UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to

                         Commission File Number 0-20905

                     UNITED PAYORS & UNITED PROVIDERS, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                     51-0374698
(State or other jurisdiction of         (I.R.S. Employer Identification Number)
 incorporation or organization)
                   
         2275 Research Boulevard, 6th Floor, Rockville, Maryland 20850
               (Address of principal executive offices, Zip Code)

                                 (301) 548-1000
                (Registrant's phone number, including area code)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.        Yes  X        No

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.

The number of shares of common stock, par value $.01 per share, outstanding on
November 11, 1998 was 17,080,516.


<PAGE>



                     United Payors & United Providers, Inc.
                                and Subsidiaries

                          Third Quarter 1998 Form 10-Q

                                TABLE OF CONTENTS


                                                                           Page
PART I FINANCIAL INFORMATION

  ITEM 1. Financial Statements

    Consolidated Balance Sheets as of September 30, 1998 (Unaudited)
    and December 31, 1997....................................................1

    Consolidated Statements of Operations for the Three and Nine Months
    Months Ended September 30, 1998 and 1997 (Unaudited).....................2

    Consolidated Statements of Cash Flows for the Nine Months Ended
    September 30, 1998 and 1997 (Unaudited)..................................3

    Notes to Consolidated Financial Statements ..............................4


  ITEM 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations................................6


PART II OTHER INFORMATION


SIGNATURES






<PAGE>



PART I.  FINANCIAL INFORMATION
ITEM 1.  Financial Statements


<TABLE>
                     UNITED PAYORS & UNITED PROVIDERS, INC.
                           CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                            ASSETS                 September 30,  December 31,
                                                                       1998           1997
                                                                   ------------   ------------
                                                                    (Unaudited)
<S>                                                                <C>             <C>
Current assets:
  Cash and cash equivalents ....................................   $ 22,365,593    $ 14,456,069
  Short-term investments .......................................      6,304,902       8,366,547
  Accounts receivable ..........................................     12,226,319      11,233,277
  Other current assets .........................................      1,454,195       1,252,402
                                                                   ------------    ------------
    Total current assets .......................................     42,351,009      35,308,295

Fixed assets, net ..............................................      3,768,850       3,858,532
Advances to contracting providers, net .........................     24,491,030      17,265,730
Investments ....................................................      2,528,976       1,496,051
Intangible and other assets, net ...............................     26,431,010      24,586,245
                                                                   ------------    ------------
    Total assets ...............................................   $ 99,570,875    $ 82,514,853
                                                                   ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses ........................   $ 10,216,925    $  5,791,505
  Income and other taxes payable ...............................      2,102,696       1,871,934
  Notes payable and capital leases, current portion ............      3,028,937       3,131,772
                                                                   ------------    ------------
    Total current liabilities ..................................     15,348,558      10,795,211
Non-current accrued expenses ...................................      1,441,670       1,313,333
Notes payable and capital leases, less current portion .........      9,813,688      12,109,606
                                                                   ------------    ------------
    Total liabilities ..........................................     26,603,916      24,218,150
                                                                   ------------    ------------

Commitments and contingencies

Stockholders' equity:
  Convertible preferred stock, $0.01 par value, 5,000,000 shares
    authorized, none issued and outstanding at September 30,
    1998 and December 31, 1997 .................................           --              --
  Common stock, $0.01 par value, 35,000,000 shares authorized,
    17,360,454 shares issued at September 30, 1998 and
    December 31, 1997, respectively ............................        173,605         173,605
  Additional paid-in capital ...................................     37,123,886      37,123,886
  Treasury stock, 279,938 shares at September 30, 1998 and
    307,725 shares at December 31, 1997, at cost ...............     (2,745,563)     (3,029,450)
  Retained earnings ............................................     39,157,231      24,911,862
  Deferred compensation ........................................       (742,200)       (883,200)
                                                                   ------------    ------------
    Total stockholders' equity .................................     72,966,959      58,296,703
                                                                   ------------    ------------

    Total liabilities and stockholders' equity .................   $ 99,570,875    $ 82,514,853
                                                                   ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        1

<PAGE>



<TABLE>
                     UNITED PAYORS & UNITED PROVIDERS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)



<CAPTION>
                                           Three Months Ended             Nine Months Ended
                                               September 30,                September 30,
                                       ---------------------------   ---------------------------
                                           1998           1997           1998           1997
                                       ------------   ------------   ------------   ------------

<S>                                    <C>            <C>            <C>            <C>         
Provider network revenue ............  $ 14,225,767   $ 10,346,719   $ 42,028,629   $ 27,892,819
Utilization management services .....     5,289,683      4,910,284     15,182,007     14,687,599
                                       ------------   ------------   ------------   ------------
    Total revenue ...................    19,515,450     15,257,003     57,210,636     42,580,418
                                       ------------   ------------   ------------   ------------

