<PAGE>
                                                                 Exhibit 10.32.9

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

                           (THE STATE OF TEXAS LOGO)

                                     (SEAL)

                    TEXAS HEALTH & HUMAN SERVICES COMMISSION

                UNIFORM MANAGED CARE CONTRACT TERMS & CONDITIONS

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

                              DOCUMENT HISTORY LOG

<TABLE>
<CAPTION>
              DOCUMENT    EFFECTIVE
STATUS(1)   REVISION(2)      DATE                 DESCRIPTION(3)
---------   -----------   ---------               --------------
<S>         <C>           <C>         <C>
Baseline    n/a                       Initial version of the Uniform Managed
                                      Care Contract Terms & Conditions
</TABLE>

(1)  Status should be represented as "Baseline" for initial issuances,
     "Revision" for changes to the Baseline version, and "Cancellation" for
     withdrawn versions

(2)  Revisions should be numbered in accordance according to the version of the
     issuance and sequential numbering of the revision--e.g., "1.2" refers to
     the first version of the document and the second revision.

(3)  Brief description of the changes to the document made in the revision.

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                           <C>
ARTICLE 1. INTRODUCTION....................................................    2
Section 1.01 Purpose.......................................................    2
Section 1.02 Risk-based contract...........................................    2
Section 1.03 Inducements...................................................    2
Section 1.04 Construction of the Contract..................................    2
Section 1.05 No implied authority..........................................    3
Section 1.06 Legal Authority...............................................    3

ARTICLE 2. DEFINITIONS.....................................................    3

ARTICLE 3. GENERAL TERMS & CONDITIONS......................................   14
Section 3.01 Contract elements.............................................   14
Section 3.02 Term of the Contract..........................................   14
Section 3.03 Funding.......................................................   14
Section 3.04 Delegation of authority.......................................   14
Section 3.05 No waiver of sovereign immunity...............................   14
Section 3.06 Force majeure.................................................   14
Section 3.07 Publicity.....................................................   14
Section 3.08 Assignment....................................................   15
Section 3.09 Cooperation with other vendors and prospective vendors........   15
Section 3.10 Renegotiation and reprocurement rights........................   15
Section 3.11 RFP errors and omissions......................................   15
Section 3.12 Attorneys' fees...............................................   15
Section 3.13 Preferences under service contracts...........................   15
Section 3.14 Time of the essence...........................................   15
Section 3.15 Notice........................................................   16

ARTICLE 4. CONTRACT ADMINISTRATION & MANAGEMENT............................   16
Section 4.01 Qualifications, retention and replacement of HMO employees....   16
Section 4.02 HMO's Key Personnel...........................................   16
Section 4.03 Executive Director............................................   16
Section 4.04 Medical Director..............................................   17
Section 4.05 Responsibility for HMO personnel and Subcontractors...........   17
Section 4.06 Cooperation with HHSC and state administrative agencies.......   18
Section 4.07 Conduct of HMO personnel......................................   18
Section 4.08 Subcontractors................................................   18
Section 4.09 HHSC's ability to contract with Subcontractors................   19
Section 4.10 HMO Agreements with Third Parties.............................   19

ARTICLE 5. MEMBER ELIGIBILITY & ENROLLMENT.................................   20
Section 5.01 Eligibility Determination.....................................   20
Section 5.02 Member Enrollment & Disenrollment.............................   20
Section 5.03 STAR enrollment for pregnant women and infants................   20
Section 5.04 CHIP eligibility and enrollment...............................   20
Section 5.05 Span of Coverage..............................................   21
Section 5.06 Verification of Member Eligibility............................   21
Section 5.07 Special Temporary STAR Default Process........................   21

ARTICLE 6. SERVICE LEVELS & PERFORMANCE MEASUREMENT........................   21
Section 6.01 Performance measurement.......................................   21

ARTICLE 7. GOVERNING LAW & REGULATIONS.....................................   22
Section 7.01 Governing law and venue.......................................   22
Section 7.02 HMO responsibility for compliance with laws and regulations...   22
Section 7.03 TDI licensure/ANHC certification and solvency.................   22
Section 7.04 Immigration Reform and Control Act of 1986....................   23
</TABLE>

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

<TABLE>
<S>                                                                           <C>
Section 7.05 Compliance with state and federal anti-discrimination laws....   23
Section 7.06 Environmental protection laws.................................   23
Section 7.07 HIPAA.........................................................   23

ARTICLE 8. AMENDMENTS & MODIFICATIONS......................................   23
Section 8.01 Mutual Contract...............................................   23
Section 8.02 Changes in law or contract....................................   23
Section 8.03 Modifications as a remedy.....................................   24
Section 8.04 Modifications upon renewal or extension of Contract...........   24
Section 8.05 Modification of HHSC Uniform Managed Care Manual..............   24
Section 8.06 CMS approval of STAR amendments...............................   24
Section 8.07 Required compliance with amendment and modification
             procedures....................................................   24

ARTICLE 9. AUDIT & FINANCIAL COMPLIANCE....................................   24
Section 9.01 Financial record retention and audit..........................   24
Section 9.02 Access to records, books, and documents.......................   24
Section 9.03 Audits of Services, Deliverables and inspections..............   25
Section 9.04 SAO Audit.....................................................   25
Section 9.05 Response/compliance with audit or inspection findings.........   25

ARTICLE 10. TERMS & CONDITIONS OF PAYMENT..................................   26
Section 10.01 Calculation of monthly Capitation Payment....................   26
Section 10.02 Time and Manner of Payment...................................   26
Section 10.03 Certification of Capitation Rates............................   26
Section 10.04 Modification of Capitation Rates.............................   26
Section 10.05 STAR Capitation Structure....................................   26
CHIP Capitation Rates Structure............................................   27
Section 10.07 HMO input during rate setting process........................   28
Adjustments to Capitation Payments.........................................   28
Delivery Supplemental Payment for CHIP and STAR HMOs.......................   28
Administrative Fee for SSI Members.........................................   29
Experience Rebate..........................................................   29
Payment by Members.........................................................   30
Restriction on assignment of fees..........................................   31
Liability for taxes........................................................   31
Liability for employment-related charges and benefits......................   31
No additional consideration................................................   31

ARTICLE 11. DISCLOSURE & CONFIDENTIALITY OF INFORMATION....................   31
Section 11.01 Confidentiality..............................................   31
Section 11.02 Disclosure of HHSC's Confidential Information................   32
Section 11.03 Member Records...............................................   32
Section 11.04 Requests for public information..............................   32
Section 11.05 Privileged Work Product......................................   32
Section 11.06 Unauthorized acts............................................   33
Section 11.07 Legal action.................................................   33

ARTICLE 12. REMEDIES & DISPUTES............................................   33
Section 12.01 Understanding and expectations...............................   33
Section 12.02 Tailored remedies............................................   33
Section 12.03 Termination by HHSC..........................................   35
Section 12.04 Termination by HMO...........................................   37
Section 12.05 Termination by mutual agreement..............................   37
Section 12.06 Effective date of termination................................   37
Section 12.07 Extension of termination effective date......................   37
Section 12.08 Payment and other provisions at Contract termination.........   37
Section 12.09 Modification of Contract in the event of remedies............   37
Section 12.10 Turnover assistance..........................................   38
</TABLE>

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

<TABLE>
<S>                                                                           <C>
Section 12.11 Rights upon termination or expiration of Contract............   38
Section 12.12 HMO responsibility for associated costs......................   38
Section 12.13 Dispute resolution...........................................   38
Section 12.14 Liability of HMO.............................................   39

ARTICLE 13. ASSURANCES & CERTIFICATIONS....................................   39
Section 13.01 Proposal certifications......................................   39
Section 13.02 Conflicts of interest........................................   39
Section 13.03 Organizational conflicts of interest.........................   39
Section 13.04 HHSC personnel recruitment prohibition.......................   40
Section 13.05 Anti-kickback provision......................................   40
Section 13.06 Debt or back taxes owed to State of Texas....................   40
Section 13.07 Certification regarding status of license,
              certificate, or permit.......................................   40
Section 13.08 Outstanding debts and judgments..............................   40

ARTICLE 14. REPRESENTATIONS & WARRANTIES...................................   40
Section 14.01 Authorization................................................   40
Section 14.02 Ability to perform...........................................   40
Section 14.03 Minimum Net Worth............................................   40
Section 14.04 Insurer solvency.............................................   40
Section 14.05 Workmanship and performance..................................   41
Section 14.06 Warranty of deliverables.....................................   41
Section 14.07 Compliance with Contract.....................................   41
Section 14.08 Technology Access............................................   41

ARTICLE 15. INTELLECTUAL PROPERTY..........................................   41
Section 15.01 Infringement and misappropriation............................   41
Section 15.02 Exceptions...................................................   42
Section 15.03 Ownership and Licenses.......................................   42

ARTICLE 16. LIABILITY......................................................   43
Section 16.01 Property damage..............................................   43
Section 16.02 Risk of Loss.................................................   43
Section 16.03 Limitation of HHSC's Liability...............................   43

ARTICLE 17. INSURANCE & BONDING............................................   43
Section 17.01 Insurance Coverage...........................................   43
Section 17.02 Performance Bond.............................................   44
Section 17.03 TDI Fidelity Bond............................................   45
</TABLE>

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

                             ARTICLE 1. INTRODUCTION

SECTION 1.01 PURPOSE.

     The purpose of this Contract is to set forth the terms and conditions for
the HMO's participation as a managed care organization in one or more of the HMO
Programs administered by HHSC. Under the terms of this Contract, HMO will
provide comprehensive health care services to qualified Program recipients
through a managed care delivery system.

SECTION 1.02 RISK-BASED CONTRACT.

     This is a Risk-based contract.

SECTION 1.03 INDUCEMENTS.

     In making the award of this Contract, HHSC relied on HMO's assurances of
the following:

          (1) HMO is an established health maintenance organization that
     arranges for the delivery of health care services, is currently licensed as
     such in the State of Texas and is fully authorized to conduct business in
     the Service Areas;

          (2) HMO and the HMO Administrative Service Subcontractors have the
     skills, qualifications, expertise, financial resources and experience
     necessary to provide the Services and Deliverables described in the RFP,
     HMO's Proposal, and this Contract in an efficient, cost - effective manner,
     with a high degree of quality and responsiveness, and has performed similar
     services for other public or private entities;

          (3) HMO has thoroughly reviewed, analyzed, and understood the RFP, has
     timely raised all questions or objections to the RFP, and has had the
     opportunity to review and fully understand HHSC's current program and
     operating environment for the activities that are the subject of the
     Contract and the needs and requirements of the State during the Contract
     term;

          (4) HMO has had the opportunity to review and understand the State's
     stated objectives in entering into this Contract and, based on such review
     and understanding, HMO currently has the capability to perform in
     accordance with the terms and conditions of this Contract;

          (5) HMO also has reviewed and understands the risks associated with
     the HMO Programs as described in the RFP, including the risk of non-
     appropriation of funds.

     Accordingly, on the basis of the terms and conditions of this Contract,
HHSC desires to engage HMO to perform the Services and provide the Deliverables
described in this Contract under the terms and conditions set forth in this
Contract.

SECTION 1.04 CONSTRUCTION OF THE CONTRACT.

(a) Scope of Introductory Article.

     The provisions of any introductory article to the Contract are intended to
be a general introduction and are not intended to expand the scope of the
Parties' obligations under the Contract or to alter the plain meaning of the
terms and conditions of the Contract.

(b) References to the "State."

     References in the Contract to the "State" shall mean the State of Texas
unless otherwise specifically indicated and shall be interpreted, as
appropriate, to mean or include HHSC and other agencies of the State of Texas
that may participate in the administration of the HMO Programs, provided,
however, that no provision will be interpreted to include any entity other than
HHSC as the contracting agency.

(c) Severability.

     If any provision of this Contract is construed to be illegal or invalid,
such interpretation will not affect the legality or validity of any of its other
provisions. The illegal or invalid provision will be deemed stricken and deleted
to the same extent and effect as if never incorporated in this Contract, but all
other provisions will remain in full force and effect.

(d) Survival of terms.

     Termination or expiration of this Contract for any reason will not release
either Party from any liabilities or obligations set forth in this Contract
that:

          (1) The Parties have expressly agreed shall survive any such
     termination or expiration; or

          (2) Arose prior to the effective date of termination and remain to be
     performed or by their nature would be intended to be applicable following
     any such termination or expiration.

(e) Headings.

     The article, section and paragraph headings in this Contract are for
reference and convenience only and may not be considered in the interpretation
of this Contract.

(f) Global drafting conventions.

     (1) The terms "include," "includes," and "including" are terms of
inclusion, and where used in this Contract, are deemed to be followed by the
words "without limitation."

     (2) Any references to "sections," "appendices," "exhibits" or "attachments"
are deemed to be references to sections, appendices, exhibits or attachments to
this Contract.

     (3) Any references to laws, rules, regulations, and manuals in this
Contract are deemed references to these documents as amended, modified, or
supplemented from time to time during the term of this Contract.


                                  Page 2 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

SECTION 1.05 NO IMPLIED AUTHORITY.

     The authority delegated to HMO by HHSC is limited to the terms of this
Contract. HHSC is the state agency designated by the Texas Legislature to
administer the HMO Programs, and no other agency of the State grants HMO any
authority related to this program unless directed through HHSC. HMO may not rely
upon implied authority, and specifically is not delegated authority under this
Contract to:

     (1) make public policy;

     (2) promulgate, amend or disregard administrative regulations or program
policy decisions made by State and federal agencies responsible for
administration of HHSC Programs; or

     (3) unilaterally communicate or negotiate with any federal or state agency
or the Texas Legislature on behalf of HHSC regarding the HHSC Programs.

     HMO is required to cooperate to the fullest extent possible to assist HHSC
in communications and negotiations with state and federal governments and
agencies concerning matters relating to the scope of the Contract and the HMO
Program(s), as directed by HHSC.

SECTION 1.06 LEGAL AUTHORITY.

     (a) HHSC is authorized to enter into this Contract under Chapters 531 and
533, Texas Government Code; Section 2155.144, Texas Government Code; and/or
Chapter 62, Texas Health & Safety Code. HMO is authorized to enter into this
Contract pursuant to the authorization of its governing board or controlling
owner or officer.

     (b) The person or persons signing and executing this Contract on behalf of
the Parties, or representing themselves as signing and executing this Contract
on behalf of the Parties, warrant and guarantee that he, she, or they have been
duly authorized to execute this Contract and to validly and legally bind the
Parties to all of its terms, performances, and provisions.

                             ARTICLE 2. DEFINITIONS

     As used in this Contract, the following terms and conditions shall have the
meanings assigned below:

     ABUSE means provider practices that are inconsistent with sound fiscal,
business, or medical practices and result in an unnecessary cost to the Medicaid
or CHIP Program, or in reimbursement for services that are not Medically
Necessary or that fail to meet professionally recognized standards for health
care. It also includes Member practices that result in unnecessary cost to the
Medicaid or CHIP Program.

     ACCOUNT NAME means the name of the individual who lives with the child(ren)
and who applies for the Children's Health Insurance Program coverage on behalf
of the child(ren).

     ACTION (MEDICAID ONLY) means:

     (1) the denial or limited authorization of a requested Medicaid service,
     including the type or level of service;

     (2) the reduction, suspension, or termination of a previously authorized
     service;

     (3) the denial in whole or in part of payment for service;

     (4) the failure to provide services in a timely manner;

     (5) the failure of an HMO to act within the timeframes set forth in the
     Contract and 42 C.F.R. Section 438.408(b); or

     (6) for a resident of a rural area with only one HMO, the denial of a
     Medicaid Members' request to obtain services outside of the Network.

     An Adverse Determination is one type of Action.

     ACUTE CARE means preventive care, primary care, and other medical care
provided under the direction of a physician for a condition having a relatively
short duration.

     ACUTE CARE HOSPITAL means a hospital that provides acute care services

     ADJUDICATE means to deny or pay a clean claim.

     ADMINISTRATIVE SERVICES see HMO Administrative Services.

     ADMINISTRATIVE SERVICES CONTRACTOR see HHSC Administrative Services
Contractor.

     ADVERSE DETERMINATION means a determination by an HMO or Utilization Review
agent that the Health Care Services furnished, or proposed to be furnished to a
patient, are not Medically Necessary or not appropriate.

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

     AGREEMENT OR CONTRACT means this formal, written, and legally enforceable
contract and amendments thereto between the Parties.

     ALLOWABLE EXPENSES means all expenses related to the Contract between HHSC
and the HMO that are incurred during the Contract Period, are not reimbursable
or recovered from another source, and that conform with the HHSC Uniform Managed
Care Manual's "Cost Principles for Administrative Expenses."

     AAP means the American Academy of Pediatrics.

     APPROVED NON-PROFIT HEALTH CORPORATION (ANHC) means an organization formed
in compliance


                                  Page 3 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

with Chapter 844 of the Texas Insurance Code and licensed by TDI. See also HMO.

     APPEAL (MEDICAID ONLY) means the formal process by which a Member or his or
her representative request a review of the HMO's Action, as defined above.

     APPEAL (CHIP ONLY) means the formal process by which a Utilization Review
agent addresses Adverse Determinations.

     AUXILIARY AIDS AND SERVICES includes:

     (1) qualified interpreters or other effective methods of making aurally
delivered materials understood by persons with hearing impairments;

     (2) taped texts, large print, Braille, or other effective methods to ensure
visually delivered materials are available to individuals with visual
impairments; and

     (3) other effective methods to ensure that materials (delivered both
aurally and visually) are available to those with cognitive or other
Disabilities affecting communication.

     BEHAVIORAL HEALTH SERVICES means Covered Services for the treatment of
mental, emotional, or chemical dependency disorders.

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

     BUSINESS CONTINUITY PLAN OR BCP means a plan that provides for a quick and
smooth restoration of MIS operations after a disruptive event. BCP includes
business impact analysis, BCP development, testing, awareness, training, and
maintenance. This is a day-to-day plan.

     BUSINESS DAY means any day other than a Saturday, Sunday, or a state or
federal holiday on which HHSC's offices are closed, unless the context clearly
indicates otherwise.

     CAHPS means the Consumer Assessment of Health Plans Survey. This survey is
conducted annually by the EQRO.

     CALL COVERAGE means arrangements made by a facility or an attending
physician with an appropriate level of health care provider who agrees to be
available on an as-needed basis to provide medically appropriate services for
routine, high risk, or Emergency Medical Conditions or Emergency Behavioral
Health Conditions that present without being scheduled at the facility or when
the attending physician is unavailable.

     CAPITATION RATE means a fixed predetermined fee paid by HHSC to the HMO
each month in accordance with the Contract, for each enrolled Member in a
defined Rate Cell, in exchange for the HMO arranging for or providing a defined
set of Covered Services to such a Member, regardless of the amount of Covered
Services used by the enrolled Member.

     CAPITATION PAYMENT means the aggregate amount paid by HHSC to the HMO on a
monthly basis for the provision of Covered Services to enrolled Members in
accordance with the Capitation Rates in the Contract.

     CASE HEAD means the head of the household that is applying for Medicaid.

     C.F.R. means the Code of Federal Regulations.

     CHEMICAL DEPENDENCY TREATMENT means treatment provided for a chemical
dependency condition by a Chemical Dependency Treatment facility, chemical
dependency counselor or hospital.

     CHILDREN'S HEALTH INSURANCE PROGRAM or CHIP means the health insurance
program authorized and funded pursuant to Title XXI, Social Security Act (42
U.S.C. Sections 1397aa-1397jj) and administered by HHSC.

     CHILD (OR CHILDREN) WITH SPECIAL HEALTH CARE NEEDS (CSHCN) means a child
(or children) who:

          (1) ranges in age from birth up to age nineteen (19) years;

          (2) has a serious ongoing illness, a complex chronic condition, or a
     disability that has lasted or is anticipated to last at least twelve (12)
     continuous months or more;

          (3) has an illness, condition or disability that results (or without
     treatment would be expected to result) in limitation of function,
     activities, or social roles in comparison with accepted pediatric
     age-related milestones in the general areas of physical, cognitive,
     emotional, and/or social growth and/or development;

          (4) requires regular, ongoing therapeutic intervention and evaluation
     by appropriately trained health care personnel; and

          (5) has a need for health and/or health-related services at a level
     significantly above the usual for the child's age.

     CHIP HMO PROGRAM, OR CHIP PROGRAM, means the State of Texas program in
which HHSC contracts with HMOs to provide, arrange for, and coordinate Covered
Services for enrolled CHIP Members.

     CHIP HMOS means HMOs participating in the CHIP HMO Program.

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

     CLEAN CLAIM means a claim submitted by a physician or provider for medical
care or health care services rendered to an enrollee, with documentation
reasonably necessary for the HMO to process the claim. The HMO may not require a
physician or


                                  Page 4 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

provider to submit documentation that conflicts with the requirements of Texas
Administrative Code, Title 28, Part 1, Chapter 21, Subchapters C and T.

     CMS means the Centers for Medicare and Medicaid Services, formerly known as
the Health Care Financing Administration (HCFA), which is the federal agency
responsible for administering Medicare and overseeing state administration of
Medicaid and CHIP.

     COLA means the Cost of Living Adjustment.

     COMMUNITY RESOURCE COORDINATION GROUPS (CRCGS) means a statewide system of
local interagency groups, including both public and private providers, which
coordinate services for "multi-need" children and youth. CRCGs develop
individual service plans for children and adolescents whose needs can be met
only through interagency cooperation. CRCGs address Complex Needs in a model
that promotes local decision-making and ensures that children receive the
integrated combination of social, medical and other services needed to address
their individual problems.

     COMPLAINANT means a Member or a treating provider or other individual
designated to act on behalf of the Member who filed the Complaint.

     COMPLAINT (CHIP ONLY) means any dissatisfaction, expressed by a
Complainant, orally or in writing to the HMO, with any aspect of the HMO's
operation, including, but not limited to, dissatisfaction with plan
administration, procedures related to review or Appeal of an Adverse
Determination, as defined in Texas Insurance Code, Chapter 843, Subchapter G;
the denial, reduction, or termination of a service for reasons not related to
medical necessity; the way a service is provided; or disenrollment decisions.
The term does not include misinformation that is resolved promptly by supplying
the appropriate information or clearing up the misunderstanding to the
satisfaction of the CHIP Member.

     COMPLAINT (MEDICAID ONLY) means an expression of dissatisfaction expressed
by a Complainant, orally or in writing to the HMO, about any matter related to
the HMO other than an Action. As provided by 42 C.F.R. Section 438.400, possible
subjects for Complaints include, but are not limited to, the quality of care of
services provided, and aspects of interpersonal relationships such as rudeness
of a provider or employee, or failure to respect the Medicaid Member's rights.

     COMPLEX NEED means a condition or situation resulting in a need for
coordination or access to services beyond what a PCP would normally provide,
triggering the HMO's determination that Care Coordination is required.

     COMPREHENSIVE CARE PROGRAM: See definition for Texas Health Steps.

     CONFIDENTIAL INFORMATION means any communication or record (whether oral,
written, electronically stored or transmitted, or in any other form) consisting
of:

          (1) Confidential Client information, including HIPAA-defined protected
     health information;

          (2) All non-public budget, expense, payment and other financial
     information;

          (3) All Privileged Work Product;

          (4) All information designated by HHSC or any other State agency as
     confidential, and all information designated as confidential under the
     Texas Public Information Act, Texas Government Code, Chapter 552;

          (5) The pricing, payments, and terms and conditions of the Contract,
     unless disclosed publicly by HHSC or the State; and

          (6) Information utilized, developed, received, or maintained by HHSC,
     the HMO, or participating State agencies for the purpose of fulfilling a
     duty or obligation under this Contract and that has not been disclosed
     publicly.

     CONSUMER-DIRECTED SERVICES means the Member or his legal guardian is the
employer of and retains control over the hiring, management, and termination of
an individual providing personal assistance or respite.

     CONTINUITY OF CARE means care provided to a Member by the same PCP or
specialty provider to ensure that the delivery of care to the Member remains
stable, and services are consistent and unduplicated.

     CONTRACT or AGREEMENT means this formal, written, and legally enforceable
contract and amendments thereto between the Parties.

     CONTRACT PERIOD or CONTRACT TERM means the Initial Contract Period plus any
and all Contract extensions.

     CONTRACTOR or HMO means the HMO that is a party to this Contract and is an
insurer licensed by TDI as an HMO or as an ANHC formed in compliance with
Chapter 844 of the Texas Insurance Code.

     CORE SERVICE AREA (CSA) means the core set Service Area counties defined by
HHSC for the STAR and/or CHIP HMO Programs in which Eligibles will be required
to enroll in an HMO. (See Attachment B-6 to the HHSC Managed Care Contract
document for detailed information on the Service Area counties.)

     COPAYMENT (CHIP ONLY) means the amount that a Member is required to pay
when utilizing certain benefits within the health care plan. Once the copayment
is made, further payment is not required by the Member.

     CORRECTIVE ACTION PLAN means the detailed written plan that may be required
by HHSC to correct


                                  Page 5 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

or resolve a deficiency or event causing the assessment of a remedy or damage
against HMO.

     COURT-ORDERED COMMITMENT means a commitment of a STAR or CHIP Member to a
psychiatric facility for treatment ordered by a court of law pursuant to the
Texas Health and Safety Code, Title VII Subtitle C.

     COVERED SERVICES means Health Care Services the HMO must arrange to provide
to Members, including all services required by the Contract and state and
federal law, and all Value-added Services negotiated by the Parties (see
ATTACHMENTS B-2 AND B-3 of the HHSC MANAGED CARE CONTRACT relating to "Covered
Services" and "Value-added Services"). Covered Services include Behavioral
Health Services.

     CREDENTIALING means the process of collecting, assessing, and validating
qualifications and other relevant information pertaining to a health care
provider to determine eligibility and to deliver Covered Services.

     CULTURAL COMPETENCY means the ability of individuals and systems to provide
services effectively to people of various cultures, races, ethnic backgrounds,
and religions in a manner that recognizes, values, affirms, and respects the
worth of the individuals and protects and preserves their dignity.

     DATE OF DISENROLLMENT means the last day of the last month for which HMO
receives payment for a Member.

     DAY means a calendar day unless specified otherwise.

     DEFAULT ENROLLMENT means the process established by HHSC to assign a
mandatory STAR enrollee who has not selected an MCO to an MCO.

     DELIVERABLE means a written or recorded work product or data prepared,
developed, or procured by HMO as part of the Services under the Contract for the
use or benefit of HHSC or the State of Texas.

     DELIVERY SUPPLEMENTAL PAYMENT means a onetime per pregnancy supplemental
payment for each delivery to a Member in the STAR and CHIP Programs.

     DADS means the Texas Department of Aging and Disability Services or its
successor agency (formerly Department of Human Services).

     DSHS means the Texas Department of State Health Services or its successor
agency (formerly Texas Department of Health and Texas Department of Mental
Health and Mental Retardation).

     DISEASE MANAGEMENT means a system of coordinated healthcare interventions
and communications for populations with conditions in which patient self-care
efforts are significant.

     DISPROPORTIONATE SHARE HOSPITAL (DSH) means a hospital that serves a higher
than average number of Medicaid and other low-income patients and receives
additional reimbursement from the State.

     DISABLED PERSON OR PERSON WITH DISABILITY means a person under sixty-five
(65) years of age, including a child, who qualifies for Medicaid services
because of a disability.

     DISABILITY means a physical or mental impairment that substantially limits
one or more of an individual's major life activities, such as caring for
oneself, performing manual tasks, walking, seeing, hearing, speaking, breathing,
learning, and/or working.

     DISABILITY-RELATED ACCESS means that facilities are readily accessible to
and usable by individuals with disabilities, and that auxiliary aids and
services are provided to ensure effective communication, in compliance with
Title III of the Americans with Disabilities Act.

     DISASTER RECOVERY PLAN means the document developed by the HMO that
outlines details for the restoration of the MIS in the event of an emergency or
disaster.

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

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

     EDI means electronic data interchange.

     EFFECTIVE DATE means the effective date of this Contract, as specified in
the HHSC Managed Care Contract document.

     EFFECTIVE DATE OF COVERAGE means the first day of the month for which the
HMO has received payment for a Member.

     ELIGIBLES means individuals residing in one of the Service Areas and
eligible to enroll in a STAR or CHIP HMO, as applicable.

     EMERGENCY BEHAVIORAL HEALTH CONDITION means any condition, without regard
to the nature or cause of the condition, which in the opinion of a prudent
layperson possessing an average knowledge of health and medicine:

          (1) requires immediate intervention and/or medical attention without
     which Members would present an immediate danger to themselves or others, or


                                  Page 6 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

          (2) which renders Members incapable of controlling, knowing or
     understanding the consequences of their actions.

     EMERGENCY SERVICES means covered inpatient and outpatient services
furnished by a provider that is qualified to furnish such services under the
Contract and that are needed to evaluate or stabilize an Emergency Medical
Condition and/or an Emergency Behavioral Health Condition, including
Post-stabilization Care Services.

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

          (1) placing the patient's health in serious jeopardy;

          (2) serious impairment to bodily functions;

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

          (4) serious disfigurement; or

          (5) in the case of a pregnant women, serious jeopardy to the health of
     a woman or her unborn child.

     ENCOUNTER means a Covered Service or group of Covered Services delivered by
a Provider to a Member during a visit between the Member and Provider. This also
includes Value-added Services.

     ENCOUNTER DATA means data elements from Fee-for-Service claims or capitated
services proxy claims that are submitted to HHSC by the HMO in accordance with
HHSC's required format for Medicaid and CHIP HMOs.

     ENROLLMENT REPORT/ENROLLMENT FILE means the daily or monthly list of
Eligibles that are enrolled with an HMO as Members on the day or for the month
the report is issued.

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

     EXCLUSIVE PROVIDER ORGANIZATION (EPO) means the vendor contracted with HHSC
to operate the CHIP EPO in Texas.

     EXPANSION AREA means a county or Service Area that has not previously
provided healthcare to HHSC's HMO Program Members utilizing a managed care
model.

     EXPANSION CHILDREN means children who are generally at least one, but under
age 6, and live in a family whose income is at or below 133 percent of the
federal poverty level (FPL). Children in this coverage group have either elected
to bypass TANF or are not eligible for TANF in Texas.

     EXPERIENCE REBATE means the portion of the HMO's net income before taxes
that is returned to the State in accordance with SECTION 10.11 ("Experience
Rebate").

     EXPEDITED APPEAL means an appeal to the HMO in which the decision is
required quickly based on the Member's health status, and the amount of time
necessary to participate in a standard appeal could jeopardize the Member's life
or health or ability to attain, maintain, or regain maximum function.

     EXPIRATION DATE means the expiration date of this Contract, as specified in
HHSC's Managed Care Contract document.

     EXTERNAL QUALITY REVIEW ORGANIZATION (EQRO) means the entity that contracts
with HHSC to provide external review of access to and quality of healthcare
provided to Members of HHSC's HMO Programs.

     FAIR HEARING means the process adopted and implemented by HHSC in 25 T.A.C.
Chapter 1, in compliance with federal regulations and state rules relating to
Medicaid Fair Hearings.

     FEE-FOR-SERVICE means the traditional Medicaid Health Care Services payment
system under which providers receive a payment for each unit of service
according to rules adopted pursuant to Chapter 32, Texas Human Resources Code.

     FORCE MAJEURE EVENT means any failure or delay in performance of a duty by
a Party under this Contract that is caused by fire, flood, hurricane, tornadoes,
earthquake, an act of God, an act of war, riot, civil disorder, or any similar
event beyond the reasonable control of such Party and without the fault or
negligence of such Party.

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

     FPL means the Federal Poverty Level.

     FRAUD means an intentional deception or misrepresentation made by a person
with the knowledge that the deception could result in some unauthorized benefit
to himself or some other person. It includes any act that constitutes fraud
under applicable federal or state law.

     FSR means Financial Statistical Report.

     HABILITATIVE AND REHABILITATIVE SERVICES means Health Care Services
described in ATTACHMENT B-2 that may be required by children who fail to reach
(habilitative) or have lost (rehabilitative) age appropriate developmental
milestones.


                                  Page 7 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     HEALTH CARE SERVICES means the Acute Care, Behavioral Health Care and
health-related services that an enrolled population might reasonably require in
order to be maintained in good health, including, at a minimum, Emergency
Services and inpatient and out patient services.

     HEALTH AND HUMAN SERVICES COMMISSION or HHSC means the administrative
agency within the executive department of Texas state government established
under Chapter 531, Texas Government Code, or its designee, including, but not
limited to, the HHS Agencies.

     HEALTH-RELATED MATERIALS are materials developed by the HMO or obtained
from a third party relating to the prevention, diagnosis or treatment of a
medical condition.

     HEDIS, the Health Plan Employer Data and Information Set, is a registered
trademark of NCQA. HEDIS is a set of standardized performance measures designed
to reliably compare the performance of managed health care plans. HEDIS is
sponsored, supported and maintained by NCQA.

     HHS AGENCY means the Texas health and human service agencies subject to
HHSC's oversight under Chapter 531, Texas Government Code, and their successor
agencies.

     HHSC ADMINISTRATIVE SERVICES CONTRACTOR (ASC) means an entity performing
HMO administrative services functions, including member enrollment functions,
for STAR or CHIP HMO Programs under contract with HHSC.

     HHSC HMO PROGRAMS OR HMO PROGRAMS mean the STAR and CHIP HMO Programs for
which this Joint HMO RFP was issued.

     HHSC UNIFORM MANAGED CARE MANUAL means the manual published by or on behalf
of HHSC that contains policies and procedures required of all HMOs participating
in the HHSC Programs.

     HIPAA means the Health Insurance Portability and Accountability Act of
1996, P.L. 104-191 (August 21, 1996), as amended or modified.

     HMO or CONTRACTOR means the HMO that is a party to this Contract, and is
either:

          (1) an insurer licensed by TDI as a Health Maintenance Organization in
     accordance with Chapter 843 of the Texas Insurance Code, or

          (2) a certified Approved Non-Profit Health Corporation (ANHC) formed
     in compliance with Chapter 844 of the Texas Insurance Code.

     HMO ADMINISTRATIVE SERVICES means the performance of services or functions,
other than the direct delivery of Covered Services, necessary for the management
of the delivery of and payment for Covered Services, including but not limited
to Network, utilization, clinical and/or quality management, service
authorization, claims processing, management information systems operation and
reporting.

     HMO'S SERVICE AREA means all the counties included in any HHSC-defined Core
or Optional Service Area, as applicable to each HMO Program and within which the
HMO has been selected to provide HMO services.

     HOME AND COMMUNITY SUPPORT SERVICES AGENCY OR HCSS means an entity licensed
to provide home health, hospice, or personal assistance services provided to
individuals in their own home or independent living environment as prescribed by
a physician or individualized service plan. Each HCSS must provide clients with
a plan of care that includes specific services the agency agrees to perform. The
agencies are licensed and monitored by DADS or its successor.

     HOSPITAL means a licensed public or private institution as defined by
Chapter 241, Texas Health and Safety Code, or in Subtitle C, Title 7, Texas
Health and Safety Code.

     ICF-MR means an intermediate care facility for the mentally retarded.

     INDIVIDUAL FAMILY SERVICE PLAN (IFSP) means the plan for services required
by the Early Childhood Intervention (ECI) Program and developed by an
interdisciplinary team.

     INITIAL CONTRACT PERIOD means the Effective Date of the Contract through
August 31, 2008.

     INPATIENT STAY means at least a 24-hour stay in a facility licensed to
provide hospital care.

     JCAHO means Joint Commission on Accreditation of Health Care Organizations.

     JOINT INTERFACE PLAN (JIP) means a document used to communicate basic
system interface information. This information includes: file structure, data
elements, frequency, media, type of file, receiver and sender of the file, and
file I.D. The JIP must include each of the HMO's interfaces required to conduct
business under this Contract. The JIP must address the coordination with each of
the HMO's interface partners to ensure the development and maintenance of the
interface; and the timely transfer of required data elements between contractors
and partners.

     KEY HMO PERSONNEL means the critical management and technical positions
identified by the HMO in accordance with ARTICLE 4.

     LINGUISTIC ACCESS means translation and interpreter services, for written
and spoken language to ensure effective communication. Linguistic access
includes sign language interpretation, and the provision of other auxiliary aids
and services to persons with disabilities.

     LOCAL HEALTH DEPARTMENT means a local health department established
pursuant to Health and Safety


                                  Page 8 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

Code, Title 2, Local Public Health Reorganization Act Section 121.031.

     LOCAL MENTAL HEALTH AUTHORITY (LMHA) means an entity within a specified
region responsible for planning, policy development, coordination, and resource
development and allocation and for supervising and ensuring the provision of
mental health care services to persons with mental illness in one or more local
service areas.

     MAJOR POPULATION GROUP means any population, which represents at least 10%
of the Medicaid and/or CHIP population in any of the counties in the Service
Area served by the HMO.

     MATERIAL SUBCONTRACTOR or MAJOR SUBCONTRACTOR means any entity that
contracts with the HMO for all or part of the HMO Administrative Services, where
the value of the subcontracted HMO Administrative Service(s) exceeds $100,000,
or is reasonably expected to exceed $100,000, per State Fiscal Year. Providers
in the HMO's Provider Network are not Material Subcontractors.

     MANDATED OR REQUIRED SERVICES means services that a state is required to
offer to categorically needy clients under a state Medicaid plan.

     MARKETING means any communication from the HMO to a Medicaid or CHIP
Eligible who is not enrolled with the HMO that can reasonably be interpreted as
intended to influence the Eligible to:

     (1)  enroll with the HMO; or

     (2)  not enroll in, or to disenroll from, another MCO.

     MARKETING MATERIALS means materials that are produced in any medium by or
on behalf of the HMO and can reasonably be interpreted as intending to market to
potential Members. Health-related Materials are not Marketing Materials.

     MCO means managed care organization.

     MEDICAID means the medical assistance entitlement program authorized and
funded pursuant to Title XIX, Social Security Act (42 U.S.C. Section 1396 et
seq.) and administered by HHSC.

     MEDICAID HMOS means contracted HMOs participating in STAR.

     MEDICAL HOME means a PCP or specialty care Provider who has accepted the
responsibility for providing accessible, continuous, comprehensive and
coordinated care to Members participating in a HHSC HMO Program.

     MEDICALLY NECESSARY means:

          (1) Non-behavioral health related Health Care Services that are:

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

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

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

               (d) consistent with the diagnoses of the conditions;

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

               (f) are not experimental or investigative; and

               (g) are not primarily for the convenience of the Member or
          Provider; and

          (2) Behavioral Health Services that are:

               (a) are reasonable and necessary for the diagnosis or treatment
          of a mental health or chemical dependency disorder, or to improve,
          maintain, or prevent deterioration of functioning resulting from such
          a disorder;

               (b) are in accordance with professionally accepted clinical
          guidelines and standards of practice in behavioral health care;

               (c) are furnished in the most appropriate and least restrictive
          setting in which services can be safely provided;

               (d) are the most appropriate level or supply of service that can
          safely be provided;

               (e) could not be omitted without adversely affecting the Member's
          mental and/or physical health or the quality of care rendered;

               (f) are not experimental or investigative; and

               (g) are not primarily for the convenience of the Member or
          Provider.

     MEMBER means a person who:

     (1) is entitled to benefits under Title XIX of the Social Security Act and
Medicaid, is in a Medicaid eligibility category included in the STAR Program,
and is enrolled in the STAR Program and the HMO's STAR HMO;

     (2) is entitled to benefits under Title XIX of the Social Security Act and
Medicaid, is in a Medicaid eligibility category included as a voluntary
participant in the STAR Program, and


                                  Page 9 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     is enrolled in the STAR Program and the HMO's STAR HMO, or

          (3) has met CHIP eligibility criteria and is enrolled in the HMO's
     CHIP HMO.

     MEMBER MATERIALS means all written materials produced or authorized by the
HMO and distributed to Members or potential members containing information
concerning the HMO Program(s). Member Materials include, but are not limited to,
Member ID cards, Member handbooks, Provider directories, and Marketing
Materials.

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

     MEMBER(S) WITH SPECIAL HEALTH CARE NEEDS (MSHCN) includes a Child or
Children with a Special Health Care Need (CSHCN) and any adult Member who:

          (1) has a serious ongoing illness, a Chronic or Complex Condition, or
     a Disability that has lasted or is anticipated to last for a significant
     period of time, and

          (2) requires regular, ongoing therapeutic intervention and evaluation
     by appropriately trained health care personnel.

     MIS means Management Information System.

     NATIONAL COMMITTEE FOR QUALITY ASSURANCE (NCQA) means the independent
organization that accredits HMOs, managed behavioral health organizations, and
accredits and certifies disease management programs. HEDIS and the Quality
Compass are registered trademarks of NCQA.

     NET INCOME BEFORE TAXES means an aggregate excess of Revenues over
Allowable Expenses.

     NETWORK OR PROVIDER NETWORK means all Providers that have a contract with
the HMO, or any Subcontractor, for the delivery of Covered Services to the HMO's
Members under the Contract.

     NETWORK PROVIDER OR PROVIDER means an appropriately credentialed and
licensed individual, facility, agency, institution, organization or other
entity, and its employees and subcontractors, that has a contract with the HMO
for the delivery of Covered Services to the HMO's Members.

     NON-CAPITATED SERVICES means those Medicaid services identified in
Attachment B-1, Section 8.2.2.8.

     NON-PROVIDER SUBCONTRACTS means contracts between the HMO and a third party
that performs a function, excluding delivery of health care services, that the
HMO is required to perform under its Contract with HHSC.

     OB/GYN means obstetrician-gynecologist.

     OPEN PANEL means Providers who are accepting new patients for the HMO
Program(s) served.

     OPERATIONAL START DATE means the first day on which an HMO is responsible
for providing Covered Services to Members of an HMO Program in a Service Area in
exchange for a Capitation Payment under the Contract. The Operational Start Date
may vary per HMO Program and Service Area. The Operational Start Date(s)
applicable to this Contract are set forth in the HHSC MANAGED CARE CONTRACT
document.

     OPTIONAL SERVICE AREA (OSA) means an HHSC defined county or counties,
contiguous to a CSA, in which CHIP HMOs have the option to submit a proposal to
provide health care coverage to CHIP Eligibles. The CHIP HMO must serve the
associated Core Service Area in order to provide coverage in the OSA. If HSHC
accepts a proposal for an OSA, the HHSC MANAGED CARE CONTRACT document will
include such OSA in the applicable Service Area.

     OPERATIONS PHASE means the period of time when HMO is responsible for
providing the Covered Services and all related Contract functions for a Service
Area. The Operations Phase begins on the Operational Start Date, and may vary by
HMO Program and Service Area.

     OUT-OF-NETWORK (OON) means an appropriately licensed individual, facility,
agency, institution, organization or other entity that has not entered into a
contract with the HMO for the delivery of Covered Services to the HMO's Members.

     PARTIES means HHSC and HMO, collectively.

     PARTY means either HHSC or HMO, individually.

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

     POPULATION RISK GROUP means a distinct group of members identified by age,
age range, gender, type of program, or eligibility category.

     POST-STABILIZATION CARE SERVICES means Covered Services, related to an
Emergency Medical Condition that are provided after a Medicaid Member is
stabilized in order to maintain the stabilized condition, or, under the
circumstances described in 42 Section C.F.R. 438.114(b)&(e) and 42 C.F.R.
Section 422.113(c)(iii) to improve or resolve the Medicaid Member's condition.

     PRIMARY CARE PHYSICIAN OR PRIMARY CARE PROVIDER (PCP) means a physician or
provider who has agreed with the HMO to provide a Medical Home to Members and
who is responsible for providing initial and primary care to patients,
maintaining the continuity of patient care, and initiating referral for care.

     Provider types that can be PCPs are from any of the following practice
areas: General Practice, Family Practice, Internal Medicine, Pediatrics,
Obstetrics/Gynecology (OB/GYN), Pediatric and


                                  Page 10 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

Family Advanced Practice Nurses (APNs) and Physician Assistants (when practicing
under the supervision of a physician specializing in Family Practice, Internal
Medicine, Pediatrics or Obstetrics/Gynecology who also qualifies as a PCP under
this contract),, Federally Qualified Health Centers (FQHCs), Rural Health
Clinics (RHCs) and similar community clinic s; and specialist physicians who are
willing to provide a Medical Home to selected Members with special needs and
conditions.

     PROPOSAL means the proposal submitted by the HMO in response to the RFP.

     PROVIDER OR NETWORK PROVIDER means an appropriately credentialed and
licensed individual, facility, agency, institution, organization or other
entity, and its employees and subcontractors, that has a contract with the HMO
for the delivery of Covered Services to the HMO's Members.

     PROVIDER CONTRACT means a contract entered into by a direct provider of
health care services and the HMO or an intermediary entity.

     PROVIDER NETWORK OR NETWORK means all Providers that have contracted with
the HMO for the applicable HMO Program.

     PROXY CLAIM FORM means a form submitted by Providers to document services
delivered to Members under a capitated arrangement. It is not a claim for
payment.

     PUBLIC HEALTH ENTITY means a HHSC Public Health Region, a Local Health
Department, or a hospital district.

     PUBLIC INFORMATION means information that:

          (1) Is collected, assembled, or maintained under a law or ordinance or
     in connection with the transaction of official business by a governmental
     body or for a governmental body; and

          (2) The governmental body owns or has a right of access to.

     QUALITY IMPROVEMENT means a system to continuously examine, monitor and
revise processes and systems that support and improve administrative and
clinical functions.

     RATE CELL means a Population Risk Group for which a Capitation Rate has
been determined.

     RATE PERIOD 1 means the period of time beginning on the Operational Start
Date and ending on August 31, 2007.

     RATE PERIOD 2 means the period of time beginning on September 1, 2007 and
ending on August 31,2008.

     REAL-TIME CAPTIONING (also known as CART, Communication Access Real-Time
Translation) means a process by which a trained individual uses a shorthand
machine, a computer, and real-time translation software to type and
simultaneously translate spoken language into text on a computer screen. Real
Time Captioning is provided for individuals who are deaf, have hearing
impairments, or have unintelligible speech. It is usually used to interpret
spoken English into text English but may be used to translate other spoken
languages into text.

     READINESS REVIEW means the assurances made by a selected HMO and the
examination conducted by HHSC, or its agents, of HMO's ability, preparedness,
and availability to fulfill its obligations under the Contract.

     REQUEST FOR PROPOSALS or RFP means the procurement solicitation instrument
issued by HHSC under which this Contract was awarded and all RFP addenda,
corrections or modifications, if any.

     REVENUE means all managed care revenue received by the HMO pursuant to this
Contract during the Contract Period, including retroactive adjustments made by
HHSC. This would include any funds earned on Medicaid or CHIP managed care funds
such as investment income, earned interest, or third party administrator
earnings from services to delegated Networks.

     RISK means the potential for loss as a result of expenses and costs of the
HMO exceeding payments made by HHSC under the Contract.

     ROUTINE CARE means health care for covered preventive and medically
necessary Health Care Services that are non-emergent or non-urgent.

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

     SCOPE OF WORK means the description of Services and Deliverables specified
in this Contract, the RFP, the HMO's Proposal, and any agreed modifications to
these documents.

     SDX means State Data Exchange.

     SED means severe emotional disturbance as determined by a Local Mental
Health Authority.

     SERVICE AREA means the counties included in any HHSC-defined Core and
Optional Service Area as applicable to each HMO Program.

     SERVICE MANAGEMENT is an administrative service in STAR and CHIP performed
by the HMO to facilitate development of a Service Plan and coordination of
services among a Member's PCP, specialty providers and non-medical providers to
ensure Members with Special Health Care Needs and/or Members needing high-cost
treatment have access to, and appropriately utilize, Medically Necessary Covered
Services, Non-capitated Services, and other services and supports.


                                  Page 11 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     SERVICE PLAN (SP) means an individualized plan developed with and for
Members with Special Health Care Needs, including persons with disabilities or
chronic or complex conditions. The SP includes, but is not limited to, the
following:

          (1) the Member's history;

          (2) summary of current medical and social needs and concerns;

          (3) short and long term needs and goals;

          (4) a list of services required, their frequency, and

          (5) a description of who will provide such services.

     The Service Plan should incorporate as a component of the plan the
Individual Family Service Plan (IFSP) for members in the Early Childhood
Intervention (ECI) Program

     The Service Plan may include information for services outside the scope of
covered benefits such as how to access affordable, integrated housing.

     SERVICES means the tasks, functions, and responsibilities assigned and
delegated to the HMO under this Contract.

     SIGNIFICANT TRADITIONAL PROVIDER OR STP (FOR MEDICAID) means primary care
providers and long-term care providers, identified by HHSC as having provided a
significant level of care to Fee-for-Service clients. Disproportionate Share
Hospitals (DSH) are also Medicaid STPs.

     SIGNIFICANT TRADITIONAL PROVIDER OR STP (FOR CHIP) means primary care
providers participating in the CHIP HMO Program prior to May 2004, and
Disproportionate Share Hospitals (DSH).

     SKILLED NURSING FACILITY SERVICES (CHIP ONLY) Services provided in a
facility that provides nursing or rehabilitation services and Medical supplies
and use of appliances and equipment furnished by the facility.

     SOFTWARE means all operating system and applications software used by the
HMO to provide the Services under this Contract.

     SPMI means severe and persistent mental illness as determined by the Local
Mental Health Authority.

     SPECIALTY HOSPITAL means any inpatient hospital that is not a general Acute
Care hospital.

     SPECIALTY THERAPY means physical therapy, speech therapy or occupational
therapy.

     SSA means the Social Security Administration.

     SSI ADMINISTRATIVE FEE means the monthly per member per month fee paid to
an HMO to provide administrative services to manage the healthcare of the HMO's
voluntary SSI beneficiaries. These services are described in more detail under
Section 10.10 of this document.

     STABILIZE means to provide such medical care as to assure within reasonable
medical probability that no deterioration of the condition is likely to result
from, or occur from, or occur during discharge, transfer, or admission of the
Member.

     STAR OR STAR PROGRAM stands for the State of Texas Access Reform, and means
the State of Texas Medicaid managed care program in which HHSC contracts with
HMOs to provide, arrange, and coordinate preventive, primary, and Acute Care
Covered Services to non-disabled children and families, and pregnant women.

     STAR HMOS means HMOs participating in the STAR Program.

     STATE FISCAL YEAR (SFY) means a 12-month period beginning on September 1
and ending on August 31 the following year.

     SUBCONTRACT means any agreement between the HMO and other party to fulfill
the requirements of the Contract.

     SUBCONTRACTOR means any individual or entity, including an Affiliate, that
has entered into a Subcontract with HMO.

     SUBSIDIARY means an Affiliate controlled by such person or entity directly
or indirectly through one or more intermediaries.

     SUPPLEMENTAL SECURITY INCOME (SSI) means the federal cash assistance
program of direct financial payments to the aged, blind, and disabled
administered by the SSA under Title XVI of the Social Security Act. All persons
who are certified as eligible for SSI in Texas are eligible for Medicaid. Local
SSA claims representatives make SSI eligibility determinations. The transactions
are forwarded to the SSA in Baltimore, who then notifies the states through the
SDX.

     SUPPLEMENTAL SECURITY INCOME (SSI) BENEFICIARY means a person that receives
supplemental security income cash assistance as cited in 42 U.S.C.A. Section
1320 a-6 and as described in the definition of Supplemental Security Income.

     T.A.C. means Texas Administrative Code.

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

     TDI means the Texas Department of Insurance.

     TEMPORARY ASSISTANCE TO NEEDY FAMILIES (TANF) means the federally funded
program that provides assistance to single parent families with children who
meet the categorical requirements for aid. This program was formerly known as
the Aid to Families with Dependent Children (AFDC) program.

     TEXAS HEALTH NETWORK (THN) is the name of the Medicaid primary care case
management program in Texas.


                                  Page 12 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     TEXAS HEALTH STEPS (THSTEPS) is the name adopted by the State of Texas for
the federally mandated Early and Periodic Screening, Diagnosis and Treatment
(EPSDT) program. It includes the State's Comprehensive Care Program extension to
EPSDT, which adds benefits to the federal EPSDT requirements contained in 42
U.S.C. Section 1396d(r), and defined and codified at 42 C.F.R. Sections 440.40
and 441.56-62. HHSC's rules are contained in 25 T.A.C., Chapter 33 (relating to
Early and Periodic Screening, Diagnosis and Treatment).

     TEXAS MEDICAID BULLETIN means the bi-monthly update to the Texas Medicaid
Provider Procedures Manual.

     TEXAS MEDICAID PROVIDER PROCEDURES MANUAL means the policy and procedures
manual published by or on behalf of HHSC that contains policies and procedures
required of all health care providers who participate in the Texas Medicaid
program. The manual is published annually and is updated bimonthly by the Texas
Medicaid Bulletin.

     TEXAS MEDICAID SERVICE DELIVERY GUIDE means an attachment to the Texas
Medicaid Provider Procedures Manual.

     THIRD PARTY LIABILITY (TPL) means the legal responsibility of another
individual or entity to pay for all or part of the services provided to Members
under the Contract (see 1 TAC Section 354.2301 et seq., relating to Third Party
Resources).

     THIRD PARTY RECOVERY (TPR) means the recovery of payments on behalf of a
Member by HHSC or the HMO from an individual or entity with the legal
responsibility to pay for the Covered Services.

     TP 40 means Type Program 40, which is a Medicaid program eligibility type
assigned to pregnant women under 185% of the federal poverty level (FPL).

     TP 45 means Type Program 45, which is a Medicaid program eligibility code
assigned to newborns (under 12 months of age) who are born to mothers who are
Medicaid eligible at the time of the child's birth.

     TRANSITION PHASE includes all activities the HMO is required to perform
between the Contract Effective Date and the Operational Start Date for a Service
Area.

     TURNOVER PHASE includes all activities the HMO is required to perform in
order to close out the Contract and/or transition Contract activities and
operations for a Service Area to HHSC or a subsequent contractor.

     TURNOVER PLAN means the written plan developed by HMO, approved by HHSC, to
be employed during the Turnover Phase. The Turnover Plan describes HMO's
policies and procedures that will assure:

          (1) The least disruption in the delivery of Health Care Services to
     those Members who are enrolled with the HMO during the transition to a
     subsequent health plan;

          (2) Cooperation with HHSC and the subsequent health plan in notifying
     Members of the transition and of their option to select a new plan, as
     requested and in the form required or approved by HHSC; and

          (3) Cooperation with HHSC and the subsequent health plan in
     transferring information to the subsequent health plan, as requested and in
     the form required or approved by HHSC.

     URAC /AMERICAN ACCREDITATION HEALTH CARE COMMISSION means the independent
organization that accredits Utilization Review functions and offers a variety of
other accreditation and certification programs for health care organizations.

     URGENT BEHAVIORAL HEALTH SITUATION means a behavioral health condition that
requires attention and assessment within twenty-four (24) hours but which does
not place the Member in immediate danger to himself or herself or others and the
Member is able to cooperate with treatment.

     URGENT CONDITION means a health condition including an Urgent Behavioral
Health Situation that is not an emergency but is severe or painful enough to
cause a prudent layperson, possessing the average knowledge of medicine, to
believe that his or her condition requires medical treatment evaluation or
treatment within twenty-four (24) hours by the Member's PCP or PCP designee to
prevent serious deterioration of the Member's condition or health.

     UTILIZATION REVIEW means the system for retrospective, concurrent, or
prospective review of the medical necessity and appropriateness of Health Care
Services provided, being provided, or proposed to be provided to a Member. The
term does not include elective requests for clarification of coverage.

     VALUE-ADDED SERVICES means additional services for coverage beyond those
specified in the RFP. Value-added Services must be actual health care services
or benefits rather than gifts, incentives, health assessments or educational
classes. Temporary phones, cell phones, additional transportation benefits, and
extra home health services may be Value-added Services, if approved by HHSC.
Best practice approaches to delivering Covered Services are not considered
Value-added Services.

     WASTE means practices that are not cost-efficient.


                                  Page 13 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

                      ARTICLE 3. GENERAL TERMS & CONDITIONS

SECTION 3.01 CONTRACT ELEMENTS.

