<PAGE>1

                                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, 1996

                                       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
(State or other jurisdiction of                        51-0374698
 incorporation or organization)          (I.R.S. Employer Identification Number)


           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     No  X
                                      -----  -----
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 2, 1996 was 11,573,637.


<PAGE>2



                       UNITED PAYORS & UNITED PROVIDERS, INC.
                                  AND SUBSIDIARIES

                            THIRD QUARTER 1996 FORM 10-Q

                                  TABLE OF CONTENTS


                                                                            Page
PART I  FINANCIAL INFORMATION

  ITEM 1. Financial Statements

        Consolidated Balance Sheets as of September 30, 1996 and
           December 31, 1995..................................................1

        Consolidated Statements of Operations for the Three and Nine Months
           Ended September 30, 1996 and 1995..................................2

        Consolidated Statements of Cash Flows for the Nine Months
           Ended September 30, 1996 and 1995..................................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> 3

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
                                         UNITED PAYORS & UNITED PROVIDERS, INC.
                                              CONSOLIDATED BALANCE SHEETS
                                                      (Unaudited)
<TABLE>
<CAPTION>
                                                         ASSETS
                                                                                            September 30,  December 31,
                                                                                                  1996          1995
                                                                                            ------------   ------------
<S>                                                                                          <C>            <C>         
Current assets:
  Cash and cash equivalents                                                                  $27,838,505    $ 8,701,135
  Accounts receivable                                                                          6,060,795      1,254,844
  Trading equity securities                                                                    4,425,349              -
  Other current assets and prepaid income taxes                                                  455,318        153,899
  Deferred income taxes                                                                                -        654,000
                                                                                             -----------    -----------
    Total current assets                                                                      38,779,967     10,763,878
Fixed assets, net                                                                              1,654,562      1,199,785
Investments                                                                                      482,118        300,000
Due from contracting providers                                                                 1,654,230        125,000
Other assets                                                                                     492,347        374,824
                                                                                             -----------    -----------
     Total assets                                                                            $43,063,224    $12,763,487
                                                                                             ===========    ===========
                                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses                                                      $ 2,985,096    $ 3,378,502
  Income taxes payable                                                                                 -        191,300
  Advances/notes to stockholders                                                                       -      3,700,000
  Notes payable and capital lease, current portion                                                 7,586        110,000
                                                                                             -----------    -----------
    Total current liabilities                                                                  2,992,682      7,379,802
Deferred income taxes                                                                             37,000         37,000
Notes payable and capital lease, less current portion                                            130,192         50,227
                                                                                             -----------    -----------
    Total liabilities                                                                          3,159,874      7,467,029
                                                                                             -----------    -----------
Commitments and contingencies
Stockholders' equity:
  Convertible preferred stock, $0.01 par value, 5,000,000 shares authorized, 1 share issued            -              -
    and outstanding convertible into 4,400,000 shares of common stock (liquidation 
    preferences $5,000,000) at December 31, 1995, none issued and oustanding at
    September 30, 1996
  Common stock, $0.01 par value, 35,000,000 shares authorized, 4,400,000 and 11,573,634          115,736         44,000
    shares issued and outstanding at December 31, 1995 and September 30, 1996,
    respectively                                                          
  Treasury stock, 2,500 shares, at cost                                                          (30,000)             -
  Additional paid-in capital                                                                  32,916,806      5,963,099
  Retained earnings (deficit)                                                                  6,900,808       (710,641)
                                                                                             -----------    -----------
    Total stockholders' equity                                                                39,903,350      5,296,458
                                                                                             -----------    -----------
    Total liabilities and stockholders' equity                                               $43,063,224    $12,763,487
                                                                                             ===========    ===========
                         The accompanying notes are an integral part of these financial statements.