Operating expenses:
  Direct contract expenses ..........     7,972,713      7,380,199     24,724,037     20,295,786
  General and administrative ........     1,907,856      1,559,002      5,837,012      4,578,512
  Depreciation and amortization .....       680,294        431,690      1,969,480      1,087,821
                                       ------------   ------------   ------------   ------------
    Total operating expenses ........    10,560,863      9,370,891     32,530,529     25,962,119
                                       ------------   ------------   ------------   ------------

Other income (expense) ..............      (325,657)       791,976       (285,034)     1,490,270
                                       ------------   ------------   ------------   ------------

Income before income taxes ..........     8,628,930      6,678,088     24,395,073     18,108,569

Income tax provision ................    (3,592,000)    (2,699,535)   (10,149,704)    (7,319,108)
                                       ------------   ------------   ------------   ------------

Net income ..........................  $  5,036,930   $  3,978,553   $ 14,245,369   $ 10,789,461
                                       ============   ============   ============   ============

Net income per share - basic ........  $       0.29   $       0.23   $       0.84   $       0.62
                                       ============   ============   ============   ============

Weighted average shares outstanding -
  basic .............................    17,074,745     17,195,288     17,059,691     17,289,727
                                       ============   ============   ============   ============

Net income per share - diluted ......  $       0.28   $       0.23   $       0.79   $       0.62
                                       ============   ============   ============   ============

Weighted average shares outstanding -
  diluted ...........................    18,060,640     17,675,643     17,972,358     17,525,373
                                       ============   ============   ============   ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                        2

<PAGE>



<TABLE>
                     UNITED PAYORS & UNITED PROVIDERS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<CAPTION>
                                                          Nine Months Ended September 30,
                                                                1998           1997
                                                            ------------   ------------
<S>                                                         <C>            <C>
Operating activities
  Net income .............................................  $ 14,245,369   $ 10,789,461
  Adjustment to reconcile net income to
  net cash provided by operations
    Depreciation and amortization ........................     1,969,480      1,087,821
    Loss on sale of fixed assets .........................          --          143,138
    Deferred income taxes and other non-cash items .......     1,440,480        549,868
    Changes in assets and liabilities, net of effects from
      acquisition in 1997:
      Accounts receivable ................................    (1,528,212)    (1,273,099)
      Accounts payable and accrued expenses ..............       520,817       (920,306)
      Other current and non-current assets ...............       695,163        101,718
      Income and other taxes payable .....................       230,762        109,898
                                                            ------------   ------------
  Net cash provided by operating activities ..............    17,573,859     10,588,499
                                                            ------------   ------------

Investing activities
    Purchases of fixed assets ............................      (853,120)    (1,335,478)
    Proceeds from sale of fixed assets ...................          --           37,305
    Purchases of short-term investments ..................    (7,617,830)   (16,011,644)
    Proceeds from sale of short-term investments .........     9,458,767     15,357,623
    Advances to contracting providers ....................    (7,337,300)   (10,100,000)
    Payment for acquisition, net of cash acquired ........          --      (13,322,685)
    Other ................................................    (1,232,925)      (726,691)
                                                            ------------   ------------
  Net cash used in investing activities ..................    (7,582,408)   (26,101,570)
                                                            ------------   ------------

Financing activities
    Purchases of treasury stock ..........................      (207,574)    (2,447,843)
    Issuances of stock from treasury .....................       491,461           --
    Proceeds from borrowing ..............................          --       10,000,000
    Repayment of debt ....................................    (2,365,814)      (560,139)
                                                            ------------   ------------
  Net cash provided by (used in) financing activities ....    (2,081,927)     6,992,018
                                                            ------------   ------------

Increase (decrease) in cash and cash equivalents .........     7,909,524     (8,521,053)
Cash and cash equivalents
    Beginning of the period ..............................    14,456,069     16,034,184
                                                            ------------   ------------
    End of the period ....................................  $ 22,365,593   $  7,513,131
                                                            ============   ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                                       3

<PAGE>



                     UNITED PAYORS & UNITED PROVIDERS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.  BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION

    United Payors & United Providers, Inc. ("UP&UP" or the "Company"), a
Delaware corporation, serves as an intermediary between health care payors
(e.g., insurance companies) and health care providers (e.g., hospitals) by
entering into contractual arrangements designed generally to produce cost
savings and other benefits for payors and increased liquidity and improved
efficiency in claims submissions for providers. UP&UP derives its revenue
primarily from a portion of the price concessions offered by the providers under
such contractual arrangements. Effective December 31, 1995, UP&UP entered into
an agreement with America's Health Plan, Inc. ("AHP"), an indirect wholly-owned
subsidiary of Principal Life Insurance Company ("Principal Life"), whereby
certain payor clients were transferred to UP&UP. Principal Life owns
approximately 38% of the Company's Common Stock. Effective September 1, 1997,
UP&UP acquired the operations of AHP. Effective October 1, 1996, UP&UP acquired
National Health Services, Inc. ("NHS"). NHS provides health care utilization
review and case management services to payor clients. NHS' proprietary software
integrates the three critical components of its service -- hospital admission
precertification, triage and medical case management -- to its clients.

