<PAGE>

                                                                    EXHIBIT 10.8


                        HEALTHCHOICES SOUTHEAST AGREEMENT
                            EFFECTIVE OCTOBER 1, 2001

                                TABLE OF CONTENTS

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<S>                                                                                                              <C>
SECTION I:  INCORPORATION OF DOCUMENTS..............................................................................1

         A.       Operative Documents...............................................................................1

SECTION II:  DEFINITIONS............................................................................................1

AGREEMENT AND RFP ACRONYMS:........................................................................................21

SECTION III:  RELATIONSHIP OF PARTIES..............................................................................24

         A.       Basic Relationship...............................................................................24
         B.       Nature of Contract...............................................................................24

SECTION IV:  APPLICABLE LAWS AND REGULATIONS.......................................................................24

         A.       Certification and Licensing......................................................................24
         B.       Specific to MA Program...........................................................................25
         C.       General Laws and Regulations.....................................................................25
         D.       Limitation on the Department's Obligations.......................................................26

SECTION V:  PROGRAM REQUIREMENTS...................................................................................26

         A.       In-Plan Services.................................................................................26
                  1.    Amount, Duration and Scope.................................................................26
                  2.    Program Exceptions.........................................................................27
                  3.    Expanded Benefits..........................................................................27
                  4.    Referrals..................................................................................28
                  5.    Self Referral/Direct Access................................................................28
                  6.    Behavioral Health Services.................................................................29
                  7.    Pharmacy Services..........................................................................29
                  8.    EPSDT Services.............................................................................33
                  9.    Emergency Room (ER) Services...............................................................33
                  10.    Post-Stabilization Services...............................................................34
                  11.    Examinations to Determine Abuse or Neglect................................................34
                  12.    Hospice Services..........................................................................35
                  13.    Organ Transplants.........................................................................35
                  14.    Transportation............................................................................35
                  15.    Waiver Services/State Plan Amendments.....................................................36
                  16.    Nursing Facility Services.................................................................37
         B.       Prior Authorization of Services..................................................................38
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<S>                                                                                                              <C>
                  1.    General Prior Authorization Requirements...................................................38
                  2.    Prior Authorization for Outpatient Prescription Drugs......................................39
         C.       Continuity of Care...............................................................................41
         D.       Coordination of Care.............................................................................41
                  1.    Nursing Facility Care......................................................................41
                  2.    Special Services...........................................................................42
                  3.    Out-of-Plan Services.......................................................................42
                  4.    Coordination of Care/Letters of Agreement..................................................43
                  5.    PH-MCO and BH-MCO Coordination.............................................................44
         E.       Contractor Responsibility for Reportable Conditions..............................................45
         F.       Member Enrollment and Disenrollment..............................................................45
                  1.    General....................................................................................45
                  2.    Contractor Outreach Materials..............................................................46
                  3.    Contractor Outreach Activities.............................................................47
                  4.    Alternative Language Requirement...........................................................50
                  5.    Contractor Enrollment Procedures...........................................................50
                  6.    Enrollment of Newborns.....................................................................51
                  7.    Transitioning Members Between PH-MCOs......................................................51
                  8.    Change in Status...........................................................................51
                  9.    Monthly Membership.........................................................................52
                  10.    Enrollment and Disenrollment Updates......................................................52
                  11.    Services for New Members..................................................................53
                  12.    New Member Orientation....................................................................54
                  13.    Eligibility Verification System (EVS).....................................................54
                  14.    Contractor Identification Cards...........................................................55
                  15.    Member Handbook...........................................................................55
                  16.    Provider Directories......................................................................56
                  17.    Member Disenrollment......................................................................57
         G.       Member Services..................................................................................57
                  1.    General....................................................................................57
                  2.    Contractor Internal Member Dedicated Hotline...............................................57
                  3.    Education and Outreach Health Education Advisory Committee.................................58
                  4.    Informational Materials....................................................................59
                  5.    Member Encounter Listings..................................................................60
         H.       Additional Addressee.............................................................................61
         I.       Member Complaint, Grievance and DPW Fair Hearing Process.........................................61
                  1.    Member Complaint, Grievance and DPW Fair Hearing Process...................................61
                  2.    DPW Fair Hearing Process for Members.......................................................62
         J.       Clinical Sentinel................................................................................63
         K.       Provider Dispute Resolution System...............................................................63
         L.       Certification of Authority.......................................................................64
         M.       Executive Management.............................................................................64
         N.       Other Administrative Components..................................................................66
         O.       Administration...................................................................................67
                  1.    Responsibility to Employ MA Consumers......................................................68
                  2.    Recipient Restriction Program..............................................................68
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                                                                              ii

<PAGE>

<TABLE>
<S>                                                                                                              <C>
                  3.    Contracts and Subcontracts.................................................................68
                  4.    Lobbying Disclosure........................................................................69
                  5.    Records Retention..........................................................................69
                  6.    Fraud and Abuse............................................................................70
                  7.    Information Systems and Encounter Data.....................................................72
                  8.    Department Access and Availability.........................................................74
         P.       Special Needs Unit (SNU).........................................................................74
                  1.    Establishment of Special Needs Unit........................................................74
                  2.    Special Needs Coordinator..................................................................76
                  3.    Responsibilities of Special Needs Unit Staff...............................................76
         Q.       Assignment of PCPs...............................................................................76
         R.       Provider Services................................................................................78
                  1.    Provider Manual............................................................................79
                  2.    Provider Education.........................................................................79
         S.       Provider Network/Services Access.................................................................80
                  1.    Network Composition........................................................................80
                  2.    Provider Agreements........................................................................85
                  3.    Cultural Competence........................................................................88
                  4.    Primary Care Practitioner (PCP) Responsibilities...........................................88
                  5.    Specialists as PCPs........................................................................89
                  6.    Any Willing Pharmacy.......................................................................90
                  7.    Hospital Related Party.....................................................................90
                  8.    Mainstreaming..............................................................................90
                  9.    Network Changes............................................................................91
                  10.    Other Provider Enrollment Standards.......................................................92
                  11.    Twenty-Four Hour Coverage.................................................................93
                  12.    Appointment Standards.....................................................................93
                  13.    Policies and Procedures for Appointment Standards.........................................96
                  14.    Compliance With Access Standards..........................................................96
         T.       QM and UM Program Requirements...................................................................97
                  1.    Overview...................................................................................97
                  2.    General....................................................................................97
                  3.    Additional Utilization Management Program Requirements.....................................98
                  4.    Healthplan Employer Data Information Set (HEDIS)...........................................99
                  5.    External Quality Review (EQR)..............................................................99
                  6.    QM/UM Program Reporting Requirements......................................................100
                  7.    Collaboration Between Contractor QM and UM Departments and Special Needs Units............101
                  8.    Delegated Quality Management and Utilization Management Functions.........................101
                  9.    Consumer Involvement in the Quality Management and Utilization Management Programs........101
                  10.    Confidentiality..........................................................................101
                  11.    Department Oversight.....................................................................102

SECTION VI:  PROGRAM OUTCOMES AND DELIVERABLES....................................................................102
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                                                                             iii

<PAGE>

<TABLE>
<S>                                                                                                              <C>
SECTION VII:  FINANCIAL REQUIREMENTS..............................................................................103

         A.       Financial Standards.............................................................................103
                  1.    Risk Protection Reinsurance for High Cost Cases...........................................103
                  2.    Equity Requirements and Insolvency Protection.............................................104
                  3.    Secondary Liability.......................................................................105
                  4.    Limitation of Liability...................................................................106
                  5.    Medical Cost Accruals.....................................................................106
                  6.    Claims Processing and MIS.................................................................106
                  7.    DSH/GME Payment for Disproportionate Share Hospitals (DSH)/ Graduate Medical
                        Education (GME)...........................................................................107
                  8.    Member Liability..........................................................................107
         B.       Commonwealth Capitation Payments................................................................107
                  1.    Payments For In-Plan Services.............................................................107
                  2.    Maternity Care Payment....................................................................110
                  3.    Program Changes...........................................................................111
         C.       HIV/AIDS Risk Pool..............................................................................111
         D.       Claims Processing Standards, Monthly Report and Penalties.......................................111
                  1.    Timeliness Standards......................................................................111
                  2.    Sanctions.................................................................................113
                  3.    Physician Incentive Arrangements..........................................................115
                  4.    Retroactive Eligibility Period............................................................117
                  5.    In-Network Services.......................................................................117
                  6.    Payments for Out-of-Network Providers.....................................................117
                  7.    Payments to FQHCs and Rural Health Centers (RHCs).........................................118
                  8.    Liability During an Active Grievance or Appeal............................................118
                  9.    Financial Responsibility for Dual Eligibles...............................................118
                  10.    Third Party Liability (TPL)..............................................................119
                  11.    Health Insurance Premium Payment (HIPP) Program..........................................122
                  12.    Requests for Additional Data.............................................................122
                  13.    Accessibility to TPL Data................................................................123
                  14.    Damage Liability.........................................................................123
                  15.    Estate Recovery..........................................................................123
                  16.    Audits...................................................................................123
                  17.    Restitution..............................................................................123

SECTION VIII:  REPORTING REQUIREMENTS.............................................................................124

         A.       General.........................................................................................124
         B.       Systems Reports.................................................................................124
                  1.    Encounter Data and Subcapitation Data Reports.............................................124
                  2.    Federalizing GA Data Reporting............................................................127
                  3.    Third Party Resource Identification.......................................................127
         C.       Operations Reports..............................................................................128
                  1.    Continuous Quality Improvement............................................................128
                  2.    Federal Waiver Reporting Requirements.....................................................128
                  3.    Complaint, Grievance and DPW Fair Hearing Data............................................128
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                                                                              iv

<PAGE>

<TABLE>
<S>                                                                                                              <C>
                  4.    EPSDT Reports.............................................................................129
                  5.    Healthy Beginnings Plus Reporting.........................................................129
                  6.    Member Hotline Activities Report..........................................................130
                  7.    Fraud and Abuse...........................................................................130
                  8.    Provider Network..........................................................................130
                  9.    Provider Dispute Resolution System........................................................130
                  10.    Reports Submission Schedule..............................................................130
                  11.    HEDIS including CAHPS....................................................................131
                  12.    SERB.....................................................................................131
         D.       Financial Reports...............................................................................131
         E.       Equity..........................................................................................131
         F.       Claims Processing Reports.......................................................................132
         G.       Presentation of Findings........................................................................132
         H.       Reference Information...........................................................................132
         I.       Sanctions.......................................................................................133
         J.       Non-Duplication of Financial Penalties..........................................................134

SECTION IX:  REPRESENTATIONS AND WARRANTIES OF THE CONTRACTOR.....................................................134

         A.       Accuracy of Proposal............................................................................135
         B.       Disclosure of Interests.........................................................................135
         C.       Disclosure of Change in Circumstances...........................................................135
         D.       SERB Commitment.................................................................................136

SECTION X:  DURATION OF AGREEMENT AND RENEWAL.....................................................................136

         A.       Initial Term....................................................................................136
         B.       Renewal.........................................................................................137

SECTION XI:  TERMINATION AND DEFAULT..............................................................................137

         A.       Termination by the Department...................................................................137
                  1.    Termination for Convenience Upon Notice...................................................137
                  2.    Termination for Cause.....................................................................137
                  3.    Termination Due to Unavailability of Funds/Approvals......................................138
         B.       Termination by the Contractor...................................................................138
         C.       Responsibilities of the Contractor Upon Termination.............................................139
                  1.    Continuing Obligations....................................................................139
                  2.    Notice to Members.........................................................................139
                  3.    Submission of Invoices....................................................................139
                  4.    Failure to Perform........................................................................139
         D.       Transition at Expiration and/or Termination of Agreement........................................140

SECTION XII:  RECORDS.............................................................................................141

         A.       Financial Records Retention.....................................................................141
         B.       Operational Data Reports........................................................................142
         C.       Medical Records Retention.......................................................................142
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                                                                               v

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<TABLE>
<S>                                                                                                              <C>
         D.       REVIEW OF RECORDS...............................................................................142

SECTION XIII:  SUBCONTRACTUAL RELATIONSHIPS.......................................................................143

         A.       Compliance with Program Standards...............................................................143
         B.       Consistency with Policy Statements..............................................................144

SECTION XIV:  CONFIDENTIALITY.....................................................................................144


SECTION XV:  INDEMNIFICATION AND INSURANCE........................................................................145

         A.       Indemnification.................................................................................146
         B.       Insurance.......................................................................................146

SECTION XVI:  DISPUTES............................................................................................146


SECTION XVII:  FORCE MAJEURE......................................................................................147


SECTION XVIII:  GENERAL...........................................................................................148

         A.       Suspension From Other Programs..................................................................148
         B.       Rights of the Department and the Contractor.....................................................148
         C.       Waiver..........................................................................................148
         D.       Invalid Provisions..............................................................................148
         E.       Governing Law...................................................................................148
         F.       Expansion of the Zone...........................................................................149
         G.       Notice..........................................................................................149
         H.       Counterparts....................................................................................149
         I.       Headings........................................................................................150
         J.       Assignment......................................................................................150
         K.       No Third Party Beneficiaries....................................................................150
         L.       News Releases...................................................................................150
         M.       Entire Agreement: Modification..................................................................150
</TABLE>



                                                                              vi

<PAGE>


                                   APPENDICES

1--------HealthChoices RFP
2--------Proposal
3--------Capitated Rates
4--------Contractor Information
5--------Contractor SERB Committment


                               AGREEMENT EXHIBITS

A--------General Guidelines for Managed Care Regulatory Review
B--------HCFA Waiver Approval Letter
C--------HealthChoices Proposers' Library
D--------Standard Contract Terms and Conditions for Services
E--------DPW Addendum to Standard Contract Terms and Conditions
F--------Family Planning Services Procedures
G--------Drug Formulary Guidelines
H--------Prior Authorization Guidelines for Participating Managed Care
         Organizations
I--------Drug Utilization Review Guidelines
J--------EPSDT Guidelines
K--------Emergency Room Services
L--------Medical Assistance Transportation Program
M--------Reserved -- See M(1)
M(1)-----Quality Management and Utilization Management Program Requirements
M(2)-----External Quality Review
M(3)-----Quality Management/Utilization Management Deliverables
M(4)-----Health Plan Employer Data Information Set (HEDIS)
N--------Denial Notices
O--------Description of Special Services
P--------Out-of-Plan Services
Q--------Sample Model Agreement
R--------Coordination with BH-MCOs
S--------Written Agreements Between PH-MCO and Service Providers
T--------PH/BH Provider Agreements
U--------Behavioral Health Services
V--------Requirements Covering Medications Prescribed by PH-MCOs
W--------PH-MCO Guidelines for Outreach Materials
X--------HealthChoices PH-MCO Guidelines for Advertising, Sponsorships, and
         Outreach
Y--------Managed Care Enrollment/Disenrollment Dating Rules
Z--------Automatic Assignment
AA-------Category/Program Status Coverage Chart
BB-------HealthChoices PH-MCO Recipient Coverage Document
CC-------Data Support for PH-MCOs
DD-------HealthChoices PH-MCO Member Handbook
EE-------Automated Provider Directory File Layout



                                                                             vii

<PAGE>


FF-------PCP, Dentists, Specialists, and Providers of Ancillary Services
         Directories
GG-------Complaints, Grievances, and Fair Hearing Process
HH-------Contractor's Responsibility to Employ MA Consumers
II-------Required Contract Terms for Providers and Administrative Subcontractors
JJ-------Lobbying Certification and Disclosure of Lobbying Activities
KK-------Standardized Referral Process To The Department
LL-------Guidelines for Sanctions Regarding Fraud and Abuse
MM-------Management Information System and System Performance Review Standards
NN-------Special Needs Unit
OO-------Coordination of Care Entities
PP-------Provider Manuals
QQ-------Federally Qualified Health Centers and Rural Health Clinics
RR------- Reserved
SS-------Reserved
TT-------Reserved -- See M(2)
UU-------Reserved -- See M(3)
VV-------HIV/AIDS Risk Pool
WW-------HealthChoices Audit Clause
XX-------Encounter and Subcapitation Data Penalty Occurrences
YY-------MCO Obstetrical Reporting Form
ZZ-------Reserved -- See M(4)
AAA------Managed Care Contract Monitoring Manual - Internal Operations

Copies of Appendices and Agreement Exhibits are available by request from
the Commonwealth of Pennsylvania Department of Public Welfare

                                                                            viii

<PAGE>

SECTION I: INCORPORATION OF DOCUMENTS

        A.      OPERATIVE DOCUMENTS

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

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

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

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

SECTION II: DEFINITIONS

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

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

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

        ADJUDICATED CLAIM -- A Claim that has been processed to payment or
        denial.

        AFFILIATE -- Any individual, corporation, partnership, joint venture,
        trust, unincorporated organization or association, or other similar
        organization (hereinafter "Person"), controlling, controlled by or under
        common control with



                                                                               1

<PAGE>

        the Contractor or its parent(s), whether such common control be direct
        or indirect. Without limitation, all officers, or persons, holding five
        percent (5%) or more of the outstanding ownership interests of
        Contractor or its parent(s), directors or subsidiaries of Contractor or
        parent(s) shall be presumed to be affiliates for purposes of the RFP and
        Agreement. For purposes of this definition, "control" means the
        possession, directly or indirectly, of the power (whether or not
        exercised) to direct or cause the direction of the management or
        policies of a person, whether through the ownership of voting
        securities, other ownership interests, or by contract or otherwise
        including but not limited to the power to elect a majority of the
        directors of a corporation or trustees of a trust, as the case may be.

        ALTERNATE PAYMENT NAME -- The person to whom benefits are issued on
        behalf of an MA Consumer.

        AMENDED CLAIM -- A Provider request to adjust the payment of a
        previously adjudicated Claim. A Provider appeal is not an amended Claim.

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

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

        BEHAVIORAL HEALTH REHABILITATION SERVICES FOR CHILDREN AND ADOLESCENTS
        (FORMERLY EPSDT "WRAPAROUND") -- Individualized, therapeutic mental
        health, substance abuse or behavioral interventions/services developed
        and recommended by an interagency team and prescribed by a physician or
        licensed psychologist.

        BEHAVIORAL HEALTH (BH) SERVICES -- Mental health and/or drug and alcohol
        services which are provided by the BH-MCO.

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

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



                                                                               2
<PAGE>

        CASE MANAGEMENT SERVICES -- Services which will assist individuals in
        gaining access to necessary medical, social, educational and other
        services.

        CASE PAYMENT NAME -- The person in whose name benefits are issued.

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

        CERTIFIED NURSE MIDWIFE -- An individual licensed under the laws within
        the scope of Chapter 6 of Professions & Occupations, 63 P.S. 171-176.

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

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

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

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

        CLIENT INFORMATION SYSTEM (CIS) -- The Department's database of MA
        Consumers. The data base contains demographic and eligibility
        information for all MA Consumers.

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



                                                                               3
<PAGE>

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

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

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

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

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

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

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

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

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

        DEPRIVATION QUALIFYING CODE -- The code specifying the condition which
        determines an MA Consumer to be eligible in nonfinancial criteria.



                                                                               4

<PAGE>

        DEVELOPMENTAL DISABILITY -- A severe, chronic disability of an
        individual that is:

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

                -       Manifested before the individual attains age twenty-two
                        (22).

                -       Likely to continue indefinitely.

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

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

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

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

        DRUG EFFICACY STUDY IMPLEMENTATION (DESI) -- Drug products that have
        been classified as less-than-effective by the Food and Drug
        Administration (FDA).

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



                                                                               5

<PAGE>

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

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

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

        EMERGENCY MEDICAL CONDITION -- A medical condition manifesting itself by
        acute symptoms of sufficient severity (including severe pain) such that
        a prudent layperson, who possesses an average knowledge of health and
        medicine, could reasonably expect the absence of immediate medical
        attention to result in: (a) placing the health of the individual (or
        with respect to a pregnant woman, the health of the woman or her unborn
        child) in serious jeopardy, (b) serious impairment to bodily functions,
        or (c) serious dysfunction of any bodily organ or part.