(a) Contract documentation.

     The Contract between the Parties will consist of the HHSC Managed Care
Contract document and all attachments and amendments.

(b) Order of documents.

     In the event of any conflict or contradiction between or among the contract
documents, the documents shall control in the following order of precedence:

          (1) The final executed HHSC MANAGED CARE CONTRACT document, and all
     amendments thereto;

          (2) HHSC Managed Care Contract ATTACHMENT A - "HHSC's Uniform Managed
     Care Contract Terms and Conditions," and all amendments thereto;

          (3) HHSC Managed Care Contract ATTACHMENT B - "Scope of
     Work/Performance Measures," and all attachments and amendments thereto;

          (4) The HHSC UNIFORM MANAGED CARE MANUAL, and all attachments and
     amendments thereto;

          (5) HHSC Managed Care Contract ATTACHMENT C-3 - "Agreed Modifications
     to HMO's Proposal;"

          (6) HHSC Managed Care Contract ATTACHMENT C-2, "HMO Supplemental
     Responses," and

          (7)HHSC Managed Care Contract ATTACHMENT C-1 - "HMO's Proposal."

SECTION 3.02 TERM OF THE CONTRACT.

     The term of the Contract will begin on the Effective Date and will conclude
on the Expiration Date. The Parties may renew the Contract for an additional
period or periods, but the Contract Term may not exceed a total of eight (8)
years. All reserved contract extensions beyond the Expiration Date will be
subject to good faith negotiations between the Parties and mutual agreement to
the extension(s).

SECTION 3.03 FUNDING.

     This Contract is expressly conditioned on the availability of state and
federal appropriated funds. HMO will have no right of action against HHSC in the
event that HHSC is unable to perform its obligations under this Contract as a
result of the suspension, termination, withdrawal, or failure of funding to HHSC
or lack of sufficient funding of HHSC for any activities or functions contained
within the scope of this Contract. If funds become unavailable, the provisions
of ARTICLE 12 ("Remedies and Disputes") will apply. HHSC will use all reasonable
efforts to ensure that such funds are available, and will negotiate in good
faith with HMO to resolve any HMO claims for payment that represent accepted
Services or Deliverables that are pending at the time funds become unavailable.
HHSC shall make best efforts to provide reasonable written advance notice to HMO
upon learning that funding for this Contract may be unavailable.

SECTION 3.04 DELEGATION OF AUTHORITY.

     Whenever, by any provision of this Contract, any right, power, or duty is
imposed or conferred on HHSC, the right, power, or duty so imposed or conferred
is possessed and exercised by the Commissioner unless any such right, power, or
duty is specifically delegated to the duly appointed agents or employees of
HHSC. The Commissioner will reduce any such delegation of authority to writing
and provide a copy to HMO on request.

SECTION 3.05 NO WAIVER OF SOVEREIGN IMMUNITY.

     The Parties expressly agree that no provision of this Contract is in any
way intended to constitute a waiver by HHSC or the State of Texas of any
immunities from suit or from liability that HHSC or the State of Texas may have
by operation of law.

SECTION 3.06 FORCE MAJEURE.

     Neither Party will be liable for any failure or delay in performing its
obligations under the Contract if such failure or delay is due to any cause
beyond the reasonable control of such Party, including, but not limited to,
unusually severe weather, strikes, natural disasters, fire, civil disturbance,
epidemic, war, court order, or acts of God. The existence of such causes of
delay or failure will extend the period of performance in the exercise of
reasonable diligence until after the causes of delay or failure have been
removed. Each Party must inform the other in writing with proof of receipt
within five (5) Business Days of the existence of a force majeure event or
otherwise waive this right as a defense.

SECTION 3.07 PUBLICITY.

     (a) HMO may use the name of HHSC, the State of Texas, any HHS Agency, and
the name of the HHSC HMO Program in any media release, public announcement, or
public disclosure relating to the Contract or its subject matter only if, at
least seven (7) calendar days prior to distributing the material, the HMO
submits the information to HHSC for review and comment. If HHSC has not
responded within seven (7) calendar days, the HMO may use the submitted
information. HHSC reserves the right to object to and require changes to the
publication if, at HHSC's sole discretion, it determines that the publication
does not accurately reflect the terms of the Contract or the HMO's performance
under the Contract..

     (b) HMO will provide HHSC with one (1) electronic copy of any information
described in Subsection 3.07(a) prior to public release. HMO will


                                 Page 14 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

provide additional copies, including hard copies, at the request of HHSC.

     (c) The requirements of Subsection 3.07(a) do not apply to:

          (1) proposals or reports submitted to HHSC, an administrative agency
     of the State of Texas, or a governmental agency or unit of another state or
     the federal government;

          (2) information concerning the Contract's terms, subject matter, and
     estimated value:

               (a) in any report to a governmental body to which the HMO is
          required by law to report such information, or

               (b) that the HMO is otherwise required by law to disclose; and

          (3) Member Materials (the HMO must comply with THE UNIFORM MANAGED
     CARE MANUAL'S provisions regarding the review and approval of Member
     Materials).

SECTION 3.08 ASSIGNMENT.

(a)  Assignment by HMO.

     HMO shall not assign all or any portion of its rights under or interests in
the Contract or delegate any of its duties without prior written consent of
HHSC. Any written request for assignment or delegation must be accompanied by
written acceptance of the assignment or delegation by the assignee or delegation
by the delegate. Except where otherwise agreed in writing by HHSC, assignment or
delegation will not release HMO from its obligations pursuant to the Contract.
An HHSC-approved Material Subcontract will not be considered to be an assignment
or delegation for purposes of this section.

(b)  Assignment by HHSC.

     HMO understands and agrees HHSC may in one or more transactions assign,
pledge, transfer, or hypothecate the Contract. This assignment will only be made
to another State agency or a non-State agency that is contracted to perform
agency support.

(c)  Assumption.

     Each party to whom a transfer is made (an "Assignee") must assume all or
any part of HMO'S or HHSC's interests in the Contract, the product, and any
documents executed with respect to the Contract, including, without limitation,
its obligation for all or any portion of the purchase payments, in whole or in
part.

SECTION 3.09 COOPERATION WITH OTHER VENDORS AND PROSPECTIVE VENDORS.

     HHSC may award supplemental contracts for work related to the Contract, or
any portion thereof. HMO will reasonably cooperate with such other vendors, and
will not commit or permit any act that may interfere with the performance of
work by any other vendor.

SECTION 3.10 RENEGOTIATION AND REPROCUREMENT RIGHTS.

(a)  Renegotiation of Contract terms.

     Notwithstanding anything in the Contract to the contrary, HHSC may at any
time during the term of the Contract exercise the option to notify HMO that HHSC
has elected to renegotiate certain terms of the Contract. Upon HMO's receipt of
any notice pursuant to this Section, HMO and HHSC will undertake good faith
negotiations of the subject terms of the Contract, and may execute an amendment
to the Contract in accordance with ARTICLE 8.

(b)  Reprocurement of the services or procurement of additional services.

     Notwithstanding anything in the Contract to the contrary, whether or not
HHSC has accepted or rejected HMO's Services and/or Deliverables provided during
any period of the Contract, HHSC may at any time issue requests for proposals or
offers to other potential contractors for performance of any portion of the
Scope of Work covered by the Contract or Scope of Work similar or comparable to
the Scope of Work performed by HMO under the Contract.

(c)  Termination rights upon reprocurement.

     If HHSC elects to procure the Services or Deliverables or any portion of
the Services or Deliverables from another vendor in accordance with this
Section, HHSC will have the termination rights set forth in ARTICLE 12
("Remedies and Disputes").

SECTION 3.11 RFP ERRORS AND OMISSIONS.

     HMO will not take advantage of any errors and/or omissions in the RFP or
the resulting Contract. HMO must promptly notify HHSC of any such errors and/or
omissions that are discovered.

SECTION 3.12 ATTORNEYS' FEES.

     In the event of any litigation, appeal, or other legal action to enforce
any provision of the Contract, HMO agrees to pay all reasonable expenses of such
action, including attorneys' fees and costs, if HHSC is the prevailing Party.

SECTION 3.13 PREFERENCES UNDER SERVICE CONTRACTS.

     HMO is required in performing the Contract to purchase products and
materials produced in the State of Texas when they are available at a price and
time comparable to products and materials produced outside the State.

SECTION 3.14 TIME OF THE ESSENCE.

     In consideration of the need to ensure uninterrupted and continuous HHSC
HMO Program performance, time is of the essence in the performance of the Scope
of Work under the Contract.


                                  Page 15 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

SECTION 3.15 NOTICE

     (a) Any notice or other legal communication required or permitted to be
made or given by either Party pursuant to the Contract will be in writing and in
English, and will be deemed to have been given:

          (1) Three (3) Business Days after the date of mailing if sent by
     registered or certified U.S. mail, postage prepaid, with return receipt
     requested;

          (2) When transmitted if sent by facsimile, provided a confirmation of
     transmission is produced by the sending machine; or

          (3) When delivered if delivered personally or sent by express courier
     service.

     (b) The notices described in this Section may not be sent by electronic
mail.

     (c) All notices must be sent to the Project Manager identified in the HHSC
MANAGED CARE CONTRACT document. In addition, legal notices must be sent to the
Legal Contact identified in the HHSC MANAGED CARE CONTRACT document.

     (d) Routine communications that are administrative in nature will be
provided in a manner agreed to by the Parties.

                ARTICLE 4. CONTRACT ADMINISTRATION & MANAGEMENT

SECTION 4.01 QUALIFICATIONS, RETENTION AND REPLACEMENT OF HMO EMPLOYEES.

     HMO agrees to maintain the organizational and administrative capacity and
capabilities to carry out all duties and responsibilities under this Contract.
The personnel HMO assigns to perform the duties and responsibilities under this
Contract will be properly trained and qualified for the functions they are to
perform. Notwithstanding transfer or turnover of personnel, HMO remains
obligated to perform all duties and responsibilities under this Contract without
degradation and in accordance with the terms of this Contract.

SECTION 4.02 HMO'S KEY PERSONNEL.

(a)  Designation of Key Personnel.

     HMO must designate key management and technical personnel who will be
assigned to the Contract. For the purposes of this requirement, Key Personnel
are those with management responsibility or principal technical responsibility
for the following functional areas for each HMO Program included within the
scope of the Contract:

     (1) Member Services;

     (2) Management Information Systems;

     (3) Claims Processing,

     (4) Provider Network Development and Management;

     (5) Benefit Administration and Utilization and Care Management;

     (6) Quality Improvement;

     (7) Behavioral Health Services;

     (8) Financial Functions;

     (9) Reporting;

     (10) Executive Director(s) for applicable HHSC HMO Program(s) as defined in
SECTION 4.03 ("Executive Director");

     (11) Medical Director(s) for applicable HHSC HMO Program(s) as defined in
SECTION 4.04 ("Medical Director"); and

(b)  Support and Replacement of Key Personnel.

     The HMO must maintain, throughout the Contract Term, the ability to supply
its Key Personnel with the required resources necessary to meet Contract
requirements and comply with applicable law. The HMO must ensure project
continuity by timely replacement of Key Personnel, if necessary, with a
sufficient number of persons having the requisite skills, experience and other
qualifications. Regardless of specific personnel changes, the HMO must maintain
the overall level of expertise, experience, and skill reflected in the Key HMO
Personnel job descriptions and qualifications included in the HMO's proposal.

(c)  Notification of replacement of Key Personnel.

     HMO must notify HHSC within fifteen (15) Business Days of any change in Key
Personnel. Hiring or replacement of Key Personnel must conform to all Contract
requirements. If HHSC determines that a satisfactory working relationship cannot
be established between certain Key Personnel and HHSC, it will notify the HMO in
writing. Upon receipt of HHSC's notice, HHSC and HMO will attempt to resolve
HHSC's concerns on a mutually agreeable basis.

SECTION 4.03 EXECUTIVE DIRECTOR.

     (a) The HMO must employ a qualified individual to serve as the Executive
Director for its HHSC HMO Program(s). Such Executive Director must be employed
full-time by the HMO, be primarily dedicated to HHSC HMO Program(s), and must
hold a Senior Executive or Management position in the HMO's organization, except
that the HMO may propose an alternate structure for the Executive Director
position, subject to HHSC's prior review and written approval.

     (b) The Executive Director must be authorized and empowered to represent
the HMO regarding all matters pertaining to the Contract prior to such
representation. The Executive Director must act as liaison between the HMO and
the HHSC and must have responsibilities that include, but are not limited to,
the following:


                                 Page 16 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

          (1) ensuring the HMO's compliance with the terms of the Contract,
     including securing and coordinating resources necessary for such
     compliance;

          (2) receiving and responding to all inquiries and requests made by
     HHSC related to the Contract, in the time frames and formats specified by
     HHSC. Where practicable, HHSC must consult with the HMO to establish time
     frames and formats reasonably acceptable to the Parties;

          (3) attending and participating in regular HHSC HMO Executive Director
     meetings or conference calls;

          (4) attending and participating in regular HHSC Regional Advisory
     Committees (RACs) for managed care (the Executive Director may designate
     key personnel to attend a RAC if the Executive Director is unable to
     attend);

          (5) making best efforts to promptly resolve any issues identified
     either by the HMO or HHSC that may arise and are related to the Contract;

          (6) meeting with HHSC representative(s) on a periodic or as needed
     basis to review the HMO's performance and resolve issues, and

          (7) meeting with HHSC at the time and place requested by HHSC, if HHSC
     determines that the HMO is not in compliance with the requirements of the
     Contract.

SECTION 4.04 MEDICAL DIRECTOR.

     (a) The HMO must have a qualified individual to serve as the Medical
Director for its HHSC HMO Program(s). The Medical Director must be currently
licensed in Texas under the State Board of Medical Examiners as an M.D. or D.O.
with no restrictions or other licensure limitations. The Medical Director must
comply with the requirements of 28 T.A.C. Section 11.1606 and all applicable
federal and state statutes and regulations.

     (b) The Medical Director, or his or her physician designee meeting the same
Contract qualifications that apply to the Medical Director, must be available by
telephone 24 hours a day, seven days a week, for Utilization Review decisions.
The Medical Director, and his/her designee, must either possess expertise with
Behavioral Health Services, or ready access to such expertise to ensure timely
and appropriate medical decisions for Members, including after regular business
hours.

     (c) The Medical Director, or his or her physician designee meeting the same
Contract qualifications that apply to the Medical Director, must be authorized
and empowered to represent the HMO regarding clinical issues, Utilization Review
and quality of care inquiries. The Medical Director, or his or her physician
designee, must exercise independent medical judgment in all decisions relating
to medical necessity. The HMO must ensure that its decisions relating to medical
necessity are not adversely influenced by fiscal management decisions. HHSC may
conduct reviews of decisions relating to medical necessity upon reasonable
notice.

SECTION 4.05 RESPONSIBILITY FOR HMO PERSONNEL AND SUBCONTRACTORS.

     (a) HMO's employees and Subcontractors will not in any sense be considered
employees of HHSC or the State of Texas, but will be considered for all purposes
as the HMO's employees or its Subcontractor's employees, as applicable.

     (b) Except as expressly provided in this Contract, neither HMO nor any of
HMO's employees or Subcontractors may act in any sense as agents or
representatives of HHSC or the State of Texas.

     (c) HMO agrees that anyone employed by HMO to fulfill the terms of the
Contract is an employee of HMO and remains under HMO's sole direction and
control. HMO assumes sole and full responsibility for its acts and the acts of
its employees and Subcontractors.

     (d) HMO agrees that any claim on behalf of any person arising out of
employment or alleged employment by the HMO (including, but not limited to,
claims of discrimination against HMO, its officers, or its agents) is the sole
responsibility of HMO and not the responsibility of HHSC. HMO will indemnify and
hold harmless the State from any and all claims asserted against the State
arising out of such employment or alleged employment by the HMO. HMO understands
that any person who alleges a claim arising out of employment or alleged
employment by HMO will not be entitled to any compensation, rights, or benefits
from HHSC (including, but not limited to, tenure rights, medical and hospital
care, sick and annual/vacation leave, severance pay, or retirement benefits).

     (e) HMO agrees to be responsible for the following in respect to its
employees:

          (1) Damages incurred by HMO's employees within the scope of their
     duties under the Contract; and

          (2) Determination of the hours to be worked and the duties to be
     performed by HMO's employees.

     (f) HMO agrees and will inform its employees and Subcontractor(s) that
there is no right of subrogation, contribution, or indemnification against HHSC
for any duty owed to them by HMO pursuant to this Contract or any judgment
rendered against the HMO. HHSC's liability to the HMO's employees, agents and
Subcontractors, if any, will be governed by the Texas Tort Claims Act, as
amended or


                                 Page 17 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

modified (TEX. CIV. PRACT. & REM. CODE Section 101.001 et seq.).

     (g) HMO understands that HHSC does not assume liability for the actions of,
or judgments rendered against, the HMO, its employees, agents or Subcontractors.
HMO agrees that it has no right to indemnification or contribution from HHSC for
any such judgments rendered against HMO or its Subcontractors.

SECTION 4.06 COOPERATION WITH HHSC AND STATE ADMINISTRATIVE AGENCIES.

(a)  Cooperation with Other MCOs.

     HMO agrees to reasonably cooperate with and work with the other MCOs in the
HHSC HMO Programs, Subcontractors, and third-party representatives as requested
by HHSC. To the extent permitted by HHSC's financial and personnel resources,
HHSC agrees to reasonably cooperate with HMO and to use its best efforts to
ensure that other HHSC contractors reasonably cooperate with the HMO.

(b)  Cooperation with state and federal administrative agencies.

     HMO must ensure that HMO personnel will cooperate with HHSC or other state
or federal administrative agency personnel at no charge to HHSC for purposes
relating to the administration of HHSC programs including, but not limited to
the following purposes:

          (1) The investigation and prosecution of fraud, abuse, and waste in
     the HHSC programs;

          (2) Audit, inspection, or other investigative purposes; and

          (3) Testimony in judicial or quasi-judicial proceedings relating to
     the Services and/or Deliverables under this Contract or other delivery of
     information to HHSC or other agencies' investigators or legal staff.

SECTION 4.07 CONDUCT OF HMO PERSONNEL.

     (a)While performing the Scope of Work, HMO's personnel and Subcontractors
must:

          (1) Comply with applicable State rules and regulations and HHSC's
     requests regarding personal and professional conduct generally applicable
     to the service locations; and

          (2) Otherwise conduct themselves in a businesslike and professional
     manner.

     (b)If HHSC determines in good faith that a particular employee or
Subcontractor is not conducting himself or herself in accordance with this
Contract, HHSC may provide HMO with notice and documentation concerning such
conduct. Upon receipt of such notice, HMO must promptly investigate the matter
and take appropriate action that may include:

          (1) Removing the employee from the project;

          (2) Providing HHSC with written notice of such removal; and

          (3) Replacing the employee with a similarly qualified individual
     acceptable to HHSC.

     (c) Nothing in the Contract will prevent HMO, at the request of HHSC, from
replacing any personnel who are not adequately performing their assigned
responsibilities or who, in the reasonable opinion of HHSC's Project Manager,
after consultation with HMO, are unable to work effectively with the members of
the HHSC's staff. In such event, HMO will provide replacement personnel with
equal or greater skills and qualifications as soon as reasonably practicable.
Replacement of Key Personnel will be subject to HHSC review. The Parties will
work together in the event of any such replacement so as not to disrupt the
overall project schedule.

     (d) HMO agrees that anyone employed by HMO to fulfill the terms of the
Contract remains under HMO's sole direction and control.

     (e) HMO shall have policies regarding disciplinary action for all employees
who have failed to comply with federal and/or state laws and the HMO's standards
of conduct, policies and procedures, and Contract requirements. HMO shall have
policies regarding disciplinary action for all employees who have engaged in
illegal or unethical conduct.

SECTION 4.08 SUBCONTRACTORS.

     (a) HMO remains fully responsible for the obligations, services, and
functions performed by its Subcontractors to the same extent as if such
obligations, services, and functions were performed by HMO's employees, and for
purposes of this Contract such work will be deemed work performed by HMO. HHSC
reserves the right to require the replacement of any Subcontractor found by HHSC
to be unacceptable and unable to meet the requirements of the Contract, and to
object to the selection of a Subcontractor.

     (b) HMO must:

          (1) actively monitor the quality of care and services, as well as the
     quality of reporting data, provided under a Subcontract;

          (2) notify HHSC in writing at least 60 days prior to reprocurement of
     services provided by any Material Subcontractor;

          (3) notify HHSC in writing within three (3) Business Days after making
     a decision to terminate a Subcontract with a Material Subcontractor or upon
     receiving notification from the Material Subcontractor of its intent to
     terminate such Subcontract;

          (4) notify HHSC in writing within one (1) Business Day of making a
     decision to enter into


                                 Page 18 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     a Subcontract with a new Material Subcontractor, or a new Subcontract for
     newly procured services of an existing Material Subcontractor; and

          (5) provide HHSC with a copy of TDI filings of delegation agreements.

     (c) During the Contract Period, Readiness Reviews by HHSC or its designated
agent may occur if:

          (1) a new Material Subcontractor is employed by HMO;

          (2) an existing Material Subcontractor provides services in a new
     Service Area;

          (3) an existing Material Subcontractor provides services for a new HMO
     Program;

          (4) an existing Material Subcontractor changes locations or changes
     its MIS and or operational functions;

          (5) an existing Material Subcontractor changes one or more of its MIS
     subsystems, claims processing or operational functions; or

          (6) a Readiness Review is requested by HHSC.

     The HMO must submit information required by HHSC for each proposed Material
     Subcontractor as indicated in ATTACHMENT B-1, SECTION 7.

     (d) HMO must not disclose Confidential Information of HHSC or the State of
Texas to a Subcontractor unless and until such Subcontractor has agreed in
writing to protect the confidentiality of such Confidential Information in the
manner required of HMO under this Contract.

     (e) HMO must identify any Subcontractor that is a subsidiary or entity
formed after the Effective Date of the Contract, whether or not an Affiliate of
HMO, substantiate the proposed Subcontractor's ability to perform the
subcontracted Services, and certify to HHSC that no loss of service will occur
as a result of the performance of such Subcontractor. The HMO will assume
responsibility for all contractual responsibilities whether or not the HMO
performs them. Further, HHSC considers the HMO to be the sole point of contact
with regard to contractual matters, including payment of any and all charges
resulting from the Contract.

     (f) Except as provided herein, all Subcontracts must be in writing and must
provide HHSC the right to examine the Subcontract and all Subcontractor records
relating to the Contract and the Subcontract. This requirement does not apply to
agreements with utility or mail service providers.

     (g) A Subcontract whereby HMO receives rebates, recoupments, discounts,
payments, or other consideration from a Subcontractor (including without
limitation Affiliates) pursuant to or related to the execution of this Contract
must be in writing and must provide HHSC the right to examine the Subcontract
and all records relating to such consideration.

     (h) All Subcontracts described in subsections (f) and (g) must show the
dollar amount, the percentage of money, or the value of any consideration that
HMO pays to or receives from the Subcontractor.

     (i) HMO must submit a copy of each Material Subcontract executed prior to
the Effective Date of the Contract to HHSC no later than thirty (30) days after
the Effective Date of the Contract. For Material Subcontracts executed after the
Effective Date of the Contract, HMO must submit a copy to HHSC no later than
five (5) Business Days after execution.

     (j) Network Provider Contracts must include the mandatory provisions
included in the HHSC UNIFORM MANAGED CARE MANUAL.

     (k) HHSC reserves the right to reject any Subcontract or require changes to
any provisions that do not comply with the requirements or duties and
responsibilities of this Contract or create significant barriers for HHSC in
monitoring compliance with this Contract.

SECTION 4.09 HHSC'S ABILITY TO CONTRACT WITH SUBCONTRACTORS.

     The HMO may not limit or restrict, through a covenant not to compete,
employment contract or other contractual arrangement, HHSC's ability to contract
with Subcontractors or former employees of the HMO.

SECTION 4.10 HMO AGREEMENTS WITH THIRD PARTIES

     (a) If the HMO intends to report compensation paid to a third party
(including without limitation an Affiliate) as an Allowable Expense under this
Contract, and the compensation paid to the third party exceeds $100,000, or is
reasonably anticipated to exceed $100,000, in a State Fiscal Year, then the
HMO's agreement with the third party must be in writing. The agreement must
provide HHSC the right to examine the agreement and all records relating to the
agreement.

     (b) All agreements whereby HMO receives rebates, recoupments, discounts,
payments, or other consideration from a third party (including without
limitation Affiliates) pursuant to or related to the execution of this Contract,
must be in writing and must provide HHSC the right to examine the agreement and
all records relating to such consideration..

     (c) All agreements described in subsections (a) and (b) must show the
dollar amount, the percentage of money, or the value of any consideration that
HMO pays to or receives from the third party.

     (d) HMO must submit a copy of each third party agreement described in
subsections (a) and (b) to HHSC. If the third party agreement is entered into


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SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

prior to the Effective Date of the Contract, HMO must submit a copy no later
than thirty (30) days after the Effective Date of the Contract. If the third
party agreement is executed after the Effective Date of the Contract, HMO must
submit a copy no later than five (5) Business Days after execution. (e) For
third party agreements valued under $100,000 per State Fiscal Year that are
reported as Allowable Expenses, the HMO must maintain financial records and data
sufficient to verify the accuracy of such expenses in accordance with the
requirements of ARTICLE 9.

     (f) HHSC reserves the right to reject any third party agreement or require
changes to any provisions that do not comply with the requirements or duties and
responsibilities of this Contract or create significant barriers for HHSC in
monitoring compliance with this Contract.

     (g) This section shall not apply to Provider Contracts, or agreements with
utility or mail service providers. .

                   ARTICLE 5. MEMBER ELIGIBILITY & ENROLLMENT

SECTION 5.01 ELIGIBILITY DETERMINATION

     The State or its designee will make eligibility determinations for each of
the HHSC HMO Programs.

SECTION 5.02 MEMBER ENROLLMENT & DISENROLLMENT.

     (a) The HHSC Administrative Services Contractor will enroll and disenroll
eligible individuals in the HMO Program. To enroll in an HMO, the Member's
permanent residence must be located within the HMO's Service Area. The HMO is
not allowed to induce or accept disenrollment from a Member. The HMO must refer
the Member to the HHSC Administrative Services Contractor.

     (b) HHSC makes no guarantees or representations to the HMO regarding the
number of eligible Members who will ultimately be enrolled into the HMO or the
length of time any such enrolling Members remain enrolled with the HMO beyond
the minimum mandatory enrollment periods established for each HHSC HMO Program.

     (c) The HHSC Administrative Services Contractor will electronically
transmit to the HMO new Member information and change information applicable to
active Members.

     (d) As described in the following Sections, depending on the HMO Program,
special conditions may also apply to enrollment and span of coverage for the
HMO.

     (e) HMO has a limited right to request a Member be disenrolled from HMO
without the Member's consent. HHSC must approve any HMO request for
disenrollment of a Member for cause. HHSC may permit disenrollment of a Member
under the following circumstances:

          (1) Member misuses or loans Member's HMO membership card to another
          person to obtain services.

          (2) Member is disruptive, unruly, threatening or uncooperative to the
          extent that Member's membership seriously impairs HMO's or Provider's
          ability to provide services to Member or to obtain new Members, and
          Member's behavior is not caused by a physical or behavioral health
          condition.

          (3) Member steadfastly refuses to comply with managed care
          restrictions (e.g., repeatedly using emergency room in combination
          with refusing to allow HMO to treat the underlying medical condition).

          (4) HMO must take reasonable measures to correct Member behavior prior
          to requesting disenrollment. Reasonable measures may include providing
          education and counseling regarding the offensive acts or behaviors.

     (f) HMO must notify the Member of HMO's decision to disenroll the Member if
all reasonable measures have failed to remedy the problem.

     (g) If the Member disagrees with the decision to disenroll the Member from
HMO, HMO must notify the Member of the availability of the Complaint procedure
and, for Medicaid Members, HHSC's Fair Hearing process.

     (h) HMO cannot request a disenrollment based on adverse change in the
member's health status or utilization of services that are Medically Necessary
for treatment of a member's condition.

SECTION 5.03 STAR ENROLLMENT FOR PREGNANT WOMEN AND INFANTS.

     (a) The HHSC Administrative Services Contractor will retroactively enroll
some pregnant Members in a Medicaid HMO based on their date of eligibility.

     (b) The HHSC Administrative Services Contractor will enroll newborns born
to Medicaid eligible mothers who are enrolled in a STAR HMO in the same HMO for
90 days following the date of birth, unless the mother requests a plan change as
a special exception. The Administrative Service Contractor will consider such
requests on a case-by- case basis. The HHSC Administrative Services Contractor
will retroactively, to date of birth, enroll newborns in the applicable STAR
HMO.

SECTION 5.04 CHIP ELIGIBILITY AND ENROLLMENT.

(a) Continuous coverage.

     A child who is CHIP-eligible will have six (6) months of continuous
coverage. Children enrolling in CHIP for the first time, or returning to CHIP
after disenrollment, will be subject to a waiting period before coverage
actually begins, except as provided


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Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

in 1 T.A.C. Section 370.46. The waiting period for a child is determined by the
date on which he/she is found eligible for CHIP, and extends for a duration of
three months. If the child is found eligible for CHIP on or before the 15th day
of a month, then the waiting period begins on the first day of that same month.
If the child is found eligible on or after the 16th day of a month, then the
waiting period begins on the first day of the next month.

(b) Pregnant Members and Infants.

     The HHSC Administrative Contractor will refer pregnant CHIP Members, with
the exception of Legal Permanent Residents and other legally qualified aliens
barred from Medicaid due to federal eligibility restrictions, to Medicaid for
eligibility determinations. Those CHIP Members who are determined to be Medicaid
Eligible will be disenrolled from HMO's CHIP plan. Medicaid coverage will be
coordinated to begin after CHIP eligibility ends to avoid gaps in health care
coverage.

     In the event the HMO remains unaware of a Member's pregnancy until
delivery, the delivery will be covered by CHIP. The HHSC Administrative Services
Contractor will then set the Member's eligibility expiration date at the later
of (1) the end of the second month following the month of the baby's birth or
(2) the Member's original eligibility expiration date. Most newborns born to
CHIP Members or CHIP heads of household will be Medicaid eligible. Eligibility
of newborns must be determined for CHIP before enrollment can occur. For
newborns determined to be CHIP-eligible, the baby will be covered from the
beginning of the month of birth for the period of time specified in the evidence
of coverage.

SECTION 5.05 SPAN OF COVERAGE

(a) Medicaid HMOs.

     (1) HHSC will conduct continuous open enrollment for Medicaid Eligibles and
the HMO must accept all persons who choose to enroll as Members in the HMO or
who are assigned as Members in the HMO by HHSC, without regard to the Member's
health status or any other factor. Persons in a hospital on the enrollment date
will not be enrolled until they are discharged from the hospital.

     (2) Members who are disenrolled because they are temporarily ineligible for
Medicaid will be automatically re-enrolled into the same health plan, if
available. Temporary loss of eligibility is defined as a period of six months or
less.

     (3) A Member cannot change from one Medicaid MCO to another Medicaid MCO
during an inpatient hospital stay. The MCO responsible for the hospital charges
at the start of an Inpatient Stay remains responsible for hospital charges until
the time of discharge, or until such time that there is a loss of Medicaid
eligibility. Medicaid MCOs are responsible for professional charges during every
month for which the MCO receives a full capitation for a Member.

(b) CHIP HMOs.

     If a CHIP Member's Effective Date of Coverage occurs while the CHIP Member
is confined in a hospital, HMO is responsible for the CHIP Member's costs of
Covered Services beginning on the Effective Date of Coverage. If a CHIP Member
is disenrolled while the CHIP Member is confined in a hospital, HMO's
responsibility for the CHIP Member's costs of Covered Services terminates on the
Date of Disenrollment.

SECTION 5.06 VERIFICATION OF MEMBER ELIGIBILITY.

     Medicaid MCOs are prohibited from entering into an agreement to share
information regarding their Members with an external vendor that provides
verification of Medicaid recipients' eligibility to Medicaid providers. All such
external vendors must contract with the State and obtain eligibility information
from the State.

SECTION 5.07 SPECIAL TEMPORARY STAR DEFAULT PROCESS

     (a) STAR HMOs that did not contract with HHSC prior to the Effective Date
of the Contract to provide Medicaid Health Care Services will be assigned a
limited number of Medicaid-eligibles, who have not actively made a STAR HMO
choice, for a finite period. The number will vary by Service Area as set forth
below. To the extent possible, the special default assignment will be based on
each eligible's prior history with a PCP and geographic proximity to a PCP.

     (b) For the Bexar, Dallas, El Paso, Harris, Tarrant, and Travis Service
Areas, the special default process will begin with the Operational Start Date
and conclude when the HMO has achieved an enrollment of 15,000 mandatory STAR
members, or at the end of six months, whichever comes first.

     (c) For the Lubbock Service Area, the special default process will begin
with the Operational Start Date and conclude when the HMO has achieved an
enrollment of 5,000 mandatory STAR members, or at the end of six months,
whichever comes first.

     (d) Special default periods may be extended for one or more Service Areas
if consistent with HHSC administrative rules.

     (e) This Section does not apply to the Nueces Service Area.

              ARTICLE 6. SERVICE LEVELS & PERFORMANCE MEASUREMENT

SECTION 6.01 PERFORMANCE MEASUREMENT.

     Satisfactory performance of this Contract will be measured by:


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Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     (a) Adherence to this Contract, including all representations and
warranties;

     (b) Delivery of the Services and Deliverables described in Attachment B;

     (c) Results of audits performed by HHSC or its representatives in
accordance with ARTICLE 9 ("Audit and Financial Compliance");

     (d) Timeliness, completeness, and accuracy of required reports; and

     (e) Achievement of performance measures developed by HMO and HHSC and as
modified from time to time by written agreement during the term of this
Contract.

                     ARTICLE 7. GOVERNING LAW & REGULATIONS

SECTION 7.01 GOVERNING LAW AND VENUE.

     This Contract is governed by the laws of the State of Texas and interpreted
in accordance with Texas law. Provided HMO first complies with the procedures
set forth in SECTION 12.13 ("Dispute Resolution,") proper venue for claims
arising from this Contract will be in the State District Court of Travis County,
Texas.

SECTION 7.02 HMO RESPONSIBILITY FOR COMPLIANCE WITH LAWS AND REGULATIONS.

     (a) HMO must comply, to the satisfaction of HHSC, with all provisions set
forth in this Contract, all applicable provisions of state and federal laws,
rules, regulations, federal waivers, policies and guidelines, and any
court-ordered consent decrees, settlement agreements, or other court orders that
govern the performance of the Scope of Work including, but not limited to:

     (1) Titles XIX and XXI of the Social Security Act;

     (2) Chapters 62 and 63, Texas Health and Safety Code;

     (3) Chapters 531 and 533, Texas Government Code;

     (4) 42 C.F.R. Parts 417 and 457, as applicable;

     (5) 45 C.F.R. Parts 74 and 92;

     (6) 48 C.F.R. Part 31, or OMB Circular A-122, as applicable;

     (7) 1 T.A.C. Part 15, Chapters 361, 370, 391, and 392; and

     (8) all State and Federal tax laws, State and Federal employment laws,
State and Federal regulatory requirements, and licensing provisions.

     (b) The Parties acknowledge that the federal and/or state laws, rules,
regulations, policies, or guidelines, and court-ordered consent decrees,
settlement agreements, or other court orders that affect the performance of the
Scope of Work may change from time to time or be added, judicially interpreted,
or amended by competent authority.

HMO acknowledges that the HMO Programs will be subject to continuous change
during the term of the Contract and, except as provided in Section 8.02, HMO has
provided for or will provide for adequate resources, at no additional charge to
HHSC, to reasonably accommodate such changes. The Parties further acknowledge
that HMO was selected, in part, because of its expertise, experience, and
knowledge concerning applicable Federal and/or state laws, regulations,
policies, or guidelines that affect the performance of the Scope of Work. In
keeping with HHSC's reliance on this knowledge and expertise, HMO is responsible
for identifying the impact of changes in applicable Federal or state legislative
enactments and regulations that affect the performance of the Scope of Work or
the State's use of the Services and Deliverables. HMO must timely notify HHSC of
such changes and must work with HHSC to identify the impact of such changes on
how the State uses the Services and Deliverables.

     (c) HHSC will notify HMO of any changes in applicable law, regulation,
policy, or guidelines that HHSC becomes aware of in the ordinary course of its
business.

     (d) HMO is responsible for any fines, penalties, or disallowances imposed
on the State or HMO arising from any noncompliance with the laws and regulations
relating to the delivery of the Services or Deliverables by the HMO, its
Subcontractors or agents.

     (e) HMO is responsible for ensuring each of its employees, agents or
Subcontractors who provide Services under the Contract are properly licensed,
certified, and/or have proper permits to perform any activity related to the
Services.

     (f) HMO warrants that the Services and Deliverables will comply with all
applicable Federal, State, and County laws, regulations, codes, ordinances,
guidelines, and policies. HMO will indemnify HHSC from and against any losses,
liability, claims, damages, penalties, costs, fees, or expenses arising from or
in connection with HMO's failure to comply with or violation of any such law,
regulation, code, ordinance, or policy.

SECTION 7.03 TDI LICENSURE/ANHC CERTIFICATION AND SOLVENCY.

(a)  Licensure

     HMO must be either licensed by the TDI as an HMO or a certified ANHC in all
counties for the Service Areas included within the scope of the Contract.

(b)  Solvency

     HMO must maintain compliance with the Texas Insurance Code and rules
promulgated and administered by the TDI requiring a fiscally sound operation.
HMO must have a plan and take


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Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

appropriate measures to ensure adequate provision against the risk of insolvency
as required by TDI. Such provision must be adequate to provide for the following
in the event of insolvency:

          (1) continuation of benefits, until the time of discharge, to Members
     who are confined on the date of insolvency in a Hospital or other inpatient
     facility;

          (2) payment to unaffiliated health care providers and affiliated
     health care providers whose agreements do not contain member "hold
     harmless" clauses acceptable to TDI, and

          (3) continuation of benefits for the duration of the Contract period
     for which HHSC has paid a Capitation Payment.

Provision against the risk of insolvency must be made by establishing adequate
reserves, insurance or other guarantees in full compliance with all financial
requirements of TDI.

SECTION 7.04 IMMIGRATION REFORM AND CONTROL ACT OF 1986.

     HMO shall comply with the requirements of the Immigration Reform and
Control Act of 1986 and the Immigration Act of 1990 (8 U.S.C. Section 1101, et
seq.) regarding employment verification and retention of verification forms for
any individual(s) hired on or after November 6, 1986, who will perform any labor
or services under this Contract.

SECTION 7.05 COMPLIANCE WITH STATE AND FEDERAL ANTI-DISCRIMINATION LAWS.

     HMO shall comply with Title VI of the Civil Rights Act of 1964, Executive
Order 11246 (Public Law 88-352), Section 504 of the Rehabilitation Act of 1973
(Public Law 93-112), the Americans with Disabilities Act of 1990 (Public Law
101-336), and all amendments to each, and all requirements imposed by the
regulations issued pursuant to these Acts. In addition, HMO shall comply with
Title 40, Chapter 73 of the Texas Administrative Code, "Civil Rights," to the
extent applicable to this Contract. These provide in part that no persons in the
United States must, on the grounds of race, color, national origin, sex, age,
disability, political beliefs, or religion, be excluded from participation in,
or denied, any aid, care, service or other benefits provided by Federal or State
funding, or otherwise be subjected to any discrimination.

SECTION 7.06 ENVIRONMENTAL PROTECTION LAWS.

     HMO shall comply with the applicable provisions of federal environmental
protection laws as described in this Section:

(a)  Pro-Children Act of 1994.

     HMO shall comply with the Pro-Children Act of 1994 (20 U.S.C. Section 6081
et seq.), as applicable, regarding the provision of a smoke-free workplace and
promoting the non-use of all tobacco products.

(b)  National Environmental Policy Act of 1969.

     HMO shall comply with any applicable provisions relating to the institution
of environmental quality control measures contained in the National
Environmental Policy Act of 1969 (42 U.S.C. Section 4321 et seq.) and Executive
Order 11514 ("Protection and Enhancement of Environmental Quality").

(c)  Clean Air Act and Water Pollution Control Act regulations.

     HMO shall comply with any applicable provisions relating to required
notification of facilities violating the requirements of Executive Order 11738
("Providing for Administration of the Clean Air Act and the Federal Water
Pollution Control Act with Respect to Federal Contracts, Grants, or Loans").

(d)  State Clean Air Implementation Plan.

     HMO shall comply with any applicable provisions requiring conformity of
federal actions to State (Clean Air) Implementation Plans under Section 176(c)
of the Clean Air Act of 1955, as amended (42 U.S.C. Section 740 et seq.).

(e)  Safe Drinking Water Act of 1974.

     HMO shall comply with applicable provisions relating to the protection of
underground sources of drinking water under the Safe Drinking Water Act of 1974,
as amended (21 U.S.C. Section 349; 42 U.S.C. Sections 300f to 300j-9).

SECTION 7.07 HIPAA.

     HMO shall comply with applicable provisions of HIPAA. This includes, but is
not limited to, the requirement that the HMO's MIS system comply with applicable
certificate of coverage and data specification and reporting requirements
promulgated pursuant to HIPAA. HMO must comply with HIPAA EDI requirements.

                      ARTICLE 8. AMENDMENTS & MODIFICATIONS

SECTION 8.01 MUTUAL AGREEMENT.

     This Contract may be amended at any time by mutual agreement of the
Parties. The amendment must be in writing and signed by individuals with
authority to bind the Parties.

SECTION 8.02 CHANGES IN LAW OR CONTRACT.

     If Federal or State laws, rules, regulations, policies or guidelines are
adopted, promulgated, judicially interpreted or changed, or if contracts are
entered or changed, the effect of which is to alter the ability of either Party
to fulfill its obligations under this Contract, the Parties will promptly
negotiate in good faith appropriate modifications or alterations to the Contract
and any schedule(s) or attachment(s) made a part of this Contract. Such
modifications or alterations must be in writing and signed by individuals with
authority to bind the parties, equitably adjust the terms and conditions of this
Contract, and


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         TERMS & CONDITIONS

must be limited to those provisions of this Contract affected by the change.

SECTION 8.03 MODIFICATIONS AS A REMEDY.

     This Contract may be modified under the terms of ARTICLE 12 ("Remedies and
Disputes").

SECTION 8.04 MODIFICATIONS UPON RENEWAL OR EXTENSION OF CONTRACT.

     (a) If HHSC seeks modifications to the Contract as a condition of any
Contract extension, HHSC's notice to HMO will specify those modifications to the
Scope of Work, the Contract pricing terms, or other Contract terms and
conditions.

     (b) HMO must respond to HHSC's proposed modification within the timeframe
specified by HHSC, generally within thirty (30) days of receipt. Upon receipt of
HMO's response to the proposed modifications, HHSC may enter into negotiations
with HMO to arrive at mutually agreeable Contract amendments. In the event that
HHSC determines that the Parties will be unable to reach agreement on mutually
satisfactory contract modifications, then HHSC will provide written notice to
HMO of its intent not to extend the Contract beyond the Contract Term then in
effect.

SECTION 8.05 MODIFICATION OF HHSC UNIFORM MANAGED CARE MANUAL.

     (a) HHSC will provide HMO with at least thirty (30) days advance written
notice before implementing a substantive and material change in the HHSC Uniform
Managed Care Manual (a change that materially and substantively alters the HMO's
ability to fulfill its obligations under the Contract). The Uniform Managed Care
Manual, and all modifications thereto made during the Contract Term, are
incorporated by reference into this Contract. HHSC will provide HMO with a
reasonable amount of time to comment on such changes, generally at least ten
(10) Business Days. HHSC is not required to provide advance written notice of
changes that are not material and substantive in nature, such as corrections of
clerical errors or policy clarifications.

     (b) The Parties agree to work in good faith to resolve disagreements
concerning material and substantive changes to the HHSC Uniform Managed Care
Manual. If the Parties are unable to resolve issues relating to material and
substantive changes, then either Party may terminate the agreement in accordance
with ARTICLE 12 ("Remedies and Disputes").

     (c) Changes will be effective on the date specified in HHSC's written
notice, which will not be earlier than the HMO's response deadline, and such
changes will be incorporated into the HHSC Uniform Managed Care Manual. If the
HMO has raised an objection to a material and substantive change to the HHSC
Uniform Managed Care Manual and submitted a notice of termination in accordance
with SECTION 12.04(D), HHSC will not enforce the policy change during the period
of time between the receipt of the notice and the date of Contract termination.

SECTION 8.06 CMS APPROVAL OF STAR AMENDMENTS.

     The implementation of amendments, modifications, and changes to STAR HMO
contracts is subject to the approval of the Centers for Medicare and Medicaid
Services ("CMS.")

SECTION 8.07 REQUIRED COMPLIANCE WITH AMENDMENT AND MODIFICATION PROCEDURES.

     No different or additional services, work, or products will be authorized
or performed except as authorized by this Article. No waiver of any term,
covenant, or condition of this Contract will be valid unless executed in
compliance with this Article. HMO will not be entitled to payment for any
services, work or products that are not authorized by a properly executed
Contract amendment or modification.

                     ARTICLE 9. AUDIT & FINANCIAL COMPLIANCE

SECTION 9.01 FINANCIAL RECORD RETENTION AND AUDIT.

     HMO agrees to maintain, and require its Subcontractors to maintain,
supporting financial information and documents that are adequate to ensure that
payment is made and the Experience Rebate is calculated in accordance with
applicable Federal and State requirements, and are sufficient to ensure the
accuracy and validity of HMO invoices. Such documents, including all original
claims forms, will be maintained and retained by HMO or its Subcontractors for a
period of five (5) years after the Contract Expiration Date or until the
resolution of all litigation, claim, financial management review or audit
pertaining to this Contract, whichever is longer.

SECTION 9.02 ACCESS TO RECORDS, BOOKS, AND DOCUMENTS.

     (a) Upon reasonable notice, HMO must provide, and cause its Subcontractors
to provide, the officials and entities identified in this Section with prompt,
reasonable, and adequate access to any records, books, documents, and papers
that are related to the performance of the Scope of Work.

     (b) HMO and its Subcontractors must provide the access described in this
Section upon HHSC's request. This request may be for, but is not limited to, the
following purposes:

     (1) Examination;

     (2) Audit;

     (3) Investigation;

     (4) Contract administration; or

     (5) The making of copies, excerpts, or transcripts.


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         TERMS & CONDITIONS

     (c) The access required must be provided to the following officials and/or
entities:

          (1) The United States Department of Health and Human Services or its
     designee;

          (2) The Comptroller General of the United States or its designee;

          (3) HMO Program personnel from HHSC or its designee;

          (4) The Office of Inspector General;

          (5) Any independent verification and validation contractor or quality
     assurance contractor acting on behalf of HHSC;

          (6) The Office of the State Auditor of Texas or its designee;

          (7) A State or Federal law enforcement agency;

          (8) A special or general investigating committee of the Texas
     Legislature or its designee; and

          (9) Any other state or federal entity identified by HHSC, or any other
     entity engaged by HHSC.

     (d) HMO agrees to provide the access described wherever HMO maintains such
books, records, and supporting documentation. HMO further agrees to provide such
access in reasonable comfort and to provide any furnishings, equipment, and
other conveniences deemed reasonably necessary to fulfill the purposes described
in this Section. HMO will require its Subcontractors to provide comparable
access and accommodations.

SECTION 9.03 AUDITS OF SERVICES, DELIVERABLES AND INSPECTIONS.

     (a) Upon reasonable notice from HHSC, HMO will provide, and will cause its
Subcontractors to provide, such auditors and inspectors as HHSC may from time to
time designate, with access to:

          (1) HMO service locations, facilities, or installations; and

          (2) HMO Software and Equipment.

     (b) The access described in this Section will be for the purpose of
examining, auditing, or investigating:

          (1) HMO's capacity to bear the risk of potential financial losses;

          (2) the Services and Deliverables provided;

          (3) a determination of the amounts payable under this Contract;

          (4) detection of fraud, waste and/or abuse; or

          (5) other purposes HHSC deems necessary to perform its regulatory
     function and/or enforce the provisions of this Contract.

     (c) HMO must provide, as part of the Scope of Work, any assistance that
such auditors and inspectors reasonably may require to complete such audits or
inspections.

     (d) If, as a result of an audit or review of payments made to the HMO, HHSC
discovers a payment error or overcharge, HHSC will notify the HMO of such error
or overcharge. HHSC will be entitled to recover such funds as an offset to
future payments to the HMO, or to collect such funds directly from the HMO. HMO
must return funds owed to HHSC within thirty (30) days after receiving notice of
the error or overcharge, or interest will accrue on the amount due. HHSC will
calculate interest at the Department of Treasury's Median Rate (resulting from
the Treasury's auction of 13-week bills) for the week in which liability is
assessed. In the event that an audit reveals that errors in reporting by the HMO
have resulted in errors in payments to the HMO or errors in the calculation of
the Experience Rebate, the HMO will indemnify HHSC for any losses resulting from
such errors, including the cost of audit.

SECTION 9.04 SAO AUDIT

The HMO understands that acceptance of funds under this Contract acts as
acceptance of the authority of the State Auditor's Office ("SAO"), or any
successor agency, to conduct an investigation in connection with those funds.
The HMO further agrees to cooperate fully with the SAO or its successor in the
conduct of the audit or investigation, including providing all records
requested. The HMO will ensure that this clause concerning the authority to
audit funds received indirectly by Subcontractors through HMO and the
requirement to cooperate is included in any Subcontract it awards, and in any
third party agreements described in SECTION 4.10 (A-B).

SECTION 9.05 RESPONSE/COMPLIANCE WITH AUDIT OR INSPECTION FINDINGS.

     (a) HMO must take action to ensure its or a Subcontractor's compliance with
or correction of any finding of noncompliance with any law, regulation, audit
requirement, or generally accepted accounting principle relating to the Services
and Deliverables or any other deficiency contained in any audit, review, or
inspection conducted under this Article. This action will include HMO'S delivery
to HHSC, for HHSC'S approval, a Corrective Action Plan that addresses
deficiencies identified in any audit(s), review(s), or inspection(s) within
thirty (30) calendar days of the close of the audit(s), review(s), or
inspection(s).

     (b) HMO must bear the expense of compliance with any finding of
noncompliance under this Section that is:

          (1) Required by Texas or Federal law, regulation, rule or other audit
     requirement relating to HMO's business;


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

          (2) Performed by HMO as part of the Services or Deliverables; or

          (3) Necessary due to HMO's noncompliance with any law, regulation,
     rule or audit requirement imposed on HMO.

     (c) As part of the Scope of Work, HMO must provide to HHSC upon request a
copy of those portions of HMO's and its Subcontractors' internal audit reports
relating to the Services and Deliverables provided to HHSC under the Contract.

                   ARTICLE 10. TERMS & CONDITIONS OF PAYMENT

SECTION 10.01 CALCULATION OF MONTHLY CAPITATION PAYMENT.

     (a) This is a Risk-based contract. For each applicable HMO Program, HHSC
will pay the HMO fixed monthly Capitation Payments based on the number of
eligible and enrolled Members. HHSC will calculate the monthly Capitation
Payments by multiplying the number of Members by each applicable Member Rate
Cell. In consideration of the Monthly Capitation Payment(s), the HMO agrees to
provide the Services and Deliverables described in this Contract.

     (b) HMO will be required to provide timely financial and statistical
information necessary in the Capitation Rate determination process. Encounter
Data provided by HMO must conform to all HHSC requirements. Encounter Data
containing non-compliant information, including, but not limited to, inaccurate
client or member identification numbers, inaccurate provider identification
numbers, or diagnosis or procedures codes insufficient to adequately describe
the diagnosis or medical procedure performed, will not be considered in the
HMO's experience for rate-setting purposes.

     (c) Information or data, including complete and accurate Encounter Data, as
requested by HHSC for rate-setting purposes, must be provided to HHSC: (1)
within thirty (30) days of receipt of the letter from HHSC requesting the
information or data; and (2) no later than March 31st of each year.

     (d) The fixed monthly Capitation Rate consists of the following components:

          (1) an amount for Health Care Services performed during the month;

          (2) an amount for administering the program, and

          (3) an amount for the HMO's Risk margin.

Capitation Rates for each HMO Program may vary by Service Area and MCO. HHSC
will employ or retain qualified actuaries to perform data analysis and calculate
the Capitation Rates for each Rate Period.

     (e) HMO understands and expressly assumes the risks associated with the
performance of the duties and responsibilities under this Contract, including
the failure, termination or suspension of funding to HHSC, delays or denials of
required approvals, and cost overruns not reasonably attributable to HHSC.

SECTION 10.02 TIME AND MANNER OF PAYMENT.

     (a) During the Contract Term and beginning after the Operational Start
Date, HHSC will pay the monthly Capitation Payments by the 10th Business Day of
each month.

     (b) The HMO must accept Capitation Payments by direct deposit into the
HMO's account.

     (c) HHSC may adjust the monthly Capitation Payment to the HMO in the case
of an overpayment to the HMO, for Experience Rebate amounts due and unpaid, and
if money damages are assessed in accordance with ARTICLE 12 ("Remedies and
Disputes").

     (d) HHSC's payment of monthly Capitation Payments is subject to
availability of federal and state appropriations. If appropriations are not
available to pay the full monthly Capitation Payment, HHSC may:

          (1) equitably adjust Capitation Payments for all participating
     Contractors, and reduce scope of service requirements as appropriate in
     accordance with ARTICLE 8, or

          (2) terminate the Contract in accordance with ARTICLE 12 ("Remedies
     and Disputes").

SECTION 10.03 CERTIFICATION OF CAPITATION RATES.

     HHSC will employ or retain a qualified actuary to certify the actuarial
soundness of the Capitation Rates contained in this Contract. HHSC will also
employ or retain a qualified actuary to certify all revisions or modifications
to the Capitation Rates.

SECTION 10.04 MODIFICATION OF CAPITATION RATES.

     The Parties expressly understand and agree that the agreed Capitation Rates
are subject to modification in accordance with ARTICLE 8 ("Amendments and
Modifications,") if changes in state or federal laws, rules, regulations or
policies affect the rates or the actuarial soundness of the rates. HHSC will
provide the HMO notice of a modification to the Capitation Rates 60 days prior
to the effective date of the change, unless HHSC determines that circumstances
warrant a shorter notice period. If the HMO does not accept the rate change,
either Party may terminate the Contract in accordance with ARTICLE 12 ("Remedies
and Disputes").

SECTION 10.05 STAR CAPITATION STRUCTURE.

(a) STAR Rate Cells.

     STAR Capitation Rates are defined on a per Member per month basis by Rate
Cells and Service Areas. STAR Rate Cells are:

          (1) TANF adults;


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                            Contractual Document (CD)

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SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

          (2) TANF children over 12 months of age;

          (3) Expansion children over 12 months of age;

          (4) Newborns less than or equal to 12 months of age;

          (5) TANF children less than or equal to 12 months of age;

          (6) Expansion children less than or equal to 12 months of age;

          (7) Federal mandate children; and

          (8) Pregnant women.

(b)  STAR Capitation Rate development:

          (1) Capitation Rates for Rate Periods 1 and 2 for Service Areas with
     historical STAR Program participation.

          For Service Areas where HHSC operated the STAR Program prior to the
     Effective Date of this Contract, HHSC will develop base Capitation Rates by
     analyzing historical STAR Encounter Data and financial data for the Service
     Area. This analysis will apply to all MCOs in the Service Area, including
     MCOs that have no historical STAR Program participation in the Service
     Area. The analysis will include a review of historical enrollment and
     claims experience information; any changes to Covered Services and covered
     populations; rate changes specified by the Texas Legislature; and any other
     relevant information. If the HMO participated in the STAR Program in the
     Service Area prior to the Effective Date of this Contract, HHSC may modify
     the Service Area base Capitation Rates using diagnosis-based risk adjusters
     to yield the final Capitation Rates.