2.  LEGAL PROCEEDINGS

     Except as discussed below, the Company currently is not a party to any
legal proceedings, nor is it aware of any legal proceedings threatened against
it.

     On April 26, 1996, a civil complaint was filed against the Company in the
United States District Court for the Northern District of Illinois. The
Plaintiff seeks injunctive and other relief, including damages, based generally
on allegations that representatives of the Company made various
misrepresentations to prospective contracting providers, in order to cause them
to join the UP&UP Network. The Company denies the allegations in the complaint
and believes the complaint lacks merit. No trial date has been scheduled and, to
date, the Plaintiff has not provided any basis to support its claim of damages.
Based upon available information and after consultation with our attorneys,
management believes that damages, if any, arising from litigation will not be
material to the consolidated financial statements of the Company.

     The Company is also a party to other legal actions arising in the ordinary
course of business. Management believes that damages arising from these other
actions, if any, will not be material to the consolidated financial statements
of the Company.

3.  BUSINESS COMBINATION

     Effective September 1, 1997, UP&UP acquired AHP for a purchase price of
approximately $15.5 million, consisting of $15.1 million in cash and the
assumption of approximately $400,000 in liabilities in excess of the fair value
of the assets acquired. In connection with the acquisition, the Company entered
into a loan agreement with a bank for an aggregate amount of $15 million. The
loan bears interest at the rate of LIBOR plus 1-1/8%, payable quarterly.
Principal is to be repaid in equal quarterly installments over a period of five
years. The acquisition has been accounted for as a purchase and, accordingly,
the results of operations of AHP for the three and nine months ended September
30, 1997 are included in the accompanying consolidated statements of operations
since the effective date of the acquisition. The acquisition resulted in
goodwill of approximately $15.5 million which is being amortized over 20 years.
The unamortized portion of goodwill at September 30, 1998, is included in
intangible and other assets in the accompanying consolidated balance sheet.

Under the terms of the acquisition agreement, the purchase price of AHP was
subject to adjustment through the year 2000, if AHP revenues exceeded
pre-determined targets. In August, 1998, the Company and the seller entered into

                                        4

<PAGE>



an agreement to set the purchase price of AHP and eliminate the contingent
consideration provisions in the original acquisition agreement. Under the term
of the August, 1998 agreement, the Company is to pay the seller $4.0 million in
twelve equal monthly installments commencing November 1, 1998. This amount has
been recorded as a liability (included in accounts payable and accrued expenses)
and additional goodwill in the accompanying consolidated balance sheet as of
September 30, 1998.

4.  STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

     On April 13, 1998, the Company's Board of Directors approved a
three-for-two stock split in the form of a stock dividend payable on May 4,
1998, to stockholders of record on April 24, 1998. The stock split resulted in
the issuance of a total of 5,786,818 additional shares of common stock. The par
value of the common stock was not changed. Accordingly, the issuance of the
additional shares resulted in the transfer of $57,869 from additional paid-in
capital to common stock to reflect the aggregate par value of the shares issued.
All references in the financial statements to number of shares, related prices
and per share amounts have been restated to reflect the stock split.

     In addition, the Company has adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128), which
establishes standards for computing and presenting basic and diluted earnings
per share. Previously presented earnings per share data for the three and nine
months ended September 30, 1997 has also been restated to conform with the
provisions of FAS 128.

     A reconciliation of the numerators and denominators of the basic earnings
per share computations for the three and nine months ended September 30, 1998
and 1997 to the numerators and denominators of the diluted earnings per share
computations for the respective periods follows:


<TABLE>
<CAPTION>
                          Three Months Ended              Three Months Ended
                          September 30, 1998              September 30, 1997
                    -----------------------------   -----------------------------
                                             Per                             Per
                    Net Income    Shares    Share   Net Income    Shares    Share
                    ----------  ----------  -----   ----------  ----------  -----
<S>                 <C>         <C>         <C>     <C>         <C>         <C>  
Basic ............  $5,036,930  17,074,745  $0.29   $3,978,553  17,195,288  $0.23
Effect of Dilutive
Options and
Warrants .........        --       985,895  (0.01)        --       480,355   --
                    ----------  ----------  -----   ----------  ----------  -----
Diluted ..........  $5,036,930  18,060,640  $0.28   $3,978,553  17,675,643  $0.23
                    ==========  ==========  =====   ==========  ==========  =====
</TABLE>


