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                                                                 Exhibit 10.36

                                 RENEWAL OF THE

                HEALTHCHOICES SOUTHEAST PHYSICAL HEALTH AGREEMENT

                                     BETWEEN

                          COMMONWEALTH OF PENNSYLVANIA

                                       AND

               HRM HEALTH PLANS (PA),Inc d/b/a OAKTREE HEALTH PLAN
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                                TABLE OF CONTENTS

SECTION 1: INCORPORATION OF DOCUMENTS................................   2

    1.1 Operative Documents .........................................   2

SECTION 2: DEFINITIONS...............................................   3

    A. Affiliate.....................................................   3
    B. Emergency Medical Conditions..................................   3
    C. Emergency Services............................................   3
    D. Health Care Professional......................................   4
    E. Medically Necessary...........................................   4
    F. Ongoing Medication............................................   4
    G. Provider Appeal...............................................   5
    H. Provider Dispute..............................................   5
    I. Third Party Liability.........................................   5

SECTION 3: RELATIONSHIP OF PARTIES...................................   5

    3.1 Basic Relationship ..........................................   5

    3.2 Nature of Contract ..........................................   6

SECTION 4: APPLICABLE LAWS AND REGULATIONS...........................   6

    4.1 Certification and Licensing..................................   6

    4.2 Specific to MA Program.......................................   6

    4.3 General Laws and Regulations.................................   7

    4.4 Limitation on the Department's Obligations...................   7

    4.5 Acceptance of Commonwealth Capitation Payments...............   7

SECTION 5: REPRESENTATIONS AND WARRANTIES OF
             THE CONTRACTOR..........................................   8

    5.1 Accuracy of Proposal ........................................   8

    5.2 Disclosure of Interests......................................   8

    5.3 Disclosure of Change in Circumstances........................   8


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SECTION 6: ACCESS STANDARDS..........................................   9

    6.1 Compliance with Access Standards.............................   9

       A. Mandatory Compliance.......................................   9
       B. The Access Standards.......................................   9

SECTION 7: OBLIGATIONS OF THE CONTRACTOR.............................   15

    7.1   Program Standards..........................................   15

       A. General....................................................   15
       B. Licensure..................................................   16
       C. PH-MCO Administration......................................   16
       D. Member Enrollment and Disenrollment........................   16
       E. Member Services............................................   20
       F. In-Plan Services...........................................   22
       G. Self Referral/Direct Access................................   30
       H. Organ Transplants..........................................   31
       I. Coordination with Out-of-Plan Services.....................   31
       J. Provider Networks..........................................   33
       K. Service Accessibility Standards............................   33
       L. Provider Enrollment........................................   33
       M  Provider Agreements........................................   34
       N. Provider Services..........................................   35
       O. Quality Management and Utilization Management Program......   36
       P. Operational Data Reporting.................................   37
       Q. Payments To and From the Contractor........................   37
       R. PH-MCO Fiscal Standards....................................   38
       S. Contracts and Subcontracts.................................   38
       T. Records Retention..........................................   38
       U. Fraud and Abuse............................................   38
       V. Department Access and Availability.........................   38
       W. Physician Incentive Arrangements...........................   39
       X. Pharmacy Requirements......................................   39
       Y. AIDS Waiver Program 4......................................   40
       Z. Reporting..................................................   40

    7.2   Special Needs Unit.........................................   40

       A. Establishment of Special Needs Unit........................   40
       B. Special Needs Coordinator..................................   41
       C. Responsibilities of Special Needs Staff....................   41
       D. Contractor's Additional Obligations........................   42


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SECTION 8: FISCAL RELATIONSHIP.......................................   42

    8.1   Payments for In-Plan Services..............................   42

       A. Capitation Payments........................................   42
       B. HIV-AIDS Risk Pool.........................................   43
       C. Maternity Care Payments....................................   44
       D. Program Changes............................................   44
       E. Financial Responsibility for Dual Eligibles................   45
       F. Audits.....................................................   45

    8.2   Payments by the Contractor to Providers....................   45

       A. Definitions................................................   45
       B. Timeliness Standards.......................................   46
       C. Monthly Claims Processing Report...........................   47
       D. Sanctions..................................................   50

    8.3   Member Cost Sharing and Third Party Liability..............   51

       A. General....................................................   51
       B. Third Party Liability (TPL)................................   51
       C. Requests for Additional Data...............................   54
       D. Third Party Resource Identification........................   54
       E. Accessibility to TPL Data..................................   55
       F. Estate Recovery............................................   55

    8.4   Risk Moderation............................................   55

       A. Reinsurance................................................   55
       B. Surety Bonds...............................................   58

    8.5   Restitution................................................   58

    8.6   Payments to FQHCs and Rural Health Centers (RHCs)..........   58

    8.7   Payments to Out-of-Network Providers that are
          Located Outside the Commonwealth of Pennsylvania...........   58

SECTION 9: DURATION OF AGREEMENT AND RENEWAL.........................   59

    9.1   Initial Term...............................................   59

    9.2   Renewal....................................................   59


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SECTION 10: TERMINATION AND DEFAULT..................................   59

    10.1 Termination by the Department...............................   59

       A. Termination for Convenience Upon Notice....................   59
       B. Termination for Cause......................................   59
       C. Termination Due to Unavailability of
          Funds/Approvals............................................   60

    10.2 Termination by the Contractor...............................   60

    10.3 Responsibilities of the Contractor Upon Termination or
         Expiration .................................................   60

       A. Continuing Obligations.....................................   60
       B. Notice to Members..........................................   61
       C. Transition at Termination and/or Expiration of Agreement...   61

SECTION 11: RECORDS..................................................   61

    11.1 Financial Records Retention.................................   61

    11.2 Operational Data Reports....................................   62

    11.3 Medical Records Retention...................................   62

    11.4 Review of Records...........................................   62

SECTION 12: SUBCONTRACTUAL RELATIONSHIPS.............................   64

    12.1 Ability to Subcontract......................................   63

    12.2 Compliance with Program Standards...........................   63

    12.3 Consistency with Policy Statements..........................   64

    12.4 Compliance with Rule on Physician Incentive Arrangements....   65

SECTION 13: QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT............   65

SECTION 14: COMPLAINT, GRIEVANCE AND FAIR HEARING....................   66

    14.1 Member Complaint, Grievance and Fair Hearing Process........   66

    14.2 Clinical Sentinel...........................................   66

    14.3 Provider Dispute Resolution System..........................   67


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SECTION 15: CONFIDENTIALITY..........................................   68

SECTION 16: INDEMNIFICATION AND INSURANCE............................   68

    16.1 Indemnification.............................................   68
    16.2 Insurance...................................................   69

SECTION 17: REPORTS..................................................   69

    17.1 General Obligations.........................................   69

    17.2 GA Data Reporting...........................................   70

    17.3 Financial Reporting Requirements............................   70

    17.4 EPSDT Reports...............................................   70

    17.5 Federal Waiver Reporting Requirements.......................   70

    17.6 Encounter Data Reports......................................   70

       A. Data Format................................................   71
       B. Timing of Data Submittal...................................   71
       C. Data Completeness..........................................   72
       D. MA Consumers Medical Information...........................   72
       F. Financial Penalties........................................   72
       F. Data Validation............................................   72
       G. Healthplan Employer Data Information Set (HEDIS)...........   72

    17.7 Sanctions...................................................   73

SECTION 18: DISPUTES.................................................   74

SECTION 19: FORCE MAJEURE............................................   75

SECTION 20: GENERAL..................................................   75

    20.1 Suspension From Other Programs..............................   75

    20.2 Rights of the Department and the Contractor.................   76

    20.3 Waiver......................................................   76

    20.4 Invalid Provisions..........................................   76


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    20.5 Governing Law...............................................   76

    20.6 Notice......................................................   76

    20.7 Counterparts................................................   77

    20.8 Headings....................................................   77

    20.9 Assignment..................................................   77

    20.10 No Third Party Beneficiaries...............................   78

    20.11 Entire Agreement: Modification.............................   78


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Appendix 1  RFP
Appendix 2  PROPOSAL
Exhibit A   General Terms and Conditions
Exhibit B   Capitated Rates
Exhibit C   HealthChoices PH-MCO Marketing Guidelines
Exhibit D   Prior Authorization Guidelines
Exhibit E   Denial Notices
Exhibit F   Family Planning Services Procedures
Exhibit G   Quality Management/Utilization Management Program (QM/UMP)
Exhibit H   HMO Obstetrical Reporting Form
Exhibit I   Special Needs Unit (SNU)
Exhibit J   Recipient Coverage Document
Exhibit K   HIV-AIDS Risk Pool
Exhibit L   HealthChoices Audit Clause
Exhibit M   Complaints, Grievances and Fair Hearing Process
Exhibit N   Encounter and Subcapitation Data Penalty Occurrences
Exhibit O   Health Plan Employer Data Information Set (HEDIS)
Exhibit P   External Quality Review (EQR)

Addendum A  HCFA Requirements


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                HEALTHCHOICES SOUTHEAST PHYSICAL HEALTH AGREEMENT

      THIS RENEWED AGREEMENT made as of the 1st day of January 2001 by and
between the Commonwealth of Pennsylvania, acting through its Department of
Public Welfare (the "Department"), and HRM Health Plans (PA), Inc. d/b/a OakTree
Health Plan, a Pennsylvania corporation with its principal place of business at
1818 Market Street, 19th Floor, Philadelphia, Pennsylvania 19106 (the
"Contractor").

                              W I T N E S S E T H:

      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 Pennsylvania Public Welfare Code, Act of June 13, 1967, P.L. 31,
as amended, (62 P.S. Section 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 Health Care Financing Administration ("HCFA") approved the
Department's waiver request under Section 1915(b) of the Social Security Act to
implement a mandatory managed care program, under the name HealthChoices
Southeast (the "HC-SE Program"), for MA consumers in Bucks, Chester, Delaware,
Montgomery and Philadelphia Counties (the "HC-SE Counties"); and

      WHEREAS, the Department issued Request for Proposal Number 5-96 (the
"RFP") containing the participation requirements and the terms and conditions of
the HC-SE 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, Oxford Health Plans (PA), Inc. 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 Oxford Health Plans (PA),
Inc., including all appendices and exhibits attached thereto, will be referred
to as the "Proposal"); and

      WHEREAS, the Department executed an Agreement, Contract No. 927661200,
effective January 1997; with Oxford Health Plans (PA), Inc, a Pennsylvania
corporation, as a party and its parent company, Oxford Health Plans, Inc., a
Delaware corporation, as Guarantor; and

      WHEREAS, on January 27, 1999, Health Risk Management, Inc., a Minnesota


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corporation, acquired 100% of the stock of Oxford Health Plans (PA), Inc., from
Oxford Health Plans, Inc.; and

      WHEREAS, Oxford Health Plans (PA), Inc., changed its name to "HRM Health
Plans (PA), Inc." effective January 28, 1999; and

      WHEREAS, on May 9,1999, HRM Health Plans (PA), Inc. registered with the PA
Department of State to do business under the fictitious name "OakTree Health
Plan"; and

      WHEREAS, the RFP provided for a three (3) year contract with the option to
renew for 2 one year periods; and

      WHEREAS, the Department and HRM Health Plans (PA), Inc. d/b/a OakTree
Health Plan (formerly known as Oxford Health Plans (PA), Inc.), desire to renew
Contract No. 927661200 for the time period January 1, 2001 through December 31,
2001.

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

      SECTION 1: INCORPORATION OF DOCUMENTS

1.1   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:

      A.    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 will govern;

      B.    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 will govern;

      C.    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 will govern; and

      D.    It is agreed that the general terms and conditions which constitute
            Appendix A of the RFP will not be applicable and that they have been
            replaced and are superseded by the general terms and conditions
            that are attached hereto as Exhibit A (the "General Terms and
            Conditions"). In the event that any of the General Terms and
            Conditions conflict with terms that are in the text of the RFP, the
            text of the General Terms and Conditions will govern.


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      SECTION 2: DEFINITIONS

      The definitions set forth or referred to in the RFP will apply to the
      corresponding words and phrases in this Agreement, unless otherwise
      specified or unless the context clearly requires a different meaning. The
      specific definitions in the RFP will govern, unless such definitions are
      amended or revised by this Section. With regard to the revision of
      specific definitions in the RFP, it is agreed that:

      A.    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 Contractor or its parent(s), whether such
            common control be direct or indirect. Without limitation, all
            officers, or Persons, holding five (5%) percent or more of the
            outstanding ownership interests of Contractor or its parent(s),
            directors and subsidiaries of Contractor or parent(s) will be
            presumed to be affiliates for purposes of this 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.

      B.    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:

            (1)   placing the health of the individual (or with respect to a
                  pregnant women, the health of the woman and her unborn child)
                  in serious jeopardy;

            (2)   serious impairment to bodily functions; or

            (3)   serious dysfunction of any bodily organ or part.

      C.    Emergency Services. Covered inpatient and outpatient services that:

            (1)   are furnished by a provider that is qualified to furnish such
                  service under Title XIX; and

            (2)   are needed to evaluate or stabilize an emergency medical
                  condition.


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      D.    Health Care Professional. Physician or other health care
            professional if coverage for the professional's services are
            provided under the contract for the services of the professional.
            Such term includes, but is not limited to: podiatrist, optometrist,
            chiropractor, psychologist, dentist, 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.

      E.    Medically Necessary. A service or benefit is medically necessary if
            it is compensible under the Medical Assistance Program and if it
            meets any one of the following standards:

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

            (2)   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.

            (3)   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, shall 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.