          (2) Capitation Rates for Rate Periods 1 and 2 for Service Areas with
     no historical STAR Program participation.

          For Service Areas where HHSC has not operated the STAR Program prior
     to the Effective Date of this Contract, HHSC will establish base Capitation
     Rates for Rate Periods 1 and 2 by analyzing Fee-for-Service claims data for
     the Service Area. This analysis will include a review of historical
     enrollment and claims experience information; any changes to Covered
     Services and covered populations; rate changes specified by the Texas
     Legislature; and any other relevant information.

          (3) Capitation Rates for subsequent Rate Periods for Service Areas
     with no historical STAR Program participation.

          For Service Areas where HHSC has not operated the STAR Program prior
     to the Effective Date of this Contract, HHSC will establish base Capitation
     Rates for the Rate Periods following Rate Period 2 by analyzing historical
     STAR Encounter Data and financial data for the Service Area. This analysis
     will include a review of historical enrollment and claims experience
     information; any changes to Covered Services and covered populations; rate
     changes specified by the Texas Legislature; and any other relevant
     information.

(c)  Acuity adjustment.

     HHSC may evaluate and implement an acuity adjustment methodology, or
alternative reasonable methodology, that appropriately reimburses the HMO for
acuity and cost differences that deviate from that of the community average, if
HHSC in its sole discretion determines that such a methodology is reasonable and
appropriate. The community average is a uniform rate for all HMOs in a Service
Area, and is determined by combining all the experience for all HMOs in a
Service Area to get an average rate for the Service Area.

(d)  Value-added Services will not be included in the rate-setting process.

SECTION 10.06 CHIP CAPITATION RATES STRUCTURE.

(a)  CHIP Rate Cells.

     CHIP Capitation Rates are defined on a per Member per month basis by the
Rate Cells applicable to a Service Area. CHIP Rate Cells are based on the
Member's age group as follows:

     (1) underage one (1);

     (2) ages one (1) through five (5);

     (3) ages six (6) through fourteen (14); and

     (4) ages fifteen (15) through eighteen (18).

(b)  CHIP Capitation Rate development:

     HHSC will establish base Capitation Rates by analyzing Encounter Data and
financial data for each Service Area. This analysis will include a review of
historical enrollment and claims experience information; any changes to Covered
Services and covered populations; rate changes specified by the Texas
Legislature; and any other relevant information. HHSC may modify the Service
Area base Capitation Rate using diagnosis based risk adjusters to yield the
final Capitation Rates.

(c)  Acuity adjustment.

     HHSC may evaluate and implement an acuity adjustment methodology, or
alternative reasonable methodology, that appropriately reimburses the HMO for
acuity and cost differences that deviate from that of the community average, if
HHSC in its sole discretion determines that such a methodology is reasonable and
appropriate. The community average is a uniform rate for all HMOs in a Service
Area, and is determined by combining all the experience for all


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         TERMS & CONDITIONS

HMOs in a Service Area to get an average rate for the Service Area.

(d)  Value-added Services will not be included in the rate-setting process.

SECTION 10.07 HMO INPUT DURING RATE SETTING PROCESS.

     (1) In Service Areas with historical STAR or CHIP Program participation,
HMO must provide certified Encounter Data and financial data as prescribed in
HHSC'S UNIFORM MANAGED CARE MANUAL. Such information may include, without
limitation: claims lag information by Rate Cell, capitation expenses, and stop
loss reinsurance expenses. HHSC may request clarification or for additional
financial information from the HMO. HHSC will notify the HMO of the deadline for
submitting a response, which will include a reasonable amount of time for
response.

     (2) HHSC will allow the HMO to review and comment on data used by HHSC to
determine base Capitation Rates. In Service Areas with no historical STAR
Program participation, this will include Fee-for- Service data for Rate Periods
1 and 2. HHSC will notify the HMO of deadline for submitting comments, which
will include a reasonable amount of time for response. HHSC will not consider
comments received after the deadline in its rate analysis.

     (3) During the rate setting process, HHSC will conduct at least two (2)
meetings with the HMO. HHSC may conduct the meetings in person, via
teleconference, or by another method deemed appropriate by HHSC. Prior to the
first meeting, HHSC will provide the HMO with proposed Capitation Rates. During
the first meeting, HHSC will describe the process used to generate the proposed
Capitation Rates, discuss major changes in the rate setting process, and receive
input from the HMO. HHSC will notify the HMO of the deadline for submitting
comments, which will include a reasonable amount of time to review and comment
on the proposed Capitation Rates and rate setting process. After reviewing such
comments, HHSC will conduct a second meeting to discuss the final Capitation
Rates and changes resulting from HMO comments, if any.

SECTION 10.08 ADJUSTMENTS TO CAPITATION PAYMENTS.

(a)  Recoupment.

     HHSC may recoup a payment made to the HMO for a Member if:

     (1) the Member is enrolled into the HMO in error, and the HMO provided no
Covered Services to the Member during the month for which the payment was made;

     (2) the Member moves outside the United States, and the HMO has not
provided Covered Services to the Member during the month for which the payment
was made;

     (3) the Member dies before the first day of the month for which the payment
was made; or

     (4) a Medicaid Member's eligibility status or program type is changed,
corrected as a result of error, or is retroactively adjusted.

(b)  Appeal of recoupment.

     The HMO may appeal the recoupment or adjustment of capitations in the above
circumstances using the HHSC dispute resolution process set forth in SECTION
12.12, ("Dispute Resolution").

SECTION 10.09 DELIVERY SUPPLEMENTAL PAYMENT FOR CHIP AND STAR HMOS.

     (a) The Delivery Supplemental Payment (DSP) is a function of the average
delivery cost in each Service Area. Delivery costs include facility and
professional charges.

     (b) CHIP and STAR HMOs will receive a Delivery Supplemental Payment (DSP)
from HHSC for each live or stillbirth by a Member. The one-time payment is made
in the amount identified in the HHSC MANAGED CARE CONTRACT document regardless
of whether there is a single birth or there are multiple births at time of
delivery. A delivery is the birth of a live born infant, regardless of the
duration of the pregnancy, or a stillborn (fetal death) infant of twenty (20)
weeks or more of gestation. A delivery does not include a spontaneous or induced
abortion, regardless of the duration of the pregnancy.

     (c) HMO must submit a monthly DSP Report as described in ATTACHMENT B to
the HHSC MANAGED CARE CONTRACT document, ("Scope of Work/Performance Measures')
in the format prescribed in HHSC'S UNIFORM MANAGED CARE MANUAL.

     (d) HHSC will pay the Delivery Supplemental Payment within twenty (20)
Business Days after receipt of a complete and accurate report from the HMO.

     (e) The HMO will not be entitled to Delivery Supplemental Payments for
deliveries that are not reported to HHSC within 210 days after the date of
delivery, or within thirty (30) days from the date of discharge from the
hospital for the stay related to the delivery, whichever is later.

     (f) HMO must maintain complete claims and adjudication disposition
documentation, including paid and denied amounts for each delivery. The HMO must
submit the documentation to HHSC within five (5) Business Days after receiving a
request for such information from HHSC.


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Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

SECTION 10.10 ADMINISTRATIVE FEE FOR SSI MEMBERS

(a) Administrative Fee.

     STAR HMOs will receive a monthly fee for administering benefits to each SSI
Beneficiary who voluntarily enrolls in the HMO (a "Voluntary SSI Member"), in
the amount identified in the HHSC MANAGED CARE CONTRACT document. The HHSC will
pay for Health Care Services for such Voluntary SSI Members under the Medicaid
Fee-for-Services program. SSI Beneficiaries in all Service Areas except Nueces
may voluntarily participate in the STAR Program; however, HHSC reserves the
right to discontinue such voluntary participation.

(b) Administrative services and functions.

          (1) HMO must perform the same administrative services and functions
for Voluntary SSI Members as are performed for other Members under this
contract. These administrative services and functions include, but are not
limited to:

     (i) prior authorization of services;

     (ii) all Member services functions, including linguistic services and
     Member materials in alternative formats for the blind and disabled;

     (iii) health education;

     (iv) utilization management using HHSC Administrative Services Contractor
     encounter data to provide service management and appropriate interventions;

     (v) quality assessment and performance improvement activities;

     (vi) coordination to link Voluntary SSI Members with applicable community
     resources and Non-capitated services.

          (2) HMO must require Network Providers to submit claims for health and
health-related services to the HHSC Administrative Services Contractor for
claims adjudication and payment.

          (3) HMO must provide services to Voluntary SSI Members within the
HMO's Network unless necessary services are unavailable within Network. HMO must
also allow referrals to Out-of-Network providers if necessary services are not
available within the HMO's Network. Records must be forwarded to Member's PCP
following a referral visit.

(c) Members who become eligible for SSI

     A Member's SSI status is effective the date the State's eligibility system
identifies the Member as Type Program 13 (TP13). On this effective date, the
Member becomes a voluntary STAR enrollee.

SECTION 10.11 EXPERIENCE REBATE

(a) HMO's duty to pay.

     At the end of each Rate Year beginning with Rate Year 1, the HMO must pay
an Experience Rebate to HHSC if the HMO's Net Income before Taxes is greater
than 3% of the total Revenue for the period. The Experience Rebate is calculated
in accordance with the tiered rebate method set forth below based on the
consolidated Net Income before Taxes for all of the HMO's Service Areas and HMO
Programs included within the scope of the Contract, as measured by any positive
amount on the Financial-Statistical Report (FSR) as reviewed and confirmed by
HHSC.

(b) Graduated Experience Rebate Sharing Method.

<TABLE>
<CAPTION>
EXPERIENCE REBATE AS A
% OF REVENUES            HMO SHARE   HHSC SHARE
----------------------   ---------   ----------
<S>                      <C>         <C>
< or = 3%                   100%          0%
> 3% and < or = 7%           75%         25%
> 7% and < or = 10%          50%         50%
> 10% and < or = 15%         25%         75%
> 15%                         0%        100%
</TABLE>

HHSC and the HMO will share the Net Income before Taxes as follows, unless HHSC
provides the HMO an Experience Rebate Reward in accordance with Section 6 of
ATTACHMENT B-1 to the HHSC MANAGED CARE CONTRACT document and HHSC'S UNIFORM
MANAGED CARE MANUAL:

     (1) The HMO will retain all Net Income before Taxes that is equal to or
less than 3% of the total Revenues received by the HMO.

     (2) HHSC and the HMO will share that portion of the Net Income before Taxes
that is over 3% but less than or equal to 7% of the total Revenues received with
75% to the HMO and 25% to HHSC.

     (3) HHSC and the HMO will share that portion of the Net Income before Taxes
that is over 7% but less than or equal to 10% of the total Revenues received
with 50% to the HMO and 50% to HHSC.

     (4) HHSC and the HMO will share that portion of the Net Income before Taxes
that is over 10% but less than or equal to 15% of the total Revenues received
with 25% to the HMO and 75% to HHSC.

     (5) HHSC will be paid the entire portion of the Net Income before Taxes
that exceeds 15% of the total Revenues.

(c) Net income before taxes.

     The HMO must compute the Net Income before Taxes in accordance with the
HHSC UNIFORM MANAGED CARE MANUAL'S "COST PRINCIPLES FOR ADMINISTRATIVE EXPENSES"
and "FSR INSTRUCTIONS FOR COMPLETION" and applicable federal regulations. The
Net Income before Taxes will be confirmed by HHSC or its agent for the Rate Year
relating to all revenues and expenses incurred pursuant to the Contract. HHSC
reserves the right to modify the


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

"COST PRINCIPLES FOR ADMINISTRATIVE EXPENSES" and "FSR INSTRUCTIONS FOR
COMPLETION" found in HHSC'S UNIFORM MANAGED CARE MANUAL in accordance with
Section 8.05.

(d) Carry forward of prior Rate Year losses.

     Losses incurred by HMO for one Rate Year may be carried forward to the next
Rate Year, and applied as an offset against an Experience Rebate. Prior losses
may be carried forward for only one Rate Year for this purpose. If the HMO
offsets a loss against another HMO Service Area or HMO Program, only that
portion of the loss that was not used as an offset may be carried forward to the
next Rate Year.

(e) Settlements for payment.

     (1) There will be two settlements for HMO payment(s) of the State share of
the Experience Rebate. The first settlement shall equal 100% of the State share
of the Experience Rebate as derived from the FSR, and shall be paid on the same
day the 90-day FSR Report is submitted to HHSC, accompanied by an actuarial
opinion certifying the reserve.

     (2) The second settlement shall be an adjustment to the first settlement
and shall be paid by the HMO to HHSC on the same day that the 334-day FSR is
submitted to HHSC if the adjustment is a payment from the HMO to HHSC.

     (3) HHSC or its agent may audit or review the FSRs. If HHSC determines that
corrections to the FSRs are required, based on an HHSC audit/review or other
documentation acceptable to HHSC, to determine an adjustment to the amount of
the second settlement, then final adjustment shall be made within three years
from the date that the HMO submits the 334-day FSR.

     (4) HHSC may offset any Experience Rebates owed to the State from future
Capitation Payments, or collect such sums directly from the HMO. HHSC must
receive the first and second settlements by the specified due dates for the
first and second FSRs respectively or HMO will incur interest on the amounts due
at the current prime interest rate as set forth below. HHSC may adjust the
Experience Rebate if HHSC determines the HMO has paid amounts for goods or
services that are not reasonable, necessary, and allowable in accordance with
the HHSC UNIFORM MANAGED CARE MANUAL'S "COST PRINCIPLES FOR ADMINISTRATIVE
EXPENSES" and "FSR INSTRUCTIONS FOR COMPLETION" and applicable federal
regulations. HHSC has final authority in auditing and determining the amount of
the Experience Rebate.

(f) Interest on Experience Rebate.

     Interest on any Experience Rebate owed to HHSC shall be charged beginning
thirty (30) days after the date that the first and second settlements are due.
In addition, if any adjusted amount is owed to HHSC at the final settlement
date, then interest will be charged on the adjusted amount owed beginning thirty
(30) days after the second settlement date to the date of the final settlement
payment. HHSC will calculate interest at the Department of Treasury's Median
Rate (resulting from the Treasury's auction of 13-week bills) for the week in
which the liability is assessed.

SECTION 10.12 PAYMENT BY MEMBERS.

(a) Medicaid HMOs

     Medicaid HMOs and their Network Providers are prohibited from billing or
collecting any amount from a Member for Health Care Services covered by this
Contract. HMO must inform Members of costs for non-covered services, and must
require its Network Providers to:

          (1) inform Members of costs for non-covered services prior to
     rendering such services; and

          (2) obtain a signed Private Pay form from such Members.

(b) CHIP HMOs.

     Families that meet the enrollment period cost share limit requirement must
report it to the HHSC Administrative Services Contractor. The HHSC
Administrative Service Contractor notifies the HMO that a family's cost share
limit has been reached. Upon notification from the HHSC Administrative Services
Contractor that a family has reached its cost-sharing limit for the term of
coverage, the HMO will generate and mail to the CHIP Member a new Member ID card
within five days, showing that the CHIP Member's cost-sharing obligation for
that term of coverage has been met. No cost-sharing may be collected from these
CHIP Members for the balance of their term of coverage.

     Providers are responsible for collecting all CHIP Member co-payments at the
time of service. Co-payments that families must pay vary according to their
income level. No co-payments apply, at any income level, to well-child or
well-baby visits or immunizations. Except for costs associated with unauthorized
non-emergency services provided to a Member by Out-of-Network providers and for
non-covered services, the co-payments outlined in the CHIP Cost Sharing table in
THE HHSC UNIFORM MANAGED CARE MANUAL are the only amounts that a provider may
collect from a CHIP-eligible family.

     Federal law prohibits charging cost-sharing or deductibles to CHIP Members
of Native Americans or Alaskan Natives. The HHSC Administrative Services
Contractor will notify the HMO of CHIP Members who are not subject to
cost-sharing requirements. The HMO is responsible for educating Providers
regarding the cost-sharing waiver for this population.

     A HMO's monthly Capitation Payment will not be reduced for a family's
failure to make its CHIP


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         TERMS & CONDITIONS

premium payment. There is no relationship between the per Member/per month
amount owed to the HMO for coverage provided during a month and the family's
payment of its CHIP premium obligation for that month.

SECTION 10.13 RESTRICTION ON ASSIGNMENT OF FEES.

     During the term of the Contract, HMO may not, directly or indirectly,
assign to any third party any beneficial or legal interest of the HMO in or to
any payments to be made by HHSC pursuant to this Contract. This restriction does
not apply to fees paid to Subcontractors.

SECTION 10.14 LIABILITY FOR TAXES.

     HHSC is not responsible in any way for the payment of any Federal, state or
local taxes related to or incurred in connection with the HMO's performance of
this Contract. HMO must pay and discharge any and all such taxes, including any
penalties and interest. In addition, HHSC is exempt from Federal excise taxes,
and will not pay any personal property taxes or income taxes levied on HMO or
any taxes levied on employee wages.

SECTION 10.15 LIABILITY FOR EMPLOYMENT-RELATED CHARGES AND BENEFITS.

     HMO will perform work under this Contract as an independent contractor and
not as agent or representative of HHSC. HMO is solely and exclusively liable for
payment of all employment-related charges incurred in connection with the
performance of this Contract, including but not limited to salaries, benefits,
employment taxes, workers compensation benefits, unemployment insurance and
benefits, and other insurance or fringe benefits for Staff.

SECTION 10.16 NO ADDITIONAL CONSIDERATION.

     (a) HMO will not be entitled to nor receive from HHSC any additional
consideration, compensation, salary, wages, charges, fees, costs, or any other
type of remuneration for Services and Deliverables provided under the Contract,
except by properly authorized and executed Contract amendments.

     (b) No other charges for tasks, functions, or activities that are
incidental or ancillary to the delivery of the Services and Deliverables will be
sought from HHSC or any other state agency, nor will the failure of HHSC or any
other party to pay for such incidental or ancillary services entitle the HMO to
withhold Services and Deliverables due under the Agreement.

     (c) HMO will not be entitled by virtue of the Contract to consideration in
the form of overtime, health insurance benefits, retirement benefits, disability
retirement benefits, sick leave, vacation time, paid holidays, or other paid
leaves of absence of any type or kind whatsoever.

             ARTICLE 11. DISCLOSURE & CONFIDENTIALITY OF INFORMATION

SECTION 11.01 CONFIDENTIALITY.

     (a) HMO and all Subcontractors, consultants, or agents under the Contract
must treat all information that is obtained through performance of the Services
under the Contract, including, but not limited to, information relating to
applicants or recipients of HHSC Programs as Confidential Information to the
extent that confidential treatment is provided under law and regulations.

     (b) HMO is responsible for understanding the degree to which information
obtained through performance of this Contract is confidential under State and
Federal law, regulations, or administrative rules.

     (c) HMO and all Subcontractors, consultants, or agents under the Contract
may not use any information obtained through performance of this Contract in any
manner except as is necessary for the proper discharge of obligations and
securing of rights under the Contract.

     (d) HMO must have a system in effect to protect all records and all other
documents deemed confidential under this Contract maintained in connection with
the activities funded under the Contract. Any disclosure or transfer of
Confidential Information by HMO, including information required by HHSC, will be
in accordance with applicable law. If the HMO receives a request for information
deemed confidential under this Contract, the HMO will immediately notify HHSC of
such request, and will make reasonable efforts to protect the information from
public disclosure.

     (e) In addition to the requirements expressly stated in this Section, HMO
must comply with any policy, rule, or reasonable requirement of HHSC that
relates to the safeguarding or disclosure of information relating to Members,
HMO'S operations, or HMO's performance of the Contract.

     (f) In the event of the expiration of the Contract or termination of the
Contract for any reason, all Confidential Information disclosed to and all
copies thereof made by the HMOI shall be returned to HHSC or, at HHSC's option,
erased or destroyed. HMO shall provide HHSC certificates evidencing such
destruction.

     (g) The obligations in this Section shall not restrict any disclosure by
the HMO pursuant to any applicable law, or by order of any court or government
agency, provided that the HMO shall give prompt notice to HHSC of such order.

     (h) With the exception of confidential Member information, Confidential
Information shall not be afforded the protection of the Contract if such data
was:


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

          (1) Already known to the receiving Party without restrictions at the
     time of its disclosure by the furnishing Party;

          (2) Independently developed by the receiving Party without reference
     to the furnishing Party's Confidential Information;

          (3) Rightfully obtained by the other Party without restriction from a
     third party after its disclosure by the furnishing Party;

          (4) Publicly available other than through the fault or negligence of
     the other Party; or

          (5) Lawfully released without restriction to anyone.

SECTION 11.02 DISCLOSURE OF HHSC'S CONFIDENTIAL INFORMATION.

     (a) HMO will immediately report to HHSC any and all unauthorized
disclosures or uses of HHSC's Confidential Information of which it or its
Subcontractor(s), consultant(s), or agent(s) is aware or has knowledge. HMO
acknowledges that any publication or disclosure of HHSC's Confidential
Information to others may cause immediate and irreparable harm to HHSC and may
constitute a violation of State or federal laws. If HMO, its Subcontractor(s),
consultant(s), or agent(s) should publish or disclose such Confidential
Information to others without authorization, HHSC will immediately be entitled
to injunctive relief or any other remedies to which it is entitled under law or
equity. HHSC will have the right to recover from HMO all damages and liabilities
caused by or arising from HMO's, its Subcontractors', consultants', or agents'
failure to protect HHSC's Confidential Information. HMO will defend with counsel
approved by HHSC, indemnify and hold harmless HHSC from all damages, costs,
liabilities, and expenses (including without limitation reasonable attorneys'
fees and costs) caused by or arising from HMO's or its Subcontractors',
consultants' or agents' failure to protect HHSC's Confidential Information. HHSC
will not unreasonably withhold approval of counsel selected by the HMO.

     (b) HMO will require its Subcontractor(s), consultant(s), and agent(s) to
comply with the terms of this provision.

SECTION 11.03 MEMBER RECORDS

     (a) HMO must comply with the requirements of state and federal laws,
including the HIPAA requirements set forth in SECTION 7.07, regarding the
transfer of Member Records.

     (b) If at any time during the Contract Term this Contract is terminated,
HHSC may require the transfer of Member Records, upon written notice to HMO, to
another entity, as consistent with federal and state laws and applicable
releases.

     (c) The term "Member Record" for this Section means only those
administrative, enrollment, case management and other such records maintained by
HMO and is not intended to include patient records maintained by participating
Network Providers.

SECTION 11.04 REQUESTS FOR PUBLIC INFORMATION.

     (a) HHSC agrees that it will promptly notify HMO of a request for
disclosure of information filed in accordance with the Texas Public Information
Act, Chapter 552 of the Texas Government Code, that consists of the HMO'S
confidential information, including without limitation, information or data to
which HMO has a proprietary or commercial interest. HHSC will deliver a copy of
the request for public information to HMO.

     (b) With respect to any information that is the subject of a request for
disclosure, HMO is required to demonstrate to the Texas Office of Attorney
General the specific reasons why the requested information is confidential or
otherwise excepted from required public disclosure under law. HMO will provide
HHSC with copies of all such communications.

     (c) To the extent authorized under the Texas Public Information Act, HHSC
agrees to safeguard from disclosure information received from HMO that the HMO
believes to be confidential information. HMO must clearly mark such information
as confidential information or provide written notice to HHSC that it considers
the information confidential.

SECTION 11.05 PRIVILEGED WORK PRODUCT.

     (a) HMO acknowledges that HHSC asserts that privileged work product may be
prepared in anticipation of litigation and that HMO is performing the Services
with respect to privileged work product as an agent of HHSC, and that all
matters related thereto are protected from disclosure by the Texas Rules of
Civil Procedure, Texas Rules of Evidence, Federal Rules of Civil Procedure, or
Federal Rules of Evidence.

     (b) HHSC will notify HMO of any privileged work product to which HMO has or
may have access. After the HMO is notified or otherwise becomes aware that such
documents, data, database, or communications are privileged work product, only
HMO personnel, for whom such access is necessary for the purposes of providing
the Services, may have access to privileged work product.

     (c) If HMO receives notice of any judicial or other proceeding seeking to
obtain access to HHSC's privileged work product, HMO will:

          (1) Immediately notify HHSC; and

          (2) Use all reasonable efforts to resist providing such access.

     (d) If HMO resists disclosure of HHSC's privileged work product in
accordance with this Section, HHSC will, to the extent authorized under Civil
Practices and Remedies Code or other applicable State law, have the right and
duty to:


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

          (1) represent HMO in such resistance;

          (2) to retain counsel to represent HMO; or

          (3) to reimburse HMO for reasonable attorneys' fees and expenses
     incurred in resisting such access.

     (e) If a court of competent jurisdiction orders HMO to produce documents,
disclose data, or otherwise breach the confidentiality obligations imposed in
the Contract, or otherwise with respect to maintaining the confidentiality,
proprietary nature, and secrecy of privileged work product, HMO will not be
liable for breach of such obligation.

SECTION 11.06 UNAUTHORIZED ACTS.

     Each Party agrees to:

     (1) Notify the other Party promptly of any unauthorized possession, use, or
knowledge, or attempt thereof, by any person or entity that may become known to
it, of any HHSC Confidential Information or any information identified by the
HMO as confidential or proprietary;

     (2) Promptly furnish to the other Party full details of the unauthorized
possession, use, or knowledge, or attempt thereof, and use reasonable efforts to
assist the other Party in investigating or preventing the reoccurrence of any
unauthorized possession, use, or knowledge, or attempt thereof, of Confidential
Information;

     (3) Cooperate with the other Party in any litigation and investigation
against third Parties deemed necessary by such Party to protect its proprietary
rights; and

     (4) Promptly prevent a reoccurrence of any such unauthorized possession,
use, or knowledge such information.

SECTION 11.07 LEGAL ACTION.

     Neither party may commence any legal action or proceeding in respect to any
unauthorized possession, use, or knowledge, or attempt thereof by any person or
entity of HHSC's Confidential Information or information identified by the HMO
as confidential or proprietary, which action or proceeding identifies the other
Party such information without such Party's consent.

                         ARTICLE 12. REMEDIES & DISPUTES

SECTION 12.01 UNDERSTANDING AND EXPECTATIONS.

     The remedies described in this Section are directed to HMO's timely and
responsive performance of the Services and production of Deliverables, and the
creation of a flexible and responsive relationship between the Parties. The HMO
is expected to meet or exceed all HHSC objectives and standards, as set forth in
the Contract. All areas of responsibility and all Contract requirements will be
subject to performance evaluation by HHSC. Performance reviews may be conducted
at the discretion of HHSC at any time and may relate to any responsibility
and/or requirement. Any and all responsibilities and/or requirements not
fulfilled may be subject to remedies set forth in the Contract.

SECTION 12.02 TAILORED REMEDIES.

(a)  Understanding of the Parties.

     HMO agrees and understands that HHSC may pursue tailored contractual
remedies for noncompliance with the Contract. At any time and at its discretion,
HHSC may impose or pursue one or more remedies for each item of noncompliance
and will determine remedies on a case-by-case basis. HHSC's pursuit or
non-pursuit of a tailored remedy does not constitute a waiver of any other
remedy that HHSC may have at law or equity.

(b)  Notice and opportunity to cure for non-material breach.

     (1) HHSC will notify HMO in writing of specific areas of HMO performance
that fail to meet performance expectations, standards, or schedules set forth in
the Contract, but that, in the determination of HHSC, do not result in a
material deficiency or delay in the implementation or operation of the Services.

     (2) HMO will, within five (5) Business Days (or another date approved by
HHSC) of receipt of written notice of a non-material deficiency, provide the
HHSC Project Manager a written response that:

          (A) Explains the reasons for the deficiency, HMO's plan to address or
     cure the deficiency, and the date and time by which the deficiency will be
     cured; or

          (B) If HMO disagrees with HHSC's findings, its reasons for disagreeing
     with HHSC's findings.

     (3) HMO's proposed cure of a non-material deficiency is subject to the
approval of HHSC. HMO's repeated commission of non-material deficiencies or
repeated failure to resolve any such deficiencies may be regarded by HHSC as a
material deficiency and entitle HHSC to pursue any other remedy provided in the
Contract or any other appropriate remedy HHSC may have at law or equity.

(c)  Corrective action plan.

     (1) At its option, HHSC may require HMO to submit to HHSC a written plan
(the "Corrective Action Plan") to correct or resolve a material breach of this
Contract, as determined by HHSC.

     (2) The Corrective Action Plan must provide:

          (A) A detailed explanation of the reasons for the cited deficiency;

          (B) HMO's assessment or diagnosis of the cause; and

          (C) A specific proposal to cure or resolve the deficiency.


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     (3) The Corrective Action Plan must be submitted by the deadline set forth
in HHSC's request for a Corrective Action Plan. The Corrective Action Plan is
subject to approval by HHSC, which will not unreasonably be withheld.

     (4) HHSC will notify HMO in writing of HHSC's final disposition of HHSC's
concerns. If HHSC accepts HMO's proposed Corrective Action Plan, HHSC may:

          (A) Condition such approval on completion of tasks in the order or
     priority that HHSC may reasonably prescribe;

          (B) Disapprove portions of HMO's proposed Corrective Action Plan; or

          (C) Require additional or different corrective action(s).

          Notwithstanding the submission and acceptance of a Corrective Action
     Plan, HMO remains responsible for achieving all written performance
     criteria.

     (5) HHSC's acceptance of a Corrective Action Plan under this Section will
not:

          (A) Excuse HMO's prior substandard performance;

          (B) Relieve HMO of its duty to comply with performance standards; or

          (C) Prohibit HHSC from assessing additional tailored remedies or
     pursuing other appropriate remedies for continued substandard performance.

(d) Administrative remedies.

     (1) At its discretion, HHSC may impose one or more of the following
remedies for each item of material noncompliance and will determine the scope
and severity of the remedy on a case-by-case basis:

          (A) Assess liquidated damages in accordance with ATTACHMENT B-5 to the
     HHSC MANAGED CARE CONTRACT, "Liquidated Damages Matrix;"

          (B) Conduct accelerated monitoring of the HMO. Accelerated monitoring
     includes more frequent or more extensive monitoring by HHSC or its agent;

          (C) Require additional, more detailed, financial and/or programmatic
     reports to be submitted by HMO;

          (D) Decline to renew or extend the Contract;

          (E)Appoint temporary management;

          (F)Initiate disenrollment of a Member or Members;

          (G)Suspend enrollment of Members;

          (H) Withhold or recoup payment to HMO;

          (I) Require forfeiture of all or part of the HMO's bond; or

          (J) Terminate the Contract in accordance with SECTION 12.03,
     ("Termination by HHSC").

     (2) For purposes of the Contract, an item of material noncompliance means a
specific action of HMO that:

          (A) Violates a material provision of the Contract;

          (B) Fails to meet an agreed measure of performance; or

          (C) Represents a failure of HMO to be reasonably responsive to a
     reasonable request of HHSC relating to the Services for information,
     assistance, or support within the timeframe specified by HHSC.

     (3) HHSC will provide notice to HMO of the imposition of an administrative
remedy in accordance with this Section, with the exception of accelerated
monitoring, which may be unannounced. HHSC may require HMO to file a written
response in accordance with this Section.

     (4) The Parties agree that a State or Federal statute, rule, regulation, or
Federal guideline will prevail over the provisions of this Section unless the
statute, rule, regulation, or guidelines can be read together with this Section
to give effect to both.

(e) Damages.

     (1) HHSC will be entitled to actual and consequential damages resulting
from the HMO'S failure to comply with any of the terms of the Contract. In some
cases, the actual damage to HHSC or State of Texas as a result of HMO'S failure
to meet any aspect of the responsibilities of the Contract and/or to meet
specific performance standards set forth in the Contract are difficult or
impossible to determine with precise accuracy. Therefore, liquidated damages
will be assessed in writing against and paid by the HMO in accordance with and
for failure to meet any aspect of the responsibilities of the Contract and/or to
meet the specific performance standards identified by the HHSC in ATTACHMENT B-5
TO THE HHSC MANAGED CARE CONTRACT, "Deliverables/Liquidated Damages Matrix."
Liquidated damages will be assessed if HHSC determines such failure is the fault
of the HMO (including the HMO'S Subcontractors and/or consultants) and is not
materially caused or contributed to by HHSC or its agents. If at any time, HHSC
determines the HMO has not met any aspect of the responsibilities of the
Contract and/or the specific performance standards due to mitigating
circumstances, HHSC reserves the right to waive all or part of the liquidated
damages. All such waivers must be in writing, contain the reasons for the
waiver, and be signed by the appropriate executive of HHSC.


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     (2) The liquidated damages prescribed in this Section are not intended to
be in the nature of a penalty, but are intended to be reasonable estimates of
HHSC's projected financial loss and damage resulting from the HMO's
nonperformance, including financial loss as a result of project delays.
Accordingly, in the event HMO fails to perform in accordance with the Contract,
HHSC may assess liquidated damages as provided in this Section.

     (3) If HMO fails to perform any of the Services described in the Contract,
HHSC may assess liquidated damages for each occurrence of a liquidated damages
event, to the extent consistent with HHSC's tailored approach to remedies and
Texas law.

     (4) HHSC may elect to collect liquidated damages:

          (A) Through direct assessment and demand for payment delivered to HMO;
     or

          (B) By deduction of amounts assessed as liquidated damages as set-off
     against payments then due to HMO or that become due at any time after
     assessment of the liquidated damages. HHSC will make deductions until the
     full amount payable by the HMO is received by HHSC.

(f) Equitable Remedies

     (1) HMO acknowledges that, if HMO breaches (or attempts or threatens to
breach) its material obligation under this Contract, HHSC may be irreparably
harmed. In such a circumstance, HHSC may proceed directly to court to pursue
equitable remedies.

     (2) If a court of competent jurisdiction finds that HMO breached (or
attempted or threatened to breach) any such obligations, HMO agrees that without
any additional findings of irreparable injury or other conditions to injunctive
relief, it will not oppose the entry of an appropriate order compelling
performance by HMO and restraining it from any further breaches (or attempted or
threatened breaches).

(g) Suspension of Contract

     (1) HHSC may suspend performance of all or any part of the Contract if:

          (A) HHSC determines that HMO has committed a material breach of the
     Contract;

          (B) HHSC has reason to believe that HMO has committed, assisted in the
     commission of Fraud, Abuse, Waste, malfeasance, misfeasance, or nonfeasance
     by any party concerning the Contract;

          (C) HHSC determines that the HMO knew, or should have known of, Fraud,
     Abuse, Waste, malfeasance, or nonfeasance by any party concerning the
     Contract, and the HMO failed to take appropriate action; or

          (D) HHSC determines that suspension of the Contract in whole or in
     part is in the best interests of the State of Texas or the HHSC Programs.

     (2) HHSC will notify HMO in writing of its intention to suspend the
Contract in whole or in part. Such notice will:

          (A) Be delivered in writing to HMO;

          (B) Include a concise description of the facts or matter leading to
     HHSC's decision; and

          (C) Unless HHSC is suspending the contract for convenience, request a
     Corrective Action Plan from HMO or describe actions that HMO may take to
     avoid the contemplated suspension of the Contract.

SECTION 12.03 TERMINATION BY HHSC.

     This Contract will terminate upon the Expiration Date. In addition, prior
to completion of the Contract Term, all or a part of this Contract may be
terminated for any of the following reasons:

(a)  Termination in the best interest of HHSC.

     HHSC may terminate the Contract without cause at anytime when, in its sole
discretion, HHSC determines that termination is in the best interests of the
State of Texas. HHSC will provide reasonable advance written notice of the
termination, as it deems appropriate under the circumstances. The termination
will be effective on the date specified in HHSC's notice of termination.

(b)  Termination for cause.

     HHSC reserves the right to terminate this Contract, in whole or in part,
upon the following conditions:

          (1) Assignment for the benefit of creditors, appointment of receiver,
     or inability to pay debts.

     HHSC may terminate this Contract at any time if HMO:

          (A) Makes an assignment for the benefit of its creditors;

          (B) Admits in writing its inability to pay its debts generally as they
     become due; or

          (C) Consents to the appointment of a receiver, trustee, or liquidator
     of HMO or of all or any part of its property.

          (2) Failure to adhere to laws, rules, ordinances, or orders.

     HHSC may terminate this Contract if a court of competent jurisdiction finds
HMO failed to adhere to any laws, ordinances, rules, regulations or orders of
any public authority having jurisdiction and such violation prevents or
substantially impairs performance of HMO's


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

     duties under this Contract. HHSC will provide at least thirty (30) days
     advance written notice of such termination.

          (3) Breach of confidentiality.

          HHSC may terminate this Contract at any time if HMO breaches
     confidentiality laws with respect to the Services and Deliverables provided
     under this Contract.

          (4) Failure to maintain adequate personnel or resources.

          HHSC may terminate this Contract if, after providing notice and an
     opportunity to correct, HHSC determines that HMO has failed to supply
     personnel or resources and such failure results in HMO's inability to
     fulfill its duties under this Contract. HHSC will provide at least thirty
     (30) days advance written notice of such termination.

(5)  Termination for gifts and gratuities.

          (A) HHSC may terminate this Contract at any time following the
     determination by a competent judicial or quasi-judicial authority and HMO's
     exhaustion of all legal remedies that HMO, its employees, agents or
     representatives have either offered or given any thing of value to an
     officer or employee of HHSC or the State of Texas in violation of state
     law.

          (B) HMO must include a similar provision in each of its Subcontracts
     and shall enforce this provision against a Subcontractor who has offered or
     given any thing of value to any of the persons or entities described in
     this Section, whether or not the offer or gift was in HMO's behalf.

          (C) Termination of a Subcontract by HMO pursuant to this provision
     will not be a cause for termination of the Contract unless:

               (1) HMO fails to replace such terminated Subcontractor within a
          reasonable time; and

               (2) Such failure constitutes cause, as described in this
          Subsection 12.03(b).

          (D) For purposes of this Section, a "thing of value" means any item of
     tangible or intangible property that has a monetary value of more than
     $50.00 and includes, but is not limited to, cash, food, lodging,
     entertainment, and charitable contributions. The term does not include
     contributions to holders of public office or candidates for public office
     that are paid and reported in accordance with State and/or Federal law.

(6)  Termination for non-appropriation of funds.

          Notwithstanding any other provision of this Contract, if funds for the
     continued fulfillment of this Contract by HHSC are at any time not
     forthcoming or are insufficient, through failure of any entity to
     appropriate funds or otherwise, then HHSC will have the right to terminate
     this Contract at no additional cost and with no penalty whatsoever by
     giving prior written notice documenting the lack of funding. HHSC will
     provide at least thirty (30) days advance written notice of such
     termination. HHSC will use reasonable efforts to ensure appropriated funds
     are available.

(7)  Judgment and execution.

     (A) HHSC may terminate the Contract at any time if judgment for the payment
of money in excess of $500,000.00 that is not covered by insurance, is rendered
by any court or governmental body against HMO, and HMO does not:

          (1) Discharge the judgment or provide for its discharge in accordance
     with the terms of the judgment;

          (2) Procure a stay of execution of the judgment within thirty (30)
     days from the date of entry thereof; or

          (3) Perfect an appeal of such judgment and cause the execution of such
     judgment to be stayed during the appeal, providing such financial reserves
     as may be required under generally accepted accounting principles.

     (B) If a writ or warrant of attachment or any similar process is issued by
any court against all or any material portion of the property of HMO, and such
writ or warrant of attachment or any similar process is not released or bonded
within thirty (30) days after its entry, HHSC may terminate the Contract in
accordance with this Section.

(8)  Termination for insolvency.

     (A) HHSC may terminate the Contract at any time if HMO:

          (1) Files for bankruptcy;

          (2) Becomes or is declared insolvent, or is the subject of any
     proceedings related to its liquidation, insolvency, or the appointment of a
     receiver or similar officer for it;

          (3) Makes an assignment for the benefit of all or substantially all of
     its creditors; or

          (4) Enters into an Contract for the composition, extension, or
     readjustment of substantially all of its obligations.


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

          (B) HMO agrees to pay for all reasonable expenses of HHSC including
     the cost of counsel, incident to:

               (1) The enforcement of payment of all obligations of the HMO by
          any action or participation in, or in connection with a case or
          proceeding under Chapters 7, 11, or 13 of the United States Bankruptcy
          Code, or any successor statute;

               (2) A case or proceeding involving a receiver or other similar
          officer duly appointed to handle the HMO's business; or

               (3) A case or proceeding in a State court initiated by HHSC when
          previous collection attempts have been unsuccessful.

(9)  Termination for HMO'S material breach of the Contract.

     HHSC will have the right to terminate the Contract in whole or in part if
     HHSC determines, at its sole discretion, that HMO has materially breached
     the Contract. HHSC will provide at least thirty (30) days advance written
     notice of such termination.

SECTION 12.04 TERMINATION BY HMO.

(a)  Failure to pay.

     HMO may terminate this Contract if HHSC fails to pay the HMO undisputed
charges when due as required under this Contract. Retaining premium, recoupment,
sanctions, or penalties that are allowed under this Contract or that result from
the HMO's failure to perform or the HMO's default under the terms of this
Contract is not cause for termination. Termination for failure to pay does not
release HHSC from the obligation to pay undisputed charges for services provided
prior to the termination date.

     If HHSC fails to pay undisputed charges when due, then the HMO may submit a
notice of intent to terminate for failure to pay in accordance with the
requirements of SUBSECTION 12.04(D). If HHSC pays all undisputed amounts then
due within thirty (30)-days after receiving the notice of intent to terminate,
the HMO cannot proceed with termination of the Contract under this Article.

(b)  Change to HHSC Uniform Managed Care Manual.

     HMO may terminate this agreement if the Parties are unable to resolve a
dispute concerning a material and substantive change to the HHSC Uniform Managed
Care Manual (a change that materially and substantively alters the HMO's ability
to fulfill its obligations under the Contract). HMO must submit a notice of
intent to terminate due to a material and substantive change in the HHSC Uniform
Managed Care Manual no later than thirty (30) days after the effective date of
the policy change. HHSC will not enforce the policy change during the period of
time between the receipt of the notice of intent to terminate and the effective
date of termination.

(c)  Change to Capitation Rate.

     If HHSC proposes a modification to the Capitation Rate that is unacceptable
to the HMO, the HMO may terminate the Contract. HMO must submit a written notice
of intent to terminate due to a change in the Capitation Rate no later than
thirty (30) days after HHSC's notice of the proposed change. HHSC will not
enforce the rate change during the period of time between the receipt of the
notice of intent to terminate and the effective date of termination.

(d)  Notice of intent to terminate.

     In order to terminate the Contract pursuant to this Section, HMO must give
HHSC at least ninety (90) days written notice of intent to terminate. The
termination date will be calculated as the last day of the month following
ninety (90) days from the date the notice of intent to terminate is received by
HHSC.

SECTION 12.05 TERMINATION BY MUTUAL AGREEMENT.

     This Contract may be terminated by mutual written agreement of the Parties.

SECTION 12.06 EFFECTIVE DATE OF TERMINATION.

     Except as otherwise provided in this Contract, termination will be
effective as of the date specified in the notice of termination.

SECTION 12.07 EXTENSION OF TERMINATION EFFECTIVE DATE.

     The Parties may extend the effective date of termination one or more times
by mutual written agreement.

SECTION 12.08 PAYMENT AND OTHER PROVISIONS AT CONTRACT TERMINATION.

     (a) In the event of termination pursuant to this Article, HHSC will pay the
Capitation Payment for Services and Deliverables rendered through the effective
date of termination. All pertinent provisions of the Contract will form the
basis of settlement.

     (b) HMO must provide HHSC all reasonable access to records, facilities, and
documentation as is required to efficiently and expeditiously close out the
Services and Deliverables provided under this Contract.

     (c) HMO must prepare a Turnover Plan, which is acceptable to and approved
by HHSC. The Turnover Plan will be implemented during the time period between
receipt of notice and the termination date.

SECTION 12.09 MODIFICATION OF CONTRACT IN THE EVENT OF REMEDIES.

     HHSC may propose a modification of this Contract in response to the
imposition of a remedy under this Article. Any modifications under this Section
must be reasonable, limited to the matters causing the exercise of a remedy, in
writing, and


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         TERMS & CONDITIONS

executed in accordance with ARTICLE 8. HMO must negotiate such proposed
modifications in good faith.

SECTION 12.10 TURNOVER ASSISTANCE.

     Upon receipt of notice of termination of the Contract by HHSC, HMO will
provide any turnover assistance reasonably necessary to enable HHSC or its
designee to effectively close out the Contract and move the work to another
vendor or to perform the work itself.

SECTION 12.11 RIGHTS UPON TERMINATION OR EXPIRATION OF CONTRACT.

     In the event that the Contract is terminated for any reason, or upon its
expiration, HHSC will, at HHSC's discretion, retain ownership of any and all
associated work products, Deliverables and/or documentation in whatever form
that they exist.

 SECTION 12.12 HMO RESPONSIBILITY FOR ASSOCIATED COSTS.

     If HHSC terminates the Contract for Cause, the HMO will be responsible to
HHSC for all reasonable costs incurred by HHSC, the State of Texas, or any of
its administrative agencies to replace the HMO. These costs include, but are not
limited to, the costs of procuring a substitute vendor and the cost of any claim
or litigation that is reasonably attributable to HMO's failure to perform any
Service in accordance with the terms of the Contract

SECTION 12.13 DISPUTE RESOLUTION.

(a)  General agreement of the Parties.

     The Parties mutually agree that the interests of fairness, efficiency, and
good business practices are best served when the Parties employ all reasonable
and informal means to resolve any dispute under this Contract. The Parties
express their mutual commitment to using all reasonable and informal means of
resolving disputes prior to invoking a remedy provided elsewhere in this
Section.

(b)  Duty to negotiate in good faith.

     Any dispute that in the judgment of any Party to this Contract may
materially or substantially affect the performance of any Party will be reduced
to writing and delivered to the other Party. The Parties must then negotiate in
good faith and use every reasonable effort to resolve such dispute and the
Parties shall not resort to any formal proceedings unless they have reasonably
determined that a negotiated resolution is not possible. The resolution of any
dispute disposed of by Contract between the Parties shall be reduced to writing
and delivered to all Parties within ten (10) Business Days.

(c)  Claims for breach of Contract.

     (1) General requirement. HMO's claim for breach of this Contract will be
resolved in accordance with the dispute resolution process established by HHSC
in accordance with Chapter 2260, Texas Government Code.

     (2) Negotiation of claims. The Parties expressly agree that the HMO's claim
for breach of this Contract that the Parties cannot resolve in the ordinary
course of business or through the use of all reasonable and informal means will
be submitted to the negotiation process provided in Chapter 2260, Subchapter B,
Texas Government Code.

          (A) To initiate the process, HMO must submit written notice to HHSC
     that specifically states that HMO invokes the provisions of Chapter 2260,
     Subchapter B, Texas Government Code. The notice must comply with the
     requirements of Title 1, Chapter 392, Subchapter B of the Texas
     Administrative Code.

          (B) The Parties expressly agree that the HMO's compliance with Chapter
     2260, Subchapter B, Texas Government Code, will be a condition precedent to
     the filing of a contested case proceeding under Chapter 2260, Subchapter C,
     of the Texas Government Code.

     (3) Contested case proceedings. The contested case process provided in
Chapter 2260, Subchapter C, Texas Government Code, will be HMO's sole and
exclusive process for seeking a remedy for any and all alleged breaches of
contract by HHSC if the Parties are unable to resolve their disputes under
Subsection (c)(2) of this Section.

     The Parties expressly agree that compliance with the contested case process
provided in Chapter 2260, Subchapter C, Texas Government Code, will be a
condition precedent to seeking consent to sue from the Texas Legislature under
Chapter 107, Civil Practices & Remedies Code. Neither the execution of this
Contract by HHSC nor any other conduct of any representative of HHSC relating to
this Contract shall be considered a waiver of HHSC's sovereign immunity to suit.

     (4) HHSC rules. The submission, processing and resolution of HMO's claim is
governed by the rules adopted by HHSC pursuant to Chapter 2260, Texas Government
Code, found at Title 1, Chapter 392, Subchapter B of the Texas Administrative
Code.

     (5) HMO's duty to perform. Neither the occurrence of an event constituting
an alleged breach of contract nor the pending status of any claim for breach of
contract is grounds for the suspension of performance, in whole or in part, by
HMO of any duty or obligation with respect to the performance of this Contract.
Any changes to the Contract as a result of a dispute resolution will be
implemented in accordance with ARTICLE 8 ("Amendments and Modifications").


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         TERMS & CONDITIONS

SECTION 12.14 LIABILITY OF HMO.

     (a) HMO bears all risk of loss or damage to HHSC or the State due to:

          (1) Defects in Services or Deliverables;

          (2) Unfitness or obsolescence of Services or Deliverables; or

          (3) The negligence or intentional misconduct of HMO or its employees,
     agents, Subcontractors, or representatives.

     (b) HMO must, at the HMO's own expense, defend with counsel approved by
HHSC, indemnify, and hold harmless HHSC and State employees, officers,
directors, contractors and agents from and against any losses, liabilities,
damages, penalties, costs, fees, including without limitation reasonable
attorneys' fees, and expenses from any claim or action for property damage,
bodily injury or death, to the extent caused by or arising from the negligence
or intentional misconduct of the HMO and its employees, officers, agents, or
Subcontractors. HHSC will not unreasonably withhold approval of counsel selected
by HMO.

     (c) HMO will not be liable to HHSC for any loss, damages or liabilities
attributable to or arising from the failure of HHSC or any state agency to
perform a service or activity in connection with this Contract.

                     ARTICLE 13. ASSURANCES & CERTIFICATIONS

SECTION 13.01 PROPOSAL CERTIFICATIONS.

     HMO acknowledges its continuing obligation to comply with the requirements
of the following certifications contained in its Proposal, and will immediately
notify HHSC of any changes in circumstances affecting these certifications:

     (1)  Federal lobbying;

     (2)  Debarment and suspension;

     (3)  Child support; and

     (4)  Nondisclosure statement.

SECTION 13.02 CONFLICTS OF INTEREST.

(a)  Representation.

     HMO agrees to comply with applicable state and federal laws, rules, and
regulations regarding conflicts of interest in the performance of its duties
under this Contract. HMO warrants that it has no interest and will not acquire
any direct or indirect interest that would conflict in any manner or degree with
its performance under this Contract.

(b)  General duty regarding conflicts of interest.

     HMO will establish safeguards to prohibit employees from using their
positions for a purpose that constitutes or presents the appearance of personal
or organizational conflict of interest, or personal gain. HMO will operate with
complete independence and objectivity without actual, potential or apparent
conflict of interest with respect to the activities conducted under this
Contract with the State of Texas.

SECTION 13.03 ORGANIZATIONAL CONFLICTS OF INTEREST.

(a)  Definition.

     An organizational conflict of interest is a set of facts or circumstances,
a relationship, or other situation under which a HMO, or a Subcontractor has
past, present, or currently planned personal or financial activities or
interests that either directly or indirectly:

          (1) Impairs or diminishes the HMO's, or Subcontractor's ability to
     render impartial or objective assistance or advice to HHSC; or

          (2) Provides the HMO or Subcontractor an unfair competitive advantage
     in future HHSC procurements (excluding the award of this Contract).

(b)  Warranty.

     Except as otherwise disclosed and approved by HHSC prior to the Effective
Date of the Contract, HMO warrants that, as of the Effective Date and to the
best of its knowledge and belief, there are no relevant facts or circumstances
that could give rise to an organizational conflict of interest affecting this
Contract. HMO affirms that it has neither given, nor intends to give, at any
time hereafter, any economic opportunity, future employment, gift, loan,
gratuity, special discount, trip, favor, or service to a public servant or any
employee or representative of same, at any time during the procurement process
or in connection with the procurement process except as allowed under relevant
state and federal law.

(c)  Continuing duty to disclose.

          (1) HMO agrees that, if after the Effective Date, HMO discovers or is
     made aware of an organizational conflict of interest, HMO will immediately
     and fully disclose such interest in writing to the HHSC project manager. In
     addition, HMO must promptly disclose any relationship that might be
     perceived or represented as a conflict after its discovery by HMO or by
     HHSC as a potential conflict. HHSC reserves the right to make a final
     determination regarding the existence of conflicts of interest, and HMO
     agrees to abide by HHSC's decision.

          (2) The disclosure will include a description of the action(s) that
     HMO has taken or proposes to take to avoid or mitigate such conflicts.

(d)  Remedy.

     If HHSC determines that an organizational conflict of interest exists, HHSC
may, at its discretion, terminate the Contract pursuant to SUBSECTION
12.03(B)(9). If HHSC determines that HMO was aware of an organizational conflict
of interest before


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the award of this Contract and did not disclose the conflict to the contracting
officer, such nondisclosure will be considered a material breach of the
Contract. Furthermore, such breach may be submitted to the Office of the
Attorney General, Texas Ethics Commission, or appropriate State or Federal law
enforcement officials for further action.

(e)  Flow down obligation.

     HMO must include the provisions of this Section in all Subcontracts for
work to be performed similar to the service provided by HMO, and the terms
"Contract," "HMO," and "project manager" modified appropriately to preserve the
State's rights.

SECTION 13.04 HHSC PERSONNEL RECRUITMENT PROHIBITION.

     HMO has not retained or promised to retain any person or company, or
utilized or promised to utilize a consultant that participated in HHSC's
development of specific criteria of the RFP or who participated in the selection
of the HMO for this Contract.

     Unless authorized in writing by HHSC, HMO will not recruit or employ any
HHSC professional or technical personnel who have worked on projects relating to
the subject matter of this Contract, or who have had any influence on decisions
affecting the subject matter of this Contract, for two (2) years following the
completion of this Contract.

SECTION 13.05 ANTI-KICKBACK PROVISION.

     HMO certifies that it will comply with the Anti-Kickback Act of 1986, 41
U.S.C. Section 51-58 and Federal Acquisition Regulation 52.203-7, to the extent
applicable.

SECTION 13.06 DEBT OR BACK TAXES OWED TO STATE OF TEXAS.

     In accordance with Section 403.055 of the Texas Government Code, HMO agrees
that any payments due to HMO under the Contract will be first applied toward any
debt and/or back taxes HMO owes State of Texas. HMO further agrees that payments
will be so applied until such debts and back taxes are paid in full.

SECTION 13.07 CERTIFICATION REGARDING STATUS OF LICENSE, CERTIFICATE, OR PERMIT.

     Article IX, Section 163 of the General Appropriations Act for the 1998/1999
state fiscal biennium prohibits an agency that receives an appropriation under
either Article II or V of the General Appropriations Act from awarding a
contract with the owner, operator, or administrator of a facility that has had a
license, certificate, or permit revoked by another Article II or V agency. HMO
certifies it is not ineligible for an award under this provision.

SECTION 13.08 OUTSTANDING DEBTS AND JUDGMENTS.

     HMO certifies that it is not presently indebted to the State of Texas, and
that HMO is not subject to an outstanding judgment in a suit by State of Texas
against HMO for collection of the balance. For purposes of this Section, an
indebtedness is any amount sum of money that is due and owing to the State of
Texas and is not currently under dispute. A false statement regarding HMO's
status will be treated as a material breach of this Contract and may be grounds
for termination at the option of HHSC.

                    ARTICLE 14. REPRESENTATIONS & WARRANTIES

SECTION 14.01 AUTHORIZATION.

     (a) The execution, delivery and performance of this Contract has been duly
authorized by HMO and no additional approval, authorization or consent of any
governmental or regulatory agency is required to be obtained in order for HMO to
enter into this Contract and perform its obligations under this Contract.

     (b) HMO has obtained all licenses, certifications, permits, and
authorizations necessary to perform the Services under this Contract and
currently is in good standing with all regulatory agencies that regulate any or
all aspects of HMO's performance of this Contract. HMO will maintain all
required certifications, licenses, permits, and authorizations during the term
of this Contract.

SECTION 14.02 ABILITY TO PERFORM.

     HMO warrants that it has the financial resources to fund the capital
expenditures required under the Contract without advances by HHSC or assignment
of any payments by HHSC to a financing source.