</TABLE>

                                                  1
<PAGE> 4



                                         UNITED PAYORS & UNITED PROVIDERS, INC.
                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                                      (Unaudited)
<TABLE>
<CAPTION>
                                                   Three Months Ended September 30,  Nine Months Ended September 30,
                                                  ---------------------------------  -------------------------------
                                                       1996                1995            1996           1995
                                                  -------------       -------------  ---------------  --------------
<S>                                               <C>                 <C>            <C>              <C>

Provider network revenue                          $  7,688,323        $   359,743    $ 22,771,386     $   467,090
Other revenue                                           47,593                  -         203,225               -
                                                  ------------        -------------  ------------     -----------
           Total revenue                             7,735,916            359,743      22,974,611         467,090
                                                  ------------        -------------  ------------     -----------

Operating expenses:
    Direct contract expenses                         1,682,205             91,417       5,283,518         119,137
    General and administrative                       2,062,389            669,341       5,339,744       1,262,145
    Depreciation and amortization                       87,395             12,463         228,741          15,156
                                                  ------------        -------------  ------------     -----------
            Total operating expenses                 3,831,989            773,221      10,852,003       1,396,438
                                                  ------------        -------------  ------------     -----------

Other income (expense)
    Interest income                                    247,519             62,326         390,472         141,007
    Interest expense                                    (7,113)            (6,214)        (63,448)        (10,264)
    Other income (expense), net                        169,646             18,927         213,817          58,927
                                                  ------------         ------------  ------------     -----------
            Total other income (expense), net          410,052             75,039         540,841         189,670
                                                  ------------         ------------  ------------     ----------- 
Income (loss) before income taxes                    4,313,979           (338,439)     12,663,449        (739,678)

Income tax benefit (provision)                      (1,712,000)           121,720      (5,052,000)        266,026
                                                  ------------         ------------  ------------     -----------

Net income (loss)                                   $2,601,979         $ (216,719)     $7,611,449     $  (473,652)
                                                  ============         ============  ============      ===========

Net income (loss) per share                              $0.22             ($0.02)     $     0.79     $     (0.05)
                                                  ============         ============  ============      ===========

Shares used in computing net income (loss)
    per common share outstanding                    11,334,308          8,800,000       9,650,940       8,800,000
                                                  ------------         ------------  ------------      -----------

                  The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                           2

<PAGE> 5

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

<TABLE>
<CAPTION>
                                                               Nine Months ended September 30,
                                                               -------------------------------
                                                                    1996               1995
                                                               -----------       ------------
<S>                                                            <C>               <C>
OPERATING ACTIVITIES
NET INCOME (LOSS)                                              $ 7,611,449       $  (473,652)
   ADJUSTMENT TO RECONCILE NET INCOME (LOSS)
   TO NET CASH USED IN OPERATIONS
     Depreciation and amortization                                 228,741            15,156
     Deferred income taxes                                         654,000          (266,026)
     Unrealized gains on trading equity securities                (126,432)                -
     Gain from early repayment of note                              (1,362)                -
     Change in accounts receivable                              (4,805,952)         (174,040)
     Purchase of trading equity securities                      (4,298,917)                -
     Change in other current assets and prepaid income taxes      (301,419)       (2,179,618)
     Change in due from contracting providers                   (1,529,230)         (125,000)
     Change in other assets                                       (122,137)         (242,972)
     Change in accounts payable and accrued expenses              (393,407)          181,081
     Change in income taxes payable                               (191,300)                -
                                                               -----------       ------------
   NET CASH USED IN OPERATING ACTIVITIES                        (3,275,966)       (3,265,071)
                                                               -----------       ------------
INVESTING ACTIVITIES
     Purchase of fixed assets                                     (528,208)         (402,750)
     Investments in complementary businesses                      (200,000)         (300,000)
     Return on investment                                           17,882                 -
                                                               -----------       ------------
   NET CASH USED IN INVESTING ACTIVITIES                          (710,326)         (702,750)
                                                               -----------       ------------
FINANCING ACTIVITIES
     Issuance of capital stock                                     150,000         6,000,000
     Acquisition of treasury stock                                 (30,000)                -
     Net proceeds from initial public offering                  26,875,443                 -
     Repayment of advances/loan from stockholders               (3,700,000)                -
     Repayment of note                                             (63,865)                -
     Repayment of capital lease                                    (13,426)                -
     Repayment of line of credit                                   (94,490)                -
                                                               -----------       -----------
   NET CASH PROVIDED BY FINANCING ACTIVITIES                    23,123,662         6,000,000
                                                               -----------       -----------
INCREASE IN CASH AND CASH EQUIVALENTS                           19,137,370         2,032,179
CASH AND CASH EQUIVALENTS
     Beginning of the period                                     8,701,135                 -
                                                               -----------       -----------
     End of the period                                         $27,838,505       $ 2,032,179
                                                               ===========       ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Interest paid during the period                           $    71,448       $         -
     Taxes paid during the period                              $ 4,791,892       $         -
SUPPLEMENTAL NONCASH DISCLOSURE
     Fixed assets financed with capital lease                  $   150,696       $         -

