<PAGE>

                                                                    Exhibit 10.5

                                           TDH Document No. 4810323494* 2001A-C
                                           Orig #23923





                                      1999
                             CONTRACT FOR SERVICES
                                    Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                      And
                                      HMO





<PAGE>


                               TABLE OF CONTENTS

ARTICLE I      PARTIES AND AUTHORITY TO CONTRACT..........................     1

ARTICLE II     DEFINITIONS................................................     2

ARTICLE III    PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS........    14

3.1      ORGANIZATION AND ADMINISTRATION..................................    14
3.2      NON-PROVIDER SUECONTRACTS........................................    15
3.3      MEDICAL DIRECTOR.................................................    17
3.4      PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS................    18
3.5      RECORDS REQUIREMENTS AND RECORDS RETENTION.......................    19
3.6      HMO REVIEW OF TDH MATERIALS......................................    20
3.7      HMO TELEPHONE ACCESS REQUIREMENTS................................    21

ARTICLE IV    FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS........    21

4.1      FISCAL SOLVENCY..................................................    21
4.2      MINIMUM NET WORTH................................................    22
4.3      PERFORMANCE BOND.................................................    22
4.4      INSURANCE........................................................    22
4.5      FRANCHISE TAX....................................................    23
4.6      AUDIT............................................................    23
4.7      PENDING OR THREATENED LITIGATION.................................    23
4.8      MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN
         HMO OPERATIONS...................................................    23
4.9      THIRD PARTY RECOVERY.............................................    24
4.10     CLAIMS PROCESSING REQUIREMENTS...................................    25
4.11     INDEMNIFICATION..................................................    27

ARTICLE V     STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS............    28

5.1      COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS...................    28
5.2      PROGRAM INTEGRITY................................................    28
5.3      FRAUD AND ABUSE COMPLIANCE PLAN..................................    28
5.4      SAFEGUARDING INFORMATION.........................................    31
5.5      NON-DISCRIMINATION...............................................    31
5.6      HISTORICALLY UNDERUTILIZED BUSINESSES (HUBs).....................    32
5.7      BUY TEXAS........................................................    33
5.8      CHILD SUPPORT....................................................    33
5.9      REQUESTS FOR PUBLIC INFORMATION..................................    33
5.10     NOTICE AND APPEAL................................................    34

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ARTICLE VI    SCOPE OF SERVICES...........................................    34

6.1      SCOPE OF SERVICES................................................    34
6.2      PRE-EXISTING CONDITIONS..........................................    37
6.3      SPAN OF ELIGIBILITY..............................................    37
6.4      CONTINUITY OF CARE AND OUT-OF-NET WORK PROVIDERS.................    38
6.5      EMERGENCY SERVICES...............................................    39
6.6      BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS..........    40
6.7      FAMILY PLANNING - SPECIFIC REQUIREMENTS..........................    42
6.8      TEXAS HEALTH STEPS (EPSDT).......................................    43
6.9      PERINATAL SERVICES...............................................    46
6.10     EARLY CHILDHOOD INTERVENTION (ECI)...............................    47
6.11     SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN,
         INFANTS, AND CHILDREN
         (WIC) - SPECIFIC REQUIREMENTS....................................    48
6.12     TUBERCULOSIS (TB)................................................    49
6.13     PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS........    50
6.14     HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS...............    52
6.15     SEXUALLY TRANSMITTED DISEASES (STDs) AND HUMAN
         IMMUNODEFICIENCY VIRUS (HIV).....................................    53
6.16     BLIND AND DISABLED MEMBERS.......................................    55

ARTICLE VII   PROVIDER NETWORK REQUIREMENTS...............................    56

7.1      PROVIDER ACCESSIBILITY...........................................    56
7.2      PROVIDER CONTRACTS...............................................    57
7.3      PHYSICIAN INCENTIVE PLANS........................................    61
7.4      PROVIDER MANUAL AND PROVIDER TRAINING............................    63
7.5      MEMBER PANEL REPORTS.............................................    64
7.6      PROVIDER COMPLAINT AND APPEAL PROCEDURE..........................    64
7.7      PROVIDER QUALIFICATIONS - GENERAL................................    64
7.8      PRIMARY CARE PROVIDERS...........................................    66
7.9      OB/GYN PROVIDERS.................................................    70
7.10     SPECIALTY CARE PROVIDERS.........................................    70
7.11     SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES..................    71
7.12     BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA).........    71
7.13     SIGNIFICANT TRADITIONAL PROVIDERS (STPs).........................    73
7.14     RURAL HEALTH PROVIDERS...........................................    73
7.15     FEDERALLY QUALIFIED HEALTH CENTERS (FOHC) AND RURAL HEALTH
         CLINICS (RHC)....................................................    74
7.16     COORDINATION WITH PUBLIC HEALTH..................................    75
7.17     COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND
         REGULATORY SERVICES..............................................    79

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7.18     DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS
         AND ANHCs).......................................................    80

ARTICLE VIII  MEMBER SERVICES REQUIREMENTS................................    82

8.1      MEMBER EDUCATION.................................................    82
8.2      MEMBER HANDBOOK..................................................    82
8.3      ADVANCE DIRECTIVES...............................................    82
8.4      MEMBER ID CARDS..................................................    84
8.5      MEMBER HOTLINE...................................................    85
8.6      MEMBER COMPLAINT PROCESS.........................................    85
8.7      MEMBER NOTICE, APPEALS AND FAIR HEARINGS.........................    87
8.8      MEMBER ADVOCATES.................................................    89
8.9      MEMBER CULTURAL AND LINGUISTIC SERVICES..........................    89

ARTICLE IX    MARKETING AND PROHIBITED PRACTICES..........................    91

9.1      MARKETING MATERIAL MEDIA AND DISTRIBUTION........................    91
9.2      MARKETING ORIENTATION AND TRAINING...............................    92
9.3      PROHIBITED MARKETING PRACTICES...................................    92
9.4      NETWORK PROVIDER DIRECTORY.......................................    93

ARTICLE X     MIS SYSTEM REQUIREMENTS.....................................    93

10.1     MODEL MIS REQUIREMENTS...........................................    93
10.2     SYSTEM-WIDE FUNCTIONS............................................    95
10.3     ENROLLMENT/ELIGIBILITY SUBSYSTEM.................................    96
10.4     PROVIDER SUBSYSTEM...............................................    97
10.5     ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM............................    98
10.6     FINANCIAL SUBSYSTEM..............................................    99
10.7     UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM........................   100
10.8     REPORT SUBSYSTEM.................................................   102
10.9     DATA INTERFACE SUBSYSTEM.........................................   103
10.10    TPR SUBSYSTEM....................................................   104
10.11    YEAR 2000 (Y2K) COMPLIANCE.......................................   105

ARTICLE XI    QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM...........   105

11.1     QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM.........................   105
11.2     WRITTEN QIP PLAN.................................................   105
11.3     QIP SUBCONTRACTING...............................................   105
11.4     ACCREDITATION....................................................   106
11.5     BEHAVIORAL HEALTH INTEGRATION INTO QIP...........................   106
11.6     QIP REPORTING REQUIREMENTS.......................................   106

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ARTICLE XII   REPORTING REQUIREMENTS......................................   106

12.1     FINANCIAL REPORTS................................................   106
12.2     STATISTICAL REPORTS..............................................   108
12.3     ARBITRATION/LITIGATION CLAIMS REPORT.............................   110
12.4     SUMMARY REPORT OF PROVIDER COMPLAINTS............................   110
12.5     PROVIDER NETWORK REPORTS.........................................   110
12.6     MEMBER COMPLAINTS................................................   110
12.7     FRAUDULENT PRACTICES.............................................   111
12.8     UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH...............   111
12.9     UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH.................   111
12.10    QUALITY IMPROVEMENT REPORTS......................................   111
12.11    HUB REPORTS......................................................   113
12.12    THSTEPS REPORTS..................................................   113

ARTICLE XIII  PAYMENT PROVISIONS..........................................   113

13.1     CAPITATION AMOUNTS...............................................   113
13.2     EXPERIENCE REBATE TO STATE.......................................   117
13.3     PERFORMANCE OBJECTIVES...........................................   118
13.4     ADJUSTMENTS TO PREMIUM...........................................   119

ARTICLE XIV   ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT..................   119

14.1     ELIGIBILITY DETERMINATION........................................   119
14.2     ENROLLMENT.......................................................   121
14.3     DISENROLLMENT....................................................   122
14.4     AUTOMATIC RE-ENROLLMENT..........................................   122
14.5     ENROLLMENT REPORTS...............................................   123

ARTICLE XV    GENERAL PROVISIONS..........................................   123

15.1     INDEPENDENT CONTRACTOR...........................................   123
15.2     AMENDMENT........................................................   123
15.3     LAW, JURISDICTION AND VENUE......................................   124
15.4     NON-WAIVER.......................................................   124
15.5     SEVERABILITY.....................................................   124
15.6     ASSIGNMENT.......................................................   124
15.7     MAJOR CHANGE IN CONTRACTING......................................   125
15.8     NON-EXCLUSIVE....................................................   125
15.9     DISPUTE RESOLUTION...............................................   125
15.10    DOCUMENTS CONSTITUTING CONTRACT..................................   125
15.11    FORCE MAJEURE....................................................   125
15.12    NOTICES..........................................................   126
15.13    SURVIVAL.........................................................   126

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ARTICLE XVI   DEFAULT AND REMEDIES........................................   126

16.1     DEFAULT BY TDH...................................................   126
16.2     REMEDIES AVAILABLE TO HMO FOR TDH's DEFAULT......................   126
16.3     DEFAULT BY HMO...................................................   127

ARTICLE XVII  NOTICE OF DEFAULT AND CURE OF DEFAULT.......................   135

ARTICLE XVIII EXPLANATION OF REMEDIES.....................................   136

18.1     TERMINATION......................................................   136
18.2     DUTIES OF CONTRACTING PARTIES UPON TERMINATION...................   138
18.3     SUSPENSION OF NEW ENROLLMENT.....................................   139
18.4     LIQUIDATED MONEY DAMAGES.........................................   139
18.5     APPOINTMENT OF TEMPORARY MANAGEMENT..............................   141
18.6     TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS
         WITHOUT CAUSE....................................................   142
18.7     RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN
         AGAINST HMO......................................................   142
18.8     CIVIL MONETARY PENALTIES.........................................   142
18.9     FORFEITURE OF ALL OR PART OF THE TDI PERFORMANCE BOND............   143
18.10    REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED.......................   143

ARTICLE XIX   TERM........................................................   143






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                                   APPENDICES


APPENDIX A
         Standards For Quality Improvement Programs

APPENDIX B
         HUB Progress Assessment Reports

APPENDIX C
         Value-added Services

APPENDIX D
         Required Critical Elements

APPENDIX E
         Transplant Facilities

APPENDIX F
         Trauma Facilities

APPENDIX G
         Hemophilia Treatment Centers And Programs

APPENDIX H
         Utilization Management Report - Behavioral Health

APPENDIX I
         Managed Care Financial-Statistical Report

APPENDIX J
         Utilization Management Report - Physical Health

APPENDIX K
         Preventive Health Performance Objectives

APPENDIX L
         Cost Principles For Administrative Expenses

APPENDIX M
         Arbitration/Litigation Report

                                      1999

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<PAGE>

                             CONTRACT FOR SERVICES
                                    Between
                         THE TEXAS DEPARTMENT OF HEALTH
                                      And
                                      HMO


This contract is entered into between the Texas Department of Health (TDH) and
PCA Health Plans of Texas, Inc. (HMO). The purpose of this contract is to set
forth the terms and conditions for HMO's participation as a managed care
organization in the TDH STAR Program (STAR or STAR Program). Under the terms of
this contract HMO will provide comprehensive health care services to qualified
and Medicaid-eligible recipients through a managed care delivery system. This is
a risk-based contract. HMO was selected to provide services under this contract
under Health and Safety Code, Title 2, ss. 12.011 and ss.12.021, and Texas
Government Code ss.533.001 et seq. HMO's selection for this contract was based
upon HMO's Application submitted in response to TDH's Request for Application
(RFA) in the service area. Representations and responses contained in HMO's
Application are incorporated into and are enforceable provisions of this
contract, except where changed by this contract.

ARTICLE I         PARTIES AND AUTHORITY TO CONTRACT

1.1               The Texas Legislature has designated the Texas Health and
                  Human Services Commission (THHSC) as the single State agency
                  to administer the Medicaid program in the State of Texas.
                  THHSC has delegated the authority to operate the Medicaid
                  managed care delivery system for acute care services to TDH.
                  TDH has authority to contract with HMO to carry out the duties
                  and functions of the Medicaid managed care program under
                  Health and Safety Code, Title 2, ss.12.011 and ss. 12.021 and
                  Texas Government Code ss.533.00 1 et seq.

1.2               HMO is a corporation with authority to conduct business in the
                  State of Texas and has a certificate of authority from the
                  Texas Department of Insurance (TDI) to operate as a Health
                  Maintenance Organization (HMO) under Chapter 20A of the
                  Insurance Code. HMO is in compliance with all TDI rules and
                  laws that apply to HMOs. HMO has been authorized to enter into
                  this contract by its Board of Directors or other governing
                  body. HMO is an authorized vendor with TDH and has received a
                  Vendor Identification number from the Texas Comptroller of
                  Public Accounts.

1.3               This contract is subject to the approval and on-going
                  monitoring of the federal Health Care Financing Administration
                  (HCFA).

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1.4               Renewal Review. TDH is required by Human Resources Code
                  ss.32.034(a) and Government Code 533.007 to conduct renewal
                  review of HMO's performance and compliance with this contract
                  as a condition for retention and renewal.

1.4.1             Renewal Review may include a review of HMO's past performance
                  and compliance with the requirements of this contract and
                  on-site inspection of any or all of HMO's systems or
                  processes.

1.4.2             TDH will provide HMO with at least 30 days written notice
                  prior to conducting an HMO renewal review. A report of the
                  results of the renewal review findings will be provided to HMO
                  within 10 weeks from the completion of the renewal review. The
                  renewal review report will include any deficiencies which must
                  be corrected and the timeline within which the deficiencies
                  must be corrected.

1.4.3             TDH reserves the right to conduct on-site inspections of any
                  or all of HMO's systems and processes as often as necessary to
                  ensure compliance with contract requirements. TDH may conduct
                  at least one complete on-site inspection of all systems and
                  processes every three years. TDH will provide six weeks
                  advance notice to HMO of the three year on-site inspection,
                  unless TDH enters into an MOU with the Texas Department of
                  Insurance to accept the TDI report in lieu of a TDH on-site
                  inspection. TDH will notify HMO prior to conducting an onsite
                  visit related to a regularly scheduled review specifically
                  described in this contract. Even in the case of a regularly
                  scheduled visit, TDH reserves the right to conduct an onsite
                  review without advance notice if TDH believes there may be
                  potentially serious or life-threatening deficiencies.

1.5               AUTHORITY OF HMO TO ACT ON BEHALF OF TDH. HMO is given
                  express, limited authority to exercise the State's right of
                  recovery as provided in Article 4.9, and to enforce provisions
                  of this contract which require providers or subcontractors to
                  produce records, reports, encounter data, public health data,
                  and other documents to comply with this contract and which TDH
                  has authority to require under State or federal laws.

ARTICLE II        DEFINITIONS


Terms used throughout this Contract have the following meaning, unless the
context clearly indicates otherwise:

Abuse means provider practices that are inconsistent with sound fiscal,
business, or medical practices and result in an unnecessary cost to the Medicaid
program, or in reimbursement for services that are

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<PAGE>

not medically necessary or that fail to meet professionally recognized standards
for health care. It also includes Member practices that result in unnecessary
cost to the Medicaid program.

Action means a denial, termination, suspension, or reduction of covered services
or the failure of HMO to act upon request for covered services within a
reasonable time or a denial of a request for prior authorization for covered
services affecting a Member. This term does not include reaching the end of
prior authorized services.

Adjudicate means to deny or pay a clean claim.

Adverse determination means a determination by a utilization review agent that
the health care services furnished, or proposed to be furnished to a patient,
are not medically necessary or not appropriate.

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

Allowable expenses means all expenses related to the Contract for Services
between TDH and HMO that are incurred during the term of the contract that are
not reimbursable or recovered from another source.

Allowable revenue means all Medicaid managed care revenue received by HMO for
the contract period, including retroactive adjustments made by TDH.

Appeal of adverse determination means the formal process by which a utilization
review agent offers a mechanism to address adverse determinations as defined in
Article 21.58A, Texas Insurance Code.

Auxiliary aids and services includes qualified interpreters or other effective
methods of making aurally delivered materials understood by persons with hearing
impairments; and, taped texts, large print, Braille, or other effective methods
to ensure visually delivered materials are available to individuals with visual
impairments. Auxiliary aids and services also includes effective methods to
ensure that materials (delivered both aurally and visually) are available to
those with cognitive or other disabilities affecting communication.

Behavioral health care services means covered services for the treatment of
mental or emotional disorders and treatment of chemical dependency disorders.

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

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Capitation means a method of payment in which HMO or a health care provider
receives a fixed amount of money each month for each enrolled Member, regardless
of the amount of covered services used by the enrolled Member.

CHIP means Children's Health Insurance Program established by Title XXI of the
Social Security Act to assist state efforts to initiate and expand child health
assistance to uninsured, low-income children.

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

Clean claim means a TDH approved or identified claim format that contains all
data fields required by HMO and TDH for final adjudication of the claim. The
required data fields must be complete and accurate. Clean claim also includes
HMO-published requirements for adjudication, such as medical records, as
appropriate (see definition of Unclean Claim). The TDH required data fields are
identified in TDH's AHMO Encounter Data Claims Submission Manual. @

CLIA means the federal legislation commonly known as the Clinical Laboratories
Improvement Act of 1988 as found at Section 353 of the federal Public Health
Services Act, and regulations adopted to implement the Act.

Community Management Team (CMT) means interagency groups responsible for
developing and implementing the Texas Children's Mental Health Plan (TCMHP) at
the local level. A CMT consists of local representatives from TXMHMR, the Mental
Health Association of Texas, Texas Commission on Alcohol and Drug Abuse, Texas
Department of Protective and Regulatory Services, Texas Department of Human
Services, Texas Department of Health, Juvenile Probation Commission, Texas Youth
Commission, Texas Rehabilitation Commission, Texas Education Agency, Council on
Early Childhood Intervention and a parent representative. This organizational
structure is also replicated in the State Management Team that sets overall
policy direction for the TCMHP.

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

Complainant means a Member or a treating provider or other individual designated
to act on behalf of the Member who files the complaint.

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Complaint means any dissatisfaction, expressed by a complainant orally or in
writing to HMO, with any aspect of HMO's operation, including, but not limited
to dissatisfaction with plan administration; procedures related to review or
appeal of an adverse determination, as that term is defined by Texas Insurance
Code Article 20A. 12, with the exception of the Independent Review Organization
requirements; the denial, reduction, or termination of a service for reasons not
related to medical necessity; the way a service is provided; or disenrollment
decisions, expressed by a complainant. The term does not include misinformation
that is resolved promptly by supplying the appropriate information or clearing
up the misunderstanding to the satisfaction of the Member. The term also does
not include a provider's or enrollee's oral/written dissatisfaction or
disagreement with an adverse determination or a request for a Fair Hearing to
TDH.

Comprehensive Care Program: See definition for Texas Health Steps.

Continuity of care means care provided to a Member by the same primary care
provider or specialty provider to the greatest degree possible, so that the
delivery, of care to the Member remains stable, and services are consistent and
unduplicated.

Contract means this contract between TDH and HMO and documents included by
reference and any of its written amendments, corrections or modifications.

Contract administrator means an entity contracting with TDH to carry out
specific administrative functions under the State's Medicaid managed care
program.

Contract anniversary date means September 1 of each year after the first year of
this contract, regardless of the date of execution or effective date of the
contract.

Contract period means the period of time starting with effective date of the
contract and ending on the termination date of the contract.

Court-ordered commitment means a commitment of a STAR Member to a psychiatric
facility for treatment that is ordered by a court of law pursuant to the Texas
Health and Safety Code, Title VII Subtitle C.

Covered services means health care services HMO must arrange to provide to
Members, including all services required by this contract and state and federal
law, and all value-added services described by HMO in its response to the
Request For Application (RFA) for this contract.

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

Day means calendar day unless specified otherwise.

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Denied claim means a clean claim or a portion of a clean claim for which a
determination is made that the claim cannot be paid.

Disability means a physical or mental impairment that substantially limits one
or more of the major life activities of an individual.

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

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

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

Effective date means the date on which TDH signs the contract following
signature of the contract by HMO.

Emergency behavioral health condition means any condition, without regard to the
nature or cause of the condition, which in the opinion of a prudent layperson
possessing an average knowledge of health and medicine requires immediate
intervention and/or medical attention without which Members would present an
immediate danger to themselves or others or which renders Members incapable of
controlling, knowing or understanding the consequences of their actions.

Emergency services means covered inpatient and outpatient services that are
furnished by a provider that is qualified to furnish such services under this
contract and are needed to evaluate or stabilize an emergency medical condition
and/or an emergency behavioral health condition.

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

         (a)      placing the patient's health in serious jeopardy;
         (b)      serious impairment to bodily functions;
         (c)      serious dysfunction of any bodily organ or part;
         (d)      serious disfigurement; or
         (e)      in the case of a pregnant woman, serious jeopardy to the
                  health of the fetus.

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Encounter means a covered service or group of services delivered by a provider
to a Member during a visit between the Member and provider. This also includes
value-added services.

Encounter data means data elements from fee-for-service claims or capitated
services proxy claims that are submitted to TDH by HMO in accordance with TDH's
AHMO Encounter Data Claims Submission Manual.

Enrollment Broker means an entity contracting with TDH to carry out specific
functions related to Member services (i.e., enrollment/disenrollment,
complaints, etc.) under TDH's Medicaid managed care program.

Enrollment report means the list of Medicaid recipients who are enrolled with an
HMO as Members for the month the report was issued.

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

Experience Rebate means excess of allowable HMO STAR revenues over allowable HMO
STAR expenses.

Fair Hearing means the process adopted and implemented by the Texas Department
of Health, 25 TAC Chapter 1, in compliance with federal regulations and state
rules relating to Medicaid Fair Hearings found at 42 CFR Part 431, Subpart E,
and 1 TAC, Chapter 357.

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

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

HCFA means the federal Health Care Financing Administration.

Health care services means medically necessary physical medicine, behavioral
health care and health-related services which an enrolled population might
reasonably require in order to be maintained in good health, including, as a
minimum, emergency care and inpatient and outpatient services.

Implementation Date means the first date that Medicaid managed care services are
delivered to Members in a service area.

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

JCAHO means Joint Commission on Accreditation of Health Care Organizations

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

Local Health Department means a local health department established pursuant to
Health and Safety Code, Title 2, Local Public Health Reorganization Act
'121.031.

Local Mental Health Authority (LMHA) means an entity to which the TXMHMR board
delegates its authority and responsibility within a specified region for
planning, policy development, coordination, and resource development and
allocation and for supervising and ensuring the provision of mental health care
services to persons with mental illness in one or more local service areas.

Major life activities means functions such as caring for oneself, performing
manual tasks, walking, seeing, hearing, speaking, breathing, learning, and
working.

Major population group means any population which represents at least 10% of the
Medicaid population in any of the counties in the service area served by the
Contractor.

Medical home means a primary or specialty care provider who has accepted the
responsibility for providing accessible, continuous, comprehensive and
coordinated care to Members participating in TDH's Medicaid managed care
program.

Medically necessary behavioral health care services means those behavioral
health care services which:

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

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

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

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

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

Medically necessary health care services means health care services, other than
behavioral health care services which are:

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

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

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

(d)      consistent with the diagnoses of the conditions; and

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

Member means a person who: is entitled to benefits under Title XIX of the Social
Security Act and the Texas Medical Assistance Program (Medicaid), is in a
Medicaid eligibility category included in the STAR Program, and is enrolled in
the STAR Program.

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

Mental health priority population means those individuals served by TXMHMR who
meet the definition of the priority population. The priority population for
mental health care services is defined as:

         Children and adolescents under the age of 18 who have a diagnosis of
         mental illness who exhibit severe emotional or social disabilities
         which are life-threatening or require prolonged intervention.

         Adults who have severe and persistent mental illnesses such as
         schizophrenia, major depression, manic depressive disorder, or other
         severely disabling mental disorders which require crisis resolution or
         ongoing and long-term support and treatment.

MIS means management information system.

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Non-provider subcontracts means contracts between HMO and a third party which
performs a function, excluding delivery of health care services, that HMO is
required to perform under its contract with TDH.

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

Performance premium means an amount which may be paid to a managed care
organization as a bonus for accomplishing a portion or all of the performance
objectives contained in this contract.

Premium means the amount paid by TDH to a managed care organization on a monthly
basis and is determined by multiplying the Member months times the capitation
amount for each enrolled Member.

Primary care physician or primary care provider (PCP) means a physician or
provider who has agreed with HMO to provide a medical home to Members and who is
responsible for providing initial and primary care to patients, maintaining the
continuity of patient care, and initiating referral for care (also see Medical
home).

Provider means an individual or entity and its employees and subcontractors that
directly provide health care services to HMO's Members under TDH's Medicaid
managed care program.

Provider contract means an agreement entered into by a direct provider of health
care services and HMO or an intermediary entity. New definitions (Proxy Claim
Form means a form submitted by providers to document services delivered to
Medicaid Members under a capitated arrangement. It is not a claim for payment.)

Public information means information that is collected, assembled, or maintained
under a law or ordinance or in connection with the transaction of official
business by a governmental body or for a governmental body and the governmental
body owns the information or has a right of access.

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

Renewal Review means a review process conducted by TDH or its agent(s) to assess
HMO's capacity and capability to perform the duties and responsibilities
required under the Contract. This process is required by Texas Government Code
'533.007.

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RFA means Request For Application issued by TDH for the initial procurement in
the service area and all RFA addenda, corrections or modifications.

Risk means the potential for loss as a result of expenses and costs of HMO
exceeding payments made by TDH under this contract.

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

SED means severe emotional disturbance as determined by a local mental health
authority.

Service area means the counties included in a site selected for the STAR
Program, within which a participating HMO must provide services.

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

Significant traditional provider (STP) means all hospitals receiving
disproportionate share hospital funds (DSH) in FY >95 and all other providers in
a county that, when listed by provider type in descending order by the number of
recipient encounters, provided the top 80 percent of recipient encounters for
each provider type in FY >95.

Special hospital means an establishment that:

(a)      offers services, facilities, and beds for use for more than 24 hours
         for two or more unrelated individuals who are regularly admitted,
         treated, and discharged and who require services more intensive than
         room, board, personal services, and general nursing care;

(b)      has clinical laboratory facilities, diagnostic x-ray facilities,
         treatment facilities, or other definitive medical treatment;

(c)      has a medical staff in regular attendance; and

(d)      maintains records of the clinical work performed for each patient.

STAR Program is the name of the State of Texas Medicaid managed care program.
ASTAR@ stands for the State of Texas Access Reform.

State fiscal year means the 12-month period beginning on September 1 and ending
on August 31 of the next year.

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Subcontract means any written agreement between HMO and other party to fulfill
the requirements of this contract. All subcontracts are required to be in
writing.

Subcontractor means any individual or entity which has entered into a
subcontract with HMO.

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

TCADA means Texas Commission on Alcohol and Drug Abuse, the State agency
responsible for licensing chemical dependency treatment facilities. TCADA also
contracts with providers to deliver chemical dependency treatment services.

Texas Children 's Mental Health Plan (TCMHP) means the interagency, State-funded
initiative that plans, coordinates, provides and evaluates service systems for
children and adolescents with behavioral health needs. The Plan is operated at a
state and local level by Community Management Teams representing the major
child-serving state agencies.

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

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

TDMHMR means the Texas Department of Mental Health and Mental Retardation, which
is the State agency responsible for developing mental health policy for public
and private sector providers.

Temporary Assistance to Needy Families (TANF) means the federally funded program
that provides assistance to single-parent families with children who meet the
categorical requirements for aid. This program was formerly known as Aid to
Families with Dependent Children (AFDC) program.

Texas Health Steps (THSteps) is the name adopted by the State of Texas for the
federally mandated Early and Periodic Screening, Diagnosis and Treatment (EPSDT)
program. It includes the State's Comprehensive Care Program extension to EPSDT,
which adds benefits to the federal EPSDT requirements contained in 42 United
States Code '1396d(r), and defined and codified at 42 C.F.R. '440.40 and
("44 1.56-62.) TDH's rules are contained in 25 TAC, Chapter 33 (relating to
Early and Periodic Screening, Diagnosis and Treatment).

Texas Medicaid Provider Procedures Manual means the policy and procedures manual
published by or on behalf of TDH which contains policies and procedures required
of all health care providers who

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<PAGE>

participate in the Texas Medicaid program. The manual is published annually and
is updated bimonthly by the Medicaid Bulletin.
                            -----------------

Texas Medicaid Service Delivery Guide means an attachment to the Texas Medicaid
Provider Procedures Manual.

THHSC means the Texas Health and Human Services Commission.

Third Party Liability (TPL) means the legal responsibility of another individual
or entity to pay for all or part of the services provided to Members under this
contract (see 25 TAC, Subchapter 28, relating to Third Party Resources).

Third Party Recovery (TPR) means the recovery of payments made on behalf of a
Member by TDH or HMO from an individual or entity with the legal responsibility
to pay for the services.

TXMHMR means Texas Mental Health and Mental Retardation system which includes
the state agency, TDMHMR and the Local Mental Health and Mental Retardation
Authorities.

Unclean claim means a claim that does not contain accurate and complete data in
all claim fields that are required by HMO and TDH and other HMO-published
requirements for adjudication, such as medical records, as appropriate (see
definition of Clean Claim). Urgent behavioral health situations means conditions
which require attention and assessment within 24 hours but which do not place
the Member in immediate danger to themselves or others and the Member is able to
cooperate with treatment.

Urgent condition means a health condition, including an urgent behavioral health
situation, which is not an emergency but is severe or painful enough to cause a
prudent layperson, possessing the average knowledge of medicine, to believe that
his or her condition requires medical treatment evaluation or treatment within
24 hours by the Member's PCP or PCP designee to prevent serious deterioration of
the Member's condition or health.

Value-added services means a service that the state has approved to be included
in this contract for which HMO does not receive capitation.


ARTICLE III       PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS

3.1               ORGANIZATION AND ADMINISTRATION
                  -------------------------------

3.1.1             HMO must maintain the organizational and administrative
                  capacity and capabilities to carry out all duties and
                  responsibilities under this contract.

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3.1.2             HMO must maintain assigned staff with the capacity and
                  capability to provide all services to all Members under this
                  contract.

3.1.3             HMO must maintain an administrative office in the service area
                  (local office). The local office must comply with the American
                  with Disabilities Act (ADA) requirements for public buildings.
                  Member Advocates for the service area must be located in this
                  office (see Article 8.8).

3.1.4             HMO must provide training and development programs to all
                  assigned staff to ensure they know and understand the service
                  requirements under this contract including the reporting
                  requirements, the policies and procedures, cultural and
                  linguistic requirements and the scope of services to be
                  provided.

3.1.5             HMO must notify TDH no later than 30 days after the effective
                  date of this contract of any changes in its organizational
                  chart as previously submitted to TDH.

3.1.5.1           HMO must notify TDH within fifteen (15) working days of any
                  change in key managers or behavioral health subcontractors.
                  This information must be updated whenever there is a
                  significant change in organizational structure or personnel.

3.1.6             Participation in Regional Advisory Committee. HMO must
                  participate on a Regional Advisory Committee established in
                  the service area in compliance with the Texas Government Code,
                  ss. ss. 533.021-533.029. The Regional Advisory Committee in
                  each managed care service area must include representatives
                  from at least the following entities: hospitals; managed care
                  organizations; primary care providers; state agencies;
                  consumer advocates; Medicaid recipients; rural providers;
                  long-term care providers; specialty care providers, including
                  pediatric providers; and political subdivisions with a
                  constitutional or statutory obligation to provide health care
                  to indigent patients. THHSC and TDH will determine the
                  composition of each Regional Advisory Committee.

3.1.6.1           The Regional Advisory Committee is required to meet at least
                  quarterly for the first year after appointment of the
                  committee and at least annually in subsequent years. The
                  actual frequency may vary depending on the needs and
                  requirements of the committee.

3.2               NON-PROVIDER SUBCONTRACTS
                  -------------------------

3.2.1             HMO must enter into written contracts with all subcontractors
                  and maintain copies of the subcontracts in HMO's
                  administrative office. HMO must submit two copies of all
                  non-provider subcontracts to TDH for approval no later than 60
                  days after the


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                  effective date of this contract, unless the subcontract has
                  already been submitted to and approved by TDH. Subcontracts
                  entered into after the effective date of this contract must be
                  submitted no later than 30 days prior to the date of execution
                  of the subcontract. HMO must also make non-provider
                  subcontracts available to TDH upon request, at the time and
                  location requested by TDH.

3.2.1.1           TDH has 15 working days to review the subcontract and
                  recommend any suggestions or required changes. If TDH has not
                  responded to HMO by the fifteenth day, HMO may execute the
                  subcontract. TDH reserves the right to request HMO to modify
                  any subcontract that has been deemed approved.

3.2.1.2           HMO must notify TDH no later than 90 days prior to terminating
                  any subcontract affecting a major performance function of this
                  contract. All major subcontractor terminations or
                  substitutions require TDH approval (see Article 15.7). TDH may
                  require HMO to provide a transition plan describing how the
                  subcontracted function will continue to be provided. All
                  subcontracts are subject to the terms and conditions of this
                  contract and must contain the provisions of Article V,
                  Statutory and Regulatory Compliance, and the provisions
                  contained in Article 3.2.4.

3.2.2             Subcontracts which are requested by any agency with authority
                  to investigate and prosecute fraud and abuse must be produced
                  at the time and in the manner requested by the requesting
                  Agency. Subcontracts requested in response to a Public
                  Information request must be produced within 3 working days
                  from TDH's notification to HMO of the request. All requested
                  records must be provided free-of-charge.

3.2.3             The form and substance of all subcontracts including
                  subsequent amendments are subject to approval by TDH. TDH
                  retains the authority to reject or require changes to any
                  provisions of the subcontract that do not comply with the
                  requirements or duties and responsibilities of this contract
                  or create significant barriers for TDH in carrying out its
                  duty to monitor compliance with the contract. HMO REMAINS
                  RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES AND
                  SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
                  RESPONSIBILITY OR SERVICE IS SUBCONTRACTED TO ANOTHER.

3.2.4             HMO and all intermediary entities must include the following
                  standard language in each subcontract and ensure that this
                  language is included in all subcontracts down to the actual
                  provider of the services. The following standard language is
                  not the only language that will be considered acceptable by
                  TDH.

3.2.4.1           [Contractor) understands that services provided under this
                  contract are funded by state and federal funds under the Texas
                  Medical Assistance Program (Medicaid).

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                  [Contractor] is subject to all state and federal laws, rules
                  and regulations that apply to persons or entities receiving
                  state and federal funds. [Contractor] understands that any
                  violation by [Contractor] of a state or federal law relating
                  to the delivery of services under this contract, or any
                  violation of the TDH/HMO contract could result in liability
                  for contract money damages, and/or civil and criminal
                  penalties and sanctions under state and federal law.

3.2.4.2           [Contractor] understands and agrees that HMO has the sole
                  responsibility for payment of services rendered by the
                  [Contractor] under this contract. In the event of HMO
                  insolvency or cessation of operations, [Contractor's] sole
                  recourse is against HMO through the bankruptcy or receivership
                  estate of HMO.

3.2.4.3           [Contractor] understands and agrees that TDH is not liable or
                  responsible for payment for any services provided under this
                  contract.

3.2.4.4           [Contractor] agrees that any modification, addition, or
                  deletion of the provisions of this agreement will become
                  effective no earlier than 30 days after HMO notifies TDH of
                  the change. If TDH does not provide written approval within 30
                  days from receipt of notification from HMO, changes may be
                  considered provisionally approved.

3.2.4.5           This contract is subject to state and federal fraud and abuse
                  statutes. [Contractor] will be required to cooperate in the
                  investigation and prosecution of any suspected fraud or abuse,
                  and must provide any and all requested originals and copies of
                  records and information, free-of-charge on request, to any
                  state or federal agency with authority to investigate fraud
                  and abuse in the Medicaid program.

3.2.5             The Texas Medicaid Fraud Control Unit must be allowed to
                  conduct private interviews of HMO personnel, subcontractors
                  and their personnel, witnesses, and patients. Requests for
                  information are to be complied with, in the form and the
                  language requested. HMO employees and Contractors and
                  subcontractors and their employees and Contractors must
                  cooperate fully in making themselves available in person for
                  interviews, consultation, grand jury proceedings, pretrial
                  conference, hearings, trial and in any other process,
                  including investigations. Compliance with this Article is at
                  HMO's and subcontractors' own expense.

3.3               MEDICAL DIRECTOR
                  ----------------

3.3.1             HMO must have the equivalent of a full-time Medical Director
                  licensed under the Texas State Board of Medical Examiners
                  (M.D. or D.O.). HMO must have a written job description
                  describing the Medical Director's authority, duties and
                  responsibilities as follows:

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3.3.1.1           Ensure that medical necessity decisions, including prior
                  authorization protocols, are rendered by qualified medical
                  personnel and are based on TDH's definition of medical
                  necessity, and is in compliance with the Utilization Review
                  Act and 21.58a of the Texas Insurance Code.

3.3.1.2           Oversight responsibility of network providers to ensure that
                  all care provided complies with the generally accepted health
                  standards of the community.

3.3.1.3           Oversight of HMO's quality improvement process, including
                  establishing and actively participating in HMO's quality
                  improvement committee, monitoring Member health status, HMO
                  utilization review policies and standards and patient outcome
                  measures.

3.3.1.4           Identify problems and develop and implement corrective actions
                  to quality improvement process.

3.3.1.5           Develop, implement and maintain responsibility for HMO's
                  medical policy.

3.3.1.6           Oversight responsibility for medically related complaints.

3.3.1.7           Participate and provide witnesses and testimony on behalf of
                  HMO in the TDH Fair Hearing process.

3.3.2             The Medical Director must exercise independent medical
                  judgement in all medical necessity decisions. HMO must ensure
                  that medical necessity decisions are not adversely influenced
                  by fiscal management decisions. TDH may conduct reviews of
                  medical necessity decisions by HMO Medical Director at any
                  time.

3.4               PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS
                  -------------------------------------------------

3.4.1             HMO must receive written approval from TDH for all updated
                  written materials, produced or authorized by HMO, containing
                  information about the STAR Program prior to distribution to
                  Members, prospective Members, providers within HMO's network,
                  or potential providers who HMO intends to recruit as network
                  providers. This includes Member education materials.

3.4.2             Member materials must meet cultural and linguistic
                  requirements as stated in Article VIII. Unless otherwise
                  required, Member materials must be written at a 4th - 6th
                  grade reading comprehension level; and translated into the
                  language of any major population group, except when TDH
                  requires HMO to use statutory language (i.e., advance
                  directives, medical necessity, etc.).

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3.4.3             All materials regarding the STAR Program, including Member
                  education materials, must be submitted to TDH for approval
                  prior to distribution. TDH has 15 working days to review the
                  materials and recommend any suggestions or required changes.
                  If TDH has not responded to HMO by the fifteenth day, HMO may
                  print and distribute these materials. TDH reserves the right
                  to request HMO to modify plan materials that are deemed
                  approved and have been printed or distributed. These
                  modifications can be made at the next printing unless
                  substantial non-compliance exists. An exception to the 15
                  working day timeframe may be requested in writing by HMO for
                  written provider materials that require a quick turn-around
                  time (e.g., letters). These materials will be reviewed by TDH
                  within 5 working days.

3.4.4             HMO must forward approved English versions of their Member
                  Handbook, Member Provider Directory, newsletters, individual
                  Member letters, and any written information that applies to
                  Medicaid-specific services to DHS for DHS to translate into
                  Spanish. DHS must provide the written and approved translation
                  into Spanish to HMO no later than 15 working days after
                  receipt of the English version by DHS. HMO must incorporate
                  the approved translation into these materials. If DHS has not
                  responded to HMO by the fifteenth day, HMO may print and
                  distribute these materials. TDH reserves the right to require
                  revisions to materials if inaccuracies are discovered or if
                  changes are required by changes in policy or law. These
                  changes can be made at the next printing unless substantial
                  non-compliance exists. HMO has the option of using the DHS
                  translation unit or their own translators for health education
                  materials that do not contain Medicaid-specific information
                  and for other marketing materials such as billboards, radio
                  spots, and television and newspaper advertisements.

3.4.5             HMO must reproduce all written instructional, educational, and
                  procedural documents required under this contract and
                  distribute them to its providers and Members. HMO must
                  reproduce and distribute instructions and forms to all network
                  providers who have reporting and audit requirements under this
                  contract.

3.4.6             HMO must provide TDH with at least three paper copies and one
                  electronic copy of their Member Handbook, Provider Manual and
                  Member Provider Directory. If an electronic format is not
                  available, five paper copies are required.

3.4.7             Changes to the Required Critical Elements for the Member
                  Handbook, Provider Manual, and Provider Directory may be
                  handled as inserts until the next printing of these documents.

3.5               RECORDS REQUIREMENTS AND RECORDS RETENTION
                  ------------------------------------------

3.5.1             HMO must keep all records required to be created and retained
                  under this contract. Records related to Members served in this
                  service area must be made available in

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                  HMO'S local office when requested by TDH. All records must be
                  retained for a period of five (5) years unless otherwise
                  specified in this contract. Original records must be kept in
                  the form they were created in the regular course of business
                  for a minimum of two (2) years following the end of the
                  contract period. Microfilm, digital or electronic records may
                  be substituted for the original records after the first two
                  (2) years, if the retention system is reliable and supported
                  by a retrieval system which allows reasonable access to the
                  records. All copies of original records must be made using
                  guidelines and procedures approved by TDH, if the original
                  documents will no longer be available or accessible.

3.5.2             Availability and Accessibility. All records, documents and
                  data required to be created under this contract are subject to
                  audit, inspection and production. If an audit, inspection or
                  production is requested by TDH, TDH's designee or TDH acting
                  on behalf of any agency with regulatory or statutory authority
                  over Medicaid Managed Care, the requested records must be made
                  available at the time and at the place the records are
                  requested. Copies of requested records must be produced or
                  provided free-of-charge to the requesting agency. Records
                  requested after the second year following the end of contract
                  term that have been stored or archived must be accessible and
                  made available within 10 calendar days from the date of a
                  request by TDH or the requesting agency or at a time and place
                  specified by the requesting entity.

3.5.3             Accounting Records. HMO must create and keep accurate and
                  complete accounting records in compliance with Generally
                  Accepted Accounting Principles (GAAP). Records must be created
                  and kept for all claims payments, refunds and adjustment
                  payments to providers, premium or capitation payments,
                  interest income and payments for administrative services or
                  functions. Separate records must be maintained for medical and
                  administrative fees, charges, and payments.

3.5.4             General Business Records. HMO must create and keep complete
                  and accurate general business records to reflect the
                  performance of duties and responsibilities, and compliance
                  with the provisions of this contract.

3.5.5             Medical Records. HMO must require, through contractual
                  provisions or provider manual, providers to create and keep
                  medical records in compliance with the medical records
                  standards contained in the Standards for Quality Improvement
                  Programs in Appendix A. All medical records must be kept for
                  at least five (5) years, except for records of rural health
                  clinics, which must be kept for a period of six (6) years from
                  the date of service.

3.5.6             Matters in Litigation. HMO must keep records related to
                  matters in litigation for five (5) years following the
                  termination or resolution of the litigation.

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3.5.7             On-line Retention of Claims History. HMO must keep automated
                  claims payment histories for a minimum of 18 months from date
                  of adjudication in an on-line inquiry system. HMO must also
                  keep sufficient history on-line to ensure all claim/encounter
                  service information is submitted to and accepted by TDH for
                  processing.

3.6               HMO REVIEW OF TDH MATERIALS
                  ---------------------------

                  TDH will submit all studies or audits that relate or refer to
                  HMO for review and comment to HMO 10 working days prior to
                  releasing the report to the public or to Members.

3.7               HMO TELEPHONE ACCESS REQUIREMENTS
                  ---------------------------------

                  HMO must ensure that HMO has adequately-staffed telephone
                  lines. Telephone personnel must receive customer service
                  telephone training. HMO must ensure that telephone staffing is
                  adequate to fulfill the standards of promptness and quality
                  listed below:

                  1.       80% of all telephone calls must be answered within
                           an average of 30 seconds;
                  2.       The lost (abandonment) rate must not exceed 10%;
                  3.       HMO cannot impose maximum call duration limits but
                           must allow calls to be of sufficient length to ensure
                           adequate information is provided to the Member or
                           Provider.


ARTICLE IV -  FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

4.1               FISCAL SOLVENCY
                  ---------------

4.1.1             HMO must be and remain in full compliance with all state and
                  federal solvency requirements for HMOs, including but not
                  limited to all reserve requirements, net worth standards,
                  debt-to-equity ratios, or other debt limitations.

4.1.2             If HMO becomes aware of any impending changes to its financial
                  or business structure which could adversely impact its
                  compliance with these requirements or its ability to pay its
                  debts as they come due, HMO must notify TDH immediately in
                  writing. If HMO becomes aware of a take-over or assignment
                  which would require the approval of TDI or TDH, HMO must
                  notify TDH immediately in writing.

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<PAGE>

4.1.3             HMO must not have been placed under state conservatorship or
                  receivership or filed for protection under federal bankruptcy
                  laws. None of HMO's property, plant or equipment must have
                  been subject to foreclosure or repossession within the
                  preceding 10-year period. HMO must not have any debt declared
                  in default and accelerated to maturity within the preceding
                  10-year period. HMO represents that these statements are true
                  as of the contract effective date. HMO must inform TDH within
                  24 hours of a change in any of the preceding representations.

4.2               MINIMUM NET WORTH
                  -----------------

4.2.1             HMO has minimum net worth to the greater of (a) $1,500,000;
                  (b) an amount equal to the sum of twenty-five dollars ($25)
                  times the number of all enrollees including Medicaid Members;
                  or (c) an amount that complies with standards adopted by TDI.
                  Minimum net worth means the excess total admitted assets over
                  total liabilities, excluding liability for subordinated debt
                  issued in compliance with Article 1.39 of the Insurance Code.

4.2.2             The minimum equity must be maintained during the entire
                  contract period.

4.3               PERFORMANCE BOND
                  ----------------

                  HMO has furnished TDH with a performance bond in the form
                  prescribed by TDH and approved by TDI, naming TDH as Obligee,
                  securing HMO's faithful performance of the terms and
                  conditions of this contract. The performance bond has been
                  issued in the amount of $100,000 for a two year period
                  (contract period). If the contract is renewed or extended
                  under Article XVIII, a separate bond will be required for each
                  additional term of the contract. The bond has been issued by a
                  surety licensed by TDI, and specifies cash payment as the sole
                  remedy. Performance Bond requirements under this Article must
                  comply with Texas Insurance Code ss. 11.1805, relating to
                  Performance and Fidelity Bonds. The bond must be delivered to
                  TDH at the same time the signed HMO contract is delivered to
                  TDH.

4.4               INSURANCE
                  ---------


4.4.1             HMO must maintain, or cause to be maintained, general
                  liability insurance in the amounts of at least $1,000,000 per
                  occurrence and $5,000,000 in the aggregate.

4.4.2             HMO must maintain or require professional liability insurance
                  on each of the providers in its network in the amount of
                  $100,000 per occurrence and $300,000 in the aggregate, or the
                  limits required by the hospital at which the network provider
                  has admitting privileges.

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4.4.3             HMO must maintain an umbrella professional liability insurance
                  policy for the greater of $3,000,000 or an amount (rounded to
                  the next $100,000) which represents the number of STAR Members
                  enrolled in HMO in the first month of the contract year
                  multiplied by $150, not to exceed $10,000,000.

4.4.4             Any exceptions to the requirements of this Article must be
                  approved in writing by TDH prior to the effective date of this
                  contract. HMOs and providers who qualify as either state or
                  federal units of government are exempt from the insurance
                  requirements of this Article and are not required to obtain
                  exemptions from these provisions prior to the effective date
                  of this contract. State and federal units of government are
                  required to comply with and are subject to the provisions of
                  the Texas or Federal Tort Claims Act.

4.5               FRANCHISE TAX
                  -------------

                  HMO certifies that its payment of franchise taxes is current
                  or that it is not subject to the State of Texas franchise tax.

4.6               AUDIT
                  -----

4.6.1             TDH, TDI, or their designee have the right from time to time
                  to examine and audit books and records of HMO, or its
                  subcontractors, relating to: (1) HMO's capacity to bear the
                  risk of potential financial losses; (2) services performed or
                  determination of amounts payable under this contract; (3)
                  detection of fraud and abuse; and (4) other purposes TDH deems
                  to be necessary to perform its regulatory function and/or to
                  enforce the provisions of this contract.

4.6.2             TDH is required to conduct an audit of HMO at least once every
                  three years. HMO is responsible for paying the costs of an
                  audit conducted under this Article. The costs of the audit
                  paid by HMO are allowable costs under this contract.