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

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

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



                                                                               6

<PAGE>

        ENROLLEE -- A person eligible to receive services under the MA Program
        in the Commonwealth of Pennsylvania and who is mandated to be enrolled
        in the HealthChoices Program.

        ENROLLMENT -- The process by which a Member's coverage by a PH-MCO is
        initiated.

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

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

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

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

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

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

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

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



                                                                               7

<PAGE>


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

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

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

        GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) -- A technical term in
        financial accounting. It encompasses the conventions, rules, and
        procedures necessary to define accepted accounting practice at a
        particular time.

        GOVERNMENT LIAISON -- The Department's primary point of contact within
        the PH-MCO. This individual acts as the day to day manager of
        contractual and operational issues and works within PH-MCO and with DPW
        to facilitate compliance, solve problems, and implement corrective
        action. The Government Liaison negotiates internal plan, policy and
        operational issues.

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

        HEALTH CARE FINANCING ADMINISTRATION (HCFA) -- The federal agency within
        the Department of Health and Human Services responsible for oversight of
        MA programs.

        HEALTH CARE PROFESSIONAL -- A physician or other health care
        provider/practitioner whose professional services are covered and
        provided for under the professional scope of practice, and are included
        under the contract for the services of the professional. This term
        includes, but is not limited to: podiatrist, optometrist, chiropractor,
        psychologist, dentist, pharmacist, physician assistant, physical or
        occupational therapist and therapy assistant, speech-language
        pathologist, audiologist, registered or licensed practical nurse



                                                                               8

<PAGE>

        (including nurse practitioner, clinical nurse specialist, certified
        registered nurse anesthetist and certified nurse-midwife), licensed
        certified social worker, registered respiratory therapist and certified
        respiratory therapy technician.

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

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

        HEALTHCHOICES SOUTHEAST (HC-SE) PROGRAM -- The mandatory Medical
        Assistance managed care program in Bucks, Chester, Delaware, Montgomery
        and Philadelphia counties.

        HEALTHCHOICES PROPOSERS' LIBRARY -- A collection of reference documents
        and materials, relevant to the HealthChoices Program, available for use
        by proposers.

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

        HIV/AIDS WAIVER PROGRAM -- A home and community based waiver that
        provides for expanded services to MA Consumers who are diagnosed with
        Acquired Immunodeficiency Syndrome (AIDS) or symptomatic Human
        Immunodeficiency Virus (HIV) as a cost-effective alternative to
        inpatient care.

        HOME AND COMMUNITY WAIVER PROGRAM -- Necessary and cost effective
        services, not otherwise furnished under the State's Medicaid Plan, or
        services already furnished under the State's Medicaid Plan but in
        expanded amount, duration, or scope which are furnished to an individual
        in his/her home or community in order to prevent institutionalization.
        Such services must be authorized under the provisions of Section 1915(c)
        of P.L. 74-271, as amended, and codified at 42 U.S.C. 1396n.

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

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



                                                                               9

<PAGE>

        IN-PLAN SERVICES -- Services which are the payment responsibility of the
        Contractor under the HealthChoices Program.

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

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

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

        INTERMEDIATE CARE FACILITY FOR THE MENTALLY RETARDED AND OTHER RELATED
        CONDITIONS (ICF/MR/ORC) -- An institution (or distinct part of an
        institution) that 1) is primarily for the diagnosis, treatment or
        rehabilitation for persons with mental retardation or persons with other
        related conditions; and 2) provides, in a residential setting, ongoing
        evaluation, planning, twenty-four (24) hour supervision, coordination
        and integration of health or rehabilitative services to help each
        individual function at his/her maximum capacity.

        ISSUING OFFICE -- The Department's Division of Procurement.

        JUVENILE DETENTION CENTER -- A publicly or privately administered,
        secure residential facility for:

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



                                                                              10

<PAGE>

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

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

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

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

        MANAGED CARE ORGANIZATION (MCO) -- An entity which manages the purchase
        and provision of physical or behavioral health services under the
        HealthChoices Program.

        MARKET SHARE -- The percentage of Members enrolled with a particular
        PH-MCO when compared to the total of Members enrolled in all the PH-MCOs
        within a zone.

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

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

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

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

                -       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.



                                                                              11

<PAGE>

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

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

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

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

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

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

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

        MICHAEL DALLAS WAIVER (MDW) -- A program operating under a federal
        waiver that provides essential home care services to
        technology-dependent individuals.

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

        MINORITY BUSINESS ENTERPRISE -- A business concern that is:

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

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



                                                                              12

<PAGE>

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

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

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

        NETWORK PROVIDER -- A health care professional who has a written
        Provider Agreement with a HealthChoices PH-MCO and is credentialed by
        and who participates in the PH-MCO's Provider Network to serve
        HealthChoices Members.

        NET WORTH (EQUITY) -- The residual interest in the assets of an entity
        that remains after deducting its liabilities.

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

        ONGOING MEDICATION -- A medication that has been previously dispensed to
        the Member for the treatment of an illness that is chronic in nature or
        for an illness for which the medication is required for a length of time
        to complete a course of treatment, until the medication is no longer
        considered necessary by the physician/prescriber, and that has been used
        by the Member without a gap in treatment. If the current prescription is
        for a higher dosage than previously prescribed, the prescription is for
        an ongoing medication at least to the extent of the previous dosage.
        When payment is authorized due to the obligation to cover pre-existing
        services while a grievance of fair hearing is pending, a request to
        refill that prescription, made after the grievance or fair hearing has
        been finally concluded in favor of the MCO, is not an ongoing
        medication.

        OPEN-ENDED -- A period of time that has a start date but no definitive
        end date.

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

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



                                                                              13

<PAGE>

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

        OUT-OF-AREA COVERED SERVICES -- Medical services provided to MA
        Consumers that meet one (1) or more of the following criteria:

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

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

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

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

        OUT-OF-NETWORK PROVIDER -- A health care professional who has not been
        credentialed by and does not have a signed Provider Agreement with a
        HealthChoices PH-MCO.

        OUT-OF-PLAN SERVICES -- Services which are non-plan, non-capitated and
        are not the responsibility of the Contractor under the HealthChoices
        Program comprehensive benefit package.

        PHYSICAL HEALTH MANAGED CARE ORGANIZATION (PH-MCO) -- A risk bearing
        entity, also referred to as the "plan", which has contracted with the
        Department to manage the purchase and provision of physical health
        services under the HealthChoices Program.

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

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

        PHYSICAL HEALTH (PH) SERVICES -- Medical and other related services
        which the Contractor is responsible to provide to its Members.

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



                                                                              14

<PAGE>

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

        POST-STABILIZATION SERVICES -- Medically necessary non-emergency
        services furnished to a Member after the Member is stabilized following
        an Emergency Medical Condition.

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

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

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

        PRIOR AUTHORIZATION -- A determination made by a Contractor to approve
        or deny payment for a Provider's request to provide a service or course
        of treatment of a specific duration and scope to a Member prior to the
        Provider's initiating provision of the requested service.

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

        PRIOR AUTHORIZED SERVICES -- In-plan services, the utilization of which
        the PH-MCO manages in accordance with Department-approved prior
        authorization policies and procedures.

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

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



                                                                              15

<PAGE>

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

        -       Provider credentialing denial by the PH-MCO;

        -       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 the Member; and

        -       Provider termination by the PH-MCO.

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

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

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

        RECIPIENT MONTH -- One MA Consumer covered by the HealthChoices Program
        for one (1) calendar month.

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

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

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



                                                                              16

<PAGE>

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

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

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

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

        SOCIALLY/ECONOMICALLY RESTRICTED BUSINESS (SERB) -- A business whose
        economic growth and development has been restricted based on social and
        economic bias.

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

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

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

        STOP-LOSS PROTECTION -- Coverage designed to limit the amount of
        financial loss experienced by a health care provider.

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

        SUBCONTRACT -- Any contract between the PH-MCO and an individual,
        business, university, governmental entity, or nonprofit organization to
        perform part or all of



                                                                              17

<PAGE>

        the PH-MCO's responsibilities under this Agreement. Exempt from this
        definition are salaried employees, utility agreements and Provider
        Agreements, which are not considered Subcontracts for the purpose of
        this Agreement and, unless otherwise specified herein, are not subject
        to the provisions governing Subcontracts.

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

        SUBSTANTIAL FINANCIAL RISK -- Financial risk set at greater than
        twenty-five percent (25%) of potential payments for covered services,
        regardless of the frequency of assessment (i.e., collection) or
        distribution of payments. The term "potential payments" means simply the
        maximum anticipated total payments that the physician or physician group
        could receive if the use or cost of referral services were significantly
        low. The cost of referrals, then, must not exceed that twenty-five
        percent (25%) level, or else the financial arrangement is considered to
        put the physician or group at substantial financial risk.

        TARGETED CASE MANAGEMENT (TCM) PROGRAM -- A case management program for
        MA Consumers who are diagnosed with AIDS or symptomatic HIV.

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

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

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

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



                                                                              18

<PAGE>

        URBAN -- Consists of territory, persons and housing units in places
        which are designated as 2,500 persons or more. These places must be in
        close proximity to one another.

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

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

        UTILIZATION REVIEW CRITERIA -- Detailed standards, guidelines, decision
        algorithms, models, or informational tools that describe the clinical
        factors to be considered relevant to making determinations of medical
        necessity including, but not limited to, level of care, place of
        service, scope of service, and duration of service.

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

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

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

        -       Is maintained on a mechanical ventilatory support via a
                tracheostomy.

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



                                                                              19

<PAGE>

        WOMEN'S BUSINESS ENTERPRISE -- A business concern that is:

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

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

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



                                                                              20

<PAGE>

AGREEMENT AND RFP ACRONYMS:

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

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



                                                                              21

<PAGE>

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



                                                                              22

<PAGE>

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



                                                                              23

<PAGE>

SECTION III: RELATIONSHIP OF PARTIES

        A.      BASIC RELATIONSHIP

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

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

        B.      NATURE OF CONTRACT

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

SECTION IV: APPLICABLE LAWS AND REGULATIONS

        A.      CERTIFICATION AND LICENSING

                During the term of this Agreement, the Contractor shall require
                that each of the health care professionals with which it
                contracts comply with all



                                                                              24

<PAGE>

                certification and licensing laws and regulations applicable to
                the profession. The Contractor agrees not to employ or enter
                into a contractual relationship with a Provider or practitioner
                who is precluded from participation in the MA program.

        B.      SPECIFIC TO MA PROGRAM

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

        C.      GENERAL LAWS AND REGULATIONS

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

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

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

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



                                                                              25

<PAGE>

                In addition, the Contractor and its subcontractors must respect
                the conscience rights of individual providers and provider
                organizations, and comply with the current Pennsylvania laws
                prohibiting discrimination on the basis of the refusal or
                willingness to participate in certain abortion and
                sterilization-related activities as outlined in 43 P.S. 955.2
                and 18 Pa. C.S.A. 3213(d).

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

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

        D.      LIMITATION ON THE DEPARTMENT'S OBLIGATIONS

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

SECTION V: PROGRAM REQUIREMENTS

        A.      IN-PLAN SERVICES

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

                1.      AMOUNT, DURATION AND SCOPE

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



                                                                              26

<PAGE>

                        for a rate change and if necessary, adjust the rates to
                        appropriately reflect the addition of the new services.

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

                2.      PROGRAM EXCEPTIONS

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

                3.      EXPANDED BENEFITS

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

                        In order for information about expanded benefits to be
                        included in any Member information provided by the
                        Contractor, the expanded benefits must apply for a
                        minimum of one full year or until the Member information
                        is revised, whichever is later. Upon sixty (60) days
                        advance notice to the Department, the Contractor may
                        modify or eliminate any expanded benefits, which exceed
                        the benefits provided for under the MA FFS Program. Such
                        benefit(s) as modified or eliminated shall supersede
                        those specified in the Proposal. The Contractor must
                        send written notice to Members



                                                                              27

<PAGE>

                        and affected Providers at least thirty (30) days prior
                        to the effective date of the change in covered benefits
                        and shall simultaneously amend all written materials
                        describing its covered benefit or Provider Network. A
                        change in covered benefits includes any reduction in
                        benefits or a substantial change to the Provider
                        Network.

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

                4.      REFERRALS

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

                5.      SELF REFERRAL/DIRECT ACCESS

                        There are some services, which can be accessed without a
                        referral from the PCP. Vision, dental care, obstetrical
                        and gynecological (OB/GYN) services may be
                        self-referred, providing the Member obtains the services
                        from the PH-MCO's Provider Network. Chiropractic
                        services may be accessed in accordance with the process
                        set forth in Medical Assistance Bulletin 99-00-03.

                        Neither the referral process nor the prior authorization
                        process can be employed to manage the utilization of
                        family planning services. The right of the Member to
                        choose a provider for family planning services shall not
                        be restricted. Members may access at a minimum, health
                        education and counseling necessary to make an informed
                        choice about contraceptive methods, pregnancy testing
                        and counseling, breast cancer screening services, basic
                        contraceptive supplies such as oral birth control pills,
                        diaphragms, foams, creams, jellies, condoms (male and
                        female), Norplant, injectibles, intrauterine devices,
                        and other family planning procedures as described in
                        Exhibit F of this Agreement, Family Planning Services
                        Procedures, and the Contractor must pay for the
                        Out-of-Plan Services.

                        Under Section 2111(7) of the Insurance Company Law of
                        1921, as amended, 40 P.S. 991.72111(7), Members are to
                        be provided



                                                                              28

<PAGE>

                        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.

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

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

                6.      BEHAVIORAL HEALTH SERVICES

                        The Contractor is not responsible to provide any
                        services as set forth in the contracts between the
                        Department and the Behavioral Health Managed Care
                        Organizations (BH-MCOs) in effect at the same time as
                        this Agreement.

                7.      PHARMACY SERVICES

                        a.      GENERAL

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

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

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

                        b.      FORMULARIES



                                                                              29

<PAGE>

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

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

                        c.      COVERAGE EXCLUSIONS

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

                                In addition, the Contractor must allow access to
                                all drug products covered by the MA FFS Program.
                                This includes brand name and generic products,
                                as well as all outpatient legend drugs, sold or
                                distributed by companies that participate in the
                                rebate program for all medically accepted
                                indications, as described in Section 1927(k)(6)
                                of the Social Security Act, 42 U.S.C.A.
                                1396r-8(k)(6). The Contractor



                                                                              30

<PAGE>

                                must include coverage for non-legend drugs as
                                required under formulary guidelines and covered
                                by the MA FFS Program. This includes any use
                                which is approved under the Federal Food, Drug,
                                and Cosmetic Act, 21 U.S.C.A. 301 et seq. or,
                                whose use is supported by the American Hospital
                                Formulary Service - Drug Information, American
                                Medical Association Drug Evaluations, United
                                States Pharmacopoeia - Drug Information, and
                                DRUGDEX.

                        d.      DESI DRUGS

                                The Contractor shall not provide coverage for
                                Drug Efficacy Study Implementation (DESI) drugs
                                under any circumstances.

                        e.      PHARMACY REBATE PROGRAM

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

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

                        f.      DRUG UTILIZATION REVIEW (DUR) PROGRAM

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

                                The Contractor must have a procedure to compare
                                pharmacy encounter data use against
                                predetermined therapeutic drug criteria
                                standards consistent with the official compendia
                                and the peer-reviewed medical literature. The
                                official compendia shall consist of the American
                                Hospital Formulary Service Drug Information, the
                                United States Pharmacopoeia - Drug Information,
                                the DRUGDEX



                                                                              31

<PAGE>

                                Information System, and the American Medical
                                Association Drug Evaluations. These standards
                                must be consistent with medical practices that
                                have been developed by unbiased, independent
                                experts through an open professional consensus
                                process. This procedure must also include an
                                ongoing review for current drug criteria
                                standards. All drug criteria standards must be
                                submitted to the Department for advance written
                                approval before its usage by the Contractor,
                                under the Utilization Review Criteria Assessment
                                Process (URCAP). The URCAP manual may be found
                                in the HealthChoices Proposers' Library.

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

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

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

                        g.      PHARMACY BENEFIT MANAGER (PBM)

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



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<PAGE>

                                PBM subcontracts while the Department is
                                reviewing such pre-existing contracts.

                8.      EPSDT SERVICES

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

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

                9.      EMERGENCY ROOM (ER) SERVICES

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

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

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

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

                        -       track, trend and profile ER utilization;

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



                                                                              33

<PAGE>

                        -       use all appropriate methods to encourage Members
                                to use PCPs rather than ERs for minor acute
                                conditions; or

                        -       use a recipient restriction methodology for
                                Members with a history of significant
                                inappropriate ER usage.

                10.     POST-STABILIZATION SERVICES

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

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

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

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

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

                11.     EXAMINATIONS TO DETERMINE ABUSE OR NEGLECT

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

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



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<PAGE>

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

                12.     HOSPICE SERVICES

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

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

                13.     ORGAN TRANSPLANTS

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

                14.     TRANSPORTATION

                        The Contractor is financially responsible for the cost
                        of all Medically Necessary emergency transportation and
                        all Medically Necessary non-emergency ambulance
                        transportation.

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

                        Any non-emergency transportation (excluding Medically
                        Necessary non-emergency ambulance) for Members to and
                        from MA compensable services must be arranged through
                        the Medical Assistance Transportation Program (MATP). A
                        complete



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<PAGE>

                        description of MATP responsibilities can be found in
                        Exhibit L of this Agreement, Transportation.

                15.     WAIVER SERVICES/STATE PLAN AMENDMENTS

                        a.      HIV/AIDS WAIVER PROGRAM

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

                        b.      HIV/AIDS TARGETED CASE MANAGEMENT (TCM) PROGRAM

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

                        c.      MICHAEL DALLAS WAIVER (MDW) PROGRAM

                                MA Consumers who are currently receiving home
                                and community based services through the MDW,
                                will be enrolled in the HealthChoices Program
                                but all waiver services will be covered under
                                the MA FFS delivery system. All other non-waiver
                                services will be covered under the HealthChoices
                                PH-MCO.

                                MA Consumers currently receiving home and
                                community based services through the MDW Program
                                and deemed MA eligible solely through the MDW
                                will be exempt from the HealthChoices Program.



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<PAGE>

                        d.      HEALTHY BEGINNINGS PLUS (HBP) PROGRAM

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

                        e.      PENNSYLVANIA DEPARTMENT OF AGING (PDA) WAIVERS

                                The Department reserves the right to expand the
                                scope of services to include MA Consumers in the
                                PDA Waiver in HealthChoices. Please refer to
                                Section VII.B.3 of this Agreement for further
                                information on program changes.

                16.     NURSING FACILITY SERVICES

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

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

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

                        MA Consumers who are placed into a Nursing Facility from
                        a hospital and who were not previously enrolled in the
                        HealthChoices



                                                                              37

<PAGE>

                        Program or individuals who enter a Nursing Facility from
                        a hospital and are then determined eligible for MA will
                        not be enrolled in HealthChoices. However, should an
                        individual leave the Nursing Facility to reside in the
                        HealthChoices zone and then be determined eligible for
                        enrollment into HealthChoices, they will then be
                        required to enroll into the HealthChoices Program.

                        Individuals who are residing in Nursing Facilities and
                        are subsequently found eligible for MA will not be
                        enrolled in the HealthChoices Program. Individuals
                        eligible for MA, but not mandated into the HealthChoices
                        Program when they enter Nursing Facilities, or MA
                        Consumers who are placed in Nursing Facilities inside
                        the HealthChoices zone, who previously resided outside
                        the HealthChoices zone, will not be enrolled in the
                        HealthChoices Program.