            The medical necessity determinations must be made by qualified and
            trained providers.

      F.    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, and that has been used by the member without a
            gap in treatment. If the current prescription is for a higher dosage
            than


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            previously prescribed, the prescription is for an ongoing medication
            at least to the extent of the previous dosage.

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

            1.    Provider credentialing denial by the PH-MCO;

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

            3.    Provider termination by the PH-MCO.

      H.    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.

      I.    Third Party Liability (TPL). The financial responsibility for all or
            part of a members healthcare expenses of an individual entity or
            program (e.g., Medicare) other than the PH-MCO.

      SECTION 3. RELATIONSHIP OF PARTIES

3.1   BASIC RELATIONSHIP

      The relationship between the Department and the Contractor is that of
      independent contracting parties. The Contractor, its employees, servants,
      agents, and representatives will not be considered and will 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 will
      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 will be provided
      by the Department to the Contractor's employees, servants, agents and
      representatives. The Contractor will 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 will have full
      responsibility for all taxes and withholdings of all of its employees. In
      the event that any employee or


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      representative of the Contractor is deemed an employee of the Department
      by any taking 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.

3.2   Nature of Contract

      Pursuant to this Agreement, the Contractor will arrange for the provision
      of medical and related services to MA recipients through qualified health
      care providers in accordance with the terms and conditions of the RFP and
      the Proposal. In administering the HealthChoices Program, the Contractor
      will comply fully with the terms and conditions set forth in the RFP,
      including but not limited to the operational and financial standards as
      set forth on pages 17-104 of the RFP (the "Program Standards").

      SECTION 4: APPLICABLE LAWS AND REGULATIONS

4.1   Certification and Licensing

      During the term of this Agreement, the Contractor will 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 also will require that such health care
      professionals perform services consistent with the customary standard of
      practice and ethics in the profession and must enroll in the MA Program.
      The Contractor agrees not to employ or engage the services of any provider
      or practitioner who is ineligible to participate in the MA Program.

4.2   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 will be provided in the manner prescribed by 42
      U.S.C.A., Subsection 300e(b), and warrants that the organization and
      operation of the Contractor is in compliance with 42 U.S.C.A., Subsection
      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., Subsection 300e, 1396 et seq.; the Act of June
      13, 1967, P.L. 31, No. 21, as amended (62 P.S., Subsection 101 et. seq.);
      Parts 431 through 481 of Title 42 and Parts 74, 80, and 84 of Title 45 of
      the Code of Federal Regulations, and the Department of Public Welfare
      regulations.


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4.3   General Laws and Regulations

      The Contractor will comply with Titles VI and VII of the CMI Rights Act of
      1964 (42 U.S.C. 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. Section 6101 et seq.); the
      Americans with Disabilities Act (ADA) (42 U.S.C.A. Section 12101 et seq.);
      and the Pennsylvania Human Relations Act of 1955 (71 P.S. Section 941 et
      seq.); and the Quality Health Care Accountability and Protection
      Provisions of Article XXI of Act 68 of 1998 (40 P.S. 991.2101 et seq.)

      The Contractor also will comply with the Commonwealth's Contract
      Compliance Regulations that are set forth at 16 Pa. Code 49.101 and on
      file with the Contractor.

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

4.4   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 of
      the Department.

4.5   Acceptance of Commonwealth Capitation Payments

      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.    For 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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<PAGE>

      SECTION 5: REPRESENTATIONS AND WARRANTIES OF THE CONTRACTOR

5.1   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 will 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.

5.2   Disclosure of Interests

      The Contractor will 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
      will inform the Department, in writing, of any change in or addition to
      the ownership or control of the Contractor. Such disclosure will 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, will entitle the Department to recover all payments made to the
      Contractor subsequent to the date of the misrepresentation.

5.3   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 will be triggered by
      and include, by way of example and without limitation, the following
      events, any of which will be presumed to be material and adverse:

      A.    Suspension or debarment of Contractor, Contractors parent(s), or any
            affiliate or related party of either, by any state or the federal
            government;

      B.    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
            from participating in procurement activities under federal
            regulations.

      C.    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


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<PAGE>

            parent(s), or any affiliate or related party of either; and

      D.    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.

      SECTION 6: ACCESS STANDARDS

6.1   Compliance With Access Standards

      A.    Mandatory Compliance

            The Contractor acknowledges and agrees that compliance with the
            Access Standards in accordance with Section 6.18 below, is a
            prerequisite to its participation in the HC-SE Program. If the
            Contractor fails to meet any of the Access Standards to the complete
            satisfaction of the Department by the dates indicated below or by
            the dates otherwise specified by the Department, the Department may
            terminate this Agreement in accordance with Section 10.1(B) hereof
            upon notice to the Contractor or may impose sanctions as outlined in
            Section 17.7 of this Agreement.

      B.    The Access Standards

            The Access Standards are as follows:

            (1)   Certificates of Authority

                  The Contractor will have received and provided to the
                  Department a Certificate of Authority verifying that the
                  Contractor is licensed to operate in each of the HC-SE
                  Counties. The Contractor will maintain such Certificate of
                  Authority Throughout the Term of this Agreement.

            (2)   Provider Networks

                  The Contractor must establish and maintain an adequate
                  provider network, approved by the Department, to serve all of
                  the eligible HC-SE populations in geographically accessible
                  locations within the service area for the HC-SE populations to
                  be served. The Contractor must ensure that its provider
                  network is adequate to provide its MA enrollees with access to
                  quality patient care through participating health care
                  professionals, consistent with the time and distance
                  requirements set forth in the RFP and in this Agreement

                  The Contractor must make all reasonable efforts to honor a
                  member's choice of provider among in-network providers as long
                  as:


                                       9
<PAGE>

                  (a)   The Contractor's contract with the in-network provider
                        covers the services required by the member; and

                  (b)   The Contractor has not determined that the members
                        choice is clinically inappropriate.

                  The Contractor must provide the Department adequate assurances
                  that the Contractor, with respect to the service area, has the
                  capacity to serve the expected enrollment in the service area
                  by providing assurances that the Contractor offers the full
                  scope of covered services as set forth in the RFP and access
                  to preventive and primary care services and maintain a
                  sufficient number, mix and geographic distribution of
                  providers and services in accordance with the standards set
                  forth in the RFP.

                  All providers operating within the Contractor's provider
                  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 include in all agreements with Primary
                  Care Practitioners (PCPs) who serve members under the age of
                  twenty-one (21) a requirement that the PCP is 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.

                  The Contractor will include in all contracts with PCPs who
                  serve members under the age of twenty-one (21) the requirement
                  that PCPs 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.

                  The Contractor must include in all capitated provider
                  agreements a clause which stipulates 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.

            (3)   Compliance with Particular Criteria


                                       10
<PAGE>

                  In connection with establishing and maintaining a Provider
                  Network acceptable to the Department pursuant to Section
                  6.18(2) above, the Contractor must demonstrate compliance with
                  the following criteria:

                  For (a) through (d) below, the Contractor must make a
                  reasonable effort to schedule the required appointments. Such
                  an effort will be deemed to be reasonable if it includes three
                  attempts to contact the member. Such attempts may include, but
                  are not limited to: written attempts, telephone calls and home
                  visits. At least one such attempt must be written. The
                  Contractor must document all attempts.

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

                  (b)   An appointment with a PCP/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 (e.g. self-identification), unless the
                        enrollee is already in active care with a
                        PCP/Specialist.

                  (c)   Scheduling of an appointment with a PCP/Specialist
                        within forty-five (45) days of enrollment for any member
                        who is an SSI or SSI-related consumer unless the
                        enrollee is already in active care with a
                        PCP/Specialist.

                  (d)   Should the Independent Enrollment Assistance Program
                        (IEAP) Contractor notify the PH-MCO that a new enrollee
                        is pregnant, 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.

                  (e)   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 subspecialists qualified
                        to meet the particular needs of the individuals, then
                        the Contractor must pay for the service out-of-network.
                        The Contractor must develop a system to determine prior
                        authorization for out-of-network services, including
                        provisions for informing the consumer of how to request
                        this authorization for out-of-network services. For
                        children with special health needs, the Contractor must
                        offer at least two (2) pediatric specialists or
                        pediatric sub-specialists.


                                       11
<PAGE>

                  (f)   The Contractor must ensure a choice of at least two (2)
                        PCPs located within the travel time limits (30 minutes
                        urban, 60 minutes rural).
                  (g)   The Contractor must ensure an adequate number of
                        pediatricians to permit all patients wishing a
                        pediatrician as a PCP to have one for the child(ren)
                        within the travel time limits (30 minutes urban, 60
                        minutes rural).

                  (h)   The Contractor must demonstrate its attempts to contract
                        in good faith with a sufficient number of Certified
                        Registered Nurse Practitioners (CRNPs) 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 CRNPs. the number of
                        CRNPs in such practices may not exceed 10 percent of the
                        total number of PCPs in the Contractors network.

                  (i)   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).

                  (j)   The Contractor must ensure a choice of at least two (2)
                        hospitals within the network, at least one (1) of which
                        must be within the travel limits (30 minutes urban, 60
                        minutes rural).

                  (k)   The Contractor must ensure at least one (1) home health
                        agency within the network, providing the Contractor can
                        demonstrate to the Department that access is ensured.

                  (l)   The Contractor must ensure at least one (1) DME
                        supplier within the network providing the Contractor can
                        demonstrate to the Department that access is ensured.

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

                  (n)   The Contractor must ensure a choice of at least two (2)
                        nursing facilities within the network, at least one (1)
                        of which must be located within the project area.

                  (o)   The Contractor must ensure a choice of at least two (2)
                        general practice dentists within the network with
                        experience in


                                       12
<PAGE>

                        treating individuals under age twenty-one (21) and
                        adults with special needs, at least one (1) of which
                        must be located within the project area.

                  (p)   The Contractor will demonstrate its ability to offer its
                        members freedom of choice in selecting a PCP. At a
                        minimum, the Contractor will 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-SE PH-MCO plans) and PCP sites which serve no more
                        than five thousand (5,000) MA consumers (cumulative
                        across all HC-SE 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 will be decreased by the Contractor if
                        necessary to maintain the appointment availability
                        standards. The Contractor and the Department will work
                        together to avoid the PCP having a caseload or medical
                        practice composed predominantly of HC-SE members. In
                        addition, the Contractor must organize its PCP sites so
                        as to ensure continuity of care to members and must
                        identify a "lead physician" within the site for each
                        member. The Contractor may 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.

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

                  (r)   The Contractor must demonstrate its attempts to contract
                        in good faith 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.

                  (s)   The Contractor must demonstrate its ability to make
                        available to every member an appropriate PCP whose
                        office is located


                                       13
<PAGE>

                        within a travel time no greater than thirty (30) minutes
                        (urban) and sixty (60) minutes (rural). This travel time
                        is measured via public transportation. The same
                        standards of availability will also pertain to dental
                        providers.

                  (t)   The Contractor must provide the Department with its
                        protocol for ensuring that the average office waiting
                        time will be twenty (20) minutes or up to one (1) hour
                        when the physician encounters an unanticipated urgent
                        visit or is treating a patient with a difficult medical
                        need. The Contractor must also provide the Department
                        with its protocol for educational outreach efforts
                        through which enrollees and providers will be informed
                        of scheduling time frames.

                  (u)   The Contractor must comply with the provisions of Act
                        112 of 1996 (H.B. 1415, PN. 3853, signed July 11, 1996),
                        The Balanced Budget Reconciliation Act of 1997 and Act
                        68 of 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 2.E.

                  (v)   Effective January 1,1999, the Contractor must inspect
                        the office of any primary care practitioner (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 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.

                        With respect to PCPs and dentists participating in
                        Contractor's Provider Network prior to January 1, 1999,
                        the Department will 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 will have ninety (90) days from the date of
                        notification that a barrier exists to


                                       14
<PAGE>

                        remove the barrier unless the Department expressly
                        agrees to extend the time for compliance. If the PCP or
                        dentist fails to remove the barrier, the Contractor will
                        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.

            (4)   Contractor's Corrective Action

                  The Contractor will take all necessary steps to resolve, in a
                  timely manner, its failure to comply with the Access Standards
                  outlined herein as identified by the Department. 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 will 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. Should the Department
                  determine the need to extend the thirty (30) day response
                  limit, the Department will notify the Contractor in writing
                  prior to the end of the thirty (30) day time period. If the
                  Department rejects the corrective action plan, the Contractor
                  will be notified of the deficiencies of the corrective action
                  plan. In such event, the Contractor will 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 17.7.
                  Failure to implement the corrective action plan may result in
                  the application of a sanction as provided in this Agreement
                  against the Contractor.

      SECTION 7: OBLIGATIONS OF THE CONTRACTOR

7.1   Program Standards

      The Contractor agrees to fully comply with the terms and conditions set
      forth in the RFP, including but not limited to the terms and conditions
      contained in the Program Standards, which are fully set forth on pages 17
      through 104 of the RFP. Subsections A through Z below provide a listing of
      the categories of the Program Standards and, where indicated, additional
      requirements with which the Contractor must comply.

      The requirements listed below are in addition to those set forth in the
      RFP.


                                       15
<PAGE>

      A.    General

            If a child in substitute care is determined eligible for MA outside
            the five (5) county HC-SE project area and placed in substitute care
            inside the five (5) county HC-SE project area s/he will be covered
            under the HealthChoices Southeast Program.

      B.    Licensure

            The Contractor agrees to comply with the Program Standards regarding
            licensure which are set forth in the RFP. It is specifically
            acknowledged and agreed that the Contractor must possess and
            maintain a current Health Maintenance Organization license
            acceptable to the Department throughout the Term of this Agreement.