4.7               PENDING OR THREATENED LITIGATION
                  --------------------------------

                  HMO must require disclosure from subcontractors and network
                  providers of all pending or potential litigation or
                  administrative actions against the subcontractor or network
                  provider and must disclose this information to TDH, in
                  writing, prior to the execution of this contract. HMO must
                  make reasonable investigation and inquiry that there is not
                  pending or potential litigation or administrative action
                  against the providers or subcontractors in HMO's provider
                  network. HMO must notify TDH of any litigation which is
                  initiated or threatened after the effective date of this
                  contract within seven days of receiving service or becoming
                  aware of the threatened litigation.

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4.8               MISREPRESENTATION AND FRAUD IN RESPONSE TO RFA AND IN HMO
                  OPERATIONS
                  ---------------------------------------------------------

4.8.1             HMO was awarded this contract based upon the responses and
                  representations contained in HMO's application submitted in
                  response to TDH's RFA. All responses and representations upon
                  which scoring was based were considered material to the
                  decision of whether to award the contract to HMO. RFA
                  responses are incorporated into this contract by reference.
                  The provisions of this contract control over any RFA response
                  if there is a conflict between the RFA and this contract, or
                  if changes in law or policy have changed the requirements of
                  HMO contracting with TDH to provide Medicaid Managed Care.

4.8.2             This contract was awarded in part based upon HMO's
                  representation of its current equity and financial ability to
                  bear the risks under this contract. TDH will consider any
                  misrepresentations of HMO's equity, HMO's ability to bear
                  financial risks of this contract or inflating the equity of
                  HMO, solely for the purpose of being awarded this contract, a
                  material misrepresentation and fraud under this contract.

4.8.3             Discovery of any material misrepresentation or fraud on the
                  part of HMO in HMO's application or in HMO's day-to-day
                  activities and operations may cause this contract to terminate
                  and may result in legal action being taken against HMO under
                  this contract, and state and federal civil and criminal laws.

4.9               THIRD PARTY RECOVERY
                  --------------------

4.9.1             Third Party Recovery. All Members are required to assign their
                  rights to any benefits to the State and agree to cooperate
                  with the State in identifying third parties who may be liable
                  for all or part of the costs for providing services to the
                  Member, as a condition for participation in the Medicaid
                  program. HMO is authorized to act as the State's agent in
                  enforcing the State's rights to third party recovery under
                  this contract.

4.9.2             Identification. HMO must develop and implement systems and
                  procedures to identify potential third parties who may be
                  liable for payment of all or part of the costs for providing
                  medical services to Members under this contract. Potential
                  third parties must include any of the sources identified in 42
                  C.F.R. 433.138, relating to identifying third parties, except
                  workers' compensation, uninsured and underinsured motorist
                  insurance, first and third party liability insurance and
                  tortfeasors. HMO must coordinate with TDH to obtain
                  information from other state and federal agencies and HMO must
                  cooperate with TDH in obtaining information from commercial
                  third party resources. HMO must require all providers to
                  comply with the provisions of 25 TAC ss. 28, relating to Third
                  Party Recovery in the Medicaid program.

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4.9.3             Exchange of Identified Resources. HMO must forward identified
                  resources of uninsured and underinsured motorist insurance,
                  first and third party liability insurance and tortfeasors
                  ("excepted resources") to TDH for TDH to pursue collection and
                  recovery from these resources. TDH will forward information on
                  all third art resources identified by TDH to HMO. HMO must
                  coordinate with TDH to obtain information from other state and
                  federal agencies, including HCFA for Medicare and the Child
                  Support Enforcement Division of the Office of the Attorney
                  General for medical support. HMO must cooperate with TDH in
                  obtaining and exchanging information from commercial third
                  party resources.

4.9.4             Recovery. HMO must actively pursue and collect from third
                  party resources which have been identified, except when the
                  cost of pursuing recovery reasonably exceeds the amount which
                  may be recovered by HMO. HMO is not required to, but may
                  pursue recovery and collection from the excepted resources
                  listed in Article 4.9.3. HMO must report the identity of these
                  resources to TDH, even if HMO will pursue collection and
                  recovery from the excepted resources.

4.9.4.1           HMO must provide third party resource information to network
                  providers to whom individual Members have been assigned or who
                  provide services to Members. HMO must require providers to
                  seek recovery from potential third party resources prior to
                  seeking payment from HMO. If network providers are paid
                  capitation, HMO must either seek recovery from third party
                  resources or account to TDH for all amounts received by
                  network providers from third party resources.

4.9.4.2           HMO must prohibit network providers from interfering with or
                  placing liens upon the State's right or HMO's right, acting as
                  the State's agent, to recovery from third party resources. HMO
                  must prohibit network providers from seeking recovery in
                  excess of the Medicaid payable amount or otherwise violating
                  state and federal laws.

4.9.5             Retention. HMO may retain as income all amounts recovered from
                  third party sources as long as recoveries are obtained in
                  compliance with the contract and state and federal laws.

4.9.6             Accountability. HMO must report all third party recovery
                  efforts and amounts recovered as required in Article 12.1.12.
                  If HMO fails to pursue and recover from third parties no later
                  than 180 days after the date of service, TDH may pursue third
                  party recoveries and retain all amounts recovered without
                  accounting to HMO for the amounts recovered. Amounts recovered
                  by TDH will be added to expected third party recoveries to
                  reduce future capitation rates, except recoveries from those
                  excepted third party resources listed in Article 4.9.3.

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4.10              CLAIMS PROCESSING REQUIREMENTS
                  ------------------------------

4.10.1            HMO and claims processing subcontractors must comply with
                  TDH's Texas Managed Care Claims Manual (Claims Manual), which
                  contains TDH's claims processing requirements. HMO must comply
                  with any changes to the Claims Manual with appropriate notice
                  of changes from TDH.

4.10.2            HMO must forward claims submitted to HMO in error to either:
                  1) the correct HMO if the correct HMO can be determined from
                  the claim or is otherwise known to HMO; 2) the State's claims
                  administrator; or 3) the provider who submitted the claim in
                  error, along with an explanation of why the claim is being
                  returned.

4.10.3            HMO must not pay any claim submitted by a provider who has
                  been excluded or suspended from the Medicare or Medicaid
                  programs for fraud and abuse when HMO has knowledge of the
                  exclusion or suspension.

4.10.4            All provider clean claims must be adjudicated (finalized as
                  paid or denied adjudicated) within 30 days from the date the
                  claim is received by HMO. HMO must pay providers interest on a
                  clean claim which is not adjudicated within 30 days from the
                  date the claim is received by HMO or becomes clean at a rate
                  of 1.5% per month (18% annual) for each month the clean claim
                  remains unadjudicated. HMO will be held to a minimum
                  performance level of 90% of all clean claims paid or denied
                  within 30 days of receipt and 99% of all clean claims paid or
                  denied within 90 days of receipt. Failure to meet these
                  performance levels is a default under this contract and could
                  lead to damages or sanctions as outlined in Article XVII. The
                  performance levels are subject to changes if required to
                  comply with federal and state laws or regulations.

4.10.4.1          All claims and appeals submitted to HMO and claims processing
                  subcontractors must be paid-adjudicated (clean claims),
                  denied-adjudicated (clean claims), or denied for additional
                  information (unclean claims) to providers within 30 days from
                  the date the claim is received by [HMO. Providers must be sent
                  a written notice for each claim that is denied for additional
                  information (unclean claims) identifying the claim, all
                  reasons why the claim is being denied, the date the claim was
                  received by HMO, all information required from the provider in
                  order for HMO to adjudicate the claim, and the date by which
                  the requested information must be received from the provider.

4.10.4.2          Claims that are suspended (pended internally) must be
                  subsequently paid-adjudicated, denied-adjudicated, or denied
                  for additional information (pended externally) within 30 days
                  from date of receipt. No claim can be suspended for a period
                  exceeding 30 days from date of receipt of the claim.

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4.10.4.3          HMO must identify each data field of each claim form that is
                  required from the provider in order for HMO to adjudicate the
                  claim, HMO must inform all network providers about the
                  required fields no later than 30 days prior to the effective
                  date of the contract or as a provision within HMO/provider
                  contract. Out-of-network providers must be informed of all
                  required fields if the claim is denied for additional
                  information. The required fields must include those required
                  by HMO and TDH.

4.10.5            HMO is subject to Article XVI, Default and Remedies, for
                  claims that are not processed on a timely basis as required by
                  this contract and the Claims Manual. Notwithstanding the
                  provisions of Articles 4.10.4, 4.10.4.1 and 4.10.4.2, HMO's
                  failure to adjudicate (paid, denied, or external pended) at
                  least ninety percent (90%) of all claims within thirty (30)
                  days of receipt and ninety-nine percent (99%) within ninety
                  (90) days of receipt for the contract year to date is a
                  default under Article XVI of this contract.

4.10.6            HMO must comply with the standards adopted by the U.S.
                  Department of Health and Human Services under the Health
                  Insurance Portability and Accountability Act of 1996
                  submitting and receiving claims information through electronic
                  data interchange (EDI) that allows for automated processing
                  and adjudication of claims within two or three years, as
                  applicable, from the date the rules promulgated under HIPAA
                  are adopted.

4.10.7            For claims requirements regarding retroactive PCP changes for
                  mandatory Members, see Article 7.8.12.2.

4.11              INDEMNIFICATION
                  ---------------

4.11.1            HMO/TDH HMO must agree to indemnify TDH and its agents for any
                  and all claims, costs, damages and expenses, including court
                  costs and reasonable attorney's fees, which are related to or
                  arise out of:

4.11.1.1          Any failure, inability, or refusal of HMO or any of its
                  network providers or other subcontractors to provide covered
                  services;

4.11.1.2          Claims arising from HMO's, HMO's network provider's or other
                  subcontractor's negligent or intentional conduct in not
                  providing covered services; and

4.11.1.3          Failure, inability, or refusal of HMO to pay any of its
                  network providers or subcontractors for covered services.

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4.11.2            HMO/Provider: HMO is prohibited from requiring providers to
                  indemnify HMO for HMO's own acts or omissions which result in
                  damages or sanctions being assessed against HMO either under
                  this contract or under state or federal law.

ARTICLE V     STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

5.1               COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS
                  ----------------------------------------------

5.1.1             HMO must know, understand and comply with all state and
                  federal laws and regulations relating to the Texas Medicaid
                  Program which have not been waived by HCFA. HMO must comply
                  with all rules relating to the Medicaid managed care program
                  adopted by TDH, TDI, THHSC, TDMHMR and any other state agency
                  delegated authority to operate or administer Medicaid or
                  Medicaid managed care programs. To the extent there is an
                  inconsistency or conflict between or among state and federal
                  laws relating to the Texas Medicaid Program, the Medicaid
                  managed care program, or this contract, federal law shall
                  apply.

5.1.2             HMO must require, through contract provisions, that all
                  network providers or subcontractors comply with all state and
                  federal laws and regulations relating to the Texas Medicaid
                  Program and all rules relating to the Medicaid managed care
                  program adopted by TDH, TDI, THHSC, TDMHMR and any other state
                  agency delegated authority to operate Medicaid or Medicaid
                  Managed Care programs.

5.1.3             HMO must comply with the provisions of the Clean Air Act and
                  the Federal Water Pollution Control Act, as amended, found at
                  42 C.F.R. 7401, et seq. and 33 U.S.C. 1251, et seq.,
                  respectively.

5.2               PROGRAM INTEGRITY
                  -----------------

5.2.1             HMO has not been excluded, debarred, or suspended from
                  participation in any program under Title XVIII or Title XIX
                  under any of the provisions of Section 1128(a) or (b) of the
                  Social Security Act (42 USC ss. 1320 a-7), or Executive Order
                  12549. HMO must notify TDH within 3 days of the time it
                  receives notice that any action is being taken against HMO or
                  any person defined under the provisions of Section 1128(a) or
                  (b) or any subcontractor, which could result in exclusion,
                  debarment, or suspension of HMO or a subcontractor from the
                  Medicaid program, or any program listed in Executive Order
                  12549.

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5.2.2             HMO must comply with the provisions of, and file the
                  certification of compliance required by the Byrd Anti-Lobbying
                  Amendment, found at 31 U.S.C. 1352, relating to use of federal
                  funds for lobbying for or obtaining federal contracts.

5.3               FRAUD AND ABUSE COMPLIANCE PLAN
                  -------------------------------

5.3.1             This contract is subject to all state and federal laws and
                  regulations relating to fraud and abuse in health care and the
                  Medicaid program. HMO must cooperate and assist TDH and THHSC
                  and any other state or federal agency charged with the duty of
                  identifying, investigating, sanctioning or prosecuting
                  suspected fraud and abuse. HMO must provide originals and/or
                  copies of all records and information requested and allow
                  access to premises and provide records to TDH or its
                  authorized agent(s), THHSC, HCFA, the U.S. Department of
                  Health and Human Services, FBI, TDI, and the Texas Attorney
                  General's Medicaid Fraud Control Unit. All copies of records
                  must be provided free of charge.

5.3.2             Compliance Plan. HMO must submit to TDH for approval a written
                  fraud and abuse compliance plan which is based on the Model
                  Compliance Plan issued by the U.S. Department of Health and
                  Human Services, the Office of Inspector General (OIG), no
                  later than 30 days after the effective date of the contract.
                  HMO must designate an officer or director in its organization
                  who has the responsibility and authority for carrying out the
                  provisions of its compliance plan. HMO must submit any updates
                  or modifications in its compliance plan to TDH for approval at
                  least 30 days prior to the modifications going into effect.
                  HMO's fraud and abuse compliance plan must:

5.3.2.1           ensure that all officers, directors, managers and employees
                  know and understand the provisions of HMO'S fraud and abuse
                  compliance plan.

5.3.2.2           contain procedures designed to prevent and detect potential or
                  suspected abuse and fraud in the administration and delivery
                  of services under this contract.

5.3.2.3           contain provisions for the confidential reporting of plan
                  violations to the designated person in HMO.

5.3.2.4           contain provisions for the investigation and follow-up of any
                  compliance plan reports.

5.3.2.5           ensure that the identity of individuals reporting violations
                  of the plan is protected.

5.3.2.6           contain specific and detailed internal procedures for
                  officers, directors, managers and employees for detecting,
                  reporting, and investigating fraud and abuse compliance plan
                  violations.

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5.3.2.7           require any confirmed or suspected fraud and abuse under state
                  or federal law be reported to TDH, the Medicaid Program
                  Integrity section of the Office of Investigations and
                  Enforcement of the Texas Health and Human Services Commission,
                  and/or the Medicaid Fraud Control Unit of the Texas Attorney
                  General.

5.3.2.8           ensure that no individual who reports plan violations or
                  suspected fraud and abuse is retaliated against.

5.3.3             Training. HMO must designate executive and essential personnel
                  to attend mandatory training in fraud and abuse detection,
                  prevention and reporting. The training will be conducted by
                  the Office of Investigation and Enforcement, Health and Human
                  Services Commission, and will be provided free of charge. HMO
                  must schedule and complete training no later than 90 days
                  after the effective date of any updates or modification of the
                  written Model Compliance Plan.

5.3.3.1           If HMO'S personnel have attended OIE training prior to the
                  effective date of this contract, they are not required to
                  attend additional OIE training unless new training is required
                  due to changes in federal and/or state law or regulations. If
                  additional OIE training is required, TDH will notify HMO to
                  schedule this additional training.

5.3.3.2           If HMO updates or modifies its written fraud and abuse
                  compliance plan, HMO must train its executive and essential
                  personnel on these updates or modifications no later than 90
                  days after the effective date of the updates or modifications.

5.3.3.3           If HMO'S executive and essential personnel change or if HMO
                  employs additional executive and essential personnel, the new
                  or additional personnel must attend OIE training within 90
                  days of employment by HMO.

5.3.4             HMO's failure to report potential or suspected fraud or abuse
                  may result in sanctions, contract cancellation, or exclusion
                  from participation in the Medicaid program.

5.3.5             HMO must allow the Texas Medicaid Fraud Control Unit and
                  THHSC's Office of Investigations and Enforcement, to conduct
                  private interviews of HMO's employees, subcontractors and
                  their employees, witnesses, and patients. Requests for
                  information must be complied with in the form and the language
                  requested. HMO's employees and its subcontractors and their
                  employees must cooperate fully and be available in person for
                  interviews, consultation, grand jury proceedings, pre-trial
                  conference, hearings, trial and in any other process.

5.3.6             Subcontractors. HMO must submit the documentation described in
                  Articles 5.3.6.1 through 5.3.6.3, in compliance with Texas
                  Government Code ss.533.012, regarding any subcontractor
                  providing health care services under this contract except for
                  those

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<PAGE>

                  providers who have re-enrolled as a provider in the Medicaid
                  program as required by Section 2.07, Chapter 1153, Acts of the
                  75th Legislature, Regular Session, 1997, or who modified a
                  contract in compliance with that section. HMO must submit
                  information in a format as specified by TDH. Documentation
                  must be submitted no later than 120 days after the effective
                  date of this contract. Subcontracts entered into after the
                  effective date of this contract must be submitted no later
                  than 90 days after the effective date of the subcontract. The
                  required documentation required under this provision is not
                  subject to disclosure under Chapter 552, Government Code.

5.3.6.1           a description of any financial or other business relationship
                  between HMO and its subcontractor;

5.3.6.2           a copy of each type of contract between HMO and its
                  subcontractor;

5.3.6.3           a description of the fraud control program used by any
                  subcontractor.

5.4               SAFEGUARDING INFORMATION
                  ------------------------

5.4.1             All Member information, records and data collected or provided
                  to HMO by TDH or another State agency is protected from
                  disclosure by state and federal law and regulations. HMO may
                  only receive and disclose information which is directly
                  related to establishing eligibility, providing services and
                  conducting or assisting in the investigation and prosecution
                  of civil and criminal proceedings under state or federal law.
                  HMO must include a confidentiality provision in all
                  subcontracts with individuals.

5.4.2             HMO is responsible for informing Members and providers
                  regarding the provisions of 42 C.F.R. 431, Subpart F, relating
                  to Safeguarding Information on Applicants and Recipients, and
                  HMO must ensure that confidential information is protected
                  from disclosure except for authorized purposes.

5.4.3             HMO must assist network PCPs in developing and implementing
                  policies for protecting the confidentiality of AIDS and
                  HIV-related medical information and an anti-discrimination
                  policy for employees and Members with communicable diseases.
                  Also see Health and Safety Code, Chapter 85, Subchapter E,
                  relating to the Duties of State Agencies and State
                  Contractors.

5.4.4             HMO must require that subcontractors have mechanisms in place
                  to ensure Member's (including minor's) confidentiality for
                  family planning services.

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5.5               NON-DISCRIMINATION
                  ------------------

                  HMO agrees to comply with and to include in all subcontracts a
                  provision that the subcontractor will comply with each of the
                  following requirements:

5.5.1             Title VI of the Civil Rights Act of 1964, Section 504 of the
                  Rehabilitation Act of 1973, the Americans with Disabilities
                  Act of 1990, and all requirements imposed by the regulations
                  implementing these acts and all amendments to the laws and
                  regulations. The regulations provide in part that no person in
                  the United States shall on the grounds of race, color,
                  national origin, sex, age, disability, political beliefs or
                  religion be excluded from participation in, or denied, any
                  aid, care, service or other benefits, or be subjected to any
                  discrimination under any program or activity receiving federal
                  funds.

5.5.2             Texas Health and Safety Code Section 85.113 (relating to
                  workplace and confidentiality guidelines regarding AIDS and
                  HIV).

5.5.3             The provisions of Executive Order 11246, as amended by 11375,
                  relating to Equal Employment Opportunity.

5.5.4             HMO shall not discriminate with respect to participation,
                  reimbursement, or indemnification as to any provider who is
                  acting within the scope of the provider's license or
                  certification under applicable State law, solely on the basis
                  of such license or certification. This requirement shall not
                  be construed to prohibit HMO from including providers only to
                  the extent necessary to meet the needs of HMO's Members or
                  from establishing any measure designed to maintain quality and
                  control costs consistent with HMO'S responsibilities.

5.6               HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)
                  --------------------------------------------

5.6.1             TDH is committed to providing procurement and contracting
                  opportunities to historically underutilized businesses (HUBs),
                  under the provisions of Texas Government Code, Title 10,
                  Subtitle D, Chapter 2161 and I TAC ss. 111.11(b) and 111.
                  13(c)(7). TDH requires its Contractors and subcontractors to
                  make a good faith effort to assist HUBs in receiving a portion
                  of the total contract value of this contract.

5.6.2             The HUB good faith effort goal for this contract is 18.1% of
                  total premiums paid. HMO agrees to make a good faith effort to
                  meet or exceed this goal. HMO acknowledges it made certain
                  good faith effort representations and commitments to TDH
                  during the HUB good faith effort determination process. HMO
                  agrees to use its best efforts to abide by these
                  representations and commitments during the contract period.

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5.6.3             HMO is required to submit HUB quarterly reports to TDH as
                  required in Article 12.11.

5.6.4             TDH will assist HMO in meeting the contracting and reporting
                  requirements of this Article.

5.7               BUY TEXAS
                  ---------

                  HMO agrees to "Buy Texas" products and materials when they are
                  available at a comparable price and in a comparable period of
                  time, as required by Section 48 of Article IX of the General
                  Appropriations Act of 1995.

5.8               CHILD SUPPORT
                  -------------

5.8.1             The Texas Family Code ss.231.006 requires TDH to withhold
                  contract payments from any for-profit entity or individual who
                  is at least 30 days delinquent in child support obligations.
                  It is HMO's responsibility to determine and verify that no
                  owner, partner, or shareholder who has at least at 25%
                  ownership interest is delinquent in child support obligations.
                  HMO must attach a list of the names and Social Security
                  numbers of all shareholders, partners or owners who have at
                  least a 25% ownership interest in HMO.

5.8.2             Under Section 231.006 of the Family Code, the contractor
                  certifies that the contractor is not ineligible to receive the
                  specified grant, loan, or payment and acknowledges that this
                  contract may be terminated and payment may be withheld if this
                  certification is inaccurate. A child support obligor who is
                  more than 30 days delinquent in paying child support or a
                  business entity in which the obligor is a sole proprietor,
                  partner, shareholder, or owner with an ownership interest of
                  at least 25% is not eligible to receive the specified grant,
                  loan or payment.

5.8.3             If TDH is informed and verifies that a child support obligor
                  who is more than 30 days delinquent is a partner, shareholder,
                  or owner with at least a 25% ownership interest, it will
                  withhold any payments due under this contract until it has
                  received satisfactory evidence that the obligation has been
                  satisfied or that the obligor has entered into a written
                  repayment request.

5.9               REQUESTS FOR PUBLIC INFORMATION
                  -------------------------------

5.9.1             This contract and all network provider and subcontractor
                  contracts are subject to public disclosure under the Public
                  Information Act (Texas Government Code, Chapter 552). TDH may
                  receive Public Information requests related to this contract,

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                  information submitted as part of the compliance of the
                  contract and HMO's application upon which this contract was
                  awarded. TDH agrees that it will promptly deliver a copy of
                  any request for Public Information to HMO.

5.9.2             TDH may, in its sole discretion, request a decision from the
                  Office of the Attorney General (AG opinion) regarding whether
                  the information requested is excepted from required public
                  disclosure. TDH may rely on HMO's written representations in
                  preparing any AG opinion request, in accordance with Texas
                  Government Code ss.552.305. TDH is not liable for failing to
                  request an AG opinion or for releasing information which is
                  not deemed confidential by law, if HMO fails to provide TDH
                  with specific reasons why the requested information is exempt
                  from the required public disclosure. TDH or the Office of the
                  Attorney General will notify all interested parties if an AG
                  opinion is requested.

5.9.3             If HMO believes that the requested information qualifies as a
                  trade secret or as commercial or financial information, HMO
                  must notify TDH--within three (3) working days of HMO's
                  receipt of the request--of the specific text, or portions of
                  text, which HMO claims is excepted from required public
                  disclosure, HMO is required to identify the specific
                  provisions of the Public Information Act which HMO believes
                  are applicable, and is required to include a detailed written
                  explanation of how the exceptions apply to the specific
                  information identified by HMO as confidential and excepted
                  from required public disclosure.

5.10              NOTICE AND APPEAL
                  -----------------

                  HMO must comply with the notice requirements contained in 25
                  TAC ss.36.21, and the maintaining benefits and services
                  contained in 25 TAC ss.36.22, whenever HMO intends to take an
                  action affecting the Member benefits and services under this
                  contract. Also see the Member appeal requirements contained in
                  Article 8.7 of this contract.

ARTICLE VI    SCOPE OF SERVICES

6.1               SCOPE OF SERVICES
                  -----------------

                  HMO is paid capitation for all services included in the State
                  of Texas Title XIX State Plan and the 1915(b) waiver
                  application for the SDA currently filed and approved by HCFA,
                  except those services which are specifically excluded and
                  listed in Article 6.1.8 (non-capitated services).

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6.1.1             HMO must pay for or reimburse for all covered services
                  provided to mandatory-- enrolled Members for whom HMO is paid
                  capitation.


6.1.2             TDH must pay for or reimburse for all covered services
                  provided to SSI voluntary Members who enroll with HMO on a
                  voluntary basis. It is at HMO's discretion whether to provide
                  value-added services to voluntary Members.

6.1.3             HMO must provide covered services described in the 1999 Texas
                  Medicaid Provider Procedures Manual (Provider Procedures
                  Manual), subsequent editions of the Provider Procedures Manual
                  also in effect during the contract period, and all Texas
                  Medicaid Bulletins which update the 1999 Provider Procedures
                  Manual and subsequent editions of the Provider Procedures
                  Manual published during the contract period.

6.1.4             Covered services are subject to change due to changes in
                  federal law, changes in Texas Medicaid policy, and/or
                  responses to changes in Medicine, Clinical protocols, or
                  technology.

6.1.5             The STAR Program has obtained a waiver to the State Plan to
                  include three enhanced benefits to all voluntary and mandatory
                  STAR Members. Two of these enhanced benefits removed
                  restrictions which previously applied to Medicaid eligible
                  individuals 21 years and older: the three-prescriptions per
                  month limit; and, the 30-day spell of illness limit. One of
                  these expanded the covered benefits to add an annual adult
                  well check.

6.1.6             Value-added Services. Value-added services that are approved
                  --------------------
                  by TDH during the contracting process are included in the
                  Scope of Services under this contract. Value-added services
                  are listed in Appendix C.

6.1.6.1           The approval request must include:

6.1.6.1.1         A detailed description of the service to be offered;

6.1.6.1.2         Identification of the category or group of Members eligible to
                  receive the service if it is a type of service that is not
                  appropriate for all Members. (HMO has the

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                  discretion to determine if voluntary Members are eligible for
                  the value-added services);

6.1.6.1.3         Any limits or restrictions which apply to the service; and

6.1.6.1.4         A description of how a Member may obtain or access the
                  service.

6.1.6.2           Value-added services can only be added or removed by written
                  amendment of this contract, HMO cannot include a value-added
                  service in any material distributed to Members or prospective
                  Members until this contract has been amended to include that
                  value-added service or HMO has received written approval from
                  TDH pending finalization of the contract amendment.

6.1.6.2.1         If a value-added service is deleted by amendment, HMO must
                  notify each Member that the service is no longer available
                  through HMO, and HMO must revise all materials distributed to
                  prospective Members to reflect the change in covered services.

6.1.6.3           Value-added services must be offered to all mandatory HMO
                  Members, as indicated in Article 6.1.6.1.2, unless the
                  contract is amended or the contract terminates.

6.1.7             HMO may offer additional benefits that are outside the scope
                  of services of this contract to individual Members on a
                  case-by-case basis, based on medical necessity,
                  cost-effectiveness, and satisfaction and improved
                  health/behavioral health status of the Member/Member family.

6.1.8             Non-Capitated Services. The following Texas Medicaid program
                  ----------------------
                  services have been excluded from the services included in the
                  calculation of HMO capitation rate:

                           THSteps Dental (including Orthodontia)
                           Early Childhood Intervention Case Management/Service
                                 Coordination
                           MHMR Targeted Case Management
                           Mental Health Rehabilitation
                           Pregnant Women and Infants Case Management
                           THSteps Medical Case Management
                           Texas School Health and Related Services
                           Texas Commission for the Blind Case Management
                           Tuberculosis Services Provided by TDH-approved
                                  providers (Directly Observed Therapy and
                                  Contact Investigation)
                           Vendor Drugs (out-of-office drugs)
                           Medical Transportation
                           TDHS Hospice Services

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                  Refer to relevant chapters in the Provider Procedures Manual
                  and the Texas Medicaid Bulletins for more information.

                  Although HMO is not responsible for paying or reimbursing for
                  these non-capitated services, HMO remains responsible for
                  providing appropriate referrals for Members to obtain or
                  access these services.

6.1.8.1           HMO is responsible for informing providers that all
                  non-capitated services must be submitted to TDH for payment or
                  reimbursement.

6.2               PRE-EXISTING CONDITIONS
                  -----------------------

                  HMO is responsible for providing all covered services to each
                  eligible Member beginning on the effective date of the
                  contract or the Member's date of enrollment under the contract
                  regardless of pre-existing conditions, prior diagnosis and/or
                  receipt of any prior health care services.

6.3               SPAN OF ELIGIBILITY
                  -------------------

                  The following outlines HMO'S responsibilities for payment of
                  hospital and freestanding psychiatric facility (facility)
                  admissions:

6.3.1             Inpatient Admission Prior to Enrollment in HMO. HMO is
                  responsible for payment of physician and non-hospital/facility
                  charges for the period for which HMO is paid a capitation
                  payment for that Member. HMO is not responsible for
                  hospital/facility charges for Members admitted prior to the
                  date of enrollment in HMO.

6.3.2             Inpatient Admission After Enrollment in HMO. HMO is
                  responsible for all hospital/facility charges until the Member
                  is discharged from the hospital/facility or until the Member
                  loses Medicaid eligibility.

6.3.2.1           If a Member regains Medicaid eligibility and the Member was
                  enrolled in HMO at the time the Member was admitted to the
                  hospital, HMO is responsible for hospital/facility charges as
                  follows:

6.3.2.1.1         Member Re-enrolls into HMO After Regaining Medicaid
                  Eligibility. HMO is responsible for charges for the period for
                  which HMO receives capitation payment for the Member or until
                  the Member is discharged or loses Medicaid eligibility.

6.3.2.1.2         Member Re-enrolls in Another Health Plan After Regaining
                  Medicaid Eligibility. HMO is responsible for hospital/facility
                  charges until the Member is discharged or

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                  loses Medicaid eligibility.

6.3.3             Plan Change. A Member cannot change from one health plan to
                  another health plan during an inpatient hospital stay.

6.3.4             Hospital/Facility Transfer. Discharge from one acute care
                  hospital/facility and readmission to another acute care
                  hospital/facility within 24 hours for continued treatment is
                  not a discharge under this contract.

6.3.5             HMO insolvency or receivership. HMO is responsible for payment
                  of all services provided to a person who was a Member on the
                  date of insolvency or receivership to the same extent they
                  would otherwise be responsible under this Article 6.3.

6.4               CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS
                  -----------------------------------------------

6.4.1             HMO must ensure that the care of newly enrolled Members is not
                  disrupted or interrupted. HMO must take special care to
                  provide continuity in the care of newly enrolled Members whose
                  health or behavioral health condition has been treated by
                  specialty care providers or whose health could be placed in
                  jeopardy if care is disrupted or interrupted.

6.4.2             Pregnant Members with 12 weeks or less remaining before the
                  expected delivery date must be allowed to remain under the
                  care of the Member's current OB/GYN through the Member's
                  postpartum checkup, even if the provider is out-of-network. If
                  Member wants to change her OB/GYN to one who is in the plan,
                  she must be allowed to do so if the provider to whom she
                  wishes to transfer agrees to accept her in the last trimester.

6.4.3             HMO must pay a Member's existing out-of-network providers for
                  covered services until the Member's records, clinical
                  information and care can be transferred to a network provider.
                  Payment must be made within the time period required for
                  network providers. HMO may pay any out-of-network provider a
                  reasonable and customary amount determined by the HMO. This
                  Article does not extend the obligation of HMO to reimburse the
                  Member's existing out-of-network providers of on-going care
                  for more than 90 days after Member enrolls in HMO or for more
                  than nine months in the case of a Member who at the time of
                  enrollment in HMO has been diagnosed with and receiving
                  treatment for a terminal illness. The obligation of HMO to
                  reimburse the Member's existing out-of-network provider for
                  services provided to a pregnant Member with 12 weeks or less
                  remaining before the expected delivery date extends through
                  delivery of the child, immediate postpartum care, and the
                  follow-up checkup within the first six weeks of delivery.

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6.4.4             HMO must provide or pay out-of-network providers who provide
                  covered services to Members who move out of the service area
                  through the end of the period for which capitation has been
                  paid for the Member.

6.5               EMERGENCY SERVICES
                  ------------------

6.5.1             HMO must pay for the professional, facility, and ancillary
                  services that are medically necessary to perform the medical
                  screening examination and stabilization of HMO Member
                  presenting as an emergency medical condition or an emergency
                  behavioral health condition to the hospital emergency
                  department, 24 hours a day, 7 days a week, rendered by either
                  HMO's in-network or out-of-network providers. HMO may elect to
                  pay any emergency services provider an amount negotiated
                  between the emergency provider and HMO, or a reasonable and
                  customary amount determined by the HMO.

6.5.2             HMO must ensure that its network primary care providers (PCPs)
                  have after-hours telephone availability 24 hours a day, 7 days
                  a week throughout the service area.

6.5.3             HMO cannot require prior authorization as a condition for
                  payment for an emergency medical condition, an emergency
                  behavioral health condition, or labor and delivery.

6.5.4             Medical Screening Examination. A medical screening examination
                  may range from a relatively simple history, physical
                  examination, diagnosis, and treatment, to a complex
                  examination, diagnosis, and treatment that requires
                  substantial use of hospital emergency department and physician
                  services. HMO must pay for the emergency medical screening
                  examination required to determine whether an emergency
                  condition exists, as required by 42 U.S.C. 1395dd. HMOs must
                  reimburse for both the physician's services and the hospital's
                  emergency services, including the emergency room and its
                  ancillary services.

6.5.5             Stabilization Services. HMO must pay for emergency services
                  performed to stabilize the Member as documented by the
                  Emergency physician in the Member's medical record. HMOs must
                  reimburse for physician's services and hospital's emergency
                  services including the emergency room and its ancillary
                  services. With respect to an emergency medical condition, to
                  stabilize is to provide such medical care as to assure within
                  reasonable medical probability that no deterioration of the
                  condition is likely to result from, or occur during discharge,
                  transfer, or admission of the Member from the emergency room.

6.5.6             Post-stabilization Services. Post-stabilization services are
                  services subsequent to an emergency that a treating physician
                  views as medically necessary after an emergency medical
                  condition has been stabilized. They are not "emergency
                  services" and are

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                  subject to HMO's prior authorization process. HMO must be
                  available to authorize or deny post-stabilization services
                  within one hour after being contacted by the treating
                  physician.

6.5.7             HMO must provide access to the TDH-designated Level I and
                  Level II trauma centers within the State or hospitals meeting
                  the equivalent level of trauma care, HMOs may make
                  out-of-network reimbursement arrangements with the
                  TDH-designated Level I and Level II trauma centers to satisfy
                  this access requirement.

6.6               BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
                  -------------------------------------------------------

6.6.1             HMO must provide or arrange to have provided to Members all
                  behavioral health care services included as covered services.
                  These services are described in detail in the Texas Medicaid
                  Provider Procedures Manual (Provider Procedures Manual) and
                  the Texas Medicaid Bulletins, which is the bi-monthly update
                  to the Provider Procedures Manual. Clinical information
                  regarding covered services are published by the Texas Medicaid
                  program in the Texas Medicaid Service Delivery Guide.

6.6.2             HMO must maintain a behavioral health provider network that
                  includes psychiatrists, psychologists and other behavioral
                  health providers. HMO must provide or arrange to have provided
                  behavioral health benefits described as covered services.
                  These services are indicated in the Provider Procedures Manual
                  and the Texas Medicaid Bulletins, which is the bi-monthly
                  update to the Provider Procedures Manual. Clinical information
                  regarding covered services are published by the Texas Medicaid
                  Program in the Texas Medicaid Service Delivery Guide. The
                  network must include providers with experience in serving
                  children and adolescents to ensure accessibility and
                  availability of qualified providers to all eligible children
                  and adolescents in the service area. The list of providers
                  including names, addresses and phone numbers must be available
                  to TDH upon request.

6.6.3             HMO must maintain a Member education process to help Members
                  know where and how to obtain behavioral health care services.

6.6.4             HMO must implement policies and procedures to ensure that
                  Members who require routine or regular laboratory and
                  ancillary medical tests or procedures to monitor behavioral
                  health conditions are provided the services by the provider
                  ordering the procedure or at a lab located at or near the
                  provider's office.

6.6.5             When assessing Members for behavioral health care services,
                  HMO and network behavioral health providers must use the
                  DSM-IV multi-axial classification and report axes I, II, III,
                  IV, and V to TDH. TDH may require use of other assessment

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                  instrument/outcome measures in addition to the DSM-IV.
                  Providers must document DSM-IV and assessment/outcome
                  information in the Member's medical record.

6.6.6             HMO must permit Members to self refer to any in-network
                  behavioral health care provider without a referral from the
                  Member's PCP. HMO must permit Members to participate in the
                  selection or assignment of the appropriate behavioral health
                  individual practitioner(s) who will serve them. HMO previously
                  submitted a written copy of its policies and procedures for
                  self-referral to TDH. Changes or amendments to those policies
                  and procedures must be submitted to TDH for approval at least
                  60 days prior to their effective date.

6.6.7             HMO must require, through contract provisions, that PCPs have
                  screening and evaluation procedures for detection and
                  treatment of, or referral for, any known or suspected
                  behavioral health problems and disorders. PCPs may provide any
                  clinically appropriate behavioral health care services within
                  the scope of their practice. This requirement must be included
                  in all Provider Manuals.

6.6.8             HMO must require that behavioral health providers refer
                  Members with known or suspected physical health problems or
                  disorders to their PCP for examination and treatment.
                  Behavioral health providers may only provide physical health
                  care services if they are licensed to do so. This requirement
                  must be included in all Provider Manuals.

6.6.9             HMO must require that behavioral health providers send initial
                  and quarterly (or more frequently if clinically indicated)
                  summary reports of Members' behavioral health status to PCP.
                  This requirement must be included in all Provider Manuals.

6.6.10            HMO must require, through contract provisions, that all
                  Members receiving inpatient psychiatric services are scheduled
                  for outpatient follow-up and/or continuing treatment prior to
                  discharge. The outpatient treatment must occur within 7 days
                  from the date of discharge. HMO must ensure that behavioral
                  health providers contact Members who have missed appointments
                  within 24 hours to reschedule appointments.

6.6.11            HMO must provide inpatient psychiatric services to Members
                  under the age of 2l who have been ordered to receive the
                  services by a court of competent jurisdiction under the
                  provisions of Chapters 573 and 574 of the Texas Health and
                  Safety Code, relating to court ordered commitments to
                  psychiatric facilities.

6.6.11.1          HMO cannot deny, reduce or controvert the medical necessity of
                  any court ordered inpatient psychiatric service for Members
                  under age 21. Any modification or termination of services must
                  be presented to the court with jurisdiction over the matter
                  for determination.

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6.6.11.2          A Member who has been ordered to receive treatment under the
                  provisions of Chapter 573 or 574 of the Texas Health and
                  Safety Code cannot appeal the commitment through HMO's
                  complaint or appeals process.

6.6.12            HMO must comply with 28 TAC ss.3.8001 et seq., regarding
                  utilization review of chemical dependency treatment.

6.7               FAMILY PLANNING - SPECIFIC REQUIREMENTS
                  ---------------------------------------

6.7.1             Counseling and Education. HMO must require, through contract
                  provisions, that Members requesting contraceptive services or
                  family planning services are also provided counseling and
                  education about family planning and family planning services
                  available to Members. HMO must develop outreach programs to
                  increase community support for family planning and encourage
                  Members to use available family planning services. HMO is
                  encouraged to include a representative cross-section of
                  Members and family planning providers who practice in the
                  community in developing, planning and implementing family
                  planning outreach programs.

6.7.2             Freedom of Choice. HMO must ensure that Members have the right
                  to choose any Medicaid participating family planning provider,
                  whether the provider chosen by the Member is in or outside HMO
                  provider network. HMO must provide Members access to
                  information about the providers of family planning services
                  available and the Member's right to choose any Medicaid family
                  planning provider. HMO must provide access to confidential
                  family planning services.

6.7.3             Provider Standards and Payment. HMO must require all
                  subcontractors who are family planning agencies to deliver
                  family planning services according to the TDH Family Planning
                  Service Delivery Standards. HMO must provide, at minimum, the
                  full scope of services available under the Texas Medicaid
                  program for family planning services. HMO will reimburse
                  family planning agencies and out-of-network family planning
                  providers the Medicaid fee-for service amounts for family
                  planning services, including medically necessary medications,
                  contraceptives, and supplies.

6.7.4             HMO must provide medically-approved methods of contraception
                  to Members. Contraceptive methods must be accompanied by
                  verbal and written instructions on their correct use. HMO must
                  establish mechanisms to ensure all medically approved methods
                  of contraception are made available to the Member, either
                  directly or by referral to a subcontractor. The following
                  initial Member education content may vary according to the
                  educator's assessment of the Member's current knowledge:

6.7.4.1           general benefits of family planning services and
                  contraception;

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6.7.4.2           information on male and female basic reproductive anatomy and
                  physiology;

6.7.4.3           information regarding particular benefits and potential side
                  effects and complications of all available contraceptive
                  methods;

6.7.4.4           information concerning all of the health care provider's
                  available services, the purpose and sequence of health care
                  provider procedures, and the routine schedule of return
                  visits;

6.7.4.5           information regarding medical emergencies and where to obtain
                  emergency care on a 24-hour basis;

6.7.4.6           breast self-examination rationales and instructions unless
                  provided during physical exam (for females); and

6.7.4.7           information on HIV/STD infection and prevention and safer sex
                  discussion.

6.7.5             HMO must require, through contractual provisions, that
                  subcontractors have mechanisms in place to ensure Member's
                  (including minor's) confidentiality for family planning
                  services.

6.7.6             HMO must develop, implement, monitor, and maintain standards,
                  policies and procedures for providing information regarding
                  family planning to providers and Members, specifically
                  regarding State and federal laws governing Member
                  confidentiality (including minors). Providers and family
                  planning agencies cannot require parental consent for minors
                  to receive family planning services.

6.7.7             HMO must report encounter data on family planning services in
                  accordance with Article 12.2.

6.8               TEXAS HEALTH STEPS (EPSDT)
                  --------------------------

6.8.1             THSteps Services. HMO must develop effective methods to ensure
                  that children under the age of 21 receive THSteps services
                  when due and according to the recommendations established by
                  the American Academy of Pediatrics and the THSteps periodicity
                  schedule for children. HMO must arrange for THSteps services
                  to be provided to all eligible Members except when a Member
                  knowingly and voluntarily declines or refuses services after
                  the Member has been provided information upon which to make an
                  informed decision.

6.8.2             Member Education and Information. HMO must ensure that Members
                  are provided information and educational materials about the
                  services available through the

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                  THSteps program, and how and when they can obtain the
                  services. The information should tell the Member how they can
                  obtain dental benefits, transportation services through the
                  TDH Medical Transportation program, and advocacy assistance
                  from HMO.

6.8.3             Provider Education and Training. HMO must provide appropriate
                  training to all network providers and provider staff in the
                  providers' area of practice regarding the scope of benefits
                  available and the THSteps program. Training must include
                  THSteps benefits, the periodicity schedule for THSteps
                  checkups and immunizations, and Comprehensive Care Program
                  (CCP) services available under the THSteps program to Members
                  under age 21 years. Providers must also be educated and
                  trained regarding the requirements imposed upon the department
                  and contracting HMOs under the Consent Decree entered in Frew
                                                                           ----
                  v. McKinney, et. al., Civil Action No. 3:93CV65, in the United
                  -----------
                  States District Court for the Eastern District of Texas, Paris
                  Division. Providers should be educated and trained to treat
                  each THSteps visit as an opportunity for a comprehensive
                  assessment of the Member.

6.8.4             Member Outreach. HMO must provide an outreach unit that works
                  with Members to ensure they receive prompt services and are
                  effectively informed about available THSteps services. Each
                  month HMO must retrieve from the Enrollment Broker BBS a list
                  of Members who are due and overdue THSteps services. Using
                  these lists and their own internally generated lists, HMOs
                  will contact Members and encourage Members who are
                  periodically due or overdue a THSteps service obtain the
                  service as soon as possible. HMO outreach staff must
                  coordinate with TDH THSteps outreach staff to ensure that
                  Members have access to the Medical Transportation Program, and
                  that any coordination with other agencies is maintained.

6.8.5             Initial Checkups Upon Enrollment. HMO must have mechanisms in
                  place to ensure that all newly enrolled Members receive a
                  THSteps checkup within 90 days from enrollment, if one is due
                  according to the American Academy of Pediatrics periodicity
                  schedule, or if there is uncertainty regarding whether one is
                  due. HMO should make THSteps checkups a priority to all newly
                  enrolled Members.

6.8.6             Accelerated Services to Migrant Populations. HMO must
                  cooperate and coordinate with the department, outreach
                  programs and THSteps regional program staff and agents to
                  ensure prompt delivery of services to children of migrant farm
                  workers and other migrant populations who may transition into
                  and out of HMOs program more rapidly and/or unpredictably than
                  the general population.

6.8.7             Newborn Checkups. HMO must have mechanisms in place to ensure
                  that all newborn Members have an initial newborn checkup
                  before discharge from the hospital and again within two weeks
                  from the time of birth. HMO must require providers to send

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                  all THSteps newborn screens to the TDH Bureau of Laboratories
                  or a TDH certified laboratory. Providers must include detailed
                  identifying information for all screened newborn Members and
                  the Member's mother to allow TDH to link the screens performed
                  at the hospital with screens performed at the two week
                  follow-up.

6.8.7.1           Laboratory Tests: All laboratory specimens collected as a
                  required component of a THSteps checkup (see Medicaid Provider
                  Procedures Manual for age-specific requirements) must be
                  submitted to the TDH Laboratory for analysis. HMO must educate
                  providers about THSteps program requirements for submitting
                  laboratory tests to the TDH Bureau of Laboratories.

6.8.8             Coordination and Cooperation. HMO must make an effort to
                  coordinate and cooperate with existing community and
                  school-based health and education programs that offer services
                  to school-aged children in a location that is both familiar
                  and convenient to the Members. HMO must make a good faith
                  effort to comply with Head Start's requirement that Members
                  participating in Head Start receive their THSteps checkup no
                  later than 45 days after enrolling into either program.

6.8.9             Immunizations. HMO must educate providers on the Immunization
                  Standard Requirements set forth in Chapter 161, Health and
                  Safety Code; the standards in the ACIP Immunization Schedule;
                  and the AAP Periodicity Schedule.

6.8.9.1           ImmTrac Compliance. HMO must educate providers about and
                  require providers to comply with the requirements of Chapter
                  161, Health and Safety Code, relating to the Texas
                  Immunization Registry (ImmTrac), to include parental consent
                  on the Vaccine Information Statement.

6.8.10            Claim Forms. HMO must require all THSteps providers to submit
                  claims for services paid (either on a capitated or fee-for
                  service basis) on the HCFA 1500 claim form and use the unique
                  procedure coding required by TDH.

6.8.11            Compliance with THSteps Performance Benchmark. TDH will
                  establish performance benchmarks against which HMO's full
                  compliance with the THSteps periodicity schedule will be
                  measured. The performance benchmarks will establish minimum
                  compliance measures which will increase over time. HMO must
                  meet all performance benchmarks required for THSteps services.

6.8.12            Validation of Encounter Data. Encounter data will be validated
                  by chart review of a random sample of THSteps eligible
                  enrollees against monthly encounter data reported by HMO.
                  Chart reviews will be conducted by TDH to validate that all
                  screens are performed when due and as reported, and that
                  reported data is accurate and timely. Substantial deviation
                  between reported and charted encounter data could

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                  result in HMO and/or network providers being investigated for
                  potential fraud and abuse without notice to HMO or the
                  provider.

6.9               PERINATAL SERVICES
                  ------------------

6.9.1             HMO's perinatal health care services must ensure appropriate
                  care is provided to women and infants who are Members of HMO,
                  from the preconception period through the infant's first year
                  of life. HMO's perinatal health care system must comply with
                  the requirements of Health & Safety Code, Chapter 32 Maternal
                  and Infant Health Improvement Act and 25 TAC ss.37.233 et seq.

6.9.2             HMO shall have a perinatal health care system in place that,
                  at a minimum, provides the following services:

6.9.2.1           pregnancy planning and perinatal health promotion and
                  education for reproductive-age women;

6.9.2.2           perinatal risk assessment of nonpregnant women, pregnant and
                  postpartum women, and infants up to one year of age;

6.9.2.3           access to appropriate levels of care based on risk assessment,
                  including emergency care;

6.9.2.4           transfer and care of pregnant women, newborns, and infants to
                  tertiary care facilities when necessary;

6.9.2.5           availability and accessibility of obstetricians/gynecologists,
                  anesthesiologists, and neonatologists capable of dealing with
                  complicated perinatal problems;

6.9.2.6           availability and accessibility of appropriate outpatient and
                  inpatient facilities capable of dealing with complicated
                  perinatal problems; and

6.9.2.7           compiles, analyzes and reports process and outcome data of
                  Members to TDH.

6.9.3             HMO must have procedures in place to assign a pediatrician to
                  an unborn child prior to birth of the child.