               The accompanying notes are an integral part of these financial statements.
</TABLE>
                                                     3




<PAGE>6



                      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"),  a Delaware corporation,
was originally incorporated in the State of Iowa on January 3, 1995 as PB Newco,
Inc.  Effective  June 7, 1996,  PB Newco,  Inc. was merged into UP&UP with UP&UP
being the surviving corporation.  UP&UP 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,  the  stockholder  of Initial  Managers and
Investors,  Inc. ("IM&I") and the stockholders of IM&I-NEWCO,  Inc., all of whom
were  stockholders  of UP&UP,  contributed  100% of the issued  and  outstanding
shares of each of those entities to UP&UP. IM&I, IM&I-NEWCO, Inc. and UP&UP were
affiliated  entities.  Effective  December  31,  1995,  UP&UP  entered  into  an
agreement with America's Health Plan, Inc.  ("AHP"),  an indirect,  wholly-owned
subsidiary of Principal Mutual Life Insurance Company ("Principal  Mutual"),  an
affiliated  entity,  whereby  AHP  contributed  a  certain  group  of  contracts
constituting  "The  Transferred  Client  Group" of AHP to UP&UP.  (UP&UP,  IM&I,
IM&I-NEWCO,  Inc. and The Transferred  Client Group are hereafter referred to as
the "Company".) Because the contributions were nonmonetary in nature and made by
the existing stockholders of UP&UP, the assets and liabilities  contributed have
been  reflected  at  the  transferors'   historical  cost  in  the  accompanying
consolidated balance sheet as of December 31, 1995. Since the contributions were
effective  December  31,  1995,  the  accompanying   consolidated  statement  of
operations for the three and six months ended  September 30, 1995 do not include
the 1995 results of  operations  of IM&I,  IM&I-NEWCO,  Inc. or The  Transferred
Client Group (collectively the "Contributed Businesses").

In connection with the June 7, 1996 merger, the Company effected a 10:1 exchange
of common  stock and an  increase  in  authorized  shares  of  capital  stock to
40,000,000  shares,  of which 35,000,000  shares were common stock and 5,000,000
shares were  preferred  stock.  These events have been reflected in the December
31, 1995 and September 30, 1996 consolidated balance sheets.

2.   INITIAL PUBLIC OFFERING

     The Company filed a Registration  Statement on Form S-1 with the Securities
and Exchange  Commission which offered to the public 2,400,000 shares (2,760,000
shares,  including  the  overallotment)  of the  Company's  common  stock.  This
registration statement was declared effective on June 28, 1996.

     The  closings  of the sale of stock were  effected on July 8, 1996 and July
15,  1996  for  which  the  Company  received  proceeds  (net  of  underwriters'
commissions and expenses) of $23.4 million and $3.5 million, respectively.