        B.      PRIOR AUTHORIZATION OF SERVICES

                1.      GENERAL PRIOR AUTHORIZATION REQUIREMENTS

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

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

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



                                                                              38

<PAGE>

                        the event that the Contractor improperly implements any
                        prior authorization policy or procedure.

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

                        The Contractor is required to process each request for
                        prior authorization of a covered service and ensure that
                        the Member is notified, at least verbally, of the
                        decision within two (2) business days of receiving the
                        request. If additional information is needed to review
                        the request, the Contractor must request such
                        information from the appropriate Provider within
                        forty-eight (48) hours of receiving the request for
                        prior authorization of a covered service. If the
                        Contractor requests additional information, the request
                        may be pended for a reasonable time period. However,

                        a.      a prior authorization (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.

                        b.      the Member must 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. If not, 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).

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

                2.      PRIOR AUTHORIZATION FOR OUTPATIENT PRESCRIPTION DRUGS



                                                                              39

<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 fifteen
                        (15) day supply if the prescription qualifies as an
                        Ongoing Medication, or a seventy-two (72) hour supply in
                        other instances where this is an Immediate Need for the
                        medication.

                        The Contractor must issue a written denial notice, in
                        the form attached as Exhibit N of this Agreement, Denial
                        Notices, within twenty-four (24) hours from the time
                        that the prescription is presented at the pharmacy. In
                        the event that the Contractor cannot issue a written
                        denial notice within twenty-four (24) hours, the
                        Contractor must have procedures in place so as to permit
                        the Member to receive a supply of the new medication
                        such that the supply will not be exhausted prior to
                        receipt of the notice. For drugs not able to be divided
                        and dispensed into individual doses, the Contractor will
                        make provisions to allow the pharmacist to dispense the
                        smallest amount that will provide at least a seventy-two
                        (72) hour or fifteen (15) day supply, whichever is
                        applicable. The Department will waive the seventy-two
                        (72) hour supply requirement for medications and
                        treatments under concurrent clinical review and
                        treatments that are outside the parameter of use
                        approved by the FDA or accepted standards of care.

                        The Contractor must have procedures in place to assure
                        that if a prescription for an Ongoing Medication is not
                        authorized when presented at the pharmacy, the
                        pharmacist shall dispense a fifteen (15) day supply of
                        the prescription, unless the Contractor or its
                        designated subcontractor issued a proper written notice
                        of benefit reduction or termination at least ten (10)
                        days prior to the end of the period for which the
                        medication was previously authorized and a Grievance or
                        DPW Fair Hearing request has not been filed. If the
                        Member files a Grievance or DPW Fair Hearing request
                        from a denial of an Ongoing Medication, the Contractor
                        must authorize the medication until the Grievance or DPW
                        Fair Hearing request is resolved. When medication is
                        authorized due to the Contractor's obligation to
                        continue services while a Member's Grievance or Fair
                        Hearing is pending, and the final binding decision is in
                        favor of the Contractor, a request for subsequent refill
                        of the prescribed medication does not constitute an
                        ongoing medication.



                                                                              40

<PAGE>

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

        C.      CONTINUITY OF CARE

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

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

        D.      COORDINATION OF CARE

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

                1.      NURSING FACILITY CARE

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



                                                                              41

<PAGE>

                2.      SPECIAL SERVICES

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

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

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

                        -       Residential Treatment Facility (RTF)

                        -       Acute and Extended Acute Psychiatric Facilities

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

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

                        -       Pennsylvania Department of Aging (PDA) Waiver

                        -       Members Admitted to Juvenile Detention Centers
                                (JDCs)

                        -       Children in Substitute Care Transition

                        -       Adoption Assistance Children/Adolescents

                        -       Dual Eligibles (Medicare/Medicaid)

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

                3.      OUT-OF-PLAN SERVICES

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

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



                                                                              42

<PAGE>

                        -       Transitional Care Homes

                        -       Medical Foster Care Services

                        -       Early Intervention Services

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

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

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

                        -       Home and Community Based Waiver for Persons with
                                Mental Retardation

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

                4.      COORDINATION OF CARE/LETTERS OF AGREEMENT

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

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



                                                                              43

<PAGE>

                        All written coordination documents developed and
                        maintained by the Contractor must have advance written
                        approval by the Department and must be reviewed/revised
                        at least annually by the Contractor. Coordination
                        documents must be available for review by the Department
                        at the time of Readiness Review and upon request
                        thereafter. All written coordination documents entered
                        into between a service Provider and the Contractor must
                        also be approved by the Department. These written
                        coordination documents, including the operational
                        procedures, must be submitted for final review and
                        approval at least thirty (30) days prior to the
                        operational date of the Initial Term of the Contract.

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

                5.      PH-MCO AND BH-MCO COORDINATION

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

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

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

                        a.      The Contractor agrees, and the Department will
                                use its best efforts to require HealthChoices
                                BH-MCOs to agree, to submit to a binding
                                independent arbitration process in the



                                                                              44

<PAGE>

                                event of a dispute between the Contractor and
                                any such BH-MCOs concerning their respective
                                obligations pursuant to this Agreement and a
                                Behavioral HealthChoices contract. The mutual
                                agreement of the Contractor and a BH-MCO to such
                                an arbitration process must be evidenced by and
                                included in the written agreement between the
                                Contractor and the BH-MCO.

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

        E.      CONTRACTOR RESPONSIBILITY FOR REPORTABLE CONDITIONS

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

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

        F.      MEMBER ENROLLMENT AND DISENROLLMENT

                1.      GENERAL



                                                                              45

<PAGE>

                        The Contractor is prohibited from restricting its
                        Members from changing PH-MCOs for any reason. The MA
                        Consumer has the right to initiate a change in PH-MCOs
                        at any time.

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

                        The Department will disenroll Members from a PH-MCO when
                        there is a change in residence which places the Member
                        outside the HC zone covered by this Agreement, as
                        indicated on the individual county file maintained by
                        the Department's Office of Income Maintenance.

                        The Department is developing procedures to support
                        enrolling HC Members transferring from one HC zone to
                        another with the same Plan, provided that the Plan
                        operates in both zones.

                2.      CONTRACTOR OUTREACH MATERIALS

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

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



                                                                              46


<PAGE>

                        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.      In accordance with the federal Balanced Budget
                                Act of 1997, Section 1932(d)(2)(E), the
                                Contractor shall not directly or indirectly
                                conduct door-to-door, telephone or other
                                cold-call marketing activities.

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

                3.      CONTRACTOR OUTREACH ACTIVITIES

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

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

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

                                -       County Assistance Offices (CAOs)

                                -       Providers' offices



                                                                              47
<PAGE>

                                -       Malls/Commercial or retail
                                        establishments

                                -       Hospitals

                                -       Check cashing establishments

                                -       Door-to-door visitations

                                -       Telemarketing

                                -       Community Centers

                                -       Churches

                                -       Direct Mail

                        b.      The Contractor may use but not be limited to
                                commonly accepted media methods to advertise.
                                These include television, radio, billboard, the
                                Internet and printed media. All such advertising
                                is subject to advance written approval by the
                                Department.

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

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

                        e.      The Contractor will be permitted to offer
                                Members health-related benefits in excess of
                                those required by the Department, and are
                                permitted to feature such expanded benefits in
                                approved outreach materials. All such expanded
                                benefits are subject to advance written approval
                                by the


                                                                              48
<PAGE>

                                Department and must meet the requirements of
                                Section V.A.3 of this Agreement, Expanded
                                Benefits.

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

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

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

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

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

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

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


                                                                              49
<PAGE>

                                MCO Guidelines for Advertising, Sponsorship, and
                                Outreach.

                4.      ALTERNATIVE LANGUAGE REQUIREMENT

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

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

                5.      CONTRACTOR ENROLLMENT PROCEDURES

                        The Contractor must have in effect written
                        administrative policies and procedures for newly
                        enrolled Members. The Contractor must also provide
                        written policies and procedures for coordinating
                        enrollment information with the Department's IEAP
                        contractor. The Contractor must receive advance written
                        approval from the Department regarding these policies
                        and procedures. The Contractor's submission of new or
                        revised policies and procedures for review and approval
                        by the Department shall not act to void any pre-existing
                        policies and procedures which have been prior approved
                        by the Department for operation in a HC zone. Unless
                        otherwise required by law, the Contractor may continue
                        to operate under such pre-existing policies and
                        procedures until such time as the Department approves
                        the new or revised version thereof.

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

                        The Contractor must enroll any eligible MA Consumer who
                        selects the Contractor or is assigned in accordance with
                        Exhibit Z of this


                                                                              50
<PAGE>

                        Agreement, Automatic Assignment, to the Contractor
                        regardless of the MA Consumer's race, color, creed,
                        religion, age, sex, national origin, ancestry, marital
                        status, sexual orientation, income status, program
                        membership, Grievance status, MA category status, health
                        status, pre-existing condition, physical or mental
                        handicap or anticipated need for health care. See
                        Exhibit AA of this Agreement, Category/Program Status
                        Coverage Chart.

                6.      ENROLLMENT OF NEWBORNS

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

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

                7.      TRANSITIONING MEMBERS BETWEEN PH-MCOS

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

                8.      CHANGE IN STATUS

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

                        -       Pregnancies not on CIS;

                        -       Death Reports;

                        -       Newborns not on CIS; and

                        -       Return mail.

                        The Contractor must report to the appropriate CAO any
                        changes in the status of families or individual Members
                        within ten (10) business




                                                                              51
<PAGE>

                        days of their becoming known, including changes in
                        family size and residence, and new phone numbers.

                9.      MONTHLY MEMBERSHIP

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

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

                10.     ENROLLMENT AND DISENROLLMENT UPDATES

                        a.      DAILY FILE

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

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

                        b.      WEEKLY ENROLLMENT/DISENROLLMENT RECONCILIATION
                                FILE

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

                        c.      DISENROLLMENT EFFECTIVE DATES

                                Member disenrollments will become effective on
                                the date specified by the Department. The
                                Contractor must have




                                                                              52
<PAGE>

                                written policies and procedures for complying
                                with Department disenrollment orders.

                        d.      DISCHARGE/TRANSITION PLANNING

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

                                admission to or length of stay in a facility,
                                a waiver program eligibility, or
                                a child's placement in substitute care outside
                                the HealthChoices zone,

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

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

                11.     SERVICES FOR NEW MEMBERS

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

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



                                                                              53
<PAGE>

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

                12.     NEW MEMBER ORIENTATION

                        The Contractor must have written policies and procedures
                        for:

                        -       Orienting new Members to their benefits (e.g.,
                                prenatal care, dental care, and specialty care),

                        -       Educational and preventative care programs,

                        -       The proper use of the PH-MCO identification card
                                and the Department's ACCESS card,

                        -       The role of the PCP,

                        -       What to do in an emergency or urgent medical
                                situation,

                        -       How to utilize services in other circumstances,
                                and

                        -       How to register a Complaint, file a Grievance or
                                request a DPW Fair Hearing.

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

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

                13.     ELIGIBILITY VERIFICATION SYSTEM (EVS)

                        The Contractor must provide a file via the Department's
                        Pennsylvania Open Systems Network (POSNet), to the
                        Department's EVS contractor, of PCP assignments for all
                        its Members. The Contractor must provide this file at
                        least weekly or more frequently if requested by the
                        Department. The Contractor must ensure that the PCP
                        assignment information is consistent with




                                                                              54
<PAGE>

                        all requirements specified by the Department. The file
                        layout and data dictionary for this file are located in
                        the Exhibit CC of this Agreement, Data Support for
                        PH-MCOs.

                14.     CONTRACTOR IDENTIFICATION CARDS

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

                15.     MEMBER HANDBOOK

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

                        a.      MEMBER HANDBOOK REQUIREMENTS

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

                        b.      DEPARTMENT APPROVAL

                                The Contractor must submit Member handbook
                                language to the Department for advance written
                                approval prior to distribution to Members. The
                                Contractor must make modifications in the
                                language contained in the Member handbook if
                                ordered by the Department so as to comply with
                                the requirements described in a., Member
                                Handbook Requirements, above.

                        c.      LANGUAGES OTHER THAN ENGLISH



                                                                              55
<PAGE>

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

                16.     PROVIDER DIRECTORIES

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

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

                        -       Correct Provider Medical Assistance
                                Identification (MAID) number

                        -       All providers in the Contractor's Network

                        -       Wheel chair accessibility of provider sites

                        -       Language indicators

                        A Contractor will not be certified as "ready" without
                        the completion of the electronic provider directory
                        component. See Exhibit EE of this Agreement, Online
                        Provider Directory File Layout.

                        The Contractor must provide its Members with directories
                        for PCPs, dentists, specialists and providers of
                        ancillary services, upon request, which include, at a
                        minimum, the information listed in Exhibit FF of this
                        Agreement, PCP, Dentists, Specialists and Providers of
                        Ancillary Services Directories. The Contractor must
                        submit PCP, specialists, and provider of ancillary
                        services directories to the Department for advance
                        written approval before distribution to its Members. The
                        Contractor must submit provider directories to the
                        Department for review and approval thirty (30) days
                        prior to the program commencement or as determined by
                        the



                                                                              56
<PAGE>

                        Department. The Contractor also agrees to make
                        modifications to its provider directories if ordered by
                        the Department to do so.

                17.     MEMBER DISENROLLMENT

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

        G.      MEMBER SERVICES

                1.      GENERAL

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

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

                        -       Assisting Members with making appointments and
                                obtaining services.

                        -       Assisting with arranging transportation for
                                Members through the MATP. See Section V.A.14 of
                                this Agreement, Transportation and Exhibit L of
                                this Agreement, Transportation.

                        -       Receiving, identifying and resolving Emergency
                                Member Issues.

                        -       Under no circumstances will unlicensed members
                                services staff provide health-related advice to
                                Members requesting clinical information. The
                                Contractor must ensure that all such inquires
                                are addressed by clinical personnel acting
                                within the scope of their licensure to practice
                                a health related profession.

                2.      CONTRACTOR INTERNAL MEMBER DEDICATED HOTLINE

                        The Contractor must maintain and staff a twenty-four
                        (24) hour, seven (7) day-a-week toll-free dedicated
                        hotline to respond to Members' inquiries, Complaints and
                        problems raised regarding




                                                                              57
<PAGE>

                        services. The Contractor's internal Member hotline staff
                        are required to ask the caller whether or not they are
                        satisfied with the response given to their call. All
                        calls must be documented and if the caller is not
                        satisfied, the Contractor must ensure that the call is
                        referred to the appropriate individual within the PH-MCO
                        for follow-up and/or resolution. This referral must take
                        place within forty-eight (48) hours of the call. The
                        Contractor must provide the Department with the
                        capability to monitor the Contractor's Member services
                        and internal Member dedicated hotline from both the
                        Department's headquarters and at each of the
                        Contractor's offices. The Department shall only monitor
                        calls from MA Program recipients and shall cease all
                        monitoring activity as soon as it becomes apparent that
                        the caller is not a MA Program recipient. The Contractor
                        is not permitted to utilize electronic call answering
                        methods, as a substitute for staff persons, to perform
                        this service. The Contractor must ensure that its
                        dedicated hotline meets the following Member services
                        performance standards:

                        -       Provide for a dedicated phone line for its
                                Members.

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

                        -       Be staffed by individuals trained in:

                                -  cultural competence;
                                -  addressing the needs of special populations;
                                -  the availability of the functions of the SNU;
                                -  the services which the Contractor is required
                                   to make available to children; and
                                -  the availability of social services within
                                   the community.

                        -       Be staffed with representatives familiar with
                                accessing medical transportation.

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

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

                3.      EDUCATION AND OUTREACH HEALTH EDUCATION ADVISORY
                        COMMITTEE

                        The Contractor must develop and implement effective
                        Member education and outreach programs which may include
                        health



                                                                              58
<PAGE>

                        education programs focusing on the leading causes of
                        hospitalization and emergency room use and health
                        initiatives which target Members with Special Needs
                        including but not limited to: HIV/AIDS, mental
                        retardation/developmental disabilities, eligibility
                        (Medicare/ Medicaid), etc.

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

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

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

                4.      INFORMATIONAL MATERIALS

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



                                                                              59
<PAGE>

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

                        -       Members' rights and responsibilities.

                        -       Complaint, Grievances, and DPW Fair Hearing
                                procedures.

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

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

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

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

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

                5.      MEMBER ENCOUNTER LISTINGS

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

                        The Contractor must distribute quarterly lists to each
                        PCP in its Provider Networks which identify new Members
                        and Members who



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<PAGE>

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

        H.      ADDITIONAL ADDRESSEE

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

        I.      MEMBER COMPLAINT, GRIEVANCE AND DPW FAIR HEARING PROCESS

                1.      MEMBER COMPLAINT, GRIEVANCE AND DPW FAIR HEARING PROCESS

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

                        The Contractor's submission of new or revised policies
                        and procedures for review and approval by the Department
                        shall not act to void any pre-existing policies and
                        procedures which have been prior approved by the
                        Department for operation in a HC zone. Unless otherwise
                        required by law, the Contractor may continue to operate
                        under such pre-existing policies and procedures until
                        such



                                                                              61
<PAGE>

                        time as the Department approves the new or revised
                        version thereof.

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

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

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

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

                2.      DPW FAIR HEARING PROCESS FOR MEMBERS

                        During all phases of the PH-MCO Grievance process, and
                        in some instances involving Complaints, the Member has
                        the right to request a Fair Hearing with the Department.
                        The Contractor must comply with the DPW Fair Hearing
                        Process requirements defined in Exhibit



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<PAGE>

                        GG of this Agreement, Complaints, Grievances and DPW
                        Fair Hearing Process.

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

        J.      CLINICAL SENTINEL

                The Contractor agrees to cooperate with the functions of the
                Department's Clinical Sentinel Hotline which is designed to
                address clinically related systems issues encountered by MA
                Consumers and their advocates or Providers. The Clinical
                Sentinel Hotline facilitates resolution according to Contractor
                policies and procedures and does not impose additional
                obligations on the Contractor.

        K.      PROVIDER DISPUTE RESOLUTION SYSTEM

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

                -       Informal and formal processes for settlement of Provider
                        disputes;

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

                -       Submission and resolution of timeframes for
                        disputes/appeals;

                -       Processes to ensure equitability for all Providers;

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



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                -       Establishment of a PH-MCO Committee to process provider
                        formal disputes/appeals which shall include:
                        -  At least one-fourth (1/4th) of the membership of
                           the Committee shall be composed of
                           providers/peers;
                        -  Committee members who have the authority,
                           training, and expertise to address and resolve
                           provider dispute/appeal issues;
                        -  Access to data necessary to assist committee
                           members in making decisions; and
                        -  Documentation of meetings and decisions of the
                           Committee.

                The Contractor's submission of new or revised policies and
                procedures for review and approval by the Department shall not
                act to void any pre-existing policies and procedures which have
                been prior approved by the Department for operation in a HC
                zone. Unless otherwise required by law, the Contractor may
                continue to operate under such pre-existing policies and
                procedures until such time as the Department approves the new or
                revised version thereof.

                In addition to the 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 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.

        L.      CERTIFICATION OF AUTHORITY

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

        M.      EXECUTIVE MANAGEMENT

                The Contractor must provide the following management personnel:

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

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

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



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<PAGE>

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

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

                -       Identify and value differences;

                -       Acknowledge the interactive dynamics of cultural
                        differences;

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

                -       Recruit minority staff in proportion to the populations
                        served;

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

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

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

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

                The Contractor must include in its Executive Management
                structure:



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

                -       A full-time HealthChoices Program Manager to oversee the
                        operation of the Agreement, if different than the
                        Administrator of the PH-MCO.

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

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

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

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

        N.      OTHER ADMINISTRATIVE COMPONENTS

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

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

                -       A UM Coordinator who is a Pennsylvania-licensed
                        physician, registered nurse or physician's assistant
                        with past experience or education in utilization
                        management systems. The Department may



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<PAGE>

                        consider other advanced degrees relevant to utilization
                        management in lieu of professional licensure.