                            *     *     *     *     *


<TABLE>
<CAPTION>
                           Nine Months Ended                Nine Months Ended
                           September 30, 1998               September 30, 1997
                    -------------------------------   -------------------------------
                                               Per                               Per
                    Net Income      Shares    Share   Net Income      Shares    Share
                    -----------   ----------  -----   -----------   ----------  -----
<S>                 <C>           <C>         <C>     <C>           <C>         <C>  
Basic ............  $14,245,369   17,059,691  $0.84   $10,789,461   17,289,727  $0.62
Effect of Dilutive
Options and
Warrants .........         --        912,667  (0.05)         --        235,646   --
                    -----------  -----------  -----   -----------  -----------  -----
Diluted ..........  $14,245,369   17,972,358  $0.79   $10,789,461   17,525,373  $0.62
                    ===========  ===========  =====   ===========  ===========  =====
</TABLE>


                                        5

<PAGE>



     Stock options to purchase 4,500 shares of common stock at $21.59 per share
were outstanding during the nine months ended September 30, 1998 but were not
included in the computation of diluted earnings per share because the exercise
price of the stock options was greater than the average market price of the
common shares and, therefore, was antidilutive. These stock options expire in
May 2008. All other options and warrants outstanding during the three and nine
months ended September 30, 1998 were dilutive, and, therefore, were included in
the computation of dilutive earnings per share for each of those periods.

5.  NEW PRONOUNCEMENTS

     The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." The Company had no
other comprehensive income items (as defined in SFAS No. 130) during the three
and nine months ended September 30, 1998 and 1997.

     The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," SFAS No.
132, "Employers' Disclosures About Pensions and Other Postretirement Benefits,"
and SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 131, which is effective for the year ending December 31,
1998, establishes standards for reporting information about operating segments,
including related disclosures about products and services, geographic areas and
major customers. SFAS No. 132, which is effective for fiscal years beginning
after December 31, 1997, revises employers' disclosures about pensions and other
postretirement benefit plans. SFAS No. 133, which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, establishes accounting
and reporting standards for derivative instruments and for hedging activities.
These pronouncements are not expected to have a material impact on the financial
position or results of operations of the Company.

6.  UNAUDITED INFORMATION

     The consolidated financial statements for the three and nine months ended
September 30, 1998 and 1997 have not been audited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the information set forth therein. The
results of operations for the three and nine months ended September 30, 1998 are
not necessarily indicative of the results to be expected for the full year or in
the future.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     THIS FORM 10-Q MAY CONTAIN FORWARD-LOOKING STATEMENTS (SEE "CERTAIN FACTORS
THAT MAY AFFECT FUTURE OPERATING RESULTS OR STOCK PRICES") WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE 
FORWARD-LOOKING STATEMENTS INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. THE
COMPANY UNDERTAKES NO OBLIGATION TO REVISE ANY FORWARD-LOOKING STATEMENTS IN
ORDER TO REFLECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE OF THIS
REPORT. READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS
DISCLOSURES MADE BY THE COMPANY IN THIS REPORT AND IN THE COMPANY'S OTHER
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION THAT ATTEMPT TO ADVISE
INTERESTED PARTIES OF THE RISKS AND FACTORS THAT MAY AFFECT THE COMPANY'S
BUSINESS.

GENERAL

     United Payors & United Providers, Inc. ("UP&UP" or the "Company"), a
Delaware corporation, serves as an intermediary between health care payors
(e.g., insurance companies) and health care providers (e.g., hospitals) by
entering into contractual arrangements designed generally to produce cost
savings and other benefits for payors ("Payor Clients") and increased liquidity
and improved efficiency in claims submissions for providers ("Contracting
Providers"). UP&UP derives its revenue primarily from a portion of the price
concessions offered by the providers under such contractual arrangements.
Effective October 1, 1996, UP&UP acquired National Health Services, Inc.
("NHS"). NHS provides health care utilization review and case management
services to large payor clients. NHS' proprietary software integrates the three
critical components of its service -- hospital admission precertification,
triage and medical case management -- to its clients.


                                        6

<PAGE>



     Effective December 31, 1995, UP&UP entered into an agreement with America's
Health Plan, Inc. ("AHP"), an indirect wholly-owned subsidiary of Principal Life
Insurance Company ("Principal Life"), whereby certain payor clients were
transferred to UP&UP. Principal Life owns approximately 38% of the Company's
Common Stock. Effective September 1, 1997, UP&UP acquired the operations of AHP.
The acquisition was accounted for as a purchase and, accordingly, the
consolidated results of operations of the Company for the three and nine months
ended September 30, 1997 include the results of operations of AHP since the
effective date of the acquisition. Effective January 1, 1998, the operating
infrastructure of UP&UP and AHP were fully integrated into a single business,
administrative and financial reporting unit. During the second quarter of 1998,
the Company completed the merger of the UP&UP and AHP individual provider
networks into a seamless and fully integrated provider network.

