or federal rules,
                  regulations, or procedures unless prior authorization was
                  given by the Department. The Department shall provide timely
                  notice of any disallowance to the Contractor and allow the
                  Contractor an opportunity to participate in the disallowance
                  appeal process and any subsequent judicial review to the
                  extent permitted by law. Any payment required under this
                  provision shall be due from the Contractor upon notice from
                  the Department. The indemnification provision hereunder shall
                  not extend to disallowances which result from a determination
                  by the federal government that the terms of this Agreement are
                  not in accordance with federal law. The obligations under this
                  paragraph shall survive any termination or cancellation of
                  this Agreement.

      B.    Insurance

            The Contractor shall maintain for itself, each of its employees,
            agents, and representatives, general liability and all other types
            of insurance in such amounts as reasonably required by the
            Department and all applicable laws. In addition, the Contractor
            shall require that each of the health care professionals with which
            the Contractor contracts maintains professional malpractice and all
            other types of insurance in such amounts as required by all
            applicable laws. The Contractor shall provide to the Department,
            upon the Department's request, certificates evidencing such
            insurance coverage.

SECTION XVI: DISPUTES

      A.    In the event that a dispute arises between the parties relating to
            any matter regarding this Agreement, the Contractor shall send
            written notice of an initial level dispute to the Contracting
            Officer for this Agreement, who shall make a determination in
            writing of his/her interpretation and shall send the same to the
            Contractor within thirty (30) days of the Contractor's written
            request for same. That interpretation shall be final, conclusive,
            and binding on the Contractor, and unreviewable in all respects
            unless the Contractor within twenty (20) days of its receipt of said
            interpretation, delivers a written appeal to the Secretary of Public
            Welfare. Unless the


                                                                             143
<PAGE>

            Contractor consents to extend the time for disposition by the
            Secretary, the decision of the Secretary shall be released within
            thirty (30) days of the Contractor's written appeal and shall be
            final, conclusive, and binding, and the Contractor shall thereafter
            with good faith and diligence, render such performance in compliance
            with the Secretary's determination; subject to the provisions of
            Section XVIII.B below. Notice of initial level dispute shall be sent
            to:

                  Ms. Christine M. Bowser
                  Director, Bureau of Managed Care Operations
                  P.O. Box 2675
                  Harrisburg, Pennsylvania 17105-2675

      B.    All claims against the Department relating to any matter regarding
            this Agreement may be filed by the Contractor in the Board of Claims
            pursuant to 72 P.S. 4651-1 et seq., but only after first complying
            with Section XVI.A above. Resolution of disputes under this
            provision must occur prior to any final payment of a disputed amount
            to the Contractor.

SECTION XVII: FORCE MAJEURE

            In the event of a major disaster or epidemic as declared by the
            Governor of the Commonwealth of Pennsylvania or an act of any
            military or civil authority, outage of communications, power, or
            other utility, the Contractor shall cause its employees and all
            Providers to render all services provided for in the RFP and herein
            as is practical within the limits of Providers' facilities and
            available staff. The Contractor, however, shall not be liable nor
            deemed to be in default for any Provider's failure to provide
            services or for any delay in the provision of services when such a
            failure or delay is the direct or proximate result of the depletion
            of staff or facilities by the major disaster or epidemic, or act of
            any military or civil authority, outage of communications, power, or
            other utility; provided, however, in the event that the provision of
            services is substantially interrupted, the Department shall have the
            right to terminate this Agreement upon ten (10) days written notice
            to the Contractor.

SECTION XVIII: GENERAL

      A.    Suspension From Other Programs

            In the event that the Contractor learns that a Health Care
            Professional with whom the Contractor contracts is suspended or
            terminated from participation in the MA Program of another state or
            from the Medicare Program, the Contractor shall promptly notify the
            Department, in writing, of such suspension or termination.


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<PAGE>

            No payment shall be made to any Health Care Professional for any
            services rendered by a health care practitioner during the period
            the Contractor knew, or should have known, such practitioner was
            suspended or terminated from the Medical Assistance Program of this
            or another state, or the Medicare Program.

      B.    Rights of the Department and the Contractor

            The rights and remedies of the Department provided herein shall not
            be exclusive and are in addition to any rights and remedies provided
            by law.

            Except as otherwise stated in Section XVI of this Agreement,
            Disputes, the rights and remedies of the Contractor provided herein
            shall not be exclusive and are in addition to any rights and
            remedies provided by law.

      C.    Waiver

            No waiver by either party of a breach or default of this Agreement
            shall be considered as a waiver of any other or subsequent breach or
            default.

      D.    Invalid Provisions

            Any provision of this Agreement which is in violation of any state
            or federal law or regulation shall be deemed amended to conform with
            such law or regulation, pursuant to the terms of this Agreement,
            except that if such change would materially and substantially alter
            the obligations of the parties under this Agreement, any such
            provision shall be renegotiated by the parties. The invalidity or
            unenforceability of any terms or provisions hereof shall in no way
            affect the validity or enforceability of any other terms or
            provisions hereof.

      E.    Governing Law

            This Agreement shall be governed by and construed in accordance with
            the laws of the Commonwealth of Pennsylvania.

      F.    Expansion of the Zone

            The Department reserves the right to expand the required geographic
            coverage area of the Zone to include additional counties under this
            Agreement. Expansion of the Zone will be solely at the discretion of
            the Department.