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

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

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

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

                -       A Provider Services Manager who will oversee staff to
                        coordinate communications between the Contractor and its
                        Providers. There shall be sufficient Provider Services
                        staff to enable Providers to receive prompt resolution
                        to their complaints, problems or inquiries.

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

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

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

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

        O.      ADMINISTRATION



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                The Contractor agrees to comply with the program standards
                regarding PH-MCO Administration, which are set forth in this
                Agreement and in Exhibit D of this Agreement, Standard Contract
                Terms and Conditions for Services and in Exhibit E of this
                Agreement, DPW Addendum to Standard Contract Terms and
                Conditions.

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

                The Contractor must submit for approval by the Department its
                organizational structure listing the function of each executive
                as well as administrative staff members. Staff positions
                outlined in this Agreement must be maintained in accordance with
                the Department's requirements.

                1.      RESPONSIBILITY TO EMPLOY MA CONSUMERS

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

                2.      RECIPIENT RESTRICTION PROGRAM

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

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

                3.      CONTRACTS AND SUBCONTRACTS



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

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

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

                        Any subcontract between the Contractor and any
                        individual, firm, corporation or any other entity to
                        perform part or all of the selected Contractor's
                        responsibilities under this Agreement. This provision
                        includes, but is not limited to, contracts for vision
                        services, dental services, Claims processing, member
                        services, pharmacy services and lobbying activities.
                        This provision does not include, for example, purchase
                        orders.

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

                4.      LOBBYING DISCLOSURE

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

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

                5.      RECORDS RETENTION

                        The Contractor agrees to comply with the program
                        standards regarding records retention, which are set
                        forth in Exhibit D, Standard Terms and Conditions of
                        Services of this Agreement.



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<PAGE>

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

                6.      FRAUD AND ABUSE

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

                        Within the Contractor's written policies and procedures,
                        the Contractor shall identify the corporate officer
                        responsible for the proactive detection, prevention and
                        elimination of fraud or abuse in its program. The
                        designated corporate officer must have direct access to
                        the CEO and be granted independent authority to refer
                        instances of suspected fraud and abuse directly to the
                        Department.

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

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



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<PAGE>

                        The Contractor, including the designated corporate
                        officer, shall have an affirmative responsibility to
                        refer suspected fraud or abuse to relevant oversight
                        agencies. Contractors who do not report such information
                        are subject to sanctions, penalties, or other actions. A
                        standardized referral process is outlined in Exhibit KK
                        of this Agreement, Standardized Referrals, to expedite
                        information for appropriate disposition. The
                        requirements of the standardized referral process are
                        incorporated by reference into this Agreement.

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

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

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



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

                7.      INFORMATION SYSTEMS AND ENCOUNTER DATA

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

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

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

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

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

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

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



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

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

                        i.      The Contractor's MIS must be compatible with the
                                Department's POSNet system. The Contractor must
                                comply with the policies and procedures
                                governing the operation of the Department's
                                POSNet system, as defined in the POSNet
                                Interface Specifications and Data Exchange
                                Guidelines, which can be found in the
                                HealthChoices Proposers' Library. In addition,
                                the Contractor must comply with changes made to
                                the POSNet Interface Specifications and the Data
                                Exchange Guidelines of the Department. The
                                Contractor must make changes to their MIS
                                system, in order to remain compatible with the
                                Department's data system. Whenever possible, the
                                Department will provide advance notice of at
                                least sixty (60) days prior to the
                                implementation of changes. For more complex
                                changes, every effort will be made to provide
                                additional notice.

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

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



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<PAGE>

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

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

                8.      DEPARTMENT ACCESS AND AVAILABILITY

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

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

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

                        -       Personnel policies and procedures

                        -       Procurement policies and procedures

                        -       Public relations policies and procedures

                        -       Operations policies and procedures

                        -       Policies and procedures developed to ensure
                                compliance with requirements under this
                                Agreement.

        P.      SPECIAL NEEDS UNIT (SNU)

                1.      ESTABLISHMENT OF SPECIAL NEEDS UNIT

                        a.      The Contractor must develop, train, and maintain
                                a "special" dedicated unit within its
                                organizational structure to deal with issues
                                relating to Members with Special Needs ("Special


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<PAGE>

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

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

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

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



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<PAGE>

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

                2.      SPECIAL NEEDS COORDINATOR

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

                3.      RESPONSIBILITIES OF SPECIAL NEEDS UNIT STAFF

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

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

                        c.      The Contractor must demonstrate to the
                                Department that its SNU staff is qualified to
                                perform the functions outlined in Exhibit NN of
                                this Agreement, Special Needs Unit.

        Q.      ASSIGNMENT OF PCPS

                The Contractor must have written policies and procedures for
                Members, parents, guardians, or others acting as loco parens for
                Special Needs populations, who require assistance in the
                selection of a PCP. The Contractor must receive advance written
                approval by the Department regarding these policies and
                procedures. The Contractor's submission of new or revised
                policies and procedures for review and approval by the
                Department shall not act to void any pre-existing policies and
                procedures which have been prior approved by the Department for
                operation in a HC zone. Unless otherwise required by law, the
                Contractor may continue to



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                operate under such pre-existing policies and procedures until
                such time as the Department approves the new or revised version
                thereof.

                The Contractor must ensure that the process includes at a
                minimum the following features:

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

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

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

                -       If a Member does not select a PCP within fourteen (14)
                        business days of enrollment, the PH-MCO must make an
                        automatic assignment. The Contractor must consider such
                        factors (to the extent they are known), as current
                        Provider relationships, need of children to be followed
                        by a pediatrician, special medical needs, physical
                        disabilities of the Member, language needs, area of
                        residence and access to transportation. The PH-MCO must
                        then notify the Member by telephone or in writing of
                        his/her PCP's name, location and office telephone
                        number. The PH-MCO must make every effort to determine
                        PCP choice and confirm this with the Member prior to the


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                        commencement of the PH-MCO coverage in accordance with
                        Section V.F of this Agreement, Member Enrollment and
                        Disenrollment, so that new Members do not go without a
                        PCP for a period of time after enrollment begins.

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

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

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

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

                -       The Contractor must consider that a Member with Special
                        Needs can request a specialist as a PCP. Denial of such
                        requests are appealable.

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

        R.      PROVIDER SERVICES

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

                -       Assisting Providers with questions concerning Member
                        eligibility status.

                -       Assisting Providers with Contractor prior authorization
                        and referral procedures.



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                -       Assisting Providers with Claims payment procedures and
                        handling Provider complaints.

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

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

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

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

                1.      PROVIDER MANUAL

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

                2.      PROVIDER EDUCATION

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

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



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

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

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

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

                        d.      Cultural competence.

                        e.      Treating Special Needs populations, including
                                the right to treatment for individuals with
                                disabilities.

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

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

        S.      PROVIDER NETWORK/SERVICES ACCESS

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

                1.      NETWORK COMPOSITION



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

                        The Contractor must make all reasonable efforts to honor
                        a Member's choice of Providers who are credentialed in
                        the Network. Additional requirements for establishing
                        and maintaining an acceptable Provider Network are as
                        follows:

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

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

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

                                ii.     Ensure an adequate number of
                                        pediatricians to permit all Members who
                                        want a pediatrician as a PCP to have a
                                        choice of two (2) for their child(ren)
                                        within the travel time limits (30
                                        minutes urban, 60 minutes rural).



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

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

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

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

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

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

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



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                        e.      The Contractor must ensure a choice of at least
                                two (2) home health agencies within the
                                HealthChoices zone.

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

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

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

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

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

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

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



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

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

                        n.      The Contractor must contract with a sufficient
                                number of Federally Qualified Health Centers
                                (FQHCs) and Rural Health Clinics (RHCs) to
                                ensure access to FQHC and RHC services, provided
                                FQHC and RHC 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 and RHCs,
                                these sites may be designated as PCP sites. A
                                listing of FQHCs and RHCs for HealthChoices is
                                included in Exhibit QQ of this Agreement,
                                HealthChoices Federally Qualified Health Centers
                                and Rural Health Clinics. If a Contractor cannot
                                contract with a sufficient number of FQHCs and
                                RHCs, the Contractor must demonstrate in writing
                                it has attempted to reasonably contract in good
                                faith.

                        o.      The Contractor must comply with the provisions
                                of Act 112 of 1996 (H.B. 1415, P.N. 3853, signed
                                July 11, 1996),the Balanced Budget
                                Reconciliation Act of 1997 and Act 68 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 II.

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



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                                not accessible under the terms of this
                                paragraph, the PCP or dentist may participate in
                                the Contractor's Provider Network provided that
                                the PCP or dentist: 1) requests and is
                                determined by the Contractor to qualify for an
                                exemption from this paragraph, consistent with
                                the requirements of the ADA, or 2) agrees in
                                writing to remove the barrier to make the office
                                or facility accessible to persons with mobility
                                impairments within six (6) months after the
                                Contractor identified the barrier.

                        q.      The PH-MCO must ensure that all laboratory
                                testing sites providing services have either a
                                Clinical Laboratory Improvement Amendment (CLIA)
                                certificate of waiver or a certificate of
                                registration along with a CLIA identification
                                number in accordance with CLIA 1988. Those
                                laboratories with certificates of waiver will
                                provide only the eight (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.

                2.      PROVIDER AGREEMENTS

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

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

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

                        b.      A requirement that the Contractor will not
                                exclude a Provider from the Contractor's
                                Provider Network because the Provider advocated
                                on behalf of a Member for Medically Necessary
                                and appropriate health care consistent with the
                                degree of learning and skill ordinarily
                                possessed by a reputable health care Provider
                                practicing according to the applicable legal
                                standard of care.



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

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

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

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

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

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

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

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

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



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

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

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

                        o.      A requirement that the Contractor must not
                                discriminate with respect to participation,
                                reimbursement, or indemnification as to any
                                provider who is acting within the scope of the
                                Provider's license or certification under
                                applicable State law, solely on the basis of
                                such license or certification. This paragraph
                                must not be construed to prohibit an
                                organization from including Providers only to
                                the extent necessary to meet the needs of the
                                organization's enrollees or from establishing
                                any measure designed to maintain quality and
                                control costs consistent with the
                                responsibilities of the organization.

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

                        The Contractor must make all necessary revisions to its
                        Provider Agreements to be in compliance with the
                        requirements set forth in this section. Revisions may be
                        completed as Provider Agreements



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

                3.      CULTURAL COMPETENCE

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

                4.      PRIMARY CARE PRACTITIONER (PCP) RESPONSIBILITIES

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

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

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

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

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

                        e.      Maintaining a current medical record for the
                                Member, including documentation of all services
                                provided to the



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                                Member by the PCP, as well as any specialty or
                                referral services.

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

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

                5.      SPECIALISTS AS PCPS

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

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

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

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

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

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

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

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

                        It is the responsibility of the Contractor to ensure
                        adequate Network capacity of qualified specialists as
                        PCPs. These physicians may be



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                        predetermined and listed in the directory but may also
                        be determined on an as needed basis. All determinations
                        must comply with specifications set out by Act 68
                        regulations. The Contractor must establish and maintain
                        its own credentialing and recredentialing policies and
                        procedures to ensure compliance with these
                        specifications.

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

                6.      ANY WILLING PHARMACY

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

                7.      HOSPITAL RELATED PARTY

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

                8.      MAINSTREAMING

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



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<PAGE>

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

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

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

                        -       The assignment of times or places for the
                                provision of services on the basis of the race,
                                color, creed, religion, age, sex, national
                                origin, ancestry, marital status, sexual
                                orientation, income status, program membership,
                                language, MA status, health status, disease or
                                pre-existing condition, anticipated need for
                                health care or physical or mental disability of
                                the participants to be served.

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

                9.      NETWORK CHANGES

                        The Contractor must notify the Department promptly of
                        any changes to the composition of its Provider Network
                        that materially affects the Contractor's ability to make
                        available all services covered by this Agreement in a
                        timely manner. The Contractor also



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<PAGE>

                        must have procedures to address changes in its Network
                        that negatively affect the ability of Members to access
                        services. Material changes in Network composition that
                        negatively affect Member access to services may be
                        grounds for termination of this Agreement.

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

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

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

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

                10.     OTHER PROVIDER ENROLLMENT STANDARDS

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

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

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

                        The Department encourages the use of Providers currently
                        contracting with the County Children and Youth Agencies
                        who have experience with the foster care population and
                        who have been



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<PAGE>

                        providing services to children and youth MA Consumers
                        for many years.

                11.     TWENTY-FOUR HOUR COVERAGE

                        It is the responsibility of the Contractor to have
                        coverage available directly or through its PCPs either
                        directly or through on-call arrangements with other
                        qualified Providers for urgent or emergency care on a
                        twenty-four (24) hour, seven (7) day-a-week basis. The
                        Contractor shall not use answering services in lieu of
                        the above PCP emergency coverage requirements without
                        the knowledge of the Member. For Emergency or Urgent
                        Medical Conditions, the Contractor must have written
                        policies and procedures on how Members and Providers can
                        make contact to receive instruction or prior
                        authorization for treatment. If the PCP determines that
                        emergency care is not required, 1) the PCP must see the
                        Member in accordance with the timeframe specified in
                        Section V.S.12.a.ii, or 2) the member must be referred
                        to an urgent care clinic which can see the Member in
                        accordance with the timeframe specified in Section
                        V.S.12.a.ii.

                12.     APPOINTMENT STANDARDS

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

                        a.      GENERAL

                                PCP scheduling procedures must ensure that:

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

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

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



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<PAGE>

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

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

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

                        b.      PERSONS WITH HIV/AIDS

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

                        c.      SSI

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

                        d.      SPECIALTY REFERRALS

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

                                i.      Emergency Medical Condition appointments
                                        immedi-ately upon referral.

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



                                                                              94
<PAGE>

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

                        e.      PREGNANT WOMEN

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

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

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

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

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

                        f.      EPSDT

                                EPSDT screens for any new enrollee under the age
                                of twenty-one (21) must be scheduled within
                                forty-five (45) days from the effective date of
                                enrollment unless the child is already under the
                                care of a PCP and the child is current with
                                screens and immunizations.

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


                                                                              95

<PAGE>

               13.    POLICIES AND PROCEDURES FOR APPOINTMENT STANDARDS

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

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

               14.    COMPLIANCE WITH ACCESS STANDARDS

                      a.     MANDATORY COMPLIANCE

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

                      a.     REASONABLE EFFORTS AND ASSURANCES

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

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

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

                             The Contractor must provide the Department adequate
                             assurances that the Contractor, with respect to the
                             HealthChoices zone, has the capacity to serve the
                             expected enrollment in the HealthChoices zone by
                             providing assurances that the Contractor offers the
                             full scope of covered services as set forth in this
                             Agreement and access to preventive and primary care
                             services and maintains a sufficient number, mix and
                             geographic distribution of Providers and services
                             in accordance with the standards set


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<PAGE>


                             forth in Section V.S of this Agreement, Provider
                             Network/Services Access.

                      c.     CONTRACTOR'S CORRECTIVE ACTION

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

        T.     QM AND UM PROGRAM REQUIREMENTS

               1.     OVERVIEW

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

               2.     GENERAL



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<PAGE>


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

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

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

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

               3.     ADDITIONAL UTILIZATION MANAGEMENT PROGRAM REQUIREMENTS

                      The Contractor agrees to provide twenty-four (24) hour
                      staff availability to authorize weekend services,
                      including but not limited to: home health care, pharmacy,
                      DME, and medical supplies. The Contractor must have
                      written policies and procedures that address how Members
                      and Providers can make contact with the plan to receive
                      instruction or prior authorization, as necessary.

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

                                                                              98
<PAGE>


                      found to be Medically Necessary consistent with the
                      HealthChoices definition of Medically Necessary.

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

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

               4.     HEALTHPLAN EMPLOYER DATA INFORMATION SET (HEDIS)

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

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

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

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

               5.     EXTERNAL QUALITY REVIEW (EQR)

                      The Contractor agrees to cooperate fully with any external
                      evaluations and assessments of its performance authorized
                      by the


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<PAGE>


                      Department under this Agreement. Independent
                      assessments will include, but not be limited to, any
                      independent evaluation required or allowed by federal or
                      state statute or regulation. See Exhibit M(2) of this
                      Agreement, External Quality Review.

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

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

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

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

               6.     QM/UM PROGRAM REPORTING REQUIREMENTS

                      The Contractor agrees to:

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

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

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

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

                      The Contractor agrees to comply with all QM and UM program
                      reporting requirements and time frames outlined in Exhibit
                      M(1) or this Agreement, Quality Management and Utilization
                      Management

                                                                             100
<PAGE>

                      Program Requirements. The Department will, on a periodic
                      basis, review the required reports and make changes to
                      the information/data and/or formats requested based on
                      the changing needs of the HealthChoices Program. The
                      Contractor must comply with all requested changes to the
                      report information and formats as deemed necessary by
                      the Department. Copies of current QM and UM reporting
                      requirements can be found in the HealthChoices
                      Proposers' Library.

               7.     COLLABORATION BETWEEN CONTRACTOR QM AND UM DEPARTMENTS AND
                      SPECIAL NEEDS UNITS

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

               8.     DELEGATED QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT
                      FUNCTIONS

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

               9.     CONSUMER INVOLVEMENT IN THE QUALITY MANAGEMENT AND
                      UTILIZATION MANAGEMENT PROGRAMS

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

               10.    CONFIDENTIALITY

                      The Contractor must have written policies and procedures
                      for maintaining the confidentiality of data that addresses
                      medical


                                                                             101
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                      records, Member information and Provider information and
                      is in compliance with the provisions set forth in Section
                      2131 of the Insurance Company Law of 1921, as amended, 40
                      P.S. 991.2131 and 55 Pa. Code 105.

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

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

               11.    DEPARTMENT OVERSIGHT

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

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

                      The Contractor must obtain advance written approval from
                      the Department before releasing or sharing data,
                      correspondence and/or improvements from the Department
                      regarding the Contractor's internal QM and UM programs
                      with any of the other HealthChoices PH-MCOs or any
                      external entity.

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

SECTION VI:  PROGRAM OUTCOMES AND DELIVERABLES

        All deliverables must receive advance written approval by the Department
        prior to the operational date of the Initial Term of the Contract unless
        otherwise specified


                                                                             102
<PAGE>



        by the Department. Deliverables include, but are not limited to:
        operational policies and procedures, required materials, letters of
        agreement, provider agreements, reimbursement methodology and rates,
        coordination agreements, reports, tracking systems, required files,
        QM/UM documents (See Exhibit M(3) of this Agreement, Quality
        Management/Utilitzation Management Deliverables), and referral systems.

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

SECTION VII:  FINANCIAL REQUIREMENTS

        A.     FINANCIAL STANDARDS

               1.     RISK PROTECTION REINSURANCE FOR HIGH COST CASES

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

                      The Contractor may not change or discontinue the risk
                      protection arrangement without advance written approval
                      from the Department, which approval shall not be
                      unreasonably withheld. The Contractor must notify the
                      Department thirty (30) days prior to any change in the
                      risk protection arrangement. The Department reserves the
                      right to review such risk protection arrangements and
                      require changes based on the Department's assessment of
                      the Contractor's overall financial condition.

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

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




                                                                             103
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                      b.     The Contractor's Statutory Accounting Principles
                             (SAP) basis equity is less than 4.2 percent of MA
                             premiums earned during the most recent calendar
                             year for which the due date has passed for
                             submission of the unaudited annual reports filed by
                             the Contractor with the Insurance Department (DOI);
                             or,

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

               2.     EQUITY REQUIREMENTS AND INSOLVENCY PROTECTION

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

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

                       -   $1.5 million.