                                       4


<PAGE>7



3.   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 by HealthCare
Compare   Corporation  d/b/a  The  Affordable   Medical  Networks   ("HealthCare
Compare").  The  litigation  is currently  in the  discovery  phase.  HealthCare
Compare seeks injunctive and other relief,  including  possible  damages,  based
generally on allegations that  representatives of the Company,  in at least four
instances, made various misrepresentations to prospective contracting providers,
including to the effect that the Company's  provider network was affiliated with
HealthCare  Compare's  provider network or that HealthCare Compare had agreed to
utilize the Company's  provider  network.  The Company denies the allegations in
the complaint and believes the complaint by HealthCare Compare is without merit.
The  Company  intends  to  vigorously   defend  against  the  complaint.   After
consultation  with counsel and review of available  facts,  management  believes
that  damages,  if any,  arising  from  litigation  will not be  material to the
consolidated financial statements of the Company.

4.   UNAUDITED INFORMATION

     The consolidated  financial statements for the three months and nine months
ended  September  30, 1996 and 1995 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 months and nine months ended  September 30,
1996 and 1995 are not  necessarily  indicative of the results to be expected for
the full year or in the future.

5.   SUBSEQUENT EVENT

     On October 24, 1996,  the Company  executed a contract to acquire the stock
of  National  Health  Services,  Inc.,  a national  utilization  review  company
headquartered  in  Louisville,  Kentucky.  The Company  estimates that the total
purchase  price,  consisting of cash and warrants to purchase  318,000 shares of
common stock of the Company,  will  approximate  $6.8 million.  This acquisition
will be treated as a purchase for accounting purposes.





                                        5


<PAGE>8



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

     UP&UP, a Delaware corporation,  was originally incorporated in the State of
Iowa on January 3, 1995 as PB Newco, Inc. Effective June 7, 1996, PB Newco, Inc.
merged  into  UP&UP,  with  UP&UP  being the  surviving  corporation.  Effective
December 31, 1995, the Company's  stockholders and a subsidiary of a stockholder
contributed to the Company certain  complementary  businesses,  specifically the
Transferred  Client Group,  Initial  Managers & Investors,  Inc. and IM&I-NEWCO,
Inc. (collectively the "Contributed Businesses"). Because the contributions were
nonmonetary in nature and made by existing stockholders of UP&UP, the assets and
liabilities  contributed have been recorded at the transferors'  historical cost
as of December 31, 1995.  Since the  contributions  were effective  December 31,
1995,  the  consolidated  statements of operations for the three and nine months
ended  September  30,  1995 do not  include  the  results of  operations  of the
Contributed Businesses.  The results of operations of the Contributed Businesses
are included in the  consolidated  financial  statements  for the three and nine
months ended September 30, 1996.

REVENUE

     The Company serves as an intermediary  between health care payors,  such as
insurance  companies  ("Payor  Clients"),  and health  care  providers,  such as
hospitals ("Contracting  Providers"),  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.
The Company derives substantially all of its revenue from a portion of the price
concessions offered by the providers under such contractual arrangements.

     The Company's  revenues are influenced by, among other  variables:  (i) the
number of  Contracting  Providers and Payor  Clients,  (ii) the volume of claims
from the Contracting  Providers submitted 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.

    Additionally,  the Company generates revenue from the  administration of the
Continued  Health Care Benefit  Program  ("CHCBP").  This program allows certain
groups of military health service  beneficiaries to continue  receiving benefits
under the Civilian Health and Medical Program of the Uniformed Services


                                        6


<PAGE>9



("CHAMPUS") when they lose their eligibility for military health care. The CHCBP
program provides  benefits for a period of time, up to 36 months, to former U.S.
Armed Forces  service  members and their family members who enroll and pay their
quarterly premiums.

OPERATING EXPENSES

     Direct  contract  expenses  include access fees paid by the Company for the
utilization  of other  provider  networks  and, to a limited  extent,  marketing
commissions  incurred  by the  Contributed  Businesses.  Currently,  the Company
accesses a third  party  network of medical  providers  through  its  investment
affiliation  and, to a lesser extent,  another  network  organized by one of its
Payor Clients.  During 1995 and during the transition  period,  the  Contributed
Businesses utilized the AHP provider network and other  non-affiliated  provider
networks. The level of network access fees as a percentage of network revenue is
expected to decrease as a result of the  continued  expansion  of the  Company's
direct network.