      C.    PH-MCO Administration

            The Contractor agrees to comply with the Program Standards regarding
            PH-MCO Administration which are set forth in the RFP. 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 prior written consent, which consent will not be
            unreasonably withheld.

            The Contractor must submit for approval by the Department its
            organizational structure listing the function of each executive as
            well as administrative staff member. Staff positions outlined in
            HealthChoices RFP #5-96 must be filled in accordance with the
            Department's timetables. The HealthChoices Program Manager must be
            accessible to the Department and may not be reassigned without prior
            approval by the Department, which approval will not be unreasonably
            withheld.

      D.    Member Enrollment and Disenrollment

            (1)   The Contractor agrees to comply with the Program Standards
                  regarding Member Enrollment and Disenrollment which are set
                  forth in the RFP.

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

            (3)   The Contractor is prohibited from restricting its members from
                  changing PH-MCOs for any reason. The MA consumer has the right


                                       16
<PAGE>

                  to initiate a change in PH-MCOs at any time.

            (4)   It is specifically acknowledged and agreed that the Contractor
                  will be required to develop marketing materials such as
                  pamphlets and brochures which can be used by the Enrollment
                  Specialists to assist MA consumers in choosing a PH-MCO and
                  PCP. These materials must be developed in the form and context
                  stipulated 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 a request of the IEAP Contractor.

                  The Contractor is prohibited from distributing directly or
                  through any agent or independent contractor, marketing
                  materials without prior written approval of the Department. In
                  addition, the Contractor must comply with the following
                  marketing 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.

                  (c)   The Contractor will not directly or indirectly conduct
                        door-to-door, telephone or other cold-call marketing
                        activities.

            (5)   The Contractor must comply with the following principles for
                  all PH-MCO marketing activities:

                  (a)   The PH-MCO may use but not be limited to, commonly
                        accepted media methods to advertise and market. These
                        include television, radio, billboard and printed media.
                        Such advertising cannot be within sight of or in the
                        general vicinity of any County Assistance Office (CAO)
                        or other eligibility or enrollment office. All such
                        advertising and marketing is subject to advance written
                        approval by the Department.

                  (b)   The PH-MCO may participate in or sponsor health fairs or
                        community events. The Department reserves the right to
                        set limits on donations and/or payments made to
                        non-profit


                                       17
<PAGE>

                        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 within ten (10) business days. All payments
                        are subject to financial audit by the Department.

                  (c)   Items of little or no intrinsic value (i.e., trinkets
                        with promotional PH-MCO 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 PH-MCO enrollment activity. All such items
                        are subject to advance written approval by the
                        Department.

                  (d)   PH-MCOs will be permitted to offer members
                        health-related benefits in excess of those required by
                        the Department, and are permitted to feature such
                        increased benefits in approved marketing materials. All
                        such expanded benefits are 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 PH-MCO members and must be made available at all
                        appropriate PH-MCO 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 will produce significant
                        health improvements for members.

                  (e)   PH-MCOs will not be permitted to offer member coupons
                        for products of value.

                  (f)   Unless approved by the Department, PH-MCOs will not be
                        permitted to directly provide products of value unless
                        they are health related and are prescribed by a licensed
                        provider.

                  (g)   The Department reserves the right to review any and all
                        marketing activities, including materials prepared by
                        the PH-MCO for use by the Enrollment Specialists and
                        advertising materials and procedures used by the PH-MCO
                        for its personnel. In addition to any other sanctions
                        and/or


                                       18
<PAGE>

                        penalties, the Department may choose to impose monetary
                        or restricted enrollment penalties should the PH-MCO be
                        found to be using marketing materials or engaging in
                        marketing practices which have not received advance
                        written approval from the Department as applicable. The
                        Department reserves the right to suspend all marketing
                        activities and the completion of applications for new
                        enrollees. Such suspensions may be imposed for a period
                        of sixty (60) days from notification by the Department
                        to the PH-MCO citing the violation.

                  (h)   The Contractor is prohibited from distributing, directly
                        or through any agent or independent contractor,
                        marketing materials that contain false or materially
                        misleading information.

                  (i)   The PH-MCO must comply with marketing guidelines
                        outlined in Exhibit C.

            (6)   The Contractor must provide the IEAP Contractor with a supply
                  of hardcopy provider directories. The Contractor shall be
                  required to provide its members with PCP and dentist
                  directories upon request. The directories must include all
                  providers in the Contractor's network, including, but not
                  limited to: PCPs, hospitals, specialists, providers of
                  ancillary services, nursing facilities, etc. The provider
                  directories must also include the identification of PCP Teams
                  which include physicians, CRNPs, Certified Nurse Midwives and
                  physicians' assistants. 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 automated
                  provider directories. The directories must include all
                  providers in the Contractor's network, including, but not
                  limited to: PCPs, hospitals, specialists, providers of
                  ancillary services, nursing facilities, etc. Updates to the
                  automated provider directory must be provided monthly to the
                  IEAP Contractor. Updated directories will be provided either
                  by reprinting or by written addendum at the discretion of the
                  plan.

                  In addition to the requirements listed in the RFP for provider
                  directories, directories must include identification of sites
                  that are wheelchair accessible.

            (7)   The Contractor must comply with all appointment standards
                  outlined


                                       19
<PAGE>

                  in the RFP, including but not limited to those set forth on
                  Page 27. The Contractor agrees to require the PCP/Specialist
                  to conduct affirmative outreach whenever an enrollee misses an
                  appointment in accordance with the RFP and to document the
                  same.

            (8)   Should the Contractor permit selection of a PCP group and the
                  member has selected a PCP group with an open panel in the
                  Contractor's network which has been duly communicated to the
                  Contractor through the Enrollment Specialists, the Contractor
                  must ensure that upon commencement of the PH-MCO coverage, the
                  member's selection is honored. This PCP site selection must be
                  solely at the request of the member. Should the member, at any
                  time after the effective date of enrollment into the
                  Contractor's plan request that an individual PCP be assigned,
                  the Contractor must honor that request. In addition, at no
                  time is the Contractor permitted to assign a PCP site to a
                  member if the member has not selected a PCP or a PCP site at
                  the time of enrollment.

                  If the member has not selected a PCP or a PCP site through the
                  Independent Enrollment Specialist, the Contractor is required
                  to comply with the timeframes specified in the HC-SE RFP to
                  ensure that a PCP, not a PCP site, is assigned to the member.
                  This requirement does not relieve the Contractor from
                  complying with the credentialing/recredentialing and provider
                  profile requirements outlined in the HC-SE RFP for all
                  providers within the Contractor's provider network.

            (9)   The Contractor must provide a file, via the Department's
                  Pennsylvania Open Systems Network (POSNet), to the
                  Department's Eligibility Verification System (EVS) contractor
                  of PCP assignments for all its members. This file must be
                  provided at least weekly. The PCP assignment information must
                  be consistent with all requirements specified by the
                  Department.

            (10)  When any member is disenrolled from the PH-MCO because of
                  admission to or length of stay in a facility or because of
                  placement in substitute care outside the HC-SE project area
                  for up to six months from the initial date of disenrollment,
                  the PH-MCO from which the member has been disenrolled remains
                  responsible for participating in discharge/transition
                  planning, and will be assumed to be the MA consumer's plan
                  upon discharge or upon returning to the HC-SE project area,
                  unless and until the MA consumer chooses a different PH-MCO.
                  If the MA consumer chooses a different plan, that plan must
                  participate in discharge/transition planning upon notification
                  that the MA consumer will be enrolled in that PH-MCO.


                                       20
<PAGE>

      E.    Member Services

            The Contractor agrees to comply with the Program Standards regarding
            Member Services that are set forth in the RFP.

            (1)   All information given to members and potential members must be
                  easily understood and must comply with all requirements
                  outlined in the RFP. Informational material distributed to
                  HealthChoices members, including but not limited to provider
                  directories and member handbooks, will be available, upon
                  request in Braille, large print, and audio tape and will be
                  provided in the format requested by the person with a visual
                  impairment. Materials must include appropriate instruction on
                  how to access or receive assistance with accessing desired
                  materials in an alternate language or format. Information
                  should include both phone and Text Telephone Typewriter (TTY)
                  numbers. The information contained in the provider directories
                  may cover only those zip codes or other geographic locations
                  that the person with a visual impairment requests. The
                  Contractor will pay particular attention for the provision of
                  the following items:

                  (a)   Identity, location, qualifications and availability of
                        health care providers within the organization.

                  (b)   Members' rights and responsibilities.

                  (c)   Grievance and appeal procedures.

                  (d)   Information on services covered directly or through
                        referral and prior authorization.

            (2)   The Contractor must include in its PCP provider contracts
                  language which requires PCPs to contact new members identified
                  in the quarterly encounter lists who have not had an encounter
                  during the first six months of enrollment or who have not
                  complied with the scheduling requirements outlined in the RFP.
                  The PCP also must be required to contact members identified in
                  the quarterly encounter lists as not complying with EPSDT
                  periodicity and immunization schedules for children. The
                  primary care sites 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 primary care site must also be required to
                  document the reasons for noncompliance, and to document its
                  efforts to bring the member's care into compliance with the
                  standards.


                                       21
<PAGE>

            (3)   At the time of enrollment, the MA consumer has the option
                  subject to the PH-MCOs confidentiality obligations and
                  applicable law to designate a single additional addressee
                  (i.e., family member, case manager, close friend, etc.) to
                  receive duplicate copies of written communications from the
                  PH-MCO providing notice of a change in the members health care
                  benefits, notice of the termination of the member's PCP from
                  the PH-MCOs provider network, and denial of services notices.
                  Original copies of such written communications should still be
                  forwarded to the member. This additional addressee will be
                  identified on the IEAP Contractor's weekly enrollment file
                  forwarded to the PH-MCO or may be identified by the member
                  directly to the PH-MCO. The Contractor will develop plans to
                  process such requests and for getting the necessary releases
                  signed by the member to ensure that the members rights
                  regarding confidentiality are maintained.

      F.    In-Plan Services

            The Contractor agrees to comply with the Program Standards regarding
            In-Plan Services that are set forth in the RFP.

            (1)   In-plan services will be provided in a manner in the amount,
                  duration and scope set forth in the MA Fee-for-Service (FFS)
                  Program and may 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 recipients are
                  expanded or eliminated, implementation by the Contractor will
                  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 will conduct
                  an actuarial analysis including appropriate input by the
                  Contractor, to determine if there is a need for a rate change
                  and if necessary, adjustable rates to appropriately reflect
                  the addition of the new services.

                  Upon approval by the Department, the Contractor may amend the
                  Agreement to modify or eliminate any Enhanced Benefit(s)
                  specified in its proposal 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 at least
                  thirty (30) days prior to the effective date of the change in
                  covered benefits, including notification for a reduction in
                  benefits or a substantial change to the provider network, and
                  will simultaneously amend all written materials describing its
                  covered benefit or provider network.


                                       22
<PAGE>

                  a.    For PCP terminations, the PH-MCO will provide thirty
                        (30) days advance notice to members assigned to the PCP.

                  b.    For hospital terminations, the PH-MCO will provide
                        thirty (30) days advance notice to members assigned to
                        any PCPs or PCP practices that will be terminated as a
                        result of the hospital termination. The Department
                        reserves the right to additionally 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.

      (2)   The Contractor is not responsible to provide any services as set
            forth in the Behavioral Health RFP #3-96 and/or in the contracts
            between the Department and the Behavioral Health Managed Care
            Organizations (BH-MCOs).

      (3)   The Contractor is required to provide emergency services without
            regard to prior authorization or the emergency care provider's
            contractual relationship with the Contractor.

      (4)   If the Contractor wishes to require prior authorization of any
            services which are not required to be prior authorized under the MA
            FFS Program, they must establish and maintain written policies and
            procedures which must have advance written approval by the
            Department. In addition, the list and scope of services to be prior
            authorized must have advance written approval by the Department as
            outlined in the prior authorization guidelines in Exhibit D.

            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 within forty-five (45) days from the date the Department
            receives the request for review by the Contractor.


                                       23
<PAGE>

            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 the new
            medication, or a fifteen (15) day supply for an ongoing medication
            and the Contractor must issue a written denial notice, in the form
            attached at Exhibit E ,within twenty-four (24) hours from the time
            that the prescription is presented to the pharmacist. 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.

            The Contractor must have procedures in place to assure that if a
            prescription for an ongoing medication is not authorized when
            presented to a pharmacist, the pharmacist will dispense a fifteen
            (15)-day supply of the prescription, unless the PH-MCO 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 appeal has not been filed. If the member files a
            grievance or appeal from a denial of an ongoing medication, the
            Contractor must authorize the medication until the grievance or
            appeal is resolved. When medication is authorized due to the
            Contractors 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 sub-contractor 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.

      (5)   The Contractor is required to process each request for benefits and
            ensure that the member is notified of the decision within two (2)


                                       24
<PAGE>

            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 benefits. 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.

      (6)   Children in Substitute Care Transition. If a child in substitute
            care is determined eligible inside the five county HealthChoices
            Southeast Zone and is placed in substitute care inside the five
            county HealthChoices Southeast Zone or inside a different
            HealthChoices Program zone, s/he will be covered under the
            HealthChoices Program operating in the zone in which s/he is placed.