6.9.4             HMO must provide inpatient care for its pregnant/delivering
                  Members and newborn Members in a health care facility, if
                  requested by the mother or is determined to be medically
                  necessary by the Member's PCP, for a minimum of:

6.9.4.1           48 hours following an uncomplicated vaginal delivery; and

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6.9.4.2           96 hours for an uncomplicated caesarian delivery.

6.9.5             HMO must establish mechanisms to ensure that medically
                  necessary inpatient care is provided to either the Member or
                  the newborn Member for complications following the birth of
                  the newborn using HMO's prior authorization procedures for a
                  medically necessary hospitalization.

6.9.6             HMO is responsible for all covered services provided to
                  newborn Members. The State will enroll newborn children of
                  STAR Members in accordance with Section 533.0075 of the Texas
                  Government Code when changes to the DHS eligibility system
                  that are necessary to implement the law have been made. TDH
                  will notify HMO of the implementation date of the changes
                  under Section 533.0075 of the Government Code. Section
                  533.0075 states that newborn children of STAR Members will be
                  enrolled in a STAR health plan on the date on which DHS has
                  completed the newborn's Medicaid eligibility determination,
                  including the assignment of a Medicaid eligibility number to
                  the newborn, or 60 days after the date of birth, whichever is
                  earlier.

6.10              EARLY CHILDHOOD INTERVENTION (ECI)
                  ---------------------------------

6.10.1            ECI Services. HMO must provide all federally mandated services
                  contained at 34 C.F.R. 303.1 et seq., and 25 TAC ss.621.21 et
                  seq., relating to identification, referral and delivery of
                  health care services contained in the Member's Individual
                  Family Service Plan (IFSP). An IFSP is the written plan which
                  identifies a Member's disability or chronic or complex
                  condition(s) or developmental delay, and describes the course
                  of action developed to meet those needs, and identifies the
                  person or persons responsible for each action in the plan. The
                  plan is a mutual agreement of the Member's Primary Care
                  Physician (PCP), Case Manager, and the Member/family, and is
                  part of the Member's medical record.

6.10.2            ECI Providers. HMO must contract with qualified providers to
                  provide ECI services to Members under age 3 with developmental
                  delays. HMO may contract with local ECI programs or non-ECI
                  providers who meet qualifications for participation by the
                  Texas Interagency Council on Early Childhood Intervention to
                  provide ECI services.

6.10.3            Identification and Referral. HMO must ensure that network
                  providers are educated regarding the identification of Members
                  under age 3 who have or are at risk for having disabilities
                  and/or developmental delays. HMO must use written education
                  material developed or approved by the Texas Interagency
                  Council on Early Childhood Intervention. HMO must ensure that
                  all providers refer identified Members to ECI service
                  providers within two working days from the day the Member is
                  identified.

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                  Eligibility for ECI services is determined by the local ECI
                  program using the criteria contained in 25 TAC ss.621.21 et
                  seq.

6.10.4            Coordination. HMO must coordinate and cooperate with local ECI
                  programs which perform assessment in the development of the
                  Individual Family Service Plan (IFSP), including on-going case
                  management and other non-capitated services required by the
                  Member's IFSP. Cooperation includes conducting medical
                  diagnostic procedures and providing medical records required
                  to perform developmental assessments and develop the IFSP
                  within the time lines established at 34 C.F.R. 303.1 et seq.
                  ECI case management is not an HMO capitated service.

6.10.5            Intervention. HMO must require, through contract provisions,
                  that all medically necessary health and behavioral health care
                  services contained in the Member's IFSP are provided to the
                  Member in amount, duration and scope established by the IFSP.
                  Medical necessity for health and behavioral health care
                  services is determined by the interdisciplinary team as
                  approved by the Member's PCP. HMO cannot modify the plan of
                  care or alter the amount, duration and scope of services
                  required by the Member's IFSP. HMO cannot create unnecessary
                  barriers for the Member to obtain IFSP services, including
                  requiring prior authorization for the ECI assessment and
                  insufficient authorization periods for prior authorized
                  services.

6.11              SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN INFANTS, AND
                  CHILDREN (WIC) - SPECIFIC REQUIREMENTS
                  --------------------------------------

6.11.1            HMO must coordinate with WIC to provide certain medical
                  information which is necessary to determine WIC eligibility,
                  such as height, weight, hematocrit or hemoglobin (see Article
                  7.16.3.2).

6.11.2            HMO must direct all eligible Members to the WIC program
                  (Medicaid recipients are automatically income-eligible for
                  WIC).

6.11.3            HMO must coordinate with existing WIC providers to ensure
                  Members have access to the Special Supplemental Nutrition
                  Program for Women, Infants and Children; or HMO must provide
                  these services.

6.11.4            HMO may use the nutrition education provided by WIC to
                  satisfy health education requirements described in this
                  contract.

6.12              TUBERCULOSIS (TB)
                  ----------------

6.12.1            Education, Screening, Diagnosis and Treatment. HMO must
                  provide Members and providers with education on the
                  prevention, detection and effective treatment of

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                  tuberculosis (TB). HMO must establish mechanisms to ensure all
                  procedures required to screen at-risk Members and to form the
                  basis for a diagnosis and proper prophylaxis and management of
                  TB are available to all Members, except services referenced in
                  Article 6.1.8 as non-capitated services. HMO must develop
                  policies and procedures to ensure that Members who may be or
                  are at risk for exposure to TB are screened for TB. An at-risk
                  Member refers to a person who is susceptible to TB because of
                  the association with certain risk factors, behaviors, drug
                  resistance, or environmental conditions. HMO must consult with
                  the local TB control program to ensure that all services and
                  treatments provided by HMO are in compliance with the
                  guidelines recommended by the American Thoracic Society (ATS),
                  the Centers for Disease Control and Prevention (CDC), and TDH
                  policies and standards.

6.12.2            Reporting and Referral. HMO must implement policies and
                  procedures requiring providers to report all confirmed or
                  suspected cases of TB to the local TB control program within
                  one working day of identification of a suspected case, using
                  the forms and procedures for reporting TB adopted by TDH (25
                  TAC ss. 97). HMO must require that in-state labs report
                  mycobacteriology culture results positive for M. Tuberculosis
                  and M. Tuberculosis antibiotic susceptibility to TDH as
                  required for in-state labs by 25 TAC ss. 97.5(a). Referral to
                  state-operated hospitals specializing in the treatment of
                  tuberculosis should only be made for TB-related treatment.

6.12.3            Medical Records. HMO must provide access to Member medical
                  records to TDH and the local TB control program for all
                  confirmed and suspected TB cases upon request.

6.12.4            Coordination and Cooperation with the Local TB Control
                  Program. HMO must coordinate with the local TB control program
                  to ensure that all Members with confirmed or suspected TB have
                  a contact investigation and receive Directly Observed Therapy
                  (DOT). HMO must require, through contract provisions, that
                  providers report any Member who is non-compliant, drug
                  resistant, or who is or may be posing a public health threat
                  to TDH or the local TB control program. HMO must cooperate
                  with the local TB control program in enforcing the control
                  measures and quarantine procedures contained in Chapter 81 of
                  the Texas Health and Safety Code.

6.12.4.1          HMO must have a mechanism for coordinating a post-discharge
                  plan for follow-up DOT with the local TB program.

6.12.4.2          HMO must coordinate with the TDH South Texas Hospital and
                  Texas Center for Infectious Disease for voluntary and
                  court-ordered admission, discharge plans, treatment objectives
                  and projected length of stay for Members with multi-drug
                  resistant TB.

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6.12.4.3          HMO may contract with the local TB control programs to perform
                  any of the capitated services required in Article 6.12.

6.13              PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS
                  ---------------------------------------------------------

6.13.1            HMO shall provide the following services to persons with
                  disabilities or chronic or complex conditions. These services
                  are in addition to the covered services described in detail in
                  the Texas Medicaid Provider Procedures Manual (Provider
                  Procedures Manual) and the Texas Medicaid Bulletins which is
                  the bi-monthly update to the Provider Procedures Manual.
                  Clinical information regarding covered services are published
                  by the Texas Medicaid program in the Texas Medicaid Service
                  Delivery Guide.

6.13.2            HMO must develop and maintain a system and procedures for
                  identifying Members who have disabilities or chronic or
                  complex medical and behavioral health conditions. Once
                  identified, HMO must have effective health delivery systems to
                  provide the covered services to meet the special preventive,
                  primary acute, and speciality health care needs appropriate
                  for treatment of the individual's condition. The guidelines
                  and standards established by the American Academy of
                  Pediatrics, the American College of Obstetrics/Gynecologists,
                  the U.S. Public Health Service, and other medical and
                  professional health organizations and associations' practice
                  guidelines whose standards are recognized by TDH must be used
                  in determining the medically necessary services and plan of
                  care for each individual.

6.13.3             HMO must require that the PCP for all persons with
                  disabilities or chronic or complex conditions develops a plan
                  of care to meet the needs of the Member. The plan of care must
                  be based on health needs, specialist(s) recommendations, and
                  periodic reassessment of the Member's developmental and
                  functional status and service delivery needs. HMO must require
                  providers to maintain record keeping systems to ensure that
                  each Member who has been identified with a disability or
                  chronic or complex condition has an initial plan of care in
                  the primary care provider's medical records, Member agrees to
                  that plan of care, and that the plan is updated as often as
                  the Member's needs change, but at least annually.

6.13.4            HMO must provide primary care and specialty care provider
                  network for persons with disabilities or chronic or complex
                  conditions. Specialty and subspecialty providers serving all
                  Members must be Board Certified/Board Eligible in their
                  specialty. HMO may request exceptions from TDH for approval of
                  traditional providers who are not board-certified or
                  board-eligible but who otherwise meet HMO's credentialing
                  requirements.

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6.13.5            HMO must have in its network PCPs and specialty care providers
                  that have documented experience in treating people with
                  disabilities or chronic or complex conditions, including
                  children. For services to children with disabilities or
                  chronic or complex conditions, HMO must have in its network
                  PCPs and specialty care providers that have demonstrated
                  experience with children with disabilities or chronic or
                  complex conditions in pediatric specialty centers such as
                  children's hospitals, medical schools, teaching hospitals and
                  tertiary center levels.

6.13.6            HMO must provide information, education and training programs
                  to Members, families, PCPs, specialty physicians, and
                  community agencies about the care and treatment available in
                  HMO's plan for Members with disabilities or chronic or complex
                  conditions.

6.13.7            HMO must coordinate care and establish linkages, as
                  appropriate for a particular Member, with existing
                  community-based entities and services, including but not
                  limited to: Maternal and Child Health, Chronically Ill and
                  Disabled Children's Services (CIDC), the Medically Dependent
                  Children Program (MDCP), Community Resource Coordination
                  Groups (CRCGs), Interagency Council on Early Childhood
                  Intervention (ECI), Home and Community-based Services (HCS)
                  Community Living Assistance and Support Services (CLASS),
                  Community Based Alternatives (CBA), In Home Family Support,
                  Primary Home Care, Day Activity and Health Services (DAHS),
                  Deaf/Blind Multiple Disabled waiver program and Medical
                  Transportation Program (MTP).

6.13.8            HMO must include TDH approved pediatric transplant centers,
                  TDH designated trauma centers, and TDH designated hemophilia
                  centers in its provider network (see Appendices E, F, and G
                  for a listing of these facilities).

6.13.9            HMO must ensure Members with disabilities or chronic or
                  complex conditions have access to treatment by a
                  multidisciplinary team when determined to be medically
                  necessary for effective treatment, or to avoid separate and
                  fragmented evaluations and service plans. The teams must
                  include both physician and non-physician providers determined
                  to be necessary by the Member's PCP for the comprehensive
                  treatment of the Member. The team must:

6.13.9.1          Participate in hospital discharge planning;

6.13.9.2          Participate in pre-admission hospital planning for
                  non-emergency hospitalizations;

6.13.9.3          Develop specialty care and support service recommendations to
                  be incorporated into the primary care provider's plan of care;

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6.13.9.4          Provide information to the Member and the Member's family
                  concerning the specialty care recommendations; and

6.13.9.5          Develop and implement training programs for primary care
                  providers, community agencies, ancillary care providers, and
                  families concerning the care and treatment of a Member with a
                  disability or chronic or complex conditions.

6.13.10           HMO must identify coordinators of medical care to assist
                  providers who serve Members with disabilities and chronic or
                  complex conditions and the Members and their families in
                  locating and accessing appropriate providers inside and
                  outside HMO's network.

6.13.11           HMO must assist, through information and referral, eligible
                  Members in accessing providers of non-capitated Medicaid
                  services listed in Article 6.1.8, as applicable.

6.13.12           HMO must ensure that Members who require routine or regular
                  laboratory and ancillary medical tests or procedures to
                  monitor disabilities or chronic or complex conditions are
                  allowed by HMO to receive the services from the provider in
                  the provider's office or at a contracted lab located at or
                  near the provider's office.

6.14              HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS
                  --------------------------------------------------

6.14.1            Health Education Plan. HMO must develop and implement a Health
                  ---------------------
                  Education plan. The health education plan must tell Members
                  how HMO system operates, how to obtain services, including
                  emergency care and out-of-plan services. The plan must
                  emphasize the value of screening and preventive care and must
                  contain disease-specific information and educational
                  materials.

6.14.2            Wellness Promotion Programs. HMO must conduct wellness
                  ---------------------------
                  promotion programs to improve the health status of its
                  Members. HMO may cooperatively conduct Health Education
                  classes for all enrolled STAR Members with one or more HMOs
                  also contracting with TDH in the service area to provide
                  services to Medicaid recipients in all counties of the service
                  area. Providers and HMO staff must integrate health education,
                  wellness and prevention training into the care of each Member.
                  HMO must provide a range of health promotion and wellness
                  information and activities for Members in formats that meet
                  the needs of all Members. HMO must:

                  (1)      develop, maintain and distribute health education
                           services standards, policies and procedures to
                           providers;

                  (2)      monitor provider performance to ensure the standards
                           for health education services are complied with;

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                  (3)      inform providers in writing about any non-compliance
                           with the plan standards, policies or procedures;

                  (4)      establish systems and procedures that ensure that
                           provider's medical instruction and education on
                           preventive services provided to the Member are
                           documented in the Member's medical record; and

                  (5)      establish mechanisms for promoting preventive care
                           services to Members who do not access care, e.g.
                           newsletters, reminder cards, and mail-outs.

6.14.3            Health Education Activities Report. HMO must submit, upon
                  ----------------------------------
                  request, a Health Education Activities Schedule to TDH or its
                  designee listing the time and location of classes, health
                  fairs or other events conducted during the time period of the
                  request.

6.15              SEXUALLY TRANSMITTED DISEASES (STDS) AND HUMAN
                  IMMUNODEFICIENCY VIRUS (HIV)
                  ----------------------------

                  HMO must provide STD services that include STD/HIV prevention,
                  screening, counseling, diagnosis, and treatment. HMO is
                  responsible for implementing procedures to ensure that Members
                  have prompt access to appropriate services for STDs, including
                  HIV.

6.15.1            HMO must allow Members access to STD services and HIV
                  diagnosis services without prior authorization or referral by
                  PCP. HMO must comply with Texas Family Code ss.32.003,
                  relating to consent to treatment by a child.

6.15.2            HMO must provide all covered services required to form the
                  basis for a diagnosis and treatment plan for STD/HIV by the
                  provider.

6.15.3            HMO must consult with TDH regional public health authority to
                  ensure that Members receiving clinical care of STDs, including
                  HIV, are managed according to a protocol which has been
                  approved by TDH (see Article 7.16.1 relating to cooperative
                  agreements with public health authorities).

6.15.4            HMO must make education available to providers and Members on
                  the prevention, detection and effective treatment of STDs,
                  including HIV.

6.15.5            HMO must require providers to report all confirmed cases of
                  STDs, including HIV, to the local or regional health authority
                  according to 25 Texas Administrative Code, Sections 97.131 -
                  97.134, using the required forms and procedures for reporting
                  STDs.

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6.15.6            HMO must coordinate with the TDH regional health authority to
                  ensure that Members with confirmed cases of syphilis,
                  chancroid, gonorrhea, chlamydia and HIV receive risk reduction
                  and partner elicitation/notification counseling. Coordination
                  must be included in the subcontract required by Article
                  7.16.1. HMO may contract with local or regional health
                  authorities to perform any of the covered services required in
                  Article 6.15.

6.15.7            HMO's PCPs may enter into contracts or agreements with
                  traditional HIV service providers in the service area to
                  provide services such as case management, psychosocial support
                  and other services. If the service provided is a covered
                  service under this contract, the contract or agreement must
                  include payment provisions.

6.15.8            The subcontract with the respective TDH regional offices and
                  city and county health departments, as described in Article
                  7.16.1, must include, but not be limited to, the following
                  topics:

6.15.8.1          Access for Case Investigation. Procedures must be established
                  to make Member records available to public health agencies
                  with authority to conduct disease investigation, receive
                  confidential Member information, and follow up.

6.15.8.2          Medical Records and Confidentiality. HMO must require that
                  providers have procedures in place to protect the
                  confidentiality of Members provided STD/HIV services. These
                  procedures must include, but are not limited to, the manner in
                  which medical records are to be safeguarded; how employees are
                  to protect medical information; and under what conditions
                  information can be shared. HMO must inform and require its
                  providers who provide STD/HIV services to comply with all
                  state laws relating to communicable disease reporting
                  requirements. HMO must implement policies and procedures to
                  monitor provider compliance with confidentiality requirements.

6.15.8.3          Partner Referral and Treatment. Members who are named as
                  contacts to an STD, including HIV, should be evaluated and
                  treated according to HMO's protocol. All protocols must be
                  approved by TDH. HMO's providers must coordinate referral of
                  non-Member partners to local and regional health department
                  STD staff.

6.15.8.4          Informed Consent and Counseling. HMO must have policies and
                  procedures in place regarding obtaining informed consent and
                  counseling Members. The subcontracts with providers who treat
                  HIV patients must include provisions requiring the provider to
                  refer Members with HIV infection to public health agencies for
                  in-depth prevention counseling, on-going partner elicitation
                  and notification services and other prevention support
                  services. The subcontracts must also include provisions that
                  require the

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                  provider to direct-counsel or refer an HIV-infected Member
                  about the need to inform and refer all sex and/or
                  needle-sharing partners that might have been exposed to the
                  infection for prevention counseling and antibody testing.

6.16              BLIND AND DISABLED MEMBERS
                  --------------------------

6.16.1            HMO must arrange for all covered health and health-related
                  services required under this contract for all voluntarily
                  enrolled Blind and Disabled Members. HMO is not required to
                  provide value-added services to Blind and Disabled Members.

6.16.2            HMO must perform the same administrative services and
                  functions as are performed for mandatory Members under this
                  contract. These administrative services and functions include,
                  but are not limited to:

6.16.2.1          Prior authorization of services;

6.16.2.2          All customer services functions offered Members in mandatory
                  participation categories, including the complaint process,
                  enrollment services, and hotline services;

6.16.2.3          Linguistic services, including providing Member materials in
                  alternative formats for the blind and disabled;

6.16.2.4          Health education;

6.16.2.5          Utilization management using TDH Claims Administrator
                  encounter data to provide appropriate interventions for
                  Members through administrative case management;

6.16.2.6          Quality assurance activities as needed and Focused Studies as
                  required by TDH; and

6.16.2.7          Coordination to link Blind and Disabled Members with
                  applicable community resources and targeted case management
                  programs (see Non-Capitated Services in Article 6.1.8).

6.16.3            HMO must require network providers to submit claims for health
                  and health-related services to TDH's Claims Administrator for
                  claims adjudication and payment.

6.16.4            HMO must provide services to Blind and Disabled Members within
                  HMO's network unless necessary services are unavailable within
                  network. HMO must also allow referrals to out-of-network
                  providers if necessary services are not available within HMO's
                  network. Records must be forwarded to Member's PCP following a
                  referral visit.

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ARTICLE VII   PROVIDER NETWORK REQUIREMENTS

7.1               PROVIDER ACCESSIBILITY
                  ----------------------

7.1.1             HMO must enter into written contracts with properly
                  credentialed health care service providers. The names of all
                  providers must be submitted to TDH as part of HMO
                  subcontracting process. HMO must have its own credentialing
                  process to review, approve and periodically recertify the
                  credentials of all participating providers in compliance with
                  28 TAC 11.1902, relating to credentialing of providers in
                  HMOs.

7.1.2             HMO must require tax I.D. numbers from all providers. HMO is
                  required to do backup withholding from all payments to
                  providers who fail to give tax I.D. numbers or who give
                  incorrect numbers.

7.1.3             Timeframes for Access Requirements. HMO must have sufficient
                  network providers and establish procedures to ensure Members
                  have access to routine, urgent, and emergency services;
                  telephone appointments; advice and Member service lines. These
                  services must be accessible to Members within the following
                  timeframes:

7.1.3.1           Urgent Care within 24 hours of request;

7.1.3.2           Routine care within 2 weeks of request;

7.1.3.3           Physical/Wellness Exams for adults must be provided within 8
                  to 10 weeks of the request;

7.1.3.4           HMO must establish policies and procedures to ensure that
                  THSteps Checkups be provided within 90 days of new enrollment,
                  except newborn Members should be seen within 2 weeks of
                  enrollment, and in all cases for all Members be consistent
                  with the American Academy of Pediatrics and THSteps
                  periodicity schedule which is based on the American Academy of
                  Pediatrics schedule and delineated in the Texas Medicaid
                  Provider Procedures Manual and the Medicaid bi-monthly
                  bulletins (see Article 6.1, Scope of Services). If the Member
                  does not request a checkup, HMO must establish a procedure for
                  contacting the Member to schedule the checkup.

7.1.4             HMO is prohibited from requiring a provider or provider group
                  to enter into an exclusive contracting arrangement with HMO as
                  a condition for participation in its provider network.

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7.2               PROVIDER CONTRACTS
                  ------------------

7.2.1             All providers must have a written contract, either with an
                  intermediary entity or an HMO, to participate in the Medicaid
                  program (provider contract). HMO must make all contracts
                  available to TDH upon request, at the time and location
                  requested by TDH. All standard formats of provider contracts
                  must be submitted to TDH for approval no later than 60 days
                  after the effective date of this contract, unless previously
                  filed with TDH. HMO must submit 1 paper copy and 1 electronic
                  copy in a form specified by TDH. Any change to the standard
                  format must be submitted to TDH for approval no later than 30
                  days prior to the implementation of the new standard format.
                  All provider contracts are subject to the terms and conditions
                  of this contract and must contain the provisions of Article V,
                  Statutory and Regulatory Compliance, and the provisions
                  contained in Article 3.2.4.

7.2.1.1           TDH has 15 working days to review the materials and recommend
                  any suggestions or required changes. If TDH has not responded
                  to HMO by the fifteenth day, HMO may execute the contract. TDH
                  reserves the right to request HMO to modify any contract that
                  has been deemed approved.

7.2.2             Primary Care Provider (PCP) contracts and specialty care
                  contracts must contain provisions relating to the requirements
                  of the provider types found in this contract. For example, PCP
                  contracts must contain the requirements of Article 7.8
                  relating to Primary Care Providers.

7.2.3             Provider contracts that are requested by any agency with
                  authority to investigate and prosecute fraud and abuse must be
                  produced at the time and place required by TDH or the
                  requesting agency. Provider contracts requested in response to
                  a Public Information request must be produced within 48 hours
                  of the request. Requested contracts and all related records
                  must be provided free-of-charge to the requesting agency.

7.2.4             The form and substance of all provider contracts are subject
                  to approval by TDH. TDH retains the authority to reject or
                  require changes to any contract that do not comply with the
                  requirements or duties and responsibilities of this contract.
                  HMO REMAINS RESPONSIBLE FOR PERFORMING AND FOR ANY FAILURE TO
                  PERFORM ALL DUTIES, RESPONSIBILITIES AND SERVICES UNDER THIS
                  CONTRACT REGARDLESS OF WHETHER THE DUTY, RESPONSIBILITY OR
                  SERVICE IS CONTRACTED TO ANOTHER FOR ACTUAL PERFORMANCE.

7.2.5             TDH reserves the right and retains the authority to make
                  reasonable inquiry and conduct investigations into patterns of
                  provider and Member complaints against HMO or any intermediary
                  entity with whom HMO contracts to deliver health care services

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                  under this contract. TDH may impose appropriate sanctions and
                  contract remedies to ensure HMO compliance with the provisions
                  of this contract.

7.2.6             HMO must not restrict a provider's ability to provide opinions
                  or counsel to a Member with respect to benefits, treatment
                  options, and provider's change in network status.

7.2.7             To the extent feasible within HMO's existing claims processing
                  systems, HMO should have a single or central address to which
                  providers must submit claims. If a central processing center
                  is not possible within HMO's existing claims processing
                  system, HMO must provide each network provider a complete list
                  of all entities to whom the providers must submit claims for
                  processing and/or adjudication. The list must include the name
                  of the entity, the address to which claims must be sent,
                  explanation for determination of the correct claims payer
                  based on services rendered, and a phone number the provider
                  may call to make claims inquiries. HMO must notify providers
                  in writing of any changes in the claims filing list at least
                  30 days prior to effective date of change. If HMO is unable to
                  provide 30 days notice, providers must be given a 30-day
                  extension on their claims filing deadline to ensure claims are
                  routed to correct processing center.

7.2.8             HMO, all IPAs, and other intermediary entities must include
                  contract language which substantially complies with the
                  following standard contract provisions in each Medicaid
                  provider contract. This language must be included in each
                  contract with an actual provider of services, whether through
                  a direct contract or through intermediary provider contracts:

7.2.8.1           [Provider] is being contracted to deliver Medicaid managed
                  care under the TDH STAR program. HMO must provide copies of
                  the TDH/HMO Contract to the [Provider] upon request.
                  [Provider] understands that services provided under this
                  contract are funded by State and federal funds under the
                  Medicaid program. [Provider] is subject to all state and
                  federal laws, rules and regulations that apply to all persons
                  or entities receiving state and federal funds. [Provider]
                  understands that any violation by a provider of a State or
                  federal law relating to the delivery of services by the
                  provider under this HMO/Provider contract, or any violation of
                  the TDH/HMO contract could result in liability for money
                  damages, and/or civil or criminal penalties and sanctions
                  under state and/or federal law.

7.2.8.2           [Provider] understands and agrees that HMO has the sole
                  responsibility for payment of covered services rendered by the
                  provider under HMO/Provider contract. In the event of HMO
                  insolvency or cessation of operations, [Provider's] sole
                  recourse is against HMO through the bankruptcy,
                  conservatorship, or receivership estate of HMO.

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7.2.8.3           [Provider] understands and agrees TDH is not liable or
                  responsible for payment for any Medicaid covered services
                  provided to mandatory Members under HMO/Provider contract.
                  Federal and State laws provide severe penalties for any
                  provider who attempts to collect any payment from or bill a
                  Medicaid recipient for a covered service.

7.2.8.4           [Provider] agrees that any modification, addition, or deletion
                  of the provisions of this contract will become effective no
                  earlier than 30 days after HMO notifies TDH of the change in
                  writing. If TDH does not provide written approval within 30
                  days from receipt of notification from HMO, changes can be
                  considered provisionally approved and will become effective.
                  Modifications, additions or deletions which are required by
                  TDH or by changes in state or federal law are effective
                  immediately.

7.2.8.5           This contract is subject to all state and federal laws and
                  regulations relating to fraud and abuse in health care and the
                  Medicaid program. [Provider] must cooperate and assist TDH and
                  any state or federal agency that is charged with the duty of
                  identifying, investigating, sanctioning or prosecuting
                  suspected fraud and abuse. [Provider] must provide originals
                  and/or copies of any and all information, allow access to
                  premises and provide records to TDH or its authorized
                  agent(s), THHSC, HCFA, the U.S. Department of Health and Human
                  Services, FBI, TDI, and the Texas Attorney General's Medicaid
                  Fraud Control Unit, upon request, and free-of-charge.
                  [Provider] must report any suspected fraud or abuse including
                  any suspected fraud and abuse committed by HMO or a Medicaid
                  recipient to TDH for referral to THHSC.

7.2.8.6           [Provider] is required to submit proxy claims forms to HMO for
                  services provided to all STAR Members that are capitated by
                  HMO in accordance with the encounter data submissions
                  requirements established by HMO and TDH.

7.2.8.7           HMO is prohibited from imposing restrictions upon the
                  [Provider's] free communication with Members about a Member's
                  medical conditions, treatment options, HMO referral policies,
                  and other HMO policies, including financial incentives or
                  arrangements and all STAR managed care plans with whom
                  [Provider] contracts.

7.2.8.8           The Texas Medicaid Fraud Control Unit must be allowed to
                  conduct private interviews of [Providers] and the [Providers']
                  employees, contractors, and patients. Requests for information
                  must be complied with, in the form and language requested.
                  [Providers] and their employees and contractors must cooperate
                  fully in making themselves available in person for interviews,
                  consultation, grand jury proceedings, pre-trial conference,
                  hearings, trial and in any other process, including
                  investigations. Compliance with this Article is at HMO's and
                  [Provider's] own expense.

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7.2.8.9           HMO must include the method of payment and payment amounts in
                  all provider contracts.

7.2.8.10          All provider clean claims must be adjudicated within 30 days.
                  HMO must pay provider interest on all clean claims that are
                  not paid within 30 days at a rate of 1.5% per month (18%
                  annual) for each month the claim remains unadjudicated.

7.2.8.11          HMO must prohibit network providers from interfering with or
                  placing liens upon the state's right or HMO's right, acting as
                  the state's agent, to recovery from third party resources. HMO
                  must prohibit network providers from seeking recovery in
                  excess of the Medicaid payable amount or otherwise violating
                  state and federal laws.

7.2.9             HMO must follow the procedures outlined in article 20A.18A of
                  the Texas Insurance Code if terminating a contract with a
                  provider, including an STP. At least 30 days before the
                  effective date of the proposed termination of the provider's
                  contract, HMO must provide a written explanation to the
                  provider of the reasons for termination. HMO may immediately
                  terminate a provider contract if the provider presents
                  imminent harm to patient health, actions against a license or
                  practice, or fraud.

7.2.9.1           Within 60 days of the termination notice date, a provider may
                  request a review of HMO's proposed termination by an advisory
                  review panel, except in a case in which there is imminent harm
                  to patient health, an action against a private license, or
                  fraud. The advisory review panel must be composed of
                  physicians and providers, as those terms are defined in
                  article 20A.02(r) and (t), including at least one
                  representative in the provider's specialty or a similar
                  specialty, if available, appointed to serve on the standing
                  quality assurance committee or utilization review committee of
                  HMO. The decision of the advisory review panel must be
                  considered by HMO but is not binding on HMO. HMO must provide
                  to the affected provider, on request, a copy of the
                  recommendation of the advisory review panel and HMO's
                  determination.

7.2.9.2           A provider who is terminated is entitled to an expedited
                  review process by HMO on request by the provider. HMO must
                  provide notification of the provider's termination to HMO's
                  Members receiving care from the terminated provider at least
                  30 days before the effective date of the termination. If a
                  provider is terminated for reasons related to imminent harm to
                  patient health, HMO may notify its Members immediately.

7.2.10            HMO must notify TDH no later than 90 days prior to terminating
                  any subcontract affecting a major performance function of this
                  contract. If HMO seeks to terminate a provider's contract for
                  imminent harm to patient health, actions against a license or
                  practice, or fraud, contract termination may be immediate. TDH
                  will require assurances that any contract termination will not
                  result in an interruption of an essential service or major
                  contract function.

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7.2.11            HMO must include a complaint and appeals process which
                  complies with the requirements of Article 20A.12 of the Texas
                  Insurance Code relating to Complaint Systems in all provider
                  contracts. HMO's complaint and appeals process must be the
                  same for all providers.

7.3               PHYSICIAN INCENTIVE PLANS
                  -------------------------

7.3.1             HMO may operate a physician incentive plan only if: (1) no
                  specific payment may be made directly or indirectly under a
                  physician incentive plan to a physician or physician group as
                  an inducement to reduce or limit medically necessary services
                  furnished to a Member; and (2) the stop-loss protection,
                  enrollee surveys and disclosure requirements of this Article
                  are met.

7.3.2             HMO must disclose to TDH information required by federal
                  regulations found at 42 C.F.R, ss. 417.479. The information
                  must be disclosed in sufficient detail to determine whether
                  the incentive plan complies with the requirements at 42 C.F.R.
                  ss. 417.479. The disclosure must contain the following
                  information:

7.3.2.1           Whether services not furnished by a physician or physician
                  group (referral services) are covered by the incentive plan.
                  If only services furnished by the physician or physician group
                  are covered by the incentive plan, disclosure of other aspects
                  of the incentive plan are not required to be disclosed.

7.3.2.2           The type of incentive arrangement (e.g. withhold, bonus,
                  capitation).

7.3.2.3           The percent of the withhold or bonus, if the incentive plan
                  involves a withhold bonus.

7.3.2.4           Whether the physician or physician group has evidence of a
                  stop-loss protection, including the amount and type of
                  stop-loss protection.

7.3.2.5           The panel size and the method used for pooling patients, if
                  patients are pooled.

7.3.2.6           The results of Member and disenrollee surveys, if HMO is
                  required under 42 C.F.R. ss. 417.479 to conduct Member and
                  disenrollee surveys.

7.3.3             HMO must submit the information required in Articles 7.3.2.1 -
                  7.3.2.5 to TDH by the effective date of this contract and each
                  anniversary date of the contract.

7.3.4             HMO must submit the information required in Article 7.3.2.6
                  one year after the effective date of initial contract or
                  effective date of renewal contract, and annually each
                  subsequent year under the contract. HMOs who put physicians or
                  physician



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                  groups at substantial financial risk must conduct a survey of
                  all Members who have voluntarily disenrolled in the previous
                  year. A list of voluntary disenrollees may be obtained from
                  the Enrollment Broker.

7.3.5             HMO must provide Members with information regarding Physician
                  Incentive Plans upon request. The information must include the
                  following:

7.3.5.1           whether HMO uses a physician incentive plan that covers
                  referral services

7.3.5.2           the type of incentive arrangement (i.e., withhold, bonus,
                  capitation);

7.3.5.3           whether stop-loss protection is provided; and

7.3.5.4           results of enrollee and disenrollee surveys, if required under
                  42 C.F.R. ss. 417.479.

7.3.5.5           HMO must ensure that IPAs and ANHCs with whom HMO contracts
                  comply with the requirements above. HMO is required to meet
                  the requirements above for all levels of subcontracting

7.4               PROVIDER MANUAL AND PROVIDER TRAINING
                  -------------------------------------

7.4.1             HMO must prepare and issue a Provider Manual(s), including any
                  necessary specialty manuals (e.g. behavioral health) to the
                  providers in the HMO network and to newly contracted providers
                  in the HMO network within five (5) working days from inclusion
                  of the provider into the network. The Provider Manual must
                  contain sections relating to special requirements of the STAR
                  Program as required under this contract. See Appendix D,
                  Required Critical Elements, for specific details regarding
                  content requirements.

                  Provider Manual and any revisions must be approved by TDH
                  prior to publication and distribution to providers (see
                  Article 3.4.1 regarding the process for plan materials
                  review).

7.4.2             HMO must provide training to all network providers and their
                  staff regarding the requirements of the TDH/HMO contract and
                  special needs of STAR Members.

7.4.2.1           HMO training for all providers must be completed no later than
                  30 days after placing a newly contracted provider on active
                  status. HMO must provide on-going training to new and existing
                  providers as required by HMO or TDH to comply with this
                  contract.

7.4.2.2           HMO must include in all PCP training how to screen for and
                  identify behavioral health disorders, HMOs referral process to
                  behavioral health care services and clinical

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                  coordination requirements for behavioral health. HMO must
                  include in all training for behavioral health providers how to
                  identify physical health disorders, HMO's referral process to
                  primary care and clinical coordination requirements between
                  physical medicine and behavioral health providers. HMO must
                  include training on coordination and quality of care such as
                  behavioral health screening techniques for PCPs and new models
                  of behavioral health interventions.

7.4.3             HMO must provide primary care and behavioral health providers
                  with screening tools and instruments approved by TDH.

7.4.4             HMO must maintain and make available upon request enrollment
                  or attendance rosters dated and signed by each attendee or
                  other written evidence of training of each network provider
                  and their staff.

7.4.5             HMO must have its written policies and procedures for the
                  screening, assessment and referral processes between
                  behavioral health providers and physical medicine providers
                  available for TDH review prior to the effective date of the
                  contract.

7.5               MEMBER PANEL REPORTS
                  --------------------

                  HMO must furnish each PCP with a current list of enrolled
                  Members enrolled or assigned to that Provider no later than 5
                  days after HMO receives the Enrollment File from the
                  Enrollment Broker each month. If the 5th day falls on a
                  weekend or state holiday, the file must be provided by the
                  following working day.

7.6               PROVIDER COMPLAINT AND APPEAL PROCEDURES
                  ----------------------------------------

7.6.1             HMO must develop implement and maintain a provider complaint
                  system which must be in compliance with all applicable state
                  and federal law or regulations. Modifications and amendments
                  to the complaint system must be submitted to TDH no later than
                  30 days prior to the implementation of the modification or
                  amendment.

7.6.2             HMO must include the provider complaint and appeal procedure
                  in all network provider contracts or in the provider manual.

7.6.3             HMO's complaint and appeal process cannot contain provisions
                  requiring a Member to submit a complaint or appeal to TDH for
                  resolution in lieu of the HMO's process.

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7.6.4             HMO must establish mechanisms to ensure that network providers
                  have access to a person who can assist providers in resolving
                  issues relating to claims payment, plan administration,
                  education and training, and complaint procedures.

7.7               PROVIDER QUALIFICATIONS - GENERAL
                  ---------------------------------

                  The providers in HMO network must meet the following
                  qualifications:

--------------------------------------------------------------------------------
FQHC                      A Federally Qualified Health Center meets the
                          standards established by federal rules and procedures.
                          The FQHC must also be an eligible provider enrolled in
                          the Medicaid program.
--------------------------------------------------------------------------------
Physician                 An individual who is licensed to practice medicine as
                          an M.D. or a D.O. in the State of Texas either as a
                          primary care provider or in the area of specialization
                          under which they will provide medical services under
                          contract with HMO; who is a provider enrolled in the
                          Medicaid program; and who has a valid Drug Enforcement
                          Agency registration number and a Texas Controlled
                          Substance Certificate, if either is required in their
                          practice.
--------------------------------------------------------------------------------
Hospital                  An institution licensed as a general or special
                          hospital by the State of Texas under Chapter 241 of
                          the Health and Safety Code and Private Psychiatric
                          Hospitals under Chapter 577 of the Health and Safety
                          Code (or is a provider which is a component part of a
                          State or local government entity which does not
                          require a license under the laws of the State of
                          Texas), which is enrolled as a provider in the Texas
                          Medicaid Program. HMO will require that all facilities
                          in the network used for acute inpatient specialty care
                          for people under age 21 with disabilities or chronic
                          or complex conditions will have a designated pediatric
                          unit; 24-hour laboratory and blood bank availability;
                          pediatric radiological capability; meet JCAHO
                          standards; and have discharge planning and social
                          service units.
--------------------------------------------------------------------------------
Non-Physician             An individual holding a license issued by the
Practitioner              applicable licensing agency of the State of Texas
Provider                  who is enrolled in the Texas Medicaid Program or an
                          individual properly trained to provide behavioral
                          health support services who practices under the direct
                          supervision of an appropriately licensed professional.
--------------------------------------------------------------------------------
Clinical                  An entity having a current certificate issued under
Laboratory                the Federal Clinical Laboratory Improvement Act(CLIA),
                          and enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health              An institution which meets all of the criteria for
                          designation as a rural health
--------------------------------------------------------------------------------

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--------------------------------------------------------------------------------
Clinic (RHC)              clinic, and enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Local Health              A local health department established pursuant to
Department                Health and Safety Code, Title 2, Local Public Health
                          Reorganization Act ss. 121.031ff.
--------------------------------------------------------------------------------
Local Mental              Under Section 531.002(8) of the Health and Safety
Health Authority          Code, the local component of the TXMHMR system
(LMHA)                    designated by TDMHMR to carry out the legislative
                          mandate for planning, policy development,
                          coordination, and resource development/allocation and
                          for supervising and ensuring the provision of mental
                          health care services to persons with mental illness in
                          one or more local service areas.
--------------------------------------------------------------------------------
Non-Hospital              A provider of health care services which is licensed
Facility Provider         and credentialed to provide services, and enrolled in
                          the Texas Medicaid Program.
--------------------------------------------------------------------------------
School Based              Clinics located at school campuses that provide
Health Clinic             on-site primary and preventive care to children and
(SBHC)                    adolescents.
--------------------------------------------------------------------------------

7.8               PRIMARY CARE PROVIDERS
                  ----------------------

7.8.1             HMO must have a system for monitoring Member enrollment into
                  its plan to allow HMO to effectively plan for future needs and
                  recruit network providers as necessary to ensure adequate
                  access to primary care and specialty care. The Member
                  enrollment monitoring system must include the length of time
                  required for Members to access care within the network. The
                  monitoring system must also include monitoring after-hours
                  availability and accessibility of PCPs.

7.8.2             HMO must maintain a primary care provider network in
                  sufficient numbers and geographic distribution to serve a
                  minimum of forty-five percent (45%) of the mandatory STAR
                  eligibles in each county of the service area. HMO is required
                  to increase the capacity of the network as necessary to
                  accommodate enrollment growth beyond the forty-fifth
                  percentile (45%).

7.8.3             HMO must maintain a provider network that includes
                  pediatricians and physicians with pediatric experience in
                  sufficient numbers and geographic distribution to serve
                  eligible children and adolescents in the service area and
                  provide timely access to the full scope of benefits,
                  especially THSteps checkups and immunizations.

7.8.4             HMO must comply with the access requirements as established by
                  the Texas Department of Insurance for all HMOs doing business
                  in Texas, except as otherwise required by this contract.

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7.8.5             HMO must have physicians with board eligibility/certification
                  in pediatrics available for referral for Members under the age
                  of 21.

7.8.5.1           Individual PCPs may serve more than 2,000 Members. However, if
                  TDH determines that a PCP's Member enrollment exceeds the
                  PCP's ability to provide accessible, quality care, TDH may
                  prohibit the PCP from receiving further enrollments. TDH may
                  direct HMOs to assign or reassign Members to another PCP's
                  panel.

7.8.6             HMO must have PCPs available throughout the service area to
                  ensure that no Member must travel more than 30 miles to access
                  the PCP, unless an exception to this distance requirement is
                  made by TDH.

7.8.7             HMO's primary care provider network may include providers from
                  any of the following practice areas: General Practitioners;
                  Family Practitioners; Internists; Pediatricians;
                  Obstetricians/Gynecologists (OB/GYN); Pediatric and Family
                  Advanced Practice Nurses (APNs) and Certified Nurse Midwives
                  Women Health (CNMs) practicing under the supervision of a
                  physician; Physician Assistants (PAS) practicing under the
                  supervision of a physician specializing in Family Practice,
                  Internal Medicine, Pediatrics or Obstetrics/Gynecology who
                  also qualifies as a PCP under this contract; or Federally
                  Qualified Health Centers (FQHCs), Rural Health Clinics (RHCs)
                  and similar community clinics; and specialists who are willing
                  to provide medical homes to selected Members with special
                  needs and conditions (see Article 7.9.4).

7.8.8             The PCP for a Member with disabilities or chronic or complex
                  conditions may be a specialist who agrees to provide PCP
                  services to the Member. The specialty provider must agree to
                  perform all PCP duties required in the contract and PCP duties
                  must be within the scope of the specialist's license. Any
                  interested person may initiate the request for a specialist to
                  serve as a PCP for a Member with disabilities or chronic or
                  complex conditions.

7.8.9             PCPs must either have admitting privileges at a hospital,
                  which is part of HMO network of providers, or make referral
                  arrangements with an HMO provider who has admitting privileges
                  to a network hospital.

7.8.10            HMO must require, through contract provisions, that PCPs are
                  accessible to Members 24 hours a day, 7 days a week. The
                  following are acceptable and unacceptable phone arrangements
                  for contacting PCPs after normal business hours.

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                  Acceptable:

                  (1)      Office phone is answered after-hours by an answering
                           service which meets language requirements of the
                           major population groups and which can contact the PCP
                           or another designated medical practitioner. All calls
                           answered by an answering service must be returned
                           within 30 minutes.

                  (2)      Office phone is answered after normal business hours
                           by a recording in the language of each of the major
                           population groups served directing the patient to
                           call another number to reach the PCP or another
                           provider designated by the PCP. Someone must be
                           available to answer the designated provider's phone.
                           Another recording is not acceptable.

                  (3)      Office phone is transferred after office hours to
                           another location where someone will answer the phone
                           and be able to contact the PCP or another designated
                           medical practitioner, who can return the call within
                           30 minutes.

                  Unacceptable:

                  (1)      Office phone is only answered during office hours.

                  (2)      Office phone is answered after-hours by a recording
                           which tells  patients to leave a message.

                  (3)      Office phone is answered after-hours by a recording
                           which directs patients to go to an Emergency Room for
                           any services needed.

                  (4)      Returning after-hours calls outside of 30 minutes.

7.8.11            HMO must require PCPs, through contract provisions or provider
                  manual, to provide primary care services and continuity of
                  care to Members who are enrolled with or assigned to the PCP.
                  Primary care services are all services required by a Member
                  for the prevention, detection, treatment and cure of illness,
                  trauma, disease or disorder, which are covered and/or required
                  services under this contract. All services must be provided in
                  compliance with generally accepted medical and behavioral
                  health standards for the community in which services are
                  rendered. HMO must require PCPs, through contract provisions
                  or provider manual, to provide children under the age of 21
                  services in accordance with the American Academy of Pediatric
                  recommendations and the THSteps periodicity schedule and
                  provide adults services in accordance with the U.S. Preventive
                  Services Task Force's publication "Put Prevention Into
                  Practice".

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7.8.11.1          HMO must require PCPs, through contract provisions or provider
                  manual, to assess the medical needs of Members for referral to
                  specialty care providers and provide referrals as needed. PCP
                  must coordinate care with specialty care providers after
                  referral.

7.8.11.2          HMO must require PCPs, through contract provisions or provider
                  manual, to make necessary arrangements with home and community
                  support services to integrate the Member's needs. This
                  integration may be delivered by coordinating the care of
                  Members with other programs, public health agencies and
                  community resources which provide medical, nutritional,
                  behavioral, educational and outreach services available to
                  Members.

7.8.11.3          HMO must require, through contract provisions or provider
                  manual, that the Member's PCP or HMO provider through whom PCP
                  has made arrangements, be the admitting or attending physician
                  for inpatient hospital care, except for emergency medical or
                  behavioral health conditions or when the admission is made by
                  a specialist to whom the Member has been referred by the PCP.
                  HMO must require, through contract provisions or provider
                  manual, that PCP assess the advisability and availability of
                  outpatient treatment alternatives to inpatient admissions. HMO
                  must require, through contract provisions or provider manual,
                  that PCP provide or arrange for pre-admission planning for
                  non-emergency inpatient admissions, and discharge planning for
                  Members. PCP must call the emergency room with relevant
                  information about the Member. PCP must provide or arrange for
                  follow-up care after emergency or inpatient care.

7.8.11.4          HMO must require PCPs for children under the age of 21 to
                  provide or arrange to have provided all services required
                  under Article 6.8 relating to Texas Health Steps, Article 6.9
                  relating to Perinatal Services, Article 6.10 relating to Early
                  Childhood Intervention, Article 6.11 relating to WIC, Article
                  6.13 relating to People With Disabilities or Chronic or
                  Complex Conditions, and Article 6.14 relating to Health
                  Education and Wellness and Prevention Plans. PCP must
                  cooperate and coordinate with HMO to provide Member and the
                  Member's family with knowledge of and access to available
                  services.

7.8.12            PCP Selection and Changes. All Medicaid recipients who are
                  eligible for participation in the STAR program have the right
                  to select their PCP and HMO.-- Medicaid recipients who are
                  mandatory STAR participants who do not select a PCP and/or HMO
                  during the time period allowed will be assigned to a PCP
                  and/or HMO using the TDH default process. Members may change
                  PCPs at any time, but these changes are limited to four (4)
                  times per year.

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7.8.12.1          Voluntary SSI Members. PCP changes cannot be performed
                  retroactively for voluntary SSI Members. If an SSI Member
                  requests a PCP change on or before the 15th of the month, the
                  change will be effective the first day of the next month. If
                  an SSI Member requests a PCP change after the 15th of the
                  month, the change will be effective the first day of the
                  second month that follows. Exceptions to this policy will be
                  allowed for reasons of medical necessity or other extenuating
                  circumstances.

7.8.12.2          Mandatory Members. Retroactive changes to a Member's PCP
                  should only be made if it is medically necessary or there are
                  other circumstances which necessitate a retroactive change.
                  HMO must pay claims for services provided by the original PCP.
                  If the original PCP is paid on a capitated basis and services
                  were provided during the period for which capitation was paid,
                  HMO cannot recoup the capitation.

7.9               OB/GYN PROVIDERS
                  ----------------

                  HMO must allow a female Member to select an OB/GYN within its
                  provider network or within a limited provider network in
                  addition to a PCP, to provide health care services within the
                  scope of the professional specialty practice of a properly
                  credentialed OB/GYN. See Article 21 53D of the Texas Insurance
                  Code and 28 TAC Sections 11.506, 11.1600 and 11.1608. A Member
                  who selects an OB/GYN must be allowed direct access to the
                  health care services of the OB/GYN without a referral by the
                  woman's PCP or a prior authorization or precertification from
                  HMO. HMO must allow Members to change OB/GYNs up to four times
                  per year. Health care services must include, but not be
                  limited to:

7.9.1             One well-woman examination per year;

7.9.2             Care related to pregnancy;

7.9.3             Care for all active gynecological conditions; and

7.9.4             Diagnosis, treatment, and referral for any disease or
                  condition within the scope of the professional practice of a
                  properly credentialed obstetrician or gynecologist.