     General  and  administrative  expenses  include  compensation  and  related
benefits, sales and marketing,  rent, professional services and general overhead
expenses.

HISTORICAL RESULTS OF OPERATIONS

     The following table sets forth unaudited results of operations data for the
three and nine month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>

                                           Three Months Ended September 30,       Nine Months Ended September 30,
                                          ----------------------------------    ----------------------------------
                                                1996                 1995              1996                1995
                                          -------------        -------------    --------------      --------------
<S>                                       <C>                  <C>                 <C>               <C>          
Revenue

    Provider network                      $   7,688,323        $     359,743       $22,771,386       $     467,090

    Other                                        47,593                   --           203,225                  --
                                          -------------        -------------    --------------      --------------

         Total revenue                        7,735,916              359,743        22,974,611             467,090
                                          -------------        -------------    --------------      --------------

Operating expenses

     Direct contract expenses                 1,682,205               91,417         5,283,518             119,137


     General and administrative               2,062,389              669,341         5,339,744           1,262,145


     Depreciation and amortization               87,395               12,463           228,741              15,156
                                          -------------        -------------    --------------      --------------

         Total operating expenses             3,831,989              773,221        10,852,003           1,396,438
                                          -------------        -------------    --------------      --------------
     
Operating income (loss)                       3,903,927             (413,478)       12,122,608            (929,348)

Other income, net of expenses                   410,052               75,039           540,841             189,670
                                          -------------        -------------    --------------      -------------- 

Income (loss) before income taxes             4,313,979             (338,439)       12,663,449            (739,678)

Income tax benefit (expense)                 (1,712,000)             121,720        (5,052,000)            266,026
                                          -------------        -------------    --------------      --------------

Net income (loss)                         $   2,601,979         $   (216,719)    $   7,611,449        $   (473,652)
                                          =============         =============    ==============        =============
</TABLE>



                                                       7


<PAGE>10



THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1995

     The Company was incorporated  and commenced  operations on January 3, 1995.
During the three  months  ended  September  30,  1995,  the Company  focused its
efforts on the development of its Contracting  Provider network and marketing to
prospective  clients. Net loss for the period was $216,719 after the recognition
of the tax benefit from the Company's  net  operating  loss carry forward in the
amount of $121,720.

     The results of  operations  for the three months ended  September  30, 1996
include the results of operations of the Contributed Businesses. As of September
30, 1996, the Company had 40 Payor Clients and  approximately  1,900 Contracting
Providers.   Provider  network  revenue  was  $7.7  million.  Other  revenue  of
approximately $48,000 related to the administration of the CHCBP program.

     Direct  contract  expenses for the three months ended  September  30, 1996,
primarily  consisted of fees for the  utilization of other provider  networks of
$1.3 million,  representing  17.1% of provider  network  revenue,  and marketing
commissions of $246,000.

     General and  administrative  expenses for the three months ended  September
30, 1996 of approximately $2.1 million  represented 26.7% of total revenue.  Net
income was $2.6 million, or 33.6% of total revenue.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1995

     The Company was incorporated  and commenced  operations on January 3, 1995.
During the first nine  months of 1995,  the  Company  focused its efforts on the
development of its Contracting Provider network and marketing to prospects.  Net
loss for the period was $473,652  after the  recognition of the tax benefit from
the Company's net operating loss carry forward in the amount of $266,026.

     The results of  operations  for the nine months  ended  September  30, 1996
include  the  results of  operations  of the  Contributed  Businesses.  Provider
network  revenue was $22.8  million.  Other  revenue of $203,225  related to the
administration of the CHCBP program.