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

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

                      The amount of the requirement for equity for any PH-MCO
                      that did not provide medical benefits to MA Consumers in
                      the zone through a HC contract in 2001 shall be phased in
                      as follows:

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



                                                                             104
<PAGE>

                      <TABLE>
                      -------------------------------------------------------------------------
                      <S>                                    <C>
                      Equity as of the last day of the       100% of the amount determined by
                      fourth contract calendar quarter.      the Three (3) Part Test.
                      -------------------------------------------------------------------------
                      </TABLE>

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

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

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

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

                      -  Discuss fiscal plans with the Contractor's management.

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

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

                      -  Terminate this Agreement effective the last day of the
                         calendar month after the Department notifies the
                         Contractor of termination.

               3.     SECONDARY LIABILITY

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

                      a.     Insolvency insurance.



                                                                             105
<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 default in payment resulting from
                             bankruptcy or insolvency.

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

               4.     LIMITATION OF LIABILITY

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

               5.     MEDICAL COST ACCRUALS

                      As part of its accounting and budgeting function, the
                      Contractor must establish and maintain an actuarially
                      sound process for estimating and tracking Incurred But Not
                      Paid (IBNP) amounts. The Contractor must reserve funds by
                      major categories of service to cover IBNP amounts. As part
                      of its reserving methodology, the Contractor must conduct
                      annual reviews to assess its reserving methodology and
                      make adjustments, as necessary.

               6.     CLAIMS PROCESSING AND MIS

                      The Contractor must have a Claims processing system and
                      MIS sufficient to support the Provider payment and data
                      reporting requirements specified in Section VIII of this
                      Agreement, Reporting Requirements. See also Exhibit MM of
                      this Agreement, Management Information System and System
                      Performance Review Standards, for MIS and Systems
                      Performance Review (SPR) standards. The Contractor shall
                      be prepared to document its ability


                                                                             106
<PAGE>


                      to expand Claims processing or MIS capacity should
                      either or both be exceeded through the enrollment of
                      program Members.

               7.     DSH/GME PAYMENT FOR DISPROPORTIONATE SHARE HOSPITALS (DSH)
                      / GRADUATE MEDICAL EDUCATION (GME)

                      The Department shall make direct payments of DSH/GME to
                      hospitals. DSH and GME amounts shall not be included in
                      fee-for-service cost equivalent projections or in
                      capitation payments paid by the Department to the
                      Contractor.

               8.     MEMBER LIABILITY

                      The Contractor is prohibited from holding the Member
                      liable for the following:

                      a.     Debts of the Contractor in the event of the
                             Contractor's insolvency.

                      b.     Services provided to the Member in the event of the
                             Contractor failing to receive payment from the
                             Department for such services.

                      c.     Services provided to the Member in the event of a
                             health care Provider with a contractual, referral
                             or other arrangement with the Contractor failing to
                             receive payment from the Department or the
                             Contractor for such services.

                      d.     Payments to a Provider that furnishes covered
                             services under a contractual, referral or other
                             arrangement with the Contractor in excess of the
                             amount that would be owed by the Member if the
                             Contractor had directly provided the services.

        B.     COMMONWEALTH CAPITATION PAYMENTS

               1.     PAYMENTS FOR IN-PLAN SERVICES

                      The obligation of the Department to make payments shall be
                      limited to capitation payments, maternity care payments,
                      and any other payments provided by this Agreement.

                      a.     CAPITATION PAYMENTS

                             i.     The Contractor shall receive capitated
                                    payments for In-Plan Services as defined in
                                    Section VII.B.1 of this

                                                                             107
<PAGE>


                                    Agreement, Payment for In-Plan Services.
                                    Capitation rates maternity care rates, and
                                    Risk Pool Allocation Amounts (RPAAs),
                                    applicable to the agreement year beginning
                                    January 1, 2002, are set forth in Appendix 3
                                    of this Agreement, Capitated Rates. This
                                    agreement year, for capitation purposes,
                                    begins January 1, 2002, and extends 12
                                    months to December 31, 2002. The contract
                                    period of October 1, 2001 - December 31,
                                    2001 is for Readiness Review and for
                                    pre-operational preparedness. No payment
                                    will be made for this period of time under
                                    this contract.

                                    For the agreement year beginning January 1,
                                    2003, and for each subsequent agreement
                                    year, the Department will provide an initial
                                    schedule of capitation rates, maternity care
                                    rates, and RPAAs, not later than July 1 of
                                    the previous year. The Department will
                                    provide the Contractor with information on
                                    methodology and data used to develop the
                                    initial schedule of rates. The Department
                                    will provide the Contractor with the
                                    opportunity of a meeting, in which the
                                    Department will consider questions from the
                                    Contractor on development of the initial
                                    schedule of rates. The Department will
                                    provide the Contractor with a final schedule
                                    of capitation rates; maternity care rates,
                                    and RPAAs, by September 30 of the year prior
                                    to the effective date of the rates. If the
                                    Contractor does not notify the Department of
                                    its acceptance of the final schedule of
                                    rates by October 15 of the same year, and if
                                    the Contractor has not already provided
                                    notice of its intent to terminate the
                                    Agreement, the Department will, at its sole
                                    discretion, decide on a schedule of rates
                                    for the subsequent agreement year that will
                                    consist of one of the following:

                                    (1)     The final schedule of capitation
                                            rates, maternity care rates and
                                            RPAAs, applicable to the subsequent
                                            agreement year, previously provided
                                            by the Department; or

                                    (2)     The schedule of capitation rates,
                                            maternity care rates and RPAAs
                                            applicable to the prior agreement
                                            year.


                                                                             108
<PAGE>


                             ii.    The Department shall make a pre-paid
                                    capitation payment, referenced in Section
                                    VII.B.1.a above, for each Member whose
                                    enrollment on the first day of the month is
                                    indicated on the Department's CIS on the
                                    first day of the month. If the Contractor is
                                    responsible to provide benefits to a MA
                                    Consumer who does not appear on CIS on the
                                    first day of the month, the Department shall
                                    initiate a capitation payment on the first
                                    day of the first subsequent month on which
                                    said enrollment appears on CIS. The
                                    Department will compute capitation payments
                                    using per diem rates. The Department will
                                    make a monthly payment to the PH-MCO for
                                    each MA Consumer enrolled in the PH-MCO, for
                                    the first day in the month the MA Consumer
                                    is enrolled in the PH-MCO and for each
                                    subsequent day through, and including the
                                    last day of the month.

                             iii.   The Department shall make each monthly
                                    capitation payment by the fifteenth (15th)
                                    of the month. The Department shall seek to
                                    make arrangements for payment by wire
                                    transfer or electronic funds transfer. If
                                    such arrangements are not in place, payment
                                    shall be made by U.S. Mail.

                             iv.    The Department shall not make a capitation
                                    payment for a Recipient Month if it notifies
                                    the Contractor before the first of the month
                                    that the individual's MA eligibility or
                                    PH-MCO enrollment ends prior to the first of
                                    the month.

                             v.     This Agreement provides for rates for SSI
                                    consumers who have Medicare Part A benefits

                                    that are distinct from rates for SSI
                                    consumers who do not have Medicare Part A
                                    benefits. If the Department's Third Party
                                    Liability (TPL) file is updated to indicate
                                    Medicare Part A coverage within four (4)
                                    months prior to the current month for a MA
                                    Consumer at an SSI Without Medicare rate,
                                    the Department shall adjust the payment to
                                    reflect the rating group appropriate to the
                                    MA Consumer, provided the TPL file indicates
                                    Medicare Part A coverage as of the first day
                                    of coverage by the Contractor for this
                                    MA Consumer during the month for which
                                    payment was made. If the Department's TPL
                                    file is updated to adjust or delete
                                    indication of Medicare Part A coverage
                                    within four (4) months of a payment to the
                                    Contractor for a MA



                                                                             109
<PAGE>

                                    Consumer at an SSI with Medicare or Healthy
                                    Horizons rate, the Department shall adjust
                                    the payment to reflect the rating group
                                    appropriate to the MA Consumer, provided the
                                    TPL file does not indicate Medicare Part A
                                    coverage as of the first day of coverage by
                                    the Contractor for this MA Consumer during
                                    the month for which payment was made. The
                                    Department shall provide information to the
                                    Contractor on this type of payment
                                    adjustment on an electronic file. The
                                    Contractor shall utilize this information to
                                    adjust its payments to Providers and
                                    instruct its Providers to bill Medicare.

                             vi.    The Department will recover capitation
                                    payments made for Members who were later
                                    determined to be ineligible for managed care
                                    for up to twelve (12) months after the
                                    service month for which payment was made.
                                    The Department will recover capitation
                                    payments made for deceased recipients for up
                                    to eighteen (18) months after the service
                                    month for which payment was made. See
                                    Exhibit BB of this Agreement, PH-MCO
                                    Recipient Coverage Document.

                             vii.   If a HCFA determination that a PH-MCO has
                                    committed a violation described
                                    in paragraph (a) of 42 C.F.R. Chapter IV
                                    Subsection 434.67 (Sanctions against HMOs
                                    with risk comprehensive contracts) is
                                    affirmed on review of paragraph (d)
                                    (Informal reconsideration), or is not timely
                                    contested by the PH-MCO under paragraph (c)
                                    (Notice of Sanction), HCFA, based upon
                                    this recommendation of the agency, may deny
                                    payment for new enrollees of the PH-MCO
                                    under Section 1903 (m)(5)(B)(ii) of the Act.
                                    Under Subsections 434.22 and 434.42, HCFA's
                                    denial of payment for new enrollees
                                    automatically results in a denial of agency
                                    payments to the PH-MCO for the same
                                    enrollees.  A new enrollee is an enrollee
                                    that applies for enrollment after the
                                    effective date in paragraph (f)(1) of 42
                                    C.F.R. Section 434.67.

               2.     MATERNITY CARE PAYMENT

                      For each live birth, the Department shall make a one-time
                      maternity care payment to the Contractor with whom the
                      mother is enrolled on the date of birth; however, if the
                      mother is admitted to a hospital and a change in the
                      PH-MCO coverage occurs during the hospital



                                                                             110
<PAGE>


                      admission, the PH-MCO responsible for the hospital stay at
                      the time of birth shall receive the maternity care
                      payment. The amount of the maternity care payment for the
                      agreement year beginning January 1, 2002, is shown in
                      Appendix 3 of this Agreement, Capitated Rates. The payment
                      is a global fee to cover all maternity expenses, including
                      prenatal care, delivery fees and post-partum care for the
                      mother and all services mandated by Act 85 of 1996 ("The
                      Health Security Act").

                      If required by the Department, the Contractor must submit
                      invoices or data files to the Department to receive
                      maternity care payments, consistent with specifications
                      determined by the Department.

               3.     PROGRAM CHANGES

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

                      The Department shall adjust rates, as necessary, to
                      maintain the actuarial soundness of the rates to reflect
                      the impact on costs of program changes. If the Department
                      makes an adjustment to the rates, as provided by this
                      paragraph, the Department will provide information to the
                      Contractor on the methodology used to determine the amount
                      of the rate adjustment.

        C.     HIV/AIDS RISK POOL

               The Department shall withhold the portion of each capitation
               payment that is designated as a RPAA on each rate schedule. RPAA
               funds withheld shall be allocated to an HIV/AIDS Risk Pool and
               distributed to PH-MCOs in accordance with Exhibit VV of this
               Agreement, HIV/AIDS Risk Pool.

        D.     CLAIMS PROCESSING STANDARDS, MONTHLY REPORT AND PENALTIES

               1.     TIMELINESS STANDARDS

                      The Contractor will adjudicate Provider Claims consistent
                      with the requirements below. These requirements apply
                      collectively to



                                                                             111
<PAGE>


                      Claims processed by the Contractor and any subcontractor.
                      Subcapitation payments are excluded from these
                      requirements.

                      The adjudication timeliness standards follow for each of
                      three (3) categories of Claims:

                      a.     CLAIMS RECEIVED FROM A HOSPITAL FOR INPATIENT
                             ADMISSIONS ("INPATIENT")

                             90.0% of Clean Claims must be adjudicated within
                             thirty (30) days of receipt.

                             100.0% of Clean Claims must be adjudicated within
                             forty-five (45) days of receipt.

                             100.0% of all Claims must be adjudicated within
                             ninety (90) days of receipt.

                      b.     DRUG CLAIMS

                             90.0% of Clean Claims must be adjudicated within
                             thirty (30) days of receipt.

                             100.0% of Clean Claims must be adjudicated within
                             forty-five (45) days of receipt.

                             100.0% of all Claims must be adjudicated within
                             ninety (90) days of receipt.

                      c.     ALL CLAIMS OTHER THAN INPATIENT AND DRUG:

                             90.0% of Clean Claims must be adjudicated within
                             thirty (30) days of receipt.

                             100.0% of Clean Claims must be adjudicated within
                             forty-five (45) days of receipt.

                             100.0% of all Claims must be adjudicated within
                             ninety (90) days of receipt.

                      The adjudication timeliness standards do not apply to
                      Claims submitted by Providers under investigation for
                      fraud or abuse from the date of service to the date of
                      adjudication of the Claims. Providers can be under
                      investigation by a governmental agency or the Contractor;
                      however, if under investigation by the Contractor,



                                                                             112
<PAGE>



                      the Department must have immediate written notification of
                      the investigation.

                      Every Claim entered into the Contractor's computer
                      information system that is not a Rejected Claim must be
                      adjudicated. The Contractor must maintain an electronic
                      file of rejected Claims, inclusive of a reason or reason
                      code for rejection.

                      The amount of time required to adjudicate a paid Claim is
                      computed by comparing the date the Claim was received with
                      the check date or the transmission date of an electronic
                      payment. The check date is the date printed on the check.
                      The amount of time required to adjudicate a denied Claim
                      is computed by comparing the date the Claim was received
                      with the date the denial notice was created or the
                      transmission date of an electronic denial notice. For an
                      amended Claim, the date the Contractor received the
                      request to adjust the payment from the Provider must be
                      recorded and counted as the date the Claim was received.
                      Amended Claims do not include Provider Appeals.

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

                      The Contractor must record, on every Claim processed, the
                      date the Claim was received. A date of receipt imbedded in
                      a Claim reference number is acceptable for this purpose.
                      This date must be carried on Claims records in the Claims
                      processing computer system. Each hardcopy Claim received
                      by the Contractor, or the electronic image thereof, must
                      be date-stamped with the date of receipt no later than the
                      first work day after the date of receipt. The Contractor
                      must add a date of receipt to each Claim received in the
                      form of an electronic record or file within one work day
                      of receipt.

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

               2.     SANCTIONS

                      The Department will utilize the monthly report that is due
                      on the fifth (5th) calendar day of the fifth (5th)
                      subsequent month after the Claim is received to determine
                      Claims processing penalties. For example, the Department
                      shall utilize the monthly report that is due July 5, 2002,
                      to determine Claims processing penalties for Claims
                      received in January 2002. The Department shall utilize the
                      monthly report that is due August 5, 2002, to determine
                      Claims processing


                                                                             113

<PAGE>


                      penalties for Claims received in February 2002. The
                      Department shall utilize the monthly report that is due
                      September 5, 2002, to determine Claims received in March
                      2002, and so on.

                      All Claims received during the month, for which a penalty
                      is being computed, that remain unadjudicated at the time
                      the sanction is being determined, shall be considered a
                      Clean Claim.

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

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

                      a.     Inpatient Claims.

                      b.     Claims other than inpatient and drug.

                      The penalties provided by this Section apply to all Claims
                      included in each of the two (2) Claim categories specified
                      above, including Claims processed by any subcontractor.

                      The Contractor will be considered in compliance with the
                      requirement for adjudication of 100.0% of all inpatient
                      Claims if 99.5% of all inpatient Claims are adjudicated
                      within ninety (90) days of receipt. The Contractor will be
                      considered in compliance with the requirement of
                      adjudication of 100.0% of all Claims other than inpatient
                      or drug if 99.5% of all Claims other than inpatient or
                      drug are adjudicated within ninety (90) days of receipt.

                      Penalties in the charts below shall be reduced by
                      one-third if the Contractor has 25,000-50,000 MA
                      Consumers. Penalties in the charts below shall be reduced
                      by two-thirds if the Contractor has less than 25,000 MA
                      Consumers.

                      CLAIMS ADJUDICATION MONTHLY PENALTY CHART

                      This chart is used to compute any applicable penalty for
                      failure to adjudicate inpatient Claims timely. This chart
                      is also used to compute any applicable penalty for failure
                      to adjudicate Claims other than inpatient or drug.

                             <TABLE>
                             <CAPTION>
                             --------------------------------------------------
                             <S>                                  <C>
                             Percentage of Clean Claims           Penalty
                             --------------------------------------------------
                             </TABLE>


                                                                             114
<PAGE>

                             <TABLE>
                             --------------------------------------------------
                             <S>                                  <C>
                             Adjudicated in 30 Days
                             88.0 - 89.9                          $1,000
                             --------------------------------------------------
                             80.0 - 87.9                          $5,000
                             --------------------------------------------------
                             70.0 - 79.9                          $10,000
                             --------------------------------------------------
                             60.0 - 69.9                          $30,000
                             --------------------------------------------------
                             50.0 - 59.9                          $50,000
                             --------------------------------------------------
                             40.0 - 49.9                          $70,000
                             --------------------------------------------------
                             30.0 - 39.9                          $90,000
                             --------------------------------------------------
                             Less than 30.0                       $100,000
                             --------------------------------------------------
                             Percentage of Clean Claims
                             Adjudicated in 45 Days               Penalty
                             --------------------------------------------------
                             98.0 - 99.9                          $1,000
                             --------------------------------------------------
                             90.0 - 97.9                          $5,000
                             --------------------------------------------------
                             80.0 - 89.9                          $10,000
                             --------------------------------------------------
                             70.0 - 79.9                          $30,000
                             --------------------------------------------------
                             60.0 - 69.9                          $50,000
                             --------------------------------------------------
                             50.0 - 59.9                          $70,000
                             --------------------------------------------------
                             40.0 - 49.9                          $90,000
                             --------------------------------------------------
                             Less than 40.0                       $100,000
                             --------------------------------------------------
                             Percentage of All Claims             Penalty
                             Adjudicated in 90 Days
                             --------------------------------------------------
                             98.0 - 99.9                          $1,000
                             --------------------------------------------------
                             90.0 - 97.9                          $5,000
                             --------------------------------------------------
                             80.0 - 89.9                          $10,000
                             --------------------------------------------------
                             70.0 - 79.9                          $30,000
                             --------------------------------------------------
                             60.0 - 69.9                          $50,000
                             --------------------------------------------------
                             50.0 - 59.9                          $70,000
                             --------------------------------------------------
                             40.0 - 49.9                          $90,000
                             --------------------------------------------------
                             Less than 40.0                       $100,000
                             --------------------------------------------------
                             </TABLE>

               3.     PHYSICIAN INCENTIVE ARRANGEMENTS

                      a.     Federal financial participation is only available
                             for payments to Medicaid MCOs that are in
                             compliance with the Physician Incentive Plan (PIP)
                             requirements included under 42 C.F.R. 417.479.

                      b.     42 C.F.R. 417.479(a) permits MCOs to operate PIPs
                             only if: 1) no specific payment is made directly
                             or indirectly to a physician or physician group as
                             an inducement to reduce or limit Medically
                             Necessary services furnished to an enrollee; and
                             2) the disclosure, computation of Substantial
                             Financial Risk, Stop-Loss Protection, and enrollee
                             survey requirements of this section are met.