7.9.5             HMOs which allow its Members to directly access any OB/GYN
                  provider within its network, must ensure that the provisions
                  of Articles 7.9.1 through 7.9.4 continue to be met.

7.9.6             OB/GYN providers must comply with HMO's procedures contained
                  in HMO's provider manual or provider contract for OB/GYN
                  providers, including but not limited to prior authorization
                  procedures.

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7.10.             SPECIALTY CARE PROVIDERS
                  ------------------------

7.10.1            HMO must maintain specialty providers, including pediatric
                  specialty providers, within the network in sufficient numbers
                  and areas of practice to meet the needs of all Members
                  requiring specialty care or services.

7.10.2            HMO must require, through contract provisions or provider
                  manual, that specialty providers send a record of consultation
                  and recommendations to a Member's PCP for inclusion in
                  Member's medical record and report encounters to the PCP
                  and/or HMO.

7.10.3            HMO must ensure availability and accessibility to appropriate
                  specialists.

7.10.4            HMO must ensure that no Member is required to travel in excess
                  of 75 miles to secure initial contact with referral
                  specialists; special hospitals, psychiatric hospitals;
                  diagnostic and therapeutic services; and single service health
                  care physicians, dentists or providers. Exceptions to this
                  requirement may be allowed when an HMO has established,
                  through utilization data provided to TDH, that a normal
                  pattern for securing health care services within an area
                  exists or HMO is providing care of a higher skill level or
                  specialty than the level which is available within the service
                  area such as, but not limited to, treatment of cancer, burns,
                  and cardiac diseases.

7.11              SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
                  -----------------------------------------------

7.11.1            HMO must include all medically necessary specialty services
                  through its network specialists, subspecialists and specialty
                  care facilities (e.g., children's hospitals, and tertiary care
                  hospitals).

7.11.2            HMO must include requirements for pre-admission and discharge
                  planning in its contracts with network hospitals. Discharge
                  plans for a Member must be provided by HMO or the hospital to
                  the Member/family, the PCP and specialty care physicians.

7.11.3            HMO must have appropriate multidisciplinary teams for people
                  with disabilities or chronic or complex medical conditions.
                  These teams must include the PCP and any individuals or
                  providers involved in the day-to-day or on-going care of the
                  Member.

7.11.4            HMO must include in its provider network a TDH-designated
                  perinatal care facility, as established by ss. 32.042, Texas
                  Health and Safety Code, once the designated system is
                  finalized and perinatal care facilities have been approved for
                  the service area (see Article 6.9.1).

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7.12              BEHAVIORAL HEALTH-LOCAL MENTAL HEALTH AUTHORITY (LMHA)
                  ------------------------------------------------------

7.12.1            Assessment to determine eligibility for rehabilitative and
                  targeted MHMR case management services is a function of the
                  LMHA. HMO must provide all covered services described in
                  detail in the Texas Medicaid Provider Procedures Manual
                  (Provider Procedures Manual) and the Texas Medicaid Bulletins
                  which is the bimonthly update to the Provider Procedures
                  Manual. Clinical information regarding covered services are
                  published by the Texas Medicaid program in the Texas Medicaid
                  Service Delivery Guide. Covered services must be provided to
                  Members with SPMI and SED, when medically necessary, whether
                  or not they are also receiving targeted case management or
                  rehabilitation services through the LMHA.

7.12.2            HMO will coordinate with the LMHA and state psychiatric
                  facility regarding admission and discharge planning, treatment
                  objectives and projected length of stay for Members committed
                  by a court of law to the state psychiatric facility.

7.12.3            HMO must enter into written agreements with all LMHAs in the
                  service area which describes the process(es) which HMO and
                  LMHA will use to coordinate services for STAR Members with
                  SPMI or SED. The agreement will contain the following
                  provisions:

7.12.3.1          Describe the behavioral health covered services indicated in
                  detail in the Provider Procedures Manual and the Texas
                  Medicaid Bulletins which is the bi-monthly update to the
                  Provider Procedures Manual. Clinical information regarding
                  covered services are published by the Texas Medicaid program
                  in the Texas Medicaid Service Delivery Guide. Also include the
                  amount, duration, and scope of basic and value-added services,
                  and HMO's responsibility to provide these services;

7.12.3.2          Describe criteria protocols, procedures and instrumentation
                  for referral of STAR Members from and to HMO and LMHA;

7.12.3.3          Describe processes and procedures for referring Members with
                  SPMI or SED to LMHA for assessment and determination of
                  eligibility for rehabilitation or targeted case management
                  services;

7.12.3.4          Describe how the LMHA and HMO will coordinate providing
                  behavioral health care services to Members with SPMI or SED;

7.12.3.5          Establish clinical consultation procedures between HMO and
                  LMHA including consultation to effect referrals and on-going
                  consultation regarding the Member's progress;

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7.12.3.6          Establish procedures to authorize release and exchange of
                  clinical treatment records;

7.12.3.7          Establish procedures for coordination of assessment,
                  intake/triage, utilization review/utilization management and
                  care for persons with SPMI or SED;

7.12.3.8          Establish procedures for coordination of inpatient psychiatric
                  services (including court ordered commitment of Members under
                  21) in state psychiatric facilities within the LMHA's
                  catchment area;

7.12.3.9          Establish procedures for coordination of emergency and urgent
                  services to Members; and

7.12.3.10         Establish procedures for coordination of care and transition
                  of care for new HMO Members who are receiving treatment
                  through the LMHA.

7.12.4            HMO must offer licensed practitioners of the healing arts, who
                  are part of the Member's treatment team for rehabilitation
                  services, the opportunity to participate in HMO's network. The
                  practitioner must agree to accept the standard provider
                  reimbursement rate, meet the credentialing requirements,
                  comply with all the terms and conditions of the standard
                  provider contract of HMO.

7.12.5            Members receiving rehabilitation services must be allowed to
                  choose the licensed practitioners of the healing arts who are
                  currently a part of the Member's treatment team for
                  rehabilitation services. If the Member chooses to receive
                  these services from licensed practitioners of the healing arts
                  who are part of the Member's rehabilitation services treatment
                  team, HMO must reimburse the LMHA at current Medicaid
                  fee-for-service amounts.

7.13              SIGNIFICANT TRADITIONAL PROVIDERS (STPS)
                  ----------------------------------------

                  HMO must seek participation in its provider network from:

7.13.1            Each health care provider in the service area who has
                  traditionally provided care to Medicaid recipients;

7.13.2            Each hospital in the service area that has been designated as
                  a disproportionate share hospital under Medicaid; and

7.13.3            Each specialized pediatric laboratory in the service area,
                  including those laboratories located in children's hospitals.

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7.14              RURAL HEALTH PROVIDERS
                  ----------------------

7.14.1            In rural areas of the service area, HMO must seek the
                  participation in its provider network of rural hospitals,
                  physicians, home and community support service agencies, and
                  other rural health care providers who:

7.14.1.1          are the only providers located in the service area; and

7.14.1.2          are Significant Traditional Providers.

7.14.2            In order to contract with HMO, rural health providers must:

7.14.2.1          agree to accept the prevailing provider contract rate of HMO
                  based on provider type; and

7.14.2.2          have the credentials required by HMO, provided that lack of
                  board certification or accreditation by JCAHO may not be the
                  only grounds for exclusion from the provider network.

7.14.3            HMO must reimburse rural hospitals with 100 or fewer licensed
                  beds in counties with fewer than 50,000 persons for acute care
                  services at a rate calculated using the higher of the
                  prospective payment system rate or the cost reimbursed
                  methodology authorized under the Tax Equity and Fiscal
                  Responsibility Act of 1982 (TEFRA). Hospitals reimbursed under
                  TEFRA cost principles shall be paid without the imposition of
                  the TEFRA cap.

7.14.4            HMO must reimburse physicians who practice in rural counties
                  with fewer than 50,000 persons at a rate using the current
                  Medicaid fee schedule, including negotiated fee-for-service.

7.15              FEDERALLY QUALIFIED HEALTH CENTERS (FQHCS) AND RURAL HEALTH
                  CLINICS (RHCS)
                  --------------

7.15.1            HMO must make reasonable efforts to include FQHCs and RHCs
                  (Freestanding and hospital-based) in its provider network.

7.15.2            FQHCs or RHCs will receive a cost settlement from TDH and must
                  agree to accept initial payments from HMO in an amount that is
                  equal to or greater than HMO's payment terms for other
                  providers providing the same or similar services.

7.15.2.1          HMO must submit monthly FQHC and RHC encounter and payment
                  reports to all contracted FQHCs and RHCs, and QHCs and RHCs
                  with whom there have been

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                  encounters, not later than 21 days from the end of the month
                  for which the report is submitted. The format will be
                  developed by TDH. The FQHC and RHC must validate the encounter
                  and payment information contained in the report(s). HMO and
                  the FQHC/RHC must both sign the report(s) after each party
                  agrees that it accurately reflects encounters and payments for
                  the month reported. HMO must submit the signed FQHC and RHC
                  encounter and payment reports to TDH not later than 45 days
                  from the end of the month for which the report is submitted.

7.15.2.2          For FQHCs, TDH will determine the amount of the interim
                  settlement based on the difference between: an amount equal to
                  the number of Medicaid allowable encounters multiplied by the
                  rate per encounter from the latest settled FQHC fiscal year
                  cost report, and the amount paid by HMO to the FQHC for the
                  quarter. For RHCs, TDH will determine the amount of the
                  interim settlement based on the difference between a
                  reasonable cost amount methodology provided by TDH and the
                  amount paid by HMO to the RHC for the quarter. TDH will pay
                  the FQHC or the RHC the amount of the interim settlement, if
                  any, as determined by TDH or collect and retain the quarterly
                  recoupment amount, if any.

7.15.2.3          TDH will cost settle with each FQHC and RHC annually, based on
                  the FQHC or the RHC fiscal year cost report and the
                  methodology described in Article 7.15.2.2. TDH will make
                  additional payments or recoup payments from the FQHC or the
                  RHC based on reasonable costs less prior interim payment
                  settlements.

7.15.2.4          Cost settlements for RHCs, and HMO's obligation to provide RHC
                  reporting described in Article 7.15, are retroactive to
                  October 1, 1997.

7.16              COORDINATION WITH PUBLIC HEALTH
                  -------------------------------

7.16.1            Reimbursed Arrangements. HMO must make a good faith effort to
                  enter into a subcontract for the covered health care services
                  as specified below with TDH Public Health Regions, city and/or
                  county health departments or districts in each county of the
                  service area that will be providing these services to the
                  Members (Public Health Entities), who will be paid for
                  services by HMO, including any or all of the following
                  services or any covered service which the public health
                  department and HMO have agreed to provide:

7.16.1.1          Sexually Transmitted Diseases (STDs) Services (see Article
                  6.15);

7.16.1.2          Confidential HIV Testing (see Article 6.15);

7.16.1.3          Immunizations;

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7.16.1.4          Tuberculosis (TB) Care (see Article 6.12);

7.16.1.5          Family Planning Services (see Article 6.7);

7.16.1.6          THSteps checkups (see Article 6.8); and

7.16.1.7          Prenatal services (see Article 6.9).

7.16.2            HMO must make a good faith effort to enter into subcontracts
                  with public health entities in the service area. The
                  subcontracts must be available for review by TDH or its
                  designated agent(s) on the same basis as all other
                  subcontracts. If any changes are made to the contract, it must
                  be resubmitted to TDH. If an HMO is unable to enter into a
                  contract with public health entities, HMO must document
                  current and past efforts to TDH. Documentation must be
                  submitted no later than 120 days after the execution of this
                  contract. Public health subcontracts must include the
                  following areas:

7.16.2.1          The general relationship between HMO and the Public Health
                  entity. The subcontracts must specify the scope and
                  responsibilities of both parties, the methodology and
                  agreements regarding billing and reimbursements, reporting
                  responsibilities, Member and provider educational
                  responsibilities, and the methodology and agreements regarding
                  sharing of confidential medical record information between the
                  public health entity and the PCP.

7.16.2.2          Public Health Entity responsibilities:

                  (1)      Public health providers must inform Members that
                           confidential health care information will be provided
                           to the PCP.

                  (2)      Public health providers must refer Members back to
                           PCP for any follow-up diagnostic, treatment, or
                           referral services.

                  (3)      Public health providers must educate Members about
                           the importance of having a PCP and accessing PCP
                           services during office hours rather than seeking care
                           from Emergency Departments, Public Health Clinics, or
                           other Primary Care Providers or Specialists.

                  (4)      Public health entities must identify a staff person
                           to act as liaison to HMO to coordinate Member needs,
                           Member referral, Member and provider education and
                           the transfer of confidential medical record
                           information.

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7.16.2.3          HMO Responsibilities:

                  (1)      HMO must identify care coordinators who will be
                           available to assist public health providers and PCPs
                           in getting efficient referrals of Members to the
                           public health providers, specialists, and
                           health-related service providers either within or
                           outside HMO's network.

                  (2)      HMO must inform Members that confidential healthcare
                           information will be provided to the PCP.

                  (3)      HMO must educate Members on how to better utilize
                           their PCPs, public health providers, emergency
                           departments, specialists, and health-related service
                           providers.

7.16.2.4          Existing contracts must include the provisions in Articles
                  7.16.2.1 through 7.16.2.3.

7.16.3            Non-Reimbursed Arrangements with Public Health Entities.
                  -------------------------------------------------------

7.16.3.1          Coordination with Public Health Entities. HMOs must make a
                  good faith effort to enter into a Memorandum of Understanding
                  (MOU) with Public Health Entities in the service area
                  regarding the provision of services for essential public
                  health care services. These MOUs must be entered into in each
                  service area and are subject to TDH approval. If any changes
                  are made to the MOU, it must be resubmitted to TDH. If an HMO
                  is unable to enter into an MOU with a public health entity,
                  HMO must document current and past efforts to TDH.
                  Documentation must be submitted no later than 120 days after
                  the execution of this contract. MOUs must contain the roles
                  and responsibilities of HMO and the public health department
                  for the following services:

                  (1)      Public health reporting requirements regarding
                           communicable diseases and/or diseases which are
                           preventable by immunization as defined by state law;

                  (2)      Notification of and referral to the local Public
                           Health Entity, as defined by state law, of
                           communicable disease outbreaks involving Members;

                  (3)      Referral to the local Public Health Entity for TB
                           contact investigation and evaluation and preventive
                           treatment of persons whom the Member has come into
                           contact;

                  (4)      Referral to the local Public Health Entity for
                           STD/HIV contact investigation and evaluation and
                           preventive treatment of persons whom the Member has
                           come into contact; and,

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                  (5)      Referral for WIC services and information sharing;

                  (6)      Coordination and follow-up of suspected or confirmed
                           cases of childhood lead exposure.

7.16.3.2          Coordination with Other TDH Programs. HMOs must make a good
                  faith effort to enter into a Memorandum of Understanding (MOU)
                  with other TDH programs regarding the provision of services
                  for essential public health care services. These MOUs must be
                  entered into in each service area and are subject to TDH
                  approval. If any changes are made to the MOU, it must be
                  resubmitted to TDH. If an HMO is unable to enter into an MOU
                  with other TDH programs, HMO must document current and past
                  efforts to TDH. Documentation must be submitted no later than
                  120 days after the execution of this contract. MOUs must
                  delineate the roles and responsibilities of HMO and the TDH
                  programs for the following services:

                  (1)      Use of the TDH laboratory for THSteps newborn
                           screens; lead testing; and hemoglobin/hematocrit
                           tests;

                  (2)      Availability of vaccines through the Vaccines for
                           Children Program;

                  (3)      Reporting of immunizations provided to the statewide
                           ImmTrac Registry including parental consent to share
                           data;

                  (4)      Referral for WIC services and information sharing;

                  (5)      Pregnant, Women and Infant (PWI) Targeted Case
                           Management;

                  (6)      THSteps outreach, informing and Medical Case
                           Management;

                  (7)      Participation in the community-based coalitions with
                           the Medicaid-funded case management programs in MHMR,
                           ECI, TCB, and TDH (PWI, CIDC and THSteps Medical Case
                           Management);

                  (8)      Referral to the TDH Medical Transportation Program;

                  (9)      Cooperation with activities required of public health
                           authorities to conduct the annual population and
                           community based needs assessment; and

                  (10)     Coordination and follow-up of suspected or confirmed
                           cases of childhood lead exposure.


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7.16.4            All public health contracts must contain provider network
                  requirements in Article VII, as applicable.

7.17              COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND
                  REGULATORY SERVICES
                  -------------------

7.17.1            HMO must cooperate and coordinate with the Texas Department of
                  Protective and Regulatory Services (TDPRS) for the care of a
                  child who is receiving services from or has been placed in the
                  conservatorship of TDPRS.

7.17.2            HMO must comply with all provisions of a Court Order or TDPRS
                  Service Plan with respect to a child in the conservatorship of
                  TDPRS (Order) entered by a Court of Continuing Jurisdiction
                  placing a child under the protective custody of TDPRS or a
                  Service Plan voluntarily entered into by the parents or person
                  having legal custody of a minor and TDPRS, which relates to
                  the health and behavioral health care services required to be
                  provided to the Member.

7.17.3            HMO cannot deny, reduce, or controvert the medical necessity
                  of any health or behavioral health care services included in
                  an Order entered by a court. HMO may participate in the
                  preparation of the medical and behavioral care plan prior to
                  TDPRS submitting the health care plan to the Court. Any
                  modification or termination of court ordered services must be
                  presented and approved by the court with jurisdiction over the
                  matter.

7.17.4            A Member or the parent or guardian whose rights are subject to
                  an Order or Service Plan cannot appeal the necessity of the
                  services ordered through HMO's complaint or appeal processes,
                  or to TDH for a Fair Hearing.

7.17.5            HMO must include information in its provider training and
                  manuals regarding:

7.17.5.1          providing medical records;

7.17.5.2          scheduling medical and behavioral health appointments within
                  14 days unless requested earlier by TDPRS; and

7.17.5.3          recognition of abuse and neglect and appropriate referral to
                  TDPRS.

7.17.6            HMO must continue to provide all covered services to a Member
                  receiving services from or in the protective custody of TDPRS
                  until the Member has been disenrolled from HMO as a result of
                  loss of eligibility in Medicaid managed care or placement into
                  foster care.

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7.18              DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs)
                  --------------------------------------------------------------

7.18.1            All HMO contracts with any of the entities described in Texas
                  Insurance Code Article 20A.02(ee) and a group of providers who
                  are licensed to provide the same health care services or an
                  entity that is wholly-owned or controlled by one or more
                  hospitals and physicians including a physician-hospital
                  organization (delegated network contracts) must:

7.18.1.1          contain the mandatory contract provisions for all
                  subcontractors in Article 3.2 of this contract;

7.18.1.2          comply with the requirements, duties and responsibilities of
                  this contract;

7.18.1.3          not create a barrier for full participation to significant
                  traditional providers;

7.18.1.4          not interfere with TDH's oversight and audit responsibilities
                  including collection and validation of encounter data; or

7.18.1.5          be consistent with the federal requirement for simplicity in
                  the administration of the Medicaid program.

7.18.2            In addition to the mandatory provisions for all subcontracts
                  under Articles 3.2. and 7.2, all HMO/delegated network
                  contracts must include the following mandatory standard
                  provisions:

7.18.2.1          HMO is required to include subcontract provisions in its
                  delegated network contracts which require the UM protocol used
                  by a delegated network to produce substantially similar
                  outcomes, as approved by TDH, as the UM protocol employed by
                  the contracting HMO. The responsibilities of an HMO in
                  delegating UM functions to a delegated network will be
                  governed by Article 16.3.11 of this contract.

7.18.2.2          Delegated networks that are delegated claims payment
                  responsibilities by HMO must also have the responsibility to
                  submit encounter, utilization, quality, and financial data to
                  HMO. HMO remains responsible for integrating all delegated
                  network data reports into HMO's reports required under this
                  contract. If HMO is not able to collect and report all
                  delegated network data for HMO reports required by this
                  contract, HMO must not delegate claims processing to the
                  delegated network.

7.18.2.3          The delegated network must comply with the same records
                  retention and production requirements, including Open Records
                  requirements as the HMO under this contract.

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7.18.2.4          The delegated network is subject to the same marketing
                  restrictions and requirements as the HMO under this contract.

7.18.2.5          HMO is responsible for ensuring that delegated network
                  contracts comply with the requirements and provisions of the
                  TDH/HMO contract. TDH will impose appropriate sanctions and
                  remedies upon HMO for any default under the TDH/HMO contract
                  which is caused directly or indirectly by the acts or
                  omissions of the delegated network.

7.18.3            HMO cannot enter into contracts with delegated networks to
                  provide services under this contract which require the
                  delegated network to enter into exclusive contracts with HMO
                  as a condition for participation with HMO.

7.18.3.1          Article 17.18.3 does not apply to providers who are employees
                  or participants in limited provider networks.

7.18.4            All delegated networks that limit Member access to those
                  providers contracted with the delegated network (closed or
                  limited panel networks) with whom HMO contracts must either
                  independently meet the access provisions of 28 Texas
                  Administrative Code ss. 11.1607, relating to access
                  requirements for those Members enrolled or assigned to the
                  delegated network, or HMO must provide for access through
                  other network providers outside the closed panel delegated
                  network.

7.18.5            HMO cannot delegate to a delegated network the enrollment,
                  re-enrollment, assignment or reassignment of a Member.

7.18.6            In addition to the above provision HMO and approved Non-Profit
                  Health Corporations must comply with all of the requirements
                  contained in 28 TAC ss.11.1604, relating to Requirements of
                  Certain Contracts between Primary HMOs and ANHCs and Primary
                  HMOs and Provider HMOs.

7.18.7             HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
                   RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT
                   REGARDLESS OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS
                   CONTRACTED OR DELEGATED TO ANOTHER. HMO MUST PROVIDE A COPY
                   OF THE CONTRACT PROVISIONS THAT SET OUT HMO'S DUTIES,
                   RESPONSIBILITIES, AND SERVICES TO ANY PROVIDER NETWORK OR
                   GROUP WITH WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE SERVICES
                   ON A RISK SHARING OR CAPITATED BASIS OR TO PROVIDE HEALTH
                   CARE SERVICES.


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ARTICLE VIII  MEMBER SERVICES REQUIREMENTS


8.1               MEMBER EDUCATION
                  ----------------

                  HMO must provide the Member education requirements as
                  contained in Article VI at 6.5, 6.6, 6.7, 6.8, 6.9, 6.10,
                  6.11, 6.12, 6.13, and 6.14, and this Article of the contract.

8.2               MEMBER HANDBOOK
                  ---------------

8.2.1             HMO must mail each newly enrolled Member a Member Handbook no
                  later than five (5) days after HMO receives the Enrollment
                  File. If the 5th day falls on a weekend or state holiday, the
                  Member Handbook must be mailed by the following working day.
                  The Member Handbook must be written at a 4th - 6th grade
                  reading comprehension level. The Member Handbook must contain
                  all critical elements specified by TDH. See Appendix D,
                  Required Critical Elements, for specific details regarding
                  content requirements. HMO must submit a Member Handbook to TDH
                  for approval prior to the effective date of the contract
                  unless previously approved (see Article 3.4.1 regarding the
                  process for plan materials review).

8.2.2             Member Handbook Updates. HMO must provide updates to the
                  Handbook to all Members as changes are made to the Required
                  Critical Elements in Appendix D. HMO must make the Member
                  Handbook available in the languages of the major population
                  groups and the visually impaired served by HMO.

8.2.3             THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE
                  APPROVED BY TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO
                  MEMBERS (see Article 3.4.1 regarding the process for plan
                  materials review).

8.3               ADVANCE DIRECTIVES
                  ------------------

8.3.1             Federal and state law require HMOs and providers to maintain
                  written policies and procedures for informing and providing
                  written information to all adult Members 18 years of age and
                  older about their rights under state and federal law, in
                  advance of their receiving care (Social Security Act ss.
                  l902(a)(57) and ss. 1903(m)(l)(A)). The written policies and
                  procedures must contain procedures for providing written
                  information regarding the Member's right to refuse, withhold
                  or withdraw medical treatment advance directives. HMO's
                  policies and procedures must comply with provisions contained
                  in 42 CFR ss. 434.28 and 42 CFR ss. 489, SubPart I, relating
                  to advance directives for all hospitals, critical access
                  hospitals, skilled nursing facilities,

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                  home health agencies, providers of home health care, providers
                  of personal care services and hospices, as well as the
                  following state laws and rules:

8.3.1.1           a Member's right to self-determination in making health care
                  decisions; and

8.3.1.2           the Advance Directives Act, Chapter 166, Texas Health and
                  Safety Code, which includes:

8.3.1.2.1         a Member's right to execute an advance written directive to
                  physicians and family or surrogates, or to make a non-written
                  directive to administer, withhold or withdraw life-sustaining
                  treatment in the event of a terminal or irreversible
                  condition;

8.3.1.2.2         a Member's right to make written and non-written
                  Out-of-Hospital Do-Not-Resuscitate Orders; and

8.3.1.2.3         a Member's right to execute a Medical Power of Attorney to
                  appoint an agent to make health care decisions on the Member's
                  behalf if the Member becomes incompetent.

8.3.2             HMO must maintain written policies for implementing a Member's
                  advance directive. Those policies must include a clear and
                  precise statement of limitations if HMO or a participating
                  provider cannot or will not implement a Member's advance
                  directive.

8.3.2.1           A statement of limitation on implementing a Member's advance
                  directive should include at least the following information:

8.3.2.1.1         a clarification of any differences between HMO's conscience
                  objections and those which may be raised by the Member's PCP
                  or other providers;

8.3.2.1.2         identification of the state legal authority permitting HMO's
                  conscience objections to carrying out an advance directive;
                  and

8.3.2.1.3         a description of the range of medical conditions or procedures
                  affected by the conscience objection.

8.3.3             HMO cannot require a Member to execute or issue an advance
                  directive as a condition for receiving health care services.

8.3.4             HMO cannot discriminate against a Member based on whether or
                  not the Member has executed or issued an advance directive.

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8.3.5             HMO's policies and procedures must require HMO and
                  subcontractor to comply with the requirements of state and
                  federal law relating to advance directives. HMO must provide
                  education and training to employees, Members and the community
                  on issues concerning advance directives.

8.3.6             All materials provided to Members regarding advance directives
                  must be written at a 7th - 8th grade reading comprehension
                  level, except where a provision is required by state or
                  federal law and the provision cannot be reduced or modified to
                  a 7th - 8th grade reading level because it is a reference to
                  the law or is required to be included "as written" in the
                  state or federal law. HMO must submit to TDH any revisions to
                  existing approved advance directive materials.

8.3.7             HMO must notify Members of any changes in state or federal
                  laws relating to advance directives within 90 days from the
                  effective date of the change, unless the law or regulation
                  contains a specific time requirement for notification.

8.4               MEMBER ID CARDS
                  ---------------

8.4.1             A Medicaid Identification Form (Form 3087) is issued monthly
                  by the TDHS. The form includes the "STAR" Program logo and the
                  name and toll free number of the Member's health plan. A
                  Member may have a temporary Medicaid Identification (Form
                  1027-A) which will include a STAR indicator.

8.4.2             HMO must issue a Member Identification Card (ID) to the Member
                  within five (5) days from receiving the Enrollment File from
                  the Enrollment Broker. If the 5th day falls on a weekend or
                  state holiday, the ID Card must be issued by the following
                  working day. The ID Card must include, at a minimum, the
                  following: Member's name; Member's Medicaid number; either the
                  issue date of the card or effective date of the PCP
                  assignment; PCP's name, address, and telephone number; name of
                  HMO; name of IPA to which the Member's PCP belongs, if
                  applicable; the 24-hour, seven (7) day a week toll-free
                  telephone number operated by HMO; the toll-free number for
                  behavioral health care services; and directions for what to do
                  in an emergency. The ID Card must be reissued if the Member
                  reports a lost card, there is a Member name change, if Member
                  requests a new PCP, or for any other reason which results in a
                  change to the information disclosed on the ID Card.

8.5               MEMBER HOTLINE
                  --------------

                  HMO must maintain a toll-free Member telephone hotline 24
                  hours a day, seven days a week for Members to obtain
                  assistance in accessing services under this contract.
                  Telephone availability must be demonstrated through an
                  abandonment rate of less than 10%.

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8.6               MEMBER COMPLAINT PROCESS
                  ------------------------

8.6.1             HMO must develop, implement and maintain a Member complaint
                  system that complies with the requirements of Article 20A.12
                  of the Texas Insurance Code, relating to the Complaint System,
                  except where otherwise provided in this contract and in
                  applicable federal law. The complaint and appeals procedure
                  must be the same for all Members and must comply with Texas
                  Insurance Code, Article 20A.12 or applicable federal law.
                  Modifications and amendments must be submitted to TDH at least
                  30 days prior to the implementation of the modification or
                  amendment.

8.6.2             HMO must have written policies and procedures for receiving,
                  tracking, reviewing, and reporting and resolving of Member
                  complaints. The procedures must be reviewed and approved in
                  writing by TDH. Any changes or modifications to the procedures
                  must be submitted to TDH for approval thirty (30) days prior
                  to the effective date of the amendment.

8.6.3             HMO must designate an officer of HMO who has primary
                  responsibility for ensuring that complaints are resolved in
                  compliance with written policy and within the time required.
                  An "officer" of HMO means a president, vice president,
                  secretary, treasurer, or chairperson of the board for a
                  corporation, the sole proprietor, the managing general partner
                  of a partnership, or a person having similar executive
                  authority in the organization.

8.6.4             HMO must have a routine process to detect patterns of
                  complaints and disenrollments and involve management and
                  supervisory staff to develop policy and procedural
                  improvements to address the complaints. HMO must cooperate
                  with TDH and TDH's Enrollment Broker in Member complaints
                  relating to enrollment and disenrollment.

8.6.5             HMO's complaint procedures must be provided to Members in
                  writing and in alternative communication formats. A written
                  description of HMO's complaint procedures must be in
                  appropriate languages and easy for Members to understand. HMO
                  must include a written description in the Member Handbook. HMO
                  must maintain at least one local and one toll-free telephone
                  number for making complaints.

8.6.6             HMO's process must require that every complaint received in
                  person, by telephone or in writing, is recorded in a written
                  record and is logged with the following details: date;
                  identification of the individual filing the complaint;
                  identification of the individual recording the complaint;
                  nature of the complaint; disposition of the complaint;
                  corrective action required; and date resolved.

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8.6.7             HMO's process must include a requirement that the Governing
                  Body of HMO reviews the written records (logs) for complaints
                  and appeals.

8.6.8             HMO is prohibited from discriminating against a Member because
                  that Member is making or has made a complaint.

8.6.9             HMO cannot process requests for disenrollments through HMO's
                  complaint procedures. Requests for disenrollments must be
                  referred to TDH within five (5) business days after the Member
                  makes a disenrollment request.

8.6.10            HMO must develop, implement and maintain an appeal of adverse
                  determination procedure that complies with the requirements of
                  Article 21.58A of the Texas Insurance Code, relating to the
                  utilization review, except where otherwise provided in this
                  contract and in applicable federal law. The appeal of an
                  adverse determination procedure must be the same for all
                  Members and must comply with Texas Insurance Code Article
                  21.58A or applicable federal law. Modifications and amendments
                  must be submitted to TDH no less than 30 days prior to the
                  implementation of the modification or amendment. When an
                  enrollee, a person acting on behalf of an enrollee, or an
                  enrollee's provider of record expresses orally or in writing
                  any dissatisfaction or disagreement with an adverse
                  determination, HMO or UR agent must regard the expression of
                  dissatisfaction as a request to appeal an adverse
                  determination.

8.6.11            If a complaint or appeal of an adverse determination relates
                  to the denial, delay, reduction, termination or suspension of
                  covered services by either HMO or a utilization review agent
                  contracted to perform utilization review by HMO, HMO must
                  inform Members they have the right to access the TDH Fair
                  Hearing process at any time in lieu of the internal complaint
                  system provided by HMO. HMO is required to comply with the
                  requirements contained in 1 TAC Chapter 357, relating to
                  notice and Fair Hearings in the Medicaid program, whenever an
                  action is taken to deny, delay, reduce, terminate or suspend a
                  covered service.

8.6.12            If Members utilize HMO's internal complaint or appeal of
                  adverse determination system and the complaint relates to the
                  denial, delay, reduction, termination or suspension of covered
                  services by either HMO or a utilization review agent
                  contracted to perform utilization review by HMO, HMO must
                  inform the Member that they continue to have a right to appeal
                  the decision through the TDH Fair Hearing process.

8.6.13            The provisions of Article 2l.58A, Texas Insurance Code,
                  relating to a Member's right to appeal an adverse
                  determination made by HMO or a utilization review agent by an
                  independent review organization, do not apply to a Medicaid
                  recipient. Federal fair

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                  hearing requirements (Social Security Act ss. 1902a(3),
                  codified at 42 C.F.R. 431.200 et. seq.) require the agency to
                  make a final decision after a fair hearing, which conflicts
                  with the State requirement that the IRO make a final decision.
                  Therefore, the State requirement is pre-empted by the federal
                  requirement.

8.6.14            HMO will cooperate with the Enrollment Broker and TDH to
                  resolve all Member complaints. Such cooperation may include,
                  but is not limited to, participation by HMO or Enrollment
                  Broker and/or TDH internal complaint committees.

8.6.15            HMO must have policies and procedures in place outlining the
                  role of HMO's Medical Director in the Member Complaint System
                  and appeal of an adverse determination. The Medical Director
                  must have a significant role in monitoring, investigating and
                  hearing complaints.

8.6.16            HMO must provide Member Advocates to assist Members in
                  understanding and using HMO's complaint system and appeal of
                  an adverse determination.

8.6.17            HMO's Member Advocates must assist Members in writing or
                  filing a complaint or appeal of an adverse determination and
                  monitoring the complaint or appeal through the Contractor's
                  complaint or appeal of an adverse determination process until
                  the issue is resolved.

8.7               MEMBER NOTICE, APPEALS AND FAIR HEARINGS
                  ----------------------------------------

8.7.1             HMO must send Members the notice required by 1 Texas
                  Administrative Code ss. 357.5, whenever HMO takes an action to
                  deny, delay, reduce or terminate covered services to a Member.
                  The notice must be mailed to the Member no less than 10 days
                  before HMO intends to take an action. If an emergency exists,
                  or if the time within which the service must be provided makes
                  giving 10 days notice impractical or impossible, notice must
                  be provided by the most expedient means reasonably calculated
                  to provide actual notice to the Member, including by phone,
                  direct contact with the Member, or through the provider's
                  office.

8.7.2             The notice must contain the following information:

8.7.2.1           Member's right to immediately access TDH's Fair Hearing
                  process;

8.7.2.2           a statement of the action HMO will take;

8.7.2.3           the date the action will be taken;

8.7.2.4           an explanation of the reasons HMO will take the action;

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8.7.2.5           a reference to the state and/or federal regulations which
                  support HMO's action;

8.7.2.6           an address where written requests may be sent and a toll-free
                  number Member can call to: request the assistance of a Member
                  representative, or file a complaint, or request a Fair
                  Hearing;

8.7.2.7           a procedure by which Member may appeal HMO's action through
                  either HMO's complaint process or TDH's Fair Hearings process;

8.7.2.8           an explanation that Members may represent themselves, or be
                  represented by HMO's representative, a friend, a relative,
                  legal counsel or another spokesperson;

8.7.2.9           an explanation of whether, and under what circumstances,
                  services may be continued if a complaint is filed or a Fair
                  Hearing requested;

8.7.2.10          a statement that if the Member wants a TDH Fair Hearing on the
                  action, Member must make the request for a Fair Hearing within
                  90 days of the date on the notice or the right to request a
                  hearing is waived;

8.7.2.11          a statement explaining that HMO must make its decision within
                  30 days from the date the complaint is received by HMO; and

8.7.2.12          a statement explaining that a final decision must be made by
                  TDH within 90 days from the date a Fair Hearing is requested.

8.8               MEMBER ADVOCATES
                  ----------------

8.8.1             HMO must provide Member Advocates to assist Members. Member
                  Advocates must be physically located within the service area.
                  Member Advocates must inform Members of their rights and
                  responsibilities, the complaint process, the health education
                  and the services available to them, including preventive
                  services.

8.8.2             Member Advocates must assist Members in writing complaints and
                  are responsible for monitoring the complaint through HMO's
                  complaint process until the Member's issues are resolved or a
                  TDH Fair Hearing requested (see Articles 8.6.15, 8.6.16, and
                  8.6.17).

8.8.3             Member Advocates are responsible for making recommendations to
                  management on any changes needed to improve either the care
                  provided or the way care is delivered. Member Advocates are
                  also responsible for helping or referring Members to

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                  community resources available to meet Member needs that are
                  not available from HMO as Medicaid covered services.

8.8.4             Member Advocates must provide outreach to Members and
                  participate in TDH-sponsored enrollment activities.

8.9               MEMBER CULTURAL AND LINGUISTIC SERVICES
                  ---------------------------------------

8.9.1             Cultural Competency Plan. HMO must have a comprehensive
                  written Cultural Competency Plan describing how HMO will
                  ensure culturally competent services, and provide linguistic
                  and disability-related access. The Plan must describe how the
                  individuals and systems within HMO will effectively provide
                  services to people of all cultures, races, ethnic backgrounds
                  and religions as well as those with disabilities in a manner
                  that recognizes, values, affirms, and respects the worth of
                  the individuals and protects and preserves the dignity of
                  each. HMO must submit a written plan to TDH prior to the
                  effective date of this contract unless previously submitted.
                  Modifications and amendments to the written plan must be
                  submitted to TDH no later than 30 days prior to implementation
                  of the modification or amendment. The Plan must also be made
                  available to HMO's network of providers.

8.9.2             The Cultural Competency Plan must include the following:

8.9.2.1           HMO's written policies and procedures for ensuring effective
                  communication through the provision of linguistic services
                  following Title VI of the Civil Rights Act guidelines and the
                  provision of auxiliary aids and services, in compliance with
                  the Americans with Disabilities Act, Title III, Department of
                  Justice Regulation 36.303. HMO must disseminate these policies
                  and procedures to ensure that both Staff and subcontractors
                  are aware of their responsibilities under this provision of
                  the contract.

8.9.2.2           A description of how HMO will educate and train its staff and
                  subcontractors on culturally competent service delivery, and
                  the provision of linguistic and/or disability-related access
                  as related to the characteristics of its Members;

8.9.2.3           A description of how HMO will implement the plan in its
                  organization, identifying a person in the organization who
                  will serve as the contact with TDH on the Cultural Competency
                  Plan;

8.9.2.4           A description of how HMO will develop standards and
                  performance requirements for the delivery of culturally
                  competent care and linguistic access, and monitor adherence
                  with those standards and requirements;

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8.9.2.5           A description of how HMO will provide outreach and health
                  education to Members, including racial and ethnic minorities,
                  non-English speakers or limited-English speakers, and those
                  with disabilities; and

8.9.2.6           A description of how HMO will help Members access culturally
                  and linguistically appropriate community health or social
                  service resources;

8.9.3             Linguistic, Interpreter Services, and Provision of Auxiliary
                  Aids and Services. HMO must provide experienced, professional
                  interpreters when technical, medical, or treatment information
                  is to be discussed. See Title VI of the Civil Rights Act of
                  1964, 42 U.S.C. ss.ss. 2000d, et seq. HMO must ensure the
                  provision of auxiliary aids and services necessary for
                  effective communication, as per the Americans with
                  Disabilities Act, Title III, Department of Justice Regulations
                  36.303.

8.9.3.1           HMO must adhere to and provide to Members the Member Bill of
                  Rights and Responsibilities as adopted by the Texas Health and
                  Human Services Commission and contained at 1 Texas
                  Administrative Code (TAC) ss.ss. 353.202-353.203. The Member
                  Bill of Rights and Responsibilities assures Members the right
                  "to have interpreters if needed, during appointments with
                  their providers and when talking to their health plan.
                  Interpreters include people who can speak in their native
                  language, assist with a disability, or help them understand
                  the information."

8.9.3.2           HMO must have in place policies and procedures that outline
                  how Members can access face-to-face interpreter services in a
                  provider's office if necessary to ensure the availability of
                  effective communication regarding treatment, medical history
                  or health education for a Member. HMOs must inform its
                  providers on how to obtain an updated list of participating,
                  qualified interpreters.

8.9.3.3           A competent interpreter is defined as someone who is:

8.9.3.4           proficient in both English and the other language;

8.9.3.5           has had orientation or training in the ethics of interpreting;
                  and

8.9.3.6           has the ability to interpret accurately and impartially.

8.9.3.7           HMO must provide 24-hour access to interpreter services for
                  Members to access emergency medical services within HMO's
                  network.

8.9.3.8           Family Members, especially minor children, should not be used
                  as interpreters in assessments, therapy or other medical
                  situations in which impartiality and confidentiality are
                  critical, unless specifically requested by the Member.
                  However, a

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                  family member or friend may be used as an interpreter if they
                  can be relied upon to provide a complete and accurate
                  translation of the information being provided to the Member;
                  provided that the Member is advised that a free interpreter is
                  available; and the Member expresses a preference to rely on
                  the family member or friend.

8.9.4             All Member orientation presentations education classes and
                  materials must be presented in the languages of the major
                  population groups making up 10% or more of the Medicaid
                  population in the service area, as specified by TDH. HMO must
                  provide auxiliary aids and services, as needed, including
                  materials in alternative formats (i.e., large print, tape or
                  Braille), and interpreters or real-time captioning to
                  accommodate the needs of persons with disabilities that affect
                  communication.

8.9.5             HMO must provide or arrange access to TDD to Members who are
                  deaf or hearing impaired.

8.10              On the date of the new Member's enrollment, TDH will provide
                  HMOs with the Member's Medicaid certification date.


ARTICLE IX    MARKETING AND PROHIBITED PRACTICES


9.1               MARKETING MATERIAL MEDIA AND DISTRIBUTION
                  -----------------------------------------

                  HMOs may present their marketing materials to eligible
                  Medicaid recipients through any method or media determined to
                  be acceptable by TDH. The media may include but are not
                  limited to: written materials, such as brochures, posters, or
                  fliers which can be mailed directly to the Member or left at
                  Texas Department of Human Services eligibility offices;
                  TDH-sponsored community enrollment events; and paid or public
                  service announcements on radio. All marketing materials must
                  be approved by TDH prior to distribution (see Article 3.4).

9.2               MARKETING ORIENTATION AND TRAINING
                  ----------------------------------

                  HMO must require that all HMO staff having direct contact with
                  Members as part of their job duties and their supervisors
                  satisfactorily complete TDH's marketing orientation and
                  training program prior to engaging in marketing activities on
                  behalf of HMO. TDH will notify HMO of scheduled orientations.

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9.3               PROHIBITED MARKETING PRACTICES
                  ------------------------------

9.3.1             HMO and its agents, subcontractors and providers are
                  prohibited from engaging in the following marketing practices:

9.3.1.1           conducting any direct-contact marketing to prospective Members
                  except through TDH-sponsored enrollment events;

9.3.1.2           making any written or oral statement containing material
                  misrepresentations of fact or law relating to HMO's plan or
                  the STAR program;

9.3.1.3           making false, misleading or inaccurate statements relating to
                  services or benefits of HMO or the STAR program;

9.3.1.4           offering prospective Members anything of material or financial
                  value as an incentive to enroll with a particular PCP or HMO;
                  and

9.3.1.5           discriminating against an eligible Member because of race,
                  creed, age, color, sex, religion, national origin, ancestry,
                  marital status, sexual orientation, physical or mental
                  handicap, health status, or requirements for health care
                  services.

9.3.2             HMO may offer nominal gifts with a retail value of no more
                  than $10 and/or free health screens to potential Members, as
                  long as these gifts and free health screenings are offered
                  whether or not the potential Member enrolls in their HMO. Free
                  health screenings cannot be used to discourage less healthy
                  potential Members from joining HMO. All gifts must be approved
                  by TDH prior to distribution to Members. The results of free
                  screenings must be shared with the Member's PCP if the Member
                  enrolls with HMO providing the screen.

9.3.3             Marketing representatives may not conduct or participate in
                  marketing activities for more than one HMO.

9.4               NETWORK PROVIDER DIRECTORY
                  --------------------------

9.4.1             The provider directory and any revisions must be approved by
                  TDH prior to publication and distribution to prospective
                  Members (see Article 3.4.1 regarding the process for plan
                  materials review). The directory must contain all critical
                  elements specified by TDH. See Appendix D, Required Critical
                  Elements, for specific details regarding content requirements.

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9.4.2              If HMO contracts with limited provider networks, the provider
                  directory must comply with the requirements of 28 TAC
                  11.1600(b)(11), relating to the disclosure and notice of
                  limited provider networks.

9.4.3             Updates to the provider directory must be provided to the
                  Enrollment Broker at the beginning of each State fiscal year
                  quarter. This includes the months of September, December,
                  March and June. HMO is responsible for submitting draft
                  updates to TDH only if changes other than PCP information are
                  incorporated. HMO is responsible for sending three final paper
                  copies and one electronic copy of the updated provider
                  directory to TDH each quarter. If an electronic format is not
                  available, five paper copies must be sent. TDH will forward
                  two updated provider directories, along with its approval
                  notice, to the Enrollment Broker to facilitate the
                  distribution of the directories.

ARTICLE X     MIS SYSTEM REQUIREMENTS

10.1              MODEL MIS REQUIREMENTS
                  ----------------------

10.1.1            HMO must maintain an MIS that will provide support for all
                  functions of HMO's processes and procedures related to the
                  flow and use of data within HMO. The MIS must enable HMO to
                  meet the requirements of this contract. The MIS must have the
                  capacity and capability of capturing and utilizing various
                  data elements to develop information for HMO administration.

10.1.2            HMO must maintain a claim retrieval service processing system
                  that can identify date of receipt, action taken on all
                  provider claims or encounters (i.e., paid, denied, other), and
                  when any action was taken in real time.

10.1.3            HMO must have a system that can be adapted to the change in
                  Business Practices/Policies within a short period of time.

10.1.4            HMO is required to submit and receive data as specified in
                  this contract and HMO Encounter Data Submissions Manual. HMO
                  must provide complete encounter data of all capitated services
                  within the scope of services of the contract between HMO and
                  TDH. Encounter data must follow the format, data elements and
                  method of transmission specified in the contract and HMO
                  Encounter Data Submissions Manual. HMO must submit encounter
                  data, including adjustments to encounter data. The Encounter
                  transmission will include all encounter data and encounter
                  data adjustments processed by HMO for the previous month. Data
                  quality validation will incorporate assessment standards
                  developed jointly by HMO and TDH. Original records will be

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                  made available for inspection by TDH for validation purposes.
                  Data which do not meet quality standards must be corrected and
                  returned within a time period specified by TDH.

10.1.5            HMO must use the procedure codes, diagnosis codes, and other
                  codes used for reporting encounters and fee-for-service claims
                  in the most recent edition of the Medicaid Provider Procedures
                  Manual or as otherwise directed by TDH. Any exceptions will be
                  considered on a code-by-code basis after TDH receives written
                  notice from HMO requesting an exception. HMO must also use the
                  provider numbers as directed by TDH for both encounter and
                  fee-for-service claims submissions.

10.1.6            HMO must have hardware, software, network and communications
                  system with the capability and capacity to handle and operate
                  all MIS subsystems.

10.1.7            HMO must notify TDH of any changes to HMO's MIS department
                  dedicated to or supporting this contract by Phase I of Renewal
                  Review. Any updates to the organizational chart and the
                  description of responsibilities must be provided to TDH at
                  least 30 days prior to the effective date of the change.
                  Official points of contact must be provided to TDH on an
                  on-going basis. An Internet E-mail address must be provided
                  for each point of contact.

10.1.8            HMO must operate and maintain a MIS that meets or exceeds the
                  requirements outlined in the Model MIS Guidelines that follow:

10.1.8.1          The Contractor's system must be able to meet all eight MIS
                  Model Guidelines as listed below. The eight subsystems are
                  used in the Model MIS Requirements to identify specific
                  functions or features required by HMO's MIS. These subsystems
                  focus on the individual systems functions or capabilities to
                  support the following operational and administrative areas:

                  (1)      Enrollment/Eligibility Subsystem

                  (2)      Provider Subsystem

                  (3)      Encounter/Claims Processing Subsystem

                  (4)      Financial Subsystem

                  (5)      Utilization/Quality Improvement Subsystem

                  (6)      Reporting Subsystem

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                  (7)      Interface Subsystem

                  (8)      TPR Subsystem

10.2              SYSTEM-WIDE FUNCTIONS
                  ---------------------

                  HMO MIS system must include functions and/or features which
                  must apply across all subsystems as follows:

                  (1)      Ability to update and edit data.

                  (2)      Maintain a history of changes and adjustments and
                           audit trails for current and retroactive data. Audit
                           trails will capture date, time, and reasons for the
                           change, as well as who made the change.

                  (3)      Allow input mechanisms through manual and electronic
                           transmissions.

                  (4)      Have procedures and processes for accumulating,
                           archiving, and restoring data in the event of a
                           system or subsystem failure.

                  (5)      Maintain automated or manual linkages between and
                           among all MIS subsystems and interfaces.