            If a child in substitute care is determined eligible inside the five
            county HealthChoices Southeast Zone and is placed anywhere inside
            the five county HealthChoices Southeast Zone, the Contractor with
            which the child is initially enrolled remains financially
            responsible for the health care needs of the child. This Contractor
            must arrange and pay for the medically necessary health care
            services for the child. If the Contractor cannot provide the
            services within its provider network, the Contractor must arrange
            and pay for the services outside its provider network.

            The Contractor will continue financial responsibility for the health
            care of the child in substitute care unless or until the legal
            custodian (e.g., parent or county) makes a decision to enroll the
            child in another PH-MCO or the child is placed in a facility which
            requires the child to be disenrolled from the PH-MCO.

            If a child in substitute care is determined eligible inside the five
            county HealthChoices Southeast Zone and is placed outside of the
            five county HealthChoices Southeast Zone, s/he will be covered under
            the rules of the MA Program in the zone in which they are


                                       25
<PAGE>

            placed.

            If a child in substitute care is determined eligible outside of the
            five county HealthChoices Southeast Zone and is placed in substitute
            care inside the five county HealthChoices Southeast Zone, s/he will
            be covered under the HealthChoices Southeast program.

            The Contractor will be required to pay for out-of-network,
            medically-necessary health care services for up to ten (10) days for
            a child enrolled in the PH-MCO who is placed in substitute care if
            the county placement agency cannot identify the child nor verify MA
            coverage. However, this out-of-network coverage will only be
            required in certain circumstances, such as emergency placement, or
            the county placement agency having no contact with the child prior
            to the placement. All efforts must be made by the county placement
            agency to identify the child and to determine MA coverage
            responsibility in the most expedient manner possible.

      (7)   Emergency Room (ER) Services

            The Contractor agrees to comply with the program standards regarding
            Emergency Room (ER) Services that are set forth in the RFP. In
            addition:

            Emergency providers may initiate the necessary intervention to
            stabilize an emergency medical condition of the patient without
            seeking or receiving prospective authorization by the PH-MCO.

            The Contractor wilt 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 1976 Mental Health Procedures Act will be the responsibility of
            the BH-MCO.

            The Contractor will request PCPs to report all contact with members
            in which the member or a member representative called the PCP from
            an ER requesting authorization for an urgent or non emergency
            service. For each such request, the PCP must report whether the
            visit was approved or denied.

            The Contractor will analyze this information and use it for quality
            improvement purposes. The Department will have access to individual
            and aggregate data collected. This should be a quarterly report with
            an annual aggregate report.

            The Contractor is required to process requests for out-of-network


                                       26
<PAGE>

            emergency treatment services even if the out-of-network provider has
            not notified the Contractor within twenty-four (24) hours of
            providing the service if the out-of-network provider can document
            that circumstances prevented timely notification.

            The parties agree that the provision at Part II.F.2.C (Emergency
            Room Services) of the RFP will not govern payment by the Contractor
            for emergency room services provided by non-participating providers.
            The Contractor will pay for such services at rates consistent with
            applicable law.

            Post-Stabilization Services

            The Contractor must cover post-stabilization services.

            Post stabilization services are defined as medically necessary
            non-emergency services furnished to a member after he or she is
            stabilized following an emergency medical condition.

            (a)   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.

                  (i)   The post-stabilization services were pre-approved by the
                        Contractor.

                  (ii)  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 hour of the request.

                  (iii) 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.

      (9)   The Contractor must comply with all requirements regarding EPSDT
            services as set forth in the RFP. The Contractor must also adhere to
            specific Department regulations 55 Pa. Code Chapter 3700 and Chapter
            3800 as they relate to EPSDT examination for individuals under the
            age of twenty-one (21) and entering substitute care or RTF
            placement.

            (a)   The Contractor must require that PCPs who provide care to
                  members under the age of twenty-one (21) perform and report


                                       27
<PAGE>

                  all EPSDT screens on the form approved by the Department,
                  including appropriate immunizations and blood lead levels for
                  children. Childhood lead poisoning prevention services must be
                  provided in accordance with the Departments EPSDT program
                  requirements and the Centers for Disease Control and
                  Prevention (CDC) guidelines entitled "Preventing Lead
                  Poisoning in Young Children".

            (b)   Diagnosis and Treatment

                  The Contractor will require the following:

                  (i)   Following an EPSDT developmental screen, if the
                        screening provider suspects developmental delay, s/he is
                        required to refer the child through CONNECT,
                        1-800-692-7288, for an appropriate eligibility
                        determination for early intervention services providing
                        the child is age appropriate consistent with the Early
                        Intervention Program.

                  (ii)  With respect to SSI and SSI-related members under the
                        age of twenty-one (21), at the first appointment
                        following enrollment, the PCP must make an initial
                        assessment of the health needs of the child over an
                        appropriate period (not to exceed one [1] year),
                        including the child's need for primary and specialty
                        care. The results of that assessment will be discussed
                        with the family or custodial agency (and, if
                        appropriate the child) and shall be listed in the
                        child's medical records. As part of the initial
                        assessment, the PCP will make a recommendation regarding
                        whether case management services should be provided to
                        the child. The Contractor shall determine the medically
                        appropriate level of case management services to be
                        provided which includes required notification should the
                        Contractor determine that the PCP's recommendation not
                        be approved.

            (c)   Tracking

                  (i)   In addition to the requirements for tracking set forth
                        in the RFP, the Contractor's system for tracking must
                        include:

                        a)    EPSDT screen and reporting of all screening
                              results


                                       28
<PAGE>

                        b)    Referral of members under the age of twenty-one
                              (21) with elevated blood levels through CONNECT

            (d)   Follow-up and Outreach

                  (i)   The Contractor's process for reminders, follow-ups and
                        outreach to members must include: a process for outreach
                        and follow-up with County Children and Youth Agencies
                        and Juvenile Probation Offices to assure that they are
                        notified of all members under the age of twenty-one (21)
                        who are under their supervision and who are due to
                        receive EPSDT screens and follow-up treatment.

                  (ii)  The Contractor will be required to develop master lists
                        of all enrolled children who are coded as such on the
                        monthly membership files. The Contractor must assign
                        specific staff to monitor the services provided to these
                        children and to ensure that they receive comprehensive
                        EPSDT screens and follow-up services. The assigned staff
                        must contact the relevant agencies with custody of these
                        members or with jurisdiction over them (e.g., County
                        Children and Youth Agency, Juvenile Probation Office)
                        when a particular child has yet to receive an EPSDT
                        screen or is not current with their EPSDT screen and/or
                        immunizations and to ensure that an appointment for such
                        service is scheduled.

                  (iii) 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.).

            (e)   Interagency Teams for EPSDT Services for Children

                  The Contractor must appoint a representative who will ensure
                  coordination with other health, education and human services
                  systems in the development of a comprehensive individual
                  family services plan, for members under the age of twenty-one
                  (21) identified with special needs. The Contractor will only
                  be required to participate in interagency teams if the
                  Contractor receives notification of the interagency meeting


                                       29
<PAGE>

                  and the interagency plan contains physical health elements
                  (i.e. educational, behavioral health, etc.)

                  If the Contractor's participation is required, the Contractor
                  must ensure:

                  (i)   The objective that children have access to adequate
                        pediatric care.

                  (ii)  Continuity of care with the service plan developed in
                        coordination with the interagency team, including the
                        child (when appropriate), the adolescent and family
                        members.

                  (iii) Development of adequate specialty provider networks.

                  (iv)  Integration of covered services with ineligible
                        services.

                  (v)   Prevention against duplication of services.

                  (vi)  Contractor representative participation with the
                        interagency teams.

                  (vii) Adherence to state and federal laws, regulations and
                        court requirements relating to individuals with special
                        needs.

                 (viii) Cooperation of the Contractor's provider networks.

                  (ix)  Applicable training for PCPs and providers including the
                        identification of the Contractor's contact persons.

      G.    Self-Referral/Direct Access

            The Contractor agrees to comply with the Program Standards regarding
            Differently Accessed Services that are set forth in the RFP.

            The Contractor must authorize additional OB/GYN services beyond the
            first prenatal care visit, at the member's request, and without
            requiring a separate visit to a PCP. These additional OB/GYN
            services apply only to the delivery of pre-natal care related
            services.

            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 providers enrolled in
            their PH-MCO's provider


                                       30
<PAGE>

            network.

            Under Act 68, 40 P.S. Section 991.2111(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 for this vulnerable population.

            The referral authorization process shall not apply to the delivery
            of family planning services that may be self-referred. 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, 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
            services out-of-plan.

            Members must be permitted to select a healthcare provider, including
            nurse midwifes participating in the PH-MCO, 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.

            Procedures related to family planning services are outlined in
            Exhibit F, Family Planning Services Procedures.

      H.    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 will be the responsibility of
            the PH-MCO: Kidney (cadaver and living related donor),
            kidney/pancreas, cornea, heart, heart/lung, single lung, double
            lung, liver (cadaver and living related donor), liver/pancreas,
            small bowel, pancreas/small bowel, bone marrow, stem cell, pancreas,
            liver, small bowel bowel transplants, and multivisceral transplants.


                                       31
<PAGE>

      I.    Coordination with Out-of-Plan Services

            The Contractor agrees to comply with the Program Standards regarding
            Coordination with Out-of-Plan Services which are set forth in the
            RFP, including those pertaining to Behavioral Health.

            (1)   The Contractor agrees, and the Department will use its best
                  efforts to require HC-SE Behavioral Health Managed Care
                  Organizations (BH-MCOs) to agree, to submit to a binding
                  independent arbitration process in the event of a dispute
                  between Contractor and any such BH-MCOs concerning their
                  respective obligations pursuant to this Agreement and a
                  Behavioral HC-SE 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.

            (2)   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 Hydrochloride. 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 Department will issue a list of BH-MCO
                  providers to the Contractor prior to the start of the
                  Agreement Year. Should the Contractor receive a request to
                  dispense medication from a behavioral health provider not
                  listed on the BH-MCO's provider file, the Contractor should
                  work through the appropriate BH-MCO to get the provider
                  identified. 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.

            (3)   The Department will continue to offer out-of-plan benefits
                  which will be reimbursed on a FFS basis or through the BH-MCO.
                  Community service providers will continue to offer out-of-plan
                  services established through other delivery systems that are
                  not the responsibility of the MA Program or the Contractor. In
                  these instances, the Contractor is responsible to coordinate
                  the comprehensive in-plan package of services with services
                  provided out-of-plan by providers.

            (4)   The Contractor must enter into written agreements with all
                  school districts, Childhood Lead Poisoning Prevention Projects
                  (CLPPPs), County Children and Youth Agencies and Juvenile
                  Probation offices, and the BH-MCOs. The Department strongly
                  encourages the PH-MCO to make a good faith effort to enter
                  into written agreements


                                       32
<PAGE>

                  with other public, governmental, county and community-based
                  service providers.

                  Should the Contractor be unable to enter into written
                  agreements with any or all of the entities required under this
                  Agreement, the Contractor must submit written justification to
                  the Department. Justification must include all steps taken by
                  the Contractor to attempt to secure these written agreements,
                  or must demonstrate an existing ongoing and cooperative
                  relationship with the outside agency. The Department will then
                  determine whether or not the Contractor will be granted a
                  waiver to section 7.1.I. (4).

      J.    Provider Networks

            The Contractor agrees to comply with the Program Standards regarding
            Provider Networks that are set forth in the RFP.

            The Contractor must maintain an adequate provider network, approved
            by the Department, to serve all of the eligible HealthChoices
            populations in geographically accessible locations within the
            service area for the HealthChoices populations to be served. This
            provider network must be in place prior to October 1, 1996. The
            Contractor must ensure that its provider network is adequate to
            provide its MA enrollees with access to quality patient care through
            participating professionals, in a timely manner, and without undue
            travel time or distances, as more specifically outlined in the RFP.

            The Contractor is prohibited from using or reimbursing providers for
            any item or service if the provider has been excluded from
            participation under Titles V, XVIII, or XIX of the Social Security
            Act.

            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 1998.
            Those laboratories with certificates of waiver will provide only the
            eight (8) 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.

      K.    Service Accessibility Standards

            The Contractor agrees to comply with the Program Standards regarding
            Service Accessibility Standards that are set forth in the RFP.


                                       33
<PAGE>

      L.    Provider Enrollment

            The Contractor agrees to comply with the Program Standards regarding
            Provider Enrollment Standards that are set forth in the RFP.

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

            The Department strongly 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.

      M.    Provider Agreements

            The Contractor will be required to have written provider agreements
            with a sufficient number of providers to ensure member access to all
            medically necessary services covered by the HC-SE Program.

            The Contractor's provider agreements must include the following
            provisions:

            (1)   The Contractor shall 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.

            (2)   The Contractor shall not exclude a provider from the
                  Contractor's provider network because the provider advocated
                  on behalf of a member in a utilization management appeal or
                  another dispute with the Contractor over appropriate medical
                  care.

            (3)   Provider agreements will carry notification of the prohibition
                  and sanctions for submission of false claims and statements.

            (4)   The definition of Medically Necessary as outlined in Section 2
                  of this Agreement.

            (5)   The Contractor cannot prohibit or restrict a health care
                  professional from advising a member of their health care
                  status, care or treatment, regardless of their benefit
                  coverage, if it is within the scope of their practice.

            (6)   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


                                       34
<PAGE>

                  the provision of such services on moral or religious grounds.

            (7)   A requirement securing cooperation with the QM/UMP standards
                  outlined in Exhibit G.

            (8)   A requirement for cooperation for the submission of all
                  encounter data for all services provided within the timeframes
                  required in Section 17.6 of this Agreement no matter whether
                  reimbursement for these services is made by the Contractor
                  either directly or indirectly through capitation.