                                                                             145
<PAGE>

      G.    Notice

            Any notice, request, demand, or other communication required or
            permitted hereunder, with the exception of initial level disputes
            submitted to the Contracting Officer pursuant to Section XVI of this
            Agreement, Disputes, shall be given in writing by certified mail,
            communication charges prepaid, to the party to be notified. All
            communications shall be deemed given and received upon delivery or
            attempted delivery to the address specified herein, as from time to
            time amended. The addresses for the parties for the purposes of such
            communication are:

            To the Department:

                  Department of Public Welfare
                  Office of Medical Assistance Programs
                  Bureau of Managed Care Operations
                  Box 2675
                  Harrisburg State Hospital
                  Harrisburg, Pennsylvania 17110

            With a Copy to:

                  Department of Public Welfare
                  Office of Legal Counsel
                  3rd Floor West, Health and Welfare Building
                  Forster and 7th Street
                  Harrisburg, Pennsylvania 17120
                  Attention: Chief Counsel

            To the Contractor- See Exhibit BBB of this Agreement, Contractor
            Information, for name and address

      H.    Counterparts

            This Agreement may be executed in counterparts, each of which shall
            be deemed an original for all purposes, and all of which, when taken
            together shall constitute but one and the same instrument.

      I.    Headings

            The section headings used herein are for reference and convenience
            only, and shall not enter into the interpretation of this Agreement.


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<PAGE>

      J.    Assignment

            Neither this Agreement nor any of the parties' rights hereunder
            shall be assignable by either party hereto without the advance
            written approval of the other party hereto, which approval shall not
            be unreasonably withheld.

      K.    No Third Party Beneficiaries

            This Agreement does not, nor is it intended to, create any rights,
            benefits, or interest to any third party, person, or organization.

      L.    News Releases

            News releases pertaining to the HC-L/C Program may not be made
            without advance written approval by the Department, and then only in
            conjunction with the Issuing Office.

      M.    Entire Agreement: Modification

            This Agreement constitutes the entire understanding of the parties
            hereto and supersedes any and all written or oral agreements,
            representations, or understandings. No modifications, discharges,
            amendments, or alterations shall be effective unless evidenced by an
            instrument in writing signed by both parties. Furthermore, neither
            this Agreement nor any modifications, discharges, amendments or
            alterations thereof shall be considered executed by or binding upon
            the Department or the Commonwealth of Pennsylvania unless and until
            signed by a duly authorized officer of the Department or
            Commonwealth of Pennsylvania.


                                                                             147
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Grant Agreement to be
executed by its duly authorized officials.


                                     GRANTEE


/s/ Thomas P. Clark                      /s/ Leland G. LeBlanc
---------------------------------------  ---------------------------------------
               SIGNATURE                                SIGNATURE
      PRINT OR TYPE NAME AND TITLE            PRINT OR TYPE NAME AND TITLE
       Thomas P. Clark, President                Leland G. LeBlanc, CFO


                          COMMONWEALTH OF PENNSYLVANIA
                          DEPARTMENT OF PUBLIC WELFARE


        Program Deputy Secretary                        Secretary

/s/ Margaret Dierkers                    /s/ Robert H. Endy
---------------------------------------  ---------------------------------------
               SIGNATURE                                SIGNATURE


                   COMPTROLLER - DEPARTMENT OF PUBLIC WELFARE
I hereby certify that funds in the amount shown are available under the
Appropriation Symbols shown

================================================================================
                                        APPROPRIATION
AMOUNT                SOURCE               SYMBOL                        PROGRAM
--------------------------------------------------------------------------------
                    See attached rates
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

================================================================================


                          /s/ Patrick J. Kelly 4/3/01
                          ---------------------------
                                   SIGNATURE


                        COMPTROLLER FOR BUDGET SECRETARY

                                      N/A
                          ---------------------------
                                   SIGNATURE

                       Approved as to Legality and Form:


                                                           MAR 20 2001
/s/ Kathleen Grogan       /s/ John M. Hall            /s/ Charles E. Anderson
-----------------------   -------------------------   -----------------------
OFFICE OF LEGAL COUNSEL   DEPUTY ATTORNEY GENERAL     DEPUTY GENERAL COUNSEL
 DEPARTMENT OF PUBLIC       OFFICE OF ATTORNEY          OFFICE OF GENERAL
      WELFARE                    GENERAL                     COUNSEL

<PAGE>

   Copy I.D.:                                            Grant Number
------------------                                    ------------------
VENDOR                                                ME 01200017
------------------                                    ------------------


                                  PENNSYLVANIA
                          DEPARTMENT OF PUBLIC WELFARE

                                 GRANT AGREEMENT


                                   PURPOSE OF

THE GRANT:
--------------------------------------------------------------------------------
     To provide Mandatory Managed Care services to Medicaid consumers in the
        following counties: Adams, Berks, Cumberland, Dauphin, Lancaster,
                  Lebanon, Lehigh, Northampton, Perry, and York
--------------------------------------------------------------------------------

AWARD TO:
--------------------------------------------------------------------------------
HRM Health Plans (PA), Inc.
1818 Market Street, 19th Floor
Philadelphia, Pennsylvania 19103
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
FEDERAL I.D. NUMBER:                                                  25-1777655
--------------------------------------------------------------------------------