                                                                             115
<PAGE>




                      c.     MCOs must provide information specified in the
                             regulations to the Department and HCFA, upon
                             request. In addition, MCOs must provide the
                             information on their physician incentive plans to
                             any Medicaid client, upon request. MCOs that have
                             PIPs placing a physician or physician group at
                             Substantial Financial Risk for the cost of
                             services the physician or physician group does not
                             furnish must assure that the physician or
                             physician group has adequate Stop-Loss Protection.
                             MCOs that have PIPs placing a physician or
                             physician group at Substantial Financial Risk for
                             the cost of service the physician or physician
                             group does not furnish must also conduct surveys
                             of enrollees and disenrollees addressing their
                             satisfaction with the quality of services and
                             their degree of access to the services.

                      d.     MCOs must provide the following disclosure
                             information concerning its PIPs to the Department
                             prior to approval of the contract:

                             -  whether referral services are included in the
                                PIP plan,

                             -  the type of incentive arrangement used, i.e.
                                withhold bonus, capitation,

                             -  a determination of the percent of payment under
                                the contract that is based on the use of
                                referral services to determine if Substantial
                                Financial Risk exists,

                             -  panel size, and if patients are pooled, pooling
                                method used to determine if Substantial
                                Financial Risk exists,

                             -  assurance that the physician or physician group
                                has adequate stop-loss protection and the type
                                of coverage, if this requirement applies.

                             Where enrollee/disenrollee survey requirements
                             exist, MCOs must provide the survey results. In
                             addition, all MCOs must subsequently provide the
                             above disclosure information annually to the
                             Department.

                      e.     These PIP regulations apply to all MCOs and any of
                             their subcontracting arrangements that utilize a
                             PIP in their payment arrangements with individual
                             physicians or physician groups. PIP regulations
                             require that physicians and physician groups be
                             protected from risk beyond the stop-loss threshold.


                                                                             116
<PAGE>


             4.     RETROACTIVE ELIGIBILITY PERIOD

                      The Contractor shall not be responsible for any payments
                      owed to Providers for services that were rendered prior to
                      the effective date of a Member's enrollment into the
                      PH-MCO.

               5.     IN-NETWORK SERVICES

                      The Contractor shall be responsible for making timely
                      payment for Medically Necessary, covered services rendered
                      by Network Providers when:

                      a.     Services were rendered to treat a medical
                             emergency;

                      b.     Services were rendered under the terms of the
                             Contractor's agreement with the Provider;

                      c.     Services were prior authorized; or

                      d.     It is determined by the Department, after a
                             hearing, that the services should have been
                             authorized.

                      The Contractor will not be financially liable for services
                      rendered to treat a non-emergency condition in a hospital
                      emergency room (except to the extent required elsewhere by
                      law), unless the services were prior authorized or
                      otherwise conformed to the terms of the Contractor's
                      agreement with the Provider.

               6.     PAYMENTS FOR OUT-OF-NETWORK PROVIDERS

                      The Contractor will be responsible for making timely
                      payments to Out-of-Network Providers for Medically
                      Necessary, covered services when:

                      a.     Services were rendered to treat a medical
                             emergency;

                      b.     Services were prior authorized;

                      c.     It is determined by the Department, after a
                             hearing, that the services should have been
                             authorized; or

                      d.     A child enrolled in its plan is placed in emergency
                             substitute care and the county placement agency
                             cannot identify the child nor verify MA coverage.
                             See Exhibit O of this Agreement, Description of
                             Special Services.



                                                                             117
<PAGE>


                      The Contractor shall not be financially liable for
                      services rendered to treat a non-emergency condition in a
                      hospital emergency room (except to the extent required
                      elsewhere in law), unless the services were prior
                      authorized.

                      The Contractor must assume financial responsibility, in
                      accordance with applicable law, for emergency room
                      services and urgently needed services as defined in 42
                      C.F.R. Section 417.401 that are obtained by its Members
                      from Providers and suppliers outside the Contractor's
                      Provider Network even in the absence of the Contractor's
                      prior approval.

               7.     PAYMENTS TO FQHCS AND RURAL HEALTH CENTERS (RHCS)

                      The Contractor agrees to negotiate and pay rates to FQHCs
                      and RHCs comparable to other Providers who provide
                      comparable services in the Contractor's Provider Network.

                      The Contractor may require that an FQHC and RHC comply
                      with case management procedures that apply to other
                      entities that provide similar benefits or services.

               8.     LIABILITY DURING AN ACTIVE GRIEVANCE OR APPEAL

                      The Contractor shall not be liable to pay Claims to
                      Providers if the validity of the Claim is being challenged
                      by the Contractor through a Grievance or appeal, unless
                      the Contractor is obligated to pay the Claim or a portion
                      of the Claim through its agreement with the Provider.

               9.     FINANCIAL RESPONSIBILITY FOR DUAL ELIGIBLES

                      The Contractor must pay Medicare deductibles and
                      coinsurance amounts relating to any Medicare-covered
                      service for qualified 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.

                      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



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                      made by the PH-MCO do not exceed eighty percent (80%) of
                      the Medicare-approved amount.

                      The Contractor, its subcontractors and Providers are
                      prohibited from balance billing Members for Medicare
                      deductibles or coinsurance. The Contractor must ensure
                      that a Member who is eligible for both Medicaid and
                      Medicare benefits has the right to access a Medicare
                      product or service from the Medicare Provider of his/her
                      choice. The Contractor is responsible to pay any Medicare
                      coinsurance and deductible amount, whether or not the
                      Medicare provider is included in the Contractor's Provider
                      Network and whether or not the Medicare provider has
                      complied with the authorization requirements of the
                      Contractor.

               10.    THIRD PARTY LIABILITY (TPL)

                      The Contractor must comply with the third party liability
                      procedures defined by Section 1902(a)(25) of the Social
                      Security Act, 42 U.S.C.A. 1396(a)(25) and implemented by
                      the Department. Under this Agreement, the third party
                      liability responsibilities of the Department will be
                      allocated between the Department and the Contractor.

                      a.     COST AVOIDANCE ACTIVITIES

                             i.     The Contractor will have primary
                                    responsibility for cost avoidance through
                                    the Coordination of Benefits (COB) relative
                                    to federal and private health insurance-type
                                    resources including, but not limited to,
                                    Medicare, private health insurance,
                                    Employees Retirement Income Security Act of
                                    1974 (ERISA), 29 U.S.C.A. 1396a(a)(25)
                                    plans, and workers compensation. The
                                    Contractor must attempt to avoid initial
                                    payment of Claims, whenever possible, where
                                    federal or private health insurance-type
                                    resources are available. All cost-avoided
                                    funds must be reported to the Commonwealth
                                    via encounter data submissions and financial
                                    report 8A-D. The use of the COB flag,
                                    Medicare fields, and the Other Insurance
                                    Paid (OIP) field shall indicate that TPL has
                                    been pursued and the amount which has been
                                    cost-avoided. The Contractor shall not be
                                    held responsible for any TPL errors in the
                                    Department's Eligibility Verification System
                                    (EVS) or the Department's TPL file.


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<PAGE>


                             ii.    The Contractor agrees to pay, and to require
                                    that its subcontractors pay, all Clean
                                    Claims for prenatal or preventive pediatric
                                    care (including EPSDT services to children),
                                    and services to children having medical
                                    coverage under a Title IV-D child support
                                    order to the extent the Contractor is
                                    notified by the Department of such support
                                    orders or to the extent the Contractor
                                    becomes aware of such orders, and then seek
                                    reimbursement from liable third parties. The
                                    Contractor recognizes that cost avoidance of
                                    these Claims is prohibited with the
                                    exception of hospital delivery Claims, which
                                    may be cost-avoided.

                             iii.   The Contractor may not deny or delay
                                    approval of otherwise covered treatment or
                                    services based upon third party liability
                                    considerations. The Contractor may neither
                                    unreasonably delay payment nor deny payment
                                    of Claims unless the probable existence of
                                    third party liability is established at the
                                    time the Claim is filed.

                      b.     POST-PAYMENT RECOVERIES

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

                             ii.    The Department's TPL Section retains the
                                    sole and exclusive right to investigate,
                                    pursue, collect, and retain all "Other
                                    Resources" as defined in Section II of this
                                    Agreement, Definitions. Any correspondence
                                    or inquiry forwarded to the Contractor (by
                                    an attorney, provider of service, insurance
                                    carrier, etc.) relating to a personal injury
                                    accident or trauma-related medical service,
                                    or which in any way indicates that there is,
                                    or may be, legal involvement regarding the
                                    MA Consumer and the services which were
                                    provided, must be immediately forwarded to
                                    the Department's TPL Section. The Contractor
                                    may neither unreasonably delay payment nor
                                    deny payment of Claims because they involved
                                    an injury stemming from an accident such as
                                    a motor vehicle accident,




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                                    where the services are otherwise covered.
                                    Those funds recovered by the Commonwealth
                                    under the scope of these "Other Resources"
                                    shall be retained by the Commonwealth.

                             iii.   Due to potential time constraints involving
                                    cases subject to litigation, the Department
                                    must ensure that it identifies these cases
                                    and establishes its Claim before a
                                    settlement has been negotiated. Should the
                                    Department fail to identify and establish a
                                    Claim prior to settlement due to the
                                    Contractor's untimely submission of notice
                                    of legal involvement where the Contractor
                                    has received such notice, the amount of the
                                    Department's actual loss of recovery shall
                                    be assessed against the Contractor. The
                                    Department's actual loss of recovery shall
                                    not include the attorney's fees or other
                                    costs, which would not have been retained by
                                    the Department.

                             iv.    The Contractor has the sole and exclusive
                                    right to pursue, collect and retain all
                                    health-related insurance resources for a
                                    period of nine (9) months from the date of
                                    service or six (6) months after the date of
                                    payment, whichever is later. The
                                    Department's TPL Section may pursue,
                                    collect, and retain recoveries of all
                                    health-related insurance cases which are
                                    outstanding after the earlier of nine (9)
                                    months from the date of service or six (6)
                                    months after the date of payment. However,
                                    in those cases subject to this paragraph
                                    where payment is being pursued by the
                                    Contractor but, for whatever reason, has not
                                    been collected by the earlier of nine (9)
                                    months from the date of service or six (6)
                                    months after the date of payment, the
                                    Contractor shall notify the Department if
                                    action to recover has been initiated by the
                                    Contractor. In such cases, the Contractor
                                    shall retain exclusive responsibility for
                                    the cases while they are being actively
                                    pursued.

                             v.     Should the Department lose recovery rights
                                    to any Claim due to late or untimely filing
                                    of a Claim with the liable third party, and
                                    the untimeliness in billing that specific
                                    Claim is directly related to untimely
                                    submission of encounter data or additional
                                    records under special request, or
                                    inappropriate denial of Claims for accidents
                                    or emergency care in casualty



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                                    related situations. The amount of the
                                    unrecoverable Claim shall be assessed
                                    against the Contractor.

                             vi.    Encounter data that is not submitted to the
                                    Department in accordance with the data
                                    requirements and/or timeframes identified in
                                    this Agreement can possibly result in a loss
                                    of revenue to the Department. Strict
                                    compliance with these requirements and
                                    timeframes shall therefore be enforced by
                                    the Department and could result in the
                                    assessment of sanctions against the
                                    Contractor.

                             vii.   As part of its authority under paragraph iv.
                                    above, the Contractor is responsible for
                                    pursuing, collecting, and retaining
                                    recoveries of health-related insurance
                                    resources where the liable party has
                                    improperly denied payment based upon either
                                    lack of a Medically Necessary determination
                                    or lack of coverage. The Contractor is
                                    encouraged to develop and implement
                                    cost-effective procedures to identify and
                                    pursue cases which are susceptible to
                                    collection through either legal action or
                                    traditional subrogation and collection
                                    procedures.

               11.    HEALTH INSURANCE PREMIUM PAYMENT (HIPP) PROGRAM

                      The HIPP Program pays for employment-related health
                      insurance for MA Consumers when it is determined to be
                      cost effective. The cost effectiveness determination
                      involves the review of group health insurance benefits
                      offered by employers to their employees to determine if
                      the anticipated expenditures in MA payments are likely to
                      be greater than the cost of paying the premiums under a
                      group plan for those services.

                      The Department shall not purchase Medigap policies for
                      equally eligible MA Consumers in the zone.

               12.    REQUESTS FOR ADDITIONAL DATA

                      The Contractor must provide, at the Department's request,
                      such information not included in the encounter data
                      submissions that may be necessary for the administration
                      of TPL activity. The Contractor shall use its best efforts
                      to provide this information within fifteen (15) calendar
                      days of the Department's request. There are certain urgent
                      requests involving cases for minors that require
                      information within forty-eight (48) hours. Such
                      information may




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                      include, but is not limited to, individual medical records
                      for the express purpose of determining TPL for the
                      services rendered. Confidentiality of the information
                      shall be maintained as required by federal and state
                      regulations.

               13.    ACCESSIBILITY TO TPL DATA

                      The Department shall provide the Contractor with access to
                      data maintained on the TPL file.

               14.    DAMAGE LIABILITY

                      Liability for damages is identified in Section VII.D.10 of
                      this Agreement, Third Party Liability, due to the large
                      dollar value of many Claims which are potentially
                      recoverable by the Department's TPL Section.

               15.    ESTATE RECOVERY

                      Section 1412 of the Public Welfare Code, 62 P.S. 1412,
                      requires the Department to recover MA costs paid on behalf
                      of certain deceased individuals. Individuals age
                      fifty-five (55) and older who were receiving MA benefits
                      for any of the following services are affected:

                      a.     Public or private Nursing Facility services;

                      b.     Residential care at home or in a community setting;
                             or

                      c.     Any hospital care and prescription drug services
                             provided while receiving Nursing Facility services
                             or residential care at home or in a community
                             setting.

                      The applicable MA costs are recovered from the assets of
                      the individual's probate estate. The Department's TPL
                      Section is solely responsible for administering the Estate
                      Recovery Program.

               16.    AUDITS

                      The Contractor is responsible to comply with audit
                      requirements as specified in Exhibit WW of this Agreement,
                      HealthChoices Audit Clause.

               17.    RESTITUTION



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                      The Contractor shall make full and prompt restitution to
                      the Department, as directed by the Department, for any
                      payments received in excess of amounts due to the
                      Contractor under this Agreement whether such overpayment
                      is discovered by the Contractor, the Department, or other
                      third party.

SECTION VIII:  REPORTING REQUIREMENTS

        A.     GENERAL

               The Contractor must comply with state and federal reporting
               requirements that are set forth in this section and throughout
               this Agreement.

        B.     SYSTEMS REPORTS

               The Contractor must submit electronic files and data as specified
               by the Department. To the extent possible, the Department shall
               provide reasonable advance notice of such reports. These reports
               include, but are not limited to, the following (Refer to Exhibit
               CC of this Agreement, Data Support for PH-MCOs):

               1.     ENCOUNTER DATA AND SUBCAPITATION DATA REPORTS

                      The Contractor must record for internal use and submit to
                      the Department a separate record each time a Member has an
                      encounter with a Provider. A service rendered under this
                      Agreement is considered an encounter regardless of whether
                      or not it has an associated Claim. Every record that is
                      provided is considered to be an encounter and will require
                      the Contractor to submit a separate encounter data record
                      for each service received by a Member. The Provider's MAID
                      number must be used when submitting required encounter
                      data.

                      The Contractor must maintain appropriate systems and
                      mechanisms to obtain all necessary data from its health
                      care Providers to ensure its ability to comply with the
                      encounter data reporting requirements. The failure of a
                      health care Provider to provide the Contractor with
                      necessary encounter data shall not excuse the Contractor's
                      noncompliance with this requirement.

                      Effective on a date to be determined by the Department,
                      the Contractor must submit separate subcapitation records
                      for each advance payment made to a Contractor responsible
                      for all or part of a Member's medical care. If the payment
                      is a capitation payment, a separate record is required to
                      report the amount paid on behalf of each Member. Prior to
                      the effective date of this requirement, the



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                      Contractor must provide a periodic report with summary
                      information on subcapitation payments, consistent with the
                      content, format and due date requirements specified by the
                      Department.

                      The Contractor will be given a minimum of sixty (60) days
                      notification of any new edits or changes that DPW intends
                      to implement regarding encounter data.

                      a.     DATA FORMAT

                             The Contractor must submit encounter and
                             subcapitation data electronically over POSNet using
                             file transfer protocol (FTP). Subcapitation data
                             reporting currently being submitted via paper
                             reports will, at a future date, be required to be
                             transmitted electronically.

                             Encounter data files must be provided in ASCII text
                             format using the appropriate format for the five
                             different record types.

                      a.     TIMING OF DATA SUBMITTAL

                             Claims must be submitted by Providers to the
                             Contractor within one hundred eighty (180) days
                             after the date of service. It is acceptable for the
                             Contractor to include a requirement for more prompt
                             submissions of Claims or encounter records in
                             Provider Agreements. Claims adjudicated by a third
                             party vendor must be provided to the Contractor by
                             the end of the month following the month of
                             adjudication.

                             An encounter must be submitted and found acceptable
                             by the Department on or before the last calendar
                             day of the third month after the encounter's
                             Contractor payment/adjudication calendar month in
                             which the Contractor paid/adjudicated the
                             encounter. References to "accepted by the
                             Department" refer to encounter records sent to DPW
                             by the Contractor that have passed all Department
                             edits; records that fail any Department edits are
                             returned to the Contractor and must be corrected,
                             resubmitted to the Department, and pass all edits
                             before they are accepted by the Department.

                             One "initial" file and one "correction" file may be
                             submitted each weekday. If a file is received at
                             the DPW mainframe computer before 6 p.m. (Eastern
                             Time), it will be processed



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<PAGE>


                             that weekday. If a file is received at the DPW
                             mainframe computer after 6 p.m. (Eastern Time), it
                             will be processed on the next weekday. Files
                             received at the DPW mainframe computer after 6 p.m.
                             on Friday are not processed until the following
                             Monday.

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

                      c.     DATA COMPLETENESS

                             The Contractor shall monitor the completeness and
                             accuracy of the encounter data from all Providers
                             and shall initiate corrective action, as necessary.

                      d.     FINANCIAL PENALTIES

                             The Contractor is required to provide complete,
                             accurate, and timely encounter data to the
                             Department, and to maintain complete medical
                             service history data. The Department may withhold a
                             portion of the monthly capitation payment as
                             reimbursement for financial penalties assessed.
                             Financial penalties shall be calculated monthly.

                             Assessment of financial penalties is based on the
                             identification of penalty occurrences. Encounter
                             Data Penalty occurrences/assessments of financial
                             penalties are outlined in Exhibit XX of this
                             Agreement, Encounter and Subcapitation Data Penalty
                             Occurrences.

                      e.     DATA VALIDATION

                             The Contractor agrees to assist the Department in
                             its validation of encounter data by making
                             available medical records and a sample of its
                             Claims data. The validation may be completed by
                             Department staff and/or independent, external
                             review organizations.

                      f.     SECONDARY RELEASE OF ENCOUNTER DATA

                             All encounter data recorded to document services
                             rendered to MA Consumers under this Agreement are
                             the property of the Department. Access to these
                             data is provided to the Contractor and its agents
                             for the sole purpose of operating the HealthChoices
                             Program under this Agreement. The



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                             Contractor and its agents are prohibited from
                             releasing any data resulting from this Agreement to
                             any third party without the advance written
                             approval of the Department. This prohibition does
                             not apply to internal quality improvement or
                             disease management activities undertaken by the
                             Contractor or its agents in the routine operation
                             of a managed care plan.

               2.     FEDERALIZING GA DATA REPORTING

                      The Contractor shall be required to submit a properly
                      formatted monthly file to the Department regarding
                      payments applicable to state-only general assistance (GA)
                      consumers. The file shall include data on hospital Claims
                      paid by the Contractor during the reporting month. The
                      files shall include data for three (3) types of hospital
                      services that are paid on a capitated basis, as listed
                      below:

                      -  Admissions to acute care hospitals

                      -  Admissions to rehabilitation hospitals

                      -  Outpatient hospital services, defined by the Department

                      The following types of information shall be included in
                      each record on the file:

                      -  Contractor

                      -  Provider

                      -  Consumer

                      -  Claim

                      -  Additional data elements as required.