REVENUE

     Provider network revenues are influenced by, among other variables: (i) the
number of Contracting Providers and Payor Clients; (ii) the volume of claims
submitted by Contracting Providers to Payor Clients; (iii) the amount of price
concessions the Company negotiates with Contracting Providers; and (iv) the
contractual price concession sharing arrangements negotiated by the Company with
Payor Clients. In effect, these variables correspond to breadth (number of
Contracting Providers and Payor Clients), volume (claims per period) and depth
(amount of price concession), all of which define savings and the Company's
resultant revenues.

     Medical utilization management services revenues are based on contractual
arrangements. Contracts may reflect a per-employee-per-month ("PEPM") rate, fee
for service or hourly rate. Precertification revenues are generally based on
PEPM calculations. Case management revenues are generally based on fee for
service or hourly rates.

DIRECT CONTRACT EXPENSES

     Direct contract expenses include access fees paid by UP&UP and AHP for the
utilization of other provider networks, marketing commissions, and other direct
costs of services such as personnel related to repricing of claims, client
services, and other costs incurred in connection with the generation of revenue
and the development of the Company's provider network. NHS direct contract
expenses include the costs of medical personnel (nurses and doctors) and other
expenses related to administering its contracts.

     Marketing commissions are payable to consultants who became entitled to
such commissions for their role in obtaining contracts with certain Payor
Clients.

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses include salaries and related costs for
personnel involved in the administration of the Company and other costs such as
professional services and general overhead expenses.

RESULTS OF OPERATIONS

Three Months Ended September 30, 1998 Compared to Three Months Ended 
September 30, 1997

     Total revenue increased $4.2 million from $15.3 million in 1997 to $19.5
million in 1998. Provider network revenue increased by $3.9 million, from $10.3
million in 1997 to $14.2 million in 1998. This increase was attributable to the
acquisition of AHP, the addition of new Payor Clients, the growth in the overall
claims volume from existing Payor Clients and the expansion of the Company's
provider network. Because of the merger of the UP&UP and AHP provider networks,
the Company is not able to quantify the portion of the increase attributable to
the acquisition of AHP. At September 30, 1998, the provider network (including
AHP) consisted of direct contracts with approximately 14,000 medical facilities
and approximately 142,000 physicians compared to approximately 13,300 medical
facilities and approximately 123,000 physicians at September 30, 1997.
Utilization management services revenue of $5.3 million in 1998 increased by
approximately $379,000 when compared to 1997.



                                        7

<PAGE>



     Direct contract expenses increased by $0.6 million, from $7.4 million in
1997 to $8.0 million in 1998. Access fees to other provider networks as a
percentage of provider network revenue decreased by 3.9%, from 10.5% ($1.1
million) in 1997 to 6.6% ($0.9 million) in 1998. This percentage decrease was
attributable to the growth in the number of providers contracting directly with
UP&UP and Payor Clients accessing more direct contracts. Other direct costs of
services increased by approximately $0.7 million, from $6.0 million in 1997 to
$6.7 million in 1998. The increase was primarily attributable to the acquisition
of AHP effective September 1, 1997 and an overall increase in expenses of UP&UP
resulting primarily from a significant increase in the number of employees
subsequent to September 30, 1997 to accommodate growth in the provider network
business, increased provider network development activities and the continued
development of products and services. Because of the integration of the
operations of UP&UP and AHP, the Company is not able to quantify the portion of
the increase in expenses attributable to each of the components.

     General and administrative expenses increased by approximately $0.3
million, from approximately $1.6 million in 1997 to approximately $1.9 million
in 1998. The increase was primarily attributable to the acquisition of AHP
effective September 1, 1997 and an overall increase in expenses of UP&UP
resulting from the addition of employees in the administrative and executive
areas and an increase in professional fees for accounting and legal services.
Because of the integration of the operations of UP&UP and AHP, the Company is
not able to quantify the portion of the overall increase in expenses
attributable to each of these two factors.

     Depreciation and amortization increased approximately $0.3 million from
approximately $0.4 million in 1997 to approximately $0.7 million in 1998. The
increase was primarily attributable to the depreciation expense and amortization
of goodwill of AHP, as well as depreciation on increased capital expenditures to
accommodate growth.

Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997

     Total revenues increased by $14.6 million, from $42.6 million in 1997 to
$57.2 million in 1998. Provider network revenues increased by $14.1 million,
from $27.9 million in 1997 to $42.0 million in 1998. This increase was
attributable to the acquisition of AHP, the addition of new Payor Clients, the
growth in the overall claims volume from existing Payor Clients and the
expansion of the Company's provider network. Because of the merger of the UP&UP
and AHP provider networks, the Company is not able to quantify the portion of
the increase attributable to the acquisition of AHP. At September 30, 1998, the
provider network consisted of direct contracts with approximately 16,900 medical
facilities and approximately 142,000 physicians compared to approximately 13,300
medical facilities and approximately 123,000 physicians at September 30, 1997.
Utilization management services revenues increased by approximately $494,000,
from $14.7 million in 1997 to $15.2 million in 1998.