                  (6)      Ability to relate Member and provider data with
                           utilization, service, accounting data, and reporting
                           functions.

                  (7)      Ability to relate and extract data elements into
                           summary and reporting formats attached as Appendices
                           to contract.

                  (8)      Must have written process and procedures manuals
                           which document and describe all manual and automated
                           system procedures and processes for all the above
                           functions and features, and the various subsystem
                           components.

                  (9)      Maintain and cross-reference all Member-related
                           information with the most current Medicaid number.

10.3              ENROLLMENT/ELIGIBILITY SUBSYSTEM
                  --------------------------------

                  The Enrollment/Eligibility Subsystem is the central processing
                  point for the entire MIS. It must be constructed and
                  programmed to secure all functions which require Membership
                  data. It must have functions and/or features which support
                  requirements as follows:

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                  (1)      Identify other health coverage available or third
                           party liability (TPL), including type of coverage and
                           effective dates.

                  (2)      Maintain historical data (files) as required by TDH.

                  (3)      Maintain data on enrollments/disenrollments and
                           complaint activities. The data must include reason or
                           type of disenrollment, complaint, and resolution--by
                           incident.

                  (4)      Receive, translate, edit and update files in
                           accordance with TDH requirements prior to inclusion
                           in HMO's MIS. Updates will be received from TDH's
                           agent and processed within two working days after
                           receipt.

                  (5)      Provide error reports and a reconciliation process
                           between new data and data existing in MIS.

                  (6)      Identify enrollee changes in primary care provider
                           and the reason(s) for those changes and effective
                           dates.

                  (7)      Monitor PCP capacity and limitations prior to
                           connecting the enrollee to PCP in the system, and
                           provide a kick-out report when capacity and
                           limitations are exceeded.

                  (8)      Verify enrollee eligibility for medical services
                           rendered or for other enrollee inquiries.

                  (9)      Generate and track referrals,
                           e.g., Hospitals/Specialists.

                  (10)     Search records by a variety of fields (e.g., name,
                           unique identification numbers, date of birth, SSN,
                           etc.) for eligibility verification.

                  (10)     Send PCP assignment updates to TDH in the format as
                           specified by TDH.


10.4              PROVIDER SUBSYSTEM
                  ------------------

                  The provider subsystem must accept, process, store and
                  retrieve current and historical data on providers, including
                  services, payment methodology, license information, service
                  capacity, and facility linkages.

                  Functions and Features:

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                  (1)      Identify specialty(s), admission privileges, enrollee
                           linkage, capacity, facility linkages, emergency
                           arrangements or contact, and other limitations,
                           affiliations, or restrictions.

                  (2)      Maintain provider history files to include audit
                           trails and effective dates of information.

                  (3)      Maintain provider fee schedules/remuneration
                           agreements to permit accurate payment for services
                           based on the financial agreement in effect on the
                           date of service.

                  (4)      Support HMO credentialing, recredentialing, and
                           credential tracking processes; incorporates or links
                           information to provider record.

                  (5)      Support monitoring activity for physician to enrollee
                           ratios (actual to maximum) and total provider
                           enrollment to physician and HMO capacity.

                  (6)      Flag and identify providers with restrictive
                           conditions (e g., limits to capacity, type of
                           patient, age restrictions, and other services if
                           approved out-of-network).

                  (7)      Support national provider number format (UPIN, NPIN,
                           CLIA, etc., as required by TDH).

                  (8)      Provide provider network files 90 days prior to
                           implementation and updates monthly. Format will be
                           provided by TDH to contracted entities.

                  (9)      Support the national CLIA certification numbers for
                           clinical laboratories.

                  (10)     Exclude providers from participation that have been
                           identified by TDH as ineligible or excluded. Files
                           must be updated to reflect period and reason for
                           exclusion.

10.5              ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
                  -------------------------------------

                  The encounter/claims processing subsystem must collect,
                  process, and store data on all health care services delivered
                  for which HMO is responsible. The functions of these
                  subsystems are claims/encounter processing and capturing
                  health service utilization data. The subsystem must capture
                  all health care services, including medical supplies, using
                  standard codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92 Revenue
                  Codes), rendered by health-care providers to an eligible
                  enrollee regardless

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                  of payment arrangement (e.g. capitation or fee-for-service).
                  It approves, prepares for payment, or may reject or deny
                  claims submitted. This subsystem may integrate manual and
                  automated systems to validate and adjudicate claims and
                  encounters. HMO must use encounter data validation
                  methodologies prescribed by TDH.

                  Functions and Features:

                  (1)      Accommodate multiple input methods: electronic
                           submission, tape, claim document, and media.

                  (2)      Support entry and capture of a minimum of all
                           required data elements specified in the Encounter
                           Data Submission Manual.

                  (3)      Edit and audit to ensure allowed services are
                           provided by eligible providers for Members.

                  (4)      Interface with Member and provider subsystems.

                  (5)      Capture and report TPL potential, reimbursement or
                           denial.

                  (6)      Edit for utilization and service criteria, medical
                           policy, fee schedules, multiple contracts, contract
                           periods and conditions.

                  (7)      Submit data to TDH through electronic transmission
                           using specified formats.

                  (8)      Support multiple fee schedule benefit packages and
                           capitation rates for all contract periods for
                           individual providers, groups, services, etc. A claim
                           encounter must be initially adjudicated and all
                           adjustments must use the fee applicable to the date
                           of service.

                  (9)      Provide timely, accurate, and complete data for
                           monitoring claims processing performance.

                  (10)     Provide timely, accurate, and complete data for
                           reporting medical service utilization.

                  (11)     Maintain and apply prepayment edits to verify
                           accuracy and validity of claims data for proper
                           adjudication.

                  (12)     Maintain and apply edits and audits to verify timely,
                           accurate, and complete encounter data reporting.

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                  (13)     Submit reimbursement to non-contracted providers for
                           emergency care rendered to enrollees in a timely and
                           accurate fashion.

                  (14)     Validate approval and denials of precertification and
                           prior authorization requests during adjudication of
                           claims/encounters.

                  (15)     Track and report the exact date a service was
                           performed.  Use of date ranges must have State
                           approval.

                  (16)     Receive and capture claim and encounter data from
                           TDH.

                  (17)     Receive and capture value-added services codes.

                  (18)     Capability of identifying adjustments and linking
                           them to the original claims/encounters.

10.6              FINANCIAL SUBSYSTEM
                  -------------------

                  The financial subsystem must provide the necessary data for
                  100% of all accounting functions including cost accounting,
                  inventory, fixed assets, payroll, general ledger, accounts
                  receivable, accounts payable, financial statement
                  presentation, and any additional data required by TDH. The
                  financial subsystem must provide management with information
                  that can demonstrate that the proposed or existing HMO is
                  meeting, exceeding, or falling short of fiscal goals. The
                  information must also provide management with the necessary
                  data to spot the early signs of fiscal distress, far enough in
                  advance to allow management to take corrective action where
                  appropriate.

                  Functions and Features:

                  (1)      Provide information on HMO's economic resources,
                           assets, and liabilities and present accurate
                           historical data and projections based on historical
                           performance and current assets and liabilities.

                  (2)      Produce financial statements in conformity with
                           Generally Accepted Accounting Principles (GAAP) and
                           in the format prescribed by TDH.

                  (3)      Provide information on potential third party payers;
                           information specific to the Member; claims made
                           against third party payers; collection amounts and
                           dates; denials, and reasons for denials.

                  (4)      Track and report savings by category as a result of
                           cost avoidance activities.

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                  (5)      Track payments per Member made to network providers
                           compared to utilization of the provider's services.

                  (6)      Generate Remittance and Status Reports.

                  (7)      Make claim and capitation payments to providers or
                           groups.

                  (8)      Reduce/increase accounts payable/receivable based on
                           adjustments to claims or recoveries from third party
                           resources.

10.7              UTILIIZATION/QUALITY IMPROVEMENT SUBSYSTEM
                  ------------------------------------------

                  The quality management/quality improvement/utilization review
                  subsystem combines data from other subsystems, and/or external
                  systems, to produce reports for analysis which focus on the
                  review and assessment of quality of care given, detection of
                  over and under utilization, and the development of user
                  defined reporting criteria and standards. This system profiles
                  utilization of providers and enrollees and compares them
                  against experience and norms for comparable individuals. This
                  system also supports the quality assessment function.

                  The subsystem tracks utilization control function(s) and
                  monitoring inpatient admissions, emergency room use,
                  ancillary, and out-of-area services. It provides provider
                  profiles, occurrence reporting, and monitoring and evaluation
                  studies. The subsystem may integrate HMO's manual and
                  automated processes or incorporate other software reporting
                  and/or analysis programs.

                  The subsystem incorporates and summarizes information from
                  enrollee surveys, provider and enrollee complaints, and appeal
                  processes.

                  Functions and Features:

                  (1)      Supports provider credentialing and recredentialing
                           activities.

                  (2)      Supports HMO processes to monitor and identify
                           deviations in patterns of treatment from established
                           standards or norms. Provides feedback information for
                           monitoring progress toward goals, identifying optimal
                           practices, and promoting continuous improvement.

                  (3)      Supports development of cost and utilization data by
                           provider and service.

                  (4)      Provides aggregate performance and outcome measures
                           using standardized quality indicators similar to
                           HEDIS or as specified by TDH.

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                  (5)      Supports quality-of-care Focused Studies.

                  (6)      Supports the management of referral/utilization
                           control processes and procedures, including prior
                           authorization and precertifications and denials of
                           services.

                  (7)      Monitors primary care provider referral patterns.

                  (8)      Supports functions of reviewing access, use and
                           coordination of services (i.e. actions of Peer Review
                           and alert/flag for review and/or follow-up;
                           laboratory, x-ray and other ancillary service
                           utilization per visit).

                  (9)      Stores and reports patient satisfaction data through
                           use of enrollee surveys.

                  (10)     Provides fraud and abuse detection, monitoring and
                           reporting.

                  (11)     Meets minimum report/data collection/analysis
                           functions of Article XI and Appendix A - Standards
                           For Quality Improvement Programs.

                  (12)     Monitors and tracks provider and enrollee complaints
                           and appeals from receipt to disposition or resolution
                           by provider.

10.8              REPORT SUBSYSTEM
                  ----------------

                  The reporting subsystem supports reporting requirements of all
                  HMO operations to HMO management and TDH. It allows HMO to
                  develop various reports to enable HMO management and TDH to
                  make decisions regarding HMO activity.

                  Functions and Capabilities:

                  (1)      Produces standard, TDH-required reports and ad hoc
                           reports from the data available in all MIS
                           subsystems. All reports will be submitted as a paper
                           copy or electronically in a format approved by TDH.

                  (2)      Have system flexibility to permit the development of
                           reports at irregular periods as needed.

                  (3)      Generate reports that provide unduplicated counts of
                           enrollees, providers, payments and units of service
                           unless otherwise specified.

                  (4)      Generate an alphabetic Member listing.

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                  (5)      Generate a numeric Member listing.

                  (6)      Generate a Member eligibility listing by PCP (panel
                           report).

                  (7)      Report on PCP change by reason code.

                  (8)      Report on TPL (COB) information to TDH.

                  (9)      Report on provider capacity and assignment from date
                           of service to date received.

                  (10)     Generate or produce an aged outstanding liability
                           report.

                  (11)     Produce a Member ID Card.

                  (12)     Produce Member/provider mailing labels.

10.9              DATA INTERFACE SUBSYSTEM
                  ------------------------

10.9.1            The interface subsystem supports incoming and outgoing data
                  from and to other organizations. It allows HMO to maintain
                  enrollee, benefit package, eligibility,
                  disenrollment/enrollment status, and medical services received
                  outside of capitated services and associated cost. All
                  interfaces must follow the specifications frequencies and
                  formats listed in the Interface Manual.

10.9.2            HMO must obtain access to the TexMedNet BBS. Some file
                  transfers and E-mail will be handled through this mechanism.

10.9.3            Provider Network File. The provider file shall supply Network
                  Provider data between an HMO and TDH. This process shall
                  accomplish the following:

                  (1)      Provide identifying information for all managed care
                           providers (e.g. name, address, etc.).

                  (2)      Maintain history on provider
                           enrollment/disenrollment.

                  (3)      Identify PCP capacity.

                  (4)      Identify any restrictions (e.g., age, sex, etc.).

                  (5)      Identify number and types of specialty providers
                           available to Members.

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10.9.4            Eligibility/Enrollment Interface. The enrollment interface
                  must provide eligibility data between TDH and HMOs.

                  (1)      Provides benefit package data to HMOs in accordance
                           with capitated services.

                  (2)      Provides PCP assignments.

                  (3)      Provides Member eligibility status data.

                  (4)      Provides Member demographics data.

                  (5)      Provides HMOs with cross-reference data to identify
                           duplicate Members.

10.9.5            Encounter/Claim Data Interface. The encounter/claim interface
                  must transfer paid fee-for-service claims data to HMOs and
                  capitated services/encounters from HMO, including adjustments.
                  This file will include all service types, such as inpatient,
                  outpatient, and medical services. TDH's agent will process
                  claims for non-capitated services.

10.9.6            Capitation Interface. The capitation interface must transfer
                  premium and Member information to HMO. This interface's basic
                  purpose is to balance HMO's Members and premium amount.

10.9.7            TPR Interface. TDH will provide a data file that contains
                  information on enrollees that have other insurance. Because
                  Medicaid is the payer of last resort, all services and
                  encounters should be billed to the other insurance companies
                  for recovery. TDH will also provide an insurance company data
                  file which contains the name and address of each insurance
                  company.

10.9.8            TDH will provide a diagnosis file which will give the code and
                  description of each diagnosis permitted by TDH.

10.9.9            TDH will provide a procedure file which contains the
                  procedures which must be used on all claims and encounters.
                  This file contains HCPCS, revenue, and ICD9-CM surgical
                  procedure codes.

10.9.10           TDH will provide a provider file that contains the Medicaid
                  provider numbers, and the provider's names and addresses. The
                  provider number authorized by TDH must be submitted on all
                  claims, encounters, and network provider submissions.

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10.10             TPR SUBSYSTEM
                  -------------

                  HMO's third party recovery system must have the following
                  capabilities and capacities:

                  (1)      Identify, store, and use other health coverage
                           available to eligible Members or third party
                           liability (TPL) including type of coverage and
                           effective dates.

                  (2)      Provide changes in information to TDH as specified by
                           TDH.

                  (3)      Receive TPL data from TDH to be used in claim and
                           encounter processing.

10.11             YEAR 2000 (Y2K) COMPLIANCE
                  --------------------------

10.11.1           HMO must take all appropriate measures to make all software
                  which will record, store, and process and present calendar
                  dates falling on or after January 1, 2000, perform in the same
                  manner and with the same functionality, data integrity and
                  performance, as dates falling on or before December 31, 1999,
                  at no added cost to TDH. HMO must take all appropriate
                  measures to ensure that the software will not lose, alter or
                  destroy records containing dates falling on or after January
                  1, 2000. HMO will ensure that all software will interface and
                  operate with all TDH, or its agent's, data systems which
                  exchange data, including but not limited to historical and
                  archived data. In addition, HMO guarantees that the year 2000
                  leap year calculations will be accommodated and will not
                  result in software, firmware or hardware failures.

10.11.2           TDH and all subcontracted entities are required by state and
                  federal law to meet Y2K compliance standards. Failure of TDH
                  or a TDH contractor other than an HMO to meet Y2K compliance
                  standards which results in an HMO's failure to meet the Y2K
                  requirements of this contract is a defense of an HMO against a
                  declaration by TDH of default by an HMO under this contract.


ARTICLE XI    QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM


11.1              QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM
                  ----------------------------------------

                  HMO must develop, maintain, and operate a Quality Improvement
                  Program (QIP) system which complies with federal regulations
                  relating to Quality Assurance systems, found at 42 C.F.R.
                  ss. 434.34. The system must meet the Standards for Quality
                  Improvement Programs contained in Appendix A.

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<PAGE>
11.2              WRITTEN QIP PLAN
                  -----------------

                  HMO must have on file with TDH an approved plan describing its
                  Quality Improvement Plan (QIP), including how HMO will
                  accomplish the activities pertaining to each Standard (I-XVI)
                  in Appendix A. Modifications and amendments must be submitted
                  to TDH no later than 60 days prior to the implementation of
                  the modification or amendment.

11.3              QIP SUBCONTRACTING
                  ------------------

                  If HMO subcontracts any of the essential functions or
                  reporting requirements of QIP to another entity, HMO must
                  maintain a file of the subcontractors. The file must be
                  available for review by TDH or its designee upon request. HMO
                  must notify TDH no later than 90 days prior to terminating any
                  subcontract affecting a major performance function of this
                  contract (see Article 3.2.1.2).

11.4              ACCREDITATION
                  -------------

                  If HMO is accredited by an external accrediting agency,
                  documentation of accreditation must be provided to TDH. HMO
                  must provide TDH with their accreditation status upon request.

11.5              BEHAVIORAL HEALTH INTEGRATION INTO QIP
                  --------------------------------------

                  HMO must integrate behavioral health into its QIP system and
                  include a systematic and on-going process for monitoring,
                  evaluating, and improving the quality and appropriateness of
                  behavioral health care services provided to Members. HMO's QIP
                  must enable HMO to collect data, monitor and evaluate for
                  improvements to physical health outcomes resulting from
                  behavioral health integration into the overall care of the
                  Member.

11.6              QIP REPORTING REQUIREMENTS
                  --------------------------

                  HMO must meet all of the QIP Reporting Requirements contained
                  in Article XII.

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ARTICLE XII   REPORTING REQUIREMENTS

12.1              FINANCIAL REPORTS
                  -----------------

12.1.1            Monthly MCFS Report. HMO must submit the Managed Care
                  Financial-Statistical Report (MCFS) included in Appendix I.
                  The report must be submitted to TDH no later than 30 days
                  after the end of each state fiscal year quarter (i.e., Dec.
                  30, March 30, June 30, Sept. 30) and must include complete
                  financial and statistical information for each month. The MCFS
                  Report must be submitted for each claims processing
                  subcontractor in accordance with this Article. HMO must
                  incorporate financial and statistical data received by its
                  delegated networks (IPAs, ANHCs, Limited Provider Networks) in
                  its MCFS Report.

12.1.2            For any given month in which an HMO has a net loss of $200,000
                  or more for the contract period to date, HMO must submit an
                  MCFS Report for that month by the 30th day after the end of
                  the reporting month. The MCFS Report must be completed in
                  accordance with the Instructions for Completion of the Managed
                  Care Financial-Statistical Report developed by TDH.

12.1.3            An HMO must submit monthly reports for each of the first 6
                  months following the Implementation Date. If the cumulative
                  net loss for the contract period to date after the 6th month
                  is less than $200,000, HMO may submit quarterly reports in
                  accordance with the above provisions unless the condition in
                  Article 12.1.2 exists, in which case monthly reports must be
                  submitted.

12.1.4            Final MCFS Reports. HMO must file two Final Managed Care
                  ------------------
                  Financial-Statistical Reports. The first final report must
                  reflect expenses incurred through the 90th day after the end
                  of the contract year. The first final report must be filed on
                  or before the 120th day after the end of the contract year.
                  The second final report must reflect data completed through
                  the 334th day after the end of the contract year and must be
                  filed on or before the 365th day following the end of the
                  contract year.

12.1.5            Administrative expenses reported in the monthly and Final MCFS
                  Reports must be reported in accordance with Appendix L, Cost
                  Principles for Administrative Expenses. Indirect
                  administrative expenses must be based on an allocation
                  methodology for Medicaid managed care activities and services
                  that is developed or approved by TDH.

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12.1.6            Affiliate Report. HMO must submit an Affiliate Report to TDH
                  ----------------
                  if this information has changed since the last report was
                  submitted. The report must contain the following information:

12.1.6.1          A listing of all Affiliates; and

12.1.6.2          A schedule of all transactions with Affiliates which, under
                  the provisions of this Contract, will be allowable as expenses
                  in either Line 4 or Line 5 of Part 1 of the MCFS Report for
                  services provided to HMO by the Affiliates for the prior
                  approval of TDH. Include financial terms, a detailed
                  description of the services to be provided, and an estimated
                  amount which will be incurred by HMO for such services during
                  the Contract period.

12.1.7            Annual Audited Financial Report. On or before June 30th of
                  -------------------------------
                  each year, HMO must submit to TDH a copy of the annual audited
                  financial report filed with TDI.

12.1.8            Form HCFA-1513. HMO must file an updated Form HCFA-1513
                  --------------
                  regarding control, ownership, or affiliation of HMO 30 days
                  prior to the end of the contract year. An updated Form HCFA
                  1513 must also be filed no later than 30 days after any change
                  in control, ownership, or affiliation of HMO. Forms may be
                  obtained from TDH.

12.1.9            Section 1318 Financial Disclosure Report. HMO must file an
                  ----------------------------------------
                  updated HCFA Public Health Service (PHS) "Section 1318
                  Financial Disclosure Report" no later than 30 days after the
                  end of the contract year and no later than 30 days after
                  entering into, renewing, or terminating a relationship with an
                  affiliated party. These forms may be obtained from TDH.

12.1.10           TDI Examination Report. HMO must furnish a copy of any TDI
                  ----------------------
                  Examination Report no later than 10 days after receipt of the
                  final report from TDI.

12.1.11           IBNR Plan. HMO must furnish a written IBNR Plan to manage
                  ---------
                  incurred-but-not-reported (IBNR) expenses, and a description
                  of the method of insuring against insolvency, including
                  information on all existing or proposed insurance policies.
                  The Plan must include the methodology for estimating IBNR. The
                  plan and description must be submitted to TDH no later than 60
                  days after the effective date of this contract, unless
                  previously submitted to TDH. Changes to the IBNR plan and
                  description must be submitted to TDH no later than 30 days
                  before changes to the plan are implemented by HMO.

12.1.12           Third Party Recovery (TPR) Reports. HMO must file quarterly
                  ----------------------------------
                  Third Party Recovery (TPR) Reports in accordance with the
                  format developed by TDH. TPR reports must

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<PAGE>


                  include total dollars recovered from third party payers for
                  services to HMO's Members for each month and the total dollars
                  recovered through coordination of benefits, subrogation, and
                  worker's compensation.

12.1.13           Each report required under this Article must be mailed to:
                  Bureau of Managed Care; Texas Dept. of Health; 1100 West 49th
                  Street; Austin, TX 78756-3168 (Exception: The MCFS Report may
                  be submitted to TDH via E-mail). HMO must also mail a copy of
                  the reports, except for items in Article 12.1.7 and Article
                  12.1.10 to Texas Department of Insurance, Mail Code 106-3A,
                  HMO Division, Attention: HMO Division Director, P.O. Box
                  149104, Austin, TX 78714-9104.

12.2              STATISTICAL REPORTS
                  -------------------

12.2.1            HMO must electronically file the following monthly reports:
                  (1) encounter; (2) encounter detail; (3) institutional; (4)
                  institutional detail; and (5) claims detail for
                  cost-reimbursed services filed, if any, with HMO. Encounter
                  data must include the data elements, follow the format, and
                  use the transmission method specified by TDH in the Encounter
                  Data Submission Manual. Encounters must be submitted by HMO to
                  TDH no later than 45 days after the date of adjudication
                  (finalization) of the claims.

12.2.2            Monthly reports must include current month encounter data and
                  encounter data adjustments to the previous month's data.

12.2.3            Data quality standards will be developed jointly by HMO and
                  TDH. Encounter data must meet or exceed data quality
                  standards. Data that does not meet quality standards must be
                  corrected and returned within the period specified by TDH.
                  Original records must be made available to validate all
                  encounter data.

12.2.4            HMO must require providers to submit claims and encounter data
                  to HMO no later than 95 days after the date services are
                  provided.

12.2.5            HMO must use the procedure codes, diagnosis codes and other
                  codes contained in the most recent edition of the Texas
                  Medicaid Provider Procedures Manual and as otherwise provided
                  by TDH. Exceptions or additional codes must be submitted for
                  approval before HMO uses the codes.

12.2.6            HMO must use its TDH-specified identification numbers on all
                  encounter data submissions. Please refer to the TDH Encounter
                  Data Submission Manual for further specifications.

12.2.7            HMO must validate all encounter data using the encounter data
                  validation methodology prescribed by TDH prior to submission
                  of encounter data to TDH.

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<PAGE>

12.2.8            All Claims Summary Report. HMO must submit the "All Claims
                  -------------------------
                  Summary Report" identified in the Texas Managed Care Claims
                  Manual as a contract year-to-date report. The report must be
                  submitted quarterly by the last day of the month following the
                  reporting period. The reports must be submitted to TDH in a
                  format specified by TDH.

12.2.9            Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
                  ------------------------------------------------------
                  must file preliminary and final Medicaid Disproportionate
                  Share Hospital (DSH) reports, required by TDH to identify and
                  reimburse hospitals that qualify for Medicaid DSH funds. The
                  preliminary and final DSH reports must include the data
                  elements and be submitted in the form and format specified by
                  TDH. The preliminary DSH reports are due on or before June 1
                  of the year following the state fiscal year for which data is
                  being reported. The final DSH reports are due on or before
                  August 15 of the year following the state fiscal year for
                  which data is being reported.

12.3              ARBITRATION/LITIGATION CLAIMS REPORT
                  ------------------------------------

                  HMO must submit an Arbitration/Litigation Claims Report in a
                  format provided by TDH (see Appendix M) identifying all
                  provider or HMO requests for arbitration or matters in
                  litigation. The report must be submitted within 30 days from
                  the date the matter is referred to arbitration or suit is
                  filed, or whenever there is a change of status in a matter
                  referred to arbitration or litigation.

12.4              SUMMARY REPORT OF PROVIDER COMPLAINTS
                  -------------------------------------

                  HMO must submit a Summary Report of Provider Complaints. HMO
                  must also report complaints submitted to its subcontracted
                  risk groups (e.g., IPAs). The complaint report must be
                  submitted in two paper copies and one electronic copy on or
                  before the 45 days following the end of the state fiscal
                  quarter using a form specified by TDH.

12.5              PROVIDER NETWORK REPORTS
                  ------------------------

12.5.1            Provider Network Report. HMO must submit to the Enrollment
                  -----------------------
                  Broker an electronic file summarizing changes in HMO's
                  provider network including PCPs, specialists, ancillary
                  providers and hospitals. The file must indicate if the PCPs
                  and specialists participate in a closed network and the name
                  of the delegated network. The electronic file must be
                  submitted in the format specified by TDH and can be submitted
                  as often as daily but must be submitted at least weekly.

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<PAGE>


12.5.2            Provider Termination Report. HMO must submit a monthly report
                  ---------------------------
                  which identifies any providers who cease to participate in
                  HMO's provider network, either voluntarily or involuntarily.
                  The report must be submitted to TDH in the format specified by
                  TDH. HMO will submit the report no later than thirty (30) days
                  after the end of the reporting month. The information must
                  include the provider's name, Medicaid number, the reason for
                  the provider's termination, and whether the termination was
                  voluntary or involuntary.

12.6              MEMBER COMPLAINTS
                  ----------------
                  HMO must submit a quarterly summary report of Member
                  complaints. HMO must also report complaints submitted to its
                  subcontracted risk groups (e.g., IPAs). The complaint report
                  format must be submitted to TDH as two paper copies and one
                  electronic copy on or before 45 days following the end of the
                  state fiscal quarter using a form specified by TDH.

12.7              FRAUDULENT PRACTICES
                  --------------------

                  HMO must report all fraud and abuse enforcement actions or
                  investigations taken against HMO and/or any of its
                  subcontractors or providers by any state or federal agency for
                  fraud or abuse under Title XVIII or Title XIX of the Social
                  Security Act or any State law or regulation and any basis upon
                  which an action for fraud or abuse may be brought by a State
                  or federal agency as soon as such information comes to the
                  attention of HMO.

12.8              UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
                  --------------------------------------------------

                  Behavioral health (BH) utilization management reports are
                  required on a semi-annual basis with submission of data files
                  that are, at a minimum, due to TDH or its designee, on a
                  quarterly basis no later than 150 days following the end of
                  the period. Refer to Appendix H for the standardized reporting
                  format for each report and detailed instructions, for
                  obtaining the specific data required in the report and for
                  data file submission specifications. The BH utilization report
                  and data file submission instructions may periodically be
                  updated by TDH to facilitate clear communication to the health
                  plan.

12.9              UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
                  ------------------------------------------------

                  Physical health (PH) utilization management reports are
                  required on a semi-annual basis with submission of data files
                  that are, at a minimum, due to TDH or its designee on a
                  quarterly basis no later than 150 days following the end of
                  the period. Refer to Appendix J for the standardized reporting
                  format for each report and detailed

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<PAGE>

                  instructions for obtaining specific data required in the
                  report and for data file submission specifications. The PH
                  Utilization Management Report and data file submission
                  instructions may periodically be updated by TDH to facilitate
                  clear communication to the health plan.

12.10             QUALITY IMPROVEMENT REPORTS
                  ---------------------------

12.10.1           HMO must conduct health Focused Studies in well child and
                  pregnancy, and a study chosen by HMO that may be performed in
                  the areas of behavioral health care, asthma, or other chronic
                  conditions. Well child and pregnancy studies shall be
                  conducted and data collected using criteria and methods
                  developed by TDH. The following format shall be utilized:

                  (1)      Executive Summary.

                  (2)      Definition of the population and health areas of
                           concern.

                  (3)      Clinical guidelines/standards, quality indicators,
                           and audit tools.

                  (4)      Sources of information and data collection
                           methodology.

                  (5)      Data analysis and information/results.

                  (6)      Corrective actions if any, implementation, and
                           follow-up plans including monitoring, assessment of
                           effectiveness, and methods for provider feedback.

12.10.2           Annual Focused Studies. Focused Studies on well child,
                  ----------------------
                  pregnancy, and a study chosen by the plan, must be submitted
                  to TDH according to due dates established by TDH.

12.10.3           Annual QIP Summary Report. An annual QIP summary report must
                  -------------------------
                  be conducted yearly based on the state fiscal year. The annual
                  QIP summary report must be submitted by March 31 of each year.
                  This report must provide summary information on HMO's QIP
                  system and include the following:

                  (1)      Executive summary of QIP - include results of all QI
                           reports and interventions.

                  (2)      Activities pertaining to each standard (I through
                           XVI) in Appendix A. Report must list each standard.

                  (3)      Methodologies for collecting, assessing data and
                           measuring outcomes.

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                  (4)      Tracking and monitoring quality of care.

                  (5)      Role of health professionals in QIP review.

                  (6)      Methodology for collection data and providing
                           feedback to provider and staff.

                  (7)      Outcomes and/or action plan.

12.10.4           Provider Medical Record Audit and Report. HMO is required to
                  ----------------------------------------
                  conform to commonly accepted medical record standards such as
                  those used by, NCQA, JCAHO, or those used for credentialing
                  review such as the Texas Environment of Care Assessment
                  Program (TECAP), and have documentation on file at HMO for
                  review by TDH or its designee during an on-site review.

12.11             HUB REPORTS
                  -----------

                  HMO must submit quarterly reports documenting HMO's HUB
                  program efforts and accomplishments. The report must include a
                  narrative description of HMO's program efforts and a financial
                  report reflecting payments made to HUB. HMO must use the
                  format included in Appendix B for HUB quarterly reports. For
                  HUB Certified Entities: HMO must include the General Service
                  Commission (GSC) Vendor Number and the ethnicity/gender under
                  which a contracting entity is registered with GSC. For HUB
                  Qualified (but not certified) Entities: HMO must include the
                  ethnicity/gender of the major owner(s) (51%) of the entity.
                  Any entities for which HMO cannot provide this information,
                  cannot be included in the HUB report. For both types of
                  entities, an entity will not be included in the HUB report if
                  HMO does not list ethnicity/gender information.

12.12             THSTEPS REPORTS
                  ---------------

                  Minimum reporting requirements. HMO must submit, at a minimum,
                  80% of all THSteps checkups on HCFA 1500 claim forms as part
                  of the encounter file submission to the TDH Claims
                  Administrator no later than thirty (30) days after the date of
                  final adjudication (finalization) of the claims. Failure to
                  comply with these minimum reporting requirements will result
                  in Article XVIII sanctions and money damages.

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<PAGE>

ARTICLE XIII  PAYMENT PROVISIONS


13.1              CAPITATION AMOUNTS
                  ------------------

13.1.1            TDH will pay HMO monthly premiums calculated by multiplying
                  the number of Member months by Member risk group times the
                  monthly capitation amount by Member risk group. HMO and
                  network providers are prohibited from billing or collecting
                  any amount from a Member for health care services covered by
                  this contract, in which case the Member must be informed of
                  such costs prior to providing non-covered services.

13.1.2            Delivery Supplemental Payment (DSP). TDH has submitted the
                  delivery supplemental payment methodology to HCFA for
                  approval. The monthly capitation amounts established for each
                  risk group in the Travis Service Area using the DSP
                  methodology will apply only if the methodology is approved by
                  HCFA, and the methodology is implemented for all HMO's in all
                  existing service areas by contract. The monthly capitation
                  amounts for September 1, 1999, through August 31, 2000 and the
                  DSP amount are listed below and will supersede the standard
                  Methodology of Article 13.1.3 upon approval by HCFA.

                  --------------------------------------------------------------
                  Risk Group                     Monthly Capitation Amounts
                                                 September 1, 1999 - August 31,
                                                 2000
                  --------------------------------------------------------------
                  TANF Adults                             $107.58
                  --------------------------------------------------------------
                  TANF Children > 12 Months                $57.03
                  of Age
                  --------------------------------------------------------------
                  Expansion Children > 12                  $73.44
                  Months of Age
                  --------------------------------------------------------------
                  Newborns (<12 Months of                 $390.55
                  Age)
                  --------------------------------------------------------------
                  TANF Children < 12 Months               $390.55
                  of Age
                  --------------------------------------------------------------
                  Expansion Children < 12                 $390.55
                  Months of Age
                  --------------------------------------------------------------
                  Federal Mandate Children                 $41.89
                  --------------------------------------------------------------

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<PAGE>
                  --------------------------------------------------------------
                  CHIP Phase I                             $71.71
                  --------------------------------------------------------------
                  Pregnant Women                          $164.78
                  --------------------------------------------------------------
                  Disabled/Blind Administration            $14.00
                  --------------------------------------------------------------

                  Delivery Supplemental Payment: A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO as
                  provided below in the following amount: $2,817.00.

13.1.2.1          HMO will receive a DSP for each live or still birth. The
                  one-time payment is made regardless of whether there is a
                  single or multiple births at time of delivery. A delivery is
                  the birth of a liveborn infant, regardless of the duration of
                  the pregnancy, or a stillborn (fetal death) infant of 20 weeks
                  or more gestation. A delivery does not include a spontaneous
                  or induced abortion, regardless of the duration of the
                  pregnancy.

13.1.2.2          For an HMO Member who is classified in the Pregnant Women,
                  TANF Adults, TANF Children >12 months, Expansion Children >12
                  months, Federal Mandate Children >12 months, or CHIP risk
                  group, HMO will be paid the monthly capitation amount
                  identified in Article 13.1.2 for each month of classification,
                  plus the DSP amount identified in Article 13.1.2.

13.1.2.3          HMO must submit a monthly DSP Report (report) that includes
                  the data elements specified by TDH. TDH will consult with
                  contracted HMOs prior to revising the report data elements and
                  requirements. The reports must be submitted to TDH in the
                  format and time specified by TDH. The report must include only
                  unduplicated deliveries. The report must include only
                  deliveries for which HMO has made a payment for the delivery,
                  to either a hospital or other provider. No DSP will be made
                  for deliveries which are not reported by HMO to TDH within 90
                  days from the receipt of claim, or within 30 days from the
                  date of discharge from the hospital for the stay related to
                  the delivery, whichever is later.

13.1.2.4          HMO must maintain complete claims and adjudication disposition
                  documentation, including paid and denied amounts for each
                  delivery. HMO must submit the documentation to TDH within five
                  (5) days from the date of TDH request for documents.

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<PAGE>

13.1.2.5          The DSP will be made by TDH to HMO within twenty (20) state
                  working days after receiving an accurate report from HMO.

13.1.2.6          All infants of age equal to or less than twelve months
                  (Newborns) in the TANF Children, Expansion Children, and
                  Newborns risk groups will be capitated at the Newborns
                  classification capitation amount in Article 13.1.2.

13.1.3            Standard Methodology. If the DSP methodology is not approved
                  by HCFA, the monthly capitation amounts established for each
                  risk group in the Travis Service Area using the Methodology
                  set forth in Article 13.1.1, without the DSP, are as follows:

                  --------------------------------------------------------------
                  Risk Group                     Monthly Capitation Amounts
                                                 September 1,1999 - August 31,
                                                 2000
                  --------------------------------------------------------------
                  TANF Adults                             $138.32
                  --------------------------------------------------------------
                  TANF Children                            $75.09
                  --------------------------------------------------------------
                  Expansion Children                       $90.48
                  --------------------------------------------------------------
                  Newborns                                $455.14
                  --------------------------------------------------------------
                  Federal Mandate Children                 $42.25
                  --------------------------------------------------------------
                  CHIP Phase I                             $77.26
                  --------------------------------------------------------------
                  Pregnant Women                          $546.69
                  --------------------------------------------------------------
                  Disabled/Blind Administration            $14.00
                  --------------------------------------------------------------

13.1.4            TDH will re-examine the capitation rates paid to HMO under
                  this contract during the first year of the contract period and
                  will provide HMO with capitation rates for the second year of
                  the contract period no later than 30 days before the date of
                  the one-year anniversary of the contract's effective date.
                  Capitation rates for state fiscal year 2001 will be
                  re-examined based on the most recent available traditional
                  Medicaid cost data for the contracted risk groups in the
                  service area, trended forward and discounted.

13.1.4.1          Once HMO has received their capitation rates established by
                  TDH for the second year of this contract, HMO may terminate
                  this contract as provided in Article 18.1.6 of this contract.
                  HMO may also terminate this contract as provided in Article
                  18.1.6 if HCFA does not approve the Delivery Supplemental
                  Payment Methodology described

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<PAGE>

                  in Article 13.1.2.

13.1.5            The monthly premium payment to HMO is based on monthly
                  enrollments adjusted to reflect money damages set out in
                  Article 18.8 and adjustments to premiums in Article 13.4

13.1.6            The monthly premium payments will be made to HMO no later than
                  the 10th working day of the month for which premiums are paid.
                  HMO must accept payment for premiums by direct deposit into an
                  HMO account.

13.1.7            Payment of monthly capitation amounts is subject to
                  availability of appropriations. If appropriations are not
                  available to pay the full monthly capitation amounts, TDH will
                  equitably adjust capitation amounts for all participating
                  HMOs, and reduce scope of service requirements as appropriate.

13.1.8            HMO renewal rates reflect program increases appropriated by
                  the 76th legislature for physician (to include THSteps
                  providers) and outpatient facility services. HMO must report
                  to TDH any change in rates for participating physicians (to
                  include THSteps providers) and outpatient facilities resulting
                  from this increase. The report must be submitted to TDH at the
                  end of the first quarter of the FY2000 and FY2001 contract
                  years according to the deliverables matrix schedule set for
                  HMO.

13.2              EXPERIENCE REBATE TO STATE

13.2.1            For fiscal year 2000, HMO must pay to TDH the State's portion
                  of an experience rebate calculated in accordance with the
                  tiered rebate method listed below based on the excess of
                  allowable HMO STAR revenues over allowable HMO STAR expenses
                  as measured by any positive amount on Line 7 of "Part 1:
                  Financial Summary, All Coverage Groups Combined" of the annual
                  Managed Care Financial-Statistical Report set forth in
                  Appendix I, as reviewed and confirmed by TDH. TDH reserves the
                  right to have an independent audit performed to verify the
                  information provided by HMO.

--------------------------------------------------------------------------------
                             Graduated Rebate Method
--------------------------------------------------------------------------------
       Excess as a Percentage        HMO Share of             State Share of
           of Revenues              Experience Rebate        Experience Rebate
--------------------------------------------------------------------------------
       0% - 3%                    100% of excess between   0% of excess between
                                   0% and 3%-of revenues   0% and 3% of revenues
--------------------------------------------------------------------------------
       Over 3% - 7%                75% of excess >3% and     25% of excess >3%
                                      <7% of revenues       and <7% of revenues
                                      -                         -
--------------------------------------------------------------------------------
       Over 7% - 10%                50% of excess >7% and    50% of excess >7%
                                      <10% of revenues      and <10% of revenues
                                      -                         -
--------------------------------------------------------------------------------

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<PAGE>

--------------------------------------------------------------------------------
       Over 10% - 15%                25% of excess >10%      75% of excess >10%
                                    and <15% of revenues    and <15% of revenues
                                        -                       -
--------------------------------------------------------------------------------
       Over 15%                     0% of excess of 15% of   100% of excess over
                                        revenues                 15% of revenues
--------------------------------------------------------------------------------

13.2.2            Carry Forward of Prior Contract Period Losses: Losses incurred
                  for one contract period can only be carried forward to the
                  next contract period.

13.2.2.1          Carry Forward of Loss from one Service Delivery Area to
                  Another: If HMO operates in multiple Service Delivery Areas
                  (SDAs), losses in one SDA cannot be used to offset net income
                  before taxes in another SDA.

13.2.3            Experience rebate will be based on a pre-tax basis.

13.2.4            Population-Based Initiatives (PBIs) and Experience Rebates:
                  HMO may subtract from an experience rebate owed to the State,
                  expenses for population-based health initiatives that have
                  been approved by TDH. A population-based initiative (PBI) is a
                  project or program designed to improve some aspect of quality
                  of care, quality of life, or health care knowledge for the
                  community as a whole. Value-added service does not constitute
                  a PBI. Contractually required services and activities do not
                  constitute a PBI.

13.2.5            There will be two settlements for payment(s) of the state
                  share of the experience rebate. The first settlement shall
                  equal 100 percent of the state share of the experience rebate
                  as derived from Line 7 of Part 1 (Net Income Before Taxes) of
                  the annual Managed Care Financial Statistical (MCFS) Report
                  and shall be paid on the same day the first annual MCFS Report
                  is submitted to TDH. The second settlement shall be an
                  adjustment to the first settlement and shall be paid to TDH on
                  the same day that the second annual MCFS Report is submitted
                  to TDH if the adjustment is a payment from HMO to TDH. TDH or
                  its agent may audit or review the MCFS reports. If TDH
                  determines that corrections to the MCFS reports are required,
                  based on a TDH audit/review or other documentation acceptable
                  to TDH, to determine an adjustment to the amount of the second
                  settlement, then final adjustment shall be made within two
                  years from the date that HMO submits the second annual MCFS
                  report. HMO must pay the first and second settlements on the
                  due dates for the first and second MCFS reports respectively
                  as identified in Article 12.1.5. TDH may adjust the experience
                  rebate if TDH determines HMO has paid affiliates amounts for
                  goods or services that are higher than the fair market value
                  of the goods and services in the service area. Fair market
                  value may be based on the amount HMO pays a non-affiliate(s)
                  or the amount another HMO pays for the same or similar service
                  in the service area. TDH has final authority in auditing and
                  determining the amount of the experience rebate.

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<PAGE>

13.3              PERFORMANCE OBJECTIVES
                  ----------------------

13.3.1            Preventive Health Performance Objectives are contained in this
                  contract at Appendix K. These reports are submitted annually
                  and must be submitted no later than 150 days after the end of
                  the State fiscal year.

13.4              ADJUSTMENTS TO PREMIUM
                  ----------------------

13.4.1            TDH may recoup premiums paid to HMO in error. Error may be
                  either human or machine error on the part of TDH or an agent
                  or contractor of TDH. TDH may recoup premiums paid to HMO if a
                  Member is enrolled into HMO in error, and HMO provided no
                  covered services to Member for the period of time for which
                  premium was paid. If services were provided to Member as a
                  result of the error, recoupment will not be made.

13.4.2            TDH may recoup premium paid to HMO if a Member for whom
                  premium is paid moves outside the United States, and HMO has
                  not provided covered services to the Member for the period of
                  time for which premium has been paid. TDH will not recoup
                  premium if HMO has provided covered services to the Member
                  during the period of time for which premium has been paid.

13.4.3            TDH may recoup premium paid to HMO if a Member for whom
                  premium is paid dies before the first day of the month for
                  which premium is paid.

13.4.4            TDH may recoup or adjust premium paid to HMO for a Member if
                  the Member's eligibility status or program type is changed,
                  corrected as a result of error, or is retroactively adjusted.

13.4.5            Recoupment or adjustment of premium under Articles 13.4.1
                  through 13.4.4 may be appealed using the TDH dispute
                  resolution process.

13.4.6            TDH may adjust premiums for all Members within an eligibility
                  status or program type if adjustment is required by reductions
                  in appropriations and/or if a benefit or category of benefits
                  is excluded or included as a covered service. Adjustment must
                  be made by amendment as required by Article 15.2. Adjustment
                  to premium under this subsection may not be appealed using the
                  TDH dispute resolution process.


ARTICLE XIV   ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

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<PAGE>

14.1              ELIGIBILITY DETERMINATION
                  -------------------------

14.1.1            TDH will identify Medicaid recipients who are eligible for
                  participation in the STAR program using the eligibility status
                  described below.

14.1.2            Individuals in the following categories who reside in any part
                  of the Service Area must enroll in one of the health plans
                  providing services in the Service Areas:

14.1.2.1          TANF ADULTS - Individuals age 21 and over who are eligible for
                  the TANF program. This category may also include some pregnant
                  women.

14.1.2.2          TANF CHILDREN - Individuals under age 21 who are eligible for
                  the TANF program. This category may also include some pregnant
                  women and some children less than one year of age.

14.1.2.3          PREGNANT WOMEN receiving Medical Assistance Only (MAO) -
                  Pregnant women whose families' income is below 185% of the
                  Federal Poverty Level (FPL).

14.1.2.4          NEWBORN (MAO) - Children under age one born to
                  Medicaid-eligible mothers.

14.1.2.5          EXPANSION CHILDREN (MAO) - Children under age 18, ineligible
                  for TANF because of the applied income of their stepparents or
                  grandparents.

14.1.2.6          EXPANSION CHILDREN (MAO) - Children under age 1 whose
                  families' income is below 185% FPL.

14.1.2.7          EXPANSION CHILDREN MAO - Children age 1- 5 whose families'
                  income is at or below 133% of FPL.

14.1.2.8          FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born
                  before October 10, 1983, whose families' income is below the
                  TANF income limit.

14.1.2.9          CHIP PHASE I - Children's Health Insurance Program Phase I
                  (Federal Mandate Acceleration) Children under age nineteen
                  (19) born before October 1, 1983, with family income below
                  100% Federal Poverty Income Level.

14.1.3            The following individuals are eligible for the STAR Program
                  and are not required to enroll in a health plan but have the
                  option to enroll in a plan. HMO will be required to accept
                  enrollment of those Medicaid recipients from this group who
                  elect to enroll in HMO.

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<PAGE>

14.1.3.1          DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients
                  with Supplemental Security Income (SSI) benefits who are not
                  eligible for Medicare may elect to participate in the STAR
                  program on a voluntary basis.

14.1.3.2          Certain blind or disabled individuals who lose SSI eligibility
                  because of Title II income and who are not eligible for
                  Medicare.

14.1.4            During the period after which the Medicaid eligibility
                  determination has been made but prior to enrollment in HMO,
                  Members will be enrolled under the traditional Medicaid
                  program. All Medicaid-eligible recipients will remain in the
                  fee-for-service Medicaid program until enrolled in or assigned
                  to an HMO.

14.2              ENROLLMENT
                  ----------

14.2.1            TDH has the right and responsibility to enroll and disenroll
                  eligible individuals into the STAR program. TDH will conduct
                  continuous open enrollment for Medicaid recipients and HMO
                  must accept all persons who chose to enroll as Members in HMO
                  or who are assigned as Members in HMO by TDH, without regard
                  to the Member's health status or any other factor.

14.2.2            All enrollments are subject to the accessibility and
                  availability limitations and restrictions contained in the
                  ss. 1915(b) waiver obtained by TDH. TDH has the authority to
                  limit enrollment into HMO if the number and distance
                  limitations are exceeded.

14.2.3            TDH makes no guarantees or representations to HMO regarding
                  the number of eligible Medicaid recipients who will ultimately
                  be enrolled as STAR Members of HMO.

14.2.4            HMO must cooperate and participate in all TDH sponsored and
                  announced enrollment activities. HMO must have a
                  representative at all TDH enrollment activities unless an
                  exception is given by TDH. The representative must comply with
                  HMO's cultural and linguistic competency plan (see Cultural
                  and Linguistic requirements in Article 8.9). HMO must provide
                  marketing materials, HMO pamphlets, Member Handbooks, a list
                  of network providers, HMO's linguistic and cultural
                  capabilities and other information requested or required by
                  TDH or its Enrollment Broker to assist potential Members in
                  making informed choices.

14.2.5            TDH will provide HMO with at least 10 days written notice of
                  all TDH planned activities. Failure to participate in, or send
                  a representative to a TDH sponsored enrollment activity is a
                  default of the terms of the contract. Default may be excused

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<PAGE>

                  if HMO can show that TDH failed to provide the required
                  notice, or if HMO's absence is excused by TDH.

14.3              DISENROLLMENT
                  -------------

14.3.1            HMO has a limited right to request a Member be disenrolled
                  from HMO without the Member's consent. TDH must approve any
                  HMO request for disenrollment of a Member for cause.
                  Disenrollment of a Member may be permitted under the following
                  circumstances:

14.3.1.1          Member misuses or loans Member's HMO membership card to
                  another person to obtain services.