     Direct  contract  expenses  for the nine months ended  September  30, 1996,
primarily  consisted of fees for the  utilization of other provider  networks of
$4.1 million,  representing  18.1% of provider  network  revenue,  and marketing
commissions of $928,000.

     General and administrative expenses for the nine months ended September 30,
1996 of  approximately  $5.3 million  represented  23.2% of total  revenue.  Net
income was $7.6 million, or 33.1% of total revenue.

PRO FORMA RESULTS OF OPERATIONS

     The  following  table sets forth certain  unaudited pro forma  consolidated
financial data of the Company and the  Contributed  Businesses for the three and
nine month periods ended  September  30, 1995 as if the  contributions  had been
consummated as of January 1, 1995 for IM&I, the  Transferred  Client Group,  and
for IM&I-NEWCO, Inc.. The pro forma financial data have not been audited but, in
the opinion of management,  include adjustments  (consisting of normal recurring
accruals) necessary to present fairly the information set


                                       8


<PAGE>11



forth therein. The pro forma financial data may not be indicative of the results
that would have been achieved if the transactions reflected therein had occurred
at the  beginning  of the period for which the pro forma data is presented or of
future results.

<TABLE>
<CAPTION>
                                           Three Months Ended September 30,       Nine Months Ended September 30,
                                          ----------------------------------    ----------------------------------
                                            Historical           Pro Forma         Historical          Pro Forma
                                                1996                 1995              1996                1995
                                          -------------        -------------    --------------      --------------
<S>                                       <C>                  <C>                 <C>               <C>   
Revenue

    Provider network                      $   7,688,323        $   6,665,478       $22,771,386       $  19,025,805

    Other                                        47,593               80,460           203,225             172,289
                                          -------------        -------------    --------------      --------------
         Total revenue                    $   7,735,916        $   6,745,938       $22,974,611       $  19,198,094
                                          =============        =============    ==============      ==============

Operating expenses

     Direct contract expenses             $   1,682,205        $   2,194,041       $ 5,283,518           6,176,969


     General and administrative               2,062,389            1,827,857         5,339,744           5,166,902


     Depreciation and amortization               87,395               64,877           228,741             180,083
                                          -------------        -------------    --------------      --------------
         Total operating expenses         $   3,831,989        $   4,086,775       $10,852,003       $  11,523,954
                                          =============        =============    ==============      ==============
</TABLE>

HISTORICAL THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
PRO FORMA THREE MONTHS ENDED SEPTEMBER 30, 1995

     Revenue increased $1.0 million from $6.7 million for the three months ended
September  30, 1995 to $7.7  million for the three months  ended  September  30,
1996. This increase was attributable to the addition of eight Payor Clients, the
growth in the claims volume from existing Payor Clients and the expansion of the
provider network.

     Direct  contract  expenses  decreased   approximately   $512,000.  Of  this
decrease,  approximately  $146,000 was  attributable  to marketing  commissions,
including  approximately $80,000 in marketing commissions to an affiliate of the
Company by one of the Contributed Businesses in the three months ended September
30, 1995 which were reduced to zero in 1996 because the  agreement,  pursuant to
which such commissions were payable,  was terminated as of January 1, 1996. Fees
to other provider networks were $1.7 million in the three months ended September
30,  1995 and $1.3  million  in the  three  months  ended  September  30,  1996,
decreasing  from 26.6% of provider  network  revenue in the three  months  ended
September 30, 1995 to 17.1% in the three months ended  September 30, 1996.  This
decrease was  attributable to the growth in the number of providers  contracting
directly with the Company and Payor Clients accessing more direct contracts.

     General and  administrative  expenses  increased by approximately  $235,000
from $1.8 million in the three months ended  September  30, 1995 to $2.1 million
in the three months ended  September 30, 1996.  This increase is attributable to
the increase in marketing activities and legal costs. General and administrative
expenses  decreased  as a  percentage  of total  revenue from 27.1% in the three
months ended September 30, 1995 to 26.7% in the three months ended September 30,
1996.