SECTION 14.03 MINIMUM NET WORTH.

     The HMO has, and will maintain throughout the life of this Contract,
minimum net worth to the greater of (a) $1,500,000; (b) an amount equal to the
sum of twenty-five dollars ($25) times the number of all enrollees including
Members; or (c) an amount that complies with standards adopted by TDI. Minimum
net worth means the excess total admitted assets over total liabilities,
excluding liability for subordinated debt issued in compliance with Chapter 843
of the Texas Insurance Code.

SECTION 14.04 INSURER SOLVENCY.

     (a) The HMO must be and remain in full compliance with all applicable state
and federal solvency requirements for basic-service health maintenance
organizations, including but not limited to, all reserve requirements, net worth
standards, debt-to-equity ratios, or other debt limitations. In the event the
HMO fails to maintain such compliance, HHSC, without limiting any other rights
it may have by law or under the Contract, may terminate the Contract.

     (b) If the HMO becomes aware of any impending changes to its financial or
business structure that could adversely impact its compliance


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with the requirements of the Contract or its ability to pay its debts as they
come due, the HMO must notify HHSC immediately in writing.

     (c) The HMO must have a plan and take appropriate measures to ensure
adequate provision against the risk of insolvency as required by TDI. Such
provision must be adequate to provide for the following in the event of
insolvency:

          (1) continuation of Covered Services, until the time of discharge, to
     Members who are confined on the date of insolvency in a hospital or other
     inpatient facility;

          (2) payments to unaffiliated health care providers and affiliated
     healthcare providers whose Contracts do not contain Member "hold harmless"
     clauses acceptable to the TDI;

          (3) continuation of Covered Services for the duration of the Contract
     Period for which a capitation has been paid for a Member;

          (4) provision against the risk of insolvency must be made by
     establishing adequate reserves, insurance or other guarantees in full
     compliance with all financial requirements of TDI and the Contract.

     Should TDI determine that there is an immediate risk of insolvency or the
HMO is unable to provide Covered Services to its Members, HHSC, without limiting
any other rights it may have by law, or under the Contract, may terminate the
Contract.

SECTION 14.05 WORKMANSHIP AND PERFORMANCE.

     (a) All Services and Deliverables provided under this Contract will be
provided in a manner consistent with the standards of quality and integrity as
outlined in the Contract.

     (b) All Services and Deliverables must meet or exceed the required levels
of performance specified in or pursuant to this Contract.

     (c) HMO will perform the Services and provide the Deliverables in a
workmanlike manner, in accordance with best practices and high professional
standards used in well-managed operations performing services similar to the
services described in this Contract.

SECTION 14.06 WARRANTY OF DELIVERABLES.

     HMO warrants that Deliverables developed and delivered under this Contract
will meet in all material respects the specifications as described in the
Contract during the period following its acceptance by HHSC, through the term of
the Contract, including any subsequently negotiated by HMO and HHSC. HMO will
promptly repair or replace any such Deliverables not in compliance with this
warranty at no charge to HHSC.

SECTION 14.07 COMPLIANCE WITH CONTRACT.

     HMO will not take any action substantially or materially inconsistent with
any of the terms and conditions set forth in this Contract without the express
written approval of HHSC.

SECTION 14.08 TECHNOLOGY ACCESS

     (a) HMO expressly acknowledges that State funds may not be expended in
connection with the purchase of an automated information system unless that
system meets certain statutory requirements relating to accessibility by persons
with visual impairments. Accordingly, HMO represents and warrants to HHSC that
this technology is capable, either by virtue of features included within the
technology or because it is readily adaptable by use with other technology, of:

          (1) Providing equivalent access for effective use by both visual and
     non-visual means;

          (2) Presenting information, including prompts used for interactive
     communications, in formats intended for non-visual use; and

          (3) Being integrated into networks for obtaining, retrieving, and
     disseminating information used by individuals who are not blind or visually
     impaired.

     (b) For purposes of this Section, the phrase "equivalent access" means a
substantially similar ability to communicate with or make use of the technology,
either directly by features incorporated within the technology or by other
reasonable means such as assistive devices or services that would constitute
reasonable accommodations under the Americans with Disabilities Act or similar
State or Federal laws. Examples of methods by which equivalent access may be
provided include, but are not limited to, keyboard alternatives to mouse
commands and other means of navigating graphical displays, and customizable
display appearance.

     (c) In addition, all technological solutions offered by the HMO must comply
with the requirements of Texas Government Code Section 531.0162. This includes,
but is not limited to providing technological solutions that meet federal
accessibility standards for persons with disabilities, as applicable.

                       ARTICLE 15. INTELLECTUAL PROPERTY

SECTION 15.01 INFRINGEMENT AND MISAPPROPRIATION.

     (a) HMO warrants that all Deliverables provided by HMO will not infringe or
misappropriate any right of, and will be free of any claim of, any third person
or entity based on copyright, patent, trade secret, or other intellectual
property rights.

     (b) HMO will, at its expense, defend with counsel approved by HHSC,
indemnify, and hold harmless HHSC, its employees, officers, directors,
contractors,


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         TERMS & CONDITIONS

and agents from and against any losses, liabilities, damages, penalties, costs,
fees, including without limitation reasonable attorneys' fees and expenses, from
any claim or action against HHSC that is based on a claim of breach of the
warranty set forth in the preceding paragraph. HHSC will promptly notify HMO in
writing of the claim, provide HMO a copy of all information received by HHSC
with respect to the claim, and cooperate with HMO in defending or settling the
claim. HHSC will not unreasonably withhold, delay or condition approval of
counsel selected by the HMO.

     (c) In case the Deliverables, or any one or part thereof, is in such action
held to constitute an infringement or misappropriation, or the use thereof is
enjoined or restricted or if a proceeding appears to HMO to be likely to be
brought, HMO will, at its own expense, either:

          (1) Procure for HHSC the right to continue using the Deliverables; or

          (2) Modify or replace the Deliverables to comply with the
     Specifications and to not violate any intellectual property rights.

     If neither of the alternatives set forth in (1) or (2) above are available
to the HMO on commercially reasonable terms, HMO may require that HHSC return
the allegedly infringing Deliverable(s) in which case HMO will refund all
amounts paid for all such Deliverables.

SECTION 15.02 EXCEPTIONS.

     HMO is not responsible for any claimed breaches of the warranties set forth
in Section 15.01 to the extent caused by:

     (a) Modifications made to the item in question by anyone other than HMO or
its Subcontractors, or modifications made by HHSC or its contractors working at
HMO's direction or in accordance with the specifications; or

     (b) The combination, operation, or use of the item with other items if HMO
did not supply or approve for use with the item; or

     (c) HHSC's failure to use any new or corrected versions of the item made
available by HMO.

SECTION 15.03 OWNERSHIP AND LICENSES

(a)  Definitions.

For purposes of this Section 15.03, the following terms have the meanings set
forth below:

     (1) "CUSTOM SOFTWARE" means any software developed by the HMO: for HHSC; in
connection with the Contract; and with funds received from HHSC. The term does
not include HMO Proprietary Software or Third Party Software.

     (2) "HMO PROPRIETARY SOFTWARE" means software: (i) developed by the HMO
prior to the Effective Date of the Contract, or (ii) software developed by the
HMO after the Effective Date of the Contract that is not developed: for HHSC; in
connection with the Contract; and with funds received from HHSC.

     (3) "THIRD PARTY SOFTWARE" means software that is: developed for general
commercial use; available to the public; or not developed for HHSC. Third Party
Software includes without limitation: commercial off-the-shelf software;
operating system software; and application software, tools, and utilities.

(b)  Deliverables.

     The Parties agree that any Deliverable, including without limitation the
Custom Software, will be the exclusive property of HHSC.

(c)  Ownership rights.

     (1) HHSC will own all right, title, and interest in and to its Confidential
Information and the Deliverables provided by the HMO, including without
limitation the Custom Software and associated documentation. For purposes of
this Section 15.03, the Deliverables will not include HMO Proprietary Software
or Third Party Software. HMO will take all actions necessary and transfer
ownership of the Deliverables to HHSC, including, without limitation, the Custom
Software and associated documentation prior to Contract termination.

     (2) HMO will furnish such Deliverables, upon request of HHSC, in accordance
with applicable State law. All Deliverables, in whole and in part, will be
deemed works made for hire of HHSC for all purposes of copyright law, and
copyright will belong solely to HHSC. To the extent that any such Deliverable
does not qualify as a work for hire under applicable law, and to the extent that
the Deliverable includes materials subject to copyright, patent, trade secret,
or other proprietary right protection, HMO agrees to assign, and hereby assigns,
all right, title, and interest in and to Deliverables, including without
limitation all copyrights, inventions, patents, trade secrets, and other
proprietary rights therein (including renewals thereof) to HHSC.

     (3) HMO will, at the expense of HHSC, assist HHSC or its nominees to obtain
copyrights, trademarks, or patents for all such Deliverables in the United
States and any other countries. HMO agrees to execute all papers and to give all
facts known to it necessary to secure United States or foreign country
copyrights and patents, and to transfer or cause to transfer to HHSC all the
right, title, and interest in and to such Deliverables. HMO also agrees not to
assert any moral rights under applicable copyright law with regard to such
Deliverables.

(d)  License Rights

     HHSC will have a royalty-free and non-exclusive license to access the HMO
Proprietary Software and associated documentation during the term of the
Contract. HHSC will also have ownership and


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unlimited rights to use, disclose, duplicate, or publish all information and
data developed, derived, documented, or furnished by HMO under or resulting from
the Contract. Such data will include all results, technical information, and
materials developed for and/or obtained by HHSC from HMO in the performance of
the Services hereunder, including but not limited to all reports, surveys,
plans, charts, recordings (video and/or sound), pictures, drawings, analyses,
graphic representations, computer printouts, notes and memoranda, and documents
whether finished or unfinished, which result from or are prepared in connection
with the Services performed as a result of the Contract.

(e)  Proprietary Notices

     HMO will reproduce and include HHSC's copyright and other proprietary
notices and product identifications provided by HMO on such copies, in whole or
in part, or on any form of the Deliverables.

(f)  State and Federal Governments

     In accordance with 45 C.F.R. Section 95.617, all appropriate State and
Federal agencies will have a royalty-free, nonexclusive, and irrevocable license
to reproduce, publish, translate, or otherwise use, and to authorize others to
use for Federal Government purposes all materials, the Custom Software and
modifications thereof, and associated documentation designed, developed, or
installed with federal financial participation under the Contract, including but
not limited to those materials covered by copyright, all software source and
object code, instructions, files, and documentation.

                              ARTICLE 16. LIABILITY

SECTION 16.01 PROPERTY DAMAGE.

     (a) HMO will protect HHSC's real and personal property from damage arising
from HMO's, its agent's, employees' and Subcontractors' performance of the
Contract, and HMO will be responsible for any loss, destruction, or damage to
HHSC's property that results from or is caused by HMO's, its agents', employees'
or Subcontractors' negligent or wrongful acts or omissions. Upon the loss of,
destruction of, or damage to any property of HHSC, HMO will notify the HHSC
Project Manager thereof and, subject to direction from the Project Manager or
her or his designee, will take all reasonable steps to protect that property
from further damage.

     (b) HMO agrees to observe and encourage its employees and agents to observe
safety measures and proper operating procedures at HHSC sites at all times.

     (c) HMO will distribute a policy statement to all of its employees and
agents that directs the employee or agent to promptly report to HHSC or to HMO
any special defect or unsafe condition encountered while on HHSC premises. HMO
will promptly report to HHSC any special defect or an unsafe condition it
encounters or otherwise learns about.

SECTION 16.02 RISK OF LOSS.

     During the period Deliverables are in transit and in possession of HMO, its
carriers or HHSC prior to being accepted by HHSC, HMO will bear the risk of loss
or damage thereto, unless such loss or damage is caused by the negligence or
intentional misconduct of HHSC. After HHSC accepts a Deliverable, the risk of
loss or damage to the Deliverable will be borne by HHSC, except loss or damage
attributable to the negligence or intentional misconduct of HMO's agents,
employees or Subcontractors.

SECTION 16.03 LIMITATION OF HHSC'S LIABILITY.

     HHSC WILL NOT BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, OR
CONSEQUENTIAL DAMAGES UNDER CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHER
LEGAL THEORY. THIS WILL APPLY REGARDLESS OF THE CAUSE OF ACTION AND EVEN IF HHSC
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

     HHSC'S LIABILITY TO HMO UNDER THE CONTRACT WILL NOT EXCEED THE TOTAL
CHARGES TO BE PAID BY HHSC TO HMO UNDER THE CONTRACT, INCLUDING CHANGE ORDER
PRICES AGREED TO BY THE PARTIES OR OTHERWISE ADJUDICATED.

     HMO's remedies are governed by the provisions in Article 12.

                         ARTICLE 17. INSURANCE & BONDING

SECTION 17.01 INSURANCE COVERAGE.

(a)  Required Coverage

     (1) Statutory and General Coverage.

     HMO will maintain, at HMO's own expense, during the Term of the Contract
and until final acceptance of all Services and Deliverables, the following
insurance coverage. HMO will provide HHSC with proof of the following insurance
coverage on or before the Contract Effective Date:

          (A) Standard Worker's Compensation Insurance coverage;

          (B) Automobile Liability;

          (C) Comprehensive Liability Insurance including Bodily Injury coverage
     of $100,000.00 per each occurrence and Property Damage Coverage of
     $25,000.00 per each occurrence; and

          (D) General Liability Insurance of at least $1,000,000.00 per
     occurrence and $5,000,000.00 in the aggregate.

     If HMO's current Comprehensive General Liability insurance coverage does
not meet the


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above stated requirements, HMO will obtain excess liability insurance to
compensate for the difference in the coverage amounts.

     (2) Professional Liability Coverage.

          (A) HMO must maintain at its own expense, or cause its Network
     Providers to maintain, during the Term of the Contract and until final
     acceptance of all Services and Deliverables, Professional Liability
     Insurance for each Network Provider of $100,000.00 per occurrence and
     $300,000.00 in the aggregate, or the limits required by the hospital at
     which the Network Provider has admitting privileges. HMO must provide proof
     of such coverage upon request to HHSC.

          (B) HMO must maintain at its own expense, during the Term of the
     Contract and until final acceptance of all Services and Deliverables, an
     Umbrella Professional Liability Insurance Policy for the greater of
     $3,000,000.00 or an amount (rounded to the nearest $100,000.00) that
     represents the number of Members enrolled in the HMO in the first month of
     the applicable State Fiscal Year multiplied by $150.00, not to exceed
     $10,000,000.00. HMO will provide HHSC with proof of this insurance coverage
     on or before the Contract Effective Date.

     (3) Any exceptions to the insurance requirements of this Contract must be
approved in writing by HHSC. HMO and Network Providers who qualify as either
state or federal units of government are exempt from the liability insurance
requirements of this Contract and are not required to obtain exemptions from
these provisions. State and federal units of government are required to comply
with, and are subject to, the provision of the Texas and Federal Tort Claims
Act.

     (4) HMO is responsible for any and all deductibles stated in the policies.
Insurance will be maintained at all times during the performance of the
Contract. Insurance coverage will be issued by insurance companies authorized by
applicable law to conduct business in the State of Texas, and must name HHSC as
an additional insured, whether performed by HMO or by Subcontractors.

     (5) The policies will have an extended reporting period of two years. When
policies are renewed or replaced, the policy retroactive date must coincide
with, or precede, the Contract Effective Date.

(b)  Proof of Insurance Coverage

     (1) HMO will furnish the HHSC Project Manager original Certificates of
Insurance evidencing the required coverage to be in force on the date of award,
and renewal certificates of insurance, or such similar evidence, if the
coverages have an expiration or renewal date occurring during the term of the
Contract. HMO will submit original evidence of insurance prior to the Effective
Date of the Contract. The failure of HHSC to obtain such evidence from HMO
before permitting HMO to commence work will not be deemed to be a waiver by HHSC
and HMO will remain under continuing obligation to maintain and provide proof of
the insurance coverage.

     (2) The insurance specified above will be carried until all services
required to be performed under the terms of the Contract are satisfactorily
completed. Failure to carry or keep such insurance in force will constitute a
violation of the Contract.

     (3) The insurance will provide for thirty (30) calendar days prior written
notice to be given to HHSC in the event coverage is substantially changed,
canceled, or non-renewed. HMO must submit a new coverage binder to HHSC to
ensure no break in coverage.

     (4) HMO will require all Subcontractors operating in Texas to carry
Worker's Compensation coverage in the amounts required by Texas law. HMO will
also require Subcontractors to carry Comprehensive Liability Insurance including
Bodily Injury coverage or $100,000.00 per occurrence and Property Damage
Coverage of $25,000.00 per occurrence. HMO may provide the coverage for any or
all Subcontractors, and, if so, the evidence of insurance submitted will so
stipulate.

     (5) The Parties expressly understand and agree that any insurance coverages
and limits furnished by HMO will in no way expand or limit HMO's liabilities and
responsibilities specified within the Contract documents or by applicable law.

     (6) HMO expressly understands and agrees that any insurance maintained by
HHSC will apply in excess of and not contribute to insurance provided by HMO
under the Contract.

     (7) If HMO, or its Subcontractor(s), desire additional coverage, higher
limits of liability, or other modifications for its own protection, HMO and each
of its Subcontractors will be responsible for the acquisition and cost of such
additional protection.

SECTION 17.02 PERFORMANCE BOND.

     Beginning on the Operational Start Date of the Contract, and each year
thereafter, the HMO must obtain a performance bond with a one (1) year term. The
performance bond must continue to be in effect for one (1) year following the
expiration of the one (1) year term. HMO must obtain and maintain the annual
performance bonds in the form prescribed by HHSC and approved by TDI, naming
HHSC as Obligee,


                                  Page 44 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT A -- HHSC UNIFORM MANAGED CARE CONTRACT          Version 1.0
         TERMS & CONDITIONS

securing HMO's faithful performance of the terms and conditions of this
Contract. The annual performance bonds must comply with Chapter 843 of the Texas
Insurance Code and 28 T.A.C. Section 11.1805. The annual performance bond(s)
must be issued in the amount of $100,000.00 for each applicable HMO Program
within each Service Area that the HMO covers under this Contract. All
performance bonds must be issued by a surety licensed by TDI, and specify cash
payment as the sole remedy. HMO must deliver the initial performance bond to
HHSC prior to the Operational Start Date of the Contract, and each renewal
performance bond prior to the first day of the State Fiscal Year.

SECTION 17.03 TDI FIDELITY BOND

     The HMO will secure and maintain throughout the life of the Contract a
fidelity bond in compliance with Chapter 843 of the Texas Insurance Code and 28
T.A.C. Section 11.1805. The HMO must promptly provide HHSC with copies of the
bond and any amendments or renewals thereto.


                                  Page 45 of 45

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 6

6.   PREMIUM PAYMENT, INCENTIVES, AND DISINCENTIVES

This section documents how the Capitation Rates are developed and describes
performance incentives and disincentives related to HHSC's value-based
purchasing approach. For further information, HMOs should refer to the HHSC
UNIFORM MANAGED CARE CONTRACT TERMS AND CONDITIONS.

Under the HMO Contracts, health care coverage for Members will be provided on a
fully insured basis. The HMO must provide the Services and Deliverables,
including Covered Services to enrolled Members in order for monthly Capitation
Payments to be paid by HHSC. Attachment B-1, SECTION 8 includes the HMO's
financial responsibilities regarding out-of-network Emergency Services and
Medically Necessary Covered Services not available through Network Providers.

6.1  CAPITATION RATE DEVELOPMENT

Refer to ATTACHMENT A, HHSC UNIFORM MANAGED CARE CONTRACT TERMS & CONDITIONS,
ARTICLE 10, "TERMS & CONDITIONS OF PAYMENT," for information concerning
Capitation Rate development.

6.2  FINANCIAL PAYMENT STRUCTURE AND PROVISIONS

HHSC will pay the HMO monthly Capitation Payments based on the number of
eligible and enrolled Members. HHSC will calculate the monthly Capitation
Payments by multiplying the number of Member months times the applicable monthly
Capitation Rate by Member rate cell. The HMO must provide the Services and
Deliverables, including Covered Services to Members, described in the Contract
for monthly Capitation Payments to be paid by HHSC.

The HMO must understand and expressly assume the risks associated with the
performance of the duties and responsibilities under the Contract, including the
failure, termination, or suspension of funding to HHSC, delays or denials of
required approvals, cost of claims incorrectly paid by the HMO, and cost
overruns not reasonably attributable to HHSC. The HMO must further agree that no
other charges for tasks, functions, or activities that are incidental or
ancillary to the delivery of the Services and Deliverables will be sought from
HHSC or any other state agency, nor will the failure of HHSC or any other party
to pay for such incidental or ancillary services entitle the HMO to withhold
Services or Deliverables due under the Contract.

6.2.1 CAPITATION PAYMENTS

     The HMO must refer to the HHSC UNIFORM MANAGED CARE CONTRACT TERMS &
     CONDITIONS for information and Contract requirements on the:


                                                                             6-1

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT  MEDICAID/CHIP HMO RFP,         Version 1.0
         SECTION 6

     1)   Time and Manner of Payment,

     2)   Adjustments to Capitation Payments,

     3)   Delivery Supplemental Payment, and

     4)   Experience Rebate.

6.3  PERFORMANCE INCENTIVES AND DISINCENTIVES

HHSC introduces several financial and non-financial performance incentives and
disincentives through this Contract. These incentives and disincentives are
subject to change by HHSC over the course of the Contract Period. The
methodologies required to implement these strategies will be refined by HHSC
after collaboration with contracting HMOs through a new incentives workgroup to
be established by HHSC.

6.3.1 NON-FINANCIAL INCENTIVES

6.3.1.1 PERFORMANCE PROFILING

HHSC intends to distribute information on key performance indicators to HMOs on
a regular basis, identifying an HMO's performance, and comparing that
performance to other HMOs, and HHSC standards and/or external Benchmarks. HHSC
will recognize HMOs that attain superior performance and/or improvement by
publicizing their achievements. For example, HHSC may post information
concerning exceptional performance on its website, where it will be available to
both stakeholders and members of the public.

6.3.1.2 AUTO-ASSIGNMENT METHODOLOGY FOR MEDICAID HMOS

HHSC may also revise its auto-assignment methodology during the Contract Period
for new Medicaid Members who do not select an HMO (Default Members). The new
assignment methodology would reward those HMOs that demonstrate superior
performance and/or improvement on one or more key dimensions of performance. In
establishing the assignment methodology, HHSC will employ a subset of the
performance indicators contained within the PERFORMANCE INDICATOR DASHBOARD. At
present, HHSC intends to recognize those HMOs that exceed the minimum geographic
access standards defined within ATTACHMENT B-1, SECTION 8 AND THE PERFORMANCE
INDICATOR DASHBOARD. HHSC may also use its assessment of HMO performance on
annual quality improvement goals (described in ATTACHMENT B-1, SECTION 8) in
developing the assignment methodology. The methodology would disproportionately
assign Default Members to the HMO(s) in a given Service Area that performed
comparably favorably on the selected performance indicators.

HHSC anticipates that it will not implement a performance-based auto-assignment
algorithm before September 1,2007. HHSC will invite HMO comments on potential
approaches prior to implementation of the new performance-based auto-assignment
algorithm.


                                                                             6-2

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 6

6.3.2 FINANCIAL INCENTIVES AND DISINCENTIVES

6.3.2.1 EXPERIENCE REBATE REWARD

HHSC historically has required HMOs to provide HHSC with an Experience Rebate
(see the UNIFORM MANAGED CARE CONTRACT TERMS AND CONDITIONS, ARTICLE 10.11) when
there has been an aggregate excess of Revenues over Allowable Expenses. During
the Contract Period, should the HMO experience an aggregate excess of Revenues
over Allowable Expenses across all HMO Programs and Service Areas, HHSC will
allow the HMO to retain that portion of the aggregate excess of Revenues over
Allowable Expenses that is equal to or less than 3.5% of the total Revenue for
the period should the HMO demonstrate superior performance on selected
performance indicators. The retention of 3.5% of revenue exceeds the retention
of 3.0% of revenue that would otherwise be afforded to a HMO without
demonstrated superior performance on these performance indicators relative to
other HMOs. HHSC will develop the methodology for determining the level of
performance necessary for an HMO to retain the additional 0.5% of revenue after
consultation with HMOs. The finalized methodology will be added to the Uniform
Managed Care Manual.

HHSC will calculate the Experience Rebate Reward after it has calculated the
HMO's at-risk Capitation Rate payment, as described below in SECTION 6.3.2.2.
HHSC will calculate whether a HMO is eligible for the Experience Rebate Reward
prior to the 90-day Financial Statistical Report (FSR) filing.

HHSC anticipates that it will not implement the incentive for Rate Period 1 of
the Contract. HHSC will invite HMO comments on potential approaches prior to
implementation of the new performance-based Experience Rebate Reward.

6.3.2.2 PERFORMANCE-BASED CAPITATION RATE

Beginning in State Fiscal Year 2007 of the Contract, HHSC will place each HMO at
risk for 1% of the Capitation Rate(s). HHSC retains the right to vary the
percentage of the Capitation Rate placed at risk in a given Rate Period.

As noted in Section 6.2, HHSC will pay the HMO monthly Capitation Payments based
on the number of eligible and enrolled Members. HHSC will calculate the monthly
Capitation Payments by multiplying the number of Member months times the
applicable monthly Capitation Rate by Member rate cell. At the end of Rate
Period 2, HHSC will evaluate if the HMO has demonstrated that it has fully met
the performance expectations for which the HMO is at risk. Should the HMO fall
short on some or all of the performance expectations, HHSC will adjust a future
monthly Capitation Payment by an appropriate portion of the 1% at-risk amount.
HMOs will be able to earn variable percentages up to 100% of the 1% at-risk
Capitation Rate. HHSC's objective is that all HMOs achieve performance levels
that enable them to receive the full at-risk amount.

HHSC will determine the extent to which the HMO has met the performance
expectations by assessing the HMO's performance for each applicable HMO Program
relative to performance targets for the rate period. HHSC will conduct separate
accounting for each HMO Program's at-risk Capitation Rate amount.


                                                                             6-3

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,         Version  1.0
         SECTION 6

HHSC will identify no more than 10 performance indicators for either HMO
Program. Some of the performance indicators will be standard across the two HMO
Programs while others may apply to only one of the HMO Programs.

HHSC's performance indicators may include some or all of the following measures.
The specific performance indicators, periods of data collection, and associated
points are detailed in the HHSC UNIFORM MANAGED CARE MANUAL. The minimum
percentage targets identified in this section were developed based, in part, on
the HHSC HMO Program objective of ensuring access to care and quality of care,
past performance of the HHSC HMOs, and performance of Medicaid and CHIP HMOs
nationally on HEDIS and CAHPS measures of plan performance. THE PERFORMANCE
INDICATOR DASHBOARD includes a more detailed explanation.

STANDARD PERFORMANCE INDICATORS:

     1.   98% of Clean Claims are properly Adjudicated within 30 calendar days.

     2.   The Member Services Hotline abandonment rate does not exceed 7%.

     3.   The Behavioral Health Hotline abandonment rate does not exceed 5%.(1)

     4.   The Provider Services Hotline abandonment rate does not exceed 7%.

ADDITIONAL STAR PERFORMANCE INDICATORS

     1.   90% of child Members have access to at least one child-appropriate PCP
          with an Open Panel within 30 miles travel distance.

     2.   90% of adult Members have access to at least one adult-appropriate PCP
          with an Open Panel within 30 miles travel distance.

     3.   36% of age-qualified child Members receive six or more well-child
          visits (in the first 15 months of life.

     4.   56% of age-qualified child Members receive at least one well-child
          visit in the 3rd, 4th, 5th, or 6th year of life.

     5.   72% of pregnant women Members receive a prenatal care visit in the
          first trimester or within 42 days of enrollment.

ADDITIONAL CHIP PERFORMANCE INDICATORS

     1.   90% of child Members have access to at least one child-appropriate PCP
          with an Open Panel within 30 miles travel distance.

     2.   90% of child Members have access to at least one otolaryngologist
          (ENT) within 75 miles travel distance.

     3.   56% of age-qualified child Members receive at least one well-child
          visit in the 3rd, 4th, 5th, or 6th year of life

     4.   38% of adolescents receive an annual well visit.

----------
(1)  Will not apply in the Dallas Core Service Area. Points will be allocated
     proportionately over the remaining standard performance indicators.


                                                                             6-4

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 6

Failure to timely provide HHSC with necessary data related to the calculation of
the performance indicators will result in HHSC's assignment of a zero percent
performance rate for each related performance indicator.

Should Member survey-based indicators yield response rates deemed by HHSC to be
too low to yield credible data, HHSC will reapportion points across the
remaining measures.

Actual plan rates will be rounded to the nearest whole number. HHSC will
calculate performance assessment for the at-risk portion of the capitation
payments by summing all earned points and converting them to a percentage. For
example, an HMO that earns 92 points will earn 92% of the at-risk Capitation
Rate. HHSC will apply the premium assessment of 8% of the at-risk Capitation
Rate as a reduction to the monthly Capitation Payment ninety days after the end
of the contract period.

HMOs will report actual Capitation Payments received on the Financial
Statistical Report (FSR). Actual Capitation Payments received include all of the
at-risk Capitation Payment paid to the HMO. Any performance assessment based on
performance for a contract period will appear on the second final (334-day) FSR
for that contract period.

HHSC will evaluate the performance-based Capitation Rate methodology annually in
consultation with HMOs. HHSC may then modify the methodology it deems necessary
and appropriate to motivate, recognize, and reward HMOs for performance. The
methodologies for Rate Periods 1 and 2 will be included in the HHSC UNIFORM
MANAGED CARE MANUAL.

6.3.2.3 QUALITY CHALLENGE AWARD

Should one or more HMOs be unable to earn the full amount of the
performance-based at-risk portion of the Capitation Rate, HHSC will reallocate
the funds through the HMO Program's Quality Challenge Award. HHSC will use these
funds to reward HMOs that demonstrate superior clinical quality. HHSC will
determine the number of HMOs that will receive Quality Challenge Award funds
annually based on the amount of the funds to be reallocated. Separate Quality
Challenge Award payments will be made for the STAR and CHIP programs.

As with the performance-based Capitation Rate, each HMO will be evaluated
separately for each HMO Program. HHSC intends to evaluate HMO performance
annually on some combination of the following performance indicators in order to
determine which HMOs demonstrate superior clinical quality. In no event will a
distribution from the Quality Challenge Award, plus any other incentive payments
made in accordance with the HMO Contract, when combined with the Capitation Rate
payments, exceed 105% of the Capitation Rate payments to an HMO.

Information about the data collection period to be used for each indicator is
found in the HHSC UNIFORM MANAGED CARE MANUAL.


                                                                             6-5

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 6

STAR INDICATORS

     1.   asthma medication for children - ages 5-9 years;

     2.   asthma medication for children - ages 10-17 years;

     3.   cervical cancer screening;

     4.   diabetes - HbA1c control (blood test to inform Provider of the status
          of the diabetes);

     5.   mental health - 7-day follow-up after hospitalization.

CHIP INDICATORS

     1.   advising smokers to quit;

     2.   asthma medication for children - ages 5-9 years;

     3.   asthma medication for children - ages 10-17 years; and

     4.   mental health - 7-day follow-up after hospitalization.

HHSC will calculate all of the above indicators. Failure on the part of the HMO
to provide HHSC with necessary data to support the calculation of the
performance indicators on a timely basis will result in the HMO being considered
to have a performance rate of zero on the applicable indicator performance
standard(s).

HHSC will evaluate the Quality Challenge Award methodology annually in
consultation with HMOs. HHSC will make methodology modifications annually as it
deems necessary and appropriate to motivate, recognize, and reward HMOs for
superior performance based on available Quality Challenge Award funds and/or any
other financial or non-financial performance incentives HHSC has designated to
apply to the award. HHSC will include any modifications to the Quality Challenge
Award in the HHSC UNIFORM MANAGED CARE MANUAL.

6.3.2.4 REMEDIES AND LIQUIDATED DAMAGES

All areas of responsibility and all requirements in the Contract will be subject
to performance evaluation by HHSC. Any and all responsibilities or requirements
not fulfilled may have remedies and HHSC will assess either actual or liquidated
damages. Refer to ATTACHMENT A, HHSC UNIFORM MANAGED CARE CONTRACT TERMS AND
CONDITIONS and ATTACHMENT B-5 for performance standards that carry liquidated
damage values.


                                                                             6-6

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 7

7.   TRANSITION PHASE REQUIREMENTS

7.1  INTRODUCTION

This Section presents the scope of work for the Transition Phase of the
Contract, which includes those activities that must take place between the time
of Contract award and the Operational Start Date.

The Transition Phase will include a Readiness Review of each HMO, which must be
completed successfully prior to a HMO's Operational Start Date. HHSC may, at its
discretion, postpone the Operational Start Date of the Contract for any such HMO
that fails to satisfy all Transition Phase requirements.

If for any reason, a HMO does not fully meet the Readiness Review prior to the
Operational Start Date, and HHSC has not approved a delay in the Operational
Start Date or approved a delay in the HMO's compliance with the applicable
Readiness Review requirement, then HHSC shall impose remedies and either actual
or liquidated damages. If the HMO is a current HMO Contractor, HHSC may also
freeze enrollment into the HMO's plan for any of its HMO Programs. Refer to the
HHSC UNIFORM MANAGED CARE CONTRACT TERMS AND CONDITIONS (ATTACHMENT A) and the
LIQUIDATED DAMAGES MATRIX (ATTACHMENT B-5) for additional information.

7.2  TRANSITION PHASE SCOPE FOR HMOS

All HMOs must meet the Readiness Review requirements established by HHSC no
later than 90 days prior to Operational Start Date. HMO agrees to provide all
materials required to complete the readiness review by the dates established by
HHSC and its Contracted Readiness Review Vendor.

7.3  TRANSITION PHASE SCHEDULE AND TASKS

The Transition Phase will begin after both Parties sign the Contract. The
anticipated start date for the Transition Phase is November 15,2005. The
Transition Phase must be completed no later than the agreed upon Operational
Start Date(s) for each HMO Program and Service Area. The HMO may be subject to
liquidated damages for failure to meet the agreed upon Operational Start Date
(see Attachment B-5).

7.3.1 TRANSITION PHASE TASKS

The HMO has overall responsibility for the timely and successful completion of
each of the Transition Phase tasks. The HMO is responsible for clearly
specifying and requesting information needed from HHSC, other HHSC contractors,
and Providers in a manner that does not delay the schedule or work to be
performed.


                                                                             7-1

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 7

7.3.1.1 CONTRACT START-UP AND PLANNING

HHSC and the HMO will work together during the initial Contract start-up phase
to:

     -    define project management and reporting standards;

     -    establish communication protocols between HHSC and the HMO;

     -    establish contacts with other HHSC contractors;

     -    establish a schedule for key activities and milestones; and

     -    clarify expectations for the content and format of Contract
          Deliverables.

The HMO will be responsible for developing a written work plan, referred to as
the Transition/Implementation Plan, which will be used to monitor progress
throughout the Transition Phase. An updated and detailed
Transition/Implementation Plan will be due to HHSC.

7.3.1.2 ADMINISTRATION AND KEY HMO PERSONNEL

No later than the Effective Date of the Contract, the HMO must designate and
identify Key HMO Personnel that meet the requirements in HHSC UNIFORM MANAGED
CARE CONTRACT TERMS & CONDITIONS, ARTICLE 4. The HMO will supply HHSC with
resumes of each Key HMO Personnel as well as organizational information that has
changed relative to the HMO's Proposal, such as updated job descriptions and
updated organizational charts, (including updated Management Information System
(MIS) job descriptions and an updated MIS staff organizational chart), if
applicable. If the HMO is using a Material Subcontractor(s), the HMO must also
provide the organizational chart for such Material Subcontractor(s).

7.3.1.3 FINANCIAL READINESS REVIEW

In order to complete a Financial Readiness Review, HHSC will require that HMOs
update information submitted in their proposals. This information will include
the following:

Contractor Identification and Information

1.   The Contractor's legal name, trade name, or any other name under which the
     Contractor does business, if any.

2.   The address and telephone number of the Contractor's headquarters office.

3.   A copy of its current Texas Department of Insurance Certificate of
     Authority to provide HMO or ANHC services in the applicable Service
     Area(s). The Certificate of Authority must include all counties in the
     Service Area(s) for which the Contractor is proposing to serve HMO Members.

4.   Indicate with a "Yes-HMO", "Yes-ANHC" or "No" in the applicable cell(s) of
     the Column B of the following chart whether the Contractor is currently
     certified by TDI as an HMO or ANHC in ALL counties in each of the CSAs in
     which the Contractor proposes to participate in one or more of the HHSC HMO
     Programs. If the Contractor is not proposing to serve a CSA for a
     particular HMO Program, the Contractor should leave the applicable cells in
     the table empty.


                                                                             7-2

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 7

       TABLE 2: TDI CERTIFICATE OF AUTHORITY IN PROPOSED HMO PROGRAM CSAS

<TABLE>
<CAPTION>
  COLUMN A                                                  COLUMN C
CORE SERVICE             COLUMN B             COUNTIES/PARTIAL COUNTIES WITHOUT A
AREA (CSA)     TDI CERTIFICATE OF AUTHORITY       TDI CERTIFICATE OF AUTHORITY
------------   ----------------------------   -----------------------------------
<S>            <C>                            <C>
Bexar
Dallas
El Paso
Harris
Lubbock
Nueces
Tarrant
Travis
Webb
</TABLE>

     If the Contractor is NOT currently certified by TDI as an HMO or ANHC in
     any one or more counties in a proposed CSA, the Contractor must identify
     such entire counties in Column C for each CSA. For each county listed in
     Column C, the Contractor must document that it applied to TDI for such
     certification of authority prior to the submission of a Proposal for this
     RFP. The Contractor shall indicate the date that it applied for such
     certification and the status of its application to get TDI certification in
     the relevant counties in this section of its submission to HHSC.

5.   For Contractors proposing to serve any CHIP OSAs, indicate with a
     "Yes-HMO", "Yes-ANHC" or "No" in the applicable cell(s) of the Column C of
     the following chart whether the Contractor is currently certified by TDI as
     an HMO or ANHC in the entire county in the OSA. If the Contractor is not
     proposing to serve an OSA, the Contractor should leave the applicable cells
     in the table empty.

       TABLE 3: TDI CERTIFICATE OF AUTHORITY IN PROPOSED HMO PROGRAM OSAS

<TABLE>
<CAPTION>
     COLUMN A
CORE SERVICE AREA          COLUMN B                   COLUMN C
     (CSA)           AFFILIATED CHIP OSA   TDI CERTIFICATE OF AUTHORITY
------------------   -------------------   ----------------------------
<S>                  <C>                   <C>
Bexar
El Paso
Harris
Lubbock
Nueces
Travis
</TABLE>

     For each county listed in Column C, the Contractor must document that it
     applied to TDI for such certification of authority prior to the submission
     of a Proposal for this RFP. The Contractor shall indicate the date that it
     applied for such certification and the status of its application to get TDI
     certification in the relevant counties in this section of its submission to
     HHSC.

6.   If the Contractor proposes to participate in STAR and seeks to be
     considered as an organization meeting the requirements of Section
     Section 533.004(a) or (e) of the Texas


                                                                             7-3

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 7

     Government Code, describe how the Contractor meets the requirements of
     Sections 533.004(a)(1), (a)(2), (a)(3), or (e) for each proposed Service
     Areas.

7.   The type of ownership (proprietary, partnership, corporation).

8.   The type of incorporation (for profit, not-for-profit, or non-profit) and
     whether the Contractor is publicly or privately owned.

9.   If the Contractor is an Affiliate or Subsidiary, identify the parent
     organization.

10.  If any change of ownership of the Contractor's company is anticipated
     during the 12 months following the Proposal due date, the Contractor must
     describe the circumstances of such change and indicate when the change is
     likely to occur.

11.  The name and address of any sponsoring corporation or others who provide
     financial support to the Contractor and type of support, e.g., guarantees,
     letters of credit, etc. Indicate if there are maximum limits of the
     additional financial support.

12.  The name and address of any health professional that has at least a five
     percent financial interest in the Contractor and the type of financial
     interest.

13.  The names of officers and directors.

14.  The state in which the Contractor is incorporated and the state(s) in which
     the Contractor is licensed to do business as an HMO. The Contractor must
     also indicate the state where it is commercially domiciled, if applicable.

15.  The Contractor's federal taxpayer identification number.

16.  The Contractor's Texas Provider Identifier (TPI) number if the Contractor
     is Medicaid- enrolled in Texas.

17.  Whether the Contractor had a contract terminated or not renewed for
     non-performance or poor performance within the past five years. In such
     instance, the Contractor must describe the issues and the parties involved,
     and provide the address and telephone number of the principal terminating
     party. The Contractor must also describe any corrective action taken to
     prevent any future occurrence of the problem leading to the termination.

18.  A current Certificate of Good Standing issued by the Texas Comptroller of
     Public Accounts, or an explanation for why this form is not applicable to
     the Contractor.

19.  Whether the Contractor has ever sought, or is currently seeking, National
     Committee for Quality Assurance (NCQA) or American Accreditation HealthCare
     Commission (URAC) accreditation status, and if it has or is, indicate:

          -    its current NCQA or URAC accreditation status;

          -    if NCQA or URAC accredited, its accreditation term effective
               dates; and

          -    if not accredited, a statement describing whether and when NCQA
               or URAC accreditation status was ever denied the Contractor.

Material Subcontractor Information

A Material Subcontractor means any entity retained by the HMO to provide all or
part of the HMO Administrative Services where the value of the subcontracted HMO
Administrative Service(s) exceeds $100,000 per fiscal year. HMO Administrative
Services are those services or functions other than the direct delivery of
Covered Services necessary to manage the delivery of and payment for Covered
Services. HMO Administrative Services include but are not limited to Network,
utilization, clinical and/or quality management, service authorization, claims
processing, Management Information System (MIS) operation and reporting. The
term Material Subcontractor does not include Providers in the HMO's Provider
Network.

Contractors must submit the following for each proposed Material Subcontractor,
if any:


                                                                             7-4

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 7

1.   A signed letter of commitment from each Material Subcontractor that states
     the Material Subcontractor's willingness to enter into a Subcontractor
     agreement with the Contractor and a statement of work for activities to be
     subcontracted. Letters of Commitment must be provided on the Material
     Subcontractor's official company letterhead and signed by an official with
     the authority to bind the company for the subcontracted work. The Letter of
     Commitment must state, if applicable, the company's certified HUB status.

2.   The Material Subcontractor's legal name, trade name, or any other name
     under which the Material Subcontractor does business, if any.

3.   The address and telephone number of the Material Subcontractor's
     headquarters office.

4.   The type of ownership (e.g., proprietary, partnership, corporation).

5.   The type of incorporation (i.e., for profit, not-for-profit, or non-profit)
     and whether the Material Subcontractor is publicly or privately owned.

6.   If a Subsidiary or Affiliate, the identification of the parent
     organization.

7.   The name and address of any sponsoring corporation or others who provide
     financial support to the Material Subcontractor and type of support, e.g.,
     guarantees, letters of credit, etc. Indicate if there are maximum limits of
     the additional financial support.

8.   The name and address of any health professional that has at least a five
     percent (5%) financial interest in the Material Subcontractor and the type
     of financial interest.

9.   The state in which the Material Subcontractor is incorporated, commercially
     domiciled, and the state(s) in which the organization is licensed to do
     business.

10.  The Material Subcontractor's Texas Provider Identifier if Medicaid-enrolled
     in Texas.

11.  The Material Subcontractor's federal taxpayer identification number.

12.  Whether the Material Subcontractor had a contract terminated or not renewed
     for non- performance or poor performance within the past five years. In
     such instance, the Contractor must describe the issues and the parties
     involved, and provide the address and telephone number of the principal
     terminating party. The Contractor must also describe any corrective action
     taken to prevent any future occurrence of the problem leading to the
     termination.

13.  Whether the Material Subcontractor has ever sought, or is currently
     seeking, National Committee for Quality Assurance (NCQA) or American
     Accreditation HealthCare Commission (URAC) accreditation or certification
     status, and if it has or is, indicate:

          -    its current NCQA or URAC accreditation or certification status;

          -    if NCQA or URAC accredited or certified, its accreditation or
               certification term effective dates; and

          -    if not accredited, a statement describing whether and when NCQA
               or URAC accreditation status was ever denied the Material
               Subcontractor.

Organizational Overview

     1.   Submit an organizational chart (labeled Chart A), showing the
          corporate structure and lines of responsibility and authority in the
          administration of the Bidder's business as a health plan.

     2.   Submit an organizational chart (labeled Chart B) showing the Texas
          organizational structure and how it relates to the proposed Service
          Area(s), including staffing and functions performed at the local
          level. If Chart A represents the entire organizational structure,
          label the submission as Charts A and B.


                                                                             7-5

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 7

     3.   Submit an organizational chart (labeled Chart C) showing the
          Management Information System (MIS) staff organizational structure and
          how it relates to the proposed Service Area(s) including staffing and
          functions performed at the local level.

     4.   If the Bidder is proposing to use a Material Subcontractor(s), the
          Bidder shall include an organizational chart demonstrating how the
          Material Subcontractor(s) will be managed within the Bidder's Texas
          organizational structure, including the primary individuals at the
          Bidder's organization and at each Material Subcontractor organization
          responsible for overseeing such Material Subcontract. This information
          may be included in Chart B, or in a separate organizational chart(s).

     5.   Submit a brief narrative explaining the organizational charts
          submitted, and highlighting the key functional responsibilities and
          reporting requirements of each organizational unit relating to the
          Bidder's proposed management of the HMO Program(s), including its
          management of any proposed Material Subcontractors.

Other Information

     1.   Briefly describe any regulatory action, sanctions, and/or fines
          imposed by any federal or Texas regulatory entity or a regulatory
          entity in another state within the last 3 years, including a
          description of any letters of deficiencies, corrective actions,
          findings of non- compliance, and/or sanctions. Please indicate which
          of these actions or fines, if any, were related to Medicaid or CHIP
          programs. HHSC may, at its option, contact these clients or regulatory
          agencies and any other individual or organization whether or not
          identified by the Contractor.

     2.   No later than ten (10) days after the Contract Effective Date, submit
          documentation that demonstrates that the HMO has secured the required
          insurance and bonds in accordance with TDI requirements and Attachment
          B-1, Section 8.

     3.   Submit annual audited financial statement for fiscal years 2004 and
          2005 (2005 to be submitted no later than six months after the close of
          the fiscal year).

     4.   Submit an Affiliate Report containing a list of all Affiliates and for
          HHSC's prior review and approval, a schedule of all transactions with
          Affiliates that, under the provisions of the Contract, will be
          allowable as expenses in the FSR Report for services provided to the
          HMO by the Affiliate. Those should include financial terms, a detailed
          description of the services to be provided, and an estimated amount
          that will be incurred by the HMO for such services during the Contract
          Period.

7.3.1.4 SYSTEM TESTING AND TRANSFER OF DATA

The HMO must have hardware, software, network and communications systems with
the capability and capacity to handle and operate all MIS systems and subsystems
identified in Attachment B-1, SECTION 8.1.18. For example, the HMO's MIS system
must comply with the Health Insurance Portability and Accountability Act of 1996
(HIPAA) as indicated in SECTION 8.1.18.4.

During this Readiness Review task, the HMO will accept into its system any and
all necessary data files and information available from HHSC or its contractors.
The HMO will install and test all hardware, software, and telecommunications
required to support the Contract. The HMO will


                                                                             7-6

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 7

define and test modifications to the HMO's system(s) required to support the
business functions of the Contract.

The HMO will produce data extracts and receive all electronic data transfers and
transmissions. Existing and New STAR/CHIP MCOs must be able to demonstrate the
ability to produce an EQRO (currently, Institute for Child Health Policy (ICHP))
encounter file by April 1,2006 and the 837-encounter file by August 1,2006.

If any errors or deficiencies are evident, the HMO will develop resolution
procedures to address problems identified. The HMO will provide HHSC, or a
designated vendor, with test data files for systems and interface testing for
all external interfaces. This includes testing of the required telephone lines
for Providers and Members and any necessary connections to the HHSC
Administrative Services Contractor and the External Quality Review Organization.
The HHSC Administrative Services Contractor will provide enrollment test files
to new HMOs that do not have previous HHSC enrollment files. The HMO will
demonstrate its system capabilities and adherence to Contract specifications
during readiness review.

7.3.1.5 SYSTEM READINESS REVIEW

The HMO must assure that systems services are not disrupted or interrupted
during the Operations Phase of the Contract. The HMO must coordinate with HHSC
and other contractors to ensure the business and systems continuity for the
processing of all health care claims and data as required under this contract.

The HMO must submit to HHSC, descriptions of interface and data and process flow
for each key business processes described in SECTION 8.1.18.3, System-wide
Functions.

The HMO must clearly define and document the policies and procedures that will
be followed to support day-to-day systems activities. The HMO must develop, and
submit for State review and approval the following:

     1.   Joint Interface Plan.

     2.   Disaster Recovery Plan

     3.   Business Continuity Plan

     4.   Risk Management Plan, and

     5.   Systems Quality Assurance Plan.

7.3.1.6 DEMONSTRATION AND ASSESSMENT OF SYSTEM READINESS

The HMO must provide documentation on systems and facility security and provide
evidence or demonstrate that it is compliant with HIPAA. The HMO shall also
provide HHSC with a summary of all recent external audit reports, including
findings and corrective actions, relating to the HMO's proposed systems,
including any SAS70 audits that have been conducted in the past three years. The
HMO shall promptly make additional information on the detail of such system
audits available to HHSC upon request.


                                                                             7-7

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 7

In addition, HHSC will provide to the HMO a test plan that will outline the
activities that need to be performed by the HMO prior to the Operational Start
Date of the Contract. The HMO must be prepared to assure and demonstrate system
readiness. The HMO must execute system readiness test cycles to include all
external data interfaces, including those with Material Subcontractors.

HHSC, or its agents, may independently test whether the HMO's MIS has the
capacity to administer the STAR and/or CHIP HMO business, as applicable to the
HMO. This Readiness Review of a HMO's MIS may include a desk review and/or an
onsite review. HHSC may request from the HMO additional documentation to support
the provision of STAR and/or CHIP HMO Services, as applicable to the HMO. Based
in part on the HMO's assurances of systems readiness, information contained in
the Proposal, additional documentation submitted by the HMO, and any review
conducted by HHSC or its agents, HHSC will assess the HMO's understanding of its
responsibilities and the HMO's capability to assume the MIS functions required
under the Contract.

The HMO is required to provide a Corrective Action Plan in response to any
Readiness Review deficiency no later than ten (10) calendar days after
notification of any such deficiency by HHSC. If the HMO documents to HHSC's
satisfaction that the deficiency has been corrected within ten (10) calendar
days of such deficiency notification by HHSC, no Corrective Action Plan is
required.

7.3.1.7 OPERATIONS READINESS

The HMO must clearly define and document the policies and procedures that will
be followed to support day-to-day business activities related to the provision
of STAR and/or CHIP HMO Services, including coordination with contractors. The
HMO will be responsible for developing and documenting its approach to quality
assurance.

READINESS REVIEW. Includes all plans to be implemented in one or more Service
Areas on the anticipated Operational Start Date. At a minimum, the HMO shall,
for each HMO Program:

     1.   Develop new, or revise existing, operations procedures and associated
          documentation to support the HMO's proposed approach to conducting
          operations activities in compliance with the contracted scope of work.

     2.   Submit to HHSC, a listing of all contracted and credentialed
          Providers, in a HHSC approved format including a description of
          additional contracting and credentialing activities scheduled to be
          completed before the Operational Start Date.

     3.   Prepare and implement a Member Services staff training curriculum and
          a Provider training curriculum.

     4.   Prepare a Coordination Plan documenting how the HMO will coordinate
          its business activities with those activities performed by HHSC
          contractors and the HMO's Material Subcontractors, if any. The
          Coordination Plan will include identification of coordinated
          activities and protocols for the Transition Phase.

     5.   Develop and submit to HHSC the draft Member Handbook, draft Provider
          Manual, draft Provider Directory, and draft Member Identification Card
          for HHSC's review and approval. The materials must at a minimum meet
          the requirements specified in SECTION


                                                                             7-8

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 7

          8.1.5 and include the Critical Elements to be defined in the HHSC
          UNIFORM MANAGED CARE MANUAL.

     6.   Develop and submit to HHSC the HMO's proposed Member complaint and
          appeals processes for Medicaid and CHIP, as applicable to the HMO's
          Program participation.

     7.   Provide sufficient copies of the final Provider Directory to the HHSC
          Administrative Services Contractor in sufficient time to meet the
          enrollment schedule.

     8.   Demonstrate toll-free telephone systems and reporting capabilities for
          the Member Services Hotline, the Behavioral Health Hotline, and the
          Provider Services Hotline.

     9.   Submit a written Fraud and Abuse Compliance Plan to HHSC for approval
          no later than 30 days after the Contract Effective Date. See SECTION
          8.1.19, Fraud and Abuse, for the requirements of the plan, including
          new requirements for special investigation units. As part of the Fraud
          and Abuse Compliance Plan, the HMO shall:

          -    designate executive and essential personnel to attend mandatory
               training in fraud and abuse detection, prevention and reporting.
               Executive and essential fraud and abuse personnel means HMO staff
               persons who supervise staff in the following areas: data
               collection, provider enrollment or disenrollment, encounter data,
               claims processing, utilization review, appeals or grievances,
               quality assurance and marketing, and who are directly involved in
               the decision-making and administration of the fraud and abuse
               detection program within the HMO. The training will be conducted
               by the Office of Inspector General, Health and Human Services
               Commission, and will be provided free of charge. The HMO must
               schedule and complete training no later than 90 days after the
               Operational Start Date.

          -    designate an officer or director within the organization
               responsible for carrying out the provisions of the Fraud and
               Abuse Compliance Plan.

          -    The HMO is held to the same requirements and must ensure that, if
               this function is subcontracted to another entity, the
               subcontractor also meets all the requirements in this section and
               the Fraud and Abuse section as stated in Attachment B-1, Section
               8.

During the Readiness Review, HHSC may request from the HMO certain operating
procedures and updates to documentation to support the provision of STAR and/or
CHIP HMO Services. HHSC will assess the HMO's understanding of its
responsibilities and the HMO's capability to assume the functions required under
the Contract, based in part on the HMO's assurances of operational readiness,
information contained in the Proposal, and in Transition Phase documentation
submitted by the HMO.

The HMO is required to promptly provide a Corrective Action Plan and/or Risk
Mitigation Plan as requested by HHSC in response to Operational Readiness Review
deficiencies identified by the HMO or by HHSC or its agent. The HMO must
promptly alert HHSC of deficiencies, and must correct a deficiency or provide a
Corrective Action Plan and/or Risk Mitigation Plan no later than ten (10)
calendar days after HHSC's notification of deficiencies. If the Contractor
documents to HHSC's satisfaction that the deficiency has been corrected within
ten (10) calendar days of such deficiency notification by HHSC, no Corrective
Action Plan is required.


                                                                             7-9

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 7

7.3.1.8 ASSURANCE OF SYSTEM AND OPERATIONAL READINESS

In addition to successfully providing the Deliverables described in SECTION
7.3.1, the HMO must assure HHSC that all processes, MIS systems, and staffed
functions are ready and able to successfully assume responsibilities for
operations prior to the Operational Start Date. In particular, the HMO must
assure that Key HMO Personnel, Member Services staff, Provider Services staff,
and MIS staff are hired and trained, MIS systems and interfaces are in place and
functioning properly, communications procedures are in place, Provider Manuals
have been distributed, and that Provider training sessions have occurred
according to the schedule approved by HHSC.

7.3.1.9 POST-TRANSITION

The HMO will work with HHSC, Providers, and Members to promptly identify and
resolve problems identified after the Operational Start Date and to communicate
to HHSC, Providers, and Members, as applicable, the steps the HMO is taking to
resolve the problems.