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

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

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

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

14.3.4            If the Member disagrees with the decision to disenroll the
                  Member from HMO, HMO must notify the Member of the
                  availability of the complaint procedure and TDH's Fair Hearing
                  process.

14.3.5            HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN
                  THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH
                  ARE MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.4              AUTOMATIC RE-ENROLLMENT
                  -----------------------
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<PAGE>

14.4.1            Members who are disenrolled because they are temporarily
                  ineligible for Medicaid will be automatically re-enrolled into
                  the same health plan. Temporary loss of eligibility is defined
                  as a period of 6 months or less.

14.4.2            HMO must inform its Members of the automatic re-enrollment
                  procedure. Automatic re-enrollment must be included in the
                  Member Handbook (see Article 8.2.1).

14.5              ENROLLMENT REPORTS
                  ------------------

14.5.1            TDH will provide HMO enrollment reports listing all STAR
                  Members who have enrolled in or were assigned to HMO during
                  the initial enrollment period.

14.5.2            TDH will provide monthly HMO Enrollment Reports to HMO on or
                  before the first of the month.

14:5.3            TDH will provide Member verification to HMO and network
                  providers through telephone verification or TexMedNet.


ARTICLE XV    GENERAL PROVISIONS


15.1              INDEPENDENT CONTRACTOR
                  ----------------------

                  HMO, its agents, employees, network providers, and
                  subcontractors are independent contractors and do not perform
                  services under this contract as employees or agents of TDH.
                  HMO is given express, limited authority to exercise the
                  State's right of recovery as provided in Article 4.9.

15.2              AMENDMENT
                  ---------

15.2.1            This contract must be amended by TDH if amendment is required
                  to comply with changes in state or federal laws, rules, or
                  regulations.

15.2.2            TDH and HMO may amend this contract if reductions in funding
                  or appropriations make full performance by either party
                  impracticable or impossible, and amendment could provide a
                  reasonable alternative to termination. If HMO does not agree
                  to the amendment, contract may be terminated under Article
                  XVIII.

15.2.3            This contract must be amended if either party discovers a
                  material omission of a negotiated or required term, which is
                  essential to the successful performance or maintaining
                  compliance with the terms of the contract. The party
                  discovering the

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                  omission must notify the other party of the omission in
                  writing as soon as possible after discovery. If there is a
                  disagreement regarding whether the omission was intended to be
                  a term of the contract, the parties must submit the dispute to
                  dispute resolution under Article 15.9.

15.2.4            This contract may be amended by mutual agreement at any time.

15.2.5            All amendments to this contract must be in writing and signed
                  by both parties.

15.2.6            No agreement shall be used to amend this contract unless it is
                  made a part of this contract by specific reference, and is
                  numbered sequentially by order of its adoption.

15.3              LAW, JURISDICTION AND VENUE
                  ---------------------------

                  Venue and jurisdiction shall be in the state and federal
                  district courts of Travis County, Texas. The laws of the State
                  of Texas shall be applied in all matters of state law.

15.4              NON-WAIVER
                  ----------

                  Failure to enforce any provision or breach shall not be taken
                  by either party as a waiver of the right to enforce the
                  provision or breach in the future.

15.5              SEVERABILITY
                  ------------

                  Any part of this contract which is found to be unenforceable,
                  invalid, void, or illegal shall be severed from the contract.
                  The remainder of the contract shall be effective.

15.6              ASSIGNMENT
                  ----------

                  This contract was awarded to HMO based on HMO's qualifications
                  to perform personal and professional services. HMO cannot
                  assign this contract without the written consent of TDI and
                  TDH. This provision does not prevent HMO from subcontracting
                  duties and responsibilities to qualified subcontractors. If
                  TDI and TDH consent to an assignment of this contract, a
                  transition period of 90 days will run from the date the
                  assignment is approved by TDI and TDH so that Members'
                  services are not interrupted and, if necessary, the notice
                  provided for in Article 15.7 can be sent to Members. The
                  assigning HMO must also submit a transition plan, as set out
                  in Article 18.2.1, subject to TDH's approval.

15.7              MAJOR CHANGE IN CONTRACTING
                  ---------------------------

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                  TDH may send notice to Members when a major change affecting
                  HMO occurs. A "major change" includes, but is not limited to,
                  a substantial change of subcontractors and assignment of this
                  contract. The notice letter to Members may permit the Members
                  to re-select their plan and PCP. TDH will bear the cost of
                  preparing and sending the notice letter in the event of an
                  approved assignment of the contract. For any other major
                  change in contracting, HMO will prepare the notice letter and
                  submit it to TDH for review and approval. After TDH has
                  approved the letter for distribution to Members, HMO will bear
                  the cost of sending the notice letter.

15.8              NON-EXCLUSIVE
                  -------------

                  This contract is a non-exclusive agreement. Either party may
                  contract with other entities for similar services in the same
                  service area.

15.9              DISPUTE RESOLUTION
                  ------------------

                  The dispute resolution process adopted by TDH in accordance
                  with Chapter 2260, Texas Government Code, will be used to
                  attempt to resolve all disputes arising under this contract.
                  All disputes arising under this contract shall be resolved
                  through TDH's dispute resolution procedures, except where a
                  remedy is provided for through TDH `s administrative rules or
                  processes. All administrative remedies must be exhausted prior
                  to other methods of dispute resolution. TDH will assist HMO in
                  resolution of a conflict of law or interpretation of law
                  between or among state agencies with authority to regulate and
                  enforce this contract.

15.10             DOCUMENTS CONSTITUTING CONTRACT
                  -------------------------------

                  This contract includes this document and all amendments and
                  appendices to this document, the Request for Application, the
                  Application submitted in response to the Request for
                  Application, the Texas Medicaid Provider Procedures Manual and
                  Texas Medicaid Bulletins addressed to HMOs, contract
                  interpretation memoranda issued by TDH for this contract, and
                  the federal waiver granting TDH authority to contract with
                  HMO. If any conflict in provisions between these documents
                  occurs, the terms of this contract and any amendments shall
                  prevail. The documents listed above constitute the entire
                  contract between the parties.

15.11             FORCE MAJEURE
                  -------------

                  TDH and HMO are excused from performing the duties and
                  obligations under this contract for any period that they are
                  prevented from performing their services as a result of a
                  catastrophic occurrence, or natural disaster, clearly beyond
                  the control of either party, including but not limited to an
                  act of war, but excluding labor disputes.

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15.12             NOTICES
                  -------

                  Notice may be given by any means which provides for
                  verification of receipt. All notices to TDH shall be addressed
                  to Bureau Chief, Texas Department of Health, Bureau of Managed
                  Care, 1100 W. 49th Street, Austin, TX 78756-3168, with a copy
                  to the Contract Administrator. Notices to HMO shall be
                  addressed to President/CEO, Michael A. Seltzer, Vice
                  President, West Region, 8431 Fredericksburg Road, San Antonio,
                  Texas 78229; AND Medicaid Director, Cheryl Dietz, 8303 Mopac,
                  Suite 450-C, Austin, Texas 78759.

15.13             SURVIVAL
                  --------

                  The provisions of this contract which relate to the
                  obligations of HMO to maintain records and reports shall
                  survive the expiration or earlier termination of this contract
                  for a period not to exceed six (6) years unless another period
                  may be required by record retention policies of the State of
                  Texas or HCFA.


ARTICLE XVI   DEFAULT AND REMEDIES


16.1              DEFAULT BY TDH
                  --------------

16.1.1            FAILURE TO MAKE CAPITATION PAYMENTS
                  -----------------------------------

                  Failure by TDH to make capitation payments when due is a
                  default under this contract.

16.1.2            FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES
                  ----------------------------------------------

                  Failure by TDH to perform a material duty or responsibility as
                  set out in this contract is a default under this contract.

16.2              REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT
                  -------------------------------------------

                  HMO may terminate this contract as set out in Article 18.1.5
                  of this contract if TDH commits either of the events of
                  default set out in Article 16.1.

16.3              DEFAULT BY HMO
                  --------------

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16.3.1            FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
                  ---------------------------------------------

                  Failure of HMO to perform an administrative function is a
                  default under this contract. Administrative functions are any
                  requirements under this contract that are not direct delivery
                  of health care services, including claims payment; encounter
                  data submission; filing any report when due; cooperating in
                  good faith with TDH, an entity acting on behalf of TDH, or an
                  agency authorized by statute or law to require the cooperation
                  of HMO in carrying out an administrative, investigative, or
                  prosecutorial function of the Medicaid program; providing or
                  producing records upon request; or entering into contracts or
                  implementing procedures necessary to carry out contract
                  obligations.

16.3.1.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to perform an administrative function under
                  this contract, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; Assess liquidated money damages as set out in
                  Article 18.4; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.2            ADVERSE ACTION AGAINST HMO BY TDI
                  ---------------------------------

                  Termination or suspension of HMO's TDI Certificate of
                  Authority or any adverse action taken by TDI that TDH
                  determines will affect the ability of HMO to provide health
                  care services to Members is a default under this contract.

16.3.2.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For an adverse action against HMO by TDI, TDH may:

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                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.3            INSOLVENCY
                  ----------

                  Failure of HMO to comply with state and federal solvency
                  standards or in capacity of HMO to meet its financial
                  obligations as they come due is a default under this contract.

16.3.3.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's insolvency, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.4            FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
                  ---------------------------------------------------

                  Failure of HMO to comply with the federal requirements for
                  Medicaid, including, but not limited to, federal law regarding
                  misrepresentation, fraud, or abuse; and, by incorporation,
                  Medicare standards, requirements, or prohibitions, is a
                  default under this contract.

                  The following events are defaults under this contract pursuant
                  to 42 U.S.C. 1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1          HMO's substantial failure to provide medically necessary items
                  and services that are required under this contract to be
                  provided to Members;

16.3.4.2          HMO's imposition of premiums or charges on Members in excess
                  of the premiums or charge permitted by federal law;

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16.3.4.3          HMO's acting to discriminate among Members on the basis of
                  their health status or requirements for health care services,
                  including expulsion or refusal to enroll an individual, except
                  as permitted by federal law, or engaging in any practice that
                  would reasonably be expected to have the effect of denying or
                  discouraging enrollment with HMO by eligible individuals whose
                  medical condition or history indicates a need for substantial
                  future medical services;

16.3.4.4          HMO's misrepresentation or falsification of information that
                  is furnished to HCFA, TDH, a Member, a potential Member, or a
                  health care provider;

16.3.4.5          HMO's failure to comply with the physician incentive
                  requirements under 42 U.S.C. '1396b(m)(2)(A)(x); or

16.3.4.6          HMO's distribution, either directly or through any agent or
                  independent contractor, of marketing materials that contain
                  false or misleading information, excluding materials prior
                  approved by TDH.

16.3.5            REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  If HMO repeatedly fails to meet the requirements of Articles
                  16.3.4.1 through and including 16.3.4.6, TDH must, regardless
                  of what other sanctions are provided, appoint temporary
                  management and permit Members to disenroll without cause.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to comply with federal laws and regulations,
                  TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; Appoint temporary management as set out in
                  Article 18.5; Initiate disenrollment of a Member of Members
                  without cause as set out in Article 18.6; Suspend or default
                  all enrollment of individuals; Suspend payment to HMO;
                  Recommend to HCFA that sanctions be taken against HMO as set
                  out in Article 18.7; Assess civil monetary penalties as set
                  out in Article 18.8; and/or Require forfeiture of all or part
                  of the TDI performance bond as set out in Article 18.9.

16.3.6            FAILURE TO COMPLY WITH APPLICABLE STATE LAW
                  -------------------------------------------

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                  HMO's failure to comply with Texas law applicable to Medicaid,
                  including, but not limited to, Article 32.039 of the Texas
                  Human Resources Code and state law regarding
                  misrepresentation, fraud, or abuse, is a default under this
                  contract.

16.3.6.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to comply with applicable state law, TDH
                  may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; Assess administrative penalties as set out in
                  Article 32.039, Government Code, with the opportunity for
                  notice and appeal as required by Article 32.039; and/or
                  Require forfeiture of all or part of the TDI performance bond
                  as set out in Article 18.9.

16.3.7            MISREPRESENTATION OR FRAUD UNDER ARTICLE 4.8
                  --------------------------------------------

                  HMO's misrepresentation or fraud under Article 4.8 of this
                  contract is a default under this contract.

16.3.7.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's misrepresentation or fraud under Article 4.8, TDH
                  may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.8            EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
                  ----------------------------------------------------

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16.3.8.1          Exclusion of HMO or any of the managing employees or persons
                  with an ownership interest whose disclosure is required by
                  '1124(a) of the Social Security Act (the Act) from the
                  Medicaid or Medicare program under the provisions of '1128(a)
                  and/or (b) of the Act is a default under this contract.

16.3.8.2          Exclusion of any provider or subcontractor or any of the
                  managing employees or persons with an ownership interest of
                  the provider or subcontractor whose disclosure is required by
                  '1124(a) of the Social Security Act (the Act) from the
                  Medicaid or Medicare program under the provisions of '1128(a)
                  and/or (b) of the Act is a default under this contract if the
                  exclusion will materially affect HMO's performance under this
                  contract.

16.3.8.3          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's exclusion from Medicare or Medicaid, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.9            FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND
                  SUBCONTRACTORS
                  --------------

                  HMO's failure to make timely and appropriate payments to
                  network providers and subcontractors is a default under this
                  contract. Withholding or recouping capitation payments as
                  allowed or required under other articles of this contract is
                  not a default under this contract.

16.3.9.1          REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

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                  For HMO's failure to make timely and appropriate payments to
                  network providers and subcontractors, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; Assess liquidated money damages as set out in
                  Article 18.4; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.10           FAILURE TO TIMELY ADJUDICATE CLAIMS
                  -----------------------------------

                  Failure of HMO to adjudicate (paid, denied, or external
                  pended) at least ninety (90%) of all claims within thirty (30)
                  days of receipt and ninety-nine percent (99%) of all claims
                  within ninety days of receipt for the contract year is a
                  default under this contract.

16.3.10.1         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consequently.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to timely adjudicate claims, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.11           FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT
                  FUNCTIONS
                  --------

                  Failure to pass any of the mandatory system or delivery
                  functions of the Readiness Review required in Article I of
                  this contract is a default under the contract.

16.3.11.1         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

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                  For HMO's failure to demonstrate the ability to perform
                  contract functions, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.12           FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS
                  OR NETWORK PROVIDERS
                  --------------------

16.3.12.1         Failure of HMO to audit, monitor, supervise, or enforce
                  functions delegated by contract to another entity that results
                  in a default under this contract or constitutes a violation of
                  state or federal laws, rules, or regulations is a default
                  under this contract.

16.3.12.2         Failure of HMO to properly credential its providers, conduct
                  reasonable utilization review, or conduct quality monitoring
                  is a default under this contract.

16.3.12.3         Failure of HMO to require providers and contractors to provide
                  timely and accurate encounter, financial, statistical, and
                  utilization data is a default under this contract.

16.3.12.4         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDK
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to monitor and/or supervise activities of
                  contractors or network providers, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.13           PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY
                  ----------------------------------------------------

                  HMO's placing the health and safety of the Members in jeopardy
                  is a default under this contract.

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16.3.13.1         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's placing the health and safety of Members in
                  jeopardy, TDH may:

                  Terminate the contract if the applicable conditions set out in
                  Article 18.1.1 are met; Suspend new enrollment as set out in
                  Article 18.3; and/or Require forfeiture of all or part of the
                  TDI performance bond as set out in Article 18.9.

16.3.14           FAILURE TO MEET ESTABLISHED BENCHMARK
                  -------------------------------------

                  Failure of HMO to meet any benchmark established by TDH under
                  this contract is a default under this contract.

16.3.14.1         REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
                  ----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to TDH by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit TDH
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to meet any benchmark established by TDH
                  under this contract, TDH may:

                  Remove the THSteps component from the capitation paid to HMO
                  if the benchmark(s) missed is for THSteps; Terminate the
                  contract if the applicable conditions set out in Article
                  18.1.1 are met; Suspend new enrollment as set out in Article
                  18.3; Assess liquidated money damages as set out in Article
                  18.4; and/or Require forfeiture of all or part of the TDI
                  performance bond as set out in Article 18.9.


ARTICLE XVII  NOTICE OF DEFAULT AND CURE OF DEFAULT

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<PAGE>

17.1              TDH will provide HMO with written notice of default (Notice of
                  Default) under this contract. The Notice of Default may be
                  given by any means that provides verification of receipt. The
                  Notice of Default must contain the following information:

17.1.1            A clear and concise statement of the circumstances or
                  conditions that constitute a default under this contract;

17.1.2            The contract provision(s) under which default is being
                  declared;

17.1.3            A clear and concise statement of how and/or whether the
                  default may be cured;

17.1.4            A clear and concise statement of the time period during which
                  HMO may cure the default if HMO is allowed to cure;

17.1.5            The remedy or remedies TDH is electing to pursue and when the
                  remedy or remedies will take effect;

17.1.6            If TDH is electing to impose money damages and/or civil
                  monetary penalties, the amount that TDH intends to withhold or
                  impose and the factual basis on which TDH is imposing the
                  chosen remedy or remedies;

17.1.7            Whether any part of money damages or civil monetary penalties,
                  if TDH elects to pursue one or both of those remedies, may be
                  passed through to an individual or entity who is or may be
                  responsible for the act or omission for which default is
                  declared;

17.1.8            Whether failure to cure the default within the given time
                  period if any, will result in TDH pursuing an additional
                  remedy or remedies, including, but not limited to, additional
                  damages or sanctions, referral for investigation or action by
                  another agency, and/or termination of the contract.


ARTICLE XVIII EXPLANATION OF REMEDIES

18.1              TERMINATION
                  -----------

18.1.1            TERMINATION BY TDH
                  ------------------

                  TDH may terminate this contract if:

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<PAGE>

18.1.1.1          HMO substantially fails or refuses to provide medically
                  necessary services and items that are required under this
                  contract to be provided to Members after notice and
                  opportunity to cure;

18.1.1.2          HMO substantially fails or refuses to perform administrative
                  functions under this contract after notice and opportunity to
                  cure;

18.1.1.3          HMO materially defaults under any of the provisions of Article
                  XVI;

18.1.1.4          Federal or state funds for the Medicaid program are no longer
                  available; or

18.1.1.5          TDH has a reasonable belief that HMO has placed the health or
                  welfare of Members in jeopardy.

18.1.2            TDH must give HMO 90 days written notice of intent to
                  terminate this contract if termination is the result of HMO's
                  substantial failure or refusal to perform administrative
                  functions or a material default under any of the provisions of
                  Article XVI. TDH must give HMO reasonable notice under the
                  circumstances if termination is the result of federal or state
                  funds for the Medicaid program no longer being available. TDH
                  must give the notice required under TDH's formal hearing
                  procedures set out in Section 1.2.1 in Title 25 of the Texas
                  Administrative Code if termination is the result of HMO's
                  substantial failure or refusal to provide medically necessary
                  services and items that are required under the contract to be
                  provided to Members or TDH's reasonable belief that HMO has
                  placed the health or welfare of Members in jeopardy.

18.1.2.1          Notice may be given by any means that gives verification of
                  receipt.

18.1.2.2          Unless termination is the result of HMO's substantial failure
                  or refusal to provide medically necessary services and items
                  that are required under this contract to be provided to
                  Members or is the result of TDH's reasonable belief that HMO
                  has placed the health or welfare of Members in jeopardy, the
                  termination date is 90 days following the date that HMO
                  receives the notice of intent to terminate. For HMO's
                  substantial failure or refusal to provide services and items,
                  HMO is entitled to request a pre-termination hearing under
                  TDH's formal hearing procedures set out in Section 1.2.1 of
                  Title 25, Texas Administrative Code.

18.1.3            TDH may, for termination for HMO's substantial failure or
                  refusal to provide medically necessary services and items,
                  notify HMO's Members of any hearing requested by HMO and
                  permit Members to disenroll immediately without cause.
                  Additionally, if TDH terminates for this reason, TDH may
                  enroll HMO's Members

                                                           1999 Renewal Contract
                                                             Travis Service Area
                                                                  August 9, 1999
                                      134

<PAGE>

                  with another HMO or permit HMO's Members to receive
                  Medicaid-covered services other than from an HMO.

18.1.4            HMO must continue to perform services under the transition
                  plan described in Article 18.2.1 until the last day of the
                  month following 90 days from the date of receipt of notice if
                  the termination is for any reason other than TDH's reasonable
                  belief that HMO is placing the health and safety of the
                  Members in jeopardy. If termination is due to this reason, TDH
                  may prohibit HMO's further performance of services under the
                  contract.

18.1.5            If TDH terminates this contract, HMO may appeal the
                  termination under ss. 32.034, Texas Human Resources Code.

18.1.6            TERMINATION BY HMO
                  ------------------

                  HMO may terminate this contract if TDH fails to pay HMO as
                  required under Article XIII of this contract or otherwise
                  materially defaults in its duties and responsibilities under
                  this contract, or by giving notice no later than 30 days after
                  receiving the capitation rates for the second contract year.
                  Retaining premium, recoupment, sanctions, or penalties that
                  are allowed under this contract or that result from HMO's
                  failure to perform or HMO's default under the terms of this
                  contract is not cause for termination.

18.1.6.1          HMO may terminate this contract without cause, except HMO
                  cannot terminate this contract without cause for the 90 days
                  immediately following the effective date of the contract.

18.1.7            HMO must give TDH 90 days written notice of intent to
                  terminate this contract, either for cause or without cause.
                  Notice may be given by any means that gives verification of
                  receipt. The termination date will be calculated as the last
                  day of the month following 90 days from the date the notice of
                  intent to terminate is received by TDH.

18.1.8            TDH must be given 30 days from the date TDH receives HMO's
                  written notice of intent to terminate for failure to pay HMO
                  to pay all amounts due. If TDH pays all amounts then due
                  within this 30-day period, HMO cannot terminate the contract
                  under this article for that reason.

18.1.9            TERMINATION BY MUTUAL CONSENT
                  -----------------------------

                  This contract may be terminated at any time by mutual consent
                  of both HMO and TDH.

18.2              DUTIES OF CONTRACTING PARTIES UPON TERMINATION
                  ----------------------------------------------

                                                           1999 Renewal Contract
                                                             Travis Service Area
                                                                  August 9, 1999
                                      135

<PAGE>



                  When termination of the contract occurs, TDH and HMO must meet
                  the following obligations:

18.2.1            TDH and HMO must prepare a transition plan, which is
                  acceptable to and approved by TDH, to ensure that Members are
                  reassigned to other plans without interruption of services.
                  That transition plan will be implemented during the 90-day
                  period between receipt of notice and the termination date
                  unless termination is the result of TDH's reasonable belief
                  that HMO is placing the health or welfare of Members in
                  jeopardy.

18.2.2            If the contract is terminated by TDH for any reason other than
                  federal or state funds for the Medicaid program no longer
                  being available or if HMO terminates the contract based on
                  lower capitation rates for the second contract year as set out
                  in Article 13.1.4.1:

18.2.2.1          TDH is responsible for notifying all Members of the date of
                  termination and how Members can continue to receive contract
                  services;

18.2.2.2          HMO is responsible for all expenses related to giving notice
                  to Members; and

18.2.2.3          HMO is responsible for all expenses incurred by TDH in
                  implementing the transition plan.

18.2.3            If the contract is terminated by HMO for any reason other than
                  based on lower capitation rates for the second contract year
                  as set out in Article 13.1.4.1:

18.2.3.1          TDH is responsible for notifying all Members of the date of
                  termination and how Members can continue to receive contract
                  services;

18.2.3.2          TDH is responsible for all expenses related to giving notice
                  to Members; and.

18.2.3.3          TDH is responsible for all expenses it incurs in implementing
                  the transition plan.

18.2.4            If the contract is terminated by mutual consent:

18.2.4.1          TDH is responsible for notifying all Members of the date of
                  termination and how Members can continue to receive contract
                  services

18.2.4.2          HMO is responsible for all expenses related to giving notice
                  to Members; and

18.2.4.3          TDH is responsible for all expenses it incurs in implementing
                  the transition plan.

                                                           1999 Renewal Contract
                                                             Travis Service Area
                                                                  August 9, 1999
                                      136

<PAGE>

18.3              SUSPENSION OF NEW ENROLLMENT
                  ----------------------------

18.3.1            TDH must give HMO 30 days notice of intent to suspend new
                  enrollment in the Notice of Default other than for default for
                  fraud and abuse or imminent danger to the health or safety of
                  Members. The suspension date will be calculated as 30 days
                  following the date that HMO receives the Notice of Default.

18.3.2            TDH may immediately suspend new enrollment into HMO for a
                  default declared as a result of fraud and abuse or imminent
                  danger to the health and safety of Members.

18.3.3            The suspension of new enrollment may be for any duration, up
                  to the termination date of the contract. TDH will base the
                  duration of the suspension upon the type and severity of the
                  default and HMO's ability, if any, to cure the default.

18.4              LIQUIDATED MONEY DAMAGES
                  ------------------------

18.4.1            The measure of damages in the event that HMO fails to perform
                  its obligations under this contract may be difficult or
                  impossible to calculate or quantify. Therefore, should HMO
                  fail to perform in accordance with the terms and conditions of
                  this contract, TDH may require HMO to pay sums as specified
                  below as liquidated damages. The liquidated damages set out in
                  this Article are not intended to be in the nature of a penalty
                  but are intended to be reasonable estimates of TDH's financial
                  loss and damage resulting from HMO's non-performance.

18.4.2            If TDH imposes money damages, TDH may collect those damages by
                  reducing the amount of any monthly premium payments otherwise
                  due to HMO by the amount of the damages. Money damages that
                  are withheld from monthly premium payments are forfeited and
                  will not be subsequently paid to HMO upon compliance or cure
                  of default unless a determination is made after appeal that
                  the damages should not have been imposed.

18.4.3            Failure to file or filing incomplete or inaccurate annual,
                  semi-annual or quarterly reports may result in money damages
                  of not more than $11,000.00 for every month from the month the
                  report is due until submitted in the form and format required
                  by TDH. These money damages apply separately to each report.

18.4.4            Failure to produce or provide records and information
                  requested by TDH, an entity acting on behalf of TDH, or an
                  agency authorized by statute or law to require production of
                  records at the time and place the records were required or
                  requested may result in money damages of not more than
                  $5,000.00 per day for each day the records are not produced as
                  required by the requesting entity or agency if the

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                                                             Travis Service Area
                                                                  August 9, 1999
                                      137

<PAGE>

                  requesting entity or agency is conducting an investigation or
                  audit relating to fraud or abuse, and not more than $1,000.00
                  per day for each day records are not produced if the
                  requesting entity or agency is conducting routine audits or
                  monitoring activities.

18.4.5            Failure to file or filing incomplete or inaccurate encounter
                  data may result in money damages of not more than $25,000 for
                  each month HMO fails to submit encounter data in the form and
                  format required by TDH. TDH will use the encounter data
                  validation methodology established by TDH to determine the
                  number of encounter data and the number of months for which
                  damages will be assessed.

18.4.6            Failing or refusing to cooperate with TDH, an entity acting on
                  behalf of TDH, or an agency authorized by statute or law to
                  require the cooperation of HMO in carrying out an
                  administrative, investigative, or prosecutorial function of
                  the Medicaid program may result in money damages of not more
                  than $8,000.00 per day for each day HMO fails to cooperate.

18.4.7            Failure to enter into a required or mandatory contract or
                  failure to contract for or arrange to have all services
                  required under this contract provided may result in money
                  damages of not more than $1,000.00 per day that HMO either
                  fails to negotiate in good faith to enter into the required
                  contract or fails to arrange to have required services
                  delivered.

18.4.8            Failure to meet the benchmark for benchmarked services under
                  this contract may result in money damages of not more than
                  $25,000 for each month that HMO fails to meet the established
                  benchmark.

18.4.9            TDH may also impose money damages for a default under Article
                  16.3.9, Failure to Make Payments to Network Providers and
                  subcontractors, of this contract. These money damages are in
                  addition to the interest HMO is required to pay to providers
                  under the provisions of Articles 4.10.4 and 7.2.7.10 of this
                  contract.

18.4.9.1          If TDH determines that HMO has failed to pay a provider for a
                  claim or claims for which the provider should have been paid,
                  TDH may impose money damages of $2 per day for each day the
                  claim is not paid from the date the claim should have been
                  paid (calculated as 30 days from the date a clean claim was
                  received by HMO) until the claim is paid by HMO.

18.4.9.2          If TDH determines that HMO has failed to pay a capitation
                  amount to a provider who has contracted with HMO to provide
                  services on a capitated basis, TDH may impose money damages of
                  $10 per day, per Member for whom the capitation is not paid,
                  from the date on which the payment was due until the
                  capitation amount is paid.

                                                           1999 Renewal Contract
                                                             Travis Service Area
                                                                  August 9, 1999
                                      138

<PAGE>

18.5              APPOINTMENT OF TEMPORARY MANAGEMENT
                  -----------------------------------

18.5.1            TDH may appoint temporary management to oversee the operation
                  of HMO upon a finding that there is continued egregious
                  behavior by HMO or there is a substantial risk to the health
                  of the Members.

18.5.2            TDH may appoint temporary management to assure the health of
                  HMO's Members if there is a need for temporary management
                  while:

18.5.2.1          there is an orderly termination or reorganization of HMO; or

18.5.2.2          are made to remedy violations found under Article 16.3.4.

18.5.3            Temporary management will not be terminated until TDH has
                  determined that HMO has the capability to ensure that the
                  violations that triggered appointment of temporary management
                  will not recur.

18.5.4            TDH is not required to appoint temporary management before
                  terminating this contract.

18.5.5            No pre-termination hearing is required before appointing
                  temporary management.

18.5.6            As with any other remedy provided under this contract, TDH
                  will provide notice of default as is set out in Article XVII
                  to HMO. Additionally, as with any other remedy provided under
                  this contract, under Article 18.1 of this contract, HMO may
                  dispute the imposition of this remedy and seek review of the
                  proposed remedy.

18.6              TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT
                  ----------------------------------------------------------
                  CAUSE
                  -----

                  TDH must give HMO 30 days notice of intent to initiate
                  disenrollment of a Member of Members in the Notice of Default.
                  The TDH-initiated disenrollment date will be calculated as 30
                  days following the date that HMO receives the Notice of
                  Default.

18.7              RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO
                  ----------------------------------------------------------

18.7.1            If HCFA determines that HMO has violated federal law or
                  regulations and that federal payments will be withheld, TDH
                  will deny and withhold payments for new enrollees of HMO.

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                                                             Travis Service Area
                                                                  August 9, 1999
                                      139

<PAGE>

18.7.2            HMO must be given notice and opportunity to appeal a decision
                  of TDH and HCFA pursuant to 42 CFR '434.67.

18.8              CIVIL MONETARY PENALTIES
                  ------------------------

18.8.1            For a default under Article 16.3.4.1, TDH may assess not more
                  than $25,000 for each default;

18.8.2            For a default under Article 16.3.4.2, TDH may assess double
                  the excess amount charged in violation of the federal
                  requirements for each default. The excess amount shall be
                  deducted from the penalty and returned to the Member
                  concerned.

18.8.3            For a default under Article 16.3.4.3, TDH may assess not more
                  than $100,000 for each default, including $15,000 for each
                  individual not enrolled as a result of the practice described
                  in Article 16.3.4.3.

18.8.4            For a default under Article 16.3.4.4, TDH may assess not more
                  than $100,000 for each default if the material was provided to
                  HCFA or TDH and not more than $25,000 for each default if the
                  material was provided to a Member, a potential Member, or a
                  health care provider.

18.8.5            For a default under Article 16.3.4.5, TDH may assess not more
                  than $25,000 for each default.

18.8.6            For a default under Article 16.3.4.6, TDH may assess not more
                  than S25,000 for each default.

18.8.7            HMO may be subject to civil money penalties under the
                  provisions of 42 CFR 1003 in addition to or in place of
                  withholding payments for a default under Article 16.3.4.

18.9              FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND
                  -------------------------------------------------------

                  TDH may require forfeiture of all or a portion of the face
                  amount of the TDI performance bond if TDH determines that an
                  event of default has occurred. Partial payment of the face
                  amount shall reduce the total bond amount available pro rata.

18.10             REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED
                  ------------------------------------------

18.10.1           HMO may dispute the imposition of any sanction under this
                  contract. HMO notifies TDH of its dispute by filing a written
                  response to the Notice of Default, clearly stating the reason
                  HMO disputes the proposed sanction. With the written response,
                  HMO must submit to TDH any documentation that supports HMO's
                  position. HMO must

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                                                             Travis Service Area
                                                                  August 9, 1999
                                      140

<PAGE>

                  file the review within 15 days from HMO's receipt of the
                  Notice of Default. Filing a dispute in a written response to
                  the Notice of Default suspends imposition of the proposed
                  sanction.

18.10.2           HMO and TDH must attempt to informally resolve the dispute. If
                  HMO and TDH are unable to informally resolve the dispute, HMO
                  must notify the Bureau Chief of Managed Care that HMO and TDH
                  cannot agree. The Bureau Chief will refer the dispute to the
                  Associate Commissioner for Health Care Financing who will
                  appoint a committee to review the dispute under TDH's dispute
                  resolution procedures. The decision of the dispute resolution
                  committee will be TDH's final administrative decision.


ARTICLE XIX   TERM


19.1              The effective date of this contract is September 1, 1999. This
                  contract will terminate on August 31, 2001, unless terminated
                  earlier as provided for elsewhere in this contract.

19.2              This contract may be renewed for an additional one-year period
                  by written amendment to the contract executed by the parties
                  prior to the termination date of the present contract. TDH
                  will notify HMO no later than 90 days before the end of the
                  contract period of its intent not to renew the contract.

19.3              If either party does not intend to renew the contract beyond
                  its contract period, the party intending not to renew must
                  submit a written notice of its intent not to renew to the
                  other party no later than 90 days before the termination date
                  set out in Article 19.1.

19.4              If either party does not intend to renew the contract beyond
                  its contract period and sends the notice required in Article
                  19.3, a transition period of 90 days will run from the date
                  the notice of intent not to renew is received by the other
                  party. By signing this contract, the parties agree that the
                  terms of this contract shall automatically continue during any
                  transition period.

19.5              The party that does not intend to renew the contract beyond
                  its contract period and sends the notice required by Article
                  19.3 is responsible for sending notices to all Members on how
                  the Member can continue to receive covered services. The
                  expense of sending the notices will be paid by the
                  non-renewing party. If TDH does not intend to renew and sends
                  the required notice, TDH is responsible for any costs it
                  incurs in ensuring that Members are reassigned to other plans
                  without interruption of services. If HMO does not intend to
                  renew and sends the required notice, HMO is responsible

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                                                             Travis Service Area
                                                                  August 9, 1999
                                      141

<PAGE>

                  for any costs TDH incurs in ensuring that Members are
                  reassigned to other plans without interruption of services. If
                  both parties do not intend to renew the contract beyond its
                  contract period, TDH will send the notices to Members and the
                  parties will share equally in the cost of sending the notices
                  and of implementing the transition plan.

19.6              Non-renewal of this contract is not a contract termination for
                  purposes of appeal rights under the Human Resources
                  Code ss. 32.034.



SIGNED 1st day of September, 1999.

TEXAS DEPARTMENT OF HEALTH                  PCA Health Plans Of Texas, Inc.

BY:  /s/ WILLIAM R. ARCHER, III             BY: /s/ MICHAEL A. SELTZER
    -------------------------------            ---------------------------------
     William R. Archer III, M.D.            Printed Name: Michael A. Seltzer
     Commissioner of Health                 Title: Vice President, West Region
                                            Humana Health Plan of Texas, Inc.

Approved as to Form:

Office of General Counsel







Appendices
----------
Copies of the Appendices will be available upon request.

<PAGE>



                                 AMENDMENT NO. 1
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO


This Amendment No. 1 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Travis Service Area, dated
September 1, 1999. The effective date of this Amendment is September 1, 1999.
All other contract provisions remain in full force and effect.

The Parties agree to amend the Contract as follows:

1.       Article XIII is amended by deleting existing 13.1.2, 13.1.2.2, and
         13.1.2.3 and replacing them with the new Article 13.1.2, 13.1.2.2, and
         13.1.2.3 as follows:


         13.1.2            Delivery Supplemental Payment (DSP). TDH has
                           submitted the delivery supplemental payment
                           methodology to HCFA for approval. The monthly
                           capitation amounts for September 1, 1999, through
                           August 31, 2000, and the DSP amount are listed below.
                           These amounts are effective September 1, 1999. The
                           monthly capitation amounts established for each risk
                           group in the Travis Service Area using the Standard
                           methodology (listed in Article 13.1.3) will apply if
                           the DSP methodology is not approved by HCFA.

                                                                      Travis SDA
                                       1

<PAGE>

                  --------------------------------------------------------------
                  Risk Group                Monthly Capitation Amounts
                                            September 1, 1999 - August 31,
                                            2000
                  --------------------------------------------------------------
                  TANF Adults                             $107.58
                  --------------------------------------------------------------
                  TANF Children > 12                      $ 57.03
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children > 12                 $ 73.44
                  Months of Age
                  --------------------------------------------------------------
                  Newborns <12 Months of                  $390.55
                           -
                  Age
                  --------------------------------------------------------------
                  TANF Children <12                       $390.55
                                -
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children <12                  $390.55
                                     -
                  Months of Age
                  --------------------------------------------------------------
                  Federal Mandate Children                $ 41.89
                  --------------------------------------------------------------
                  CHIP Phase I                            $ 71.71
                  --------------------------------------------------------------
                  Pregnant Women                          $164.78
                  --------------------------------------------------------------
                  Disabled/Blind                          $ 14.00
                  Administration
                  --------------------------------------------------------------

                  Delivery Supplemental Payment: A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO as
                  provided below in the following amount: $2,817.00.


13.1.2.2          For an HMO Member who is classified in the Pregnant Women,
                  TANF Adults, TANF Children >12 months, Expansion Children >12
                  months, Federal Mandate Children, or CHIP risk group, HMO will
                  be paid the monthly capitation amount identified in Article
                  13.1.2 for each month of classification, plus the DSP amount
                  identified in Article 13.1.2.

13.1.2.3          HMO must submit a monthly DSP Report (report) that includes
                  the data elements specified by TDH. TDH will consult with
                  contracted HMOs prior to revising the report data elements and
                  requirements. The reports must be submitted to TDH in the
                  format and time specified by TDH. The report must include only
                  unduplicated deliveries. The report must include only
                  deliveries for which HMO has made a payment for the delivery,
                  to either a hospital or other provider. No DSP will be made
                  for deliveries which are not reported by HMO to TDH within 210
                  days after the date of delivery, or within 30 days from the
                  date of discharge from the hospital for the stay related to
                  the delivery, whichever is later.


                                                            Travis SDA
                                       2

<PAGE>
                  --------------------------------------------------------------
                  Risk Group                Monthly Capitation Amounts
                                            September 1, 1999 - August 31,
                                            2000
                  --------------------------------------------------------------
                  TANF Adults                             $107.58
                  --------------------------------------------------------------
                  TANF Children > 12                      $ 57.03
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children > 12                 $ 73.44
                  Months of Age
                  --------------------------------------------------------------
                  Newborns <12 Months of                  $390.55
                           -
                  Age
                  --------------------------------------------------------------
                  TANF Children <12                       $390.55
                                -
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children <12                  $390.55
                                     -
                  Months of Age
                  --------------------------------------------------------------
                  Federal Mandate Children                $ 41.89
                  --------------------------------------------------------------
                  CHIP Phase I                            $ 71.71
                  --------------------------------------------------------------
                  Pregnant Women                          $164.78
                  --------------------------------------------------------------
                  Disabled/Blind                          $ 14.00
                  Administration
                  --------------------------------------------------------------

                  Delivery Supplemental Payment: A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO as
                  provided below in the following amount: $2,817.00.


13.1.2.2          For an HMO Member who is classified in the Pregnant Women,
                  TANF Adults, TANF Children >12 months, Expansion Children >12
                  months, Federal Mandate Children, or CHIP risk group, HMO will
                  be paid the monthly capitation amount identified in Article
                  13.1.2 for each month of classification, plus the DSP amount
                  identified in Article 13.1.2.

13.1.2.3          HMO must submit a monthly DSP Report (report) that includes
                  the data elements specified by TDH. TDH will consult with
                  contracted HMOs prior to revising the report data elements and
                  requirements. The reports must be submitted to TDH in the
                  format and time specified by TDH. The report must include only
                  unduplicated deliveries. The report must include only
                  deliveries for which HMO has made a payment for the delivery,
                  to either a hospital or other provider. No DSP will be made
                  for deliveries which are not reported by HMO to TDH within 210
                  days after the date of delivery, or within 30 days from the
                  date of discharge from the hospital for the stay related to
                  the delivery, whichever is later.


                                                            Travis SDA
                                       2

<PAGE>

2.                Article XIII is amended by deleting existing 13.2.5 and
                  replacing it with the new Article 13.2.5 as follows: (delete
                  the stricken language and add the bold and italicized)

                  13.2.5   There will be two settlements for payment(s) of the
                           state share of the experience rebate. The first
                           settlement shall equal 100 percent of the state share
                           of the experience rebate as derive from Line 7 of
                           Part 1 (Net Income Before Taxes) of the [Deletion]
                           Final Managed Care Financial Statistical (MCFS)
                           Report and shall be paid on the same day the first
                           [Deletion] Final MCFS Report is submitted to TDH. The
                           second settlement shall be an adjustment to the first
                           settlement and shall be paid to TDH on the same day
                           that the second [Deletion] Final MCFS Report is
                           submitted to TDH if the adjustment is a payment from
                           HMO to TDH. TDH or its agent may audit or review the
                           MCFS reports. If TDH determines that corrections to
                           the MCFS reports are required, based on a TDH
                           audit/review or other documentation acceptable to
                           TDH, to determine an adjustment to the amount of the
                           second settlement, then final adjustment shall be
                           made within two years from the date that HMO submits
                           the second [Deletion] Final MCFS report. HMO must pay
                           the first and second settlements on the due dates for
                           the first and second Final MCFS reports respectively
                           as identified in Article 12.1.5. TDH may adjust the
                           experience rebate if TDH determines HMO has paid
                           affiliates amounts for goods or services that are
                           higher than the fair market value of the goods and
                           services in the service area. Fair market value may
                           be based on the amount HMO pays a non-affiliate(s) or
                           the amount another HMO pays for the same or similar
                           service in the service area and will be determined on
                           a case-by-case basis. TDH has final authority in
                           auditing and determining the amount of the experience
                           rebate.


AGREED AND SIGNED by an authorized representative of the parties on December 9,
1999.


TEXAS DEPARTMENT OF HEALTH                  PCA Health Plans of Texas, Inc.


 By: /s/ William R. Archer, III, M.D.       By: /s/ Michael A. Seltzer
     --------------------------------           --------------------------------
         William R. Archer, III., M.D.      Michael A. Seltzer
         Commissioner of Health             V.P., Western Region


Approved as to Form:
---------------------------
Office of General Counsel


                                                                      Travis SDA
                                       3

<PAGE>

                                AMENDMENT NO. 2
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO



This Amendment No. 2 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area, dated September 1, 1999. The effective date of this Amendment is the date
TDH Signs this Amendment. All other contract provisions remain in full force and
effect.


1.       Article II is amended by adding the bold and italicized language

DEFINITIONS

Call coverage means arrangements made by a facility or an attending physician
with an appropriate level of health care provider who agrees to be available on
an as-needed basis to provide medically appropriate services for routine/high
risk/or emergency medical conditions or emergency Behavioral Health condition
that present without being scheduled at the facility or when the attending
physician is unavailable.

[deletion] Enrollment report/enrollment file means the daily or monthly list of
Medicaid recipients who are enrolled with an HMO as Members on the day or for
the month the report is issued.

2.       Article VI is amended by adding the bold and italicized language and
         deleting the stricken language.

6.9               PERINATAL SERVICES
                  ------------------

6.9.2             HMO [Deletion] must have a perinatal health care system in
                  place that, at a minimum, provides the following services:

6.9.3             HMO must have a process to expedite scheduling a prenatal
                  appointment for an obstetrical exam for a TP40 Member no later
                  than two weeks after receiving the daily enrollment file
                  verifying enrollment of the Member into the HMO.

6.9.4             HMO must have procedures in place to contact and assist a
                  pregnant/delivering Member in selecting a PCP for her baby
                  either before the birth or as soon as the


<PAGE>

                  baby is born.  [Deletion]

6.9.4.5           HMO must provide inpatient care and professional services
                  related to labor and delivery for its pregnant/delivering
                  Members and neonatal care for its newborn Members (see Article
                  14.3.1) at the time of delivery and for up to 48 hours
                  following an uncomplicated vaginal delivery and 96 hours
                  following an uncomplicated Caesarian delivery.
                  [Deletion]

6.9.5.1           HMO must reimburse in-network providers, out-of-network
                  providers, and specialty physicians who are providing call
                  coverage, routine, and/or specialty consultation services for
                  the period of time covered in Article 6.9.5.

6.9.5.1.1         HMO must adjudicate provider claims for services provided to a
                  newborn Member in accordance with TDH's claims processing
                  requirements using the proxy ID number or State-issued
                  Medicaid ID number (see Article 4.10). HMO cannot deny claims
                  based on provider non-use of State-issued Medicaid ID number
                  for a newborn: Member. HMO must accept provider claims for
                  newborn services based on mother's name and/or Medicaid ID
                  number with accommodations for multiple births, as specified
                  by the HMO.

6.9.5.2           HMO cannot require prior authorization or PCP assignment to
                  adjudicate newborn claims for the period of time covered by
                  6.9.5

[Deletion]

6.9.6             [deletion] HMO may require prior authorization requests for
                  hospital or professional services provided beyond the time
                  limits in Article 6.9.5 and may

<PAGE>

                  utilized the determination of medical necessity beyond routine
                  care. HMO must respond to these prior authorization within the
                  requirements of 28 TAC ss. 19.1710-19.1712 and Article 21.58a
                  of the Texas Insurance Code.

6.9.6.1           HMO must notify providers involved in the care of
                  pregnant/delivering women and newborns (including
                  out-of-network providers and hospitals) regarding the HMO's
                  prior authorization requirements.

6.9.6.2           HMO cannot require a prior authorization for services provided
                  to a pregnant/delivering Member or newborn Member for a
                  medical condition which requires emergency services,
                  regardless of when the emergency condition arises (see Article
                  6.5.6).

3.       Article VIII is amended by adding the bold and italicized language and
         deleting the stricken language.

8.4.2             HMO must issue a Member Identification Card (ID) to the Member
                  within five (5) days from the date the HMO receives the
                  monthly Enrollment File from the Enrollment Broker. If the 5th
                  day falls on a weekend or state holiday, the ID Card must be
                  issued by the following working day. The ID Card must include,
                  at a minimum, the following: Member's name; Member's Medicaid
                  number; either the issue date of the card or effective date of
                  the PCP assignment; PCP's name, address, and telephone number;
                  name of HMO; name of IPA to which the Member's PCP belongs, if
                  applicable; the 24-hour, seven (7) day a week toll-free
                  telephone number operated by HMO; the toll-free number for
                  behavioral health care services; and directions for what to do
                  in an emergency. The ID Card must be reissued if the Member
                  reports a lost card, there is a Member name change, if Member
                  requests a new PCP, or for any other reason which results in a
                  change to the information disclosed on the ID Card.

4.       Article XII is amended by adding the bold and italicized language and
         deleting the stricken language.

12.2              STATISTICAL REPORTS
                  -------------------

12.2.4            HMO cannot submit newborn encounters to TDH until the
                  State-issued Medicaid ID number is received for a newborn. HMO
                  must match the proxy ID number issued by the HMO with the
                  State-issued Medicaid ID number prior to submission of
                  encounters to TDH and submit the encounter in accordance to
                  the HMO Encounter Data Submission Manual. The encounter must
                  include the State-issued Medicaid ID number. Exceptions to the
                  45-day deadline [Deletion] for submission of encounter data in
                  paragraph 12.2.1 will be granted in cases in which the
                  Medicaid ID number is not available for a newborn Member.


<PAGE>

12.2.5            HMO must require providers to submit claims and encounter data
                  to HMO no later than 95 days after the date services are
                  provided.

12.2.6            HMO must use the procedure codes, diagnosis codes and other
                  codes contained in the most recent edition of the Texas
                  Medicaid Provider Procedures Manual and as otherwise provided
                  by TDH. Exceptions or additional codes must be submitted for
                  approval before HMO uses the codes.

12.2.7            HMO must use its TDH-specified identification numbers on all
                  encounter data submissions. Please refer to the TDH Encounter
                  Data Submission Manual for further specifications.

12.2.8            HMO must validate all encounter data using the encounter data
                  validation methodology prescribed by TDH prior to submission
                  of encounter data to TDH.

12.2.9            All Claims Summary Report. HMO must submit the "All Claims
                  -------------------------
                  Summary Report" identified in the Texas Managed Care Claims
                  Manual as a contract year-to-date report. The report must be
                  submitted quarterly by the last day of the month following the
                  reporting period. The report; must be submitted to TDH in a
                  format specified by TDH.

12.2.10           Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
                  ------------------------------------------------------
                  must file preliminary and final Medicaid Disproportionate
                  Share Hospital (DSH) reports, required by TDH to identify and
                  reimburse hospitals that qualify for Medicaid DSH funds. The
                  preliminary and final DSH reports must include the data
                  elements and be submitted in the form and format specified by
                  TDH. The preliminary DSH reports are due on or before June 1
                  of the year following the state fiscal year for which data is
                  being reported. The final DSH reports are due on or before
                  August 15 of the year following the state fiscal year for
                  which data is being reported.