                                        9


<PAGE>12



HISTORICAL NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1995

     Revenue increased $3.8 million from $19.0 million for the nine months ended
September  30, 1995 to $23.0  million for the nine months  ended  September  30,
1996. This increase was attributable to the addition of eight new Payor Clients,
the growth in the claims volume from existing Payor Clients and the expansion of
the provider network.

     Direct  contract  expenses  decreased   approximately   $893,000.  Of  this
decrease, approximately $131,000 was attributable to marketing commissions to an
affiliate of the Company by one of the Contributed Businesses in the nine months
ended  September  30,  1995  which  were  reduced  to zero in 1996  because  the
agreement, pursuant to which such commissions were payable, was terminated as of
January 1, 1996. Fees to other provider  networks were $5.0 million in the first
nine  months  of 1995  and  $4.1  million  in the  first  nine  months  of 1996,
decreasing  from 26.1% of provider  network  revenue in the first nine months of
1995 to 18.1% in the first nine months of 1996.  This decrease was  attributable
to the growth in the number of providers  contracting  directly with the Company
and Payor Clients accessing more direct contracts.

     General and  administrative  expenses  increased by approximately  $173,000
from $5.2 million in the nine months ended September 30, 1995 to $5.3 million in
the nine months ended  September 30, 1996.  This increase is attributable to the
overall  increase  in  marketing   activities  and  legal  costs.   General  and
administrative expenses decreased as a percentage of total revenue from 26.9% in
the nine months  ended  September  30,  1995 to 23.2% in the nine  months  ended
September 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

     Since its inception,  the Company has financed its  operations  principally
through equity  contributions  and its results of operations.  In July 1996, the
Company  received net proceeds of  approximately  $26.9 million from its initial
public  offering.  At December 31, 1995 and September 30, 1996,  the Company had
working capital of approximately  $3.4 million and $35.8 million,  respectively.
Approximately  $5.8  million  of  available  working  capital  was  utilized  to
consummate  the  acquisition  of National  Health  Services,  Inc. at the end of
October, 1996.

     The Company's primary capital resources  commitment is to fund payments due
upon  exercise of  Prepayment  Options  granted to  Contracting  Providers.  The
Company  estimates  that for the remainder of 1996, the Company will be required
to fund approximately $3.5 million of Prepayment Options. Depending on increases
in claims volume and in the number of  Contracting  Providers and Payor Clients,
the Company estimates that an additional $25.0 million to $30.0 million could be
required to fund Prepayment Options in 1997.

     The  Company  believes  that  the net  proceeds  from  the  Initial  Public
Offering,  together  with its  funds  from  operations,  will  satisfy  its cash
requirements for the next two and one-half (2 1/2) years.  However, in the event
that the payment of Prepayment  Options exceeds the Company's  estimates  and/or
other  available  sources of liquidity to fund such payments are not as great as
anticipated,  the  Company  could  seek to  borrow  funds or  obtain  additional
infusions of capital to fund the balance of such payments.



                                        10


<PAGE>13



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 on 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  revenue is derived  from a small
number of Payor Clients.  The duration of the Company's contracts with its Payor
Clients is one year, with automatic  renewals on the anniversary date.  However,
such  contracts may be terminated by either party at any time  generally upon 90
days' notice.  Such contracts are also subject to fee negotiations and revisions
on an  annual  basis.  There  can be no  assurance  that  any  of the  Company's
contracts  with Payor Clients will not be  terminated  early or will be renewed,
and, if renewed,  will contain  favorable  terms.  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's  business,
financial  condition or results of operations.  During  October 1996,  Wellpoint
Health Networks, Inc. announced the acquisition of the health insurance business
of one of the Company's clients, John Hancock Mutual Life Insurance Company. The
Company has not been advised of and does not anticipate any changes, at least in
the short term, in its contract.