            (9)   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 will
                  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.

            The Contractor must make all necessary revisions to its provider
            agreements to be in compliance with the requirements set forth in
            Section 7.1.M. of this Agreement. Revisions may be completed as
            provider agreements become due for renewal provided that all
            provider agreements 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
            providers are submitting encounter data to the Contractor within the
            timeframes specified in Section 17.6 of this Agreement.

      N.    Provider Services

            The Contractor agrees to comply with the Program Standards regarding
            Provider Services that are set forth in the RFP.

            The Contractor must have written plans which outline plans to
            educate and train providers. This training plan may be done in
            conjunction with the Special Needs Unit training requirements and
            shall include special needs consumers, advocates and family members
            in developing the design and implementation of the training plan.

            The Contractor must submit plans for measuring training outcomes
            including the tracking of training schedules and provider
            attendance.

            (1)   At a minimum, the provider training must be conducted for PCPs
                  and include the following areas:

                  (a)   EPSDT training (for any PCPs who serve members under age


                                       35
<PAGE>

                        twenty-one (21);

                  (b)   Identification and appropriate referral for mental
                        health, drug and alcohol and substance abuse;

                  (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;

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

                  (g)   Information on ADA and Section 504 of the Rehabilitation
                        Act of 1973, as well as other applicable laws and other
                        available related resources.

            (2)   The Contractor shall also at a minimum, be required to train
                  its dental providers in the following areas:

                  (a)   Sensitivity training on diversity and special needs
                        populations;

                  (b)   Cultural competence; and

                  (c)   Treating special needs populations.

                  The Contractor will be permitted to submit an alternate
                  provider training and education plan should the Contractor
                  wish to combine its activities with other PH-MCOs operating in
                  the HC-SE zone or wish to develop and implement new and
                  innovative methods for provider training and education.
                  However, this alternative plan must have prior 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.

      O.    Quality Management and Utilization Management Program

            The Contractor agrees to comply with the Program Standards regarding
            Quality Management and Utilization Management that are outlined in
            Exhibit G.

            The Contractor must provide to the Department its written procedures


                                       36
<PAGE>

            governing quality management and utilization management.

            The Department will recoup from the PH-MCO any and all payments made
            to any provider who does not meet the enrollment and credentialing
            criteria for participation or is used by the PH-MCO in a manner that
            is not consistent with the provider's licensure, where such failure
            is the result of negligence on the part of the Contractor. In
            addition, the PH-MCO must notify its PCPs and all subcontractors of
            the prohibitions and sanctions for the submission of false claims
            and statements.

            Any economic profiles used by the PH-MCOs to credential providers
            should be adjusted to adequately account for factors that influence
            cost and utilization independent of the provider's clinical
            management, including member age, member sex, provider case-mix and
            member severity. The PH-MCO must report any economic profile that it
            utilizes in its credentialing process and the methodology that it
            uses to adjust the profile to account for non-clinical management
            factors at the time and in the manner requested by the Department.

            In the event that a PH-MCO renders an adverse credentialing
            decision, the PH-MCO must provide the affected provider with a
            written notice of the decision. The notice should include a clear
            and complete explanation of the rationale and factual basis for the
            determination. The notice shall include any economic profiles used
            as a basis for the decision and explain the methodology for
            adjusting profiles for non-clinical management factors. All
            credentialing decisions made by the PH-MCO are final and may not be
            appealed to the Department.

            The PH-MCO must ensure access of the member to his/her medical
            record at no charge and upon request. The member's medical records
            are the property of the provider who generates the record.

      P.    Operational Data Reporting

            The Contractor agrees to comply with the Program Standards regarding
            Operational Data Reporting which are set forth in the RFP. The
            Department will exercise its best efforts to provide to Contractor
            thirty (30) days advance notice to comment on any new data reporting
            requirements with respect to the availability and collection of
            data.

            The Contractor must submit reports based on HEDIS 3.0 (or most
            current version) measures. The Contractor is not responsible for
            reporting on those HEDIS 3.0 measures related to behavioral health
            issues.

      Q.    Payments to and from the Contractor


                                       37
<PAGE>

            The Contractor agrees to comply with the Program Standards regarding
            Payments to and from the Contractor, which are set forth in the RFP.

      R.    PH-MCO Fiscal Standards

            The Contractor agrees to comply with the Program Standards regarding
            PH-MCO Fiscal Standards that are set forth in the RFP.

      S.    Contracts and Subcontracts

            The Contractor agrees to comply with the Program Standards regarding
            Contracts and Subcontracts which are set forth in the RFP.

      T.    Records Retention

            The Contractor agrees to comply with the Program Standards regarding
            Record Retention which are set forth in the RFP. 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 statute and
            regulation. This thirty (30) days notice will not apply to records
            requested by the state or federal government for purposes of fiscal
            audits or fraud and/or abuse.

      U.    Fraud and Abuse

            The Contractor agrees to comply with the Program Standards regarding
            Fraud and Abuse that are set forth in the RFP. The Contractor must
            submit to the Department reports and immediate notification in cases
            where the Contractor terminates a provider agreement or employee
            from employment due to fraud and abuse issues. In addition, 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.

            The Department reserves the right to impose sanctions in cases where
            there is suspected fraud or abuse by the Contractor, including its
            corporate officers and employees or its subcontractors including
            providers and members which violate one or more of the terms of the
            RFP, contract, or the requirements of state or federal regulations.

            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.


                                       38
<PAGE>

      V.    Department Access and Availability

            The Contractor agrees to comply with the Program Standards regarding
            Department Access and Availability that are set forth in the RFP.

      W.    Physician Incentive Arrangements

            The Contractor must comply with 42 CFR 417.479(a), which states that
            no specific payment can be made directly or indirectly under a
            physician incentive plan to a physician or physician group as an
            inducement to reduce or limit medically necessary services furnished
            to an individual member.

            The Contractor must disclose to the Department the information on
            physician incentive plans listed in 42 CFR 417.479(h)(I) and
            417.479(i) at the times indicated at 42 CFR 434.70(a)(3), in order
            to determine whether the incentive plan(s) meet the requirements of
            42 CFR 417.479(d)-(g). To the extent required by HCFA, the
            Contractor must provide the capitation data required under paragraph
            (h) (I) (vi) for the previous calendar year to the Department by
            April 1 of each year. The Contractor will provide the information on
            its physician incentive plans listed in 42 CFR 417.479(h)(3) to any
            MA consumer, upon receipt of a written request

      X.    Pharmacy Requirements

            (1)   Pharmacy Benefit Manager (PBM)

                  The Contractor may use a PBM to process prescription claims
                  only if the proposed PBM subcontract has received advance
                  written approval by the Department. The Contractor will
                  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 will be put in place by
                  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.

            (2)   The PH-MCO 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).


                                       39
<PAGE>

            (3)   PH-MCOs must exclude coverage for any drug marketed by a drug
                  company (or labeler) who does not participate in the FFS
                  Medicaid Drug Rebate Program. The PBMs are not permitted to
                  provide coverage for any drug product, brandname or generic,
                  legend or nonlegend, sold or distributed by a company that did
                  not sign an agreement with the federal government to provide
                  rebates to the Medicaid agency.

            (4)   The Department will allow the continued operation of
                  pre-existing PBM subcontracts while the Department is
                  reviewing such pre-existing contracts.

      Y.    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 will be
            responsible for tracking these members in accordance with federal
            reporting requirements.

      Z.    Reporting

            To report Healthy Beginnings activity on or after January 1, 2000,
            the Contractor must submit the HMO Obstetrical Reporting Form,
            Exhibit H of this contract.

7.2   Special Needs Unit (SNU)

      A.    Establishment of Special Needs Unit

            (1)   The Contractor must demonstrate that it has established a
                  distinct Special Needs Unit. As set forth in the RFP, the
                  Contractor will develop, train, and maintain a "special"
                  dedicated unit within its organizational structure to deal
                  with issues relating to MA members with special needs
                  ("Special Needs Unit"). The purpose of the Special Needs Unit
                  is to ensure that each member with special needs receives
                  access to PCPs 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); and access to needed community services. In
                  addition, if the Contractor fulfills its obligation under this
                  Agreement to provide case management services to members under
                  the age of twenty-one (21) through the Special Needs Unit, the
                  Contractor must


                                       40
<PAGE>

                  assure that the Special Needs Unit assists individuals in
                  gaining access to necessary medical, social, education, and
                  other services in accordance with Medical Assistance Bulletin
                  #1239-94-01.

            (2)   The Contractor agrees to comply with the Department's
                  requirements and determination of whether a member will be
                  classified as having a special health need, which
                  determination will be based on criteria set forth in Exhibit
                  I.

            (3)   The Contractor must assure that outpatient case management for
                  services for members under age twenty-one (21) will not be
                  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.

      B.    Special Needs Coordinator

            The Contractor will employ a full-time Special Needs Unit
            Coordinator whose qualifications must include, among other things,
            experience with special needs populations similar to those served by
            Medicaid. The Special Needs Unit Coordinator must be accountable to
            the Contractor's Medical Director and be responsible for the
            management and supervision of the Special Needs Unit and Special
            Needs Unit staff. The Contractor agrees to notify the Department
            within thirty (30) days of a change in the Special Needs
            Coordinator.

      C.    Responsibilities of Special Needs Staff

            (1)   The Contractor agrees that the staff members which it employs
                  within the Special Needs Unit will assist consumers in
                  accessing services and benefits and will act as liaisons with
                  various government offices, providers, public entities, and
                  county entities which will include, but will not be limited
                  to: County Office of Drug and Alcohol Programs; Office of Drug
                  and Alcohol Programs; the Office of Children, Youth and
                  Families; County Children and Youth Agencies; Office of Mental
                  Retardation; County Mental Retardation Agencies; Intermediate
                  Care Facility Providers; Office of Mental Health and Substance
                  Abuse Services; County Mental Health Agencies; PA. Department
                  of Health's Community Health Departments; County and Municipal
                  Health Departments; Special Kids Network and Regional Offices;
                  Childhood Lead Poisoning Prevention Projects; School Districts
                  and Intermediate Units; School Based Health Centers; Juvenile
                  Detention Centers; Juvenile Probation Offices; Criminal
                  Justice; Area Agency on Aging (AAA); Community Service
                  Organizations; Organizations providing services


                                       41
<PAGE>

                  to individuals with HIV/AIDS; Public Health Entities; Consumer
                  Advocacy Groups; WIC Agencies; Public Housing Authorities;
                  Head Start Agencies; and Family Centers.

            (2)   The staff members of this unit will work in close
                  collaboration with the Special Needs Units operated by the
                  Department and the IEAP Contractor.

            (3)   In addition, the Contractor will demonstrate to the Department
                  that its Special Needs Unit staff is qualified to perform the
                  functions outlined in Exhibit I.

      D.    Contractor's Additional Obligations

            (1)   The Contractor will work with State Health Department's 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, pursuant to Chapter
                  27, of the Disease Prevention and Control Law. The Contractor
                  will designate a single contact person to facilitate the
                  implementation of this requirement.

            (2)   The Contractor will cooperate with the Department's
                  independent external quality review organization.

      SECTION 8: FISCAL RELATIONSHIP

8.1   Payments For In-Plan Services

      The obligation of the Department to make payments will be limited to
      capitation payments, maternity care payments, and any other payments
      provided by this Agreement. The Contractor is not responsible for the
      payment of Environmental Lead Investigations.

      A.    Capitation Payments

            (1)   The Contractor will receive capitated payments for in-plan
                  services (as defined in the RFP) at the rates set forth in
                  Exhibit B, which is attached hereto and made a part hereof.

            (2)   The Department will make a pre-paid Per-Member-Per-Month
                  (PMPM) capitation payment, referenced in 8.1A(1) above, for
                  each member whose enrollment on the first day of the month is
                  indicated on the Department's Client Information System (CIS)
                  on the first day of the month. This date may be subject to
                  change. The Department
                                       42
<PAGE>

                  will give prior notice to the Contractor of a date change, if
                  practical. If the Contractor is responsible to provide
                  benefits to an enrolled consumer who does not appear on CIS on
                  the first day of the month, the Department will initiate a
                  capitation payment on the first day of the first subsequent
                  month on which said enrollment appears on CIS.

            (3)   The Department will make each monthly capitation payment by
                  The fifteenth of the month. The Department will seek to make
                  arrangements for payment by wire transfer or electronic funds
                  transfer If such arrangements are not in place, payment will
                  be made by U.S. Mail.

            (4)   The Department will not make a capitation payment for a
                  recipient month if it notifies the Contractor before the first
                  of the month that the consumer's MA eligibility or PH-MCO
                  enrollment ends prior to the first of the month. The
                  capitation payments for members whose enrollment is effective
                  any time after the first day of the month will be prorated.
                  These payments will be initiated on the first day of the first
                  subsequent month on which the enrollments appear on CIS, and
                  payments will be made in accordance with Section 8.1A(3)
                  above. (See the Department's Recipient Coverage Document
                  Exhibit J of this Agreement.)

            (5)   Exhibit B 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 TPL file is updated to indicate Medicare Part A
                  coverage within four (4) months prior to the current month for
                  a consumer at an SSI Without Medicare rate, the Department
                  will adjust the payment to reflect the rating group
                  appropriate to the consumer, provided the TPL file indicates
                  Part A coverage as of the first day of coverage by the
                  Contractor for this consumer during the program 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 consumer at an SSI with Medicare or Healthy Horizons
                  rate, the Department will adjust the payment to reflect the
                  rating group appropriate to the consumer, provided the TPL
                  file does not indicate Part A coverage as of the first day of
                  coverage by the Contractor for this consumer during the
                  program month for which payment was made. The Department will
                  provide information to the Contractor on this type of payment
                  adjustment on an electronic file. The Contractor will utilize
                  this information to adjust its payments to providers and
                  instruct its providers to bill Medicare.