                      Failure to comply with this requirement shall result in a
                      penalty equal to three (3) times the amount that applies
                      to other reporting requirements.

                      Additional Federalizing GA Data Reporting requirements can
                      be found in Exhibit CC of this Agreement, Data Support for
                      PH-MCOs.

               3.     THIRD PARTY RESOURCE IDENTIFICATION



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                      Third party resources identified by the Contractor, which
                      do not appear on the Department's TPL database, must be
                      supplied to the Department's TPL Section by the Contractor
                      on a monthly basis. The method of reporting shall be
                      electronic submission or hardcopy document, whichever is
                      deemed most convenient and efficient by the Contractor for
                      its individual use. For electronic submissions, the
                      Contractor must follow the required report format, data
                      elements, and tape specifications supplied by the
                      Department. For hardcopy submissions, the Contractor must
                      use an exact replica of the TPL resource referral form
                      supplied by the Department.

        C.     OPERATIONS REPORTS

               The Contractor is required to submit such reports as specified by
               the Department to enable the Department to monitor the
               Contractor's internal operations and service delivery. These
               reports include, but are not limited to, the following:

               1.     CONTINUOUS QUALITY IMPROVEMENT

                      The Contractor agrees to provide the Department with
                      uniform data on services, QM, UM and Member
                      satisfaction/complaint data on a regular basis. All
                      quality reports must be submitted according to
                      specifications defined by the Department. The Contractor
                      also agrees to cooperate with the Department in carrying
                      out data validation steps.

               2.     FEDERAL WAIVER REPORTING REQUIREMENTS

                      As a condition of approval of the Waiver for the operation
                      of HealthChoices in Pennsylvania, the Health Care
                      Financing Administration has imposed specific reporting
                      requirements related to the AIDS Home and Community Based
                      Waiver and Special Needs population, particularly related
                      to Special Needs services provided to children. The
                      Contractor must provide the information necessary to meet
                      these reporting requirements. To the extent possible, the
                      Department will provide reasonable advance notice of such
                      reports.

               3.     COMPLAINT, GRIEVANCE AND DPW FAIR HEARING DATA

                      The Contractor agrees to requirements governing the
                      submission of Complaint, Grievance and DPW Fair Hearing
                      process data found at Section VIII.C.3 of this Agreement,
                      Complaint, Grievance and DPW Fair Hearing Data.




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<PAGE>


                      The Contractor agrees to submit a quarterly Complaint,
                      Grievance and DPW Fair Hearing process report no later
                      than forty-five (45) days from the end of the quarter that
                      conforms to the Department's and DOH's specifications and
                      includes at a minimum:

                      -  Total informal Complaints and Member informal Complaint
                         rate by medical nature of Complaint (quality of care,
                         days to appointment, specialist referral, request for
                         interpreter, denial of ER Claim, etc.); and by
                         non-medical nature of Complaint (PH-MCO office staff,
                         office waiting time, etc.).

                      -  Total Grievances and Grievance rate using the
                         indicators in the bullet above.

                      -  Total Provider appeals by nature of Grievance (quality
                         of care, denial of referral request, denial of Claim,
                         lack of timely payment, etc.) and resolution.

                      The Contractor agrees to report its Provider appeal data
                      and utilization management outcomes to the Department
                      utilizing the standardized report form specified by the
                      Department.

               4.     EPSDT REPORTS

                      The Contractor must submit EPSDT reports in the time and
                      manner prescribed by the Department. The Contractor shall
                      be responsible for maintaining appropriate systems and
                      mechanisms to obtain all necessary encounter data from its
                      health care Providers to ensure its ability to comply with
                      the EPSDT reporting requirements. The failure of a health
                      care Provider to provide the Contractor with necessary
                      EPSDT encounter data shall not excuse the Contractor's
                      compliance with this requirement.

                      The Contractor must submit reports providing all data
                      regarding children in substitute care (e.g., the number of
                      children enrolled in substitute care who have received
                      comprehensive EPSDT screens, the number who have received
                      blood level assessments, etc.).

               5.     HEALTHY BEGINNINGS PLUS REPORTING

                      The Contractor must report certain Healthy Beginnings Plus
                      (HBP) statistics to the Department. HBP reporting periods
                      are January 1 through June 30, and July 1 through December
                      31. The Contractor must submit a semi-annual report to the
                      Department within sixty (60) days from the end of the
                      six-month service period. See Exhibit YY of this
                      Agreement, MCO Obstetrical Reporting Form.




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<PAGE>


               6.     MEMBER HOTLINE ACTIVITIES REPORT

                      The Contractor's Member services function shall: provide
                      reports/analyses of hotline activity in a format and
                      frequency to be established by the Department.

               7.     FRAUD AND ABUSE

                      The Contractor must submit to the Department quarterly and
                      annual statistical reports which relate to its Fraud and
                      Abuse detection and sanctioning activities, as well as an
                      annual update in the aggregate.

               8.     PROVIDER NETWORK

                      The Contractor must report the composition of its Provider
                      Network to the Department and receive advance written
                      approval from the Department prior to the end of the
                      Readiness Review. Updates to the Provider file must be
                      provided to the Department monthly. A list of Network
                      composition requirements are found in Section V.S.1 of
                      this Agreement, Network Composition. The file layout for
                      the provider file can be found in the HealthChoices
                      Proposers' Library.

               9.     PROVIDER DISPUTE RESOLUTION SYSTEM

                      The Contractor must submit to the Department copies of the
                      completed Provider Dispute Resolution System Quarterly and
                      Annual Reports relating to Provider specific disputes and
                      resolutions.

               10.    REPORTS SUBMISSION SCHEDULE

                      Reports as defined by the Department must be submitted
                      according to the following schedule unless the Department
                      specifies a different due date:

                      QUARTERLY REPORTS:
                        <TABLE>
                        <CAPTION>
                             Quarter Ending                      Report Due
                            <S>                                 <C>
                             March 31                            May 15
                             June 30                             August 15
                             September 30                        November 15
                             December 31                         February 15
                        </TABLE>



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<PAGE>


                      ANNUAL REPORTS:

                             Annual Reports are to be submitted ninety (90) days
                             after the end of the calendar year.

               11.    HEDIS INCLUDING CAHPS

                      The Contractor must submit annual reports based on the
                      Medicaid HEDIS outcome measures, as outlined in the most
                      current version of the Medicaid HEDIS applicable to the
                      reporting year. See Exhibit M(4) of this Agreement, HEDIS.
                      The Consumer Assessment of Health Plan Satisfaction
                      (CAHPS) 2.0H surveys (Adult and Child) are part of the
                      HEDIS required by the Department. Those HEDIS measures
                      related to behavioral health issues are not the
                      responsibility of the Contractor. In addition, the
                      Contractor's voluntary population is not included in these
                      reports since the HealthChoices Program does not encompass
                      the voluntary plans.

               12.    SERB

                      The Contractor's Quarterly Utilization Report (or similar
                      type document containing the same information) must be
                      completed and submitted to the Contracting Officer and the
                      Bureau of Contract Administration and Business Development
                      within ten (10) business days at the end of each quarter
                      the contract is in force. If there was no activity, the
                      form must also be completed, stating "No activity in this
                      quarter."

        D.     FINANCIAL REPORTS

               The Contractor agrees to submit such reports as specified by the
               Department to assist the Department in assessing the Contractor's
               financial viability and to ensure compliance with this Agreement.

               The Department shall distribute financial data reporting
               requirements to the Contractor. The Contractor will furnish all
               financial reports timely and accurately, with content in the
               format prescribed by the Department.

        E.     EQUITY

               Not later than May 25, August 25, and November 25 of each
               agreement year, the Contractor shall provide the Department with:

               -  A copy of quarterly reports filed with DOI, for the quarter
                  ending the last day of the second previous month.



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               -  A statement that its equity is in compliance with the equity
                  requirements or is not in compliance with the equity
                  requirements.

               -  If equity is not in compliance with the equity requirements,
                  the Contractor shall supply a report that provides an analysis
                  of its fiscal health and steps that management plans to take,
                  if any, to improve fiscal health.

               Not later than March 10 of each agreement year, the Contractor
               shall provide the Department with:

               -  A copy of unaudited annual reports filed with DOI.

               -  A statement that its equity is in compliance with the equity
                  requirements or is not in compliance with the equity
                  requirements.

               -  If equity is not in compliance with the equity requirements,
                  the Contractor shall supply a report that provides an analysis
                  of its fiscal health and steps that management plans to take,
                  if any, to improve fiscal health.

        F.     CLAIMS PROCESSING REPORTS

               The Contractor shall provide the Department with monthly Claims
               processing reports with content and in a format specified by DPW.
               The reports are due on the fifth (5th) calendar day of the second
               subsequent month.

               Failure to submit a Claims processing report timely that is
               accurate and fully compliant with the reporting requirements
               shall result in the following penalties: $200 per day for the
               first ten (10) calendar days from the date that the report is due
               and $1,000 per day for each calendar day thereafter.

        G.     PRESENTATION OF FINDINGS

               The Contractor must obtain advance written approval from the
               Department before publishing or making formal public
               presentations of statistical or analytical material based on its
               HealthChoices membership.

        H.     REFERENCE INFORMATION

               The Department will make files available to the Contractor on a
               routine basis that allow the Contractor to effectively meet its
               obligation to provide services and record information consistent
               with this Agreement. See



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               Exhibit CC of this Agreement, Data Support for PH-MCOs, for
               information on the data files the Department will provide to the
               Contractor.

        I.     SANCTIONS

               1.     The Department may impose sanctions for non-compliance
                      with the requirements under this Agreement in addition to
                      any penalties described in Exhibit D of this Agreement,
                      Standard Contract Terms and Conditions for Services and in
                      Exhibit E of this Agreement, DPW Addendum to Standard
                      Contract Terms and Conditions. The sanctions which can be
                      imposed shall depend on the nature and severity of the
                      breach, which the Department, in its reasonable
                      discretion, shall determine as follows:

                      a.     Imposing civil monetary penalties of a minimum of
                             $1,000.00 per day for non-compliance;

                      b.     Requiring the submission of a corrective action
                             plan;

                      c.     Limiting enrollment of new MA Consumers;

                      d.     Suspension of payments;

                      e.     Temporary management subject to applicable federal
                             or state law; and/or

                      f.     Termination of the Agreement.

               2.     Where this Agreement provides for a specific sanction for
                      a defined infraction, the Department may, at its
                      discretion, apply the specific sanction provided for the
                      non-compliance or apply any of the general sanctions set
                      forth in Section VIII.I of this Agreement, Sanctions.
                      Specific sanctions contained in this Agreement include the
                      following:

                      a.    Claims Processing: Sanctions related to Claims
                            processing are provided in Section VIII.I of this
                            Agreement, Sanctions.

                      b.    Report or File, exclusive of Audit Reports: If the
                            Contractor fails to provide any report or file that
                            is specified by this Agreement by the applicable due
                            date, or if the Contractor provides any report or
                            file specified by this Agreement that does not meet
                            established criteria, a subsequent payment to the
                            Contractor may be reduced by the Department. The
                            reduction shall equal the number of days that elapse
                            between the due date and the day that the Department




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                            receives a report or file that meets established
                            criteria, multiplied by the average
                            Per-Member-Per-Month capitation rate that applies to
                            the first month of the agreement year. If the
                            Contractor provides a report or file on or before
                            the due date, and if the Department notifies the
                            Contractor after the 15th calendar day after the due
                            date that the report or file does not meet
                            established criteria, no reduction in payment shall
                            apply to the sixteenth (16th) day after the due date
                            through the date that the Department notifies the
                            Contractor.

                      c.    Federalizing GA Data Reporting:  The penalty for
                            failure to comply with the Federalizing GA Data
                            Reporting requirement is defined in Section VIII.B.2
                            of this Agreement, Federalizing GA Data Reporting.

                      d.    Encounter Data Reporting: The penalty for late
                            reporting of encounter data is set forth in Section
                            VIII.B of this Agreement, Systems Reports, and
                            Exhibit XX of this Agreement, Encounter and
                            Subcapitation Data Penalty Occurrences.

                      e.    Marketing: The sanctions for engaging in unapproved
                            marketing practices are set forth in Section V.F.3
                            of this Agreement, Contractor Outreach Activities.

                      f.    Access Standard: The sanction for non-compliance
                            with the access standard is set forth in Section
                            V.S.14 of this Agreement, Compliance with Access
                            Standards.

                      g.    Subcontractor Prior Approval: The Contractor's
                            failure to obtain advance written approval of a
                            subcontract will result in the application a
                            penalty of one (1) month's capitation rate for a
                            categorically needy adult female TANF consumer for
                            each day that the subcontractor was in effect
                            without the Department's approval.

        J.     NON-DUPLICATION OF FINANCIAL PENALTIES

               If the Department assesses a financial penalty pursuant to one of
               the provisions of Section VIII.I of this Agreement, Sanctions, it
               shall not impose a financial sanction pursuant to Section VIII.I
               with respect to the same infraction.

SECTION IX:  REPRESENTATIONS AND WARRANTIES OF THE CONTRACTOR



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        A.     ACCURACY OF PROPOSAL

               The Contractor represents and warrants that the representations
               made to the Department in the Proposal are true and correct. The
               Contractor further represents and warrants that all of the
               information submitted to the Department in or with the Proposal
               is accurate and complete in all material respects. The Contractor
               agrees that such representations shall be continuing ones, and
               that it is the Contractor's obligation to notify the Department
               within ten (10) business days, of any material fact, event, or
               condition which arises or is discovered subsequent to the date of
               the Contractor's submission of the Proposal, which affects the
               truth, accuracy, or completeness of such representations.

        B.     DISCLOSURE OF INTERESTS

               The Contractor must disclose to the Department, in writing, the
               name of any person or entity having a direct or indirect
               ownership or control interest of five percent (5%) or more in the
               Contractor. The Contractor must inform the Department, in
               writing, of any change in or addition to the ownership or control
               of the Contractor. Such disclosure shall be made within thirty
               (30) days of any change or addition. The Contractor acknowledges
               and agrees that any failure to comply with this provision in any
               material respect, or making of any misrepresentation which would
               cause the Contractor's application to be precluded from
               participation in the MA Program, shall entitle the Department to
               recover all payments made to the Contractor subsequent to the
               date of the misrepresentation.

        C.     DISCLOSURE OF CHANGE IN CIRCUMSTANCES

               The Contractor agrees to report to the Department, as well as the
               Departments of Health and Insurance, within ten (10) business
               days of the Contractor's notice of same, any change in
               circumstances that may have a material adverse affect upon
               Contractor's or Contractor's parent(s)' financial or operational
               conditions. Such reporting shall be triggered by and include, by
               way of example and without limitation, the following events, any
               of which shall be presumed to be material and adverse:

               1.     Suspension or debarment of Contractor, Contractor's parent
                      (s), or any Affiliate or Related Party of either, by any
                      state or the federal government;

               2.     The Contractor may not knowingly have a person act as a
                      director, officer, partner or person with beneficial
                      ownership of more than five percent (5%) of the
                      Contractor's equity who has been debarred from
                      participating in procurement activities under federal
                      regulations.



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               3.     Notice of suspension or debarment or notice of an intent
                      to suspend/debar issued by any state or the federal
                      government to Contractor, Contractor's parent(s), or any
                      Affiliate or Related Party of either; and

               4.     Any new or previously undisclosed lawsuits or
                      investigations by any federal or state agency involving
                      Contractor, Contractor's parent(s), or any affiliate or
                      related party of either, which would have a material
                      impact upon the Contractor's financial condition or
                      ability to perform under this Agreement.

        D.     SERB COMMITMENT

               Contractor's SERB commitment as set forth in Appendix 5 of this
               Agreement, Contractor SERB Commitment, is hereby incorporated as
               a contractual obligation during the term of this Agreement. The
               Contractor shall make every reasonable effort to utilize SERB
               services. The Contractor shall submit quarterly reports to the
               Department outlining SERB utilization.

               All contracts containing SERB participation must also include a
               provision requiring the Contractor to meet and maintain those
               commitments made to SERBs at the time of submittal or contract
               negotiation, unless a change in the commitment is approved by the
               contracting Commonwealth agency upon recommendation by the Bureau
               of Contract Administration and Business Development (BCABD). All
               contracts containing SERB participation must include a provision
               requiring SERB subcontractors and SERBs in a joint venture to
               incur at least fifty percent (50%) of the cost of the subcontract
               or SERB portion of the joint venture, not including materials.

               Commitments to Minority Business Enterprise (MBE) and Women's
               Business Enterprise (WBE) firms made at the time of bidding must
               be maintained throughout the term of the contract. Any proposed
               change must be submitted to BCABD which will make a
               recommendation as to a course of action to the contracting
               officer.

               If a contract is assigned to another contractor, the new
               contractor must maintain the SERB participation of the original
               contract.

SECTION X:  DURATION OF AGREEMENT AND RENEWAL

        A.     INITIAL TERM



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               This Agreement shall have an initial term of five (5) years and
               three (3) months, commencing on October 1, 2001, the "Initial
               Term", unless sooner terminated in accordance with Section XI of
               this Agreement, Termination and Default; provided that no court
               order, administrative decision, or action by any other
               instrumentality of the United States Government or the
               Commonwealth of Pennsylvania is outstanding which prevents
               commencement of this Agreement.

        B.     RENEWAL

               The Department shall have the option to renew this Agreement for
               an additional three (3) year period after the expiration of the
               Initial Term. The Department shall give written notice to the
               Contractor one hundred twenty (120) days prior to the expiration
               of the Initial Term as to whether it wishes to renew this
               Agreement. If the Department exercises its option to renew this
               Agreement, rate discussions shall commence promptly after notice
               of the same.

               Upon expiration of the Initial Term, the Agreement currently in
               effect will continue to be effective for a period of one hundred
               and twenty (120) days if the Contractor and the Department agree
               to a renewal term, but cannot reach resolution of renewal
               contract terms, or if the parties have not proceeded to terminate
               the Agreement in accordance with Section XI of this Agreement,
               Termination and Default.

SECTION XI:  TERMINATION AND DEFAULT

        A.     TERMINATION BY THE DEPARTMENT

               This Agreement may be terminated by the Department upon the
               happening of any of the following events and upon compliance with
               the notice provisions set forth below:

               1.     TERMINATION FOR CONVENIENCE UPON NOTICE

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

               2.     TERMINATION FOR CAUSE

                      The Department may terminate this Agreement for cause upon
                      forty-five (45) days written notice, which notice shall
                      set forth the grounds for termination and, with the
                      exception of termination under



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                      Section XI.A.2.b below, shall provide the Contractor with
                      forty-five (45) days in which to implement corrective
                      action and cure the deficiency. If corrective action is
                      not implemented to the satisfaction of the Department
                      within the forty-five (45) day cure period, the
                      termination shall be effective at the expiration of the
                      forty-five (45) day cure period. "Cause" shall mean the
                      following for the purposes of termination under this
                      Agreement:

                      a.     The Contractor defaults in the performance of any
                             material duties or obligations hereunder or is in
                             material breach of any provision of this Agreement;
                             or

                      b.     The Contractor commits an act of theft or Fraud
                             against the Department, any state agency, or the
                             Federal Government; or

                      c.     An adverse material change in circumstances as
                             described in Section IX.C of this Agreement,
                             Disclosure of Change in Circumstances.

               3.     TERMINATION DUE TO UNAVAILABILITY OF FUNDS/APPROVALS

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

                      a.     Notification by the United States Department of
                             Health and Human Services of the withdrawal of
                             federal financial participation in all or part of
                             the cost hereof for covered services/contracts; or

                      b.     Notification that there shall be an unavailability
                             of funds available for the HealthChoices Program;
                             or

                      c.     Notification that the federal approvals necessary
                             to operate the HealthChoices Program shall not be
                             retained; or

                      d.     Notification by the Pennsylvania Insurance
                             Department or Health Department that the authority
                             under which the Contractor operates is subject to
                             suspension or revocation proceedings or sanctions,
                             has been suspended, limited, or curtailed to any
                             extent, or has been revoked, or has expired and
                             shall not be renewed.