If a HMO makes assurances to HHSC of its readiness to meet Contract
requirements, including MIS and operational requirements, but fails to satisfy
requirements set forth in this Section, or as otherwise required pursuant to the
Contract, HHSC may, at its discretion do any of the following in accordance with
the severity of the non-compliance and the potential impact on Members and
Providers:

     1.   freeze enrollment into the HMO's plan for the affected HMO Program(s)
          and Service Area(s);

     2.   freeze enrollment into the HMO's plan for all HMO Programs or for all
          Service Areas of an affected HMO Program;

     3.   impose contractual remedies, including liquidated damages; or

     4.   pursue other equitable, injunctive, or regulatory relief.


                                                                            7-10

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

8. OPERATIONS PHASE REQUIREMENTS

This Section is designed to provide HMOs with sufficient information to
understand the HMOs' responsibilities. This Section describes scope of work
requirements for the Operations Phase of the Contract.

SECTION 8.1 includes the general scope of work that applies to both the STAR and
CHIP HMO Programs.

SECTION 8.2 includes the additional Medicaid scope of work that applies only to
STAR HMOs.

SECTION 8.3 includes the additional scope of work that applies only to CHIP
HMOs.

The Section does not include detailed information on the STAR and CHIP HMO
Program requirements, such as the time frame and format for all reporting
requirements. HHSC has included this information in the UNIFORM MANAGED CARE
CONTRACT TERMS AND CONDITIONS (ATTACHMENT A) and the UNIFORM MANAGED CARE
MANUAL. HHSC reserves the right to modify these documents as it deems necessary
using the procedures set forth in the UNIFORM MANAGED CARE CONTRACT TERMS AND
CONDITIONS.

8.1 GENERAL SCOPE OF WORK

In each STAR and CHIP HMO Program Service Area, HHSC will select HMOs for each
HMO Program to provide health care services to Members. The HMO must be licensed
by the Texas Department of Insurance (TDI) as an HMO or an ANHC in all zip codes
in the respective Service Area(s).

Coverage for benefits will be available to enrolled Members effective on the
Operational Start Date. The Operational Start Date is anticipated to be
September 1,2006.

8.1.1 ADMINISTRATION AND CONTRACT MANAGEMENT

The HMO must comply, to the satisfaction of HHSC, with (1) all provisions set
forth in this Contract, and (2) all applicable provisions of state and federal
laws, rules, regulations, and waivers.

8.1.1.1 PERFORMANCE EVALUATION

The HMO must identify and propose to HHSC, in writing, no later than May 1st of
each State Fiscal Year (SFY), annual HMO Performance Improvement Goals for the
next fiscal year, as well as measures and time frames for demonstrating that
such goals are being met. Performance Improvement Goals must be based on HHSC
priorities and identified opportunities for improvement (see ATTACHMENT B-4,
PERFORMANCE IMPROVEMENT GOALS). The Parties will negotiate such Performance
Improvement Goals, the measures that will be used to assess goal


                                                                             8-1

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

achievement, and the time frames for completion, which will be incorporated into
the Contract. If HHSC and the HMO cannot agree on the Performance Improvement
Goals, measures, or time frames, HHSC will set the goals, measures, or time
frames.

For the first year, HHSC has established two goals to be used by all HMOs. A
third goal will be tailored to improve a specific area of each HMO's performance
(to be negotiated before the Operational Start Date). These goals include the
following:

     1.   NETWORK ADEQUACY AND ACCESS TO CARE, evaluated using the following
          measures:

          (a)  A specific percentage of PCPs must have an open panel; and

          (b)  A specific percentage of children and adults must have access to
               two PCPs with open panels within 30 miles.

     2.   ACCESS TO BEHAVIORAL HEALTH SERVICES, evaluated using the following
          measure:

          (a)  A specific percentage increase in the number of outpatient mental
               health providers with an open panel.

     3.   SPECIFIC HMO PERFORMANCE GOAL, evaluated using the measures negotiated
          by HHSC and the HMO.

Specific percentages for Goals 1 and 2 will be negotiated by HHSC and the HMO
before the Operational Start Date. The Specific HMO Performance Goal and the
measures used to evaluate Goal 3 will be negotiated by HHSC and the HMO before
the Operational Start Date.

The HMO must participate in semi-annual Contract Status Meetings (CSMs) with
HHSC for the primary purpose of reviewing progress toward the achievement of
annual Performance Improvement Goals and Contract requirements. HHSC may request
additional CSMs, as it deems necessary to address areas of noncompliance. HHSC
will provide the HMO with reasonable advance notice of additional CSMs,
generally at least five (5) business days.

The HMO must provide to HHSC, no later than 14 business days prior to each
semi-annual CSM, one electronic copy of a written update, detailing and
documenting the HMO's progress toward meeting the annual Performance Improvement
Goals or other areas of noncompliance.

HHSC will track HMO performance on Performance Improvement Goals. It will also
track other key facets of HMO performance through the use of a PERFORMANCE
INDICATOR DASHBOARD (SEE HHSC'S UNIFORM MANAGED CARE MANUAL). HHSC will compile
the Performance Indicator Dashboard based on HMO submissions, data from the
External Quality Review Organization (EQRO), and other data available to HHSC.
HHSC will share the Performance Indicator Dashboard with the HMO on a quarterly
basis.

8.1.2 COVERED SERVICES

The HMO is responsible for authorizing, arranging, coordinating, and providing
Covered Services in accordance with the requirements of the Contract. The HMO
must provide Medically Necessary Covered Services to all Members beginning on
the Member's date of enrollment regardless of pre-existing conditions, prior
diagnosis and/or receipt of any prior health care services. The HMO must not
impose any pre-existing condition limitations or exclusions or require Evidence
of Insurability to provide coverage to any Member.


                                                                             8-2

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

The HMO must provide full coverage for Medically Necessary Covered Services to
all Members without regard to the Member's:

     1.   previous coverage, if any, or the reason for termination of such
          coverage;

     2.   health status;

     3.   confinement in a health care facility; or

     4.   for any other reason.

PLEASE NOTE:

(Medicaid HMOs): A Member cannot change from one Medicaid HMO to another
Medicaid HMO during an inpatient hospital stay. The HMO responsible for the
hospital charges at the start of an Inpatient Stay remains responsible for
hospital charges until the time of discharge or until such time that there is a
loss of Medicaid eligibility. Medicaid HMOs are responsible for professional
charges during every month for which the HMO receives a full capitation for a
Member.

(CHIP HMOs): If a CHIP Member's Effective Date of Coverage occurs while the CHIP
Member is confined in a hospital, HMO is responsible for the CHIP Member's costs
of Covered Services beginning on the Effective Date of Coverage. If a CHIP
Member is disenrolled while the CHIP Member is confined in a hospital, HMO's
responsibility for the CHIP Member's costs of Covered Services terminates on the
Date of Disenrollment.

The HMO must not practice discriminatory selection, or encourage segregation
among the total group of eligible Members by excluding, seeking to exclude, or
otherwise discriminating against any group or class of individuals.

Covered Services for all Medicaid HMO Members are listed in ATTACHMENT B-2 OF
THE CONTRACT. As noted in ATTACHMENT B-2, all Medicaid HMOs must provide Covered
Services described in the most recent TEXAS MEDICAID PROVIDER PROCEDURES MANUAL
(Provider Procedures Manual), the THSTEPS MANUAL (a supplement to the Provider
Procedures Manual), and in all TEXAS MEDICAID BULLETINS, which update the
Provider Procedures Manual except for those services identified in SECTION
8.2.2.8 as non-capitated services. A description of CHIP Covered Services and
exclusions is provided in ATTACHMENT B-2 OF THE CONTRACT.

Covered Services are subject to change due to changes in federal and state law,
changes in Medicaid or CHIP policy, and changes in medical practice, clinical
protocols, or technology.

8.1.2.1 VALUE-ADDED SERVICES

HMOs may propose additional services for coverage. These are referred to as
"Value-added Services." Value-added Services must be actual health care services
or benefits rather than gifts, incentives, educational classes or health
assessments. Temporary phones, cell phones, additional transportation benefits,
and extra home health services may be Value-added Services, if approved by HHSC.
Best practice approaches to delivering Covered Services are not considered
Value-added Services.


                                                                             8-3

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

If offered, Value-added Services must be offered to all mandatory HMO Members
within the applicable HMO Program and Service Area. Value-added Services do not
need to be consistent across more than one HMO Program or across more than one
Service Area. Value-added Services that are approved by HHSC during the
contracting process will be included in the Contract's scope of services.

The HMO must provide Value-added Services at no additional cost to HHSC. The HMO
must not pass on the cost of the Value-added Services to Providers. The HMO must
specify the conditions and parameters regarding the delivery of the Value-added
Services in the HMO's Marketing Materials and Member Handbook, and must clearly
describe any limitations or conditions specific to the Value-added Services.

Value-added Services can be added or removed only by written amendment of the
Contract one time per fiscal year to be effective September 1 of the fiscal
year, except when services are amended by HHSC during the fiscal year. This will
allow HHSC to coordinate with annual revisions to HHSC's HMO Comparison Charts
for Members. A HMO's request to add or delete a Value-added Service must be
submitted to HHSC by May 1 of each year to be effective for the following
contract period. (See ATTACHMENT B-3, VALUE-ADDED SERVICES).

A HMO's request to add a Value-added Service must:

     1.   Define and describe the proposed Value-added Service;

     2.   Specify the Service Areas and HMO Programs for the proposed
          Value-added Service;

     3.   Identify the category or group of mandatory Members eligible to
          receive the Value-added Service if it is a type of service that is not
          appropriate for all mandatory Members;

     4.   Note any limits or restrictions that apply to the Value-added Service;

     5.   Identify the Providers responsible for providing the Value-added
          Service;

     6.   Describe how the HMO will identify the Value-added Service in
          administrative (Encounter) data;

     7.   Propose how and when the HMO will notify Providers and mandatory
          Members about the availability of such Value-added Service;

     8.   Describe how a Member may obtain or access the Value-added Service;
          and

     9.   Include a statement that the HMO would provide such Value-added
          Service for at least 12 months from the approval date of the
          Value-added Service.

A HMO cannot include a Value-added Service in any material distributed to
mandatory Members or prospective mandatory Members until the Parties have
amended the Contract to include that Value-added Service. If a Value-added
Service is deleted by amendment, the HMO must notify each mandatory Member that
the service is no longer available through the HMO. The HMO must also revise all
materials distributed to prospective mandatory Members to reflect the change in
Value-added Services.

8.1.2.2 CASE-BY-CASE ADDED SERVICES

The HMO may offer additional benefits that are outside the scope of services to
individual Members on a case-by-case basis, based on Medical Necessity,
cost-effectiveness, the wishes of the Member/Member's family, and the potential
for improved health status of the Member.


                                                                             8-4

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

8.1.3 ACCESS TO CARE

All Covered Services must be available to Members on a timely basis in
accordance with medically appropriate guidelines, and consistent with generally
accepted practice parameters, requirements in this Contract. The HMO must comply
with the access requirements as established by the Texas Department of Insurance
(TDI) for all HMOs doing business in Texas, except as otherwise required by this
Contract. Medicaid HMOs must be responsive to the possibility of increased
Members due to the phase-out of the PCCM model in Service Areas where adequate
HMO coverage exists.

The HMO must provide coverage for Emergency Services to Members 24 hours a day
and 7 days a week, without regard to prior authorization or the Emergency
Service provider's contractual relationship with the HMO. The HMO's policy and
procedures, Covered Services, claims adjudication methodology, and reimbursement
performance for Emergency Services must comply with all applicable state and
federal laws and regulations, whether the provider is in-network or
Out-of-Network. A HMO is not responsible for payment for unauthorized
non-emergency services provided to a Member by Out-of-Network providers.

The HMO must also have an emergency and crisis Behavioral Health Services
Hotline available 24 hours a day, 7 days a week, toll-free throughout the
Service Area. The Behavioral Health Services Hotline must meet the requirements
described in SECTION 8.1.15. For Medicaid Members, a HMO must provide coverage
for Emergency Services in compliance with 42 C.F.R. Section 438.114, and as
described in more detail in SECTION 8.2.2.1. The HMO may arrange Emergency
Services and crisis Behavioral Health Services through mobile crisis teams.

For CHIP Members, Emergency Services, including emergency Behavioral Health
Services, must be provided in accordance with the Texas Insurance Code and TDI
regulations.

The HMO must require, and make best efforts to ensure, that PCPs are accessible
to Members 24 hours a day, 7 days a week and that its Network Primary Care
Providers (PCPs) have after-hours telephone availability that is consistent
with, SECTION 8.1.4.

The HMO must provide that if Medically Necessary Covered Services are not
available through Network physicians or other Providers, the HMO must, upon the
request of a Network physician or other Provider, within the time appropriate to
the circumstances relating to the delivery of the services and the condition of
the patient, but in no event to exceed five business days after receipt of
reasonably requested documentation, allow a referral to a non-network physician
or provider. The HMO must fully reimburse the non-network provider in accordance
with the Out-of-Network methodology for Medicaid as defined by HHSC, and for
CHIP, at the usual and customary rate defined by TDI in 28 T.A.C. Section
11.506.

The Member will not be responsible for any payment for Medically Necessary
Covered Services, other than HHSC-specified co-payments for CHIP Members, where
applicable.


                                                                             8-5

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

8.1.3.1 WAITING TIMES FOR APPOINTMENTS

Through its Provider Network composition and management, the HMO must ensure
that appointments for the following types of Covered Services are provided
within the time frames specified below. In all cases below, "day" is defined as
a calendar day.

     1.   Emergency Services must be provided upon Member presentation at the
          service delivery site, including at non-network and out-of-area
          facilities;

     2.   Urgent care, including urgent specialty care, must be provided within
          24 hours of request.

     3.   Routine primary care must be provided within 14 days of request;

     4.   Initial outpatient behavioral health visits must be provided within 14
          days of request;

     5.   Routine specialty care referrals must be provided within 30 days of
          request;

     6.   Pre-natal care must be provided within 14 days of request, except for
          high-risk pregnancies or new Members in the third trimester, for whom
          an appointment must be offered within five days, or immediately, if an
          emergency exists;

     7.   Preventive health services for adults must be offered to a Member
          within 90 days of request; and

     8.   Preventive health services for children, including well-child
          check-ups should be offered to Members in accordance with the American
          Academy of Pediatrics (AAP) periodicity schedule. Please note that for
          Medicaid Members, HMOs should use the THSteps Program modifications to
          the AAP periodicity schedule. For newly enrolled Members under age 21,
          overdue or upcoming well-child checkups, including THSteps medical
          checkups, should be offered as soon as practicable, but in no case
          later than 14 days of enrollment for newborns, and no later than 60
          days of enrollment for all other eligible child Members.

8.1.3.2 ACCESS TO NETWORK PROVIDERS

The HMO's Network shall have within its Network, PCPs in sufficient numbers, and
with sufficient capacity, to provide timely access to regular and preventive
pediatric care and THSteps services to all child Members in accordance with the
waiting times for appointments in SECTION 8.1.3.1.

PCP ACCESS: At a minimum, the HMO must ensure that all Members have access to an
age-appropriate PCP in the Provider Network with an Open Panel within 30 miles
of the Member's residence. For the purposes of assessing compliance with this
requirement, an internist who provides primary care to adults only is not
considered an age-appropriate PCP choice for a Member under age 21, and a
pediatrician is not considered an age-appropriate choice for a Member age 21 and
over.

OB/GYN ACCESS: At a minimum, the HMO must ensure that all female Members have
access to an OB/GYN in the Provider Network with an Open Panel within 75 miles
of the Member's residence. (If the OB/GYN is acting as the Member's PCP, the HMO
must follow the access requirements for the PCP.) The HMO must allow female
Members to select an OB/GYN within its Provider Network. A female Member who
selects an OB/GYN must be allowed direct access to the OB/GYN's health care
services without a referral from the Member's PCP or a prior authorization. A
pregnant Member with 12 weeks or less remaining before the expected delivery


                                                                             8-6

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

date must be allowed to remain under the Member's current OB/GYN care though the
Member's post-partum checkup, even if the OB/GYN provider is, or becomes,
Out-of-Network.

OUTPATIENT BEHAVIORAL HEALTH SERVICE PROVIDER ACCESS: At a minimum, the HMO must
ensure that all Members have access to an outpatient Behavioral Health Service
Provider in the Network with an Open Panel within 75 miles of the Member's
residence. Outpatient Behavioral Health Service Providers must include Masters
and Doctorate-level trained practitioners practicing independently or at
community mental health centers, other clinics or at outpatient hospital
departments. A Qualified Mental Health Provider (QMHP), as defined and
credentialed by the Texas Department of State Health Services standards (T.A.C.
Title 25, Part I, Chapter 412), is an acceptable outpatient behavioral health
provider as long as the QMHP is working under the authority of an MHMR entity
and is supervised by a licensed mental health professional or physician.

OTHER SPECIALIST PHYSICIAN ACCESS: At a minimum, the HMO must ensure that all
Members have access to a Network specialist physician with an Open Panel within
75 miles of the Member's residence for common medical specialties. For adult
Members, common medical specialties shall include general surgery, cardiology,
orthopedics, urology, and ophthalmology. For child Members, common medical
specialties shall include orthopedics and otolaryngology.

HOSPITAL ACCESS: The HMO must ensure that all Members have access to an Acute
Care hospital in the Provider Network within 30 miles of the Member's residence.

ALL OTHER COVERED SERVICES, EXCEPT FOR SERVICES PROVIDED IN THE MEMBER'S
RESIDENCE: At a minimum, the HMO must ensure that all Members have access to at
least one Network Provider with an Open Panel for each of the remaining Covered
Services described in ATTACHMENT B-2, within 75 miles of the Member's residence.
This access requirement includes, but is not limited to, specialists, specialty
hospitals, psychiatric hospitals, diagnostic and therapeutic services, and
single or limited service health care physicians or Providers.

The HMO is not precluded from making arrangements with physicians or providers
outside the HMO's Service Area for Members to receive a higher level of skill or
specialty than the level available within the Service Area, including but not
limited to, treatment of cancer, burns, and cardiac diseases. HHSC may consider
exceptions to the above access-related requirements when an HMO has established,
through utilization data provided to HHSC, that a normal pattern for securing
health care services within an area does not meet these standards, or when an
HMO is providing care of a higher skill level or specialty than the level which
is available within the Service Area such as, but not limited to, treatment of
cancer, burns, and cardiac diseases.

8.1.3.3 MONITORING ACCESS

The HMO is required to systematically and regularly verify that Covered Services
furnished by Network Providers are available and accessible to Members in
compliance with the standards described in SECTIONS 8.1.3.1 AND 8.1.3.2, and for
Covered Services furnished by PCPs, the standards described in SECTION 8.1.4.2.


                                                                             8-7

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

The HMO must enforce access and other Network standards required by the Contract
and take appropriate action with Providers whose performance is determined by
the HMO to be out of compliance.

8.1.4 PROVIDER NETWORK

The HMO must enter into written contracts with properly credentialed Providers
as described in this Section. The Provider contracts must comply with the
UNIFORM MANAGED CARE MANUAL'S requirements.

The HMO must maintain a Provider Network sufficient to provide all Members with
access to the full range of Covered Services required under the Contract. The
HMO must ensure its Providers and subcontractors meet all current and future
state and federal eligibility criteria, reporting requirements, and any other
applicable rules and/or regulations related to the Contract.

The Provider Network must be responsive to the linguistic, cultural, and other
unique needs of any minority, elderly, or disabled individuals, or other special
population in the Service Areas and HMO Programs served by the HMO, including
the capacity to communicate with Members in languages other than English, when
necessary, as well as with those who are deaf or hearing impaired.

The HMO must seek to obtain the participation in its Provider Network of
qualified providers currently serving the Medicaid and CHIP Members in the HMO's
proposed Service Area(s).

ALL PROVIDERS: All Providers must be licensed in the State of Texas to provide
the Covered Services for which the HMO is contracting with the Provider, and not
be under sanction or exclusion from the Medicaid program. All Acute Care
Providers serving STAR Members must be enrolled as Medicaid providers and have a
Texas Provider Identification Number (TPIN).

INPATIENT HOSPITAL AND MEDICAL SERVICES: The HMO must ensure that Acute Care
hospitals and specialty hospitals are available and accessible 24 hours per day,
seven days per week, within the HMO's Network to provide Covered Services to
Members throughout the Service Area.

CHILDREN'S HOSPITALS/HOSPITALS WITH SPECIALIZED PEDIATRIC SERVICES: The HMO must
ensure Members access to hospitals designated as Children's Hospitals by
Medicare and hospitals with specialized pediatric services, such as teaching
hospitals and hospitals with designated children's wings, so that these services
are available and accessible 24 hours per day, seven days per week, to provide
Covered Services to Members throughout the Service Area. The HMO must make
Out-of-Network reimbursement arrangements with a designated Children's Hospital
and/or hospital with specialized pediatric services in proximity to the Member's
residence if the HMO does not include such hospitals in its Provider Network.
Provider Directories, Member materials, and Marketing materials must clearly
distinguish between hospitals designated as Children's Hospitals and hospitals
that have designated children's units.

TRAUMA: The HMO must ensure Members access to Texas Department of State Health
Services (TDSHS) designated Level I and Level II trauma centers within the State
or hospitals meeting the equivalent level of trauma care in the HMO's Service
Area, or in close proximity to such Service


                                                                             8-8

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

Area. The HMO must make Out-of-Network reimbursement arrangements with the
DSHS-designated Level I and Level II trauma centers or hospitals meeting
equivalent levels of trauma care, if the HMO does not include such a trauma
center in its Provider Network.

TRANSPLANT CENTERS: The HMO must ensure Member access to HHSC-designated
transplant centers or centers meeting equivalent levels of care. A list of
HHSC-designated transplant centers can be found in the Procurement Library in
Attachment H. The HMO must make Out-of-Network reimbursement arrangements with a
designated transplant center or center meeting equivalent levels of care in
proximity to the Member's residence if the HMO does not include such a center in
its Provider Network.

HEMOPHILIA CENTERS: The HMO must ensure Member access to hemophilia centers
supported by the Centers for Disease Control (CDC). A list of these hemophilia
centers can be found at http://www.cdc.gov/ncbddd/hbd/htc_list.htm. The HMO must
make Out-of-Network reimbursement arrangements with a CDC-supported hemophilia
center if the HMO does not include such a center in its Provider Network.

PHYSICIAN SERVICES: The HMO must ensure that Primary Care Providers are
available and accessible 24 hours per day, seven days per week, within the
Provider Network. The HMO must contract with a sufficient number of
participating physicians and specialists within each Service Area to comply with
the access requirements throughout SECTION 8.1.3 and meet the needs of Members
for all Covered Services.

The HMO must ensure that an adequate number of participating physicians have
admitting privileges at one or more participating Acute Care hospitals in the
Provider Network to ensure that necessary admissions are made. In no case may
there be less than one in-network PCP with admitting privileges available and
accessible 24 hours per day, seven days per week for each Acute Care hospital in
the Provider Network.

The HMO must ensure that an adequate number of participating specialty
physicians have admitting privileges at one or more participating hospitals in
the HMO's Provider Network to ensure necessary admissions are made. The HMO
shall require that all physicians who admit to hospitals maintain hospital
access for their patients through appropriate call coverage.

LABORATORY SERVICES: The HMO must ensure that in-network reference laboratory
services must be of sufficient size and scope to meet the non-emergency and
emergency needs of the enrolled population and the access requirements in
SECTION 8.1.3. Reference laboratory specimen procurement services must
facilitate the provision of clinical diagnostic services for physicians,
Providers and Members through the use of convenient reference satellite labs in
each Service Area, strategically located specimen collection areas in each
Service Area, and the use of a courier system under the management of the
reference lab. For Medicaid Members, THSteps requires that laboratory specimens
obtained as part of a THSteps medical checkup visit must be sent to the TDSHS
Laboratory.

DIAGNOSTIC IMAGING: The HMO must ensure that diagnostic imaging services are
available and accessible to all Members in each Service Area in accordance with
the access standards in SECTION 8.1.3. The HMO must ensure that diagnostic
imaging procedures that require the


                                                                             8-9

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

injection or ingestion of radiopaque chemicals are performed only under the
direction of physicians qualified to perform those procedures.

HOME HEALTH SERVICES: The HMO must have a contract(s) with a home health
Provider so that all Members living within the HMO's Service Area will have
access to at least one such Provider for home health Covered Services.

8.1.4.1 PROVIDER CONTRACT REQUIREMENTS

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

The HMO's contract with health care Providers must be in writing, must be in
compliance with applicable federal and state laws and regulations, and must
include minimum requirements specified in the UNIFORM MANAGED CARE CONTRACT
TERMS AND CONDITIONS (ATTACHMENT A) and HHSC'S UNIFORM MANAGED CARE MANUAL.

The HMO must submit model Provider contracts to HHSC for review during Readiness
Review. HHSC retains the right to reject or require changes to any model
Provider contract that does not comply with HMO Program requirements or the
HHSC-HMO Contract.

8.1.4.2 PRIMARY CARE PROVIDERS

The HMO's PCP Network may include Providers from any of the following practice
areas: General Practice; Family Practice; Internal Medicine; Pediatrics;
Obstetrics/Gynecology (OB/GYN); Certified Nurse Midwives (CNM) and Physician
Assistants (PAs) practicing under the supervision of a physician; Federally
Qualified Health Centers (FQHCs), Rural Health Clinics (RHCs), and similar
community clinics; and specialist physicians who are willing to provide a
Medical Home to selected Members with special needs and conditions. Section
533.005(a)(13), Government Code, requires the HMO to use Pediatric and Family
Advanced Practice Nurses practicing under the supervision of a physician as PCPs
in its provider network for STAR.

An internist or other Provider who provides primary care to adults only is not
considered an age-appropriate PCP choice for a Member under age 21. An internist
or other Provider who provides primary care to adults and children may be a PCP
for children if:

          1.   the Provider assumes all HMO PCP responsibilities for such
               Members in a specific age group under age 21,

          2.   the Provider has a history of practicing as a PCP for the
               specified age group as evidenced by the Provider's primary care
               practice including an established patient population under age 20
               and within the specified age range, and

          3.   the Provider has admitting privileges to a local hospital that
               includes admissions to pediatric units.

A pediatrician is not considered an age-appropriate choice for a Member age 21
and over.


                                                                            8-10

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

The PCP for a Member with disabilities, Special Health Care Needs, or Chronic or
Complex Conditions may be a specialist physician who agrees to provide PCP
services to the Member. The specialty physician must agree to perform all PCP
duties required in the Contract and PCP duties must be within the scope of the
specialist's license. Any interested person may initiate the request through the
HMO for a specialist to serve as a PCP for a Member with disabilities, Special
Health Care Needs, or Chronic or Complex Conditions. The HMO shall handle such
requests in accordance with 28 T.A.C. Part 1, Chapter 11, Subchapter J.

PCPs must either have admitting privileges at a hospital that is part of the
HMO's Provider Network or make referral arrangements with a Provider who has
admitting privileges to a Network hospital.

The HMO must require, through contract provisions, that PCPs are accessible to
Members 24 hours a day, 7 days a week. The HMO is encouraged to include in its
Network sites that offer primary care services during evening and weekend hours.
The following are acceptable and unacceptable telephone arrangements for
contacting PCPs after their normal business hours.

ACCEPTABLE AFTER-HOURS COVERAGE:

     1.   The office telephone is answered after-hours by an answering service,
          which meets language requirements of the Major Population Groups and
          which can contact the PCP or another designated medical practitioner.
          All calls answered by an answering service must be returned within 30
          minutes;

     2.   The office telephone is answered after normal business hours by a
          recording in the language of each of the Major Population Groups
          served, directing the patient to call another number to reach the PCP
          or another provider designated by the PCP. Someone must be available
          to answer the designated provider's telephone. Another recording is
          not acceptable; and

     3.   The office telephone is transferred after office hours to another
          location where someone will answer the telephone and be able to
          contact the PCP or another designated medical practitioner, who can
          return the call within 30 minutes.

UNACCEPTABLE AFTER-HOURS COVERAGE:

     1.   The office telephone is only answered during office hours;

     2.   The office telephone is answered after-hours by a recording that tells
          patients to leave a message;

     3.   The office telephone is answered after-hours by a recording that
          directs patients to go to an Emergency Room for any services needed;
          and

     4.   Returning after-hours calls outside of 30 minutes.

The HMO must require PCPs, through contract provisions or Provider Manual, to
provide children under the age of 21 with preventive services in accordance with
the AAP recommendations for CHIP Members and the THSteps periodicity schedule
published in the THSteps Manual for Medicaid Members. The HMO must require PCPs,
through contract provisions or Provider Manual, to provide adults with
preventive services in accordance with the U.S. Preventive Services Task Force
requirements. The HMO must make best efforts to ensure that PCPs follow these
periodicity requirements for children and adult Members. Best efforts


                                                                            8-11

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

must include, but not be limited to, Provider education, Provider profiling,
monitoring, and feedback activities.

The HMO must require PCPs, through contract provisions or Provider Manual, to
assess the medical needs of Members for referral to specialty care providers and
provide referrals as needed. PCPs must coordinate Members' care with specialty
care providers after referral. The HMO must make best efforts to ensure that
PCPs assess Member needs for referrals and make such referrals. Best efforts
must include, but not be limited to, Provider education activities and review of
Provider referral patterns.

8.1.4.3 PCP NOTIFICATION

The HMO must furnish each PCP with a current list of enrolled Members enrolled
or assigned to that Provider no later than five (5) working days after the HMO
receives the Enrollment File from the HHSC Administrative Services Contractor
each month. The HMO may offer and provide such enrollment information in
alternative formats, such as through access to a secure Internet site, when such
format is acceptable to the PCP.

8.1.4.4 PROVIDER CREDENTIALING AND RE-CREDENTIALING

The HMO must review, approve and periodically recertify the credentials of all
participating physician Providers and all other licensed Providers who
participate in the HMO's Provider Network. The HMO may subcontract with another
entity to which it delegates such credentialing activities if such delegated
credentialing is maintained in accordance with the National Committee for
Quality Assurance (NCQA) delegated credentialing requirements and any comparable
requirements defined by HHSC.

At a minimum, the scope and structure of a HMO's credentialing and
re-credentialing processes must be consistent with recognized HMO industry
standards such as those provided by NCQA and relevant state and federal
regulations including 28 T.A.C. Section 11.1902, relating to credentialing of
providers in HMOs, and as an additional requirement for Medicaid HMOs, 42 C.F.R.
Section 438.214(b). The initial credentialing process, including application,
verification of information, and a site visit (if applicable), must be completed
before the effective date of the initial contract with the physician or
Provider. The re-credentialing process must occur at least every three years.

The re-credentialing process must take into consideration Provider performance
data including, but not be limited to, Member Complaints and Appeals, quality of
care, and utilization management.

8.1.4.5 BOARD CERTIFICATION STATUS

The HMO must maintain a policy with respect to Board Certification for PCPs and
specialty physicians that encourage participation of board certified PCPs and
specialty physicians in the Provider Network. The HMO must make information on
the percentage of Board-certified PCPs in the Provider Network and the
percentage of Board-certified specialty physicians, by specialty, available to
HHSC upon request.


                                                                            8-12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

8.1.4.6 PROVIDER MANUAL, MATERIALS AND TRAINING

The HMO must prepare and issue a Provider Manual(s), including any necessary
specialty manuals (e.g., behavioral health) to all existing Network Providers.
For newly contracted Providers, the HMO must issue copies of the Provider
Manual(s) within five (5) working days from inclusion of the Provider into the
Network. The Provider Manual must contain sections relating to special
requirements of the HMO Program(s) and the enrolled populations in compliance
with the requirements of this Contract.

HHSC or its designee must approve the Provider Manual, and any substantive
revisions to the Provider Manual, prior to publication and distribution to
Providers. The Provider Manual must contain the critical elements defined in the
UNIFORM MANAGED CARE MANUAL. HHSC's initial review of the Provider Manual is
part of the Operational Readiness Review described in ATTACHMENT B-1, SECTION 7.

The HMO must provide training to all Providers and their staff regarding the
requirements of the Contract and special needs of Members. The HMO's Medicaid
and/or CHIP Program training must be completed within 30 days of placing a newly
contracted Provider on active status. The HMO must provide on-going training to
new and existing Providers as required by the HMO or HHSC to comply with the
Contract. The HMO must maintain and make available upon request enrollment or
attendance rosters dated and signed by each attendee or other written evidence
of training of each Provider and their staff.

The HMO must establish ongoing Provider training that includes, but is not
limited to, the following issues:

     1.   Covered Services and the Provider's responsibilities for providing
          and/or coordinating such services. Special emphasis must be placed on
          areas that vary from commercial coverage rules (e.g., Early
          Intervention services, therapies and DME/Medical Supplies); and for
          Medicaid, making referrals and coordination with Non-capitated
          Services;

     2.   Relevant requirements of the Contract;

     3.   The HMO's quality assurance and performance improvement program and
          the Provider's role in such a program; and

     4.   The HMO's policies and procedures, especially regarding in-network and
          Out-of- Network referrals.

Provider Materials produced by the HMO, relating to Medicaid Managed Care and/or
the CHIP Program, must be in compliance with State and Federal laws and
requirements of the HHSC UNIFORM MANAGED CARE CONTRACT TERMS AND CONDITIONS. HMO
must make available any provider materials to HHSC upon request.

8.1.4.7 PROVIDER HOTLINE

The HMO must operate a toll-free telephone line for Provider inquiries from 8
a.m. to 5 p.m. local time for the Service Area, Monday through Friday, except
for State-approved holidays. The Provider Hotline must be staffed with personnel
who are knowledgeable about Covered Services and each applicable HMO Program,
and for Medicaid, about Non-capitated Services.


                                                                            8-13

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

The HMO must ensure that after regular business hours the line is answered by an
automated system with the capability to provide callers with operating hours
information and instructions on how to verify enrollment for a Member with an
Urgent Condition or an Emergency Medical Condition. The HMO must have a process
in place to handle after-hours inquiries from Providers seeking to verify
enrollment for a Member with an Urgent Condition or an Emergency Medical
Condition, provided, however, that the HMO and its Providers must not require
such verification prior to providing Emergency Services.

The HMO must ensure that the Provider Hotline meets the following minimum
performance requirements for all HMO Programs and Service Areas:

     1.   99% of calls are answered by the fourth ring or an automated call
          pick-up system is used;

     2.   no more than one percent of incoming calls receive a busy signal;

     3.   the average hold time is 2 minutes or less; and

     4.   the call abandonment rate is 7% or less.

The HMO must conduct ongoing call quality assurance to ensure these standards
are met. The Provider Hotline may serve multiple HMO Programs if Hotline staff
is knowledgeable about all of the HMO's Programs. The Provider Hotline may serve
multiple Service Areas if the Hotline staff is knowledgeable about all such
Service Areas, including the Provider Network in such Service Areas.

The HMO must monitor its performance regarding Provider Hotline standards and
submit performance reports summarizing call center performance for the Hotline
as indicated in SECTION 8.1.20. If the HMO subcontracts with a Behavioral Health
Organization (BHO) that is responsible for Provider Hotline functions related to
Behavioral Health Services, the BHO's Provider Hotline must meet the
requirements in SECTION 8.1.4.7.

8.1.4.8 PROVIDER REIMBURSEMENT

The HMO must make payment for all Medically Necessary Covered Services provided
to all Members for whom the HMO is paid a capitation. The HMO must ensure that
claims payment is timely and accurate as described in SECTION 8.1.18.5. The HMO
must require tax identification numbers from all participating Providers. The
HMO is required to do back-up withholding from all payments to Providers who
fail to give tax identification numbers or who give incorrect numbers.

8.1.4.9 TERMINATION OF PROVIDER CONTRACTS

Unless prohibited or limited by applicable law, at least 15 days prior to the
effective date of the HMO's termination of contract of any participating
Provider the HMO must notify the HHSC Administrative Services Contractor and
notify affected current Members in writing. Affected Members include all Members
in a PCP's panel and all Members who have been receiving ongoing care from the
terminated Provider, where ongoing care is defined as two or more visits for
home-based or office-based care in the past 12 months.

For CHIP, the HMO's process for terminating Provider contracts must comply with
the Texas Insurance Code and TDI regulations.


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<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

8.1.5 MEMBER SERVICES

The HMO must maintain a Member Services Department to assist Members and
Members' family members or guardians in obtaining Covered Services for Members.
The HMO must maintain employment standards and requirements (e.g., education,
training, and experience) for Member Services Department staff and provide a
sufficient number of staff for the Member Services Department to meet the
requirements of this Section, including Member Hotline response times, and
Linguistic Access capabilities, see 8.1.5.6 Member Hotline Requirements.

8.1.5.1 MEMBER MATERIALS

The HMO must design, print and distribute Member identification (ID) cards and a
Member Handbook to Members. No later than the fifth business day of the month
following the receipt of an Enrollment File from the HHSC Administrative
Services Contractor, the HMO must mail a Member's ID card and Member Handbook to
the Case Head or Account Name for each new Member. When the Case Head or Account
Name is on behalf of two or more new Members, the HMO is only required to send
one Member Handbook. The HMO is responsible for mailing materials only to those
Members for whom valid address data are contained in the Enrollment File.

The HMO must design, print and distribute a Provider Directory to the HHSC
Administrative Services Contractor as described in SECTION 8.1.5.4.

Member materials must be at or below a 6th grade reading level as measured by
the appropriate score on the Flesch reading ease test. Member materials must be
available in English, Spanish, and the languages of other Major Population
Groups making up 10% or more of the managed care eligible population in the
HMO's Service Area, as specified by HHSC. HHSC will provide the HMO with
reasonable notice when the enrolled population reaches 10% within the HMO's
Service Area. All Member materials must be available in a format accessible to
the visually impaired, which may include large print, Braille, and audiotapes.

The HMO must submit member materials to HHSC for approval prior to use or
mailing. HHSC will identify any required changes to the Member materials within
15 business days. If HHSC has not responded to the Contractor by the fifteenth
day, the Contractor may proceed to use the submitted materials. HHSC reserves
the right to require discontinuation of any Member materials that violate the
terms of the UNIFORM MANAGED CARE TERMS AND CONDITIONS, including but not
limited to "Marketing Policies and Procedures" as described in the UNIFORM
MANAGED CARE MANUAL.

8.1.5.2 MEMBER IDENTIFICATION (ID) CARD

All Member ID cards must, at a minimum, include the following information:

          1.   the Member's name;

          2.   the Member's Medicaid or CHIP number;

          3.   the effective date of the PCP assignment;

          4.   the PCP's name, address (optional for all products), and
               telephone number;


                                                                            8-15

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

          5.   the name of the HMO;

          6.   the 24-hour, seven (7) day a week toll-free Member services
               telephone number and BH Hotline number operated by the HMO; and

          7.   any other critical elements identified in the UNIFORM MANAGED
               CARE MANUAL.

The HMO must reissue the Member ID card if a Member reports a lost card, there
is a Member name change, if the Member requests a new PCP, or for any other
reason that results in a change to the information disclosed on the ID card.

8.1.5.3 MEMBER HANDBOOK

HHSC must approve the Member Handbook, and any substantive revisions, prior to
publication and distribution. As described in ATTACHMENT B-1, SECTION 7, the HMO
must develop and submit to HHSC the draft Member Handbook for approval during
the Readiness Review and must submit a final Member Handbook incorporating
changes required by HHSC prior to the Operational Start Date.

The Member Handbook for each applicable HMO Program must, at a minimum, meet the
Member materials requirements specified by SECTION 8.1.5.1 above and must
include critical elements in the UNIFORM MANAGED CARE MANUAL.

The HMO must produce a revised Member Handbook, or an insert informing Members
of changes to Covered Services upon HHSC notification and at least 30 days prior
to the effective date of such change in Covered Services. In addition to
modifying the Member materials for new Members, the HMO must notify all existing
Members of the Covered Services change during the time frame specified in this
subsection.

8.1.5.4 PROVIDER DIRECTORY

The Provider Directory for each applicable HMO Program, and any substantive
revisions, must be approved by HHSC prior to publication and distribution. The
HMO is responsible for submitting draft Provider directory updates to HHSC for
prior review and approval if changes other than PCP information or clerical
corrections are incorporated into the Provider Directory.

As described in ATTACHMENT B-1, SECTION 7, during the Readiness Review, the HMO
must develop and submit to HHSC the draft Provider Directory template for
approval and must submit a final Provider Directory incorporating changes
required by HHSC prior to the Operational Start Date. Such draft and final
Provider Directories must be submitted according to the deadlines established in
ATTACHMENT B-1, SECTION 7.

The Provider Directory for each applicable HMO Program must, at a minimum, meet
the Member Materials requirements specified by SECTION 8.1.5.1 above and must
include critical elements in the UNIFORM MANAGED CARE MANUAL. The Provider
Directory must include only Network Providers credentialed by the HMO in
accordance with SECTION 8.1.4.4. If the HMO contracts with limited Provider
Networks, the Provider Directory must comply with the requirements of 28 T.A.C.
Section 11.1600(b)(1 1), relating to the disclosure and notice of limited
Provider Networks.


                                                                            8-16

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

The HMO must update the Provider Directory on a quarterly basis. The HMO must
make such update available to existing Members on request, and must provide such
update to the HHSC Administrative Services Contractor at the beginning of each
state fiscal quarter. HHSC will consult with the HMOs and the HHSC
Administrative Services Contractors to discuss methods for reducing the HMO's
administrative costs of producing new Provider Directories, including
considering submission of new Provider Directories on a semi-annual rather than
a quarterly basis if a HMO has not made major changes in its Provider Network,
as determined by HHSC. HHSC will establish weight limits for the Provider
Directories. Weight limits may vary by Service Area. HHSC will require HMOs that
exceed the weight limits to compensate HHSC for postage fees in excess of the
weight limits.

The HMO must send the most recent Provider Directory, including any updates, to
Members upon request. The HMO must, at least annually, include written and
verbal offers of such Provider Directory in its Member outreach and education
materials.

8.1.5.5 INTERNET WEBSITE

The HMO must develop and maintain, consistent with HHSC standards and Section
843.2015 of the Texas Insurance Code and other applicable state laws, a website
to provide general information about the HMO's Program(s), its Provider Network,
its customer services, and its Complaints and Appeals process. The HMO may
develop a page within its existing website to meet the requirements of this
section. The HMO must maintain a Provider Directory for its HMO Program(s) on
the HMO's website with designation of open versus closed panels. The HMO's
website must comply with the Marketing Policies and Procedures for each
applicable HHSC HMO Program.

The website's HMO Program content must be:

          1.   Written in Major Population Group languages (which under this
               contract include only English and Spanish);

          2.   Culturally appropriate;

          3.   Written for understanding at the 6th grade reading level; and

          4.   Be geared to the health needs of the enrolled HMO Program
               population.

To minimize download and "wait times," the website must avoid tools or
techniques that require significant memory or disk resources or require special
intervention on the customer side to install plug-ins or additional software.
Use of proprietary items that would require a specific browser are not allowed.
HHSC strongly encourages the use of tools that take advantage of efficient data
access methods and reduce the load on the server or bandwidth.

8.1.5.6 MEMBER HOTLINE

The HMO must operate a toll-free hotline that Members can call 24 hours a day,
seven (7) days a week. The Member Hotline must be staffed with personnel who are
knowledgeable about its HMO Program(s) and Covered Services, between the hours
of 8:00 a.m. to 5:00 p.m. local time for the Service Area, Monday through
Friday, excluding state-approved holidays.


                                                                            8-17

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO must ensure that after hours, on weekends, and on holidays the Member
Services Hotline is answered by an automated system with the capability to
provide callers with operating hours and instructions on what to do in cases of
emergency. All recordings must be in English and in Spanish. A voice mailbox
must be available after hours for callers to leave messages. The HMO's Member
Services representatives must return member calls received by the automated
system on the next working day.

If the Member Hotline does not have a voice-activated menu system, the HMO must
have a menu system that will accommodate Members who cannot access the system
through other physical means, such as pushing a button.

The HMO must ensure that its Member Service representatives treat all callers
with dignity and respect the callers' need for privacy. At a minimum, the HMO's
Member Service representatives must be:

     1.   Knowledgeable about Covered Services;

     2.   Able to answer non-technical questions pertaining to the role of the
          PCP;

     3.   Able to answer non-clinical questions pertaining to referrals or the
          process for receiving authorization for procedures or services;

     4.   Able to give information about Providers in a particular area;

     5.   Knowledgeable about Fraud, Abuse, and Waste and the requirements to
          report any conduct that, if substantiated, may constitute Fraud,
          Abuse, or Waste in the HMO Program;

     6.   Trained regarding Cultural Competency;

     7.   Trained regarding the process used to confirm the status of persons
          with Special Health Care Needs;

     8.   For Medicaid members, able to answer non-clinical questions pertaining
          to accessing Non-capitated Services; and

     9.   For CHIP Members, able to give correct cost-sharing information
          relating to premiums, co-pays or deductibles, as applicable.

Hotline services must meet Cultural Competency requirements and must
appropriately handle calls from non-English speaking (and particularly,
Spanish-speaking) callers, as well as calls from individuals who are deaf or
hard-of-hearing. To meet these requirements, the HMO must employ bilingual
Spanish-speaking Member Services representatives and must secure the services of
other contractors as necessary to meet these requirements.

The HMO must process all incoming Member correspondence and telephone inquiries
in a timely and responsive manner. The HMO cannot impose maximum call duration
limits but must allow calls to be of sufficient length to ensure adequate
information is provided to the Member. The HMO must ensure that the toll-free
Member Hotline meets the following minimum performance requirements for all HMO
Programs and Service Areas:

     1.   99% of calls are answered by the fourth ring or an automated call
          pick-up system;

     2.   no more than one percent (1%) of incoming calls receive a busy signal;

     3.   at least 80% of calls must be answered by toll-free line staff within
          30 seconds;

     4.   the call abandonment rate is 7% or less; and

     5.   the average hold time is 2 minutes or less.


                                                                            8-18

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO must conduct ongoing quality assurance to ensure these standards are
met.

The Member Services Hotline may serve multiple HMO Programs if Hotline staff is
knowledgeable about all of the HMO's Medicaid and/or CHIP Programs. The Member
Services Hotline may serve multiple Service Areas if the Hotline staff is
knowledgeable about all such Service Areas, including the Provider Network in
each Service Area.

The HMO must monitor its performance regarding HHSC Member Hotline standards and
submit performance reports summarizing call center performance for the Member
Hotline as indicated in SECTION 8.1.20 and the UNIFORM MANAGED CARE MANUAL.

8.1.5.7 MEMBER EDUCATION

The HMO must, at a minimum, develop and implement health education initiatives
that educate Members about:

     1.   How the HMO system operates, including the role of the PCP;

     2.   Covered Services, limitations and any Value-added Services offered by
          the HMO;

     3.   The value of screening and preventive care, and

     4.   How to obtain services, including:

          a.   Emergency Services;

          b.   Accessing OB/GYN and specialty care;

          c.   Behavioral Health Services;

          d.   Disease Management programs;

          e.   Service Coordination, treatment for pregnant women, Members with
               Special Health Care Needs, including Children with Special Health
               Care Needs; and other special populations;

          f.   Early Childhood Intervention (ECI) Services;

          g.   Screening and preventive services, including well-child care
               (THSteps medical checkups for Medicaid Members);

          h.   For CHIP Members, Member co-payments

          i.   Suicide prevention; and

          j.   Identification and health education related to Obesity.

The HMO must provide a range of health promotion and wellness information and
activities for Members in formats that meet the needs of all Members. The HMO
must propose, implement, and assess innovative Member education strategies for
wellness care and immunization, as well as general health promotion and
prevention. The HMO must conduct wellness promotion programs to improve the
health status of its Members. The HMO may cooperatively conduct health education
classes for all enrolled Members with one or more HMOs also contracting with
HHSC in the Service Area. The HMO must work with its Providers to integrate
health education, wellness and prevention training into the care of each Member.

The HMO also must provide condition and disease-specific information and
educational materials to Members, including information on its Service
Management and Disease Management programs described in SECTION 8.1.13 AND
SECTION 8.1. Condition- and disease-specific information must be oriented to
various groups within the managed care eligible population, such


                                                                            8-19

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

as children, the elderly, persons with disabilities and non-English speaking
Members, as appropriate to the HMO's Medicaid and/or CHIP Program(s).

8.1.5.8 CULTURAL COMPETENCY PLAN

The HMO must have a comprehensive written Cultural Competency Plan describing
how the HMO will ensure culturally competent services, and provide Linguistic
Access and Disability-related Access. The Cultural Competency Plan must describe
how the individuals and systems within the HMO will effectively provide services
to people of all cultures, races, ethnic backgrounds, and religions as well as
those with disabilities in a manner that recognizes, values, affirms, and
respects the worth of the individuals and protects and preserves the dignity of
each. The HMO must submit the Cultural Competency Plan to HHSC for Readiness
Review. Modifications and amendments to the plan must be submitted to HHSC no
later than 30 days prior to implementation. The Plan must also be made available
to the HMO's Network of Providers.

8.1.5.9 MEMBER COMPLAINT AND APPEAL PROCESS

The HMO must develop, implement and maintain a system for tracking, resolving,
and reporting Member Complaints regarding its services, processes, procedures,
and staff. The HMO must ensure that Member Complaints are resolved within 30
calendar days after receipt. The HMO is subject to remedies, including
liquidated damages, if at least 98 percent of Member Complaints are not resolved
within 30 days of receipt of the Complaint by the HMO. Please see the UNIFORM
MANAGED CARE CONTRACT TERMS & CONDITIONS and ATTACHMENT B-5,
DELIVERABLES/LIQUIDATED DAMAGES MATRIX.

The HMO must develop, implement and maintain a system for tracking, resolving,
and reporting Member Appeals regarding the denial or limited authorization of a
requested service, including the type or level of service and the denial, in
whole or in part, of payment for service. Within this process, the HMO must
respond fully and completely to each Appeal and establish a tracking mechanism
to document the status and final disposition of each Appeal.

The HMO must ensure that Member Appeals are resolved within 30 calendar days,
unless the HMO can document that the Member requested an extension or the HMO
shows there is a need for additional information and the delay is in the
Member's interest. The HMO is subject to liquidated damages if at least 98
percent of Member Appeals are not resolved within 30 days of receipt of the
Appeal by the HMO. Please see the UNIFORM MANAGED CARE CONTRACT TERMS &
CONDITIONS and ATTACHMENT B-5, DELIVERABLES/LIQUIDATED DAMAGES MATRIX.

Medicaid HMOs must follow the Member Complaint and Appeal Process described in
SECTION 8.2.6. CHIP HMOs must comply with the CHIP Complaint and Appeal Process
described in SECTION 8.4.2.

8.1.6 MARKETING AND PROHIBITED PRACTICES

The HMO and its Subcontractors must adhere to the Marketing Policies and
Procedures as set forth by HHSC in the Contract, and the HHSC UNIFORM MANAGED
CARE MANUAL.


                                                                            8-20

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

8.1.7 QUALITY ASSESSMENT AND PERFORMANCE IMPROVEMENT

The HMO must provide for the delivery of quality care with the primary goal of
improving the health status of Members and, where the Member's condition is not
amenable to improvement, maintain the Member's current health status by
implementing measures to prevent any further decline in condition or
deterioration of health status. The HMO must work in collaboration with
Providers to actively improve the quality of care provided to Members,
consistent with the Quality Improvement Goals and all other requirements of the
Contract. The HMO must provide mechanisms for Members and Providers to offer
input into the HMO's quality improvement activities.

8.1.7.1 QAPI PROGRAM OVERVIEW

The HMO must develop, maintain, and operate a quality assessment and performance
improvement (QAPI) Program consistent with the Contract, and TDI requirements,
including 28 T.A.C. Section 11.1901(a)(5) and Section 11.1902. Medicaid HMOs
must also meet the requirements of 42 C.F.R. Section 438.240.

The HMO must have on file with HHSC an approved plan describing its QAPI
Program, including how the HMO will accomplish the activities required by this
section. The HMO must submit a QAPI Program Annual Summary in a format and
timeframe specified by HHSC or its designee. The HMO must keep participating
physicians and other Network Providers informed about the QAPI Program and
related activities. The HMO must include in Provider contracts a requirement
securing cooperation with the QAPI.

The HMO must approach all clinical and non-clinical aspects of quality
assessment and performance improvement based on principles of Continuous Quality
Improvement (CQI)/Total Quality Management (TQM) and must:

     1.   Evaluate performance using objective quality indicators;

     2.   Foster data-driven decision-making;

     3.   Recognize that opportunities for improvement are unlimited;

     4.   Solicit Member and Provider input on performance and QAPI activities;

     5.   Support continuous ongoing measurement of clinical and non-clinical
          effectiveness and Member satisfaction;

     6.   Support programmatic improvements of clinical and non-clinical
          processes based on findings from on-going measurements; and

     7.   Support re-measurement of effectiveness and Member satisfaction, and
          continued development and implementation of improvement interventions
          as appropriate.

8.1.7.2 QAPI PROGRAM STRUCTURE

The HMO must maintain a well-defined QAPI structure that includes a planned
systematic approach to improving clinical and non-clinical processes and
outcomes. The HMO must designate a senior executive responsible for the QAPI
Program and the Medical Director must have substantial involvement in QAPI
Program activities. At a minimum, the HMO must ensure that the QAPI Program
structure:


                                                                            8-21

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

     1.   Is organization-wide, with clear lines of accountability within the
          organization;

     2.   Includes a set of functions, roles, and responsibilities for the
          oversight of QAPI activities that are clearly defined and assigned to
          appropriate individuals, including physicians, other clinicians, and
          non-clinicians;

     3.   Includes annual objectives and/or goals for planned projects or
          activities including clinical and non-clinical programs or initiatives
          and measurement activities; and

     4.   Evaluates the effectiveness of clinical and non-clinical initiatives.

8.1.7.3 CLINICAL INDICATORS

The HMO must engage in the collection of clinical indicator data. The HMO must
use such clinical indicator data in the development, assessment, and
modification of its QAPI Program.

8.1.7.4 QAPI PROGRAM SUBCONTRACTING

If the HMO subcontracts any of the essential functions or reporting requirements
contained within the QAPI Program to another entity, the HMO must maintain a
file of the subcontractors. The file must be available for review by HHSC or its
designee upon request.

8.1.7.5 BEHAVIORAL HEALTH INTEGRATION INTO QAPI PROGRAM

If the HMO provides Behavioral Health Services within the Covered Services as
defined in ATTACHMENT B-2, it must integrate behavioral health into its QAPI
Program and include a systematic and on-going process for monitoring,
evaluating, and improving the quality and appropriateness of Behavioral Health
Services provided to Members. The HMO must collect data, and monitor and
evaluate for improvements to physical health outcomes resulting from behavioral
health integration into the Member's overall care.

8.1.7.6 CLINICAL PRACTICE GUIDELINES

The HMO must adopt not less than two evidence-based clinical practice guidelines
for each applicable HMO Program. Such practice guidelines must be based on valid
and reliable clinical evidence, consider the needs of the HMO's Members, be
adopted in consultation with contracting health care professionals, and be
reviewed and updated periodically, as appropriate. The HMO must develop practice
guidelines based on the health needs and opportunities for improvement
identified as part of the QAPI Program.

The HMO may coordinate the development of clinical practice guidelines with
other HHSC HMOs to avoid providers in a Service Area receiving conflicting
practice guidelines from different HMOs.

The HMO must disseminate the practice guidelines to all affected Providers and,
upon request, to Members and potential Members.

The HMO must take steps to encourage adoption of the guidelines, and to measure
compliance with the guidelines, until such point that 90% or more of the
Providers are consistently in compliance, based on HMO measurement findings. The
HMO must employ substantive Provider


                                                                            8-22

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

motivational incentive strategies, such as financial and non-financial
incentives, to improve Provider compliance with clinical practice guidelines.
The HMO's decisions regarding utilization management, Member education, coverage
of services, and other areas included in the practice guidelines must be
consistent with the HMO's clinical practice guidelines.