     The Company's  standard  contract with a  Contracting  Provider  includes a
one-year term, renewable automatically for successive one-year terms, unless the
Contracting Provider gives written notice of termination,  typically at least 90
days prior to the renewal date.  These contracts are also subject to negotiation
and  revisions  on an annual basis with respect to the level and amount of price
concessions for medical  services.  The  termination of a significant  number of
contracts  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.

     Certain  interest  groups within the health care  industry  have  expressed
concern  with  certain  activities  of  entities  that have been  referred to as
"Silent PPOs." The Company understands that some provider-sponsored professional
or trade  associations may be considering a legal challenge  against one or more
such  organizations,  and that  regulatory  agencies  in  certain  States may be
investigating the activities of such organizations.  Although it is unclear what
legal theories would support such a challenge or warrant such an  investigation,
there  can be no  assurance  that the  Company  would  not be a  target  of such
challenge or investigation.

     All of the above  factors are  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,  can materially affect the Company's operating results and
stock price.  Further, in recent years, the stock market has experienced extreme
price and volume fluctuations that have 


                                       11

<PAGE>14


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, may
materially  adversely  affect 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.


      


                                       12

<PAGE>15

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 3 to the Consolidated
Financial Statements for the three and nine months ended September 30,1996.

ITEM 2.   CHANGES IN SECURITIES (Not Applicable)

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES (Not Applicable)

ITEM 4.   SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS

     Effective June 7, 1996, PB Newco,  Inc. merged into its subsidiary,  United
Payors & United Providers,  Inc.  ("UP&UP") a Delaware  corporation,  with UP&UP
being  the  surviving  corporation  in  order  to  change  domicile  and name of
corporation.   This  action  was   authorized  by  the   unanimous   consent  of
stockholders.

ITEM 5.   ACQUISITION

     On October 24, 1996, the Company acquired  National Health  Services,  Inc.
("NHS") from Preferred Health Choice,  Inc., a wholly-owned  indirect subsidiary
of Pioneer Financial  Services,  Inc. for a purchase price of approximately $6.8
million,  consisting  of $5.8  million  in cash  and  warrants  to  purchase  an
aggregate of 318,000 shares of the Company's common stock.

     NHS is a health care utilization management company that currently provides
services to  approximately 70 clients,  whose health care insureds  aggregate in
excess of two million persons.

     The Stock Purchase  Agreement relating to the acquisition of NHS, including
the Warrants for the Company Common Stock,  is attached as an Exhibit hereto and
reference is made to such Agreement for the full description of the terms of the
acquisition and of the Warrants.

     The  information  regarding  the  acquisition  of  NHS  submitted  in  this
quarterly report is included in lieu of the filing of a Form 8-K, Items 2 and 7,
regarding such  acquisition.  It is not  practicable to provide at this time the
financial statements and pro forma financial  information regarding NHS required
by Item 7 of Form 8-K. Such required financial  statements will be filed as soon
as practicable, but at least within 60 days of the date hereof.



                                       13


<PAGE>16



ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

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

     3.1   Certificate of Incorporation*
     3.2   Bylaws*
     10.1  Stock Purchase Agreement between  Preferred  Health  Choice, Inc. and
           United Payors & United Providers, Inc. dated October 22, 1996
     10.2  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**
     10.3  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**
     11.0  Statement Regarding Computation of Earnings Per Share
     27.0  Financial Data Schedule

2.   Reports on Form 8-K (None)



--------
     *  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.

    **  Attached as  Exhibits A-1 and A-2 to the Stock  Purchase Agreement filed
        as Exhibit 10.0 to this Form 10-Q.



                                       14


<PAGE>17



                                   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.


Date: November 13, 1996               By:    /s/   THOMAS L. BLAIR
                                                  ------------------------------
                                      Thomas L. Blair
                                      President and Chief Executive Officer



Date: November 13, 1996               By:    /s/   S. JOSEPH BRUNO
                                                  ------------------------------
                                      S. Joseph Bruno
                                      Vice President and Chief Financial Officer



                                     15