                                       43
<PAGE>

      B.    HIV-AIDS Risk Pool

            The Department will withhold the portion of each capitation payment
            that is designated as a Risk Pool Allocation Amount on Exhibit B.
            Funds so withheld will be allocated to an HIV-AIDS Risk Pool and
            distributed to PH-MCOs in accordance with Exhibit K. The Department
            will issue in writing, to the Contractor, any new or additional
            drugs or therapies identified as treatment for HIV/AIDS after the
            execution of this Agreement in a timely manner.

      C.    Maternity Care Payments

            (1)   For each birth or other second or third trimester pregnancy
                  outcome other than elective abortion, the Department will make
                  a one-time Maternity Care Payment to the PH-MCO who the mother
                  is enrolled with on the date of birth or other pregnancy
                  outcome; 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
                  time of birth or other pregnancy outcome will receive the
                  Maternity Care Payment. The amount of the Maternity Care
                  Payment is shown on Exhibit B. 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").

            (2)   The Contractor must invoice the Department to receive
                  Maternity Care Payments, consistent with specifications
                  determined by the Department. The Department will authorize
                  payment to the Contractor within thirty (30) days of the
                  receipt of an acceptable invoice.

      D.    Program Changes

            (1)   Amendments, revisions, or additions to the State Plan or to
                  state or federal regulations, laws, guidelines, or policies
                  will, insofar as they affect the scope or nature of benefits
                  available to eligible persons, amend the Contractor's
                  obligations as specified herein and in the RFP, unless the
                  Department notifies the Contractor otherwise. The Department
                  will inform the Contractor of any changes, amendments,
                  revisions, or additions to the State Plan or changes in the
                  Department's regulations, guidelines, or policies in a timely
                  manner.

            (2)   The Department will provide a category of drug known as
                  Protease Inhibitors through the FFS Program to HealthChoices
                  consumers. The Department may elect to include these drugs in
                  the HealthChoices Program effective with a subsequent
                  agreement year


                                       44
<PAGE>

                  and to adjust capitation rates as provided in this Agreement.

            (3)   The Department will make a mid-year adjustment to the rates in
                  an actuarially sound manner, if necessary, to reflect a
                  material and demonstrated impact on the delivery of care
                  caused by a program change set forth in Section 8.1D(1)
                  above. 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.

      E.    Financial Responsibility for Dual Eligibles

            (1)   The Contractor must pay Medicare deductibles and coinsurance
                  amounts relating to any Medicare-covered service for qualified
                  Medicare beneficiaries in accordance with Section 4714 of the
                  Balanced Budget Act of 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.

            (2)   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.

            (3)   The Contractor and 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
                  have the right to access a Medicare product or service from
                  the Medicare provider of their choice. The Contractor is
                  responsible to pay any Medicare coinsurance and deductible
                  amount as described in Section 8.1E(1), (2) and (3) 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.

      F.    Audits

            The PH-MCO is responsible to provide annual audits as specified in
            Exhibit L.

8.2   Payments by the Contractor to Providers


                                       45
<PAGE>

      A.    Definitions

            (1)   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.

            (2)   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.

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

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

            (5)   Denied Claim - An adjudicated claim that does not result in a
                  payment obligation to a provider.

      B.    Timeliness Standards

            The Contractor shall make timely payments to its providers. In
            addition to any federal or state requirements or standards included
            in the Contractor's provider agreements or subcontracts, 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 standards.

            Adjudication timeliness standards follow for each of three (3)
            categories of claims:

            (1)   Claims received from a hospital for inpatient admissions
                  ("Inpatient")

                  (a)   90.0% of clean claims must be adjudicated within 30
                        days.
                  (b)   100.0% of clean claims must be adjudicated within 45
                        days.
                  (c)   100.0% of all claims must be adjudicated within 90 days.

            (2)   Drug claims

                  (a)   90.0% of clean claims must be adjudicated within 30
                        days.
                  (b)   100.0% of clean claims must be adjudicated within 45
                        days.


                                       46
<PAGE>

                  (c)   100.0% of all claims must be adjudicated within 90 days.


            (3)   All claims other than inpatient and drug:

                  (a)   90.0% of clean claims must be adjudicated within 30
                        days.
                  (b)   100.0% of clean claims must be adjudicated within 45
                        days.
                  (c)   100.0% of all claims must be adjudicated within 90 days.

            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 prior 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 date the check
            was created or the transmission date of an electronic payment. 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.

            Checks must be mailed not later than three (3) work days from the
            check date. The check date is the date printed on the check.

            If responsibility to receive claims is subcontracted, the date of
            initial receipt by the subcontractor determines the date of receipt
            applicable to these requirements.

            The Contractor must identify on every claim processed the date the
            claim was received. This date must be carried on claims records in
            the claims processing computer system. Each hard-copy claim received
            by the Contractor must be date stamped with the date of receipt no
            later than the first work day after the date of receipt.

      C.    Monthly Claims Processing Report

            The Contractor shall provide the Department with a monthly claims
            processing report using a report format specified by DPW. If more
            than one subcontractor processes claims for the Contractor or if the
            Contractor and a subcontractor process claims separately, the
            Contractor shall


                                       47
<PAGE>

            provide a separate report that includes information distinct to each
            entity that processes claims.

            The monthly report will include six (6) parts. Parts one through
            four will each provide summary information on all claims received
            during the month, and in each of the previous eleven months, except
            that information will not be reported on claims received prior to
            January 2000.

            Parts #1 and #3 of the monthly report provide information on clean
            claims. The PH-MCO should provide information on claims identified
            as clean as of the date the report is prepared. Counts of clean
            claims received in a particular month may change on subsequent
            monthly reports, as the PH-MCO identifies additional clean claims.

            Part #1. This will provide the following information on Clean
            Inpatient Claims:

                  -     Name of processing entity
                  -     Report includes information/knowledge available through
                        (Enter a Date)
                  -     Number received
                  -     Number paid within 30 days
                  -     Number denied within 30 days
                  -     Number paid in 31 - 45 days
                  -     Number denied in 31 - 45 days
                  -     Number paid in 46 - 90 days
                  -     Number denied in 46 - 90 days
                  -     Number paid more than 90 days after receipt
                  -     Number denied more than 90 days after receipt
                  -     Number in inventory not adjudicated

            Part #2. This will provide the following information on all
            Inpatient Claims:

                  -     Name of processing entity
                  -     Report includes information/knowledge available through
                        (Enter a Date)
                  -     Number received
                  -     Number paid within 30 days
                  -     Number denied within 30 days
                  -     Number paid in 31 - 45 days
                  -     Number denied in 31 - 45 days
                  -     Number paid in 46 - 90 days
                  -     Number denied in 46 - 90 days
                  -     Number paid more than 90 days after receipt
                  -     Number denied more than 90 days after receipt
                  -     Number in inventory not adjudicated


                                       48
<PAGE>

            Part #3. This will provide the following information on Clean Claims
            other than Inpatient and Drug:

                  -     Name of processing entity
                  -     Report includes information/knowledge available through
                        (Enter a Date)
                  -     Number received
                  -     Number paid within 30 days
                  -     Number denied within 30 days
                  -     Number paid 31 - 45 days
                  -     Number denied in 31 - 45 days
                  -     Number paid in 46 - 90 days
                  -     Number denied in 46 - 90 days
                  -     Number paid more than 90 days after receipt
                  -     Number denied more than 90 days after receipt
                  -     Number in inventory not adjudicated

            Part #4. This will provide the following information on all Claims
            other than Inpatient and Drug:

                  -     Name of processing entity
                  -     Report includes information/knowledge available through
                        (Enter a Date)
                  -     Number received
                  -     Number paid within 30 days
                  -     Number denied within 30 days
                  -     Number paid in 31 - 45 days
                  -     Number denied in 31 - 45 days
                  -     Number paid in 46- 90 days
                  -     Number denied in 46- 90 days
                  -     Number paid more than 90 days after receipt
                  -     Number denied more than 90 days after receipt
                  -     Number in inventory not adjudicated

            Part #5. This will provide the following summary information on Fee
            for Service Provider Payments made on each day of the month:

                  -     Name of processing entity
                  -     Amount paid
                  -     Number of checks mailed or electronic payments made
                  -     Date or dates checks created
                  -     Number days elapsed from check creation to check mailing
                        date

            Part #6. This will provide the following summary information on


                                       49
<PAGE>

            Subcapitation payments made on each day of the month:

                  -     Name of processing entity
                  -     Amount paid
                  -     Number of checks mailed or electronic payments made
                  -     Statement provided by the plan that payments were made
                        in accordance with subcontractor arrangement

            The report is due on the 5th calendar day of the second subsequent
            month.

      D.    Sanctions

            Failure to submit a claims processing report timely that is accurate
            and fully compliant with the reporting requirements will result in
            the following penalties: $150 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.

            The Department will utilize the monthly report that is due July 5,
            2001, to determine claims processing penalties for January 2001. The
            Department will utilize the monthly report that is due August 5,
            2001, to determine claims processing penalties for February 2001,
            etc.

            All claims received during the month for which a penalty is being
            computed, that remain unadjudicated at the time the sanction is
            being determined, will be counted as clean.

            If a Commonwealth audit, or an audit required or paid for by the
            Commonwealth, determines timeliness data that are different than
            data submitted by the PH-MCO, or if the PH-MCO has not submitted
            required claims processing data, the Department will use the audit
            results to determine the penalty amount.

            The penalties included in the charts below will apply separately to:

                  (1)   Inpatient Claims
                  (2)   Claims other than inpatient and drug.

            Penalties in the charts below will be reduced by one-third if the
            PH-MCO has 25,000-50,000 program recipients. Penalties in the charts
            below will be reduced by two-thirds if the PH-MCO has less than
            25,000 program recipients.


                                       50
<PAGE>

                   --------------------------------------------
                   Percentage of Clean Claims           Penalty
                   Adjudicated in 30 Days
                   --------------------------------------------
                   80.0 - 89.9                          $2,000
                   --------------------------------------------
                   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           Penalty
                   Adjudicated in 45 Days
                   --------------------------------------------
                   90.0 - 99.9                          $2,000
                   --------------------------------------------
                   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
                   --------------------------------------------
                   90.0 - 99.9                          $2,000
                   --------------------------------------------
                   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
                   --------------------------------------------

8.3   Member Cost Sharing and Third Party Liability

      A.    General

            The Contractor will comply with the procedures implemented by the
            Department with regard to Member Cost Sharing and Third Party
            Liability as set forth in Section II.P of the RFP. The Contractor
            will also comply with the following revisions to current Third Party
            Liability language in the RFP.

      B.    Third Party Liability (TPL)

            Under Section 1902(a)(25) of the Social Security Act, the Department
            is required to take all reasonable measures to identify legally
            liable third


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            parties and treat verified TPL as a resource of the MA consumer. The
            Department's TPL Section is responsible to ensure that the
            Commonwealth is the payor of last resort when third party resources
            are available to cover the costs of medical services provided to MA
            consumers. When the Department becomes aware of these resources
            prior to paying for medical services, it will generally avoid
            payment by rejecting a provider's claim and directing the provider
            to bill the appropriate insurance carrier. When the Department
            becomes aware of payments made on behalf of consumers who have valid
            third party resources, the Department will pursue post-payment
            recovery from liable parties. Under this Agreement, the
            responsibilities of The Department will be allocated between the
            parties.

            (1)   Cost Avoidance Activities

                  (a)   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) plans, and workers
                        compensation. The Contractor will 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 Commonwealth via encounter data submissions and
                        financial report 8 A-D. The use of the COB flag,
                        Medicare fields, and the Other Insurance Paid (OIP)
                        field will indicate that TPL has been pursued and the
                        amount which has been cost-avoided. The Contractor will
                        not be held responsible for any TPL errors in the
                        Department's EVS or the Department's TPL file.

                  (b)   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.

                  (c)   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


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<PAGE>

                        delay payment nor deny payment of claims unless the
                        probable existence of third party liability is
                        established at the time the claim is filed.

            (2)   Post-Payment Recoveries

                  (a)   Post-payment recoveries are categorized by (a)
                        health-related insurance resources and (b) other
                        resources. Health-related insurance coverage are ERISA
                        health benefit plans, Blue Cross/Blue Shield subscriber
                        contracts, Medicare, private health insurance, workers
                        compensation, and health insurance contracts. The term
                        "other resources" means all other resources and
                        includes, 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.

                  (b)   The Department's TPL Section retains the sole and
                        exclusive right to pursue, collect, and retain all
                        "other resources" as defined in paragraph B(2)(a) above.
                        Any correspondence or inquiry forwarded to the
                        Contractor (by an attorney, provider of service,
                        insurance carrier, etc.) relating to 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 consumer and the services
                        which were provided, must be immediately forwarded to
                        the Department's TPL Section. Those funds recovered by
                        the Commonwealth under the scope of these "other
                        resources" will be retained by the Commonwealth.

                        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 will be assessed
                        against the Contractor. The Department's actual loss of
                        recovery will not include The attorney's fees or other
                        costs which would not have been retained by the
                        Department.

                  (c)   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


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<PAGE>

                        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 will notify the Department if
                        action to recover has been initiated by the Contractor.
                        In such cases, the Contractor will retain exclusive
                        responsibility for the cases while they are being
                        actively pursued.