8.1.7.7 PROVIDER PROFILING

The HMO must conduct PCP and other Provider profiling activities at least
annually. As part of its QAPI Program, the HMO must describe the methodology it
uses to identify which and how many Providers to profile and to identify
measures to use for profiling such Providers.

Provider profiling activities must include, but not be limited to:

     1.   Developing PCP and Provider-specific reports that include a
          multi-dimensional assessment of a PCP or Provider's performance using
          clinical, administrative, and Member satisfaction indicators of care
          that are accurate, measurable, and relevant to the enrolled
          population;

     2.   Establishing PCP, Provider, group, Service Area or regional Benchmarks
          for areas profiled, where applicable, including STAR and CHIP-specific
          Benchmarks where appropriate; and

     3.   Providing feedback to individual PCPs and Providers regarding the
          results of their performance and the overall performance of the
          Provider Network.

8.1.7.8 NETWORK MANAGEMENT

The HMO must:

     1.   Use the results of its Provider profiling activities to identify areas
          of improvement for individual PCPs and Providers, and/or groups of
          Providers;

     2.   Establish Provider-specific quality improvement goals for priority
          areas in which a Provider or Providers do not meet established HMO
          standards or improvement goals;

     3.   Develop and implement incentives, which may include financial and
          non-financial incentives, to motivate Providers to improve performance
          on profiled measures; and

     4.   At least annually, measure and report to HHSC on the Provider Network
          and individual Providers' progress, or lack of progress, towards such
          improvement goals.

8.1.7.9 COLLABORATION WITH THE EQRO

The HMO will collaborate with HHSC's external quality review organization (EQRO)
to develop studies, surveys, or other analytical approaches that will be carried
out by the EQRO. The purpose of the studies, surveys, or other analytical
approaches is to assess the quality of care and service provided to Members and
to identify opportunities for HMO improvement. To facilitate this process, the
HMO will supply claims data to the EQRO in a format identified by HHSC in
consultation with HMOs, and will supply medical records for focused clinical
reviews conducted by the EQRO. The HMO must also work collaboratively with HHSC
and the EQRO to annually measure selected HEDIS measures that require chart
reviews. During the first year of operations, HHSC anticipates that the selected
measures will include, at a minimum, well-child visits and


                                                                            8-23

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

immunizations, appropriate use of asthma medications, measures related to
Members with diabetes, and control of high blood pressure.

8.1.8 UTILIZATION MANAGEMENT

The HMO must have a written utilization management (UM) program description,
which includes, at a minimum:

               1.   Procedures to evaluate the need for Medically Necessary
                    Covered Services;

               2.   The clinical review criteria used, the information sources,
                    the process used to review and approve the provision of
                    Covered Services;

               3.   The method for periodically reviewing and amending the UM
                    clinical review criteria; and

               4.   The staff position functionally responsible for the
                    day-to-day management of the UM function.

The HMO must make best efforts to obtain all necessary information, including
pertinent clinical information, and consult with the treating physician as
appropriate in making UM determinations.

The HMO must issue coverage determinations, including adverse determinations,
according to the following timelines:

          -    Within three (3) business days after receipt of the request for
               authorization of services;

          -    Within one (1) business day for concurrent hospitalization
               decisions; and

          -    Within one (1) hour for post-stabilization or life-threatening
               conditions, except that for Emergency Medical Conditions and
               Emergency Behavioral Health Conditions, the HMO must not require
               prior authorization.

The HMO's UM Program must include written policies and procedures to ensure:

     1.   Consistent application of review criteria that are compatible with
          Members' needs and situations;

     2.   Determinations to deny or limit services are made by physicians under
          the direction of the Medical Director;

     3.   Appropriate personnel are available to respond to utilization review
          inquiries 8:00 a.m. to 5:00 p.m., Monday through Friday, with a
          telephone system capable of accepting utilization review inquiries
          after normal business hours. The HMO must respond to calls within one
          business day;

     4.   Confidentiality of clinical information; and

     5.   Quality is not adversely impacted by financial and
          reimbursement-related processes and decisions.

For HMOs with preauthorization or concurrent review programs, qualified medical
professionals must supervise preauthorization and concurrent review decisions.

The HMO UM Program must include polices and procedures to:


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<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

     1.   Routinely assess the effectiveness and the efficiency of the UM
          Program;

     2.   Evaluate the appropriate use of medical technologies, including
          medical procedures, drugs and devices;

     3.   target areas of suspected inappropriate service utilization;

     4.   Detect over- and under-utilization;

     5.   Routinely generate Provider profiles regarding utilization patterns
          and compliance with utilization review criteria and policies;

     6.   Compare Member and Provider utilization with norms for comparable
          individuals;

     7.   Routinely monitor inpatient admissions, emergency room use, ancillary,
          and out-of-area services;

     8.   Ensure that when Members are receiving Behavioral Health Services from
          the local mental health authority that the HMO is using the same UM
          guidelines as those prescribed for use by Local Mental Health
          Authorities by MHMR which are published at:
          http://www.mhmr.state.tx.us/centraloffice/behavioralhealthservices/
          RDMClinGuide.html; and

     9.   Refer suspected cases of provider or Member Fraud, Abuse, or Waste to
          the Office of Inspector General (OIG) as required by Section 8.1.19.

8.1.9 EARLY CHILDHOOD INTERVENTION (ECI)

The HMO must ensure that Network Providers are educated regarding their
responsibility under federal laws (e.g., 20 U.S.C. Section 1435 (a)(5); 34
C.F.R. Section 303.321(d)) to identify and refer any Member age three (3) or
under suspected of having a developmental disability or delay, or who is at risk
of delay, to the designated ECI program for screening and assessment within two
(2) working days from the day the Provider identifies the Member. The HMO must
use written educational materials developed or approved by the Department of
Assistive and Rehabilitative Services - Division for Early Childhood
Intervention Services for these "child find" activities. Eligibility for ECI
services will be determined by the local ECI program using the criteria
contained in 40 T.A.C. Section 108.25.

The HMO must contract with qualified ECI Providers to provide ECI services to
Members under age three who have been determined eligible for ECI services. The
HMO must permit Members to self refer to local ECI Service Providers without
requiring a referral from the Member's PCP. The HMO's policies and procedures,
including its Provider Manual, must include written policies and procedures for
allowing such self-referral to ECI providers.

The HMO must coordinate and cooperate with local ECI programs in the development
and implementation of the Individual Family Service Plan (IFSP), including
on-going case management and other non-capitated services required by the
Member's IFSP. The IFSP is an agreement developed by the interdisciplinary team
that consists of the ECI Case Manager/Service Coordinator, the Member/family,
and other professionals who participated in the Member's evaluation or are
providing direct services to the Member, and may include the Member's Primary
Care Physician (PCP) with parental consent. The IFSP identifies the Member's
present level of development based on assessment, describes the services to be
provided to the child to meet the needs of the child and the family, and
identifies the person or persons responsible for each service required by the
plan. The IFSP shall be transmitted by the ECI Provider to the HMO and the PCP
with parental consent to enhance coordination of the plan of care. The IFSP may
be included in the Member's medical record.


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<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

Cooperation with the ECI program includes covering medical diagnostic procedures
and providing medical records required to perform developmental assessments and
developing the IFSP within the 45-day timeline established in federal rule (34
C.F.R. Section 303.342(a)). The HMO must require compliance with these
requirements through Provider contract provisions. The HMO must not withhold
authorization for the provision of such medical diagnostic procedures. The HMO
must promptly provide to the ECI program, relevant medical records available to
the HMO.

The interdisciplinary team will determine Medical Necessity for health and
Behavioral Health Services as approved by the Member's PCP. The HMO must
require, through contract provisions, that all Medically Necessary health and
Behavioral Health Services contained in the Member's IFSP are provided to the
Member in the amount, duration, scope and service setting established by the
IFSP. The HMO must allow services to be provided by a non-network provider if a
Network Provider is not available to provide the services in the amount,
duration, scope and service setting as required by the IFSP. The HMO cannot
modify the plan of care or alter the amount, duration, scope, or service setting
required by the Member's IFSP. The HMO cannot create unnecessary barriers for
the Member to obtain IFSP services, including requiring prior authorization for
the ECI assessment or establishing insufficient authorization periods for prior
authorized services.

8.1.10 SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND CHILDREN
     (WIC) - SPECIFIC REQUIREMENTS

The HMO must, by contract, require its Providers to coordinate with the Special
Supplemental Nutrition Program for Women, Infants, and Children (WIC) to provide
medical information necessary for WIC eligibility determinations, such as
height, weight, hematocrit or hemoglobin. The HMO must make referrals to WIC for
Members potentially eligible for WIC. The HMO may use the nutrition education
provided by WIC to satisfy certain health education requirements of the
Contract.

8.1.11 COORDINATION WITH TEXAS DEPARTMENT OF FAMILY AND PROTECTIVE SERVICES

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

The HMO must comply with all provisions related to Covered Services, including
Behavioral Health Services, in the following documents:

     -    A court order (Order) entered by a Court of Continuing Jurisdiction
          placing a child under the protective custody of TDFPS.

     -    A TDFPS Service Plan entered by a Court of Continuing Jurisdiction
          placing a child under the protective custody of TDFPS.

     -    A TDFPS Service Plan voluntarily entered into by the parents or person
          having legal custody of a Member and TDFPS.


                                                                            8-26
<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO cannot deny, reduce, or controvert the Medical Necessity of any health
or Behavioral Health Services included in an Order. The HMO may participate in
the preparation of the medical and behavioral care plan prior to TDFPS
submitting the health care plan to the Court. Any modification or termination of
court-ordered services must be presented and approved by the court having
jurisdiction over the matter.

A Member or the parent or guardian whose rights are subject to an Order or
Service Plan cannot use the HMO's Complaint or Appeal processes, or the HHSC
Fair Hearing process to Appeal the necessity of the Covered Services.

The HMO must include information in its Provider Manuals and training materials
regarding:

     1.   Providing medical records to TDFPS;

     2.   Scheduling medical and Behavioral Health Services appointments within
          14 days unless requested earlier by TDFPS; and

     3.   Recognition of abuse and neglect, and appropriate referral to TDFPS.

The HMO must continue to provide all Covered Services to a Member receiving
services from, or in the protective custody of, TDFPS until the Member has been
disenrolled from the HMO due to loss of Medicaid managed care eligibility or
placed into foster care.

8.1.12 SERVICES FOR PEOPLE WITH SPECIAL HEALTH CARE NEEDS

This section applies to both STAR and CHIP HMOs.

8.1.12.1 IDENTIFICATION

The HMO must develop and maintain a system and procedures for identifying
Members with Special Health Care Needs (MSHCN), including people with
disabilities or chronic or complex medical and behavioral health conditions and
Children with Special Health Care Needs (CSHCN)(1).

The HMO must contact Members pre-screened by the HHSC Administrative Services
Contractor as MSHCN to determine whether they meet the HMO's MSHCN assessment
criteria, and to determine whether the Member requires special services
described in this section. The HMO must provide information to the HHSC
Administrative Services Contractor that identifies Members who the HMO has
assessed to be MSHCN, including any Members pre-screened by the HHSC
Administrative Services Contractor and confirmed by the HMO as a MSHCN. The
information must be provided, in a format and on a timeline to be specified by
HHSC in the UNIFORM MANAGED CARE MANUAL, and updated with newly identified MSHCN
by the 10th day of each

----------
(1)  CSHCN is a term often used to refer to a services program for children with
     special health care needs administered by TDH, and described in 25 TAC,
     Part 1, Section 38.1. Although children served through this program may
     also be served by Medicaid or CHIP, the reference to "CSHCN" in this
     Contract does not refer to children served through this program.


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<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

month. In the event that a MSHCN changes HMOs, the HMO must provide the
receiving contractor information concerning the results of the HMO's
identification and assessment of that Member's needs, to prevent duplication of
those activities.

8.1.12.2 ACCESS TO CARE AND SERVICE MANAGEMENT

Once identified, the HMO must have effective systems to ensure the provision of
Covered Services to meet the special preventive, primary Acute Care, and
specialty health care needs appropriate for treatment of the individual Member's
condition(s).

The HMO must provide access to identified PCPs and specialty care Providers with
experience serving MSHCN. Such Providers must be board-qualified or
board-eligible in their specialty. The HMO may request exceptions from HHSC for
approval of traditional providers who are not board-qualified or board-eligible
but who otherwise meet the HMO's credentialing requirements.

For services to CSHCN, the HMO must have Network PCPs and specialty care
Providers that have demonstrated experience with CSHCN in pediatric specialty
centers such as children's hospitals, teaching hospitals, and tertiary care
centers.

The HMO is responsible for working with MSHCN, their families and legal
guardians if applicable, and their health care providers to develop a seamless
package of care in which primary, Acute Care, and specialty service needs are
met through a Service Plan that is understandable to the Member, or, when
applicable, the Member's legal guardian.

The HMO is responsible for providing Service Management to develop a Service
Plan and ensure MSHCN, including CSHCN, have access to treatment by a
multidisciplinary team when the Member's PCP determines the treatment is
Medically Necessary, or to avoid separate and fragmented evaluations and service
plans. The team must include both physician and non-physician providers
determined to be necessary by the Member's PCP for the comprehensive treatment
of the Member. The team must:

     1.   Participate in hospital discharge planning;

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

     3.   Develop specialty care and support service recommendations to be
          incorporated into the Service Plan; and

     4.   Provide information to the Member, or when applicable, the Member's
          legal guardian concerning the specialty care recommendations.

MSHCN, their families, or their health providers may request Service Management
from the HMO. The HMO must make an assessment of whether Service Management is
needed and furnish Service Management when appropriate. The HMO may also
recommend to a MSHCN, or to a CSHCN's family, that Service Management be
furnished if the HMO determines that Service Management would benefit the
Member.

The HMO must provide information and education in its Member Handbook and
Provider Manual about the care and treatment available in the HMO's plan for
Members with Special Health Care Needs, including the availability of Service
Management.


                                                                            8-28

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO must have a mechanism in place to allow Members with Special Health Care
Needs to have direct access to a specialist as appropriate for the Member's
condition and identified needs, such as a standing referral to a specialty
physician. The HMO must also provide MSHCN with access to non-primary care
physician specialists as PCPs, as required by 28 T.A.C. Section 11.900 and
SECTION 8.1.

The HMO must implement a systematic process to coordinate Non-capitated
Services, and enlist the involvement of community organizations that may not be
providing Covered Services but are otherwise important to the health and
wellbeing of Members. The HMO also must make a best effort to establish
relationships with State and local programs and community organizations, such as
those listed below, in order to make referrals for MSHCN and other Members who
need community services:

          -    Community Resource Coordination Groups (CRCGs);

          -    Early Childhood Intervention (ECI) Program;

          -    Local school districts (Special Education);

          -    Texas Department of Transportation's Medical Transportation
               Program (MTP);

          -    Texas Department of Assistive and Rehabilitative Services (DARS)
               Blind Children's Vocational Discovery and Development Program;

          -    Texas Department of State Health (DSHS) services, including
               community mental health programs, the Title V Maternal and Child
               Health and Children with Special Health Care Needs (CSHCN)
               Programs, and the Program for Amplification of Children of Texas
               (PACT);

          -    Other state and local agencies and programs such as food stamps,
               and the Women, Infants, and Children's (WIC) Program;

          -    Civic and religious organizations and consumer and advocacy
               groups, such as United Cerebral Palsy, which also work on behalf
               of the MSHCN population.

8.1.13 SERVICE MANAGEMENT FOR CERTAIN POPULATIONS

The HMO must have service management programs and procedures for the following
populations, as applicable to the HMO's Medicaid and/or CHIP Program(s):

1.   High-cost catastrophic cases;

2.   Women with high-risk pregnancies (STAR Program only); and

3.   Individuals with mental illness and co-occurring substance abuse.

8.1.14 DISEASE MANAGEMENT (DM)

The HMO must provide, or arrange to have provided to Members, comprehensive
disease management services consistent with state statutes and regulations. Such
DM services must be part of person-based approach to DM and holistically address
the needs of persons with multiple chronic conditions. The HMO must develop and
implement DM services that relate to chronic conditions that are prevalent in
HMO Program Members. In the first year of operations, STAR and CHIP HMOs must
have DM Programs that address Members with chronic conditions to be identified
by HHSC and included within the UNIFORM MANAGED CARE MANUAL. HHSC will not


                                                                            8-29

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

identify the Members with chronic conditions. The HMO must implement policies
and procedures to ensure that Members that require DM services are identified
and enrolled in a program to provide such DM services. The HMO must develop and
maintain screening and evaluation procedures for the early detection,
prevention, treatment, or referral of participants at risk for or diagnosed with
chronic conditions identified by HHSC and included within the UNIFORM MANAGED
CARE MANUAL. The HMO must ensure that all Members identified for DM are enrolled
into a DM Program with the opportunity to opt out of these services within 30
days while still maintaining access to all other Covered Services.

The DM Program(s) must include:

1.   Patient self-management education;

2.   Provider education;

3.   Evidence-based models and minimum standards of care;

4.   Standardized protocols and participation criteria;

5.   Physician-directed or physician-supervised care;

6.   Implementation of interventions that address the continuum of care;

7.   Mechanisms to modify or change interventions that are not proven effective;
     and

8.   Mechanisms to monitor the impact of the DM Program over time, including
     both the clinical and the financial impact.

The HMO must maintain a system to track and monitor all DM participants for
clinical, utilization, and cost measures.

The HMO must provide designated staff to implement and maintain DM Programs and
to assist participating Members in accessing DM services. The HMO must educate
Members and Providers about the HMO's DM Programs and activities. Additional
requirements related to the HMO's Disease Management Programs and activities are
found in the HHSC UNIFORM MANAGED CARE MANUAL.

8.1.14.1 DM SERVICES AND PARTICIPATING PROVIDERS

At a minimum, the HMO must:

1.   Implement a system for Providers to request specific DM interventions;

2.   Give Providers information, including differences between recommended
     prevention and treatment and actual care received by Members enrolled in a
     DM Program, and information concerning such Members' adherence to a service
     plan; and

3.   For Members enrolled in a DM Program, provide reports on changes in a
     Member's health status to their PCP.

8.1.14.2 HMO DM EVALUATION

HHSC or its EQRO will evaluate the HMO's DM Program.


                                                                            8-30

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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

8.1.15 BEHAVIORAL HEALTH (BH) NETWORK AND SERVICES

The requirements in this sub-section pertain to all HMOs except the STAR HMOs in
the Dallas CSA, whose Members receive Behavioral Health Services through the
NorthSTAR Program.

The HMO must provide, or arrange to have provided, to Members all Medically
Necessary Behavioral Health (BH) Services as described in ATTACHMENT B-2. All BH
Services must be provided in conformance with the access standards included in
SECTION 8.1.3. For Medicaid HMOs, BH Services are described in more detail in
the TEXAS MEDICAID PROVIDER PROCEDURES MANUAL and the TEXAS MEDICAID BULLETINS.
When assessing Members for BH Services, the HMO and its Network Behavioral
Health Service Providers must use the DSM-IV multi-axial classification. HHSC
may require use of other assessment instrument/outcome measures in addition to
the DSM-IV. Providers must document DSM-IV and assessment/outcome information in
the Member's medical record.

8.1.15.1 BH PROVIDER NETWORK

The HMO must maintain a Behavioral Health Services Provider Network that
includes psychiatrists, psychologists, and other Behavioral Health Service
Providers. The Provider Network must include Behavioral Health Service Providers
with experience serving special populations among the HMO Program(s)' enrolled
population, including, as applicable, children and adolescents, persons with
disabilities, the elderly, and cultural or linguistic minorities, to ensure
accessibility and availability of qualified Providers to all Members in the
Service Area.

8.1.15.2 MEMBER EDUCATION AND SELF-REFERRAL FOR BEHAVIORAL HEALTH SERVICES

The HMO must maintain a Member education process to help Members know where and
how to obtain Behavioral Health Services.

The HMO must permit Members to self refer to any in-network Behavioral Health
Services Provider without a referral from the Member's PCP. The HMOs' policies
and procedures, including its Provider Manual, must include written policies and
procedures for allowing such self- referral to BH services.

The HMO must permit Members to participate in the selection of the appropriate
behavioral health individual practitioner(s) who will serve them and must
provide the Member with information on accessible in-network Providers with
relevant experience.

8.1.15.3 BEHAVIORAL HEALTH SERVICES HOTLINE

This Section includes Hotline functions pertaining to Members. Requirements for
Provider Hotlines are found in SECTION 8.1.4.7. The HMO must have an emergency
and crisis Behavioral Health Services Hotline staffed by trained personnel 24
hours a day, 7 days a week, toll-free throughout the Service Area. Crisis
hotline staff must include or have access to qualified Behavioral Health
Services professionals to assess behavioral health emergencies. Emergency and
crisis Behavioral Health Services may be arranged through mobile crisis teams.
It is not acceptable for an emergency intake line to be answered by an answering
machine.


                                                                            8-31

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO must operate a toll-free hotline as described in SECTION 8.1.5.6 to
handle Behavioral Health-related calls. The HMO may operate one hotline to
handle emergency and crisis calls and routine Member calls. The HMO cannot
impose maximum call duration limits and must allow calls to be of sufficient
length to ensure adequate information is provided to the Member. Hotline
services must meet Cultural Competency requirements and provide linguistic
access to all Members, including the interpretive services required for
effective communication.

The Behavioral Health Services Hotline may serve multiple HMO Programs Hotline
staff is knowledgeable about all of the HMO Programs. The Behavioral Health
Services Hotline may serve multiple Service Areas if the Hotline staff is
knowledgeable about all such Service Areas, including the Behavioral Health
Provider Network in each Service Area. The HMO must ensure that the toll-free
Behavioral Health Services Hotline meets the following minimum performance
requirements for all HMO Programs and Service Areas:

     1.   99% of calls are answered by the fourth ring or an automated call
          pick-up system;

     2.   No incoming calls receive a busy signal;

     3.   At least 80% of calls must be answered by toll-free line staff within
          30 seconds;

     4.   The call abandonment rate is 7% or less; and

     5.   The average hold time is 2 minutes or less.

The HMO must conduct on-going quality assurance to ensure these standards are
met.

The HMO must monitor the HMO's performance against the Behavioral Health
Services Hotline standards and submit performance reports summarizing call
center performance as indicated in SECTION 8.1.20 and the UNIFORM MANAGED CARE
MANUAL.

8.1.15.4 COORDINATION BETWEEN THE BH PROVIDER AND THE PCP

The HMO must require, through contract provisions, that PCPs have screening and
evaluation procedures for the detection and treatment of, or referral for, any
known or suspected behavioral health problems and disorders. PCPs may provide
any clinically appropriate Behavioral Health Services within the scope of their
practice.

The HMO must provide training to network PCPs on how to screen for and identify
behavioral health disorders, the HMO's referral process for Behavioral Health
Services and clinical coordination requirements for such services. The HMO must
include training on coordination and quality of care such as behavioral health
screening techniques for PCPs and new models of behavioral health interventions.

The HMO shall develop and disseminate policies regarding clinical coordination
between Behavioral Health Service Providers and PCPs. The HMO must require that
Behavioral Health Service Providers refer Members with known or suspected and
untreated physical health problems or disorders to their PCP for examination and
treatment, with the Member's or the Member's legal guardian's consent.
Behavioral Health Providers may only provide physical health care services if
they are licensed to do so. This requirement must be specified in all Provider
Manuals.


                                                                            8-32

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO must require that behavioral health Providers send initial and quarterly
(or more frequently if clinically indicated) summary reports of a Members'
behavioral health status to the PCP, with the Member's or the Member's legal
guardian's consent. This requirement must be specified in all Provider Manuals.

8.1.15.5 FOLLOW-UP AFTER HOSPITALIZATION FOR BEHAVIORAL HEALTH SERVICES

The HMO must require, through Provider contract provisions, that all Members
receiving inpatient psychiatric services are scheduled for outpatient follow-up
and/or continuing treatment prior to discharge. The outpatient treatment must
occur within seven (7) days from the date of discharge. The HMO must ensure that
Behavioral Health Service Providers contact Members who have missed appointments
within 24 hours to reschedule appointments.

8.1.15.6 CHEMICAL DEPENDENCY

The HMO must comply with 28 T.A.C. Section 3.8001 et seq., regarding utilization
review for Chemical Dependency Treatment. Chemical Dependency Treatment must
conform to the standards set forth in 28 T.A.C. Part 1, Chapter 3, Subchapter
HH.

8.1.15.7 COURT-ORDERED SERVICES

"Court-Ordered Commitment" means a commitment of a Member to a psychiatric
facility for treatment that is ordered by a court of law pursuant to the Texas
Health and Safety Code, Title VII, Subtitle C.

The HMO must provide inpatient psychiatric services to Members under the age of
21, up to the annual limit, who have been ordered to receive the services by a
court of competent jurisdiction under the provisions of Chapters 573 and 574 of
the Texas Health and Safety Code, relating to Court-Ordered Commitments to
psychiatric facilities. The HMO is not obligated to cover placements as a
condition of probation, authorized by the Texas Family Code.

The HMO cannot deny, reduce or controvert the Medical Necessity of inpatient
psychiatric services provided pursuant to a Court-ordered Commitment for Members
under age 21. Any modification or termination of services must be presented to
the court with jurisdiction over the matter for determination.

A Member who has been ordered to receive treatment under the provisions of
Chapter 573 or 574 of the Texas Health and Safety Code can only Appeal the
commitment through the court system.

8.1.15.8 LOCAL MENTAL HEALTH AUTHORITY (LMHA)

The HMO must coordinate with the Local Mental Health Authority (LMHA) and state
psychiatric facility regarding admission and discharge planning, treatment
objectives and projected length of stay for Members committed by a court of law
to the state psychiatric facility.


                                                                            8-33

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

Medicaid HMOs are required to comply with additional Behavioral Health Services
requirements relating to coordination with the LMHA and care for special
populations. These Medicaid HMO requirements are described in SECTION 8.2.8.

8.1.16 FINANCIAL REQUIREMENTS FOR COVERED SERVICES

The HMO must pay for or reimburse Providers for all Medically Necessary Covered
Services provided to all Members. The HMO is not liable for cost incurred in
connection with health care rendered prior to the date of the Member's Effective
Date of Coverage in that HMO.

A Member may receive collateral health benefits under a different type of
insurance such as workers compensation or personal injury protection under an
automobile policy. If a Member is entitled to coverage for specific services
payable under another insurance plan and the HMO paid for such Covered Services,
the HMO may obtain reimbursement from the responsible insurance entity not to
exceed 100% of the value of Covered Services paid.

8.1.17 ACCOUNTING AND FINANCIAL REPORTING REQUIREMENTS

The HMO's accounting records and supporting information related to all aspects
of the Contract must be accumulated in accordance with Generally Accepted
Accounting Principles (GAAP) and the cost principles contained in the Cost
Principles Document in the UNIFORM MANAGED CARE MANUAL. The State will not
recognize or pay services that cannot be properly substantiated by the HMO and
verified by HHSC.

The HMO must:

     1.   Maintain accounting records for each applicable HMO Program separate
          and apart from other corporate accounting records;

     2.   Maintain records for all claims payments, refunds and adjustment
          payments to providers, capitation payments, interest income and
          payments for administrative services or functions and must maintain
          separate records for medical and administrative fees, charges, and
          payments;

     3.   Maintain an accounting system that provides an audit trail containing
          sufficient financial documentation to allow for the reconciliation of
          billings, reports, and financial statements with all general ledger
          accounts; and

     4.   Within 60 days after Contract execution, submit an accounting policy
          manual that includes all proposed policies and procedures the HMO will
          follow during the duration of the Contract. Substantive modifications
          to the accounting policy manual must be approved by HHSC.

The HMO agrees to pay for all reasonable costs incurred by HHSC to perform an
examination, review or audit of the HMO's books pertaining to the Contract.


                                                                            8-34
<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

8.1.17.1 GENERAL ACCESS TO ACCOUNTING RECORDS

The HMO must provide authorized representatives of the Texas and federal
government full access to all financial and accounting records related to the
performance of the Contract.

The HMO must:

     1.   Cooperate with the State and federal governments in their evaluation,
          inspection, audit, and/or review of accounting records and any
          necessary supporting information;

     2.   Permit authorized representatives of the State and federal governments
          full access, during normal business hours, to the accounting records
          that the State and the Federal government determine are relevant to
          the Contract. Such access is guaranteed at all times during the
          performance and retention period of the Contract, and will include
          both announced and unannounced inspections, on-site audits, and the
          review, analysis, and reproduction of reports produced by the HMO;

     3.   Make copies of any accounting records or supporting documentation
          relevant to the Contract available to HHSC or its agents within ten
          (10) business days of receiving a written request from HHSC for
          specified records or information. If such documentation is not made
          available as requested, the HMO agrees to reimburse HHSC for all
          costs, including, but not limited to, transportation, lodging, and
          subsistence for all State and federal representatives, or their
          agents, to carry out their inspection, audit, review, analysis, and
          reproduction functions at the location(s) of such accounting records;
          and

     4.   Pay any and all additional costs incurred by the State and federal
          government that are the result of the HMO's failure to provide the
          requested accounting records or financial information within ten (10)
          business days of receiving a written request from the State or federal
          government.

8.1.17.2 FINANCIAL REPORTING REQUIREMENTS

HHSC will require the HMO to provide financial reports by HMO Program and by
Service Area to support Contract monitoring as well as State and Federal
reporting requirements. HHSC will consult with HMOs regarding the format and
frequency of such reporting. All financial information and reports that are not
Member-specific are property of HHSC and will be public record. HHSC's UNIFORM
MANAGED CARE MANUAL will govern the timing, format and content for the following
reports.

AUDITED FINANCIAL STATEMENT - The HMO must provide the annual audited financial
statement, for each year covered under the Contract, no later than June 30. The
HMO must provide the most recent annual financial statements, as required by the
Texas Department of Insurance for each year covered under the Contract, no later
than March 1.

AFFILIATE REPORT - The HMO must submit an Affiliate Report to HHSC if this
information has changed since the last report submission. The report must
contain the following:

     1.   A list of all Affiliates, and

     2.   For HHSC's prior review and approval, a schedule of all transactions
          with Affiliates that, under the provisions of the Contract, will be
          allowable as expenses in the FSR Report for services provided to the
          HMO by the Affiliate. Those should include financial terms, a


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<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

     detailed description of the services to be provided, and an estimated
     amount that will be incurred by the HMO for such services during the
     Contract Period.

BONUS AND/OR INCENTIVE PAYMENT PLAN - If a HMO intends to include Bonus or
Incentive Payments as allowable administrative expenses, the HMO must furnish a
written Bonus and/or Incentive Payments Plan to HHSC so it may determine whether
such payments are allowable administrative expenses in accordance with Cost
Principles Document in the UNIFORM MANAGED CARE MANUAL. The written plan must
include a description of the HMO's criteria for establishing bonus and/or
incentive payments, the methodology to calculate bonus and/or incentive
payments, and the timing of bonus and/or incentive payments. The Bonus and/or
Incentive Payment Plan and description must be submitted to HHSC for approval no
later than 30 days after the Effective Date of the Contract and any Contract
renewal. If the HMO substantively revises the Bonus and/or Incentive Payment
Plan, the HMO must submit the revised plan to HHSC for prior review and
approval.

CLAIMS SUMMARY LAG REPORT - The HMO must submit an Incurred Claims Summary Lag
Report as a Contract year-to-date report. The report must be submitted quarterly
by the last day of the month following the reporting period. The report must be
submitted to HHSC in a format specified by HHSC, or in a format approved by
HHSC. The report must at a minimum disclose the amount of incurred claims each
month and the amount paid each month by categories of service, such as
inpatient, non-inpatient, and prescription drugs, if applicable. The report must
also include total claims incurred and paid by month.

DSP REPORT - The HMO must submit a monthly Delivery Supplemental Payment (DSP)
Report that includes the data elements specified by HHSC in the format specified
by HHSC. HHSC will consult with contracted HMOs prior to revising the DSP Report
data elements and requirements. The DSP Report must include only unduplicated
deliveries and only deliveries for which the HMO has made a payment, to either a
hospital or other provider.

FORM CMS-1513 - The HMO must file an original Form CMS-1513 prior to beginning
operations regarding the HMO's control, ownership, or affiliations. An updated
Form CMS-1513 must also be filed no later than 30 days after any change in
control, ownership, or affiliations.

FSR REPORTS - The HMO must file quarterly and annual Financial-Statistical
Reports (FSR) in the format and timeframe specified by HHSC. HHSC will include
FSR format and directions in the UNIFORM MANAGED CARE MANUAL. The HMO must
incorporate financial and statistical data of delegated networks (e.g., IPAs,
ANHCs, Limited Provider Networks), if any, in its FSR Reports. Administrative
expenses reported in the FSRs must be reported in accordance with the Cost
Principles Document in the UNIFORM MANAGED CARE MANUAL. Quarterly FSR reports
are due no later than 30 days after the end of the quarter and must provide
information for the current quarter and year-to-date information through the
current quarter. The first annual FSR report must reflect expenses incurred
through the 90th day after the end of the fiscal year. The first annual report
must be filed on or before the 120th day after the end of each fiscal year and
accompanied by an actuarial opinion by a qualified actuary who is in good
standing with the American Academy of Actuaries. Subsequent annual reports must
reflect data completed through the 334th day after the end of each fiscal year
and must be filed on or before the 365th day following the end of each fiscal
year.


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<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

OUT-OF-NETWORK UTILIZATION REPORTS - The HMO must file quarterly Out-of Network
Utilization Reports in the format and timeframe specified by HHSC. HHSC will
include the report format and directions in the UNIFORM MANAGED CARE MANUAL.
Quarterly reports are due 30 days after the end of each quarter.

HUB REPORTS - Upon contract award, the HMO must attend a post award meeting in
Austin, Texas, at a time specified by HHSC, to discuss the development and
submission of a Client Services HUB Subcontracting Plan for inclusion and the
HMO's good faith efforts to notify HUBs of subcontracting opportunities. The HMO
must maintain its HUB Subcontracting Plan and submit monthly reports documenting
the HMO's Historically Underutilized Business (HUB) program efforts and
accomplishments to the HHSC HUB Office. The report must include a narrative
description of the HMO's program efforts and a financial report reflecting
payments made to HUBs. HMOs must use the formats included in HHSC's UNIFORM
MANAGED CARE MANUAL for the HUB monthly reports. The HMO must comply with HHSC's
standard Client Services HUB Subcontracting Plan requirements for all
subcontractors.

IBNR PLAN - The HMO must furnish a written IBNR Plan to manage
incurred-but-not-reported (IBNR) expenses, and a description of the method of
insuring against insolvency, including information on all existing or proposed
insurance policies. The Plan must include the methodology for estimating IBNR.
The plan and description must be submitted to HHSC no later than 60 days after
the Effective Date of the Contract. Substantive changes to a HMO's IBNR plan and
description must be submitted to HHSC no later than 30 days before the HMO
implements changes to the IBNR plan.

MEDICAID DISPROPORTIONATE SHARE HOSPITAL (DSH) REPORTS - Medicaid HMOs must file
preliminary and final Medicaid DSH reports, required by HHSC to identify and
reimburse hospitals that qualify for Medicaid DSH funds. The preliminary and
final DSH reports must include the data elements and be submitted in the form
and format specified by HHSC in the UNIFORM MANAGED CARE MANUAL. The preliminary
DSH reports are due on or before June 1 of the year following the state fiscal
reporting year. The final DSH reports are due no later than July 15 of the year
following the state fiscal reporting year. This reporting requirement does not
apply to CHIP HMOs.

TDI EXAMINATION REPORT - The HMO must furnish a copy of any TDI Examination
Report, including the financial, market conduct, target exam, quality of care
components, and corrective action plans and responses, no later than 10 days
after receipt of the final report from TDI.

TDI FILINGS - The HMO must submit annual figures for controlled risk-based
capital, as well as its quarterly financial statements, both as required by TDI.

REGISTRATION STATEMENT (ALSO KNOWN AS THE "FORM B") - If the HMO is a part of an
insurance holding company system, the HMO must submit to HHSC a complete
registration statement, also known as Form B, and all amendments to this form,
and any other information filed by such insurer with the insurance regulatory
authority of its domiciliary jurisdiction.

SECTION 1318 FINANCIAL DISCLOSURE REPORT - The HMO must file an original CMS
Public Health Service (PHS) Section 1318 Financial Disclosure Report prior to
the start of Operations and an updated CMS PHS Section 1318 Financial Disclosure
Report no later than 30 days after the end


                                                                            8-37

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

of each Contract Year and no later than 30 days after entering into, renewing,
or terminating a relationship with an affiliated party.

THIRD PARTY RECOVERY (TPR) REPORTS - The HMO must file TPR Reports in accordance
with the format developed by HHSC in the UNIFORM MANAGED CARE MANUAL. HHSC will
require the HMO to submit TPR reports no more often than quarterly. TRP reports
must include total dollars recovered from third party payers for each HMO
Program for services to the HMO's Members, and the total dollars recovered
through coordination of benefits, subrogation, and worker's compensation. For
CHIP HMOs, the TPR Reports only apply if the HMO chooses to engage in TPR
activities.

8.1.18 MANAGEMENT INFORMATION SYSTEM REQUIREMENTS

The HMO must maintain a Management Information System (MIS) that supports all
functions of the HMO's processes and procedures for the flow and use of HMO
data. The HMO must have hardware, software, and a network and communications
system with the capability and capacity to handle and operate all MIS subsystems
for the following operational and administrative areas:

     1.   Enrollment/Eligibility Subsystem;

     2.   Provider Subsystem;

     3.   Encounter/Claims Processing Subsystem;

     4.   Financial Subsystem;

     5.   Utilization/Quality Improvement Subsystem;

     6.   Reporting Subsystem;

     7.   Interface Subsystem; and

     8.   TPR Subsystem, as applicable to each HMO Program.

The MIS must enable the HMO to meet the Contract requirements, including all
applicable state and federal laws, rules, and regulations. The MIS must have the
capacity and capability to capture and utilize various data elements required
for HMO administration.

HHSC will provide the HMO with pharmacy data on the HMO's Members on a weekly
basis through the HHSC Vendor Drug Program, or should these services be
outsourced, through the Pharmacy Benefit Manager. HHSC will provide a sample
format of pharmacy data to contract awardees.

The HMO must have a system that can be adapted to changes in Business
Practices/Policies within the timeframes negotiated by the Parties. The HMO is
expected to cover the cost of such systems modifications over the life of the
Contract.

The HMO is required to participate in the HHSC Systems Work Group.

The HMO must provide HHSC prior written notice of major systems changes,
generally within 90 days, and implementations, including any changes relating to
Material Subcontractors, in accordance with the requirements of this Contract
and the UNIFORM MANAGED CARE TERMS AND CONDITIONS.


                                                                            8-38

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

The HMO must provide HHSC any updates to the HMO's organizational chart relating
to MIS and the description of MIS responsibilities at least 30 days prior to the
effective date of the change. The HMO must provide HHSC official points of
contact for MIS issues on an on-going basis.

HHSC, or its agent, may conduct a Systems Readiness Review to validate the HMO's
ability to meet the MIS requirements as described in ATTACHMENT B-1, SECTION 7.
The System Readiness Review may include a desk review and/or an onsite review
and must be conducted for the following events:

     1.   A new plan is brought into the HMO Program;

     2.   An existing plan begins business in a new Service Area;

     3.   An existing plan changes location;

     4.   An existing plan changes its processing system, including changes in
          Material Subcontractors performing MIS or claims processing functions;
          and

     5.   An existing plan in one or two HHSC HMO Programs is initiating a
          Contract to participate in any additional HMO Programs.

If for any reason, a HMO does not fully meet the MIS requirements, then the HMO
must, upon request by HHSC, either correct such deficiency or submit to HHSC a
Corrective Action Plan and Risk Mitigation Plan to address such deficiency as
requested by HHSC. Immediately upon identifying a deficiency, HHSC may impose
remedies and either actual or liquidated damages according to the severity of
the deficiency. HHSC may also freeze enrollment into the HMO's plan for any of
its HMO Programs until such deficiency is corrected. Refer to the UNIFORM
MANAGED CARE TERMS AND CONDITIONS and ATTACHMENT B-5 for additional information.

8.1.18.1 ENCOUNTER DATA

The HMO must provide complete Encounter Data for all Covered Services, including
Value-added Services. Encounter Data must follow the format, and data elements
as described in the HIPAA-compliant 837 format. HHSC will specify the method of
transmission, and the submission schedule, in the UNIFORM MANAGED CARE MANUAL.
The HMO must submit monthly Encounter Data transmissions, and include all
Encounter Data and Encounter Data adjustments processed by the HMO. Encounter
Data quality validation must incorporate assessment standards developed jointly
by the HMO and HHSC. The HMO must make original records available for inspection
by HHSC for validation purposes. Encounter Data that do not meet quality
standards must be corrected and returned within a time period specified by HHSC.

In addition to providing Encounter Data in the 837 format described above, HMOs
must submit an Encounter Data file to HHSC's EQRO, in the format provided in the
UNIFORM MANAGED CARE MANUAL. This additional submission requirement is
time-limited and may not be required for the entire term of the Contract.

For reporting Encounters and fee-for-service claims to HHSC, the HMO must use
the procedure codes, diagnosis codes, and other codes as directed by HHSC. Any
exceptions will be considered on a code-by-code basis after HHSC receives
written notice from the HMO requesting an exception. The HMO must also use the
provider numbers as directed by HHSC for both Encounter and fee-for-service
claims submissions, as applicable.


                                                                            8-39

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

8.1.18.2 HMO DELIVERABLES RELATED TO MIS REQUIREMENTS

At the beginning of each state fiscal year, the HMO must submit for HHSC's
review and approval any modifications to the following documents:

     1.   Joint Interface Plan;

     2.   Disaster Recovery Plan;

     3.   Business Continuity Plan;

     4.   Risk Management Plan; and

     5.   Systems Quality Assurance Plan.

The HMO must submit such modifications to HHSC according to the format and
schedule identified the HHSC UNIFORM MANAGED CARE MANUAL.

8.1.18.3 SYSTEM-WIDE FUNCTIONS

The HMO's MIS system must include key business processing functions and/or
features, which must apply across all subsystems as follows:

     1.   Process electronic data transmission or media to add, delete or modify
          membership records with accurate begin and end dates;

     2.   Track Covered Services received by Members through the system, and
          accurately and fully maintain those Covered Services as
          HIPAA-compliant Encounter transactions;

     3.   Transmit or transfer Encounter Data transactions on electronic media
          in the HIPAA format to the contractor designated by HHSC to receive
          the Encounter Data;

     4.   Maintain a history of changes and adjustments and audit trails for
          current and retroactive data;

     5.   Maintain procedures and processes for accumulating, archiving, and
          restoring data in the event of a system or subsystem failure;

     6.   Employ industry standard medical billing taxonomies (procedure codes,
          diagnosis codes) to describe services delivered and Encounter
          transactions produced;

     7.   Accommodate the coordination of benefits;

     8.   Produce standard Explanation of Benefits (EOBs);

     9.   Pay financial transactions to Providers in compliance with federal and
          state laws, rules and regulations;

     10.  Ensure that all financial transactions are auditable according to GAAP
          guidelines.

     11.  Relate and extract data elements to produce report formats (provided
          within the UNIFORM MANAGED CARE MANUAL) or otherwise required by HHSC;

     12.  Ensure that written process and procedures manuals document and
          describe all manual and automated system procedures and processes for
          the MIS;

     13.  Maintain and cross-reference all Member-related information with the
          most current Medicaid or CHIP Provider number; and

     14.  Ensure that the MIS is able to integrate pharmacy data from HHSC's
          Drug Vendor file (available through the Virtual Private Network (VPN))
          into the HMO's Member data.


                                                                            8-40

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                   Version 1.0
         HMO RFP, SECTION 8

8.1.18.4 HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA) COMPLIANCE

The HMO's MIS system must comply with applicable certificate of coverage and
data specification and reporting requirements promulgated pursuant to the Health
Insurance Portability and Accountability Act (HIPAA) of 1996, P.L. 104-191
(August 21, 1996), as amended or modified. The HMO must comply with HIPAA EDI
requirements. HMO's enrollment files must be in the 834 HIPAA-compliant format.
Eligibility inquiries must be in the 270/271 format and all claims and
remittance transactions in the 837/835 format.

The HMO must provide its Members with a privacy notice as required by HIPAA. The
HMO must provide HHSC with a copy of its privacy notice for filing.

8.1.18.5 CLAIMS PROCESSING REQUIREMENTS

The HMO must process all provider claims and must pay all claims for Medically
Necessary Covered Services that are filed within the time frames specified by
this Section.

The HMO must administer an effective, accurate, and efficient claims payment
process in compliance with state and federal laws, rules and regulations, the
Contract, and the UNIFORM MANAGED CARE MANUAL, which includes claims processing
procedures.

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

All provider claims that are clean and payable must be paid within 30 days from
the date of claim receipt.

The HMO must offer its Providers/subcontractors the option of submitting and
receiving claims information through electronic data interchange (EDI) that
allows for automated processing and adjudication of claims. EDI processing must
be offered as an alternative to the filing of paper claims. Electronic claims
must use HIPAA-compliant electronic formats.

The HMO is subject to remedies, including liquidated damages, if within 30 days
of receipt, the HMO does not process and finalize to a paid or denied status 98%
of all Clean Claims. The HMO is subject to remedies, including liquidated
damages, if within 90 days of receipt, the HMO does not process and finalize to
a paid or denied status 99% of all Clean Claims.

The HMO is subject to remedies, including liquidated damages, if the HMO does
not pay providers interest at an 18 % annual rate, calculated daily for the full
period in which the Clean Claim remain unadjudicated beyond the 30-day claims
processing deadline. The HMO may negotiate Provider contract terms that indicate
that duplicate claims filed prior to the expiration of 31 days would not be
subject to the 18% interest payment if not processed within 30 days.

The HMO must not pay any claim submitted by a provider excluded or suspended
from the Medicare, Medicaid, or CHIP programs for Fraud, Abuse, or Waste. The
HMO must not pay any


                                                                            8-41

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                  Version 1.0
         HMO RFP, SECTION 8

claim submitted by a Provider that is on payment hold under the authority of
HHSC or its authorized agent(s), or who has pending accounts receivable with
HHSC.

Not later than the 15th day after the receipt of a provider unclean claim
requiring additional information, the HMO must pend the claim and request in
writing all relevant information to process the claim. After receipt of
requested information from the provider, the HMO must process the claim within
15 days of receiving the additional information. The HMO is subject to remedies,
including liquidated damages if within 15days of receipt of such information,
the HMO does not process 98% of such claims.

Claims pended for additional information must be closed (paid or denied) by the
30th day following the date the claim is pended if requested information is not
received prior to the expiration of 30 days (see the UNIFORM MANAGED CARE
MANUAL, Chapter 2). The HMO must send Providers written notice for each claim
that is denied, including the reason(s) for the denial, the date the HMO
received the claim, and the information required from the provider to adjudicate
the claim.

The HMO must process, and finalize, all Appealed Claims to a paid or denied
status within 30 days of receipt of the Appealed Claim. The HMO is subject to
remedies, including liquidated damages, if 98% of Appealed Claims are not
processed and finalized to a paid or denied status within 30 days of receipt of
the Appealed Claim. The HMO must finalize all claims, including Appealed Claims,
within 24 months of the date of service.

The HMO is subject to the requirements related to coordination of benefits for
secondary payors in the Texas Insurance Code Section 843.349 (e) and (f).

The HMO must inform all Network Providers about the information required to
submit a claim at least 30 days prior to the Operational Start Date and as a
provision within the HMO/Provider contract. The HMO must make available to
Providers claims coding and processing guidelines for the applicable provider
type. Providers must receive 90 days notice prior to the HMO's implementation of
changes to claims guidelines.

The HMO may deny a claim for failure to file timely if a Provider does not
submit claims to the HMO within 95 days of the date of service. If a provider
files with the wrong HMO, or with the HHSC Administrative Services Contractor,
and produces documentation verifying the initial timely claims filing within 95
days of the date of service, the HMO must process the provider's claim without
denying for failure to timely file (see the UNIFORM MANAGED CARE MANUAL, Chapter
2).

8.1.19 FRAUD AND ABUSE

A HMO is subject to all state and federal laws and regulations relating to
Fraud, Abuse, and Waste in health care and the Medicaid and CHIP programs. The
HMO must cooperate and assist HHSC and any state or federal agency charged with
the duty of identifying, investigating, sanctioning or prosecuting suspected
Fraud, Abuse or Waste. The HMO must provide originals and/or copies of all
records and information requested and allow access to premises and provide
records to the Inspector General for the Texas Health and Human Services System,
HHSC or its


                                                                            8-42

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                  Version 1.0
         HMO RFP, SECTION 8

authorized agent(s), the Centers for Medicare and Medicaid Services (CMS), the
U.S. Department of Health and Human Services (DHHS), Federal Bureau of
Investigation, TDI, or other units of state government. The HMO must provide all
copies of records free of charge.

The HMO must submit a written Fraud and Abuse compliance plan to the Office of
Inspector General at HHSC for approval (See ATTACHMENT B-1, SECTION 7 for
requirements regarding timeframes for submitting the original plan.) The plan
must ensure that all officers, directors, managers and employees know and
understand the provisions of the HMO's Fraud and Abuse compliance plan. The plan
must include the name, address, telephone number, electronic mail address, and
fax number of the individual(s) responsible for carrying out the plan.

The written Fraud and Abuse compliance plan must:

     1.   Contain procedures designed to prevent and detect potential or
          suspected Abuse, Fraud and Waste in the administration and delivery of
          services under the Contract;

     2.   Contain a description of the HMO's procedures for educating and
          training personnel to prevent Fraud, Abuse, or Waste;

     3.   Include provisions for the confidential reporting of plan violations
          to the designated person within the HMO's organization and ensure that
          the identity of an individual reporting violations is protected from
          retaliation;

     4.   Include provisions for maintaining the confidentiality of any patient
          information relevant to an investigation of Fraud, Abuse, or Waste;

     5.   Provide for the investigation and follow-up of any allegations of
          Fraud, Abuse, or Waste and contain specific and detailed internal
          procedures for officers, directors, managers and employees for
          detecting, reporting, and investigating Fraud and Abuse compliance
          plan violations;

     6.   Require that confirmed violations be reported to the Office of
          Inspector General (OIG); and

     7.   Require any confirmed violations or confirmed or suspected Fraud,
          Abuse, or Waste under state or federal law be reported to OIG.

If the HMO contracts for the investigation of allegations of Fraud, Abuse, or
Waste and other types of program abuse by Members or Providers, the plan must
include a copy of the subcontract; the names, addresses, telephone numbers,
electronic mail addresses, and fax numbers of the principals of the
subcontracted entity; and a description of the qualifications of the
subcontracted entity. Such subcontractors must be held to the requirements
stated in this Section.

The HMO must designate executive and essential personnel to attend mandatory
training in Fraud and Abuse detection, prevention and reporting. Designated
executive and essential personnel means the HMO staff persons who supervise
staff in the following areas: data collection, provider enrollment or
disenrollment, encounter data, claims processing, utilization review, appeals or
grievances, quality assurance and marketing, and who are directly involved in
the decision-making and administration of the Fraud and Abuse detection program
within the HMO. The training will be conducted by the OIG free of charge. The
HMO must schedule and complete training no later than 90 days after the
Effective Date of the Contract. If the HMO updates or modifies its written Fraud
and Abuse compliance plan, the HMO must train its executive and essential
personnel on these updates or modifications no later than 90 days after the
effective date of the updates or modifications.


                                                                            8-43

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP                  Version 1.0
         HMO RFP, SECTION 8

The HMO must designate an officer or director in its organization with
responsibility and authority to carry out the provisions of the Fraud and Abuse
compliance plan. A HMO's failure to report potential or suspected Fraud or Abuse
may result in sanctions, cancellation of the Contract, and/or exclusion from
participation in the Medicaid or CHIP HMO Programs. The HMO must allow the OIG,
HHSC, its agents, or other governmental units to conduct private interviews of
the HMO's personnel, subcontractors and their personnel, witnesses, and Members
with regard to a confirmed violation. The HMO's personnel and it subcontractors
must reasonably cooperate, to the satisfaction of HHSC, by being available in
person for interviews, consultation, grand jury proceedings, pre-trial
conferences, hearings, trials and in any other process, including
investigations, at the HMO's and subcontractors' own expense.

8.1.20 REPORTING REQUIREMENTS

The HMO must provide and must require its subcontractors to provide:

     1.   All information required under the Contract, including but not limited
          to, the reporting requirements or other information related to the
          performance of its responsibilities hereunder as reasonably requested
          by the HHSC; and

     2.   Any information in its possession sufficient to permit HHSC to comply
          with the Federal Balanced Budget Act of 1997 or other Federal or state
          laws, rules, and regulations. All information must be provided in
          accordance with the timelines, definitions, formats and instructions
          as specified by HHSC. Where practicable, HHSC may consult with HMOs to
          establish time frames and formats reasonably acceptable to both
          parties.

The HMO's Chief Executive and Chief Financial Officers, or persons in equivalent
positions, must certify that financial data, Encounter Data and other
measurement data has been reviewed by the HMO and is true and accurate to the
best of their knowledge after reasonable inquiry.

8.1.20.1 HEDIS AND OTHER STATISTICAL PERFORMANCE MEASURES

The HMO must provide to HHSC or its designee all information necessary to
analyze the HMO's provision of quality care to Members using measures to be
determined by HHSC in consultation with the HMO. Such measures must be
consistent with HEDIS or other externally based measures or measurement sets,
and involve collection of information beyond that present in Encounter Data. The
PERFORMANCE INDICATOR DASHBOARD, found in the UNIFORM MANAGED CARE MANUAL
provides additional information on the role of the HMO and the EQRO in the
collection and calculation of HEDIS, CAHPS, and other performance measures.

8.1.20.2 REPORTS

The HMO must provide the following reports, in addition to the Financial Reports
described in SECTION 8.1.17 and those reporting requirements listed elsewhere in
the Contract. The HHSC UNIFORM MANAGED CARE MANUAL will include a list of all
required reports, and a description of the format, content, file layout and
submission deadlines for each report.


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 Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

CLAIMS DATA SPECIFICATIONS REPORT - HHSC, in collaboration with the HMO and the
EQRO, will develop specifications on the reporting and processing of claims data
that meet federal and programmatic requirements.

ALL CLAIMS SUMMARY REPORT - The HMO must submit a quarterly All Claims Summary
Report to HHSC by HMO Program, Service Area and claims processing subcontractor
by the 45th day following the reporting period unless otherwise specified. The
HMO must submit an End of Fiscal Year Cumulative All Claims Summary Report to
HHSC by HMO Program, Service Area and claims processing subcontractor by the
45th day following the reporting period unless otherwise specified. The report
will provide HHSC with information on how many claims were processed within the
required timeframes.

QAPI PROGRAM ANNUAL SUMMARY REPORT - The HMO must submit a QAPI Program Annual
Summary in a format and timeframe as specified in the Uniform Managed Care
Manual.

FRAUDULENT PRACTICES REPORT - Utilizing the HHSC-Office of Inspector General
(OIG) fraud referral form, the HMO's assigned officer or director must report
and refer all possible acts of waste, abuse or fraud to the HHSC-OIG within 30
working days of receiving the reports of possible acts of waste, abuse or fraud
from the HMO's Special Investigative Unit (SIU). The report and referral must
include: an investigative report identifying the allegation,
statutes/regulations violated or considered, and the results of the
investigation; copies of program rules and regulations violated for the time
period in question; the estimated overpayment identified; a summary of the
interviews conducted; the encounter data submitted by the provider for the time
period in question; and all supporting documentation obtained as the result of
the investigation. This requirement applies to all reports of possible acts of
waste, abuse and fraud.

Additional reports required by the Office of the Inspector General relating to
waste, abuse or fraud are listed in the HHSC UNIFORM MANAGED CARE MANUAL.