     Direct contract expenses increased by $4.4 million, from $20.3 million in
1997 to $24.7 million in 1998. Access fees to other provider networks as a
percentage of provider network revenues decreased by 4.1%, from 12.4% ($3.4
million) in 1997 to 8.3% ($3.5 million) in 1998. This percentage decrease was
attributable to the growth in the number of providers contracting directly with
UP&UP and Payor Clients accessing more direct contracts. Other direct costs of
services increased by approximately $4.2 million, from $16.0 million in 1997 to
$20.2 million in 1998. The increase was primarily attributable to the
acquisition of AHP effective September 1, 1997 and an overall increase in
expenses of UP&UP resulting primarily from an increase in the number of
employees subsequent to September 30, 1997 to accommodate growth in the provider
network business, increased provider network development activities and the
continued development of new products and services. Because of the integration
of the operations of UP&UP and AHP, the Company is not able to quantify the
portion of the increase in expenses attributable to each of the components.

     General and administrative expenses increased by approximately $1.2
million, from approximately $4.6 million in 1997 to approximately $5.8 million
in 1998. The increase was primarily attributable to the acquisition of AHP
effective September 1, 1997 and an overall increase in expenses of UP&UP
resulting from an increase in the number of employees in the administrative and
executive areas and an increase in professional fees for accounting and legal
services. Because of the integration of the operations of UP&UP and AHP, the
Company is not able to quantify the portion of the overall increase in expenses
attributable to each of the components.



                                        8

<PAGE>



     Depreciation and amortization increased by approximately $0.9 million, from
approximately $1.1 million in 1997 to approximately $2.0 million in 1998. The
increase was primarily attributable to the depreciation expense and amortization
of goodwill of AHP, as well as depreciation on increased capital expenditures to
accommodate growth.

LIQUIDITY AND CAPITAL RESOURCES

     At September 30, 1998 the Company had working capital of approximately
$27.0 million. Net cash provided by operating activities increased by
approximately $7.0 million, from $10.6 million for the nine months ended
September 30, 1997 to $17.6 million for the nine months ended September 30,
1998. In March 1997, the Company entered into two lines of credit arrangements
for loan commitments totaling $15 million, which is available to the Company at
September 30, 1998. The Company has also entered into a $15 million term loan
with a bank. As of September 30, 1998, the Company had repaid $2.25 million
under the terms of the loan.

     The Company's primary capital resources commitment is to fund advances to
Contracting Providers upon exercise of Prepayment Options granted to Contracting
Providers. Depending on increases in claims volume and in the number of
Contracting Providers and Payor Clients, the Company estimates that $2.5 million
to $5.0 million could be required to fund Prepayment Options during the
remainder of 1998. During June 1997, the Board of Directors of the Company
approved a common stock repurchase program of up to $5 million. The Company
canceled the common stock repurchase program as of February 1, 1998. As of
September 30, 1998, the Company had repurchased 389,625 shares of its
outstanding common stock under the program, at an aggregate purchase price of
$3,537,023 and reissued 109,687 of the shares for an aggregate consideration of
$791,460.

     The Company believes that its existing liquidity sources, anticipated funds
from operations, and credit arrangements will satisfy its operating cash
requirements for the next twenty-four months. However, in the event that the
advances for Prepayment Options exceed the Company's currently anticipated
estimates and/or other available sources of liquidity to fund such payments are
not as great as anticipated, the Company could seek to borrow additional funds
or issue additional equity securities to fund the balance of such advances.
There can be no assurances that the Company will be able to effect any such
additional borrowings or issue additional equity securities on acceptable terms.

IMPACT OF INFLATION

     Since the Company's revenues are based on medical costs, the impact of
inflation on operating costs and expenses should be offset by the impact of
inflation of medical costs.

CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS OR STOCK PRICES

     The Company's business is dependent upon a variety of factors, including
its ability to enter into contracts with payors and providers on terms
attractive to all parties and the absence of substantial changes in the health
care industry that would diminish the need for the services offered by the
Company.

     A significant portion of the Company's revenues is derived from a small
number of Payor Clients and state governments. The Company's standard contract
with a Payor Client or state government is generally for a one to two-year term,
with automatic renewals on the anniversary date. However, certain contracts may
be terminated by either party at any time, generally upon ninety days' notice or
at the convenience of the state governments. These contracts are also subject to
fee negotiations and revisions on an annual basis. As a result, Payor Clients
could terminate or not renew contracts, or renew only with terms unfavorable to
the Company. The loss of a contract with a major Payor Client and the inability
to replace any such client with significant new clients could have a material
adverse effect on the Company. Even if a Payor Client does not terminate its
contract with the Company, the Company could experience a significant decrease
in claims from a Payor Client as a result of the use of other provider networks
or other managed care systems and/or the consolidation being experienced in the
industry.