5.       Article XIII is amended by adding the bold and italicized language.

13.5              NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS
                  ---------------------------------------------

13.5.1            Newborns born to Medicaid eligible mothers who are enrolled in
                  HMO are enrolled into HMO for 90 days following the date of
                  birth.

13.5.1.1          The mother of the newborn Member may change her newborn to
                  another HMO during the first 90 days following the date of
                  birth, but may only do so through TDH Customer Services.

13.5.2            MAXIMUS will provide HMO with a daily enrollment file which
                  will list all newborns who have received State-issued Medicaid
                  ID numbers. This file will


<PAGE>

                  include the Medicaid eligible mother's Medicaid ID number to
                  allow the HMO to link the newborn State-issued Medicaid ID
                  numbers with the proxy ID number. TDH will guarantee
                  capitation payments to HMO for all newborns who appear on the
                  MAXIM US daily enrollment file as HMO Members for each month
                  the newborn is enrolled in the HMO.

13.5.3            All non-TP45 newborns who are born to mothers whose enrollment
                  in HMO is effective on or before the date of the birth of the
                  newborn will be retroactively enrolled into the HMO through a
                  manual process by DHS Data Control.

13.5.4            Newborns who do not appear on the MAXIMUS daily enrollment
                  file before the end of the sixth month following the date of
                  birth will not be retroactively enrolled into the HMO. TDH
                  will manually reconcile payment to the HMO for services
                  provided from the date of birth for TP45 and all other
                  eligibility categories of newborns. Payment will cover
                  services rendered from the effective date of the proxy ID
                  number when first issued by the HMO regardless of plan
                  assignment at the time the State-issued Medicaid ID member is
                  received.

13.5.5            MAXIMUS will provide HMO with a daily enrollment file which
                  will list all TP40 Members who have received State-issued
                  Medicaid ID members. TDH will guarantee capitation payments to
                  HMO for all TP40 Members who appear on the MAXIMUS daily
                  enrollment file as HMO Members for each mouth the TP40 Member
                  enrollment is effective.

6.       Article XIV is amended by adding the bold and italicized language.

14.3              NEWBORN ENROLLMENT
                  ------------------

                  The HMO is responsible for newborns who are born to mothers
                  whose enrollment in HMO is effective on or before the date of
                  birth as follows:

14.3.1            Newborns are presumed Medicaid eligible and enrolled in the
                  mother's HMO for at least 90 days from the date of birth.

14.3.1.1          A mother of a newborn Member may change plans for her newborn
                  during the first 90 days by contacting TDH Customer Services.
                  TDH will notify HMO of newborn plan changes made by a mother
                  when the change is made by TDH Customer Services.

14.3.2            HMO must establish and implement written policies and
                  procedures to require professional and facility providers to
                  notify HMOs of a birth of a newborn to a Member at the time of
                  delivery.

14.3.2.1          HMO must create a proxy ID member in the HMO's
                  Enrollment/Eligibility and


<PAGE>

                  date of birth of the newborn.

14.3.2.2          HMO must match the proxy ID number and the State-issued
                  Medicaid ID number once the State-issued Medicaid ID number is
                  received.

14.3.2.3          HMO must submit a Form 7484A to DHS Data Control requesting
                  DHS Data Control to research DHS's files for a Medicaid ID
                  number if HMO has not received a State-issued Medicaid ID
                  number for a newborn within 30 days from the date of birth. If
                  DHS finds that no Medicaid ID number has been issued to the
                  newborn, DHS Data Control will issue the Medicaid ID number
                  using the information provided on the Form 7484A.

14.3.3            Newborns certified Medicaid eligible after the end of the
                  sixth month following the date of birth will not be
                  retroactively enrolled to an HMO, but will be enrolled in
                  Medicaid fee-for-service. TDH will manually reconcile payment
                  to the HMO for services provided from the date of birth for
                  all Medicaid eligible newborns as described in Article 13.5.4.

14.4              DISENROLLMENT
                  -------------

14.4.1            HMO has a limited right to request a Member be disenrolled
                  from HMO without the Member's consent. TDH must approve any
                  HMO request for disenrollment of a Member for cause.
                  Disenrollment of a Member may be permitted under the following
                  circumstances:

14.4.1.1          Member misuses or loans Member's HMO membership card to
                  another person to obtain services.

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

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

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


<PAGE>

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

14.4.4            If the Member disagrees with the decision to disenroll the
                  Member from HMO, HMO must notify the Member of the
                  availability of the complaint procedure and TDH's Fair Hearing
                  process.

14.4.5            HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN
                  THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH
                  ARE MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.5              AUTOMATIC RE-ENROLLMENT
                  -----------------------

14.5.1            Members who are disenrolled because they are temporarily
                  ineligible for Medicaid will be automatically re-enrolled into
                  the same health plan. Temporary loss of eligibility is defined
                  as a period of 6 months or less.

14.5.2            HMO must inform its Members of the automatic re-enrollment
                  procedure. Automatic re-enrollment must be included in the
                  Member Handbook (see Article 8.2.1).

14.6              ENROLLMENT REPORTS
                  ------------------

14.6.1            TDH will provide HMO enrollment reports listing all STAR
                  members who have enrolled in or were assigned to HMO during
                  the initial enrollment period.

14.6.2            TDH will provide monthly HMO Enrollment Reports to HMO on or
                  before the first of the month.

14.6.3            TDH will provide Member verification to HMO and network
                  providers through telephone verification or TexMedNet.


<PAGE>


AGREED AND SIGNED by an authorized representative of the parties on April 10,
2001.



TEXAS DEPARTMENT OF HEALTH                  PCA Health Plan of Texas, Inc.


By:  /s/ C.E. Bell, M.D.                    By:  /s/ Michael A. Seltzer
   -----------------------------                --------------------------------
   Charles E. Bell, M.D.                        Michael Seltzer
   Executive Deputy Commissioner of Health      Vice President, West Region


Approved as to Form:



/s/ Mary Ann Slavin
-------------------
Office of General Counsel

                                                TDH DOC. NO. 4810323494* 01A-01D


<PAGE>


                                AMENDMENT NO. 3
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO


This Amendment No. 3 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area, dated September 1, 1999. The effective date of this Amendment is the date
TDH Signs this Amendment. All other contract provisions remain in full force and
effect.


1.       Article III is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:


3.7               HMO TELEPHONE ACCESS REQUIREMENTS
                  ---------------------------------

3.7.1             For all HMO telephone access (including Behavioral Health
                  Telephone services), HMO must ensure [Deletion]
                  adequately-staffed telephone lines. Telephone personnel must
                  receive customer service telephone training. HMO must ensure
                  that telephone staffing is adequate to fulfill the standards
                  of promptness and quality listed below:

                  1.       80% of all telephone calls must be answered within an
                           average of 30 seconds;
                  2.       The lost (abandonment) rate must not exceed 10%;
                  3.       HMO cannot impose maximum call duration limits but
                           must allow calls to be of sufficient length to ensure
                           adequate information is provided to the Member or
                           Provider.
                  4.       Telephone services must meet cultural competency
                           requirements (see Article 8.9) and provide
                           "linguistic access" to all members as defined in
                           Article II. This would include the provision of
                           interpretive services required for effective
                           communication for Members and providers.

3.7.2             Member Helpline: The HMO must furnish a toll-free phone line
                  which members may call 24 hours a day, 7 days a week. An
                  answering service or other similar mechanism, which allows
                  callers to obtain information from a live person, may be used
                  for after-hours and weekend coverage.

3.7.2.1           HMO must provide coverage for the following services at least
                  during HMO's regular business hours (a minimum of 9 hours a
                  day, between 8 a.m. and 6 p.m.), [Deletion] Monday through
                  Friday:

                  1.       Member ID information


<PAGE>

                  2.       To change PCP
                  3.       Benefit explanations
                  4.       PCP verification
                  5.       Access issues (including referrals to specialists)
                  6.       Problems Accessing PCP
                  7.       Member eligibility
                  8.       Complaints
                  9.       Service area issues (including when member is
                           temporarily out-of-service area)
                  10.      Other services covered by member services.

3.7.2.2           HMO must provide TDH with policies and procedures indicating
                  how the HMO will meet the needs of members who are unable to
                  contact HMO during regular business hours.

3.7.3             HMO must ensure that PCPs are available 24 hours a day, 7 days
                  a week (see Article 7.8).  This includes PCP telephone
                  coverage (see 28 TAC 11.2001 (a)1A).

3.7.4             Behavioral Health Hotline Services. HMO must have emergency
                  and crisis Behavioral Health hotline services available 24
                  hours a day, 7 days a week, toll-free throughout the service
                  area. Crisis hotline staff must include or have access to
                  qualified behavioral health professionals to assess behavioral
                  health emergencies. Emergency and crisis behavioral health
                  services may be arranged through mobile crisis teams. It is
                  not acceptable for all emergency intake line to be answered by
                  an answering machine. Hotline services must meet the
                  requirements described in Article 3.7.1


2.       Article V is amended by adding the new bold and italicized language and
         deleting the stricken language as follows:

5.9               REQUESTS FOR PUBLIC INFORMATION
                  -------------------------------

5.9.3.            Notwithstanding 5.9.2. If HMO believes that the requested
                  information qualifies as a trade secret or as commercial or
                  financial information, HMO must notify TDH--within three (3)
                  working days after TDH gives notice that a request has been
                  made for public information [Deletion] -- and request TDH to
                  submit the request for public information to the Attorney
                  General for an Open Records Opinion. The HMO will be
                  responsible for presenting all exceptions to public disclosure
                  to the Attorney General if an opinion is requested. [Deletion]


<PAGE>

3.       Article VI is amended by adding the new bold and italicized language as
         follows:

6.4               CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS
                  -----------------------------------------------

6.4.5             HMO must provide assistance to providers requiring PCP
                  verification 24 hours a day, 7 days a week.

6.4.5.1           HMO must provide TDH with policies and procedures indicating
                  how the HMO will provide PCP verification as indicated in
                  article 6.4.5. HMOs providing PCP verification via a
                  telephone must meet the requirements of 3.7.1.

4.       Article VII is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

7.6               PROVIDER COMPLAINT AND APPEAL PROCEDURES
                  ----------------------------------------

7.6.3             HMO's complaint and appeal process cannot contain provisions
                  requiring a provider to submit a complaint or appeal to TDH
                  for resolution in lieu of the HMO's process.

7.18              DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND
                  -------------------------------------------------------
                  ANHCs)
                  -----

7.18.2.1          HMO is required to include subcontract provisions in its
                  delegated network contracts which require the UM protocol used
                  by a delegated network to produce substantially similar
                  outcomes, as approved by TDH, as the UM protocol employed by
                  the contracting HMO. The responsibilities of an HMO in
                  delegating UM functions to a delegated network will be
                  governed by Article [Deletion] 16.3.12 of this contract.

5.       Article VIII is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

8.3               ADVANCE DIRECTIVES
                  ------------------

8.3.1             Federal and state law require HMOs and providers to maintain
                  written policies and procedures for informing and providing
                  written information to all adult Members 18 years of age and
                  older about their rights under state and federal law, in
                  advance of their receiving care (Social Security
                  Act ss. 1902(a)(57) andss.1903(m)(1)(A)). The written policies
                  and procedures must contain procedures for providing written
                  information regarding advance directives and the Member's
                  right to refuse, withhold or withdraw medical treatment and
                  mental health treatment. [Deletion] HMO's policies and
                  procedures must comply with provisions contained in 42 CFR
                  ss. 434.28 and 42 CFR ss. 489, SubPart I, relating to advance
                  directives for all hospitals,


<PAGE>



                  critical access hospitals, skilled nursing facilities, home
                  health agencies, providers of home health care, providers of
                  personal care services and hospices, as well as the following
                  state laws and rules:

8.3.1.2.3         a Member's right to execute a Medical Power of Attorney to
                  appoint an agent to make health care decisions on the Member's
                  behalf if the Member becomes incompetent; and

8.3.1.3           the declaration for Mental Health Treatment, Chapter 137,
                  Texas Civil Practice and Remedies Code, which includes: a
                  Member's right to execute a declaration for mental health
                  treatment in a document making a declaration of preferences or
                  instructions regarding mental health treatment.

8.3.2             HMO must maintain written policies for implementing a Member's
                  advance directive. Those policies must include a clear and
                  precise statement of limitation if HMO or a participating
                  provider cannot or will not implement a Member's advance
                  directive.

8.3.2.1.3         a description of the medical and mental health conditions or
                  procedures affected by the conscience objection.

[Deletion]

8.5               MEMBER COMPLAINT PROCESS
                  ------------------------

8.5.1             HMO must develop, implement and maintain a Member complaint
                  system that complies with the requirements of Article 20A.12
                  of the Texas Insurance Code, relating to the Complaint System,
                  except where otherwise provided in this contract and in
                  applicable federal law. The complaint and appeals procedure
                  must be the same for all Members and must comply with Texas
                  Insurance Code, Article 20A.12 or applicable federal law.
                  Modifications and amendments must be submitted to TDH at least
                  30 days prior to the implementation of the modification or
                  amendment.

8.5.2             HMO must have written policies and procedures for receiving,
                  tracking, reviewing, and reporting and resolving of Member
                  complaints. The procedures must be reviewed and approved in
                  writing by TDH. Any changes or modifications to the procedures
                  must be submitted to TDH for approval thirty (30) days prior
                  to the effective date of the amendment.

8.5.3             HMO must designate an officer of HMO who has primary
                  responsibility for ensuring that complaints are resolved in
                  compliance with written policy and within the time required.
                  An "officer" of HMO means a president, vice president,
                  secretary,


<PAGE>

                  treasurer, or chairperson of the board for a corporation, the
                  sole proprietor, the managing general partner of a
                  partnership, or a person having similar executive authority in
                  the organization.

8.5.4             HMO must have a routine process to detect patterns of
                  complaints and disenrollments and involve management and
                  supervisory staff to develop policy and procedural
                  improvements to address the complaints. HMO must cooperate
                  with TDH and TDH's Enrollment Broker in Member complaints
                  relating to enrollment and disenrollment.

8.5.5             HMO's complaint procedures must be provided to Members in
                  writing and in alternative communication formats. A written
                  description of HMO's complaint procedures must be in
                  appropriate languages and easy for Members to understand. HMO
                  must include a written description in the Member Handbook. HMO
                  must maintain at least one local and one toll-free telephone
                  number for making complaints.

8.5.6             HMO's process must require that every complaint received in
                  person, by telephone or in writing, is recorded in a written
                  record and is logged with the following details: date;
                  identification of the individual filing the complaint;
                  identification of the individual recording the complaint;
                  nature of the complaint; disposition of the complaint;
                  corrective action required; and date resolved.

8.5.7             HMO's process must include a requirement that the Governing
                  Body of HMO reviews the written records (logs) for complaints
                  and appeals.

8.5.8             HMO is prohibited from discriminating against a Member because
                  that Member is making or has made a complaint.

8.5.9             HMO cannot process requests for disenrollments through HMO's
                  complaint procedures. Requests for disenrollments must be
                  referred to TDH within five (5) business days after the Member
                  makes a disenrollment request.

8.5.10            HMO must develop, implement and maintain an appeal of adverse
                  determination procedure that complies with the requirements of
                  Article 21.58A of the Texas Insurance Code, relating to the
                  utilization review, except where otherwise provided in this
                  contract and in applicable federal law. The appeal of an
                  adverse determination procedure must be the same for all
                  Members and must comply with Texas Insurance Code, Article 21
                  .58A or applicable federal law. Modifications and amendments
                  must be submitted to TDH no less than 30 days prior to the
                  implementation of the modification or amendment. When an
                  enrollee, a person acting on behalf of an enrollee, or an
                  enrollee's provider of record expresses orally or in writing
                  any dissatisfaction or disagreement with an adverse
                  determination, HMO or UR agent must regard the expression of
                  dissatisfaction as a request to appeal an adverse
                  determination.


<PAGE>

8.5.11            If a complaint or appeal of an adverse determination relates
                  to the denial, delay. reduction, termination or suspension of
                  covered services by either HMO or a utilization review agent
                  contracted to perform utilization review by HMO, HMO must
                  inform Members they have the right to access the TDH Fair
                  Hearing process at any time in lieu of the internal complaint
                  system provided by HMO. HMO is required to comply with the
                  requirements contained in 1 TAC Chapter 357, relating to
                  notice and Fair Hearings in the Medicaid program, whenever an
                  action is taken to deny, delay, reduce, terminate or suspend a
                  covered service.

8.5.12            If Members utilize HMO's internal complaint or appeal of
                  adverse determination system and the complaint relates to the
                  denial, delay. reduction, termination or suspension of covered
                  services by either HMO or a utilization review agent
                  contracted to perform utilization review by HMO, HMO must
                  inform the Member that they continue to have a right to appeal
                  the decision through the TDH Fair Hearing process.

8.5.13            The provisions of Article 21.58A, Texas Insurance Code,
                  relating to a Member's right to appeal an adverse
                  determination made by HMO or a utilization review agent by an
                  independent review organization, do not apply to a Medicaid
                  recipient. Federal fair hearing requirements (Social Security
                  Act ss. 1902a(3), codified at 42 C.F.R. 431.200 et. seq.)
                  require the agency to make a final decision after a fair
                  hearing, which conflicts with the State requirement that the
                  IRO make a final decision. Therefore, the State requirement is
                  pre-empted by the federal requirement.

8.5.14            HMO will cooperate with the Enrollment Broker and TDH to
                  resolve all Member complaints. Such cooperation may include,
                  but is not limited to, participation by HMO or Enrollment
                  Broker and/or TDH internal complaint committees.

8.5.15            HMO must have policies and procedures in place outlining the
                  role of HMO's Medical Director in the Member Complaint System
                  and appeal of an adverse determination. The Medical Director
                  must have a significant role in monitoring, investigating and
                  hearing complaints.

8.5.16            HMO must provide Member Advocates to assist Members in
                  understanding and using HMO's complaint system and appeal of
                  an adverse determination.

8.5.17            HMO's Member Advocates must assist Members in writing or
                  filing a complaint or appeal of an adverse determination and
                  monitoring the complaint or appeal through the Contractor's
                  complaint or appeal of an adverse determination process until
                  the issue is resolved.

8.6               MEMBER NOTICE, APPEALS AND FAIR HEARINGS
                  ----------------------------------------

8.6.1             HMO must send Members the notice required by 1 Texas
                  Administrative Code ss. 357.5, whenever HMO takes an action to
                  deny, delay, reduce or terminate covered


<PAGE>

                  services to a Member. The notice must be mailed to the Member
                  no less than 10 days before HMO intends to take an action. If
                  an emergency exists, or if the time within which the service
                  must be provided makes giving 10 days notice impractical or
                  impossible, notice must be provided by the most expedient
                  means reasonably calculated to provide actual notice to the
                  Member, including by phone, direct contact with the Member, or
                  through the provider's office.

8.6.2             The notice must contain the following information:

8.6.2.1           Member's right to immediately access TDH's Fair Hearing
                  process:

8.6.2.2           a statement of the action HMO will take;

8.6.2.3           the date the action will be taken;

8.6.2.4           an explanation of the reasons HMO will take the action;

8.6.2.5           a reference to the state and/or federal regulations which
                  support HMO's action;

8.6.2.6           an address where written requests may be sent and a toll-free
                  number Member can call to: request the assistance of a Member
                  representative, or file a complaint, or request a Fair
                  Hearing;

8.6.2.7           a procedure by which Member may appeal HMO's action through
                  either HMO's complaint process or TDH's Fair Hearings process;

8.6.2.8           an explanation that Members may represent themselves, or be
                  represented by HMO's representative, a friend, a relative,
                  legal counsel or another spokesperson;

8.6.2.9           an explanation of whether, and under what circumstances,
                  services may be continued if a complaint is filed or a Fair
                  Hearing requested;

8.6.2.10          a statement that if the Member wants a TDH Fair Hearing on the
                  action, Member must make the request for a Fair Hearing within
                  90 days of the date on the notice or the right to request a
                  hearing is waived;

8.6.2.11          a statement explaining that HMO must make its decision within
                  30 days from the date the complaint is received by HMO; and

8.6.2.12          a statement explaining that a final decision must be made by
                  TDH within 90 days from the date a Fair Hearing is requested.

8.7               MEMBER ADVOCATES
                  ----------------

8.7.1             HMO must provide Member Advocates to assist Members. Member
                  Advocates must


<PAGE>


                  be physically located within the service area. Member
                  Advocates must inform Members of their rights and
                  responsibilities, the complaint process. the health education
                  and the services available to them, including preventive
                  services.

8.7.2             Member Advocates must assist Members in writing complaints and
                  are responsible for monitoring the complaint through HMO's
                  complaint process until the Member's issues are resolved or a
                  TDH Fair Hearing requested (see Articles 8.6.15, 8.6.16. and
                  8.6.17).

8.7.3             Member Advocates are responsible for making recommendations to
                  management on any changes needed to improve either the care
                  provided or the way care is delivered. Member Advocates are
                  also responsible for helping or referring Members to community
                  resources available to meet Member needs that are not
                  available from HMO as Medicaid covered services.

8.7.4             Member Advocates must provide outreach to Members and
                  participate in TDH-sponsored enrollment activities.

8.8               MEMBER CULTURAL AND LINGUISTIC SERVICES
                  ---------------------------------------

8.8.1             Cultural Competency Plan. HMO must have a comprehensive
                  written Cultural Competency Plan describing how HMO will
                  ensure culturally competent services, and provide linguistic
                  and disability-related access. The Plan must describe how the
                  individuals and systems within HMO will effectively provide
                  services to people of all cultures, races, ethnic backgrounds,
                  and religions as well as those with disabilities in a manner
                  that recognizes, values, affirms, and respects the worth of
                  the individuals and protects and preserves the dignity of
                  each. HMO must submit a written plan to TDH prior to the
                  effective date of this contract unless previously submitted.
                  Modifications and amendments to the written plan must be
                  submitted to TDH no later than 30 days prior to implementation
                  of the modification or amendment. The Plan must also be made
                  available to HMO's network of providers.

8.8.2             The Cultural Competency Plan must include the following:

8.8.2.1           HMO's written policies and procedures for ensuring effective
                  communication through the provision of linguistic services
                  following Title VI of the Civil Rights Act guidelines and the
                  provision of auxiliary aids and services, in compliance with
                  the Americans with Disabilities Act, Title III, Department of
                  Justice Regulation 36.303. HMO must disseminate these policies
                  and procedures to ensure that both Staff and subcontractors
                  are aware of their responsibilities under this provision of
                  the contract.

8.8.2.2           A description of how HMO will educate and train its staff and
                  subcontractors on culturally competent service delivery, and
                  the provision of linguistic and/or disability-related access
                  as related to the characteristics of its Members;


<PAGE>


8.8.2.3           A description of how HMO will implement the plan in its
                  organization, identifying a person in the organization who
                  will serve as the contact with TDH on the Cultural Competency
                  Plan;

8.8.2.4           A description of how HMO will develop standards and
                  performance requirements for the delivery of culturally
                  competent care and linguistic access. and monitor adherence
                  with those standards and requirements;

8.8.2.5           A description of how HMO will provide outreach and health
                  education to Members, including racial and ethnic minorities,
                  non-English speakers or limited-English speakers, and those
                  with disabilities, and

8.8.2.6           A description of how HMO will help Members access culturally
                  and linguistically appropriate community health or social
                  service resources;

8.8.3             Linguistic, Interpreter Services, and Provision of Auxiliary
                  Aids and Services. HMO must provide experienced, professional
                  interpreters when technical, medical, or treatment information
                  is to be discussed. See Title VI of the Civil Rights Act of
                  1964, 42 U.S.C. ss. ss. 2000d, et. seq. HMO must ensure the
                  provision of auxiliary aids and services necessary for
                  effective communication, as per the Americans with
                  Disabilities Act. Title III, Department of Justice Regulations
                  36.303.

8.8.3.1           HMO must adhere to and provide to Members the Member Bill of
                  Rights and Responsibilities as adopted by the Texas Health and
                  Human Services Commission and contained at 1 Texas
                  Administrative Code (TAC) ss. ss. 353.202-353.203. The Member
                  Bill of Rights and Responsibilities assures Members the right
                  "to have interpreters, if needed, during appointments with
                  their providers and when talking to their health plan.
                  Interpreters include people who can speak in their native
                  language, assist with a disability, or help them understand
                  the information."

8.8.3.2           HMO must have in place policies and procedures that outline
                  how Members can access face-to-face interpreter services in a
                  provider's office if necessary to ensure the availability of
                  effective communication regarding treatment, medical history
                  or health education for a Member. HMOs must inform its
                  providers on how to obtain an updated list of participating,
                  qualified interpreters.

8.8.3.3           A competent interpreter is defined as someone who is:

8.8.3.4           proficient in both English and the other language;

8.8.3.5           has had orientation or training in the ethics of interpreting;
                  and

8.8.3.6           has the ability to interpret accurately and impartially.

8.8.3.7           HMO must provide 24-hour access to interpreter services for
                  Members to access


<PAGE>


                  emergency medical services within HMO's network.

8.8.3.8           Family Members, especially minor children, should not be used
                  as interpreters in assessments, therapy or other medical
                  situations in which impartiality and confidentiality are
                  critical, unless specifically requested by the Member.
                  However, a family member or friend may be used as an
                  interpreter if they can be relied upon to provide a complete
                  and accurate translation of the information being provided to
                  the Member; provided that the Member is advised that a free
                  interpreter is available; and the Member expresses a
                  preference to rely on the family member or friend.

8.8.4             All Member orientation presentations education classes and
                  materials must be presented in the languages of the major
                  population groups making up 10% or more of the Medicaid
                  population in the service area, as specified by TDH. HMO must
                  provide auxiliary aids and services, as needed, including
                  materials in alternative formats (i.e., large print, tape or
                  Braille), and interpreters or real-time captioning to
                  accommodate the needs of persons with disabilities that affect
                  communication.

8.8.5             HMO must provide or arrange access to TDD to Members who are
                  deaf or hearing impaired.

8.9               CERTIFICATION DATE
                  ------------------

8.9.1             On the date of the new Member's enrollment, TDH will provide
                  HMOs with the Member's Medicaid certification date.

6.       Article XII is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

12.1              FINANCIAL REPORTS
                  -----------------

12.1.4            Final MCFS Reports. HMO must file two Final Managed Care
                  ------------------
                  Financial-Statistical Reports. The first final report must
                  reflect expenses incurred through the 90th day after the end
                  of the contract. The first final report must be filed on or
                  before the 120th day after the end of the contract. The second
                  final report must reflect data completed through the 334th day
                  after the end of the contract year and must be filed on or
                  before the 365th day following the end of the contract.

12.2.9            Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
                  ------------------------------------------------------
                  must file preliminary and final Medicaid Disproportionate
                  Share Hospital (DSH) reports, required by TDH to identify and
                  reimburse hospitals that qualify for Medicaid DSH funds. The
                  preliminary and final DSH reports must include the data
                  elements and be submitted in the form and format specified by
                  TDH. The preliminary DSH reports are due on or before June 1
                  of the year following the state fiscal year for which data is
                  being reported. The final DSH reports are due [Deletion] no
                  later


<PAGE>


                  than July 15 of the year following the state fiscal year for
                  which data is being reported.

12.8              UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
                  --------------------------------------------------

                  Behavioral health (BH) utilization management reports are
                  required on a semi-annual basis. [Deletion] Refer to Appendix
                  H for the standardized reporting format for each report and
                  detailed instructions for obtaining the specific data required
                  in the report. [Deletion]

12.8.1            In addition, files are due to the TDH External Quality Review
                  Organization five (5) working days following the end of each
                  State Quarter. See Appendix H for Submission instructions. The
                  BH utilization report and data file submission instructions
                  may periodically updated by TDH to facilitate clear
                  communication to the health plans.

12.9              UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
                  ------------------------------------------------

                  Physical health (PH) utilization management reports are
                  required on a semi-annual basis. [Deletion] Refer to Appendix
                  J for the standardized reporting format for each report and
                  detailed instructions for obtaining specific data required in
                  the report. [Deletion]

12.9.1            In addition, data files are due to the TDH External Quality
                  Review Organization five (5) working days following the end of
                  each State Quarter. See Appendix J for submission
                  instructions. The PH utilization report and data file
                  submission instruction may periodically be updated by TDH to
                  facilitate clear communication to the health plan.

7.       Article XIII is amended by adding the new bold and italicized language
         and deleting the stricken language as follows:

13.1              CAPITATION AMOUNTS
                  ------------------

13.1.1            TDH will pay HMO monthly premiums calculated by multiplying
                  the number of Member months by Member risk group times the
                  monthly capitation amount by Member risk group. For additional
                  information regarding the actuarial basis and


<PAGE>


                  methodology used to compute the capitation rates, please
                  reference the waiver under the document titled "Actuarial
                  Methodology for Determination of Maximum Monthly Capitation
                  Amounts". HMO and network providers are prohibited from
                  billing or collecting any amount from a Member for health care
                  services covered by this contract, in which case the Member
                  must be informed of such costs prior to providing non-covered
                  services.

13.2              EXPERIENCE REBATE TO STATE
                  --------------------------

13.2.1            For the contract period, [Deletion] HMO must pay to TDH an
                  experience rebate calculated in accordance with the tiered
                  rebate method listed below based on the excess of allowable
                  HMO STAR revenues over allowable HMO STAR expenses as
                  measured by any positive amount on Line 7 of "Part 1:
                  Financial Summary, All Coverage Groups Combined" of the
                  annual Managed Care Financial-Statistical Report set forth in
                  Appendix I, as reviewed and confirmed by TDH. TDH reserves the
                  right to have an independent audit performed to verify the
                  information provided by HMO.

13.2.5            There will be two settlements for payment(s) [Deletion] of the
                  experience rebate allocated to the state in the table 13.2.1
                  under the column entitled "State Share of Experience Rebate".
                  The first settlement shall equal 100 percent [Deletion] of the
                  experience rebate as derived from Line 7 of Part 1 (Net Income
                  Before Taxes) of the first final [Deletion] Managed Care
                  Financial Statistical (MCFS) Report and shall be paid on the
                  same day the first final [Deletion] MCFS Report is submitted
                  to TDH. The second settlement shall be an adjustment to the
                  first settlement and shall be paid to TDH on the same day that
                  the second final [Deletion] MCFS Report is submitted to TDH if
                  the adjustment is a payment from HMO to TDH. TDH or its agent
                  may audit or review the MCFS reports. If TDH determines that
                  corrections to the MCFS reports are required, based on a TDH
                  audit/review or other documentation acceptable to TDH, to
                  determine an adjustment to the amount of the second
                  settlement, then final adjustment shall be made within two
                  years from the date that HMO submits the second final
                  [Deletion] MCFS report. HMO must pay the first and second
                  settlements on the due dates for the first and second final
                  MCFS reports respectively as identified in Article [Deletion]
                  12.1.4. TDH may adjust the experience rebate if TDH determines
                  MO has paid affiliates amounts for goods or services that are
                  higher than the fair market value of the goods and services in
                  the service area. Fair market value may be based on the amount
                  HMO pays a non-affiliate(s) or the amount another HMO pays for
                  the same or similar service in the service area. TDH has final
                  authority in auditing and determining the amount of the
                  experience rebate.

8.       The Appendices are amended by deleting Appendix H, "Utilization
         Management Report -Behavioral Health" and replacing it with new
         Appendix H, "Utilization Management Report -Behavioral Health", as
         attached.

9.       The Appendices are amended by deleting Appendix J, "Utilization
         Management Report -Physical Health" and replacing it with new Appendix
         J, "Utilization Management Report -


<PAGE>


         Physical Health", as attached.

10.      The Appendices are amended by deleting Appendix K, "Preventative Health
         Performance Objectives" and replacing it with new Appendix K,
         "Preventative Health Performance Objectives", as attached.


AGREED AND SIGNED by an authorized representative of the parties on February 5,
2001.



TEXAS DEPARTMENT OF HEALTH PCA Health Plan; of Texas, Inc.



By:  /s/ C.E. Bell, M.D.                    By  /s/ Michael A. Seltzer
   ----------------------------------          ---------------------------------
   Charles E. Bell, M.D.                       Michael Seltzer
   Executive Deputy Commissioner               Vice President, West Region



Approved as to Form:




/s/ Mary Ann Slavin
-------------------------
Office of General Counsel

TDH DOC# 4810323494* 2001A-O1C

<PAGE>


                                AMENDMENT NO. 4
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 4 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Travis Service Area, dated
September 1, 1999. The effective date of this Amendment is [Deletion] September
7, 2000. All other contract provisions remain in full force and effect.

The Parties agree to amend the Contract to read as follows:

1.       Article XIII is amended by the bold and italicized language and
         deleting the stricken language.

13.1.2            Delivery Supplemental Payment (DSP). [Deletion] The monthly
                  capitation amounts and the DSP amount are listed below.
                  [Deletion]


<PAGE>

         -----------------------------------------------------------------------
         Risk Group                    Monthly Capitation Amounts [Deletion]
                                       September 1, 2000 - August 31, 2001
         -----------------------------------------------------------------------
         TANF Adults                                    $107.58
         -----------------------------------------------------------------------
         TANF Children (less than) 12        [Deletion]  $57.06
         Months of Age
         -----------------------------------------------------------------------
         Expansion Children (less than) 12   [Deletion]  $73.48
         Months of Age
         -----------------------------------------------------------------------
         Newborns 12 Months of               [Deletion] $390.73

         Age
         -----------------------------------------------------------------------
         TANF Children 12                    [Deletion] $390.73

         Months of Age
         -----------------------------------------------------------------------
         Expansion Children 12               [Deletion] $390.73

         Months of Age
         -----------------------------------------------------------------------
         Federal Mandate Children            [Deletion]  $41.93
         -----------------------------------------------------------------------
         CHIP Phase I                        [Deletion]  $71.75
         -----------------------------------------------------------------------
         Pregnant Women                                 $164.78
         -----------------------------------------------------------------------
         Disabled/Blind                                  $14.00
         Administration
         -----------------------------------------------------------------------

         Delivery Supplemental Payment: A one-time per pregnancy supplemental
         payment for each delivery shall be paid to HMO as provided below in the
         following amount: $2817.00.


<PAGE>



[Deletion]

[Deletion]

13.1.3            TDH will re-examine the capitation rates paid to HMO under
                  this contract during the first year of the contract period and
                  will provide HMO with capitation rates for the second year of
                  the contract period no later than 30 days before the date of
                  the one-year anniversary of the contract's effective date.
                  Capitation rates for state fiscal year 2001 will be
                  re-examined based on the most traditional Medicaid cost data
                  for the contracted risk groups in the service area, trended
                  forward and discounted.

13.1.3.1          Once HMO has received their capitation rates established by
                  TDH for the second year of this contract, HMO may terminate
                  this contract as provided in Article 18.1.6 of this contract.

13.1.4            The monthly premium payment to HMO is based on monthly
                  enrollments adjusted to reflect money damages set out in
                  Article 18.8 and adjustments to premiums in Article 13.5.

13.1.5            The monthly premium payments will be made to HMO no later than
                  the 10th working day of the month for which premiums are paid.
                  HMO must accept payment for premiums by direct deposit into an
                  HMO account.

<PAGE>


13.1.6            Payment of monthly capitation amounts is subject to
                  availability of appropriations. If appropriations are not
                  available to pay the full monthly capitation amounts, TDH will
                  equitably adjust capitation amounts for all participating
                  HMOs, and reduce scope of service requirements as appropriate.

13.1.7            HMO renewal rates reflect program increases appropriated by
                  the 76th legislature for physician (to include THSteps
                  providers) and outpatient facility services. HMO must report
                  to TDH any change in rates for participating physicians (to
                  include THSteps providers) and outpatient facilities resulting
                  from this increase. The report must be submitted to TDH at the
                  end of the first quarter of the FY2000 and FY2001 contract
                  years according to the deliverables matrix schedule set for
                  HMO.


AGREED AND SIGNED by an authorized representative of the parties on September 7,
2000.


TEXAS DEPARTMENT OF HEALTH                  PCA HEALTH PLANS OF TEXAS, INC.


By:  /s/ William R. Archer                  By:   /s/ Michael Seltzer
   ---------------------------------           ---------------------------------
   William R. Archer, III, M.D.                Michael Seltzer
   Commissioner of Health                      Vice President, West Region


Approved as to Form:



/s/ Illegible
------------------------
Office of General Counsel


<PAGE>
                                AMENDMENT NO. 5
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO


This Amendment No. 5 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the 1999 Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area. The effective date of this Amendment is the date TDH signs this Amendment.
All other contract provisions remain in full force and effect.

1.       Article II & IV is amended by adding the new bold and italicized
         language and deleting the stricken language as follows:

         2.0      DEFINITION
                  ----------

                  Clean claim means a claim submitted by a physician or provider
                  for medical care or health care services rendered to an
                  enrollee, with documentation reasonably necessary for the HMO
                  or subcontracted claims processor to process the claim, as set
                  forth in 28 TAC ss. 21.2802(4) and to the extent that it is
                  not in conflict with the provisions of this contract.

                  [Deletion]

4.10              CLAIMS PROCESSING REQUIREMENTS
                  ------------------------------

4.10.1            HMO and claims processing subcontractors must comply with 28
                  TAC ss.ss. 21.2801 through 21.2816 "Submission of Clean
                  Claims", to the extent they are not in conflict with
                  provisions of this contract.

4.10.2            HMO must use a TDH approved or identified claim format that
                  contains all data fields for final adjudication of the claim.
                  The required data fields must be complete and accurate. The
                  TDH required data fields are identified in TDH's "HMO
                  Encounter Data Claims Submission Manual."

                                  Page 1 of 3

<PAGE>

4.10.3            HMO and claims processing subcontractors must comply with
                  TDH's Texas Medicaid Managed Care Claims Manual (Claims
                  Manual), which contains TDH's claims processing requirements.
                  HMO must comply with any changes to the Claims Manual with
                  appropriate notice of changes from TDH.

4.10.4            HMO must forward claims submitted to HMO in error to either:
                  1) the correct HMO, if the correct HMO can be determined from
                  the claim or is otherwise known to HMO; 2) the State's claims
                  administrator; or 3) the provider who submitted the claim in
                  error, along with an explanation of why the claim is being
                  returned.

4.10.5            HMO must not pay any claim submitted by a provider who has
                  been excluded or suspended from the Medicare or Medicaid
                  programs for fraud and abuse when HMO has knowledge of the
                  exclusion or suspension.

4.10.6            All provider clean claims must be adjudicated (finalized as
                  paid or denied adjudicated) within 30 days from the date the
                  claim is received by HMO. HMO must pay providers interest on a
                  clean claim which is not adjudicated within 30 days from the
                  date the claim is received by HMO or becomes clean at a rate
                  of 1.5% per month (18% annual) for each month the clean claim
                  remains unadjudicated. HMO will be held to a minimum
                  performance level of 90% of all clean claims paid or denied
                  within 30 days of receipt and 99% of all clean claims paid or
                  denied within 90 days of receipt. Failure to meet these
                  performance levels is a default: under this contract and could
                  lead to damages or sanctions as outlined in Article XVI. The
                  performance levels are subject to changes if required to
                  comply with federal and state laws or regulations.

4.10.6.1          All claims and appeals submitted to HMO and claims processing
                  subcontractors must be paid-adjudicated (clean claims),
                  denied-adjudicated (clean claims), or denied for additional
                  information (unclean claims) to providers within 30 days from
                  the date the claim is received by HMO. Providers must be sent
                  a written notice for each claim that is denied for additional
                  information (unclean claims) identifying the claim, all
                  reasons why the claim is being denied, the date the claim was
                  received by HMO, all information required from the provider in
                  order for HMO to adjudicate the claim, and the date by which
                  the requested information must be received from the provider.

4.10.6.2          Claims that are suspended (pended internally) must be
                  subsequently paid-adjudicated, denied-adjudicated, or denied
                  for additional information (pended externally) within 30 days
                  from date of receipt. No claim can be suspended for a period
                  exceeding 30 days from date of receipt of the claim.


                                  Page 2 of 3                           12/21/00

<PAGE>


4.10.6.3          HMO must identify each data field of each claim form that s
                  required from the provider in order for HMO to adjudicate the
                  claim. HMO must inform all network providers about the
                  required fields no later than 30 days prior to the effective
                  date of the contract or as a provision within HMO/provider
                  contract. Out-of-network providers must be informed of all
                  required fields if the claim is denied for additional
                  information. The required fields must include those required
                  HMO and TDH.

4.10.7            HMO is subject to Article XVI, Default and Remedies, for
                  claims that are not processed on a timely basis as required by
                  this contract and the Claims Manual. Notwithstanding the
                  provisions of Articles 4.10.4, 4.10.4.1 and 4.10.4.2, HMO's
                  failure to adjudicate (paid, denied, or external pended) at
                  least ninety percent (90%) of all claims within thirty (30)
                  days of receipt and ninety-nine percent (99%) within ninety
                  (90) days of receipt for the contract year to date is a
                  default under Article XVI of this contract.

4.10.8            HMO must comply with the standards adopted by the U.S.
                  Department of Health and Human Services under the Health
                  Insurance Portability and A accountability Act of 1996
                  submitting and receiving claims information through electronic
                  data interchange (EDI) that allows for automated processing
                  and adjudication of claims within two or three years, as
                  applicable, from the date the rules promulgated under HIPAA
                  are adopted.

4.10.9            For claims requirements regarding retroactive PCP changes for
                  mandatory Members, see Article 7.8.12.2.


AGREED AND SIGNED by an authorized representative of the parties on April 10,
2001.

TEXAS DEPARTMENT OF HEALTH                  PCA Health Plans of Texas, Inc.


By:  /s/ C.E. BELL, M.D.                    By:  /s/ MICHAEL SELTZER
   ----------------------------------          ---------------------------------
   Charles B. Bell, M.D.                       Michael Seltzer
   Executive Deputy Commissioner of Health     Vice President, West Region


Approved as to Form:

/s/ MARY ANN SLAVIN
-------------------------
Office of General Counsel                                 TDH DOC. NO.
                                                            4810323494-1A-01E
                                                                        12/27/00


                                  Page 3 of 3

<PAGE>

                                 AMENDMENT NO.6
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO


The 1999 Contract for Services entered into between the Texas Department of
Health and PCA Health Plans of Texas, Inc. (HMO) in the Travis Service Area is
hereby amended to reflect the merger of PCA Health Plans of Texas, Inc. into
Humana Health Plan of Texas, Inc. The Texas Department of Insurance has approved
the merger and all requisite documents have been filed. Copies of the Agreement
and Plan of Merger, Articles of Merger, and Official Order of the Commissioner
of Insurance are attached.

This Amendment No. 6 hereby substitutes Humana Health Plan of Texas, Inc. in the
place of PCA Health Plans of Texas, Inc. into the 1999 Contract for Services
referenced above. Humana Health Plan of Texas, Inc. agrees to abide by the
Application submitted in response to the Texas Department of Health's Request
for Application and all of the terms and conditions set forth in the 1999
Contract for Services and all of its duly executed Amendments.

AGREED TO:


TEXAS DEPARTMENT OF HEALTH                  HUMANA HEALTH PLAN OF TEXAS, INC.


By:  /s/ C.E. BELL, M.D.                    By: /s/ MICHAEL A. SELTZER
    -------------------------------            ---------------------------------
    Charles E. Bell, M.D.                      Michael A Seltzer
    Deputy Commissioner of Health              CEO, South Texas Market


Date:  05/16/01                             Date:
     ------------------------------              -------------------------------

Approved as to Form:


/s/ MARY ANN SLAVIN
-------------------------
Office of General Counsel

<PAGE>
No. 00-0377


                                 OFFICIAL ORDER
                                     of the
                           COMMISSIONER OF INSURANCE
                                     of the
                                 STATE OF TEXAS
                                 AUSTIN, TEXAS
                              Date: March 31, 2000

Subject Considered:

                                    MERGER OF
                        PCA HEALTH PLANS OF TEXAS, INC.
                                 Austin, Texas
                                TDI No. 28-05818
                                      AND
                             HUMANA HMO TEXAS, INC.
                               San Antonio, Texas
                                    28-94466
                                      INTO
                        HUMANA HEALTH PLAN OF TEXAS, INC.
                               San Antonio, Texas
                                TDI No. 28-93827

                                 CONSENT ORDER
                              DOCKET NO. C-00-0296

General remarks and official action taken:

On this day, came for consideration by the Commission of Insurance pursuant to
TEX, INS. CODE ANN. art. 20A and art. 21.25, the Plan and Agreement of Merger by
and between PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, hereinafter referred
to as "PCA HEALTH" and HUMANA HMO TEXAS, INC., San Antonio, Texas, hereinafter
referred to as "HUMANA HMO", and collectively hereinafter referred to as
"NON-SURVIVORS" whereby NON-SURVIVORS would be merged with and into A HEALTH
PLAN OF TEXAS, INC., San Antonio, Texas, hereinafter referred to as "HUMANA
HEALTH" with HUMANA HEALTH being the survivor.

Staff for the Texas Department of Insurance and the duly authorized
representative for NON-SURVIVORS and HUMANA HEALTH have consented to the entry
of this order and have requested the Commissioner of Insurance informally
dispose of this matter pursuant to the provisions of TEX. INS. CODE
ANN.ss. 36.104 (former article 1.33(e)), TEX. GOV'T CODE ANN.ss. 2001.056, and
28 TEX. ADMIN. CODE ss. 1.47.

                                     WAIVER
                                     ------

NON-SURVIVORS and HUMANA HEALTH acknowledge the existence of their rights
including but not limited to, the issuance and service of


<PAGE>
00-0377
COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 2 OF 5


notice of hearing, a public hearing, a proposal for decision, rehearing by the
Commissioner of Insurance, and judicial review of this administrative action, as
provided for in TEX. INS. CODE ANN.ss.ss. 36.201-36.205 (former article 1.04)
and TEX. GOV'T CODE ANN.ss.ss. 2001.051, 2001.052, 2001.145 and 2001.146, and
have expressly waived each and every such right.

                                FINDINGS OF FACT
                                ----------------

Based upon the information provided to the Texas Department of Insurance
pursuant to TEX. ADMIN. CODE, art. 11.301(4) (D) and art.ss. 11.1202, the
Commissioner of Insurance makes the following findings of fact:

1.       NON-SURVIVORS and HUMANA HEALTH have represented to the Commissioner of
         Insurance that they desire to waive all procedural requirements for the
         entry of an order, including but not limited to, notice of hearing, a
         public hearing, a proposal for decision, rehearing by the Commissioner
         of Insurance, and judicial review of the order as provided in TEX. INS.
         CODE ANN.ss.ss. 36.201-36.205 (former article 1.04), and TEX. GOV'T
         CODE ANN.ss.ss. 2001.051, 2001.052, 2001.145 and 2001.146.

2.       PCA HEALTH is a domestic Health Maintenance Organization duly licensed
         in the State of Texas pursuant to the: provisions of Chapter 20A of the
         Texas Insurance Code.

3.       HUMANA HMO is a domestic Health Maintenance Organization duly licensed
         in the State of Texas pursuant to the provisions of Chapter 20A of the
         Texas Insurance Code.

4.       HUMANA HEALTH is a domestic Health Maintenance Organization duly
         licensed in the State of Texas pursuant to the provisions of Chapter
         20A of the Texas Insurance Code.

5.       NON-SURVIVORS and HUMANA HEALTH are authorized to do a similar line of
         business, which is a prerequisite for merger approval under TEX. INS.
         CODE ANN. art. 20A.04 and 28 TEX. ADMIN. CODE ss. 11.301(4)(D).

6.       Documentation has been presented to the Texas Department of Insurance
         evidencing the fact that the Plan and Agreement of Merger has been
         approved by the Board of Directors and


<PAGE>

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 3 OF 5

         shareholders of both NON-SURVIVORS and HUMANA HEALTH in accordance with
         the requirements of TEX. INS. CODE ANN. art. 21.25.

7.       As a result of the mergers, all of the issued and outstanding shares of
         stock of NON-SURVIVORS shall be canceled.

8.       HUMANA HEALTH shall be the surviving corporation of the merger
         transactions.

9.       As a result of the mergers, HUMANA HEALTH will assume and carry out all
         the liability and responsibility and or insurance or reinsurance
         agreements now entered into by NON-SURVIVORS and any other obligations
         outstanding against such companies the time of merger on the same terms
         and under the same conditions as provided in such policies, contracts,
         insurance or reinsurance agreements.

10.      As December 31, 1999 on a pro forma basis, HEALTH would have had a
         consolidated net worth of $34,613,862.

11.      Pursuant to Article 1, of the Agreement and Plan of Merger, the
         effective date of the merger is the close of business on March 31,
         2000.

12.      No evidence has been presented that the Plan a d Agreement of Merger
         between NON-SURVIVORS and HUMANA HEALTH is contrary to law, is not in
         the best interest of the policyholders affected by the merger, or would
         substantially reduce the security of and service to be rendered to
         policyholders of NON-SURVIVORS in Texas or elsewhere.

13.      No evidence has been presented that immediately upon consummation of
         the transactions contemplated in the Plan d Agreement of Merger, HUMANA
         HEALTH would not be able to satisfy the requirements for the issuance
         of a license to write the line or lines of insurance for which
         NON-SURVIVORS are presently licensed.