SUMMARY REPORT OF MEMBER COMPLAINTS AND APPEALS - The HMO must submit quarterly
Member Complaints and Appeals reports. The HMO must include in its reports
Complaints and Appeals submitted to its subcontracted risk groups (e.g., IPAs)
and any other subcontractor that provides Member services. The HMO must submit
the Complaint and Appeals reports electronically on or before 45 days following
the end of the state fiscal quarter, using the format specified by HHSC in the
HHSC UNIFORM MANAGED CARE MANUAL - Chapter 5.5.

SUMMARY REPORT OF PROVIDER COMPLAINTS - The HMO must submit Provider complaints
reports on a quarterly basis. The HMO must include in its reports complaints
submitted by providers to its subcontracted risk groups (e.g., IPAs) and any
other subcontractor that provides Provider services. The complaint reports must
be submitted electronically on or before 45 days following the end of the state
fiscal quarter, using the format specified by HHSC in the HHSC UNIFORM MANAGED
CARE MANUAL - Chapter 5.5.

HOTLINE REPORTS - The HMO must submit, on a quarterly basis, a status report for
the Member Hotline, the Behavioral Health Services Hotline, and the Provider
Hotline in comparison with the performance standards set out in SECTIONS
8.1.5.6, 8.1.14.3, AND 8.1.4.7. The HMO shall submit such reports using a format
to be prescribed by HHSC in consultation with the HMOs.


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

If the HMO is not meeting a hotline performance standard, HHSC may require the
HMO to submit monthly hotline performance reports and implement corrective
actions until the hotline performance standards are met. If a HMO has a single
hotline serving multiple Service Areas, multiple HMO Programs, or multiple
hotline functions, (i.e. Member, Provider, Behavioral Health Services hotlines),
HHSC may request on an annual basis that the HMO submit certain hotline response
information by HMO Program, by Service Area, and by hotline function, as
applicable to the HMO. HHSC may also request this type of hotline information if
a HMO is not meeting a hotline performance standard.

The HMO must follow all applicable Joint Interface Plans (JIPs) and all required
file submissions for HHSC's Administrative Services Contractor, External Quality
Review Organization (EQRO) and HHSC Medicaid Claims Administrator. The JIPs can
be accessed through the Uniform Managed Care Manual.

8.2  ADDITIONAL MEDICAID HMO SCOPE OF WORK

The following provisions apply to any HMO participating in the STAR HMO Program.

8.2.1 CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS

The HMO must ensure that the care of newly enrolled Members is not disrupted or
interrupted. The HMO must take special care to provide continuity in the care of
newly enrolled Members whose health or behavioral health condition has been
treated by specialty care providers or whose health could be placed in jeopardy
if Medically Necessary Covered Services are disrupted or interrupted.

The HMO must allow pregnant Members with 12 weeks or less remaining before the
expected delivery date to remain under the care of the Member's current OB/GYN
through the Member's postpartum checkup, even if the provider is Out-of-Network.
If a Member wants to change her OB/GYN to one who is in the Network, she must be
allowed to do so if the Provider to whom she wishes to transfer agrees to accept
her in the last trimester of pregnancy.

The HMO must pay a Member's existing Out-of-Network providers for Medically
Necessary Covered Services until the Member's records, clinical information and
care can be transferred to a Network Provider, or until such time as the Member
is no longer enrolled in that HMO, whichever is shorter. Payment to
Out-of-Network providers must be made within the time period required for
Network Providers. The HMO must comply with out-of-network provider
reimbursement rules as adopted by HHSC.

This Article does not extend the obligation of the HMO to reimburse the Member's
existing Out-of-Network providers for on-going care for:

     1.   More than 90 days after a Member enrolls in the HMO's Program, or

     2.   For more than nine (9) months in the case of a Member who, at the time
          of enrollment in the HMO, has been diagnosed with and receiving
          treatment for a terminal illness and remains enrolled in the HMO.


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                            Contractual Document (CD)

 Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO's obligation to reimburse the Member's existing Out-of-Network provider
for services provided to a pregnant Member with 12 weeks or less remaining
before the expected delivery date extends through delivery of the child,
immediate postpartum care, and the follow-up checkup within the first six weeks
of delivery.

The HMO must provide or pay Out-of-Network providers who provide Medically
Necessary Covered Services to Members who move out of the Service Area through
the end of the period for which capitation has been paid for the Member.

The HMO must provide Members with timely and adequate access to Out-of-Network
services for as long as those services are necessary and covered benefits not
available within the network, in accordance with 42 C.F.R. Section
438.206(b)(4). The HMO will not be obligated to provide a Member with access to
Out-of-Network services if such services become available from a Network
Provider.

The HMO must ensure that each Member has access to a second opinion regarding
the use of any Medically Necessary Covered Service. A Member must be allowed
access to a second opinion from a Network Provider or Out-of-Network provider if
a Network Provider is not available, at no cost to the Member, in accordance
with 42 C.F.R. Section 438.206(b)(3).

8.2.2 PROVISIONS RELATED TO COVERED SERVICES FOR MEDICAID MEMBERS

8.2.2.1 EMERGENCY SERVICES

HMO policy and procedures, Covered Services, claims adjudication methodology,
and reimbursement performance for Emergency Services must comply with all
applicable state and federal laws, rules, and regulations including 42 C.F.R.
Section 438.114, whether the provider is in-network or Out-of-Network. HMO
policies and procedures must be consistent with the prudent layperson definition
of an Emergency Medical Condition and the claims adjudication processes required
under the Contract and 42 C.F.R. Section 438.114.

The HMO must pay for the professional, facility, and ancillary services that are
Medically Necessary to perform the medical screening examination and
stabilization of a Member presenting with an Emergency Medical Condition or an
Emergency Behavioral Health Condition to the hospital emergency department, 24
hours a day, 7 days a week, rendered by either the HMO's Network or
Out-of-Network providers.

The HMO cannot require prior authorization as a condition for payment for an
Emergency Medical Condition, an Emergency Behavioral Health Condition, or labor
and delivery. The HMO cannot limit what constitutes an Emergency Medical
Condition on the basis of lists of diagnoses or symptoms. The HMO cannot refuse
to cover Emergency Services based on the emergency room provider, hospital, or
fiscal agent not notifying the Member's PCP or the HMO of the Member's screening
and treatment within 10 calendar days of presentation for Emergency Services.
The HMO may not hold the Member who has an Emergency Medical Condition liable
for payment of subsequent screening and treatment needed to diagnose the
specific condition or stabilize the patient. The HMO must accept the emergency
physician or provider's determination of when the Member is sufficiently
stabilized for transfer or discharge.


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

A medical screening examination needed to diagnose an Emergency Medical
Condition must be provided in a hospital based emergency department that meets
the requirements of the Emergency Medical Treatment and Active Labor Act
(EMTALA) (42 C.F.R. Sections 489.20,489.24 and 438.114(b)&(c)). The HMO must pay
for the emergency medical screening examination, as required by 42 U.S.C.
Section 1395dd. The HMO must reimburse for both the physician's services and the
hospital's Emergency Services, including the emergency room and its ancillary
services.

When the medical screening examination determines that an Emergency Medical
Condition exists, the HMO must pay for Emergency Services performed to stabilize
the Member. The emergency physician must document these services in the Member's
medical record. The HMO must reimburse for both the physician's and hospital's
emergency stabilization services including the emergency room and its ancillary
services.

The HMO must cover and pay for Post-Stabilization Care Services in the amount,
duration, and scope necessary to comply with 42 C.F.R. Section 438.114(b)&(e)
and 42 C.F.R. Section 422.113(c)(iii). The HMO is financially responsible for
post-stabilization care services obtained within or outside the Network that are
not pre-approved by a Provider or other HMO representative, but administered to
maintain, improve, or resolve the Member's stabilized condition if:

     1.   The HMO does not respond to a request for pre-approval within 1 hour;

     2.   The HMO cannot be contacted; or

     3.   The HMO representative and the treating physician cannot reach an
          agreement concerning the Member's care and a Network physician is not
          available for consultation. In this situation, the HMO must give the
          treating physician the opportunity to consult with a Network physician
          and the treating physician may continue with care of the patient until
          an HMO physician is reached. The HMO's financial responsibility ends
          as follows: the HMO physician with privileges at the treating hospital
          assumes responsibility for the Member's care; the HMO physician
          assumes responsibility for the Member's care through transfer; the HMO
          representative and the treating physician reach an agreement
          concerning the Member's care; or the Member is discharged.

8.2.2.2 FAMILY PLANNING - SPECIFIC REQUIREMENTS

The HMO must require, through Provider contract provisions, that Members
requesting contraceptive services or family planning services are also provided
counseling and education about the family planning and family planning services
available to Members. The HMO must develop outreach programs to increase
community support for family planning and encourage Members to use available
family planning services.

The HMO must ensure that Members have the right to choose any Medicaid
participating family planning provider, whether the provider chosen by the
Member is in or outside the Provider Network. The HMO must provide Members
access to information about available providers of family planning services and
the Member's right to choose any Medicaid family planning provider. The HMO must
provide access to confidential family planning services.

The HMO must provide, at minimum, the full scope of services available under the
Texas Medicaid program for family planning services. The HMO will reimburse
family planning agencies the Medicaid fee-for service amounts for family
planning services, including Medically


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Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

Necessary medications, contraceptives, and supplies not covered by the Vendor
Drug Program and will reimburse Out-of-Network family planning providers in
accordance with HHSC's administrative rules.

The HMO must provide medically approved methods of contraception to Members,
provided that the methods of contraception are Covered Services. Contraceptive
methods must be accompanied by verbal and written instructions on their correct
use. The HMO must establish mechanisms to ensure all medically approved methods
of contraception are made available to the Member, either directly or by
referral to a subcontractor.

The HMO must develop, implement, monitor, and maintain standards, policies and
procedures for providing information regarding family planning to Providers and
Members, specifically regarding State and federal laws governing Member
confidentiality (including minors). Providers and family planning agencies
cannot require parental consent for minors to receive family planning services.
The HMO must require, through contractual provisions, that subcontractors have
mechanisms in place to ensure Member's (including minor's) confidentiality for
family planning services.

8.2.2.3 TEXAS HEALTH STEPS (EPSDT)

The HMO must develop effective methods to ensure that children under the age of
21 receive THSteps services when due and according to the recommendations
established by the AAP and the THSteps periodicity schedule for children. The
HMO must arrange for THSteps services for all eligible Members except when a
Member knowingly and voluntarily declines or refuses services after receiving
sufficient information to make an informed decision.

HMO must have mechanisms in place to ensure that all newly enrolled newborns
receive an appointment for a THSteps checkup within 14 days of enrollment and
all other eligible child Members receive a THSteps checkup within 60 days of
enrollment, if one is due according to the AAP periodicity schedule.

The HMO must ensure that Members are provided information and educational
materials about the services available through the THSteps Program, and how and
when they may obtain the services. The information should tell the Member how
they can obtain dental benefits, transportation services through the Texas
Department of Transportation's Medical Transportation Program, and advocacy
assistance from the HMO.

The HMO must provide appropriate training to all Network Providers and Provider
staff in the Providers' area of practice regarding the scope of benefits
available and the THSteps Program. Training must include:

          1.   THSteps benefits,

          2.   The periodicity schedule for THSteps medical checkups and
               immunizations,

          3.   The required elements of THSteps medical checkups,

          4.   Providing or arranging for all required lab screening tests
               (including lead screening), and Comprehensive Care Program (CCP)
               services available under the THSteps program to Members under age
               21 years.


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Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

HMO must also educate and train Providers regarding the requirements imposed on
HHSC and contracting HMOs under the Consent Decree entered in Frew v. Hawkins,
et. al., Civil Action No. 3:93CV65, in the United States District Court for the
Eastern District of Texas, Paris Division. Providers should be educated and
trained to treat each THSteps visit as an opportunity for a comprehensive
assessment of the Member.

The HMO must provide outreach to Members to ensure they receive prompt services
and are effectively informed about available THSteps services. Each month, the
HMO must retrieve from the HHSC Administrative Services Contractor Bulletin
Board System a list of Members who are due and overdue THSteps services. Using
these lists and its own internally generated list, the HMO will contact such
Members to obtain the service as soon as possible. The HMO outreach staff must
coordinate with DSHS THSteps outreach staff to ensure that Members have access
to the Medical Transportation Program, and that any coordination with other
agencies is maintained.

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

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

All laboratory specimens collected as a required component of a THSteps checkup
(see Medicaid Provider Procedures Manual for age-specific requirements) must be
submitted to the DSHS Laboratory for analysis. The HMO must educate Providers
about THSteps Program requirements for submitting laboratory tests to the DSHS
Bureau of Laboratories.

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

The HMO must educate Providers on the Immunization Standard Requirements set
forth in Chapter 161, Health and Safety Code; the standards in the ACIP
Immunization Schedule; the AAP Periodicity Schedule for CHIP Members; and the
DSHS Periodicity Schedule for Medicaid Members. The HMO shall educate Providers
that Medicaid Members under age 21 must be immunized during the THSteps checkup
according to the DSHS routine immunization schedule. The HMO shall also educate
Providers that the screening provider is responsible for administration of the
immunization and should not refer children to Local Health Departments to
receive immunizations.


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                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO must educate Providers about, and require Providers to comply with, the
requirements of Chapter 161, Health and Safety Code, relating to the Texas
Immunization Registry (ImmTrac), to include parental consent on the Vaccine
Information Statement.

The HMO must require all THSteps Providers to submit claims for services paid
(either on a capitated or fee-for service basis) on the HCFA 1500 claim form and
use the HIPAA compliant code set required by HHSC.

Encounter Data will be validated by chart review of a random sample of THSteps
eligible enrollees against monthly Encounter Data reported by the HMO. HHSC or
its designee will conduct chart reviews to validate that all screens are
performed when due and as reported, and that reported data is accurate and
timely. Substantial deviation between reported and charted Encounter Data could
result in the HMO and/or Network Providers being investigated for potential
Fraud, Abuse, or Waste without notice to the HMO or the Provider.

8.2.2.4 PERINATAL SERVICES

The HMO's perinatal health care services must ensure appropriate care is
provided to women and infant Members of the HMO from the preconception period
through the infant's first year of life. The HMO's perinatal health care system
must comply with the requirements of the Texas Health and Safety Code, Chapter
32 (the Maternal and Infant Health Improvement Act) and administrative rules
codified at 25 T.A.C. Chapter 37, Subchapter M.

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

     1.   Pregnancy planning and perinatal health promotion and education for
          reproductive- age women;

     2.   Perinatal risk assessment of non-pregnant women, pregnant and
          postpartum women, and infants up to one year of age;

     3.   Access to appropriate levels of care based on risk assessment,
          including emergency care;

     4.   Transfer and care of pregnant women, newborns, and infants to tertiary
          care facilities when necessary;

     5.   Availability and accessibility of OB/GYNs, anesthesiologists, and
          neonatologists capable of dealing with complicated perinatal problems;
          and

     6.   Availability and accessibility of appropriate outpatient and inpatient
          facilities capable of dealing with complicated perinatal problems.

The HMO must have a process to expedite scheduling a prenatal appointment for an
obstetrical exam for a TP40 Member no later than two weeks after receiving the
daily Enrollment File verifying the Member's enrollment into the HMO.

The HMO must have procedures in place to contact and assist a
pregnant/delivering Member in selecting a PCP for her baby either before the
birth or as soon as the baby is born.

The HMO must provide inpatient care and professional services relating to labor
and delivery for its pregnant/delivering Members, and neonatal care for its
newborn Members at the time of


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SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

delivery and for up to 48 hours following an uncomplicated vaginal delivery and
96 hours following an uncomplicated Caesarian delivery.

The HMO must Adjudicate provider claims for services provided to a newborn
Member in accordance with HHSC's claims processing requirements using the proxy
ID number or State-issued Medicaid ID number. The HMO cannot deny claims based
on a provider's non-use of State-issued Medicaid ID number for a newborn Member.
The HMO must accept provider claims for newborn services based on mother's name
and/or Medicaid ID number with accommodations for multiple births, as specified
by the HMO.

The HMO must notify providers involved in the care of pregnant/delivering women
and newborns (including Out-of-Network providers and hospitals) of the HMO's
prior authorization requirements. The HMO cannot require a prior authorization
for services provided to a pregnant/delivering Member or newborn Member for a
medical condition that requires Emergency Services, regardless of when the
emergency condition arises.

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

The HMO must provide STD services that include STD/HIV prevention, screening,
counseling, diagnosis, and treatment. The HMO is responsible for implementing
procedures to ensure that Members have prompt access to appropriate services for
STDs, including HIV. The HMO must allow Members access to STD services and HIV
diagnosis services without prior authorization or referral by a PCP.

The HMO must comply with Texas Family Code Section 32.003, relating to consent
to treatment by a child. The HMO must provide all Covered Services required to
form the basis for a diagnosis by the Provider as well as the STD/HIV treatment
plan.

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

The HMO must require Providers to report all confirmed cases of STDs, including
HIV, to the local or regional health authority according to 25 T.A.C.
Sections 97.131 - 97.134, using the required forms and procedures for reporting
STDs. The HMO must coordinate with the HHSC regional health authority to ensure
that Members with confirmed cases of syphilis, chancroid, gonorrhea, chlamydia
and HIV receive risk reduction and partner elicitation/notification counseling.

The HMO must have established procedures to make Member records available to
public health agencies with authority to conduct disease investigation, receive
confidential Member information, and provide follow up activities.

The HMO must require that Providers have procedures in place to protect the
confidentiality of Members provided STD/HIV services. These procedures must
include, but are not limited to, the manner in which medical records are to be
safeguarded, how employees are to protect medical information, and under what
conditions information can be shared. The HMO must inform and require its
Providers who provide STD/HIV services to comply with all state laws relating to


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Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

communicable disease reporting requirements. The HMO must implement policies and
procedures to monitor Provider compliance with confidentiality requirements.

The HMO must have policies and procedures in place regarding obtaining informed
consent and counseling Members provided STD/HIV services.

8.2.2.6 TUBERCULOSIS (TB)

The HMO must provide Members and Providers with education on the prevention,
detection and effective treatment of tuberculosis (TB). The HMO must establish
mechanisms to ensure all procedures required to screen at-risk Members and to
form the basis for a diagnosis and proper prophylaxis and management of TB are
available to all Members, except services referenced in SECTION 8.2.2.8 as
Non-Capitated Services. The HMO must develop policies and procedures to ensure
that Members who may be or are at risk for exposure to TB are screened for TB.
An at-risk Member means a person who is susceptible to TB because of the
association with certain risk factors, behaviors, drug resistance, or
environmental conditions. The HMO must consult with the local TB control program
to ensure that all services and treatments are in compliance with the guidelines
recommended by the American Thoracic Society (ATS), the Centers for Disease
Control and Prevention (CDC), and DSHS policies and standards.

The HMO must implement policies and procedures requiring Providers to report all
confirmed or suspected cases of TB to the local TB control program within one
working day of identification, using the most recent DSHS forms and procedures
for reporting TB. The HMO must provide access to Member medical records to DSHS
and the local TB control program for all confirmed and suspected TB cases upon
request.

The HMO must coordinate with the local TB control program to ensure that all
Members with confirmed or suspected TB have a contact investigation and receive
Directly Observed Therapy (DOT). The HMO must require, through contract
provisions, that Providers report to DSHS or the local TB control program any
Member who is non-compliant, drug resistant, or who is or may be posing a public
health threat. The HMO must cooperate with the local TB control program in
enforcing the control measures and quarantine procedures contained in Chapter 81
of the Texas Health and Safety Code.

The HMO must have a mechanism for coordinating a post-discharge plan for
follow-up DOT with the local TB program. The HMO must coordinate with the DSHS
South Texas Hospital and Texas Center for Infectious Disease for voluntary and
court-ordered admission, discharge plans, treatment objectives and projected
length of stay for Members with multi-drug resistant TB.

8.2.2.7 OBJECTION TO PROVIDE CERTAIN SERVICES

In accordance with 42 C.F.R. Section 438.102, the HMO may file an objection to
providing, reimbursing for, or providing coverage of, a counseling or referral
service for a Covered Service based on moral or religious grounds. The HMO must
work with HHSC to develop a work plan to complete the necessary tasks and
determine an appropriate date for implementation of the requested changes to the
requirements related to Covered Services. The work plan will include timeframes
for completing the necessary Contract and waiver amendments, adjustments to
Capitation Rates,


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Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

identification of the HMO and enrollment materials needing revision, and
notifications to Members.

In order to meet the requirements of this section, the HMO must notify HHSC of
grounds for and provide detail concerning its moral or religious objections and
the specific services covered under the objection, no less than 120 days prior
to the proposed effective date of the policy change.

8.2.2.8 MEDICAID NON-CAPITATED SERVICES

The following Texas Medicaid programs and services have been excluded from HMO
Covered Services. STAR Members are eligible to receive these Non-capitated
services on a fee-for-service basis from Texas Medicaid providers. HMOs should
refer to relevant chapters in the PROVIDER PROCEDURES MANUAL and the TEXAS
MEDICAID BULLETINS for more information.

     1.   THSteps dental (including orthodontia);

     2.   Early Childhood Intervention (ECI) case management/service
          coordination;

     3.   DSHS targeted case management;

     4.   DSHS mental health rehabilitation;

     5.   DSHS case management for Children and Pregnant Women;

     6.   Texas School Health and Related Services (SHARS);

     7.   Department of Assistive and Rehabilitative Services Blind Children's
          Vocational Discovery and Development Program;

     8.   Tuberculosis services provided by DSHS-approved providers (directly
          observed therapy and contact investigation);

     9.   Vendor Drug Program (out-of-office drugs);

     10.  Texas Department of Transportation Medical Transportation;

     11.  DADS hospice services (all Members are disenrolled from their health
          plan upon enrollment into hospice);

     12.  Audiology services and hearing aids for children (under age 21)
          (hearing screening services are provided through the THSteps Program
          and are capitated) through PACT (Program for Amplification for
          Children of Texas).

8.2.2.9 REFERRALS FOR NON-CAPITATED SERVICES

Although STAR HMOs are not responsible for paying or reimbursing for
Non-capitated Services, HMOs are responsible for educating Members about the
availability of Non-capitated Services, and for providing appropriate referrals
for Members to obtain or access these services. The HMO is responsible for
informing Providers that bills for all Non-capitated Services must be submitted
to HHSC's Claims Administrator for reimbursement.

8.2.3 MEDICAID SIGNIFICANT TRADITIONAL PROVIDERS

In the first three (3) years of a Medicaid HMO Program operating in a Service
Area, the HMO must seek participation in its Network from all Medicaid
Significant Traditional Providers (STPs) defined by HHSC in the applicable
Service Area for the applicable HMO Program. For STAR HMOs, the Medicaid STP
requirements only apply in the Nueces Service Area. Medicaid STPs are defined as
PCPs that, when listed by provider type by county in descending order by


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<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

unduplicated number of clients, served the top 80% of unduplicated clients.
Hospitals receiving Disproportionate Share Hospital (DSH) funds are also
considered STPs in the Service Area in which they are located. The Procurement
Library includes listings of Medicaid STPs by Service Area.

The HMO must give STPs the opportunity to participate in its Network for at
least three (3) years commencing on the implementation date of Medicaid managed
care in the Service Area. However, the STP provider must:

     1.   Agree to accept the HMO's Provider reimbursement rate for the provider
          type; and

     2.   Meet the standard credentialing requirements of the HMO, provided that
          lack of board certification or accreditation by the Joint Commission
          on Accreditation of Health Care Organizations (JCAHO) is not the sole
          grounds for exclusion from the Provider Network.

8.2.4 FEDERALLY QUALIFIED HEALTH CENTERS (FQHCS) AND RURAL HEALTH CLINICS (RHCS)

The HMO must make reasonable efforts to include FQHCs and RHCs (freestanding and
hospital-based) in its Provider Network. The HMO must reimburse FQHCs and RHCs
for health care services provided outside of regular business hours, as defined
by HHSC in rules, including weekend days or holidays, at a rate that is equal to
the allowable rate for those services as determined under Section 32.028, Human
Resources Code, if the Member does not have a referral from their PCP. FQHCs or
RHCs will receive a cost settlement from HHSC and must agree to accept initial
payments from the HMO in an amount that is equal to or greater than the HMO's
payment terms for other Providers providing the same or similar services.

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

8.2.5 PROVIDER COMPLAINTS AND APPEALS

8.2.5.1 PROVIDER COMPLAINTS

Medicaid HMOs must develop, implement, and maintain a system for tracking and
resolving all Medicaid Provider complaints. Within this process, the HMO must
respond fully and completely to each complaint and establish a tracking
mechanism to document the status and final disposition of each Provider
complaint.


                                                                            8-55

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

8.2.5.2 APPEAL OF PROVIDER CLAIMS

Medicaid HMOs must develop, implement, and maintain a system for tracking and
resolving all Medicaid Provider appeals related to claims payment. Within this
process, the Provider must respond fully and completely to each Medicaid
Provider's claims payment appeal and establish a tracking mechanism to document
the status and final disposition of each Medicaid Provider's claims payment
appeal.

Medicaid HMOs must contract with physicians who are not Network Providers to
resolve claims disputes related to denial on the basis of medical necessity that
remain unresolved subsequent to a Provider appeal. The determination of the
physician resolving the dispute must be binding on the HMO and the Provider. The
physician resolving the dispute must hold the same specialty or a related
specialty as the appealing Provider. HHSC reserves the right to amend this
process to include an independent review process established by HHSC for final
determination on these disputes.

8.2.6 MEMBER RIGHTS AND RESPONSIBILITIES

In accordance with 42 C.F.R. Section 438.100, all Medicaid HMOs must maintain
written policies and procedures for informing Members of their rights and
responsibilities, and must notify their Members of their right to request a copy
of these rights and responsibilities. The Member Handbook must include
notification of Member rights and responsibilities.

8.2.7 MEDICAID MEMBER COMPLAINT AND APPEAL SYSTEM

The HMO must develop, implement, and maintain a Member Complaint and Appeal
system that complies with the requirements in applicable federal and state laws
and regulations, including 42 C.F.R. Section, 431.200,42 C.F.R. Part 438,
Subpart F, "Grievance System," and the provisions of 1 T.A.C. Chapter 357
relating to Medicaid managed care organizations.

The Complaint and Appeal system must include a Complaint process, an Appeal
process, and access to HHSC's Fair Hearing System. The procedures must be the
same for all Members and must be reviewed and approved in writing by HHSC or its
designee. Modifications and amendments to the Member Complaint and Appeal system
must be submitted for HHSC's approval at least 30 days prior to the
implementation.

8.2.7.1 MEMBER COMPLAINT PROCESS

The HMO must have written policies and procedures for receiving, tracking,
responding to, reviewing, reporting and resolving Complaints by Members or their
authorized representatives. For purposes of this SECTION 8.2.7, an "authorized
representative" is any person or entity acting on behalf of the Member and with
the Member's written consent. A Provider may be an authorized representative.

The HMO must resolve Complaints within 30 days from the date the Complaint is
received. The HMO is subject to remedies, including liquidated damages, if at
least 98 percent of Member


                                                                            8-56

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 -- HHSC JOINT MEDICAID/CHIP HMO RFP,         Version 1.0
         SECTION 8

Complaints are not resolved within 30 days of receipt of the Complaint by the
HMO. Please see the UNIFORM MANAGED CARE CONTRACT TERMS & CONDITIONS and
ATTACHMENT B-5, DELIVERABLES/LIQUIDATED DAMAGES MATRIX. The Complaint procedure
must be the same for all Members under the Contract. The Member or Member's
authorized representative may file a Complaint either orally or in writing. The
HMO must also inform Members how to file a Complaint directly with HHSC, once
the Member has exhausted the HMO's complaint process.

The HMO must designate an officer of the HMO who has primary responsibility for
ensuring that Complaints are resolved in compliance with written policy and
within the required timeframe. For purposes of SECTION 8.2.7.2, an "officer" of
the HMO means a president, vice president, secretary, treasurer, or chairperson
of the board for a corporation, the sole proprietor, the managing general
partner of a partnership, or a person having similar executive authority in the
organization.

The HMO must have a routine process to detect patterns of Complaints.
Management, supervisory, and quality improvement staff must be involved in
developing policy and procedure improvements to address the Complaints.

The HMO's Complaint procedures must be provided to Members in writing and
through oral interpretive services. A written description of the HMO's Complaint
procedures must be available in prevalent non-English languages for Major
Population Groups identified by HHSC, at no more than a 6th grade reading level.

The HMO must include a written description of the Complaint process in the
Member Handbook. The HMO must maintain and publish in the Member Handbook, at
least one local and one toll-free telephone number with
TeleTypewriter/Telecommunications Device for the Deaf (TTY/TDD) and interpreter
capabilities for making Complaints.

The HMO's process must require that every Complaint received in person, by
telephone, or in writing must be acknowledged and recorded in a written record
and logged with the following details:

     1.   Date;

     2.   Identification of the individual filing the Complaint;

     3.   Identification of the individual recording the Complaint;

     4.   Nature of the Complaint;

     5.   Disposition of the Complaint (i.e., how the HMO resolved the
          Complaint);

     6.   Corrective action required; and

     7.   Date resolved.

The HMO is prohibited from discriminating or taking punitive action against a
Member or his or her representative for making a Complaint.

If the Member makes a request for disenrollment, the HMO must give the Member
information on the disenrollment process and direct the Member to the HHSC
Administrative Services Contractor. If the request for disenrollment includes a
Complaint by the Member, the Complaint will be processed separately from the
disenrollment request, through the Complaint process.


                                                                            8-57

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO will cooperate with the HHSC's Administrative Services Contractor and
HHSC or its designee to resolve all Member Complaints. Such cooperation may
include, but is not limited to, providing information or assistance to internal
Complaint committees.

The HMO must provide designated Member Advocates to assist Members in
understanding and using the HMO's Complaint system as described in SECTION
8.2.7.9. The HMO's Member Advocates must assist Members in writing or filing a
Complaint and monitoring the Complaint through the HMO's Complaint process until
the issue is resolved.

8.2.7.2 MEDICAID STANDARD MEMBER APPEAL PROCESS

The HMO must develop, implement and maintain an Appeal procedure that complies
with state and federal laws and regulations, including 42 C.F.R. Section 431.200
and 42 C.F.R. Part 438, Subpart F, "Grievance System." An Appeal is a
disagreement with an HMO Action as defined in HHSC'S UNIFORM CONTRACT TERMS AND
CONDITIONS. The Appeal procedure must be the same for all Members. When a Member
or his or her authorized representative expresses orally or in writing any
dissatisfaction or disagreement with an Action, the HMO must regard the
expression of dissatisfaction as a request to Appeal an Action.

A Member must file a request for an Appeal with the HMO within 30 days from
receipt of the notice of the Action. The HMO is subject to remedies, including
liquidated damages, if at least 98 percent of Member Appeals are not resolved
within 30 days of receipt of the Appeal by the HMO. Please see the UNIFORM
MANAGED CARE CONTRACT TERMS & CONDITIONS AND ATTACHMENT B-5,
DELIVERABLES/LIQUIDATED DAMAGES MATRIX. To ensure continuation of currently
authorized services, however, the Member must file the Appeal on or before the
later of 10 days following the HMO's mailing of the notice of the Action, or the
intended effective date of the proposed Action. The HMO must designate an
officer who has primary responsibility for ensuring that Appeals are resolved in
compliance with written policy and within the 30-day time limit.

The provisions of Article 21.58A, Texas Insurance Code, (to be recodified as
Texas Insurance Code, Title 14, Chapter 4201), relating to a Member's right to
Appeal an Adverse Determination made by the HMO or a utilization review agent to
an independent review organization, do not apply to a Medicaid recipient.
Article 21.58A is pre-empted by federal Fair Hearings requirements.

The HMO must have policies and procedures in place outlining the Medical
Director's role in an Appeal of an Action. The Medical Director must have a
significant role in monitoring, investigating and hearing Appeals. In accordance
with 42 C.F.R. Section 438.406, the HMO's policies and procedures must require
that individuals who make decisions on Appeals are not involved in any previous
level of review or decision-making, and are health care professionals who have
the appropriate clinical expertise in treating the Member's condition or
disease.

The HMO must provide designated Member Advocates, as described in SECTION
8.2.7.9, to assist Members in understanding and using the Appeal process. The
HMO's Member Advocates must assist Members in writing or filing an Appeal and
monitoring the Appeal through the HMO's Appeal process until the issue is
resolved.


                                                                            8-58

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

The HMO must have a routine process to detect patterns of Appeals. Management,
supervisory, and quality improvement staff must be involved in developing policy
and procedure improvements to address the Appeals.

The HMO's Appeal procedures must be provided to Members in writing and through
oral interpretive services. A written description of the Appeal procedures must
be available in prevalent non-English languages identified by HHSC, at no more
than a 6th grade reading level. The HMO must include a written description of
the Appeals process in the Member Handbook. The HMO must maintain and publish in
the Member Handbook at least one local and one toll-free telephone number with
TTY/TDD and interpreter capabilities for requesting an Appeal of an Action.

The HMO's process must require that every oral Appeal received must be confirmed
by a written, signed Appeal by the Member or his or her representative, unless
the Member or his or her representative requests an expedited resolution. All
Appeals must be recorded in a written record and logged with the following
details:

     1)   Date notice is sent;

     2)   Effective date of the Action;

     3)   Date the Member or his or her representative requested the Appeal;

     4)   Date the Appeal was followed up in writing;

     5)   Identification of the individual filing;

     6)   Nature of the Appeal; and

     7)   Disposition of the Appeal, and notice of disposition to Member.

The HMO must send a letter to the Member within five (5) business days
acknowledging receipt of the Appeal request. Except for the resolution of an
Expedited Appeal as provided in SECTION 8.2.7.3, the HMO must complete the
entire standard Appeal process within 30 calendar days after receipt of the
initial written or oral request for Appeal. The timeframe for a standard Appeal
may be extended up to 14 calendar days if the Member or his or her
representative requests an extension; or the HMO shows that there is a need for
additional information and how the delay is in the Member's interest. If the
timeframe is extended, the HMO must give the Member written notice of the reason
for delay if the Member had not requested the delay. The HMO must designate an
officer who has primary responsibility for ensuring that Appeals are resolved
within these timeframes and in accordance with the HMO's written policies.

During the Appeal process, the HMO must provide the Member a reasonable
opportunity to present evidence and any allegations of fact or law in person as
well as in writing. The HMO must inform the Member of the time available for
providing this information and that, in the case of an expedited resolution,
limited time will be available.

The HMO must provide the Member and his or her representative opportunity,
before and during the Appeal process, to examine the Member's case file,
including medical records and any other documents considered during the Appeal
process. The HMO must include, as parties to the Appeal, the Member and his or
her representative or the legal representative of a deceased Member's estate.


                                                                            8-59

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 -- HHSC JOINT MEDICAID/CHIP HMO RFP,         Version 1.0
         SECTION 8

In accordance with 42 C.F.R. Section 438.420, the HMO must continue the Member's
benefits currently being received by the Member, including the benefit that is
the subject of the Appeal, if all of the following criteria are met:

     1.   The Member or his or her representative files the Appeal timely as
          defined in this Contract:

     2.   The Appeal involves the termination, suspension, or reduction of a
          previously authorized course of treatment;

     3.   The services were ordered by an authorized provider;

     4.   The original period covered by the original authorization has not
          expired; and

     5.   The Member requests an extension of the benefits.

If, at the Member's request, the HMO continues or reinstates the Member's
benefits while the Appeal is pending, the benefits must be continued until one
of the following occurs:

     1.   The Member withdraws the Appeal;

     2.   Ten (10) days pass after the HMO mails the notice resolving the Appeal
          against the Member, unless the Member, within the 10-day timeframe,
          has requested a Fair Hearing with continuation of benefits until a
          Fair Hearing decision can be reached; or

     3.   A state Fair Hearing officer issues a hearing decision adverse to the
          Member or the time period or service limits of a previously authorized
          service has been met.

In accordance with 42 C.F.R. Section 438.420(d), if the final resolution of the
Appeal is adverse to the Member and upholds the HMO's Action, then to the extent
that the services were furnished to comply with the Contract, the HMO may
recover such costs from the Member.

If the HMO or State Fair Hearing Officer reverses a decision to deny, limit, or
delay services that were not furnished while the Appeal was pending, the HMO
must authorize or provide the disputed services promptly and as expeditiously as
the Member's health condition requires.

If the HMO or State Fair Hearing Officer reverses a decision to deny
authorization of services and the Member received the disputed services while
the Appeal was pending, the HMO is responsible for the payment of services.

The HMO is prohibited from discriminating or taking punitive action against a
Member or his or her representative for making an Appeal.

8.2.7.3 EXPEDITED MEDICAID HMO APPEALS

In accordance with 42 C.F.R. Section 438.410, the HMO must establish and
maintain an expedited review process for Appeals, when the HMO determines (for a
request from a Member) or the provider indicates (in making the request on the
Member's behalf or supporting the Member's request) that taking the time for a
standard resolution could seriously jeopardize the Member's life or health. The
HMO must follow all Appeal requirements for standard Member Appeals as


                                                                            8-60

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 -- HHSC JOINT MEDICAID/CHIP HMO RFP,         Version 1.0
         SECTION 8

set forth in SECTION 8.2.7.2), except where differences are specifically noted.
The HMO must accept oral or written requests for Expedited Appeals.

Members must exhaust the HMO's Expedited Appeal process before making a request
for an expedited Fair Hearing. After the HMO receives the request for an
Expedited Appeal, it must hear an approved request for a Member to have an
Expedited Appeal and notify the Member of the outcome of the Expedited Appeal
within 3 business days, except that the HMO must complete investigation and
resolution of an Appeal relating to an ongoing emergency or denial of continued
hospitalization: (1) in accordance with the medical or dental immediacy of the
case; and (2) not later than one (1) business day after receiving the Member's
request for Expedited Appeal is received.

Except for an Appeal relating to an ongoing emergency or denial of continued
hospitalization, the timeframe for notifying the Member of the outcome of the
Expedited Appeal may be extended up to 14 calendar days if the Member requests
an extension or the HMO shows (to the satisfaction of HHSC, upon HHSC's request)
that there is a need for additional information and how the delay is in the
Member's interest. If the timeframe is extended, the HMO must give the Member
written notice of the reason for delay if the Member had not requested the
delay.

If the decision is adverse to the Member, the HMO must follow the procedures
relating to the notice in SECTION 8.2.7.5. The HMO is responsible for notifying
the Member of his or her right to access an expedited Fair Hearing from HHSC.
The HMO will be responsible for providing documentation to the State and the
Member, indicating how the decision was made, prior to HHSC's expedited Fair
Hearing.

The HMO is prohibited from discriminating or taking punitive action against a
Member or his or her representative for requesting an Expedited Appeal. The HMO
must ensure that punitive action is neither taken against a provider who
requests an expedited resolution or supports a Member's request.

If the HMO denies a request for expedited resolution of an Appeal, it must:

          (1)  Transfer the Appeal to the timeframe for standard resolution, and

          (2)  Make a reasonable effort to give the Member prompt oral notice of
               the denial, and follow up within two (2) calendar days with a
               written notice.

8.2.7.4 ACCESS TO FAIR HEARING FOR MEDICAID MEMBERS

The HMO must inform Members that they have the right to access the Fair Hearing
process at any time during the Appeal system provided by the HMO. In the case of
an expedited Fair Hearing process, the HMO must inform the Member that he or she
must first exhaust the HMO's internal Expedited Appeal process prior to filing
an Expedited Fair Hearing. The HMO must notify Members that they may be
represented by an authorized representative in the Fair Hearing process.


                                                                            8-61

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 -- HHSC JOINT MEDICAID/CHIP HMO RFP,         Version 1.0
         SECTION 8

8.2.7.5 NOTICES OF ACTION AND DISPOSITION OF APPEALS FOR MEDICAID MEMBERS

The HMO must notify the Member, in accordance with 1 T.A.C. Chapter 357,
whenever the HMO takes an Action. The notice must, at a minimum, include any
information required by 1 T.A.C. Chapter 357 that relates to a managed care
organization's notice of Action and any information required by 42 C.F.R.
Section 438.404 as directed by HHSC, including but not limited to:

     1. The Action the HMO has taken or intends to take;

     2. The reasons for the Action;

     3. The Member's right to access the HMO's Appeal process.

     4. The procedures by which the Member may Appeal the HMO's Action;

     5. The circumstances under which expedited resolution is available and how
     to request it;

     6. The circumstances under which a Member may continue to receive benefits
     pending resolution of the Appeal, how to request that benefits be
     continued, and the circumstances under which the Member may be required to
     pay the costs of these services;

     7. The date the Action will be taken;

     8. A reference to the HMO policies and procedures supporting the HMO's
     Action;

     9. An address where written requests may be sent and a toll-free number
     that the Member can call to request the assistance of a Member
     representative, file an Appeal, or request a Fair Hearing;

     10. An explanation that Members may represent themselves, or be represented
     by a provider, a friend, a relative, legal counsel or another spokesperson;

     11. A statement that if the Member wants a Fair Hearing on the Action, the
     Member must make the request for a Fair Hearing within 90 days of the date
     on the notice or the right to request a hearing is waived;

     12. A statement explaining that the HMO must make its decision within 30
     days from the date the Appeal is received by the HMO, or 3 business days in
     the case of an Expedited Appeal; and

     13. A statement explaining that the hearing officer must make a final
     decision within 90 days from the date a Fair Hearing is requested.

8.2.7.6 TIMEFRAME FOR NOTICE OF ACTION

In accordance with 42 C.F.R. Section 438.404(c), the HMO must mail a notice of
Action within the following timeframes:


                                                                            8-62

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

     1.   For termination, suspension, or reduction of previously authorized
          Medicaid-covered services, within the timeframes specified in 42
          C.F.R. Sections 431.211,431.213, and 431.214;

     2.   For denial of payment, at the time of any Action affecting the claim;

     3.   For standard service authorization decisions that deny or limit
          services, within the timeframe specified in 42 C.F.R. Section
          438.210(d)(1);

     4.   If the HMO extends the timeframe in accordance with 42 C.F.R.
          Section 438.210(d)(1), it must:

               a.   give the Member written notice of the reason for the
                    decision to extend the timeframe and inform the Member of
                    the right to file an Appeal if he or she disagrees with that
                    decision; and

               b.   issue and carry out its determination as expeditiously as
                    the Member's health condition requires and no later than the
                    date the extension expires;

     5.   For service authorization decisions not reached within the timeframes
          specified in 42 C.F.R. Section 438.210(d) (which constitutes a denial
          and is thus an adverse Action), on the date that the timeframes
          expire; and

     6.   For expedited service authorization decisions, within the timeframes
          specified in 42 C.F.R. 438.210(d).

8.2.7.7 NOTICE OF DISPOSITION OF APPEAL

In accordance with 42 C.F.R. Section 438.408(e), the HMO must provide written
notice of disposition of all Appeals including Expedited Appeals. The written
resolution notice must include the results and date of the Appeal resolution.
For decisions not wholly in the Member's favor, the notice must contain:

     1.   The right to request a Fair Hearing;

     2.   How to request a Fair Hearing;

     3.   The circumstances under which the Member may continue to receive
          benefits pending a Fair Hearing;

     4.   How to request the continuation of benefits;

     5.   If the HMO's Action is upheld in a Fair Hearing, the Member may be
          liable for the cost of any services furnished to the Member while the
          Appeal is pending; and

     6.   Any other information required by 1 T.A.C. Chapter 357 that relates to
          a managed care organization's notice of disposition of an Appeal.

8.2.7.8 TIMEFRAME FOR NOTICE OF RESOLUTION OF APPEALS

In accordance with 42 C.F.R. Section 438.408, the HMO must provide written
notice of resolution of Appeals, including Expedited Appeals, as expeditiously
as the Member's health condition requires, but the notice must not exceed the
timelines as provided in this Section for Standard or Expedited Appeals. For
expedited resolution of Appeals, the HMO must make reasonable efforts to give
the Member prompt oral notice of resolution of the Appeal, and follow up with a
written notice within the timeframes set forth in this Section for Expedited
Appeals. If the HMO denies a request for expedited resolution of an Appeal, the
HMO must transfer the Appeal to the timeframe for standard resolution as
provided in this Section, and make reasonable efforts to give the Member prompt
oral notice of the denial, and follow up within two calendar days with a written
notice.


                                                                            8-63

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

8.2.7.9 MEDICAID MEMBER ADVOCATES

The HMO must provide Member Advocates to assist Members. Member Advocates must
be physically located within the Service Area unless an exception is approved by
HHSC. Member Advocates must inform Members of the following:

     -    Their rights and responsibilities,

     -    The Complaint process,

     -    The Appeal process,

     -    Covered Services available to them, including preventive services, and

     -    Non-capitated Services available to them.

Member Advocates must assist Members in writing Complaints and are responsible
for monitoring the Complaint through the HMO's Complaint process.

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

8.2.8 ADDITIONAL MEDICAID BEHAVIORAL HEALTH PROVISIONS

8.2.8.1 LOCAL MENTAL HEALTH AUTHORITY (LMHA)

Assessment to determine eligibility for rehabilitative and targeted DSHS case
management services is a function of the LMHA. Covered Services must be provided
to Members with severe and persistent mental illness (SPMI) and severe emotional
disturbance (SED), when Medically Necessary, whether or not they are also
receiving targeted case management or rehabilitation services through the LMHA.

The HMO must enter into written agreements with all LMHAs in the Service Area
that describe the process(es) that the HMO and LMHAs will use to coordinate
services for STAR Members with SPMI or SED. The agreements will:

     1.   Describe the Behavioral Health Services indicated in detail in the
          PROVIDER PROCEDURES MANUAL and in the TEXAS MEDICAID BULLETIN, include
          the amount, duration, and scope of basic and Value-added Services, and
          the HMO's responsibility to provide these services;

     2.   Describe criteria, protocols, procedures and instrumentation for
          referral of STAR Members from and to the HMO and the LMHA;

     3.   Describe processes and procedures for referring Members with SPMI or
          SED to the LMHA for assessment and determination of eligibility for
          rehabilitation or targeted case management services;

     4.   Describe how the LMHA and the HMO will coordinate providing Behavioral
          Health Services to Members with SPMI or SED;

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


                                                                            8-64

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

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

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

     8.   Establish procedures for coordination of inpatient psychiatric
          services (including Court-ordered Commitment of Members under 21) in
          state psychiatric facilities within the LMHA's catchment area;

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

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

     11.  Establish that when Members are receiving Behavioral Health Services
          from the Local Mental Health Authority that the HMO is using the same
          UM guidelines as those prescribed for use by local mental health
          authorities by DSHS which are published at:
          http://www.mhmr.state.tx.us/centraloffice/behavioralhealthservices/
          RDMClinGuide.html.

The HMO must offer licensed practitioners of the healing arts (defined in 25
T.A.C., Part 2, Chapter 419, Subchapter L), who are part of the Member's
treatment team for rehabilitation services, the opportunity to participate in
the HMO's Network. The practitioner must agree to accept the HMO's Provider
reimbursement rate, meet the credentialing requirements, and comply with all the
terms and conditions of the HMO's standard Provider contract.

HMOs must allow Members receiving rehabilitation services to choose the licensed
practitioners of the healing arts who are currently a part of the Member's
treatment team for rehabilitation services to provide Covered Services. If the
Member chooses to receive these services from licensed practitioners of the
healing arts who are part of the Member's rehabilitation services treatment team
but are not part of the HMO's Network, the HMO must reimburse the Local Mental
Health Authority through Out-of-Network reimbursement arrangements.

Nothing in this section diminishes the potential for the Local Mental Health
Authority to seek best value for rehabilitative services by providing these
services under arrangement, where possible, as specified is 25 T.A.C.
Section 419.455.

8.2.9 THIRD PARTY LIABILITY AND RECOVERY

Medicaid HMOs are responsible for establishing a plan and process for recovering
costs for services that should have been paid through a third party in
accordance with State and Federal law and regulations. To recognize this
requirement, capitation payments to the HMOs are reduced by the projected amount
of TPR that the HMO is expected to recover.

The HMOs must provide required reports as stated in SECTION 8.1.17.2, Financial
Reporting Requirements.

After 120-days from the date of service on any claim, encounter, or other
Medicaid related payment by the HMO subject to Third Party Recovery, HHSC may
attempt recovery independent of any HMO action. HHSC will retain, in full, all
funds received as a result of the state initiated recovery or subrogation
action.


                                                                            8-65

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

HMOs shall provide a Member quarterly file, which contains the following
information if available to the HMO: the Member name, address, claim submission
address, group number, employer's mailing address, social security number, and
date of birth for each subscriber or policyholder and each dependent of the
subscriber or policyholder covered by the insurer. The file shall be used for
the purpose of matching the Texas Medicaid eligibility file against the HMO
Member file to identify Medicaid clients enrolled in the HMO, which may not be
known the Medicaid Program.

8.2.10 COORDINATION WITH PUBLIC HEALTH ENTITIES

8.2.10.1 REIMBURSED ARRANGEMENTS WITH PUBLIC HEALTH ENTITIES

The HMO must make a good faith effort to enter into a subcontract for Covered
Services with Public Health Entities. Possible Covered Services that could be
provided by Public Health Entities include, but are not limited to, the
following services:

     1.   Sexually Transmitted Diseases (STDs) services;

     2.   Confidential HIV testing;

     3.   Immunizations;

     4.   Tuberculosis (TB) care;

     5.   Family Planning services;

     6.   THSteps medical checkups, and

     7.   Prenatal services.

These subcontracts must be available for review by HHSC or its designated
agent(s) on the same basis as all other subcontracts. If the HMO is unable to
enter into a contract with Public Health Entities, the HMO must document efforts
to contract with Public Health Entities, and make such documentation available
to HHSC upon request.

HMO Contracts with Public Health Entities must specify the scope of
responsibilities of both parties, the methodology and agreements regarding
billing and reimbursements, reporting responsibilities, Member and Provider
educational responsibilities, and the methodology and agreements regarding
sharing of confidential medical record information between the Public Health
Entity and the HMO or PCP.

The HMO must:

     1.   Identify care managers who will be available to assist public health
          providers and PCPs in efficiently referring Members to the public
          health providers, specialists, and health- related service providers
          either within or outside the HMO's Network; and

     2.   Inform Members that confidential healthcare information will be
          provided to the PCP, and educate Members on how to better utilize
          their PCPs, public health providers, emergency departments,
          specialists, and health-related service providers.


                                                                            8-66

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

8.2.10.2 NON-REIMBURSED ARRANGEMENTS WITH LOCAL PUBLIC HEALTH ENTITIES

The HMO must make a good faith effort to enter into a Memorandum of
Understanding (MOU) with Public Health Entities in each Service Area regarding
the provision of essential public health care services. If the HMO is unable to
enter into an MOU with a Public Health Entity, the HMO must document efforts and
make such documentation available to HHSC upon request. MOUs must describe the
roles and responsibilities of the HMO and the Public Health Entity for the
following:

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

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

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

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

     5.   Referral for WIC services and information sharing; and

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

8.2.11 COORDINATION WITH OTHER STATE HEALTH AND HUMAN SERVICES (HHS) PROGRAMS

The HMO must make a good faith effort to enter into a Memorandum of
Understanding (MOU) with other state HHS Programs in each Service Area regarding
the provision of essential public health care services. If a HMO is unable to
enter into an MOU with other HHS Programs, the HMO must document efforts and
make such information available to HHSC upon request. MOUs must delineate the
roles and responsibilities of the HMO and the HHS programs for the following
services:

     1.   Use of the DSHS Bureau of Laboratories for specimens contained as part
          of a THSteps medical checkup, including THSteps newborn screens, lead
          testing, and hemoglobin/hematocrit tests;

     2.   Availability of vaccines through the Texas Vaccines for Children
          Program;

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

     4.   Referral for WIC services and information sharing;

     5.   DSHS case management for Children and Pregnant Women (CPW);

     6.   Participation in the community-based coalitions with the
          Medicaid-funded case management programs in MHMR, ECI, TCB, and DSHS;

     7.   Referral to the Texas Department of Transportation's Medical
          Transportation Program;

     8.   Cooperation with activities required of state and local public health
          authorities necessary to conduct the annual population and community
          based needs assessment; and

     9.   Coordination and follow-up of suspected or confirmed cases of
          childhood lead exposure.


                                                                            8-67

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

8.2.12 ADVANCE DIRECTIVES

Federal and state law require HMOs and providers to maintain written policies
and procedures for informing all adult Members 18 years of age and older about
their rights to refuse, withhold or withdraw medical treatment and mental health
treatment through advance directives (see Social Security Act Section
1902(a)(57) and Section 1903(m)(1)(A)). The HMO's policies and procedures must
include written notification to Members and comply with provisions contained in
42 C.F.R. Section 434.28 and 42 C.F.R. Section 489, Subpart I, relating to
advance directives for all hospitals, critical access hospitals, skilled nursing
facilities, home health agencies, providers of home health care, providers of
personal care services and hospices, as well as the following state laws and
rules:

     1.   A Member's right to self-determination in making health care
          decisions;

     2.   The Advance Directives Act, Chapter 166, Texas Health and Safety Code,
          which includes:

               a.   A Member's right to execute an advance written directive to
                    physicians and family or surrogates, or to make a
                    non-written directive to administer, withhold or withdraw
                    life-sustaining treatment in the event of a terminal or
                    irreversible condition;

               b.   A Member's right to make written and non-written
                    out-of-hospital do-not-resuscitate (DNR) orders;

               c.   A Member's right to execute a Medical Power of Attorney to
                    appoint an agent to make health care decisions on the
                    Member's behalf if the Member becomes incompetent; and

     3.   The Declaration for Mental Health Treatment, Chapter 137, Texas Civil
          Practice and Remedies Code, which includes: a Member's right to
          execute a Declaration for Mental Health Treatment in a document making
          a declaration of preferences or instructions regarding mental health
          treatment.

The HMO must maintain written policies for implementing a Member's advance
directive. Those policies must include a clear and precise statement of
limitation if the HMO or a Provider cannot or will not implement a Member's
advance directive.

The HMO cannot require a Member to execute or issue an advance directive as a
condition of receiving health care services. The HMO cannot discriminate against
a Member based on whether or not the Member has executed or issued an advance
directive.

The HMO's policies and procedures must require the HMO and subcontractors to
comply with the requirements of state and federal law relating to advance
directives. The HMO must provide education and training to employees and Members
on issues concerning advance directives.

All materials provided to Members regarding advance directives must be written
at a 7th - 8th grade reading comprehension level, except where a provision is
required by state or federal law and the provision cannot be reduced or modified
to a 7th - 8th grade reading level because it is a reference to the law or is
required to be included "as written" in the state or federal law.


                                                                            8-68

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

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

8.3  [DELETED SECTION]

8.4  ADDITIONAL CHIP SCOPE OF WORK

The following provisions only apply to HMOs participating in CHIP.

8.4.1 CHIP PROVIDER NETWORK

In each Service Area, the HMO must seek to obtain the participation in its
Provider Network of CHIP Significant Traditional Providers (STPs), defined by
HHSC as PCP Providers currently serving the CHIP population and DSH hospitals.
The Procurement Library includes CHIP STPs by Service Area.

The HMO must give STPs the opportunity to participate in its Network if the
STPs:

     1.   Agree to accept the HMO's Provider reimbursement rate for the provider
          type; and

     2.   Meet the standard credentialing requirements of the HMO, provided that
          lack of board certification or accreditation by the Joint Commission
          on Accreditation of Health Care Organizations (JCAHO) is not the sole
          grounds for exclusion from the Provider Network.

8.4.2 CHIP PROVIDER COMPLAINT AND APPEALS

CHIP Provider Complaints and Appeals are subject to disposition consistent with
the Texas Insurance Code and any applicable TDI regulations

8.4.3 CHIP MEMBER COMPLAINT AND APPEAL PROCESS

CHIP Member Complaints and Appeals are subject to disposition consistent with
the Texas Insurance Code and any applicable TDI regulations. HHSC will require
the HMO to resolve Complaints and Appeals (that are not elevated to TDI) within
30 days from the date the Complaint or Appeal is received. The HMO is subject to
remedies, including liquidated damages, if at least 98 percent of Member
Complaints or Member Appeals are not resolved within 30 days of receipt of the
Complaint or Appeal by the HMO. Please see the UNIFORM MANAGED CARE CONTRACT
TERMS & CONDITIONS and ATTACHMENT B-5, DELIVERABLES/LIQUIDATED DAMAGES MATRIX.
Any person, including those dissatisfied with a HMO's resolution of a Complaint
or Appeal, may report an alleged violation to TDI.