     The Company's contracts with Contracting Providers typically have a
one-year term, renewable automatically for successive one year terms unless
either party gives notice of intent not to renew. Either party to these
contracts generally may terminate upon satisfaction of specified notice
requirements. The termination of a significant number of contracts

                                        9

<PAGE>



with Contracting Providers having a high volume of claims with the Company's
Payor Clients, the inability to replace such contracts with contracts with
similar Contracting Providers and/or the renegotiation of contracts resulting in
reduced price concessions could have a material adverse effect on the Company. A
number of health care providers and/or hospital systems are merging with or
acquiring other hospitals or hospital systems to create large integrated
delivery systems. The formation of these delivery systems may impact the future
ability of the Company to contract directly with the individual hospital
facilities or obtain price concessions at the same level currently obtained.

     The potential impact of all of the above factors is difficult for the
Company to forecast, and these or other factors, such as sales of substantial
amounts of the Company's common stock in the public market and changes in
earnings estimates by securities analysts, could have a material adverse effect
on the Company's business, financial condition, results of operations or stock
price. Further, in recent years, the stock market has experienced extreme price
and volume fluctuations that have particularly affected the market prices of
securities of many companies, for reasons frequently unrelated to the
performance of the specific companies. These fluctuations, as well as general
economic, political and market conditions, could have a material adverse effect
on the market price of the Company's common stock. There can be no assurances
that the trading price of the Company's common stock will remain at or near its
current level.

YEAR 2000 READINESS DISCLOSURE

     The Company is aware of the issues associated with the programming code in
existing computer and software systems regarding the Year 2000. The Company,
like other organizations, is in the process of assessing and modifying or
replacing its information technology and non-information technology to ensure,
to the extent within the control of the Company, their functionality with
respect to the "Year 2000" millennium change and to identify and evaluate
potential risks to the Company to the extent that Year 2000 problems not within
the Company's control could impact the Company. The Company's primary computer
systems operate from an IBM platform and were designed in the 1990's, generally
with four digit year capability. With respect to non-information
technology, all of the Company's facilities are relatively modern, post-1990,
and are believed, based on the evaluation to date, not to have any significant
Year 2000 problems. The Company has budgeted $1 million, as a conservative
estimate of the maximum cost to it, to address "Year 2000 problems," and has
presently spent approximately $250,000. The Company does not anticipate that
material incremental costs will be incurred in any single future year. The
Company anticipates that it will be substantially Year 2000 ready by July 1,
1999 and will spend the remainder of 1999 testing. In light of the Company's
view that Year 2000 issues with respect to its information technology and
non-information technology systems within its control will be adequately
addressed by it and will not cause material disruption to the Company's
operations, the Company does not intend to develop a contingency plan with
respect to such system.

     However, the Company's operations are dependent to a substantial extent on
the ability of its Payor Clients, and to a lesser extent, possibly its
Contracting Providers, to address successfully their Year 2000 issues in
connection with their claims processing. The Company has no guarantee, however,
that its Payor Clients or Contracting Providers will be able to resolve all of
their own Year 2000 problems in a timely manner. The Company has had discussions
with its major Payor Clients and the Company believes, based on the meetings and
other information available to it, that its major Payor Clients are aware of the
Year 2000 issue and are expending significant resources to identify and resolve
their Year 2000 problems. The Company could be materially and adversely affected
as a result of Year 2000 problems incurred by Payor Clients or Contracting
Providers or their inability to interface with the Company's systems, or as a
result of unforeseen problems regarding the Company's own system. Since Year
2000 problems encountered, and their resolution by, Payor Clients and
Contracting Providers are not subject to control by the Company, generally the
Company cannot and has not developed contingency plans to address whatever
problems might be encountered by those entities. The Company intends to continue
to monitor to the best of its ability the likelihood of significant problems
experienced by such entities which could materially affect the Company or its
operations.




                                       10

<PAGE>



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Neither the Company nor its subsidiaries are involved in any pending legal
proceedings, other than routine legal matters occurring in the ordinary course
of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company, except as referenced in Note 2 to the Consolidated
Financial Statements for the quarter ended September 30, 1998.