14.      No evidence has been presented that the effect of such acquisition of
         control as a result of the mergers would be


<PAGE>
00-0377
COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 4 OF 6

         substantially to lessen competition in insurance in this state or tend
         to create a monopoly therein

15.      No evidence was presented that the financial condition of HUMANA HEALTH
         is such as might jeopardize the financial stability or prejudice the
         interests of its policyholders.

16.      No evidence was presented that HUMANA HEALTH has any plans or proposals
         to liquidate the surviving corporation, cause it to declare dividends
         or make other distributions, sell any of its assets, consolidate or
         merge it with any person, make any material change in its business or
         corporate structure or management, or cause the health maintenance
         organization to enter into material agreements, arrangements, or
         transactions of any kind with any party that are unfair, prejudicial
         hazardous, or unreasonable to the policyholders of HUMANA HEALTH, the
         surviving corporation, and not in the public interest.

17.      No evidence was presented that the competence, integrity,
         trustworthiness, and experience of those persons who would control the
         operations of HUMANA HEALTH are such that it would not be in the
         interests of the policyholders of NON-SURVIVORS and HUMANA HEALTH and
         the public to permit the merger.

                               CONCLUSIONS OF LAW
                               ------------------


Based upon the foregoing findings of fact the Commissioner of Insurance makes
the following conclusions of law:

1.       The Commissioner of Insurance has jurisdiction over this matter
         pursuant to TEX. INS. CODE ANN. art. 20A and art. 21.25.

2.       The proposed mergers of NON-SURVIVORS and HUMANA HEALTH is properly
         supported by the required documents and meets all requirements of law
         for its approval.

3.       The Commissioner of Insurance has no substantial evidence upon which to
         predicate denial of the mergers.

IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the mergers
whereby PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, and

<PAGE>

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 5 OF 5

HUMANA HMO TEXAS, INC., San Antonio, Texas, are to be merged with and into
HUMANA HEALTH PLAN OF TEXAS, INC., San Antonio, Texas, with HUMANA HEALTH PLAN
OF TEXAS, INC. being the survivor, all as specified in the Plan and Agreement of
Merger, be, and the same is hereby, approved.

IT IS FURTHER ORDERED that Certificate of Authority No. 9152, dated February 26,
1990, issued to PCA HEALTH PLANS OF TEXAS, INC. and Certificate of Authority No.
11004, dated February 28, 1996, issued to HUMANA HMO TEXAS, INC., San Antonio,
Texas, be canceled, and that the mergers be effective as of the close of
business on March 31, 2000.


                                            JOSE MONTEMAYOR
                                            COMMISSIONER OF INSURANCE


                                      BY:   /s/ BETTY PATTERSON
                                           -------------------------------------
                                           Betty Patterson
                                           Senior Associate Commissioner
                                           Financial Program
                                           Order No. 94-0576




Recommended by:


/s/ LORETTA CALDERON
----------------------------
Loretta Calderon
Insurance Specialist
Company Licensing & Registration


Reviewed by:


/s/ STEVE HARPER
----------------------------
Steve Harper, Analyst
Financial Analysis & Examination



<PAGE>

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 6 OF 6

Accepted by:

PCA HEALTH PLANS OF TEXAS, INC.



/s/ KATHLEEN PELLEGRINO
--------------------------------------
Title:  Vice President
(Printed Name):  Kathleen Pellegrino



Accepted by:

HUMANA HMO TEXAS, INC.



/s/ KATHLEEN PELLEGRINO
--------------------------------------
Title:  Vice President
(Printed Name):  Kathleen Pellegrino



Accepted by:

HUMANA HEALTH PLAN OF TEXAS, INC.



/s/ WALTER E. NEELY
--------------------------------------
Title:  Vice President
(Printed Name):  Walter E. Neely



<PAGE>



                               ARTICLES OF MERGER
                                       OF

                             HUMANA HMO TEXAS, INC.
                    a TEXAS Health Maintenance Organization
                                       &
                        PCA HEALTH PLANS OF TEXAS, INC.
                    a TEXAS Health Maintenance Organization

                                      INTO

                       HUMANA HEALTH PLAN OF TEXAS, INC.
                    a TEXAS Health Maintenance Organization

         Pursuant to provisions of the Texas Business Corporation Act, Articles
5.01B, 5.03A. 5.04A, 507, and 5.16, and the Texas Insurance Code, Article 21.25,
the domestic corporations herein named do hereby adopt the following Articles of
Merger:

         1.       The Agreement and Plan of Merger ("Plan") as set forth in
Exhibit A, attached hereto, and made a part hereof, for merging HUMANA HMO
TEXAS, INC., a Texas health maintenance organization, and PCA HEALTH PLANS OF
TEXAS, INC., a Texas health maintenance organization (collectively the
"Non-Survivors"). into HUMANA HEALTH PLAN OF TEXAS. INC., a Texas health
maintenance organization (the "Survivor"), was approved by Unanimous Written
Consent of the Board of Directors of the Non-Survivors dated December 27, 1999
and approved by Unanimous Written Consent of the Board of Directors of the
Survivor dated December 27, 1999.

         2.       HUMANA HEALTH PLAN OF TEXAS, INC. shall be the surviving
corporation of said merger.

         3.       Survivor shall be responsible for the payment of all fees and
franchise taxes of the Non-Survivors as required by law, and Survivor will be
obligated to pay such fees and franchise taxes if not timely paid.

         4.       The Articles of Incorporation of the Survivor, as filed with
the Texas Secretary of State and incorporated herein by reference, shall be the
Articles of Incorporation of the surviving corporation. No changes or amendments
shall be made to the Articles of Incorporation because of the merger.

         5.       The Plan was approved by unanimous written consent of the of
each of the undersigned corporations, and:


                                  Page 1 of 3

<PAGE>

                  (i)      the designation, number of outstanding shares, and
                  number of votes entitled to be cast by each voting group
                  entitled to vote separately on the Plan as to each corporation
                  were:

                                           Number of           Number of Votes
Name of Corporation     Designation     Outstanding Shares   Entitled to be Cast
-------------------     -----------     ------------------   -------------------

PCA HEALTH PLANS          Common             100,000               100,000
OF TEXAS, INC.
                          Preferred      30,000 Series A       30,000 Series A
                                         30,000 Series B       30,000 Series B

HUMANA HMO                 Common              1,000                 1,000
TEXAS, INC.

HUMANA HEALTH              Common              1,000                 1,000
PLAN OF TEXAS, INC.


                  (ii)      the total number of undisputed votes represented by
                  the unanimous written consent of the sole shareholder, cast
                  for the Plan separately by each voting group was:


                                                           Total Number of
                                                        Undisputed Votes Cast
Name of Corporation              Voting Group               For the Plan
-------------------              ------------               ------------

PCA HEALTH PLANS OF                 Common                     100,000
TEXAS, INC.
                                   Preferred                 30,000 Series A
                                                             30,000 Series B

HUMANA HMO TEXAS                    Common                       1,000
INC.

HUMANA HEALTH PLAN
OF TEXAS, INC.                      Common                       1,000


and the action being unanimous, the number of votes cast for the Plan by each
voting group was sufficient for approval by that group.

                                  Page 2 of 3

<PAGE>

         6.       An executed copy of the Plan, subject to approval by the Texas
Department of Insurance and the Texas Secretary of State, shall be kept on file
at the principal executive office of the Survivor at 500 West Main Street,
Louisville, KY 40202, with a duplicate copy at the administrative address of the
Survivor at 8431 Fredericksburg Road, San Antonio, TX 78229.

         7.       The effective time and date of the merger in the State of
Texas be at the close of business on March 31,2000.

Dated as of this 30th day of December, 1999.


                                            HUMAN HMO TEXAS, INC.

                                            By: /s/ WALTER E. NEELY
                                                --------------------------------
                                                Walter E. Neely
                                                Vice President


                                            PCA HEALTH PLANS OF TEXAS, INC.

                                             By: /s/ WALTER E. NEELY
                                                --------------------------------
                                                Walter E. Neely
                                                Vice President


                                            HUMANA HEALTH PLAN OF TEXAS, INC.


                                            By: /s/ KATHLEEN PELLEGRINO
                                                --------------------------------
                                                Kathleen Pellegrino
                                                Vice President


                                  Page 3 of 3

<PAGE>



                                                                       Exhibit A

                          AGREEMENT AND PLAN OF MERGER

         THIS AGREEMENT AND PLAN OF MERGER (the "Plan of Merger"), dated as of
December 30, 1999. by and among HUMANA HMO TEXAS, INC., and PCA HEALTH PLANS OF
TEXAS, INC., (collectively the "Non-Survivors"), both Texas health maintenance
organizations, into HUMANA HEALTH PLAN OF TEXAS, INC., (the "Surviving
Corporation"), a Texas health maintenance organization and a wholly-owned
subsidiary of Humana Inc. ("HUMANA"), a Delaware corporation.

                                   WITNESSETH:

         The respective Board of Directors of the Surviving Corporation and the
Non-Survivors deem it advisable to merger the Non-Survivors into the Surviving
Corporation ("Merger") pursuant to this Plan of Merger to be executed by the
Surviving Corporation and the Non-Survivors.

         NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:

                                    ARTICLE 1
                                    ---------

                                GENERAL PROVISION

         1.1      Execution of Articles of Merger. Subject to the provisions of
this Plan of Merger, and subject to the approval by the Texas Department of
Insurance and the Secretary of State of Texas, Articles of Merger required to
effectuate the terms of this Plan of Merger (collectively the "Merger
Documents") shall be executed, acknowledged, and thereafter delivered to the
offices of the Texas Department of insurance and the Secretary of State of
Texas, the domestic state of the Non-Survivors and the Surviving Corporation,
for filing and recording in accordance with applicable law, with an effective
date and time of the close of business on March 31, 2000 (the "Effective Time of
Merger").

         The plan of merger is as follows:


                                  Page 1 of 3

<PAGE>


         (1)      Entities: The Non-Survivors shall merge into Humana Health
                  --------
Plan of Texas, Inc. (the "Surviving Corporation"), a Texas corporation (the
"Merger"), which is hereinafter designated as the surviving corporation of the
Merger (the "Surviving Corporation"); and

         (2)      Terms of the Merger: The Merger shall become effective at the
                  -------------------
close of business at the Effective Time of Merger. At the Effective Time of
Merger (i) the separate existence of the Non-Survivors shall cease and the
Non-Survivors shall be merged with and into Humana Health Plan of Texas, Inc.,
with Humana Health Plan of Texas, Inc. continuing in existence as the Surviving
Corporation, and (ii) Humana Health Plan of Texas, Inc. shall succeed to all
rights and privileges and assume all liabilities and obligations of the
Non-Survivors.

         (3)      Taking of Necessary Action: The Surviving Corporation and the
                  --------------------------
Non-Survivors, respectively, shall take all action as may be necessary or
appropriate in order to effectuate the transactions contemplated by these Merger
Documents. In case, at any time and from time to time after the Effective Time
of Merger, any further action is necessary or desirable to carry out the
purposes of these Merger Documents and to vest the Surviving Corporation
effective on and after the Effective Time of Merger, with full title to all
properties, assets, rights, approvals, immunities and franchises of the
Non-Survivors, the persons serving as officers and directors of the Surviving
Corporation at the Effective Time of Merger, at the expense of the Surviving
Corporation, shall be authorized to take any and all such actions on behalf of
the Non-Survivors deemed necessary or desirable by the Surviving Corporation.

         (4)      Effect on Capital Stock: a) On the Effective Time of the
                  -----------------------
Merger, each issued and outstanding share of capital stock of Humana Health Plan
of Texas, Inc. shall remain outstanding and shall represent one issued and
outstanding share of the Surviving Corporation and all of the issued and
outstanding shares of the capital stock of the Non-Survivors shall be cancelled
and no shares of the Surviving Corporation shall be issued in exchange therefor.

         (b)      There are no rights to acquire shares, obligations, or other
securities of the Surviving Corporation or any of the Non-Survivors, in whole or
in part, for cash or other property.

         (5)      No Amendment to Articles of Incorporation of Surviving
                  ------------------------------------------------------
Corporation: The Articles of Incorporation of Humana Health Plan of Texas. Inc.,
-----------
filed with the Secretary of State of


                                  Page 2 of 3

<PAGE>


Texas and attached as Exhibit 1 shall be the Articles of incorporation of the
Surviving Corporation. No change or amendments shall be made to the Articles of
Incorporation because of the Merger.

         (6)      General Provisions:
                  ------------------

         (a)      By-laws of Surviving Corporation. The By-laws of Humana Health
                  --------------------------------
Plan of Texas, Inc. shall be the By-laws of the Surviving Corporation. No
changes or amendments shall be made to the By-laws because of the Merger.

         (b)      Directors and Officers. The directors and officers of Humana
                  ----------------------
Health Plan of Texas, Inc. shall be the directors and officers of the Surviving
Corporation and shall serve until their successors are duly elected and
qualified.


         IN WITNESS WHEREOF, each of the parties hereto has caused this Plan of
Merger to be executed on its behalf and attested by its duly authorized
officers, all as of the day and year first written above.


                                            HUMANA HEALTH PLAN OF TEXAS, INC.
ATTEST:

By: /s/ JOAN O. LENAHAN                     By: /s/ KATHLEEN PELLEGRINO
   ------------------------------------         --------------------------------
   Joan O. Lenahan                              Kathleen Pellegrino
   Secretary                                    Vice President


                                            HUMANA HMO TEXAS, INC.

ATTEST:

By: /s/ JOAN O. LENAHAN                     By:  /s/ WALTER E. NEELY
   ------------------------------------         --------------------------------
   Joan O. Lenahan                              Walter E. Neely
   Secretary                                    Vice President


                                            PCA HEALTH PLANS OF TEXAS, INC.
ATTEST:

By: /s/ JOAN O. LENAHAN                     By:  /s/ WALTER E. NEELY
   ------------------------------------         --------------------------------
   Joan O. Lenahan                              Walter E. Neely
   Secretary                                    Vice President


                                  Page 3 of 3

<PAGE>
                                                                   029945 Orig #
                                           TDH Document No. 7427705425* 2001-01E

                                 AMENDMENT NO. 7
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 7 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO) in Travis Service Area, to amend the
1999 Contract for Services between the Texas Department of Health and HMO. The
effective date of this Amendment is the date TDH Signs this Amendment. All other
contract provisions remain in full force and effect. The Parties agree to amend
the Contract as follows:

Article XII is amended to read as follows:


12.8.1            In addition, data files are due to TDH or its designee no
                  later than the fifth working day following the end of each
                  month. See Utilization Data Transfer Encounter Submission
                  Manual for submission instructions. The RH utilization report
                  and data file submission instructions may periodically be
                  updated by TDH to facilitate clear communication to the health
                  plans.

12.9.1            In addition, data files are due to TDH or its designee no
                  later than the fifth working day following the end of each
                  month. See Utilization Data Transfer Encounter Submission
                  Manual for submission instructions. The PH utilization report
                  and data file submission instructions may periodically be
                  updated by TDH to facilitate clear communication to the health
                  plan.


AGREED AND SIGNED by an authorized representative of the parties on Aug. 2,
2001.

Texas Department of Health                  Superior Health Plan, Inc.


By: /s/ CHARLES E. BELL M.D.                By: /s/ MICHAEL D. MCKINNEY, M.D.
    ---------------------------------------     --------------------------------
    Charles E. Bell M.D.                        Michael D. McKinney, M.D.
    Executive Deputy Commissioner of Health     President


Approved as to Form:

/s/ MARY ANN SLAVIN
------------------------------
Office of General Counsel


<PAGE>



                                 AMENDMENT NO. 8
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                     THE TEXAS DEPARTMENT OF HEALTH AND HMO

September 1, 1999 the Texas Department of Health (TDH) and Humana Health Plan of
Texas, Inc. entered into a Contract for Services for the provision of
comprehensive health care services to qualified and Medicaid eligible recipients
in the Travis Service Area through a managed care delivery system. This Contract
for Services was subsequently renewed in 1999 for a period of two years. Section
15.6 of the above referenced contract allows assignment of the contract with the
written consent of the Texas Department of Insurance (TDI) and TDH.

Human Health Plan of Texas, Inc. entered into a Management and Risk Transfer
Agreement and an Asset Sale and Purchase Agreement with Superior HealthPlan,
Inc. for the assignment and assumption of the Contract for Services. With the
written consent of both TDI and TDH, effective June 1, 2001, Humana Health Plan
of Texas, Inc. assigned and Superior HealthPlan, Inc. assumed the contract
referenced herein in its entirety.

The purpose of this Amendment No. 8 is to substitute Superior HealthPlan, Inc.
for Humana Health Plan of Texas, Inc. as the party to this contract as a result
of the assignment and assumption. For adequate consideration received Superior
HealthPlan, Inc. agrees to abide by the Application submitted by Humana Health
Plan of Texas, Inc. in response to the Texas Department of Health's Request for
Application and all of the terms and conditions set forth in the 1999 Contract
for Services, its subsequent renewal(s), and all of its duly executed
Amendments.

AGREED AND SIGNED by an authorized representative of the parties on 8/17/01.

TEXAS DEPARTMENT OF HEALTH                  SUPERIOR HEALTHPLAN, INC.

By: /s/  CHARLES E. BELL, M.D.              By:  /s/ MICHAEL D. MCKINNEY, M.D.
   ------------------------------               --------------------------------
   Charles B. Bell, M.D.                        Michael D. McKinney, M.D.
   Deputy Commissioner of Health                President

                                            MICHAEL D. MCKINNEY
                                            ------------------------------------
Approved as to Form:                        Printed Name


/s/ S.D. ALEXANDER   8/16/01                PRESIDENT
---------------------------------           ------------------------------------
Office of General Counsel                   Title of Signator


<PAGE>


                                 AMENDMENT NO. 9
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                  HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 9 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the Contract
for Services between the Health and Human Services Commission and HMO in the
Travis Service Area. The effective date of this amendment is September 1, 2001.
The Parties agree to amend the Contract as follows:

1.                HHSC and HMO acknowledge the transfer of responsibility and
                  the assignment of the original Contract for Services from TDH
                  to HHSC on September 1, 2001. Where the original Contract for
                  Services and any Amendment to the original Contract for
                  Services assigns a right, duty, or responsibility to TDH, that
                  right, duty, or responsibility may be exercised by HHSC or its
                  designee.

2.                Articles II, III, VI, VII. VIII. IX, X, XII, XIII, XV, XVI,
                  XVIII and XIX are amended to read as follows:

2.0               DEFINITIONS:
                  -----------

                  Chemical Dependency Treatment Facility means a facility
                  licensed by the Texas Commission on Alcohol and Drug Abuse
                  (TCADA) under Sec. 464.002 of the Health and Safety Code to
                  provide chemical dependency treatment.

                  Chemical Dependency Treatment means treatment provided for a
                  chemical dependency condition by a Chemical Dependency
                  Treatment Facility, Chemical Dependency Counselor or Hospital.

                  Chemical Dependency Condition means a condition which meets at
                  least three of the diagnostic criteria for psychoactive
                  substance dependence in the American Psychiatric Association's
                  Diagnostic and Statistical Manual of Mental Disorders (DSM
                  IV).

                  Chemical Dependency Counselor means an individual licensed by
                  TCADA under Sec. 504 of the Occupations Code to provide
                  chemical dependency treatment or a master's level therapist
                  (LMSW-ACP, LMFT or LPC) or a master's level therapist
                  (LMSW-ACP, LMFT or LPC) with a minimum of two years of post
                  licensure experience in chemical dependency treatment.

                                                    Contract Extension Amendment
                                                                         7/18/01
                                       1

<PAGE>


                  Experience rebate means the portion of the HMO's net income
                  before taxes (financial Statistical Report, Part 1, Line 7)
                  that is returned to the state in accordance with Article
                  13.2.1.

                  Joint Interface Plan (JIP) means a document used to
                  communicate basic system interface information of the Texas
                  Medicaid Administrative System (TMAS) among and across State
                  TMAS Contractors and Partners so that all entities are aware
                  of the interfaces that affect their business. This information
                  includes: file structure, data elements, frequency, media,
                  type of file, receiver and sender of the file, and file I.D.
                  The JIP must include each of the HMO's interfaces required to
                  conduct State TMAS business. The JIP must address the
                  coordination with each of the Contractor's interface partners
                  to ensure the development and maintenance of the interface;
                  and the timely transfer of required data elements between
                  contractors and partners.

3.5               RECORDS REQUIREMENTS AND RECORDS RETENTION
                  ------------------------------------------

3.5.8             The use of Medicaid funds for abortion is prohibited unless
                  the pregnancy is the result of a rape, incest, or continuation
                  of the pregnancy endangers the life of the woman. A physician
                  must certify in writing that based on his/her professional
                  judgment, the life of the mother would be endangered if the
                  fetus were carried to term. HMO must maintain a copy of the
                  certification for at least three years.

6.6               BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
                  -------------------------------------------------------

6.6.13            Chemical dependency treatment must conform to the standards
                  set forth in the Texas Administrative Code, Title 28, Part 1,
                  Chapter 3, Subchapter HH.

6.8               TEXAS HEALTH STEPS (EPSDT)
                  -------------------------

6.8.3             Provider Education and Training. HMO must provide appropriate
                  training to all network providers and provider staff in the
                  providers' area of practice regarding the scope of benefits
                  available and the THSteps program. Training must include
                  THSteps benefits, the periodicity schedule for THSteps
                  checkups and immunizations, the required elements of a THSteps
                  medical screen, providing or arranging for all required lab
                  screening tests (including lead screening), and Comprehensive
                  Care Program (CCP) services available under the THSteps
                  program to Members under age 21 years. Providers must also be
                  educated and trained regarding the requirements imposed upon
                  the department and contracting HMOs under the Consent Decree
                  entered in Frew vs. McKinney, et al., Civil Action No.
                             -----------------
                  3:93CV65, in the United States District Court for the Eastern
                  District of Texas, Paris Division. Providers should be
                  educated and trained to treat each THSteps visit as an
                  opportunity for a comprehensive assessment of the Member.

                                                    Contract Extension Amendment
                                                                         7/18/01
                                       2

<PAGE>


                  HMO must report provider education and training regarding
                  THSteps in accordance with Article 7.4.4.

7.2               PROVIDER CONTRACTS
                  ------------------

7.2.5             HHSC reserves the right and retains the authority to make
                  reasonable inquiry and conduct investigations into provider
                  and Member complaints against HMO or any intermediary entity
                  with whom HMO contracts to deliver health care services under
                  this contract. HHSC may impose appropriate sanctions and
                  contract remedies to ensure HMO compliance with the provisions
                  of this contract.

7.5               MEMBER PANEL REPORTS
                  --------------------

7.5               HMO must furnish each PCP with a current list of enrolled
                  Members enrolled or assigned to that Provider no later than 5
                  working days after HMO receives the Enrollment File from the
                  Enrollment Broker each month.

7.7               PROVIDER QUALIFICATIONS - GENERAL
                  ---------------------------------

                  The providers in HMO network must meet the following
                  qualifications:

--------------------------------------------------------------------------------
FQHC              A Federal Qualified Health Center meets the standards
                  established by federal rules and procedures. The FQHC must
                  also be an eligible provider enrolled in the Medicaid.
--------------------------------------------------------------------------------
Physician         An individual who is licensed to practice medicine as an MD or
                  a DO in the State of Texas either as a primary care provider
                  or in the area of specialization under which they will provide
                  medical services under contract with HMO; who is a provider
                  enrolled in the Medicaid; who has a valid Drug Enforcement
                  Agency registration number, and a Texas Controlled Substance
                  Certificate, if either is required in their practice.
--------------------------------------------------------------------------------
Hospital          An institution licensed as a general or special hospital by
                  the State of Texas under Chapter 241 of the Health and Safety
                  Code which is enrolled as a provider in the Texas Medicaid
                  Program. HMO will require that all facilities in the network
                  used for acute impatient specialty care for people under age
                  21 with disabilities or chronic or complex conditions will
                  have a designated pediatric unit; 24 hour laboratory and blood
                  bank availability; pediatric radiological capability; meet
                  JCAHO standards; and have discharge planning and social
                  service units.
--------------------------------------------------------------------------------
                                                    Contract Extension Amendment
                                                                         7/18/01
                                       3

<PAGE>

--------------------------------------------------------------------------------
Non-Physician     An individual holding a license issued by the applicable
Practitioner      licensing agency of the State of Texas who is enrolled in the
Provider          Texas Medicaid Program.
--------------------------------------------------------------------------------
Clinical          An entity having a current certificate issued under the
Laboratory        Federal Clinical Laboratory Improvement Act (CLIA), and is
                  enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health      An institution which meets all of the criteria for designation
Clinic (RHC)      as a rural health clinic and is enrolled in the Texas Medicaid
                  Program.
--------------------------------------------------------------------------------
Local Health      A local health department established pursuant to Health and
Department        Safety Code, Title 2, Local Public Health Reorganization Act
                  ss. 121.031ff.
--------------------------------------------------------------------------------
Non-Hospital      A provider of health care services which is licensed and
Facility          credentialed to provide services and is enrolled in the Texas
Provider          Medicaid Program.
--------------------------------------------------------------------------------
School Based      Clinics located at school campuses that provide on site
Health Clinic     primary and  preventive care to children and adolescents.
(SBHC)
--------------------------------------------------------------------------------
Chemical          A facility licensed by the Texas Commission on Alcohol and
Dependency        Drug Abuse (TCADA) under Sec. 464.002 of the Health and Safety
Treatment         Code to provide chemical dependency treatment.
Facility
--------------------------------------------------------------------------------
Chemical          An individual licensed by TCADA under Sec. 504 of the
Dependency        Occupations Code to provide chemical dependency treatment or a
Counselor         master's level therapist (LMSW-ACP, LMFT or LPC) with a
                  minimum of two years of post-licensure experience in chemical
                  dependency treatment.
--------------------------------------------------------------------------------


7.10              SPECIALTY CARE PROVIDERS
                  ------------------------

7.10.1            HMO must maintain specialty providers, actively serving within
                  that specialty, including pediatric specialty providers and
                  chemical dependency specialty providers, within the network in
                  sufficient numbers and areas of practice to meet the needs of
                  all Members requiring specialty care services.

7.11              SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
                  -----------------------------------------------

7.11.1            HMO must include all medically necessary specialty services
                  through its network specialists, sub-specialists and specialty
                  care facilities (e.g., children's hospitals, licensed chemical
                  dependency treatment facilities and tertiary care hospitals).

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8.2               MEMBER HANDBOOK
                  ----------------

8.2.1             HMO must mail each newly enrolled Member a Member Handbook no
                  later than 5 working days after HMO receives the Enrollment
                  File. The Member Handbook must be written at a 4th - 6th grade
                  reading comprehension level. The Member Handbook must contain
                  all critical elements specified by TDH. See Appendix D,
                  Required Critical Elements, for specific details regarding
                  content requirements. HMO must submit a Member Handbook to TDH
                  for approval prior to the effective date of the contract
                  unless previously approved (see Article 3.4.1 regarding the
                  process for plan materials review).

8.4               MEMBER ID CARDS
                  ---------------

8.4.2             HMO must issue a Member Identification Card (ID) to the Member
                  within 5 working days from the date the HMO receives the
                  monthly Enrollment File from the Enrollment Broker. The ID
                  Card must include, at a minimum, the following: Member's name;
                  Member's Medicaid number; either the issue date of the card or
                  effective date of the PCP assignment; PCP's name, address, and
                  telephone number; name of HMO; name of IPA to which the
                  Member's PCP belongs, if applicable; the 24-hour, seven (7)
                  day a week toll-free telephone number operated by HMO; the
                  toll-free number for behavioral health care services; and
                  directions for what to do in an emergency. The ID Card must be
                  reissued if the Member reports a lost card, there is a Member
                  name change, if Member requests a new PCP, or for any other
                  reason which results in a change to the information disclosed
                  on the ID Card.

9.2               MARKETING ORIENTATION AND TRAINING
                  ----------------------------------

9.2.1             HMO must require that all HMO staff having direct marketing
                  contact with Members as part of their job duties and their
                  supervisors satisfactorily complete HHSC's marketing
                  orientation and training program, conducted by HHSC or health
                  plan staff trained by HHSC, prior to engaging in marketing
                  activities on behalf of HMO. HHSC will notify HMO of scheduled
                  orientations.

9.2.2             Marketing Policies and Procedures. HMO must adhere to the
                  Marketing Policies and Procedures as set forth by the Health
                  and Human Services Commission.

10.1              MODEL MIS REQUIREMENTS
                  ----------------------

10.1.3            HMO must have a system that can be adapted to the change in
                  Business Practices/Policies within the timeframe negotiated
                  between HHSC and the HMO.

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10.1.3.1          HMO must notify and advise BIR of major systems changes and
                  implementations. HMO is required to provide an implementation
                  plan and schedule of proposed system change at the time of
                  this notification.

10.1.3.2          BIR conducts a Systems Readiness test to validate the
                  contractor's ability to meet the MMIS requirements. This is
                  done through systems demonstration and performance of specific
                  MMIS and subsystem functions. The System Readiness test may
                  include a desk review and/or an onsite review and is conducted
                  for the following events:
                  o  A new plan is brought into the program
                  o  An existing plan begins business in a new SDA
                  o  An existing plan changes location
                  o  An existing plan changes their processing system

10.1.3.3          Desk Review. HMO must complete and pass systems desk review
                  prior to onsite systems testing conducted by HHSC.

10.1.3.4          Onsite Review. HMO is required to provide a detailed and
                  comprehensive Disaster and Recovery Plan, and complete and
                  pass an onsite Systems Facility Review during the State's
                  onsite systems testing.

10.1.3.5          HMO is required to provide a Corrective Action Plan in
                  response to HHSC Systems Readiness Testing Deficiencies no
                  later than 10 working days notification of deficiencies by
                  HHSC.

10.1.3.6          HMO is required to provide representation to attend and
                  participate in the HHSC Systems Workgroup as a part of the
                  weekly Systems Scan Call.

10.1.9            HMO must submit a joint interface plan (JIP) in a format
                  specified by HHSC. The JIP will include required information
                  on all contractor interfaces that support the Medicaid
                  Information Systems. The submission of the JIP will be in
                  coordination with other TMAS contractors and is due no later
                  than 10 working days after the end of each state fiscal year
                  calendar.

10.3              ENROLLMENT ELIGIBILITY SUBSYSTEM
                  --------------------------------

(11)              Send PCP assignment updates to HHSC or its designee, in the
                  format specified by HHSC or its designee. Updates can be sent
                  as often as daily but must be sent at least weekly.

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12.1              FINANCIAL REPORTS
                  -----------------

12.1.1            MCFS Report. HMO must submit the Managed Care Financial
                  -----------
                  Statistical Report (MCFS) included in Appendix I. The report
                  must be submitted to HHSC no later than 30 days after the end
                  of each state fiscal year quarter (i.e., Dec. 30, March 30,
                  June 30, Sept. 30) and must include complete and updated
                  financial and statistical information for each month of the
                  state fiscal year-to-date reporting period. The MCFS Report
                  must be submitted for each claims processing subcontractor in
                  accordance with this Article. HMO must incorporate financial
                  and statistical data received by its delegated networks (IPAs,
                  ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.4            Final MCFS Reports. HMO must file two Final Managed Care
                  ------------------
                  Financial-Statistical Reports after the end of the second year
                  of the contract for the first two-year portion of the contract
                  and again after the third year of the contract for the third
                  year (second portion) of the contract. The first final report
                  must reflect expenses incurred through the 90th day after the
                  end of the first two-year portion of the contract and again
                  after the end of the third year of the contract for the third
                  year (second portion) of the contract. The first final report
                  must be filed on or before the 120th day after the end of each
                  portion of the contract. The second final report must reflect
                  data completed through the 334th day after the end of the
                  second year of the contract for the first two year portion of
                  the contract and again after the end of the third year of the
                  contract for the third year (second portion) of the contract
                  and must be filed on or before the 365th day following the end
                  of each portion of the contract year.

12.5              PROVIDER NETWORK REPORTS
                  ------------------------

12.5.3            PCP Error Report. HMO must submit to the Enrollment Broker an
                  ----------------
                  electronic file summarizing changes in PCP assignments. The
                  file must be submitted in a format specified by HHSC and can
                  be submitted as often as daily but must be submitted at least
                  weekly. When HMO receives a PCP assignment Error Report /File,
                  HMO must send corrections to HHSC or its designee within five
                  working days.

12.13             EXPEDITED PRENATAL OUTREACH REPORT
                  ----------------------------------

12.13             HMO must submit the Expedited Prenatal Outreach Report for
                  each monthly reporting period in accordance with a format
                  developed by HHSC in consultation with the HMOs. The report
                  must include elements that demonstrate the level of effort,
                  and the outcomes of the HMO in outreaching to pregnant women
                  for the purpose of scheduling and/or completing the initial
                  obstetrical examination prior to 14 days after the receipt of
                  the daily enrollment file by the HMO. Each monthly report is
                  due by the last day of the month following each monthly
                  reporting period.

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13.1              CAPITATION AMOUNTS
                  ------------------

13.1.2            Delivery Supplemental Payment (DSP). The monthly capatation
                  amounts and the DSP amount are listed below.

                  --------------------------------------------------------------
                  Risk Group                     Monthly Capatation Amounts
                  --------------------------------------------------------------
                  TANF Adults                              $164.33
                  --------------------------------------------------------------
                  TANF Children > 12                        $74.79
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children > 12                   $60.67
                  Months of Age
                  --------------------------------------------------------------
                  Newborns < 12 Months of Age              $356.29
                           -
                  --------------------------------------------------------------
                  TANF Children < 12                       $356.29
                                -
                  Months of Age
                  --------------------------------------------------------------
                  Expansion Children < 12                  $356.29
                                     -
                  Months of Age
                  --------------------------------------------------------------
                  Federal Mandate Children                  $59.01
                  --------------------------------------------------------------
                  CHIP Phase I                              $71.50
                  --------------------------------------------------------------
                  Pregnant Women                           $267.89
                  --------------------------------------------------------------
                  Disabled/Blind                            $14.00
                  Administration
                  --------------------------------------------------------------


                  Delivery Supplemental Payment: A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO as
                  provided below in the following amount: $2,817.00.

13.1.3.1          Once HMO has received its capitation rates established by HHSC
                  for the second or third year of this contract, HMO may
                  terminate this contract as provided in Article 18.1.6.

13.1.7            HMO renewal rates reflect program increases appropriated by
                  the 76th and 77th legislature for physician (to include
                  THSteps providers) and outpatient facility services. HMO must
                  report to HHSC any change in rates for participating
                  physicians (to include THSteps providers) and outpatient
                  facilities resulting from this increase. The report must be
                  submitted to HHSC at the end of the first quarter of the
                  FY2000, FY2001 and FY2002 contract years according to the
                  deliverables matrix schedule set for HMO.

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13.2              EXPERIENCE REBATE TO THE STATE
                  ------------------------------

13.2.1            For the contract period, HMO must pay to TDH an experience
                  rebate calculated in accordance with the tiered rebate method
                  listed below based on the excess of allowable HMO STAR
                  revenues over allowable HMO STAR expenses as measured by any
                  positive amount on Line 7 of "Part 1: Financial Summary, All
                  Coverage Groups Combined" of the annual Managed Care
                  Financial-Statistical Report, set forth in Appendix I, as
                  reviewed and confirmed by TDH. TDH reserves the right to have
                  an independent audit performed to verify the information
                  provided by HMO.


                                 Graduated Rebate Method
         -----------------------------------------------------------------------
           Net income before              HMO Share            State Share
         taxes as a Percentage
              of Revenues
         -----------------------------------------------------------------------
                0% - 3%                     100%                     0%
         -----------------------------------------------------------------------
             Over 3% - 7%                    75%                    25%
         -----------------------------------------------------------------------
             Over 7% - 10%                   50%                    50%
         -----------------------------------------------------------------------
             Over 10% - 15%                  25%                    75%
         -----------------------------------------------------------------------
                Over 15%                      0%                   100%
         -----------------------------------------------------------------------


13.2.2.1          The experience rebate for the HMO shall be calculated by
                  applying the experience rebate formula in Article 13.2.1 to
                  the sum of the net income before taxes (Financial Statistical
                  Report, Part 1, Line 7) for all STAR Medicaid service areas
                  contracted between the State and HMO.

13.2.4            Population-Based Initiatives (PBIs) and Experience Rebates:
                  HMO may subtract from an experience rebate owed to the State,
                  expenses for population-based health initiatives that have
                  been approved by HHSC. A population-based initiative (PBI) is
                  a project or program designed to improve some aspect of
                  quality of care, quality of life, or health care knowledge for
                  the Medicaid population that may also benefit the community as
                  a whole. Value-added service does not constitute a PBI.
                  Contractually required services and activities do not
                  constitute a PBI.

13.2.5            There will be two settlements for payment(s) of the experience
                  rebate for FY 2000-2001 and two settlements for payment(s) for
                  the experience rebate for FY 2002. The first settlement for
                  the specified time period shall equal 100 percent

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                  of the experience rebate as derived from Line 7 of Part 1 (Net
                  Income Before Taxes) of the first final Managed Care Financial
                  Statistical (MCFS) Report and shall be paid on the same day
                  the first final MCFS Report is submitted to HHSC for the
                  specified time period. The second settlement shall be an
                  adjustment to the first settlement and shall be paid to HHSC
                  on the same day that the second final MCFS Report is submitted
                  to HHSC for that specified time period if the adjustment is
                  the payment from HMO to HHSC. If the adjustment is a payment
                  from HHSC to HMO, HHSC shall pay such adjustment to HMO within
                  thirty (30) days of receipt of the second final MCFS Report.
                  HHSC or its agent may audit or review the MCFS report. If HHSC
                  determines that corrections to the MCFS reports are required,
                  based on a HHSC audit/review of other documentation acceptable
                  to HHSC, to determine an adjustment to the amount of the
                  second settlement, then final adjustment shall be made within
                  two years from the date that HMO submits the second final MCFS
                  report. HMO must pay the first and second settlements on the
                  due dates for the first and second final MCFS reports
                  respectively as identified in Article 12.1.4. HHSC may adjust
                  the experience rebate if HHSC determines HMO has paid
                  affiliates amounts for goods or services that are higher than
                  the fair market value of the goods and services in the
                  services area. Fair market value may be based on the amount
                  HMO pays a non-affiliate(s) or the amount another HMO pays for
                  same or similar service in the service area. HHSC has final
                  authority in auditing and determining the amount of the
                  experience rebate.

13.3              PERFORMANCE OBJECTIVES/INCENTIVES
                  ---------------------------------

13.3.1            Preventive Health Performance Objectives. Preventive Health
                  ----------------------------------------
                  Performance Objectives are contained in this contract at
                  Appendix K. HMO must accomplish the performance objectives or
                  a designated percentage in order to be eligible for payment of
                  financial incentives. Performance objectives are subject to
                  change. HHSC will consult with HMO prior to revising
                  performance objectives.

13.3.2            HMO will receive credit for accomplishing a performance
                  objective upon receipt of accurate encounter data required
                  under Article 10.5 and 12.2 of this contract and/or a Detailed
                  Data Element Report from HMO with report format as determined
                  by HHSC and aggregate data report by HMO in accordance with a
                  report format as determined by HHSC (Performance Objective
                  Report). Accuracy and completeness of the Detailed Data
                  Element Report and the Aggregate Data Performance Objective
                  Report will be determined by HHSC through an HHSC audit of the
                  HMO claims processing system. If HHSC determines that the
                  Detailed Data Element Report and Performance Objectives Report
                  are sufficiently supported by the results of the HHSC audit,
                  the payment of financial incentives will be made to HMO.
                  Conversely, if the audit results do not support the reports as
                  determined by HHSC, HMO will not receive payment

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                  of the financial incentive. HHSC may conduct provider chart
                  reviews to validate the accuracy of the claims data related to
                  HMO accomplishment of performance objectives. If the results
                  of the chart review do not support the HMO claims system data
                  or the HMO Detailed Data Element Report and the Performance
                  Objectives Report, HHSC may recoup payment made to the HMO for
                  performance objectives incentives.

13.3.3            HMO will also receive credit for performance objectives
                  performed by other organizations if a network primary care
                  provider or the HMO retains documentation from the performing
                  organization which satisfies the requirements contained in
                  Appendix K of this contract.

13.3.4            HMO will receive performance objective bonuses for
                  accomplishing the following percentages of performance
                  objectives:

               -----------------------------------------------------------------
               Percent of Each Performance     Percent of Performance Objective
                  Objective Accomplished         Allocations Paid to HMO
               -----------------------------------------------------------------
                        60% to 65%                       20%
               -----------------------------------------------------------------
                        65% to 70%                       30%
               -----------------------------------------------------------------
                        70% to 75%                       40%
               -----------------------------------------------------------------
                        75% to 80%                       50%
               -----------------------------------------------------------------
                        80% to 85%                       60%
               -----------------------------------------------------------------
                        85% to 90%                       70%
               -----------------------------------------------------------------
                        90% to 95%                       80%
               -----------------------------------------------------------------
                        95% to 100%                      90%
               -----------------------------------------------------------------
                          100%                          100%
               -----------------------------------------------------------------


13.3.5            HMO must submit the Detailed Data Element Report and the
                  Performance Objectives Report regardless of whether or not the
                  HMO intends to claim payment of performance objective bonuses.

13.3.6            Payment of performance objective bonus is contingent upon
                  availability of appropriations. If appropriations are not
                  available to pay performance objective bonuses as set out
                  below, HHSC will equitably distribute all available funds to
                  each HMO that has accomplished performance objectives.

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13.3.7            In addition to the capitation amounts set forth in Article
                  13.1.2. a performance premium of two dollars ($2.00) per
                  Member month will be allocated by HHSC for the accomplishment
                  of performance objectives.

13.3.8            The HMO must submit the Performance Objectives Report and the
                  Detailed Data Element Report as referenced in Article 13.3.2,
                  within 150 days from the end of each State fiscal year.
                  Performance premiums will be paid to HMO within 120 days after
                  The State receives and validates the data contained in each
                  required Performance Objectives Report.

13.3.9            The performance objective allocation for HMO shall be assigned
                  to each performance objective, described in Appendix K, in
                  accordance with the following percentages:

                  --------------------------------------------------------------
                           EPSDT SCREENS        Percent of Performance Objective
                                                        Incentive Fund
                  --------------------------------------------------------------
                  1.       < 12 months                         12%
                  --------------------------------------------------------------
                  2.       12 to 24 months                     12%
                  --------------------------------------------------------------
                  3.       25 months - 20 years                20%
                  --------------------------------------------------------------

                           IMMUNIZATIONS        Percent of Performance Objective
                                                        Incentive Fund
                  --------------------------------------------------------------
                  4.       < 12 months                          7%
                  --------------------------------------------------------------
                  5.       12 to 24 months                      5%
                  --------------------------------------------------------------

                      ADULT ANNUAL VISITS       Percent of Performance Objective
                                                        Incentive Fund
                  --------------------------------------------------------------
                  6.       Adult Annual Visits                  3%
                  --------------------------------------------------------------
                           PREGNANCY VISITS     Percent of Performance Objective
                                                        Incentive Fund
                  --------------------------------------------------------------
                  7.       Initial prenatal exam               15%
                  --------------------------------------------------------------
                  8.       Visits by Gestational Age           14%
                  --------------------------------------------------------------
                  9.       Postpartum visit                    12%
                  --------------------------------------------------------------

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13.3.10           Compass 21 Encounter Data Conversion Performance Incentive. A
                  ----------------------------------------------------------
                  Compass 21 encounter data conversion performance incentive
                  payment will be paid by the State to each HMO that achieves
                  the identified conversion performance standard for at least
                  one month in the first quarter of SFY 2002 as demonstration of
                  successful conversion to the C21 system. The encounter
                  conversion performance standard is as follows:

                  --------------------------------------------------------------
                        Performance Objective          Encounter Data Conversion
                                                         Performance Incentive
                  --------------------------------------------------------------
                  Percentage of encounters submitted             65%
                  that are successfully accepted into
                  C21
                  --------------------------------------------------------------

13.3.10.1         The amount of the incentive will be based on the total amount
                  identified by the state for the encounter data conversion
                  performance incentive pool ("Pool"). The pool will be equally
                  distributed between all the HMOs that achieve the performance
                  objective within the first quarter of SFY 2002. HMOs with
                  multiple contracts with HHSC are eligible to receive only one
                  allocation from the Pool. Required HMO performance for the
                  identified objectives will be verified by HHSC for accuracy
                  and completeness. The incentive will be paid only after HHSC
                  has verified that HMO performance has met the required
                  performance standard. Payments will be made in the second
                  quarter of the fiscal year.

13.5.4            NEWBORN AND PREGNANT WOMAN PAYMENT PROVISIONS
                  ---------------------------------------------

13.5.4            Newborns who appear on the MAXIMUS daily enrollment file but
                  do not appear on the MAXIMUS monthly enrollment or adjustment
                  File before the end of the sixth month following the date of
                  birth will not be retroactively enrolled into the HMO. HHSC
                  will manually reconcile payment to the HMO for services
                  provided from the date of birth for TP45 and all other
                  eligibility categories of newborns. Payment will cover
                  services rendered from the effective date of the proxy ID
                  number when first issued by the HMO regardless of plan
                  assignment at the time the State-issued Medicaid ID number is
                  received.

15.6              ASSIGNMENT
                  ----------

15.6              This contract was awarded to HMO based on HMO's qualifications
                  to perform personal and professional services. HMO cannot
                  assign this contract without the written consent of HHSC. This
                  provision does not prevent HMO from

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                  subcontracting duties and responsibilities to qualified
                  subcontractors. If HHSC consents to an assignment of this
                  contract, a transition period of 90 days will run from the
                  date the assignment is approved by HHSC so that Members'
                  services are not interrupted and, if necessary, the notice
                  provided for in Article 15.7 can be sent to Members. The
                  assigning HMO must also submit a transition plan, as set out
                  in Article 18.2.1, subject to HHSC 's approval.

16.3              DEFAULT BY HMO
                  --------------

16.3.14.1         REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
                  -----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to HHSC by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit HHSC
                  in exercising all or part of any remaining remedies.

                  For HMO's failure to meet any benchmark established by HHSC
                  under this contract, or for failure to meet improvement
                  targets, as identified by HHSC, HHSC may:

                  o        Remove all or part of the THSteps component from the
                           capitation paid to HMO
                  o        Terminate the contract if the applicable conditions
                           set out in Article 18.1.1 are met;
                  o        Suspend new enrollment as set out in Article 18.3;
                  o        Assess liquidated money damages as set out in Article
                           18.4; and/or
                  o        Require forfeiture of all or part of the TDI
                           performance bond as set out in Article 18.9.

16.3.15           FAILURE TO PERFORM A MATERIAL DUTY OR RESPONSIBILITY
                  ----------------------------------------------------

                  Failure of HMO to perform a material duty or responsibility as
                  set out in this Contract is a default under this contract and
                  HHSC may impose one or more of the remedies contained within
                  its provisions and all other remedies available to HHSC by law
                  or in equity.

16.3.15.1         REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
                  -----------------------------------------------

                  All of the listed remedies are in addition to all other
                  remedies available to HHSC by law or in equity, are joint and
                  several, and may be exercised concurrently or consecutively.
                  Exercise of any remedy in whole or in part does not limit HHSC
                  in exercising all or part of any remaining remedies.

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                  For HMO's failure to perform an administrative function under
                  this contract, HHSC may:

                  o        Terminate the contract if the applicable conditions
                           set out in Article 18. 1.1 are met;
                  o        Suspend new enrollment as set out in Article 18.3;
                  o        Assess liquidated money damages as set out in Article
                           18.4; and/or
                  o        Require forfeiture of all or part of the TDI
                           performance bond as set out in Article 18.9.

18.1.6            TERMINATION BY HMO
                  ------------------

18.1.6            HMO may terminate this contract if HHSC fails to pay HMO as
                  required under Article XIII of this contract or otherwise
                  materially defaults in its duties and responsibilities under
                  this contract, or by giving notice no later than 30 days after
                  receiving the capitation rates for the second or third
                  contract years. Retaining premium, recoupment, sanctions, or
                  penalties that are allowed under this contract or that result
                  from HMO's failure to perform or HMO's default under the terms
                  of this contract is not cause for termination.

18.2              DUTIES OF CONTRACTING PARTIES UPON TERMINATION
                  ----------------------------------------------

18.2.2            If the contract is terminated by HHSC for any reason other
                  than federal or state funds for the Medicaid program no longer
                  being available or if HMO terminates the contract based on
                  lower capitation rates for the second or third contract years
                  as set out in Article 13.1.3.1:

18.2.3            If the contract is terminated by HMO for any reason other than
                  based on lower capitation rates for the second or third
                  contract years as set out in Article 13.1.3.1:

Article XIX       TERM
                  ----

19.1              The effective date of this contract is August 30, 1999. This
                  contract will terminate on August 31, 2002, unless terminated
                  earlier as provided for elsewhere in the contract.

3.                The Appendices are amended by replacing page 10 of Appendix A
                  "Standards for Quality Improvement Programs" to incorporate a
                  change in Item F, number 1 on recredentialing.

4.                The Appendices are amended by deleting Appendix D, "'Required
                  Critical Elements," and replacing it with new Appendix D,
                  "Required Critical Elements", as attached.

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AGREED AND SIGNED by an authorized representative of the parties on 2001.


Health and Human Services Commission        Superior Health Plan, Inc.


By:  /s/ DON A. GILBERT                     By: /s/ MICHAEL D. MCKINNEY, M.D.
    --------------------------------            --------------------------------
    Don A. Gilbert                              Michael D. McKinney, M.D.
                                                President & CEO



Approved as to Form:

-------------------------------
Office of General Counsel


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