        B.     TERMINATION BY THE CONTRACTOR



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

        C.     RESPONSIBILITIES OF THE CONTRACTOR UPON TERMINATION

               1.     CONTINUING OBLIGATIONS

                      Termination or expiration of this Agreement shall not
                      discharge the obligations of the Contractor with respect
                      to services or items furnished prior to termination,
                      including retention of records and verification of
                      overpayments or underpayments. Termination or expiration
                      shall not discharge the Department's payment obligations
                      to the Contractor or the Contractor's payment obligations
                      to its subcontractors.

               2.     NOTICE TO MEMBERS

                      In the event that this Agreement is terminated pursuant to
                      Sections XIII.A or XIII.B above, or expires without a new
                      contract in place, the Contractor shall notify all Members
                      of such termination or such expiration at least forty-five
                      (45) days in advance of the effective date of termination,
                      if practical. The Contractor shall be responsible for
                      coordinating the continuation of care for Members who are
                      undergoing treatment for an acute condition.

               3.     SUBMISSION OF INVOICES

                      Upon termination, the Contractor shall submit to the
                      Department all outstanding invoices for allowable services
                      rendered prior to the date of termination in the form
                      stipulated by the Department. Such invoices shall be
                      submitted promptly but in no event later than forty-five
                      (45) days from the effective date of termination. Invoices
                      submitted later than forty-five (45) days from the
                      effective date of termination shall not be payable.

               4.     FAILURE TO PERFORM

                      If the Department terminates a contract due to failure to
                      perform, the Department may add that PH-MCO's
                      responsibility to the responsibilities of one (1) or more
                      different PH-MCOs who are also operating within the
                      context of the HealthChoices Program in the zone, subject
                      to consent by the PH-MCO which would gain that
                      responsibility. The Department will develop a transition
                      plan should




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                      it choose to terminate or not extend a contract with one
                      (1) or more PH-MCOs operating the HealthChoices Program in
                      the zone.

                      During the final quarter of this Agreement, the Contractor
                      will work cooperatively with, and supply program
                      information to, any subsequent contractors. Both the
                      program information and the working relationship among the
                      PH-MCOs will be defined by the Department.

                      Upon termination or expiration of this Agreement, the
                      Contractor must:

                      a.    Provide the Department with all information deemed
                            necessary by the Department within thirty (30) days
                            of the request;

                      b.    Be financially responsible for MA Claims with dates
                            of service through the day of termination, except as
                            provided in c. below, including those submitted
                            within established time limits after the day of
                            termination;

                      c.    Be financially responsible for hospitalized patients
                            through the date of discharge or thirty-one (31)
                            days after termination or expiration of this
                            Agreement, whichever is earlier;

                      d.    Be financially responsible for services rendered
                            through 11:59 p.m. on the day of termination, except
                            as provided in c. above, for which payment is denied
                            by the Contractor and subsequently approved upon
                            appeal by the Provider;

                      e.    Be financially responsible for MA Consumer appeals
                            of adverse decisions rendered by the Contractor
                            concerning treatment of services requested prior to
                            termination which are subsequently overturned at a
                            DPW Fair Hearing or Grievance proceeding; and

                      f.    Arrange for the orderly transfer of patient care
                            and patient records to those Providers who will be
                            assuming care for the Member. For those Members in a
                            course of treatment for which a change of providers
                            could be harmful, the Contractor must continue to
                            provide services on a FFS basis until that treatment
                            is concluded or appropriate transfer of care can be
                            arranged.

        D.     TRANSITION AT EXPIRATION AND/OR TERMINATION OF AGREEMENT




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               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 costs relating to the transfer of materials and
               responsibilities will be paid by the Contractor as a normal part
               of doing business with the Department.

               The Contractor shall be responsible for the provision of
               necessary information to the new contractor and/or the Department
               during the transition period to ensure a smooth transition of
               responsibility. The Department shall define the information
               required during this period and time frames for submission, and
               may solicit input from the PH-MCOs involved.

SECTION XII:  RECORDS

        A.     FINANCIAL RECORDS RETENTION

               1.     The Contractor shall maintain and shall cause its
                      subcontractors to maintain all books, records, and other
                      evidence pertaining to revenues, expenditures, and other
                      financial activity pursuant to this Agreement in
                      accordance with the standards and procedures specified in
                      Section V.O.5 of this Agreement, Records Retention.

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

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

                      b.    Any significant business transactions between the
                            Contractor and any wholly-owned supplier or between
                            the



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                            Contractor and any subcontractor during the five (5)
                            year period ending on the date of the request.

               3.     The Contractor agrees to include the requirements set
                      forth in Section XIII in this Agreement, Subcontractual
                      Relationships, in all contracts it enters with
                      subcontractors under the HealthChoices Program, and to
                      ensure that all persons and/or entities with whom it so
                      contracts agree to comply with said provisions.

        B.     OPERATIONAL DATA REPORTS

               The Contractor shall maintain and shall cause its subcontractors
               to maintain all source records for data reports in accordance
               with the procedures specified in Section V.O.5 of this Agreement,
               Records Retention.

        C.     MEDICAL RECORDS RETENTION

               The Contractor shall maintain and shall cause its subcontractors
               to maintain all medical records in accordance with the procedures
               outlined in Section V.O.5 of this Agreement, Records Retention.

               The Contractor must provide MA Consumers medical records to the
               Department or its contractor(s) within fifteen (15) business days
               of the Department's request.

        D.     REVIEW OF RECORDS

               1.     The Contractor shall make all records relating to the
                      HealthChoices Program, including but not limited to, the
                      records referenced in this Section, available for audit,
                      review, or evaluation by the Department, or federal
                      agencies. Such records shall be made available on site at
                      the Contractor's chosen location, subject to the
                      Department's approval, during normal business hours or
                      through the mail. The Department shall, to the extent
                      required by law, maintain as confidential any confidential
                      information provided by the Contractor.

               2.     In the event that the Department, or federal agencies
                      request access to records after the expiration or
                      termination of this Agreement or at such time that the
                      records no longer are required by the terms of this
                      Agreement to be maintained at the Contractor's location,
                      but in any case, before the expiration of the period for
                      which the Contractor is required to retain such records,
                      the Contractor, at its own expense, shall send copies of
                      the requested



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                      records to the requesting entity within thirty (30) days
                      of such request.

SECTION XIII:  SUBCONTRACTUAL RELATIONSHIPS

        A.     COMPLIANCE WITH PROGRAM STANDARDS

               As part of its contracting or subcontracting, with the exception
               of Provider Agreements which are outlined in Section V.S.2 of
               this Agreement, Provider Agreements, the Contractor agrees that
               it shall comply with the procedures set forth in Section V.O.3 of
               this Agreement, Contracts and Subcontracts.

               The written information that must be provided to the Department
               prior to the awarding of any contract or Subcontract must provide
               disclosure of ownership interests of five percent (5%) or more in
               any entity or subcontractor.

               All contracts and Subcontracts must be in writing and must
               contain all items set forth in this Agreement and Exhibit AAA,
               Internal Operations Contract Monitoring Guidelines.

               The Contractor shall require its subcontractors to provide
               written notification of a denial, partial approval, reduction, or
               termination of service or coverage, or a change in the level of
               care, using the standard form notice outlined in Exhibit M(1) of
               this Agreement, Quality Management and Utilization Management
               Program Requirements.

               In addition, all contracts or Subcontracts that cover the
               provision of medical services to the Contractor's Members must
               include the following provisions:

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

               2.     Language which ensures compliance with all applicable
                      federal and state laws.

               3.     Language which prohibits gag clauses which would limit the
                      subcontractor from disclosure of Medically Necessary or
                      appropriate health care information or alternative
                      therapies to Members, other health care professionals, or
                      to the Department.



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<PAGE>


               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.

               5.     The definition of Medically Necessary as outlined in
                      Section II of this Agreement, Definitions and Acronyms.

               6.     The Contractor must ensure, if applicable, that its
                      Subcontracts adhere to the standards for Network
                      composition and adequacy.

               7.     Should the Contractor use a subcontracted utilization
                      review entity, the Contractor must ensure that its
                      subcontractors process each request for benefits in
                      accordance with Section V.B.1 of this Agreement, General
                      Prior Authorization Requirements.

               8.     Should the Contractor subcontract with an entity to
                      provide any information systems services, the Subcontract
                      must include provisions for a transition plan in the event
                      that the Contractor terminates the Subcontract or enters
                      into a Subcontract with a different entity. This
                      transition plan must include information on how the data
                      shall be converted and made available to the new
                      subcontractor. The data must include all historical Claims
                      and service data.

               The Contractor must make all necessary revisions to its contracts
               and Subcontracts to be in compliance with the requirements set
               forth in Section XIII.A of this Agreement, Compliance with
               Program Standards. Revisions may be completed as contracts and
               Subcontracts become due for renewal provided that all contracts
               and Subcontracts are amended within one (1) year of execution of
               this Agreement with the exception of the encounter data
               requirements, which must be amended immediately, if necessary, to
               ensure that all subcontractors are submitting encounter data to
               the Contractor within the timeframes specified in Section VIII.B
               of this Agreement, Systems Reports.

        B.     CONSISTENCY WITH POLICY STATEMENTS

               The Contractor agrees that its agreements with all Providers
               shall be consistent, as may be applicable, with the policy
               statements governing HMO Contracting with Integrated Delivery
               Systems issued by the Pennsylvania Department of Health on April
               6, 1996 and those issued by the Pennsylvania Department of
               Insurance on April 6, 1996. (26 Pa. Bulletin 1629, et seq.
               [04/06/96]).

SECTION XIV:  CONFIDENTIALITY



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        A.     The Contractor shall comply with all applicable federal and state
               laws regarding the confidentiality of medical records. The
               Contractor shall also cause each of its subcontractors to comply
               with all applicable federal and state laws regarding the
               confidentiality of medical records. The Contractor shall comply
               with Exhibit M(1) of this Agreement, Quality Management and
               Utilization Management Program Requirements, regarding
               maintaining confidentiality of data. The federal and state laws
               with regard to confidentiality of medical records include, but
               are not limited to: Mental Health Procedures Act, 50 P.S. 7101
               et seq.; Confidentiality of HIV-Related Information Act, 35 P.S.
               7601 et seq.; and the Pennsylvania Drug and Alcohol Abuse
               Contract Act, 71 P.S. 1690.101 et seq., 42 U.S.C. 1396a(a)(7);
               62 P.S. 404(a); 55 Pa. Code 105.1 et seq.; and 42 C.F.R.
               431.300.

        B.     The Contractor shall be liable for any state or federal fines,
               financial penalties, or damages levied upon the Department for a
               breach of confidentiality due to the negligent or intentional
               conduct of the Contractor in relation to the Contractor's
               systems, staff, or other area of responsibility.

        C.     The Contractor agrees to return all data and material obtained in
               connection with this Agreement and the implementation thereof,
               including confidential data and material, at the Department's
               request. No material can be used by the Contractor for any
               purpose after the expiration or termination of this Agreement.
               The Contractor also agrees to transfer all such information to a
               subsequent contractor at the direction of the Department.

        D.     The Contractor considers its financial reports and information,
               marketing plans, provider rates, trade secrets, information or
               materials relating to the Contractor's software, databases or
               technology, and information or materials licensed from, or
               otherwise subject to contractual nondisclosure rights of third
               parties, which would be harmful to the Contractor's competitive
               position to be confidential information. This information shall
               not be disclosed by the Department to other parties except as
               required by law or except as may be determined by the Department
               to be related to the administration and operation of the
               HealthChoices Program. The Department will notify the Contractor
               when it determines that disclosure of information is necessary
               for the administration of the HC Program. The Contractor will be
               given the opportunity to respond to such a determination prior
               to the disclosure of the information.

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

SECTION XV:  INDEMNIFICATION AND INSURANCE



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        A.     INDEMNIFICATION

               1.     The Contractor shall indemnify and hold the Department and
                      the Commonwealth of Pennsylvania, their respective
                      employees, agents, and representatives free and harmless
                      against any and all liabilities, losses, settlements,
                      Claims, demands, and expenses of any kind (including, but
                      not limited to, attorneys' fees) which may result or arise
                      out of any dispute of any kind by and between the
                      Contractor and its subcontractors with Members, agents,
                      clients, or any defamation, malpractice, fraud,
                      negligence, or intentional misconduct caused or alleged to
                      have been caused by the Contractor or its agents,
                      subcontractors, employees, or representatives in the
                      performance or omission of any act or responsibility
                      assumed by the Contractor pursuant to this Agreement.

               2.     The Contractor shall indemnify and hold harmless the
                      Department and the Commonwealth of Pennsylvania from any
                      audit disallowance imposed by the federal government
                      resulting from the Contractor's failure to follow state or
                      federal rules, regulations, or procedures unless prior
                      authorization was given by the Department. The Department
                      shall provide timely notice of any disallowance to the
                      Contractor and allow the Contractor an opportunity to
                      participate in the disallowance appeal process and any
                      subsequent judicial review to the extent permitted by law.
                      Any payment required under this provision shall be due
                      from the Contractor upon notice from the Department. The
                      indemnification provision hereunder shall not extend to
                      disallowances which result from a determination by the
                      federal government that the terms of this Agreement are
                      not in accordance with federal law. The obligations under
                      this paragraph shall survive any termination or
                      cancellation of this Agreement.

        B.     INSURANCE

               The Contractor shall maintain for itself, each of its employees,
               agents, and representatives, general liability and all other
               types of insurance in such amounts as reasonably required by the
               Department and all applicable laws. In addition, the Contractor
               shall require that each of the health care professionals with
               which the Contractor contracts maintains professional malpractice
               and all other types of insurance in such amounts as required by
               all applicable laws. The Contractor shall provide to the
               Department, upon the Department's request, certificates
               evidencing such insurance coverage.

SECTION XVI:  DISPUTES


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        A.     In the event that a dispute arises between the parties relating
               to any matter regarding this Agreement, the Contractor shall
               send written notice of an initial level dispute to the
               Contracting Officer for this Agreement, who shall make a
               determination in writing of his/her interpretation and shall
               send the same to the Contractor within thirty (30) days of the
               Contractor's written request for same. That interpretation shall
               be final, conclusive, and binding on the Contractor, and
               unreviewable in all respects unless the Contractor within twenty
               (20) days of its receipt of said interpretation, delivers a
               written appeal to the Secretary of Public Welfare. Unless the
               Contractor consents to extend the time for disposition by the
               Secretary, the decision of the Secretary shall be released
               within thirty (30) days of the Contractor's written appeal and
               shall be final, conclusive, and binding, and the Contractor
               shall thereafter with good faith and diligence, render such
               performance in compliance with the Secretary's determination;
               subject to the provisions of Section XVIII.B below. Notice of
               initial level dispute shall be sent to:

                                    Ms. Christine M. Bowser
                                    Director, Bureau of Managed Care Operations
                                    P.O. Box 2675
                                    Harrisburg, Pennsylvania 17105-2675

        B.     All Claims against the Department relating to any matter
               regarding this Agreement may be filed by the Contractor in the
               Board of Claims pursuant to 72 P.S. 4651-1 et seq., but only
               after first complying with Section XVI.A above. Resolution of
               disputes under this provision must occur prior to any final
               payment of a disputed amount to the Contractor.

SECTION XVII:  FORCE MAJEURE

               In the event of a major disaster or epidemic as declared by the
               Governor of the Commonwealth of Pennsylvania or an act of any
               military or civil authority, outage of communications, power, or
               other utility, the Contractor shall cause its employees and all
               Providers to render all services provided for in the RFP and
               herein as is practical within the limits of Providers' facilities
               and available staff. The Contractor, however, shall not be liable
               nor deemed to be in default for any Provider's failure to provide
               services or for any delay in the provision of services when such
               a failure or delay is the direct or proximate result of the
               depletion of staff or facilities by the major disaster or
               epidemic, or act of any military or civil authority, outage of
               communications, power, or other utility; provided, however, in
               the event that the provision of services is substantially
               interrupted, the Department shall have the right to terminate
               this Agreement upon ten (10) days written notice to the
               Contractor.


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SECTION XVIII:  GENERAL

        A.     SUSPENSION FROM OTHER PROGRAMS

               In the event that the Contractor learns that a Health Care
               Professional with whom the Contractor contracts is suspended or
               terminated from participation in the MA Program of another state
               or from the Medicare Program, the Contractor shall promptly
               notify the Department, in writing, of such suspension or
               termination.

               No payment shall be made to any Health Care Professional for any
               services rendered by a health care practitioner during the period
               the Contractor knew, or should have known, such practitioner was
               suspended or terminated from the Medical Assistance Program of
               this or another state, or the Medicare Program.

        B.     RIGHTS OF THE DEPARTMENT AND THE CONTRACTOR

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

               Except as otherwise stated in Section XVI of this Agreement,
               Disputes, the rights and remedies of the Contractor provided
               herein shall not be exclusive and are in addition to any rights
               and remedies provided by law.

        C.     WAIVER

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

        D.     INVALID PROVISIONS

               Any provision of this Agreement which is in violation of any
               state or federal law or regulation shall be deemed amended to
               conform with such law or regulation, pursuant to the terms of
               this Agreement, except that if such change would materially and
               substantially alter the obligations of the parties under this
               Agreement, any such provision shall be renegotiated by the
               parties. The invalidity or unenforceability of any terms or
               provisions hereof shall in no way affect the validity or
               enforceability of any other terms or provisions hereof.

        E.     GOVERNING LAW

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




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     F.     EXPANSION OF THE ZONE

               The Department reserves the right to expand the required
               geographic coverage area of the zone to include additional
               counties under this Agreement. Expansion of the zone will be
               solely at the discretion of the Department.

        G.     NOTICE

               Any notice, request, demand, or other communication required or
               permitted hereunder, with the exception of initial level disputes
               submitted to the Contracting Officer pursuant to Section XVI of
               this Agreement, Disputes, shall be given in writing by certified
               mail, communication charges prepaid, to the party to be notified.
               All communications shall be deemed given and received upon
               delivery or attempted delivery to the address specified herein,
               as from time to time amended. The addresses for the parties for
               the purposes of such communication are:

               To the Department:

                      Department of Public Welfare
                      Office of Medical Assistance Programs
                      Director, Bureau of Managed Care Operations
                      Box 2675
                      Harrisburg State Hospital
                      Harrisburg, Pennsylvania 17110

               With a Copy to:

                      Department of Public Welfare
                      Office of Legal Counsel
                      3rd Floor West,  Health and Welfare Building
                      Forster and 7th Street
                      Harrisburg, Pennsylvania 17120
                      Attention: Chief Counsel

               To the Contractor - See Appendix 4 of this Agreement, Contractor
               Information, for name and address.

        H.     COUNTERPARTS

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





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        I.     HEADINGS

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

        J.     ASSIGNMENT

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

        K.     NO THIRD PARTY BENEFICIARIES

               This Agreement does not, nor is it intended to, create any
               rights, benefits, or interest to any third party, person, or
               organization.

        L.     NEWS RELEASES

               News releases pertaining to the HealthChoices Program may not be
               made without advance written approval by the Department, and then
               only in conjunction with the Issuing Office.

        M.     ENTIRE AGREEMENT: MODIFICATION

               This Agreement constitutes the entire understanding of the
               parties hereto and supersedes any and all written or oral
               agreements, representations, or understandings. No modifications,
               discharges, amendments, or alterations shall be effective unless
               evidenced by an instrument in writing signed by both parties.
               Furthermore, neither this Agreement nor any modifications,
               discharges, amendments or alterations thereof shall be considered
               executed by or binding upon the Department or the Commonwealth of
               Pennsylvania unless and until signed by a duly authorized officer
               of the Department or Commonwealth of Pennsylvania.





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