ITEM 2. CHANGES IN SECURITIES (Not Applicable)

ITEM 3. DEFAULTS UPON SENIOR SECURITIES (Not Applicable)

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The annual meeting of the stockholders of the Company was held on June 4,
1998. The following matters were submitted to a vote of the stockholders:

1.  The following individuals were elected to the Board of Directors for a
    three-year term with the indicated votes:

<TABLE>
<CAPTION>
                                    For         Against        Abstain
                                ----------      -------        -------
       <S>                      <C>               <C>           <C>               
       Bette B. Anderson        15,736,689        375           None
       Michael H. Gersie        15,736,689        375           None
       Kenneth J. Linde         15,736,689        375           None
</TABLE>

    Board members whose term of office continued after the meeting are as
    follows:

       Thomas L. Blair
       William E. Brock
       Edward S. Civera
       David J. Drury
       Frederick H. Graefe
       Thomas J. Graf

2.  The appointment of PriceWaterhouseCoopers LLP (formerly Coopers & Lybrand
    L.L.P.) as independent auditors of the Company was ratified by a count of
    15,726,036 affirmative votes, 4,500 negative votes and 6,528 abstentions.

ITEM 5. OTHER INFORMATION (None)

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

1. The following exhibits are filed as part of this report unless noted
   otherwise:

  Exhibit No.                             Description
  -----------   ---------------------------------------------------------------
      2.1       Agreement with America's Health Plan, Inc. (1)
      2.2       Plan and Agreement of Merger of IM&I, Inc. into PB Newco (1)
      2.3       Plan and Agreement of Merger of PB Newco, Inc. into United
                Payors & United Providers, Inc. (1)
      3.1       Certificate of Incorporation of United Payors & United 
                Providers, Inc. (1)
      3.2       Bylaws of United Payors & United Providers, Inc. (1)
      4.1       Specimen Stock Certificate of United Payors & United Providers,
                Inc. (1)
      4.2       Shareholder Agreement (1)
     10.1       Employment Agreement between United Payors & United Providers,
                Inc. and Thomas L. Blair (1)


                                       11

<PAGE>



     10.2       Employment Agreements between United Payors & United Providers,
                Inc. and each of Spiro A.
                Karadimas, S. Joseph Bruno and Michael A. Smith (1)
     10.3       Form of Indemnification Agreement (1)
     10.4       Stock Purchase Agreement between Preferred Health Choice and
                United Payors & United Providers, Inc. dated October 22, 
                1996 (2)
     10.5       Warrants to Purchase 150,000 Shares of Common Stock of United
                Payors & United Providers, Inc. Issued to Preferred Health 
                Choice, Inc. dated October 23, 1996 (3)
     10.6       Warrants to Purchase 168,000 Shares of Common Stock of United
                Payors & United Providers, Inc. Issued to Preferred Health 
                Choice, Inc. dated October 27, 1996 (3)
     10.7       Stock Purchase Agreement between United Payors & United
                Providers, Inc. and Principal Holding Company, a wholly-owned
                subsidiary of Principal Mutual Life Insurance Company, dated
                September 29, 1997 (4)
     10.8       Employment Agreement By and Between United Payors & United
                Providers, Inc., Thomas L. Blair, Chairman of the board and 
                Chief Executive Officer of United Payors & United Providers,
                Inc., and Edward S. Civera (5)
     27.1       Financial Data Schedule As Of and For the Nine Months Ended
                September 30,1998
--------------
(1)  Incorporated herein by reference into this document from the Exhibits to
     the Form S-1 Registration Statement as amended, Registration No. 333-3814,
     initially filed on April 19, 1996.
(2)  Incorporated herein by reference into this document from the Exhibits to
     the Form 10-Q for the quarter ended September 30, 1996.
(3)  Incorporated herein by reference into this document from the Exhibits A-1
     and A-2 to the Stock Purchase Agreement filed as Exhibit 10.4 to the Form
     10-Q for the quarter ended September 30, 1996.
(4)  Incorporated herein by reference into this document from the Exhibits to
     the Form 8-K dated October 13, 1997.
(5)  Incorporated herein by reference into this document from the Exhibits to
     the Form 10-K for the year ended December 31, 1997.

2.   Reports on Form 8-K (None)

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                          UNITED PAYORS & UNITED PROVIDERS, INC.
                                                      (Registrant)

Date: November 13, 1998            By:    /s/   THOMAS L. BLAIR  
                                      ------------------------------------------
                                      Thomas L. Blair
                                      Chairman and Chief Executive Officer


Date: November 13, 1998            By:    /s/   EDWARD S. CIVERA 
                                      ------------------------------------------
                                      Edward S. Civera
                                      President and Chief Operating Officer


Date: November 13, 1998            By:    /s/   S. JOSEPH BRUNO 
                                      ------------------------------------------
                                      S. Joseph Bruno
                                      Vice President and Chief Financial Officer


Date: November 13, 1998            By:    /s/   EDUARDO V. FEITO
                                      ------------------------------------------
                                      Eduardo V. Feito
                                      Controller and Chief Accounting Officer

                                       12