                        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, the amount of the unrecoverable claim
                        will be assessed against the Contractor.

                  (d)   As part of its authority under paragraph (c), 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.

      C.    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
            will use its best efforts to provide this information within fifteen
            (15) calendar days of the Department's request at no expense to the
            Department. 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
            will be maintained as required by federal and state regulations.

      D.    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 will


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<PAGE>

            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. As the office responsible for the maintenance and
            quality assurance of the records stored on the TPL database, the
            Department's TPL Section will use these submissions for subsequent
            updates to the system.

      E.    Accessibility to TPL Data

            The Department will provide the Contractor will accessibility to
            data maintained on the TPL file.

      F.    Estate Recovery

            The Estate Recovery Program (Act 49) 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:

            (1)   Public or private nursing facility services;

            (2)   Residential care at home or in a community setting; or

            (3)   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 Program is solely
            responsible for administering the Estate Recovery Program.

8.4   Risk Moderation

      A.    Reinsurance

            (1)   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.


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<PAGE>

            The Contractor may not change or discontinue the reinsurance
            arrangement without prior approval from the Department, which
            approval will not be unreasonably withheld. The Contractor must
            notify the Department forty-five (45) days prior to any change in
            the reinsurance arrangement. The Department reserves the right to
            review such risk protection arrangements and require changes based
            on the Department's reasonable assessment of the Contractor's
            overall financial condition.

            The Department may require the Contractor to comply with a lower
            reinsurance threshold requirement of $15,000 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 three (3)
                  years; or,

            (b)   The Contractor's SAP basis equity is less than five percent
                  (5%) 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
                  Department of Insurance; or,

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

      (2)   Equity Requirements and Insolvency Protection

            The Contractor shall meet, during the term of the Agreement, the
            equity requirements set forth below. The Contractor will comply with
            all financial requirements included in this Agreement, and the RFP
            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 reasonable assessment of the Contractor's overall
            financial condition.

            Each Contractor shall 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.


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<PAGE>

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

            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 the
            Department of Insurance (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.

            Not later than March 15, May 15, August 15, and November 15 of each
            contract year, the Contractor shall provide the Department with
            reports as specified by the Department.

            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.

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

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

      (3)   Secondary Liability

            The Contractor must submit an acceptable plan to provide for payment
            to providers by a secondary liable party after a default in payment
            to providers resulting from bankruptcy or insolvency. The secondary
            liability must insure 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.


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<PAGE>

            (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 a
                  default in payment resulting from bankruptcy or insolvency.

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

      B.    Surety Bonds

            Should HCFA issue any requirements regarding surety bonds pursuant
            to Section 1861 (o)(7) of the Balanced Budget Act, the Contractor
            will be required to comply on the effective date determined by HCFA.

8.5   Restitution

      The Contractor will 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 or by the Department.

8.6   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.

8.7   Payments to Out-of-Network Providers that are Located Outside the
      Commonwealth of Pennsylvania

      The Contractor may pay an out-of-network provider located outside the
      Commonwealth of Pennsylvania, the Pennsylvania MA FFS reimbursement amount
      for the applicable service rendered.


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      SECTION 9: DURATION OF AGREEMENT AND RENEWAL

9.1   Initial Term

      This Agreement shall be effective upon execution by the parties. This
      Agreement shall have an initial term of three (3) years commencing on
      January 1, 1997 (the "Initial Term"), unless sooner terminated in
      accordance with Section 10 hereof; 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 the Agreement.

9.2   Renewal

      The Department shall have the option to renew the Agreement for two (2)
      additional one (1) year periods 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 or any
      renewal term as to whether it wishes to renew the Agreement.

      A.    If the Department exercises its option to renew this Agreement, rate
            negotiations will commence promptly after notice of the same.

      SECTION 10: TERMINATION AND DEFAULT

10.1  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:

      A.    Termination for Convenience Upon Notice

            The Department may terminate this Agreement at any time for
            convenience upon giving one hundred twenty (120) days prior written
            notice to the Contractor. The effective date of the termination will
            be the last day of the month in which the 120th day falls.

      B.    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. "Cause" shall mean the following for
            the purposes of this Agreement:

            (1)   The Contractor defaults in the performance of any material
                  duties or obligations hereunder or is in material breach of
                  any provision of this


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                  Agreement; or

            (2)   The Contractor commits an act of theft or fraud against the
                  Department, any state agency, or the Federal Government; or

            (3)   An adverse material change in circumstances as described in
                  Section 5.3 above.

      C.    Termination Due to Unavailability of Funds/Approvals

            The Department may terminate this Agreement immediately upon the
            happening of any of the following events:

            (1)   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

            (2)   Notification that there will be an unavailability of funds
                  available for the HC-SE Program; or

            (3)   Notification that the federal approvals necessary to operate
                  the HC-SE Program will not be retained; or

            (4)   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
                  and will not be renewed.

10.2  Termination by the Contractor

      The Contractor may terminate this Agreement at any time upon giving one
      hundred twenty (120) days prior written notice to the Department. The
      effective date of the termination will be the last day of the month in
      which the 120th day falls.

10.3  Responsibilities of the Contractor Upon Termination or Expiration

      A.    Continuing Obligations

            Termination or expiration of this Agreement will 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 will not
            discharge the Department's payment obligations to the Contractor or
            the Contractor's payment obligations to its subcontractors.


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<PAGE>

      B.    Notice to Members

            In the event that this Agreement is terminated pursuant to Sections
            10.1 or 10.2 above, or expires without a new contract in place, the
            Contractor will 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 will be
            responsible for coordinating the continuation of care for members
            who are undergoing treatment for an acute condition.

      C.    Transition at Termination and/or Expiration of the 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 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 timeframes for submission.

      SECTION 11: RECORDS

11.1  Financial Records Retention

      A.    The Contractor will maintain and will 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 II.S. of the RFP.

      B.    The Contractor agrees further to submit to the Department or to the
            Secretary of Health and Human Services or their designees, within
            thirty-five (35) days of request, information related to the
            Contractor's business transactions which are related to the
            provision of services for the HC-SE Program pursuant to this
            Agreement which will include full and complete information
            regarding:


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            (1)   The Contractor's ownership of any subcontractor with whom the
                  Contractor has had business transactions totaling more than
                  $25,000 during the 12-month period ending on the date of the
                  request; and

            (2)   Any significant business transactions between the Contractor
                  and any wholly-owned supplier or between the Contractor and
                  any subcontractor during the five-year period ending on the
                  date of the request.

      C.    The Contractor agrees to include the requirements set forth at
            Section 11.1.A. and B. in all contracts and agreements it enters
            with subcontractors under the HC-SE Program, and to ensure that all
            persons and/or entities with whom it so contracts agree to comply
            with said provisions.

11.2  Operational Data Reports

      The Contractor will maintain and shall cause its subcontractors to
      maintain all source records for data reports in accordance with the
      procedures specified in Section II.S. of the RFP.

11.3  Medical Records Retention

      The Contractor will maintain and will cause its subcontractors to maintain
      all medical records in accordance with the procedures outlined in Section
      II.S. of the RFP.

11.4  Review of Records

      A.    The Contractor will make all records relating to the HC-SE Program,
            including but not limited to, the records referenced in this
            Section, available for audit, review, or evaluation by the
            Department, its designated representatives or federal agencies. Such
            records will 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 will, to the
            extent required by law, maintain as confidential any confidential
            information provided by the Contractor.

      B.    In the event that the Department, its designated representatives, 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, 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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<PAGE>

      SECTION 12: SUBCONTRACTUAL RELATIONSHIPS

12.1  Ability to Subcontract

      In fulfilling its obligations hereunder, the Contractor will have 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 will not diminish or alter the Contractor's
      responsibilities under this Agreement.

12.2  Compliance with Program Standards

      As part of its contracting or subcontracting, with the exception of
      Provider agreements which are outlined in Section 7.1.M., the Contractor
      agrees that it will strictly comply with the procedures set forth in
      Section II.R of the RFP (including Appendices U-W of the RFP).

      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 the RFP.

      The Contractor will 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 E. In addition, all contracts or
      subcontracts that provide 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 17.6 of this Agreement 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 2 of
            this Agreement.

      (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 its subcontractors process each request
            for benefits and inform the member 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 hours of receiving the request for benefits. If the
            Contractor requests additional information, the request may be
            pended for a reasonable time period, not to exceed two (2) business
            days after the additional information is received, in accordance
            with guidelines established by the Department.

      (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 will 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 12.2 of this Agreement. 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 17.6 of this Agreement.

12.3  Consistency with Policy Statements

      The Contractor agrees that its contracts with all providers will be
      consistent, as


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      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)).

12.4  Compliance with Rule on Physician Incentive Arrangements

      The Contractor agrees that its contracts with all providers will be in
      compliance with the Final Rule regarding Physician Incentive Arrangements
      which was issued by HCFA on March 27, 1996. (61 Fed. Reg. 13430
      (03/27/96)), and as amended from time to time.

      SECTION 13: QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT PROGRAM

13.1  The Contractor agrees to fully comply with the Department's and Quality
      Management and Utilization Management Program standards as set forth in
      Exhibit G.

13.2  The Contractor must provide to the Department its written policies and
      procedures governing quality management and utilization management.

13.3  The Contractor must have formal contracts or employment arrangements in
      place for physician reviewers. The Contractor is required to obtain the
      signature of a licensed physician on any letter denying or approving a
      service as medically necessary.

13.4  The Contractor will cooperate fully with any external evaluations and
      assessments of its performance under this Agreement authorized by the
      Department. Independent assessments will include, but not be limited to,
      any independent evaluation required or allowed by federal or state statute
      or regulations by the Department. The Contractor will also cooperate fully
      with all external medical audit reviews that assess the Contractor's
      quality of care.

13.5  The Contractor will not discriminate with respect to participation,
      reimbursement, or indemnification 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 will not be
      construed to prohibit the Contractor 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 control costs
      consistent with the responsibilities of the organization.

13.6  In accordance with the Balanced Budget Reconciliation Act of 1997, Section
      4707, the Contractor must verify, as part of its
      credentialing/recredentialing process, that each physician in its provider
      network have a Unique Physician Identifier Number (UPIN) assigned by the
      system established under Section 1173(b) of the Social


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      Security Act.

      SECTION 14: COMPLAINT, GRIEVANCE AND FAIR HEARING PROCESS

14.1  Member Complaint, Grievance and Fair Hearing Process

      A.    The Contractor shall develop, implement, and maintain a complaint
            and grievance process that provides for settlement of members'
            complaints and grievances and a process for fair hearing requests as
            outlined in Exhibit M of this Agreement, Complaints, Grievances, and
            Fair Hearing Process. The Contractor must have written policies and
            procedures approved by the Department, for resolving member
            complaints and for processing grievances and fair hearing requests,
            that meet the requirements established by the Department and the
            provisions of the Insurance Company Law of 1921 amended by the Act
            of June 17, 1998 (P.L. 464, No. 68) (40 P.S. sections
            991.2101-991.2361) known as Act 68 and corresponding Act 68
            regulations and 42 CFR 431.200 et seq. of the Federal Regulations.
            The Contractor must also comply with 55 Pa. Code Chapter 275
            regarding DPW Fair Hearing Requests.

      B.    The Contractor will cause each of its subcontractors to comply with
            the Member Complaint, Grievance, and Fair Hearing Process. This
            includes reporting requirements established by the Contractor and
            which has received advance written approval by the Department.

      C.    The Contractor must provide to the Department its written procedures
            governing the Complaint, Grievance and Fair Hearing Process. The
            standard notices required and outlined in Exhibit M of this
            Agreement must be used in the Contractor's Complaint, Grievance and
            Fair Hearing Process and must be in accessible formats for
            individuals with vision impairments. In addition, the notices 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 and
            Insurance where a member has sought an external appeal of a
            complaint. The Contractor must abide by the final decision of the
            Department of Health's assigned utilization review entity and the
            Department's Bureau of Hearings and Appeals.

      D.    During all phases of the Contractor grievance process, the member
            has the right to request a fair hearing with the Department.


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<PAGE>

14.2  Clinical Sentinel

      The Contractor agrees to cooperate with the functions of the Department's
      Clinical Sentinel which is to address clinical and medical issues raised
      by MA consumers and should not include issues unrelated to the coverage of
      medical services under the HealthChoices Program.

14.3  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 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 (1/4th) 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. and
      the regulations


                                       67
<PAGE>

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

      SECTION 15: CONFIDENTIALITY

15.1  The Contractor will comply with all applicable federal and state laws
      regarding the confidentiality of medical records. The Contractor will also
      cause each of its subcontractors to comply with all applicable federal and
      state laws regarding the confidentiality of medical records. The
      Contractor will comply with Standard XVII of Exhibit G regarding
      maintaining confidentiality of data. The federal and state laws with
      regard to confidentiality of medical records included, 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); 62 P.S. 404(a); 55 Pa. Code 105.1 et seq.; and 42 C.F.R.
      431.300.

15.2  The Contractor will 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.

15.3  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.

15.4  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 will
      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.

15.5  The Contractor is entitled to receive all information relating to the
      health status of its members, in accordance with applicable
      confidentiality laws.

      SECTION 16: INDEMNIFICATION AND INSURANCE

16.1  Indemnification

      A.    The Contractor will indemnify and hold the Department and the


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<PAGE>

            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
            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.

      B.    The Contractor will 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 will
            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 will be due from the Contractor upon notice from the
            Department. The indemnification provision hereunder will 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 will survive
            any termination or cancellation of this Agreement.