                                                                            8-69

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 8

8.4.4 DENTAL COVERAGE FOR CHIP MEMBERS

The HMO is not responsible for reimbursing dental providers for preventive and
therapeutic dental services obtained by CHIP Members. However, medical and/or
hospital charges, such as anesthesia, that are necessary in order for CHIP
Members to access standard therapeutic dental services, are Covered Services for
CHIP Members. The HMO must provide access to facilities and physician services
that are necessary to support the dentist who is providing dental services to a
CHIP Member under general anesthesia or intravenous (IV) sedation.

The HMO must inform Network facilities, anesthesiologists, and PCPs what
authorization procedures are required, and how Providers are to be reimbursed
for the preoperative evaluations by the PCP and/or anesthesiologist and for the
facility services. For dental-related medical Emergency Services, the HMO must
reimburse in-network and Out-of-Network providers in accordance with federal and
state laws, rules, and regulations.


                                                                            8-70

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAID/CHIP HMO RFP,          Version 1.0
         SECTION 9

9.   TURNOVER REQUIREMENTS

9.1  INTRODUCTION

This section presents the Turnover Requirements to which the HMO must agree.
Turnover is defined as those activities that are required for the HMO to perform
upon termination of the Contract in situations in which the HMO must transition
Contract operations to HHSC or a subsequent Contractor.

9.2  TRANSFER OF DATA

The HMO must transfer all data regarding the provision of Covered Services to
Members to HHSC or a new HMO, at the sole discretion of HHSC and as directed by
HHSC. All transferred data must be compliant with HIPAA.

All relevant data must be received and verified by HHSC or the subsequent
Contractor. If HHSC determines that not all of the data regarding the provision
of Covered Services to Members was transferred to HHSC or the subsequent
Contractor, as required, or the data is not HIPAA compliant, HHSC reserves the
right to hire an independent contractor to assist HHSC in obtaining and
transferring all the required data and to ensure that all the data are HIPAA
compliant. The reasonable cost of providing these services will be the
responsibility of the HMO.

9.3  TURNOVER SERVICES

Six months prior to the end of the Contract Period, including any extensions to
such Period, the HMO must propose a Turnover Plan covering the possible turnover
of the records and information maintained to either the State or a successor
HMO. The Turnover Plan must be a comprehensive document detailing the proposed
schedule, activities, and resource requirements associated with the turnover
tasks. The Turnover Plan must be approved by HHSC.

As part of the Turnover Plan, the HMO must provide HHSC with copies of all
relevant Member and service data, documentation, or other pertinent information
necessary, as determined by the HHSC, for HHSC or a subsequent Contractor to
assume the operational activities successfully. This includes correspondence,
documentation of ongoing outstanding issues, and other operations support
documentation. The plan will describe the HMO's approach and schedule for
transfer of all data and operational support information, as applicable. The
information must be supplied in media and format specified by the State and
according to the schedule approved by the State.

HHSC is not limited or restricted in the ability to require additional
information from the HMO or modify the turnover schedule as necessary.


                                                                             9-1

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-1 - HHSC JOINT MEDICAL/CHIP HMO RFP            Version 1.0
         SECTION 9

9.4  POST-TURNOVER SERVICES

Thirty (30) days following turnover of operations, the HMO must provide HHSC
with a Turnover Results report documenting the completion and results of each
step of the Turnover Plan. Turnover will not be considered complete until this
document is approved by HHSC.

If the HMO does not provide the required relevant data and reference tables,
documentation, or other pertinent information necessary for HHSC or the
subsequent Contractor to assume the operational activities successfully, the HMO
agrees to reimburse the State for all reasonable costs, including, but not
limited to, transportation, lodging, and subsistence for all state and federal
representatives, or their agents, to carry out their inspection, audit, review,
analysis, reproduction and transfer functions at the location(s) of such
records.

The HMO also agrees to pay any and all additional costs incurred by the State
that are the result of the HMO's failure to provide the requested records, data
or documentation within the time frames agreed to in the Turnover Plan.

The HMO must maintain all files and records related to Members and Providers for
five years after the date of final payment under the Contract or until the
resolution of all litigation, claims, financial management review or audit
pertaining to the Contract, whichever is longer. The HMO agrees to repay any
valid, undisputed audit exceptions taken by HHSC in any audit of the Contract.


                                                                             9-2

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

STAR COVERED SERVICES

The following is a non-exhaustive, high-level listing of Acute Care Covered
Services included under the STAR Medicaid managed care program.

Medicaid HMO Contractors are responsible for providing a benefit package to
Members that includes all medically necessary services covered under the
traditional, fee-for-service Medicaid programs except for Non-capitated Services
provided to STAR Members outside of the HMO capitation and listed in Attachment
B-1, SECTION 8.2.2.8. Medicaid HMO Contractors must coordinate care for Members
for these Non-capitated Services so that Members have access to a full range of
medically necessary Medicaid services, both capitated and non-capitated. A
Contractor may elect to offer additional acute care Value-added Services.

The STAR Members are provided with three enhanced benefits compared to the
traditional, fee-for-service Medicaid coverage:

     1)   waiver of the three-prescription per month limit;

     2)   waiver of the 30-day spell-of-illness limitation under
          fee-for-services; and

     3)   inclusion of an annual adult well check for patients 21 years of age
          and over.

Medicaid HMO Contractors are responsible for providing a benefit package to
Members that includes the waiver of the 30-day spell-of-illness limitation under
fee-for-service and the inclusion of an annual adult well check for patients 21
years of age and over. Prescription drug benefits to Medicaid HMO Members are
provided outside of the HMO capitation.

Bidders and Contractors should refer to the current TEXAS MEDICAID PROVIDER
PROCEDURES MANUAL and the bi-monthly TEXAS MEDICAID BULLETIN for a more
inclusive listing of limitations and exclusions that apply to each Medicaid
benefit category. (These documents can be accessed online at:
http://www.tmhp.com.)

The services listed in this Attachment are subject to modification based on
Federal and State laws and regulations and Programs policy updates.

SERVICES INCLUDED UNDER THE HMO CAPITATION PAYMENT

     -    Ambulance services

     -    Audiology services, including hearing aids for adults (hearing aids
          for children are provided through the PACT program and are a
          non-capitated service)

     -    Behavioral Health Services, including:

          -    Inpatient and outpatient mental health services for children
               (under age 21)

          -    Outpatient chemical dependency services for children (under age
               21)

          -    Detoxification services

          -    Psychiatry services

          -    Counseling services for adults (21 years of age and over)

     -    Birthing center services

     -    Chiropractic services

     -    Dialysis

     -    Durable medical equipment and supplies

     -    Emergency Services

     -    Family planning services

     -    Home health care services


                                     1 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

     -    Hospital services, including inpatient and outpatient

     -    Laboratory

     -    Medical check-ups and Comprehensive Care Program (CCP) Services for
          children (under age 21) through the Texas Health Steps Program

     -    Optometry, glasses, and contact lenses, if medically necessary

     -    Podiatry

     -    Prenatal care

     -    Primary care services

     -    Radiology, imaging, and X-rays

     -    Specialty physician services

     -    Therapies - physical, occupational and speech

     -    Transplantation of organs and tissues

     -    Vision


                                     2 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

CHIP COVERED SERVICES

Covered CHIP services must meet the CHIP definition of Medically Necessary
Covered Services as defined in this CONTRACT. There is no lifetime maximum on
benefits; however, 12-month period, enrollment period (a 6-month period), or
lifetime limitations do apply to certain services, as specified in the following
chart. Please note that if services with a 12-month annual limit are all used
within one 6-month enrollment period, these particular services are not
available during the second 6-month enrollment period within that annual period.
Co-pays apply until a family reaches its specific cost-sharing maximum.

<TABLE>
<CAPTION>
     COVERED BENEFIT                            DESCRIPTION
     ---------------                            -----------
<S>                        <C>
INPATIENT GENERAL ACUTE    Services include, but are not limited to, the
AND INPATIENT              following:
REHABILITATION HOSPITAL
SERVICES                   -    Hospital-provided Physician or Provider services

                           -    Semi-private room and board (or private if
                                medically necessary as certified by attending)

                           -    General nursing care

                           -    Special duty nursing when medically necessary

                           -    ICU and services

                           -    Patient meals and special diets

                           -    Operating, recovery and other treatment rooms

                           -    Anesthesia and administration (facility
                                technical component)

                           -    Surgical dressings, trays, casts, splints

                           -    Drugs, medications and biologicals

                           -    Blood or blood products that are not provided
                                free-of-charge to the patient and their
                                administration

                           -    X-rays, imaging and other radiological tests
                                (facility technical component)

                           -    Laboratory and pathology services (facility
                                technical component)

                           -    Machine diagnostic tests (EEGs, EKGs, etc.)

                           -    Oxygen services and inhalation therapy

                           -    Radiation and chemotherapy

                           -    Access to DSHS-designated Level III perinatal
                                centers or Hospitals meeting equivalent levels
                                of care

                           -    In-network or out-of-network facility and
                                Physician services for a mother and her
                                newborn(s) for a minimum of 48 hours following
                                an uncomplicated vaginal delivery and 96 hours
                                following an uncomplicated delivery by caesarian
                                section.

                           -    Hospital, physician and related medical
                                services, such as anesthesia, associated with
                                dental care

SKILLED NURSING            Services include, but are not limited to, the
FACILITIES (INCLUDES       following:
REHABILITATION
HOSPITALS)                 -    Semi-private room and board

                           -    Regular nursing services

                           -    Rehabilitation services

                           -    Medical supplies and use of appliances and
                                equipment furnished by the facility

OUTPATIENT HOSPITAL,       Services include, but are not limited to, the
COMPREHENSIVE              following services provided in a hospital clinic or
OUTPATIENT                 emergency room, a clinic or health center,
REHABILITATION HOSPITAL,   hospital-based emergency department or an ambulatory
CLINIC (INCLUDING HEALTH          health care setting:
CENTER) AND AMBULATORY
HEALTH CARE CENTER         -    X-ray, imaging, and radiological tests
                                (technical component)

                           -    Laboratory and pathology services (technical
                                component)

                           -    Machine diagnostic tests

                           -    Ambulatory surgical facility services

                           -    Drugs, medications and biologicals

                           -    Casts, splints, dressings
</TABLE>


                                     3 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

<TABLE>
<CAPTION>
     COVERED BENEFIT                            DESCRIPTION
     ---------------                            -----------
<S>                        <C>
                           -    Preventive health services

                           -    Physical, occupational and speech therapy

                           -    Renal dialysis

                           -    Respiratory services

                           -    Radiation and chemotherapy

                           -    Blood or blood products that are not provided
                                free-of-charge to the patient and the
                                administration of these products

                           -    Facility and related medical services, such as
                                anesthesia, associated with dental care, when
                                provided in a licensed ambulatory surgical
                                facility.

PHYSICIAN/PHYSICIAN        Services include, but are not limited to, the
EXTENDER PROFESSIONAL      following:
SERVICES
                           -    American Academy of Pediatrics recommended
                                well-child exams and preventive health services
                                (including, but not limited to, vision and
                                hearing screening and immunizations)

                           -    Physician office visits, in-patient and
                                out-patient services

                           -    Laboratory, x-rays, imaging and pathology
                                services, including technical component and/or
                                professional interpretation

                           -    Medications, biologicals and materials
                                administered in Physician's office

                           -    Allergy testing, serum and injections

                           -    Professional component (in/outpatient) of
                                surgical services, including:

                                -    Surgeons and assistant surgeons for
                                     surgical procedures including appropriate
                                     follow-up care

                                -    Administration of anesthesia by Physician
                                     (other than surgeon) or CRNA

                                -    Second surgical opinions

                                -    Same-day surgery performed in a Hospital
                                     without an over-night stay

                                -    Invasive diagnostic procedures such as
                                     endoscopic examinations

                           -    Hospital-based Physician services (including
                                Physician-performed technical and interpretive
                                components)

                           -    In-network and out-of-network Physician services
                                for a mother and her newborn(s) for a minimum of
                                48 hours following an uncomplicated vaginal
                                delivery and 96 hours following an uncomplicated
                                delivery by caesarian section.

                           -    Physician services medically necessary to
                                support a dentist providing dental services to a
                                CHIP member such as general anesthesia or
                                intravenous (IV) sedation.

DURABLE MEDICAL            $20,000 12-month period limit for DME, prosthetics,
EQUIPMENT (DME),           devices and disposable medical supplies (diabetic
PROSTHETIC DEVICES AND     supplies and equipment are not counted against this
DISPOSABLE MEDICAL         ccap). Services include DME (equipment which can
SUPPLIES                   withstand repeated use and is primarily and
                           customarily used to serve a medical purpose,
                           generally is not useful to a person in the absence of
                           Illness, Injury, or Disability, and is appropriate
                           for use in the home), including devices and supplies
                           that are medically necessary and necessary for one or
                           more activities of daily living and appropriate to
                           assist in the treatment of a medical condition,
                           including:

                           -    Orthotic braces and orthotics

                           -    Prosthetic devices such as artificial eyes,
                                limbs, and braces

                           -    Prosthetic eyeglasses and contact lenses for the
                                management of severe ophthalmologic disease

                           -    Other artificial aids including surgical
                                implants

                           -    Hearing aids

                           -    Implantable devices are covered under Inpatient
                                and Outpatient services and do not count towards
                                the DME 12-month period limit.

                           -    Diagnosis-specific disposable medical supplies,
                                including diagnosis-specific prescribed
                                specialty formula and dietary supplements. (See
                                Attachment A)
</TABLE>


                                     4 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

<TABLE>
<CAPTION>
     COVERED BENEFIT                            DESCRIPTION
     ---------------                            -----------
<S>                        <C>
HOME AND COMMUNITY         Services that are provided in the home and community,
HEALTH SERVICES            including, but not limited to:

                           -    Home infusion

                           -    Respiratory therapy

                           -    Visits for private duty nursing (R.N., L.V.N.)

                           -    Skilled nursing visits as defined for home
                                health purposes (may include R.N. or L.V.N.).

                           -    Home health aide when included as part of a plan
                                of care during a period that skilled visits have
                                been approved.

                           -    Speech, physical and occupational therapies.

                           -    Services are not intended to replace the CHILD'S
                                caretaker or to provide relief for the caretaker

                           -    Skilled nursing visits are provided on
                                intermittent level and not intended to provide
                                24-hour skilled nursing services

                           -    Services are not intended to replace 24-hour
                                inpatient or skilled nursing facility services

INPATIENT MENTAL HEALTH    Mental health services, including for serious mental
SERVICES                   illness, furnished in a freestanding psychiatric
                           hospital, psychiatric units of general acute care
                           hospitals and state-operated facilities, including,
                           but not limited to:

                           -    Neuropsychological and psychological testing.

                           -    Inpatient mental health services are limited to:

                           -    45 days 12-month inpatient limit

                           -    Includes inpatient psychiatric services, up to
                                12-month period limit, ordered by a court of
                                competent jurisdiction under the provisions of
                                Chapters 573 and 574 of the Texas Health and
                                Safety Code, relating to court ordered
                                commitments to psychiatric facilities. Court
                                order serves as binding determination of medical
                                necessity. Any modification or termination of
                                services must be presented to the court with
                                jurisdiction over the matter for determination

                           -    25 days of the inpatient benefit can be
                                converted to residential treatment, therapeutic
                                foster care or other 24-hour therapeutically
                                planned and structured services or sub-acute
                                outpatient (partial hospitalization or
                                rehabilitative day treatment) mental health
                                services on the basis of financial equivalence
                                against the inpatient per diem cost

                           -    20 of the inpatient days must be held in reserve
                                for inpatient use only

                           -    Does not require PCP referral

OUTPATIENT MENTAL HEALTH   Mental health services, including for serious mental
SERVICES SERVICES          illness, provided on an outpatient basis, including,
                           but not limited to:

                           -    Medication management visits do not count
                                against the outpatient visit limit.

                           -    The visits can be furnished in a variety of
                                community-based settings (including school and
                                home-based) or in a state-operated facility

                           -    Up to 60 days 12-month period limit for
                                rehabilitative day treatment

                           -    60 outpatient visits 12-month period limit

                           -    60 rehabilitative day treatment days can be
                                converted to outpatient visits on the basis of
                                financial equivalence against the day treatment
                                per diem cost

                           -    60 outpatient visits can be converted to skills
                                training (psycho educational skills development)
                                or rehabilitative day treatment on the basis of
                                financial equivalence against the outpatient
                                visit cost

                           -    Includes outpatient psychiatric services, up to
                                12-month period limit, ordered by a court of
                                competent jurisdiction under the provisions of
                                Chapters 573 and 574 of the Texas Health and
                                Safety Code, relating to court ordered
                                commitments to psychiatric facilities. Court
                                order serves as binding
</TABLE>


                                     5 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

<TABLE>
<CAPTION>
     COVERED BENEFIT                            DESCRIPTION
     ---------------                            -----------
<S>                        <C>
                                determination of medical necessity. Any
                                modification or termination of services must be
                                presented to the court with jurisdiction over
                                the matter for determination

                           -    Inpatient days converted to sub-acute outpatient
                                services are in addition to the outpatient
                                limits and do not count towards those limits

                           -    A Qualified Mental Health Professional (QMHP),
                                as defined by and credentialed through Texas
                                Department of State Health Services (DSHS)
                                standards (TAC Title 25, Part II, Chapter 412),
                                is a Local Mental Health Authorities provider. A
                                QMHP must be working under the authority of an
                                DSHS entity and be supervised by a licensed
                                mental health professional or physician. QMHPs
                                are acceptable providers as long as the services
                                would be within the scope of the services that
                                are typically provided by QMHPs. Those services
                                include individual and group skills training
                                (which can be components of interventions such
                                as day treatment and in-home services), patient
                                and family education, and crisis services

                           -    Does not require PCP referral

INPATIENT SUBSTANCE        Services include, but are not limited to:
ABUSE TREATMENT SERVICES
                           -    Inpatient and residential substance abuse
                                treatment services including detoxification and
                                crisis stabilization, and 24-hour residential
                                rehabilitation programs

                           -    Does not require PCP referral

                           -    Medically necessary detoxification/stabilization
                                services, limited to 14 days per 12-month
                                period.

                           -    24-hour residential rehabilitation programs, or
                                the equivalent, up to 60 days per 12-month
                                period

                           -    30 days may be converted to partial
                                hospitalization or intensive outpatient
                                rehabilitation, on the basis of financial
                                equivalence against the inpatient per diem cost

                           -    30 days must be held in reserve for inpatient
                                use only.

OUTPATIENT SUBSTANCE       -    Services include, but are not limited to, the
ABUSE TREATMENT SERVICES        following:

                           -    Prevention and intervention services that are
                                provided by physician and non-physician
                                providers, such as screening, assessment and
                                referral for chemical dependency disorders.

                           -    Intensive outpatient services is defined as an
                                organized non-residential service providing
                                structured group and individual therapy,
                                educational services, and life skills training
                                which consists of at least 10 hours per week for
                                four to 12 weeks, but less than 24 hours per day

                           -    Outpatient treatment service is defined as
                                consisting of at least one to two hours per week
                                providing structured group and individual
                                therapy, educational services, and life skills
                                training

                           -    Outpatient treatment services up to a maximum
                                of:

                           -    Intensive outpatient program (up to 12 weeks per
                                12-month period)

                           -    Outpatient services (up to six-months per
                                12-month period)

                           -    Does not require PCP referral

REHABILITATION SERVICES    Services include, but are not limited to, the
                           following:

                           -    Habilitation (the process of supplying a child
                                with the means to reach age-appropriate
                                developmental milestones through therapy or
                                treatment) and rehabilitation services include,
                                but are not limited to the following:

                           -    Physical, occupational and speech therapy

                           -    Developmental assessment

HOSPICE CARE SERVICES      Services include, but are not limited to:

                           -    Palliative care, including medical and support
                                services, for those children who have six months
                                or less to live, to keep patients comfortable
                                during the
</TABLE>


                                    6 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

<TABLE>
<CAPTION>
     COVERED BENEFIT                            DESCRIPTION
     ---------------                            -----------
<S>                        <C>
                                last weeks and months before death

                           -    Treatment for unrelated conditions is unaffected

                           -    Up to a maximum of 120 days with a 6 month life
                                expectancy

                           -    Patients electing hospice services waive their
                                rights to treatment related to their terminal
                                illnesses; however, they may cancel this
                                election at anytime

                           -    Services apply to the hospice diagnosis

EMERGENCY SERVICES,        HMO cannot require authorization as a condition for
INCLUDING EMERGENCY        payment for emergency conditions or labor and
HOSPITALS, PHYSICIANS,     delivery.
AND AMBULANCE SERVICES
                           Covered services include, but are not limited to, the
                           following:

                           -    Emergency services based on prudent lay person
                                definition of emergency health condition

                           -    Hospital emergency department room and ancillary
                                services and physician services 24 hours a day,
                                7 days a week, both by in-network and
                                out-of-network providers

                           -    Medical screening examination

                           -    Stabilization services

                           -    Access to DSHS designated Level 1 and Level II
                                trauma centers or hospitals meeting equivalent
                                levels of care for emergency services

                           -    Emergency ground, air and water transportation

                           -    Emergency dental services, limited to fractured
                                or dislocated jaw, traumatic damage to teeth,
                                and removal of cysts.

TRANSPLANTS                Services include, but are not limited to, the
                           following:

                           -    Using up-to-date FDA guidelines, all
                                non-experimental human organ and tissue
                                transplants and all forms of non-experimental
                                corneal, bone marrow and peripheral stem cell
                                transplants, including donor medical expenses.

VISION BENEFIT             The health plan may reasonably limit the cost of the
                           frames/lenses.

                           Services include:

                           -    One examination of the eyes to determine the
                                need for and prescription for corrective lenses
                                per 12-month period, without authorization

                           -    One pair of non-prosthetic eyewear per 12-month
                                period

CHIROPRACTIC SERVICES      Services do not require physician prescription and
                           are limited to spinal subluxation

TOBACCO CESSATION          Covered up to $ 100 for a 12- month period limit for
PROGRAM                    a plan- approved program

                           -    Health Plan defines plan-approved program.

                           -    May be subject to formulary requirements.

[VALUE-ADDED SERVICES]     See Attachment B-3
</TABLE>


                                     7 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

                      CHIP EXCLUSIONS FROM COVERED SERVICES

-    Inpatient and outpatient infertility treatments or reproductive services
     other than prenatal care, labor and delivery, and care related to disease,
     illnesses, or abnormalities related to the reproductive system

-    Personal comfort items including but not limited to personal care kits
     provided on inpatient admission, telephone, television, newborn infant
     photographs, meals for guests of patient, and other articles which are not
     required for the specific treatment of sickness or injury

-    Experimental and/or investigational medical, surgical or other health care
     procedures or services which are not generally employed or recognized
     within the medical community

-    Treatment or evaluations required by third parties including, but not
     limited to, those for schools, employment, flight clearance, camps,
     insurance or court

-    Private duty nursing services when performed on an inpatient basis or in a
     skilled nursing facility.

-    Mechanical organ replacement devices including, but not limited to
     artificial heart

-    Hospital services and supplies when confinement is solely for diagnostic
     testing purposes, unless otherwise pre-authorized by Health Plan

-    Prostate and mammography screening

-    Elective surgery to correct vision

-    Gastric procedures for weight loss

-    Cosmetic surgery/services solely for cosmetic purposes

-    Out-of-network services not authorized by the Health Plan except for
     emergency care and physician services for a mother and her newborn(s) for a
     minimum of 48 hours following an uncomplicated vaginal delivery and 96
     hours following an uncomplicated delivery by caesarian section

-    Services, supplies, meal replacements or supplements provided for weight
     control or the treatment of obesity, except for the services associated
     with the treatment for morbid obesity as part of a treatment plan approved
     by the Health Plan

-    Acupuncture services, naturopathy and hypnotherapy

-    Immunizations solely for foreign travel

-    Routine foot care such as hygienic care

-    Diagnosis and treatment of weak, strained, or flat feet and the cutting or
     removal of corns, calluses and toenails (this does not apply to the removal
     of nail roots or surgical treatment of conditions underlying corns,
     calluses or ingrown toenails)

-    Replacement or repair of prosthetic devices and durable medical equipment
     due to misuse, abuse or loss when confirmed by the Member or the vendor

-    Corrective orthopedic shoes

-    Convenience items

-    Orthotics primarily used for athletic or recreational purposes

-    Custodial care (care that assists a child with the activities of daily
     living, such as assistance in walking, getting in and out of bed, bathing,
     dressing, feeding, toileting, special diet preparation, and medication
     supervision that is usually self-administered or provided by a parent. This
     care does not require the continuing attention of trained medical or
     paramedical personnel.) This exclusion does not apply to hospice services.

-    Housekeeping


                                     8 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

-    Public facility services and care for conditions that federal, state, or
     local law requires be provided in a public facility or care provided while
     in the custody of legal authorities

-    Services or supplies received from a nurse, which do not require the skill
     and training of a nurse

-    Vision training and vision therapy

-    Reimbursement for school-based physical therapy, occupational therapy, or
     speech therapy services are not covered except when ordered by a
     Physician/PCP

-    Donor non-medical expenses

-    Charges incurred as a donor of an organ when the recipient is not covered
     under this health plan


                                     9 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

CHIP DME/SUPPLIES

<TABLE>
<CAPTION>
                                                   COMMENTS/MEMBER CONTRACT
        SUPPLIES          COVERED   EXCLUDED               PROVISIONS
        --------          -------   --------       ------------------------
<S>                       <C>       <C>        <C>
Ace Bandages                            X      Exception: If provided by and
                                               billed through the clinic or home
                                               care agency it is covered as an
                                               incidental supply.

Alcohol, rubbing                        X      Over-the-counter supply.

Alcohol, swabs               X                 Over-the-counter supply not
(diabetic)                                     covered, unless RX provided at
                                               time of dispensing.

Alcohol, swabs               X                 Covered only when received with
                                               IV therapy or central line
                                               kits/supplies.

Ana Kit Epinephrine          X                 A self-injection kit used by
                                               patients highly allergic to bee
                                               stings.

Arm Sling                    X                 Dispensed as part of office
                                               visit.

Attends (Diapers)            X                 Coverage limited to children age
                                               4 or over only when prescribed by
                                               a physician and used to provide
                                               care for a covered diagnosis as
                                               outlined in a treatment care plan

Bandages                                X

Basal Thermometer                       X      Over-the-counter supply.

Batteries - initial          X                 For covered DME items

Batteries - replacement      X                 For covered DME when replacement
                                               is necessary due to normal use.

Betadine                                X      See IV therapy supplies.

Books                                   X

Clinitest                    X                 For monitoring of diabetes.

Colostomy Bags                                 See Ostomy Supplies.

Communication                           X
Devices

Contraceptive Jelly                     X      Over-the-counter supply.
                                               Contraceptives are not covered
                                               under the plan.

Cranial Head Mold                       X

Diabetic Supplies            X                 Monitor calibrating solution,
                                               insulin syringes, needles,
                                               lancets, lancet device, and
                                               glucose strips.

Diapers/Incontinent          X                 Coverage limited to children age
Briefs/Chux                                    4 or over only when prescribed by
                                               a physician and used to provide
                                               care for a covered diagnosis as
                                               outlined in a treatment care plan

Diaphragm                               X      Contraceptives are not covered
                                               under the plan.

Diastix                      X                 For monitoring diabetes.

Diet, Special                           X

Distilled Water                         X

Dressing                     X                 Syringes, needles, Tegaderm,
Supplies/Central Line                          alcohol swabs, Betadine swabs or
                                               ointment, tape. Many times these
                                               items are dispensed in a kit when
                                               includes all necessary items for
                                               one dressing site change.

Dressing                     X                 Eligible for coverage only if
Supplies/Decubitus                             receiving covered home care for
                                               wound care.

Dressing                     X                 Eligible for coverage only if
Supplies/Peripheral IV                         receiving home IV therapy.
Therapy

Dressing                                X
Supplies/Other

Dust Mask                               X

Ear Molds                    X                 Custom made, post inner or middle
                                               ear surgery

Electrodes                   X                 Eligible for coverage when used
                                               with a covered DME.

Enema Supplies                          X      Over-the-counter supply.

Enteral Nutrition            X                 Necessary supplies (e.g., bags,
                                               tubing, connectors, catheters,
                                               etc.) are
</TABLE>


                                   10 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

<TABLE>
<CAPTION>
     SUPPLIES              COVERED   EXCLUDED                   COMMENTS/MEMBER CONTRACT PROVISIONS
     --------              -------   --------                   -----------------------------------
<S>                        <C>       <C>        <C>
Supplies                                        eligible for coverage. Enteral nutrition products are not covered
                                                except for those prescribed for hereditary metabolic disorders, a
                                                non-function or disease of the structures that normally permit food
                                                to reach the small bowel, or malabsorption due to disease

Eye Patches                   X                 Covered for patients with amblyopia.

Formula                                  X      Exception: Eligible for coverage only for chronic hereditary
                                                metabolic disorders a non-function or disease of the structures
                                                that normally permit food to reach the small bowel; or
                                                malabsorption due to disease (expected to last longer than 60 days
                                                when prescribed by the physician andauthorized by plan.) Physician
                                                documentation to justify prescription of formula must include:

                                                     -    Identification of a metabolic disorder, dysphagia that
                                                          results in a medical need for a liquid diet, presence of
                                                          a gastrostomy, or disease resulting in malabsorption that
                                                          requires a medically necessary nutritional product
                                                Does not include formula:

                                                     -    For members who could be sustained on an age-appropriate
                                                          diet.

                                                     -    Traditionally used for infant feeding

                                                     -    In pudding form (except for clients with documented
                                                          oropharyngeal motor dysfunction who receive greater than
                                                          50 percent of their daily caloric intake from this
                                                          product)

                                                     -    For the primary diagnosis of failure to thrive, failure
                                                          to gain weight, or lack of growth or for infants less
                                                          than twelve months of age unless medical necessity is
                                                          documented and other criteria, listed above, are met.

                                                Food thickeners, baby food, or other regular grocery products that
                                                can be blenderized and used with an enteral system that are not
                                                medically necessary, are not covered, regardless of whether these
                                                regular food products are taken orally or parenterally.

Gloves                                   X      Exception: Central line dressings or wound care provided by home
                                                care agency.

Hydrogen Peroxide                        X      Over-the-counter supply.

Hygiene Items                            X

Incontinent Pads              X                 Coverage limited to children age 4 or over only when prescribed by
                                                a physicianand used to provide care for a covered diagnosis as
                                                outlined in a treatment care plan

Insulin Pump (External)       X                 Supplies (e.g., infusion sets, syringe reservoir and dressing,
Supplies                                        etc.) are eligible for coverage if the pump is a covered item.

Irrigation Sets, Wound        X                 Eligible for coverage when used during covered home care for
Care                                            wound care.

Irrigation Sets, Urinary      X                 Eligible for coverage for individual with an indwelling
                                                urinary catheter.

IV Therapy Supplies           X                 Tubing, filter, cassettes, IV pole, alcohol swabs, needles,
                                                syringes and any other related supplies necessary for home IV
                                                therapy.

K-Y Jelly                                X      Over-the-counter supply.

Lancet Device                 X                 Limited to one device only.

Lancets                       X                 Eligible for individuals with diabetes.

Med Ejector                   X

Needles and                                     See Diabetic Supplies
</TABLE>


                                    11 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-2 - STAR AND CHIP COVERED SERVICES             Version 1.0

<TABLE>
<CAPTION>
     SUPPLIES              COVERED   EXCLUDED                   COMMENTS/MEMBER CONTRACT PROVISIONS
     --------              -------   --------                   -----------------------------------
<S>                        <C>       <C>        <C>
Syringes/Diabetic

Needles and                                     See IV Therapy and Dressing Supplies/Central Line.
Syringes/IV and
Central Line

Needles and                   X                 Eligible for coverage if a covered IM or SubQ medication is being
Syringes/Other                                  administered at home.

Normal Saline                                   See Saline, Normal

Novopen                       X

Ostomy Supplies               X                 Items eligible for coverage include: belt, pouch, bags, wafer,
                                                face plate, insert, barrier, filter, gasket, plug, irrigation
                                                kit/sleeve, tape, skin prep, adhesives, drain sets, adhesive
                                                remover, and pouch deodorant.

                                                Items not eligible for coverage include: scissors, room
                                                deodorants, cleaners, rubber gloves, gauze, pouch covers, soaps,
                                                and lotions.

Parenteral                    X                 Necessary supplies (e.g., tubing, filters, connectors, etc.) are
Nutrition/Supplies                              eligible for coverage when the Health Plan has authorized the
                                                parenteral nutrition.

Saline, Normal                X                 Eligible for coverage:

                                                a) when used to dilute medications for nebulizer treatments;

                                                b) as part of covered home care for wound care;

                                                c) for indwelling urinary catheter irrigation.

Stump Sleeve                  X

Stump Socks                   X

Suction Catheters             X

Syringes                                        See Needles/Syringes.

Tape                                            See Dressing Supplies, Ostomy Supplies, IV Therapy Supplies.

Tracheostomy Supplies         X                 Cannulas, Tubes, Ties, Holders, Cleaning Kits, etc. are eligible
                                                for coverage.

Under Pads                                      See Diapers/Incontinent Briefs/Chux.

Unna Boot                     X                 Eligible for coverage when part of wound care in the home
                                                setting. Incidental charge when applied during office visit.

Urinary, External                        X      Exception: Covered when used by incontinent male where injury to
Catheter & Supplies                             the urethra prohibits use of an indwelling catheter ordered by the
                                                PCP and approved by the plan

Urinary, Indwelling           X                 Cover catheter, drainage bag with tubing, insertion tray,
Catheter & Supplies                             irrigation set and normal saline if needed.

Urinary, Intermittent         X                 Cover supplies needed for intermittent or straight catherization.

Urine Test Kit                X                 When determined to be medically necessary.

Urostomy supplies                               See Ostomy Supplies.
</TABLE>


                                    12 of 12

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-4 -PERFORMANCE IMPROVEMENT GOALS               Version 1.0

                   TEXAS HEALTH AND HUMAN SERVICES COMMISSION

                    HMO PERFORMANCE IMPROVEMENT GOAL TEMPLATE

                             STATE FISCAL YEAR 2007

                      (SEPTEMBER 1, 2006 - AUGUST 31, 2007)

PLAN NAME:

________________________________________________________________________________

OVERARCHING GOALS:

     1.   Improve access to primary care services for managed care enrollees.

     2.   Improve access to behavioral health services for managed care
          enrollees.

     3.   Improve a specific area of the HMO's performance (to be negotiated
          before the Operational Start Date).

SUB-GOALS:

     1.   NETWORK ADEQUACY AND ACCESS TO CARE, evaluated using the following
          measures:

          (a)  At least__percent of PCPs have an open panel; and

          (b)  At least__percent of children and adults have access to two PCPs
               with open panels within 30 miles.

     2.   ACCESS TO BEHAVIORAL HEALTH SERVICES, evaluated using the measure of
          an increase by at least___percent of outpatient mental health
          providers with an open panel.

     3.   SPECIFIC HMO PERFORMANCE GOAL, evaluated using the measures negotiated
          by HHSC and the HMO.

Specific percentages for Sub-Goals 1 and 2 will be negotiated by HHSC and the
HMO before the Operational Start Date.

The Specific HMO Performance Goal and the measures used to evaluate Sub-Goal 3
will be negotiated by HHSC and the HMO before the Operational Start Date.

Additional information related to the Performance Improvement Goals can be found
in ATTACHMENT B-1, SECTION 8.1.1.1, to the Contract.


                                     1 of 1

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-5 -DELIVERABLES/LIQUIDATED DAMAGES MATRIX      Version 1.0

                     DELIVERABLES/LIQUIDATED DAMAGES MATRIX

<TABLE>
<CAPTION>
      SERVICE/                                                 MEASUREMENT              MEASUREMENT
    COMPONENT(1)             PERFORMANCE STANDARD(2)            PERIOD(3)              ASSESSMENT(4)           LIQUIDATED DAMAGES
    ------------             -----------------------           -----------             -------------           ------------------
<S>                      <C>                             <C>                    <C>                        <C>
Contract Attachment      The HMO must be operational no  Operations Start Date  Each calendar day of       HHSC may assess up to
B-1, RFP Section 7.3     later than the agreed upon                             non-compliance, per HMO    $10,000 per calendar day
-- Transition Phase      Operations Start Date. HHSC,                           Program, per Service Area  for each day beyond the
Schedule                 or its agent, will determine                           (SA).                      Operations Start date
                         when the HMO is considered to                                                     that the HMO is not
                         be operational based on the                                                       operational until the day
                         requirements in Section 7 and                                                     that the HMO is
                         8 of Attachment B-1.                                                              operational, including
                                                                                                           all systems.

Contract Attachment
B-1, RFP Section 7.3.1
-- Transition Phase
Tasks

Contract Attachment
B-1, RFP Section 8.1
-- General Scope

Contract Attachment      The HMO must submit to HHSC or  Transition Period      Each calendar day of       HHSC may assess up to
B-1 RFP Section          to the designated Readiness                            non-compliance, per        $1,000 per calendar day
7.3.1.5 -- Systems       Review Contractor the                                  report, per HMO Program,   for each day a
Readiness Review         following plans for review, by                         and per SA.                deliverable is late,
                         December 14, 2005:                                                                inaccurate or incomplete.

                         -    Joint Interface Plan;

                         -    Disaster Recovery Plan;

                         -    Business Continuity Plan;

                         -    Risk Management Plan;
</TABLE>

(1)  Derived from the Contract or HHSC's Uniform Managed Care Manual.

(2)  Standard specified in Contract

(3)  Period during which HHSC will evaluate service for purposes of tailored
     remedies.

(4)  Measure against which HHSC will apply remedies.


                                   Page 1 of 7

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-5 -DELIVERABLES/LIQUIDATED DAMAGES MATRIX      Version 1.0

<TABLE>
<CAPTION>
      SERVICE/                                                 MEASUREMENT              MEASUREMENT
    COMPONENT(1)             PERFORMANCE STANDARD(2)            PERIOD(3)              ASSESSMENT(4)           LIQUIDATED DAMAGES
    ------------             -----------------------           -----------             -------------           ------------------
<S>                      <C>                             <C>                    <C>                        <C>
                              and

                         -    Systems Quality Assurance
                              Plan.

Contract Attachment      Final versions of the Provider  Transition Period      Each calendar day of       HHSC may assess up to
B-1 RFP Section 7.3.1.7  Directory must be submitted to                         non-compliance, per        $1,000 per calendar day
-Operations Readiness    the Administrative Services                            directory, per HMO         for each day the
                         Contractor no later than 95                            Program and per SA.        directory is late,
                         days prior to the Operational                                                     inaccurate or incomplete.
                         Start Date.

Contract Attachment B-1  All reports and deliverables    Transition Period,     Each calendar day of       HHSC may assess up to
RFP Sections 6, 7, 8     as specified in Sections 6, 7,  Quarterly during       non-compliance, per HMO    $250 per calendar day if
and 9                    8 and 9 of Attachment B-1 must  Operations Period      Program, perSA.            the report/deliverable is
                         be submitted according to the                                                     late, inaccurate, or
Uniform Managed Care     timeframes and requirements                                                       incomplete.
Manual                   stated in the Contract
                         (including all attachments)
                         and HHSC's Uniform Managed
                         Care Manual. (Specific Reports
                         or deliverables listed
                         separately in this matrix are
                         subject to the specified
                         liquidated damages.)

Contract Attachment B-1  The HMO may not engage in       Transition, Measured   Per incident of non-       HHSC may assess up to
RFP Section 8.1.6 --     prohibited marketing            Quarterly during the   compliance.                $1,000 per incident of
Marketing & Prohibited   practices.                      Operations Period                                 non-compliance.
Practices
</TABLE>

(1)  Derived from the Contract or HHSC's Uniform Managed Care Manual.

(2)  Standard specified in Contract

(3)  Period during which HHSC will evaluate service for purposes of tailored
     remedies.

(4)  Measure against which HHSC will apply remedies.


                                   Page 2 of 7

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-5 -DELIVERABLES/LIQUIDATED DAMAGES MATRIX      Version 1.0

<TABLE>
<CAPTION>
      SERVICE/                                                 MEASUREMENT              MEASUREMENT
    COMPONENT(1)             PERFORMANCE STANDARD(2)            PERIOD(3)              ASSESSMENT(4)           LIQUIDATED DAMAGES
    ------------             -----------------------           -----------             -------------           ------------------
<S>                      <C>                             <C>                    <C>                        <C>
Uniform Managed Care
Manual

Contract Attachment B-1  Financial Statistical Reports   Quarterly during the   Per calendar day of        HHSC may assess up to
RFP Section              (FSR): For each SA, the HMO     Operations Period      non-compliance, per HMO    $1,000 per calendar day a
8.1.17.2 -- Financial    must file quarterly and annual                         Program, per SA.           quarterly or annual
Reporting Requirements   FSRs. Quarterly reports are                                                       report is late,
                         due no later than 30 days                                                         inaccurate or incomplete.
Uniform Managed Care     after the conclusion of each
Manual - Chapter 5       State Fiscal Quarter (SFQ).
                         The first annual report is due
                         no later than 120 days after
                         the end of each Contract Year
                         and the second annual report
                         is due no later than 365 days
                         after the end of each Contract
                         Year.

Contract Attachment B-1  Medicaid Disproportionate       Measured during 4th    Per calendar day of        HHSC may assess up to
RFP Section              Share Hospital (DSH) Reports:   Quarter of the         non-compliance, per HMO    $1,000 per calendar day,
8.1.17.2 -- Financial    The Medicaid HMO must submit,   Operations Period      Program, per SA.           per program, per service
Reporting Requirements:  on an annual basis,             (6/1-8/31)                                        area, for each day the
                         preliminary and final DSH                                                         report is late,
Uniform Managed Care     Reports. The Preliminary                                                          incorrect, inaccurate or
Manual - Chapter 5       report is due no later than                                                       incomplete.
                         June 1st after each reporting
                         year, and the final report is
                         due no later than July 15th
                         after each reporting year.
                         THIS STANDARD DOES NOT APPLY
                         TO CHIP HMOS.

Contract Attachment B-1  The HMO's MIS must be able to   Measured Quarterly     Per calendar day of        HHSC may assess up to
RFP Section              resume operations within 72     during the Operations  non-compliance, per HMO    $5,000 per calendar day
8.1.18 - Management      hours of employing its                                 Program, per SA.           of non-compliance
                         Disaster Recovery
</TABLE>

(1)  Derived from the Contract or HHSC's Uniform Managed Care Manual.

(2)  Standard specified in Contract

(3)  Period during which HHSC will evaluate service for purposes of tailored
     remedies.

(4)  Measure against which HHSC will apply remedies.


                                   Page 3 of 7

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-5 -DELIVERABLES/LIQUIDATED DAMAGES MATRIX      Version 1.0

<TABLE>
<CAPTION>
      SERVICE/                                                 MEASUREMENT              MEASUREMENT
    COMPONENT(1)             PERFORMANCE STANDARD(2)            PERIOD(3)              ASSESSMENT(4)           LIQUIDATED DAMAGES
    ------------             -----------------------           -----------             -------------           ------------------
<S>                      <C>                             <C>                    <C>                        <C>
Information System       Plan.                           Period
(MIS) Requirements

Contract Attachment B-1  The HMO's MIS system must meet  Measured Quarterly     Per calendar day of        HHSC may assess up to
RFP Section              all requirements in Section     during the Operations  non-compliance, per HMO    $5,000 per calendar day
8.1.18.3 -- Management   8.1.18.3 of Attachment B-1.     Period                 Program, per SA.           of non-compliance.
Information System
(MIS) Requirements:
System-Wide Functions

Contract Attachment B-1  The HMO must adjudicate all     Measured Quarterly     Per incident of            HHSC may assess up to
RFP Section              provider Clean Claims within    during the Operations  non-compliance.            $1,000 per claim if the
8.1.18.5 -- Claims       30 days. The HMO must pay       Period                                            HMO fails to timely pay
Processing Requirements  providers interest at an 18%                                                      interest.
                         per annum, calculated daily
                         for the full period in which
                         the Clean Claim remains
                         unadjudicated beyond the
                         30-day claims processing
                         deadline.

Contract Attachment B-1  The HMO must comply with the    Measured Quarterly     Per quarterly reporting    HHSC may assess
RFP Section              claims processing requirements  during the Operations  period, per HMO Program,   liquidated damages of up
8.1.18.5 -- Claims       and standards as described in   Period                 per SA.                    to $5,000 for the first
Processing Requirements  Section 8.1.18.5 of Attachment                                                    quarter that an HMO's
Uniform Managed Care     B-1.                                                                              Aggregated Claims
                                                                                                           Performance percentages
                                                                                                           fall below the
                                                                                                           performance standards.
                                                                                                           HHSC may assess up to
                                                                                                           $25,000 per quarter for
                                                                                                           each additional quarter
                                                                                                           that the Aggregated
                                                                                                           Claims Performance
                                                                                                           percentages fall below
</TABLE>

(1)  Derived from the Contract or HHSC's Uniform Managed Care Manual.

(2)  Standard specified in Contract

(3)  Period during which HHSC will evaluate service for purposes of tailored
     remedies.

(4)  Measure against which HHSC will apply remedies.


                                   Page 4 of 7

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-5 -DELIVERABLES/LIQUIDATED DAMAGES MATRIX      Version 1.0

<TABLE>
<CAPTION>
      SERVICE/                                                 MEASUREMENT              MEASUREMENT
    COMPONENT(1)             PERFORMANCE STANDARD(2)            PERIOD(3)              ASSESSMENT(4)           LIQUIDATED DAMAGES
    ------------             -----------------------           -----------             -------------           ------------------
<S>                      <C>                             <C>                    <C>                        <C>
Manual -Chapter 2                                                                                          the performance
                                                                                                           standards.

Contract Attachment B-1  All Claims Summary Report: The  Measured Quarterly     Per calendar day of        HHSC may assess up to
RFP Section              HMO must submit quarterly,      during the Operations  non-compliance, per HMO    $1,000 per calendar day
8.1.20.2--Reporting      non-cumulative All Claims       Period                 Program, per SA.           the report is late,
Requirements             Summary reports for each HMO                                                      inaccurate, or
                         Program and each SA no later                                                      incomplete.
Uniform Managed Care     than 45 days after each
Manual Chapters 2 and 5  quarterly reporting period.
                         Along with its fourth quarter
                         report, the HMO must submit a
                         cumulative, annual All Claims
                         Summary report for each HMO
                         Program and each SA.

Contract Attachment B-1  The HMO must resolve at least   Measured Quarterly     Per reporting period, per  HHSC may assess up to
RFP Section 8.1.5.9-     98% of Member Complaints        during the Operations  HMO Program, per SA.       $250 per reporting period
Member Complaint and     within 30 calendar days from    Period                                            if the HMO fails to meet
Appeal Process Contract  the date the Complaint is                                                         the performance standard.
Attachment B-1 RFP       received by the HMO.
Section 8.2.7.1 -Member
Complaint Process
Contract Attachment B-1
</TABLE>

(1)  Derived from the Contract or HHSC's Uniform Managed Care Manual.

(2)  Standard specified in Contract

(3)  Period during which HHSC will evaluate service for purposes of tailored
     remedies.

(4)  Measure against which HHSC will apply remedies.


                                   Page 5 of 7

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-5 -DELIVERABLES/LIQUIDATED DAMAGES MATRIX      Version 1.0

<TABLE>
<CAPTION>
      SERVICE/                                                 MEASUREMENT              MEASUREMENT
    COMPONENT(1)             PERFORMANCE STANDARD(2)            PERIOD(3)              ASSESSMENT(4)           LIQUIDATED DAMAGES
    ------------             -----------------------           -----------             -------------           ------------------
<S>                      <C>                             <C>                    <C>                        <C>
RFP Section 8.4.3 -CHIP
Member Complaint and
Appeal Process

Contract Attachment B-1  The HMO must resolve at least   Measured Quarterly     Per reporting period, per  HHSC may assess up to
RFP Section 8.1.5.9--    98% of Member Appeals within    during the Operations  HMO Program, per SA.       $500 per reporting period
Member Complaint and     30 calendar days from the date  Period                                            if the HMO fails to meet
Appeal Process Contract  the Appeal is filed with the                                                      the performance standard.
Attachment B-1 RFP       HMO.
Section 8.2.7.2
-- Medicaid Standard
Member Appeal Process
Contract Attachment B-1
RFP Section 8.4.3 CHIP
Member Complaint and
Appeal Process

Contract Attachment B-1  The HMO must transfer all data  Measured at Time of    Per incident of            HHSC may assess up to
RFP Section 9.2          regarding the provision of      Transfer of Data and   non-compliance (failure    $10,000 per calendar day
-- Transfer of Data      Covered Services to Members to  ongoing after the      to provide data and/or     the data is late,
                         HHSC or a new HMO, at the sole  Transfer of Data       failure to provide data    inaccurate or incomplete.
                         discretion of HHSC and as       until satisfactorily   in required format), per
                         directed by HHSC. All           completed              HMO Program, per SA.
                         transferred data must comply
                         with the Contract
                         requirements,
</TABLE>

(1)  Derived from the Contract or HHSC's Uniform Managed Care Manual.

(2)  Standard specified in Contract

(3)  Period during which HHSC will evaluate service for purposes of tailored
     remedies.

(4)  Measure against which HHSC will apply remedies.


                                   Page 6 of 7

<PAGE>

                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT B-5 - DELIVERABLES/LIQUIDATED DAMAGES MATRIX     Version 1.0

<TABLE>
<CAPTION>
SERVICE/COMPONENT(1)        PERFORMANCE STANDARD(2)       MEASUREMENT PERIOD(3)  MEASUREMENT ASSESSMENT(4)     LIQUIDATED DAMAGES
--------------------  ----------------------------------  ---------------------  -------------------------  -----------------------
<S>                   <C>                                 <C>                    <C>                        <C>
                      including HIPAA.

Contract Attachment   Six months prior to the end of the  Measured at Six        Each calendar day of       HHSC may assess up to
B-1 RFP Section 9.3   contract period or any extension    Months prior to the    non-compliance, per HMO    $1,000 per calendar day
-- Turnover Services  thereof, the HMO must propose a     end of the contract    Program, per SA.           the Plan is late,
                      Turnover Plan covering the          period or any                                     inaccurate, or
                      possible turnover of the records    extension thereof and                             incomplete.
                      and information maintained to       ongoing until
                      either the State (HHSC) or a        satisfactorily
                      successor HMO.                      completed

Contract Attachment   The HMO must provide the State      Measured 30 days       Each calendar day of       HHSC may assess up to
B-1 RFP Section 9.4   (HHSC) with a Turnover Results      after the Turnover of  non-compliance, per HMO    $250 per calendar day
-- Post-Turnover      report documenting the completion   Operations             program, per SA.           the report is late,
Services              and results of each step of the                                                       inaccurate or
                      Turnover Plan 30 days after the                                                       incomplete.
                      Turnover of Operations.

Contract Attachment   The HMO must notify HHSC in         Transition, Measured   Each calendar day of       HHSC may assess up to
A HHSC Uniform        writing immediately upon making a   Quarterly during the   non-compliance, per HMO    $5,000 per calendar day
Managed Care          decision to terminate a             Operations Period      Program, per SA.           of non-compliance.
Contract Terms and    subcontract with a Material
Conditions, Section   Subcontractor or upon receiving
4.08 Subcontractors   notification from the Material
                      Subcontractor of its intent to
                      terminate such subcontract.
</TABLE>

(1)  Derived from the Contract or HHSC's Uniform Managed Care Manual.

(2)  Standard specified in Contract

(3)  Period during which HHSC will evaluate service for purposes of tailored
     remedies.

(4)  Measure against which HHSC will apply remedies.


                                   Page 7 of 7

<PAGE>

                                                                  ATTACHMENT B-6

                                     (MAP)

                                                    HHSC, Health Plan Operations
                                                                       July 2005

CHIP HMO SERVICE AREAS

BEXAR             BEXAR
                  Atoscosa
                  Comal
                  Guadalupe
                  Kendall
                  Medina
                  Wilson

Optional Addition Bandera
to Bexar CSA
(O-SA)

HARRIS            HARRIS
                  Brazoria
                  Fort Bend
                  Galveston
                  Montgomery
                  Waller

Optional Addition Austin
to Harris CSA     Chambers
(O-SA)            Hardin
                  Jasper
                  Jefferson
                  Liberty
                  Matagorda
                  Newton
                  Orange
                  Polk
                  San Jacinto
                  Tyler
                  Walker
                  Wharton

DALLAS            DALLAS
                  Collin
                  Ellis
                  Hunt
                  Kaufman
                  Navarro
                  Rockwall

LUBBOCK           LUBBOCK
                  Crosby
                  Floyd
                  Garza
                  Hale
                  Hockley
                  Lamb
                  Lynn
                  Terry

Optional Addition Carson
to Lubbock CSA    Deaf Smith
(O-SA)            Hutchinson
                  Potter
                  Randall
                  Swisher

NUECES            Aransas
                  Bee
                  Calhoun
                  Jim Wells
                  Kleberg
                  NUECES
                  Refugio
                  San Patricio
                  Victoria

Optional Addition Brooks
to Nueces CSA     Goliad
(O-SA)            Karnes
                  Kennedy
                  Live Oak

TRAVIS            TRAVIS
                  Bastrop
                  Burnet
                  Caldwell
                  Hays
                  Lee
                  Williamson

O-SA              Fayette

EL PASO           EL PASO
                  Hudspeth

TARRANT           TARRANT
                  Denton
                  Hood
                  Johnson
                  Parker
                  Wise

WEBB              WEBB
(CHIP Only SA)    Duval
                  Jim Hogg
                  Zapata


                                                    HHSC, Health Plan Operations
                                                                       July 2005

<PAGE>

                                                                  ATTACHMENT B-6

                                      (MAP)

                                                     HHSC Health Plan Operations
                                                                       July 2005

STAR HMO SERVICE AREAS

BEXAR   BEXAR
        Atascosa
        Comal
        Guadalupe
        Kendall
        Medina
        Wilson

HARRIS  HARRIS
        Brazoria
        Fort Bend
        Galveston
        Montgomery
        Waller

DALLAS  DALLAS
        Collin
        Ellis
        Hunt
        Kaufman
        Navarro
        Rockwall

LUBBOCK LUBBOCK
        Crosby
        Floyd
        Garza
        Hale
        Hockley
        Lamb
        Lynn
        Terry

EL PASO EL PASO

TRAVIS  TRAVIS
        Bastrop
        Burnet
        Caldwell
        Hays
        Lee
        Williamson

TARRANT TARRANT
        Denton
        Hood
        Johnson
        Parker
        Wise

NEW STAR SERVICE AREA

NUECES  Aransas
        Bee
        Calhoun
        Jim Wells
        Kleberg
        NUECES
        Refugio
        San
        Patricio
        Victoria

                                                    HHSC, Health Plan Operations
                                                                       July 2005

<PAGE>
                            Contractual Document (CD)

Responsible Office: HHSC Office of General Counsel (OGC)

SUBJECT: ATTACHMENT C-3 - AGREED MODIFICATIONS TO HMO'S PROPOSAL     Version 1.0

The following table includes agreed modifications to the HMO's Proposal. Unless
specifically referenced below, all exceptions, reservations, or limitations to
the RFP's terms and conditions, including the HHSC Uniform Managed Care Contract
Terms & Conditions, included in the HMO's Proposal are deemed rejected and are
not included in the final agreement of the Parties.

<TABLE>
<CAPTION>
ID.   PROPOSAL SECTION   AGREED MODIFICATION
---   ----------------   -------------------
<S>   <C>                <C>
1
2
3
4
5
</TABLE>


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