16.2  Insurance

      The Contractor will 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 will 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 will provide to the
      Department, upon the Department's request, certificates evidencing such
      insurance coverage.

      SECTION 17: REPORTS

17.1  General Obligations

      The Contractor will furnish the Department with such reports as may be
      requested by the Department in writing in the manner, form, and time
      periods specified by the Department. Where appropriate and for good cause
      shown, the Department may provide the Contractor a reasonable extension of
      time in which to comply with said reporting requirements. To the extent
      possible, the Department shall provide


                                       69
<PAGE>

      reasonable advance notice of such reports.

17.2  GA Data Reporting

      General Assistance (GA) data reporting will be in the format prescribed by
      the Department and must be submitted to the Department electronically each
      month. The GA file will include data on claims paid by the Contractor
      during the month for admissions to acute care hospitals and rehabilitation
      hospitals. The file must include all applicable payments made for services
      provided to state-only GA consumers, including services paid for by a
      subcontractor or via a subcapitation arrangement. If the Contractor pays
      for applicable services via a subcapitation arrangement, it must submit
      its plan for such arrangement to the Department sixty (60) calendar days
      before the due date of the file that will contain subcapitation data.

17.3  Financial Reporting Requirements

      The Contractor will furnish all financial reports in the time and manner
      prescribed by the Department. Financial reports will be submitted on the
      Financial Reporting Requirement Forms that will be issued to the
      Contractor by the Department. The end-of-year quarterly financial reports
      will be due to the Department by March 10 of the following year.

17.4  EPSDT Reports

      The Contractor must submit EPSDT reports in the time and manner prescribed
      by the Department. The Contractor will be responsible for maintaining
      appropriate systems and mechanisms to obtain all necessary 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 data will not excuse the Contractor's
      compliance with this requirement.

17.5  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 will be
      required to provide the information necessary to meet these reporting
      requirements.

17.6  Encounter Data Reports

      The Contractor must submit a separate record, or "pseudo claim", each time
      a member has an encounter with a provider. The Contractor will be
      responsible for maintaining appropriate systems and mechanisms to obtain
      all necessary data


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<PAGE>

      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 necessary encounter data will not
      excuse the Contractor's compliance with this requirement.

      Effective on a date to be determined by the Department, the Contractor
      must submit a separate subcapitation record 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.

      All providers operating within the Contractor's provider network who
      provide services to MA consumers must be enrolled in the Department's MA
      Program and possess an active Medical Assistance Identification (MAID)
      number. This identification number must be used when submitting required
      encounter data.

      A.    Data Format

            The PH-MCO must submit encounter and subcapitation data
            electronically over POSNet using file transfer protocol. The PH-MCO
            must conform to the requirements specified in the Requirements and
            Specifications Manual for Encounter Data. The Department may limit
            each PH-MCO to one (1) Initial file and one (1) Correction file per
            state business day.

      B.    Timing of Data Submittal

            Claims must be submitted by providers to the PH-MCO within 180 days
            after the date of service. It is acceptable for the PH-MCO to
            include a requirement for more prompt submissions of claims or
            encounter forms in provider subcontracts. Claims adjudicated by a
            third party vendor must be provided to the PH-MCO by the end of the
            month following the month of adjudication.

            Encounter records are due to the Department by 6:00 p.m. (ET) on the
            last day of the third month following the PH-MCO
            Payment/Adjudication month. For example, encounters with a PH-MCO
            Payment/Adjudication month of June 2001 are due to the Department by
            September 30, 2001.

            Correct subcapitation data must be submitted to the Department
            within thirty (30) days after the end of the month of the
            subcapitation payment data.


                                       71
<PAGE>

      C.    Data Completeness

            The Department expects to use Encounter and Subcapitation Data to
            monitor access to care, quality of care, set future capitation
            premium rates, and for other reasons. This will require complete and
            accurate data. The Department is anticipating receiving one hundred
            percent (100%) of actual member encounters.

      D.    MA Consumers Medical Information

            The PH-MCO must provide an MA consumer's medical records to the
            Department within fifteen (15) days of the Department's request.

      E.    Financial Penalties

            The PH-MCO is required to provide complete, accurate, and timely
            encounter data to the Department, and to maintain complete medical
            records. The Department may withhold capitation premiums as
            reimbursement for financial penalties assessed. Financial Penalties
            will 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 N.

      F.    Data Validation

            The PH-MCO must agree to assist the Department in its validation of
            utilization data by making available medical records and a sample of
            its claims data. The validation may be completed by Department staff
            and independent, external review organizations.

      G.    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 the Contractor identifies
            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


                                       72
<PAGE>

            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.

            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. (See Medicaid
            HEDIS specifications in Exhibit O of this Agreement, HEDIS.)

17.7  Sanctions

      A.    The Department may impose sanctions for non-compliance with any
            requirements under this Agreement. The sanctions which can be
            imposed will depend on the nature and severity of the breach, which
            the Department, in its reasonable discretion, will determine as
            follows:

            (1)   Imposing civil monetary penalties of a minimum of $1,000.00
                  per day for non-compliance up to the maximum limits as
                  described in the Balanced Budget Act of 1997, amending Section
                  1932(e) of the Social Security Act;

            (2)   Requiring the submission of a corrective action plan;

            (3)   Limiting enrollment of new MA consumers;

            (4)   Suspension of payments;

            (5)   Temporary management subject to applicable federal or state
                  regulations; or

            (6)   Termination of the Agreement.

      B.    In any case where this Agreement provides for a specific sanction
            for a defined infraction, the Department will first apply the
            specific sanction provided for the non-compliance before applying
            any of the general sanctions set forth in Section 17.7A. Specific
            sanctions contained in this Agreement include the following:

            (1)   Claims Processing: Sanctions related to claims processing are
                  provided in Section 8.2.

            (2)   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


                                       73
<PAGE>

                  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 will equal the
                  number of days that elapse between the fifth calendar day
                  after 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 this Agreement. No reduction for
                  lateness will be made if a report or file is received within
                  five (5) calendar days after the due date. If the Contractor
                  provides a report, or file on or before the due date or within
                  five (5) days after 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 will apply to the 16th day
                  after the due date through the date that the Department
                  notifies the Contractor. A penalty may not be applied under
                  this Section if a penalty is applied for the same deficiency
                  under the first paragraph of this Section 17.7.

            (3)   Encounter Data Reporting: The penalty for late reporting of
                  encounter data is set forth in Section 17.6 and Exhibit N.

            (4)   Marketing: The sanctions for engaging in unapproved marketing
                  practices are set forth in Section 7.1.D.(5) of this
                  Agreement.

            (5)   Access Standard: The sanction for non-compliance with the
                  access standard is set forth in Section 6. 1.B(4) of this
                  Agreement.

      C.    Nonduplication of Financial Penalties

            If the Department assesses a financial penalty pursuant to one of
            the provisions of Section 17.7.B, it will not impose a financial
            sanction pursuant to Section 17.7.A (1) with respect to the same
            infraction.

      SECTION 18: DISPUTES

18.1  In the event that a dispute arises between the parties relating to any
      matter regarding this Agreement, the Contractor will send written notice
      to the Contracting Officer for this Agreement, who will make a
      determination in writing of his/her interpretation and will send the same
      to the Contractor within thirty (30) days of the Contractor's written
      request for same. That interpretation will 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
      Contractor consents to extend the time for disposition by the Secretary,
      the decision of the Secretary will be released within thirty (30) days of
      the Contractor's written appeal and will be


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<PAGE>

      final, conclusive, and binding, and the Contractor will thereafter with
      good faith and diligence, render such performance in compliance with the
      Secretary's determination; subject to the provisions of ss.18.2 below.
      Notice of initial level dispute will be sent to:

                                Ms. Christine M. Bowser
                                Director, Bureau of Managed Care Operations
                                Room A-111, DPW Complex 2, Bldg. #33
                                P.O. Box 2675
                                Harrisburg, Pennsylvania 17105-2675

18.2  All claims against the Department relating to any matter regarding this
      Agreement may be filed by the Contractor in the Board of Claims (under the
      Act of May 20, 1937, PL. 728, as amended by Act of October 5, 1978, P.L.
      1104), but only after first complying with Section 18.1 above. Resolution
      of disputes under the provision must occur prior to any final payment of a
      disputed amount to the Contractor.

      SECTION 19: 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 will cause its employees and all providers with whom it
      subcontracts 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, will 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 will have the right to terminate this Agreement upon ten (10)
      days written notice to the Contractor.

      SECTION 20: GENERAL

20.1  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 Medical Assistance Program of another state or from
      the Medicare Program, the Contractor will promptly notify the Department,
      in writing, of such suspension or termination.

      No payment shall be made to any health care practitioner 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


                                       75
<PAGE>

      Medical Assistance Program of this or another state, or the Medicare
      Program.

20.2  Rights of the Department and the Contractor

      The rights and remedies of the Department provided herein will not be
      exclusive and are in addition to any rights and remedies provided by law.

      Except as otherwise stated in Section 18, the rights and remedies of the
      Contractor provided herein will not be exclusive and are in addition to
      any rights and remedies provided by law.

20.3  Waiver

      No waiver by either party of a breach or default of this Agreement will be
      considered as a waiver of any other or subsequent breach or default.

20.4  Invalid Provisions

      Any provision of this Agreement which is in violation of any state or
      federal law or regulation will 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 will be renegotiated
      by the parties. The invalidity or nonenforceability of any terms or
      provisions hereof will in no way affect the validity or enforceability of
      any other terms or provisions hereof.

20.5  Governing Law

      This Agreement shall be governed by and construed in accordance with the
      laws of the Commonwealth of Pennsylvania.

20.6  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 18.1 above, will be given in
      writing by certified mail, communication charges prepaid, to the party to
      be notified. All communications will 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:


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<PAGE>

                   To the Department:

                         Department of Public Welfare
                         Office of Medical Assistance Programs
                         Bureau of Managed Care Operations
                         Room A-111, Cherry Wood Building
                         Harrisburg State Hospital
                         Harrisburg, Pennsylvania 17110

                  With a Copy to:

                         Department of Public Welfare
                         Office of Legal Counsel
                         305 Health and Welfare Building
                         Harrisburg, Pennsylvania 17120
                         Attention: Chief Counsel

                   To the Contractor:

                         Mr. Luis A. Rosa, Acting President
                         OakTree Health Plan
                         1818 Market Street, 19th Floor
                         Philadelphia, PA 19106

                         Thomas P. Clark, CFO
                         HRM, Inc.
                         10900 Hampshire Avenue South
                         Minneapolis, MN 55438-2306

20.7  Counterparts

      This Agreement may be executed in counterparts, each of which will be
      deemed an original for all purposes, and all of which, when taken together
      will constitute but one and the same instrument.

20.8  Headings

      The section headings used herein are for reference and convenience only,
      and will not enter into the interpretation of this Agreement.

20.9  Assignment

      Neither this Agreement nor any of the parties' rights hereunder will be
      assignable by either party hereto without the prior written consent of the
      other party hereto, which consent will not be unreasonably withheld.


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<PAGE>

20.10 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.

20.11 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
      will 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 will 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.


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<PAGE>

--------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officials thereunto duly authorized.
--------------------------------------------------------------------------------
HRM Health Plans (PA), Inc. d/b/a OakTree Health Plan
--------------------------------------------------------------------------------

<TABLE>
<S>                                <C>                               <C>
      /s/ Luis A. Rosa                   /s/ Thomas P. Clark               /s/ Luis A. Rosa
-----------------------------      -----------------------------     -----------------------------
          Signature                          Signature                         Signature

--------------------------------------------------------------------------------------------------


-----------------------------      -----------------------------     -----------------------------
 Print or Type Name & Title         Print or Type Name & Title        Print or Type Name & Title

Luis A. Rosa, Acting President         Thomas P. Clark, CFO
</TABLE>

--------------------------------------------------------------------------------
ATTEST: Signature at County Legal      Department of General Services, Secretary
Counsel (When Required)                (When Required)


----------------------------------     ----------------------------------
          SIGNATURE                                SIGNATURE

--------------------------------------------------------------------------------

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PROGRAM DEPUTY SECRETARY DEPARTMENT OF PUBLIC WELFARE


                              /s/ Margaret Dierkers
         --------------------------------------------------------------
                                   SIGNATURE
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
COMPTROLLER - DEPARTMENT OF PUBLIC WELFARE
I hereby certify that funds in the amount shown are available under Appropriate
Symbols shown.
--------------------------------------------------------------------------------
    AMOUNT          SOURCE          APPROPRIATION SYMBOL            PROGRAM
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                           See attached Rate Schedule
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------


                              /s/ Patrick J. Kelly           12/4/00
         --------------------------------------------------------------
                                   SIGNATURE
--------------------------------------------------------------------------------
Approved as to Legality and Form


/s/ John Kane               /s/ R.E. Grimaldi              /s/ John A. F. Hall
----------------------      -----------------------      -----------------------
Chief Counsel -             Deputy General Counsel -     Deputy Attorney General
  Department of               Office of General            - Office of Attorney
  Public Welfare              Counsel                      General
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
SECRETARY - DEPARTMENT OF PUBLIC WELFARE
for

                               /s/ Robert H. Endy
         --------------------------------------------------------------
                                   SIGNATURE
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--------------------------------------------------------------------------------
Other Signatures as Required with Title         COMPTROLLER FOR BUDGET SECRETARY


                                                             N/A
---------------------------------------         --------------------------------
             SECRETARY                                     SECRETARY
--------------------------------------------------------------------------------