<PAGE>
                                                                   EXHIBIT 10.41
                                                      CONTRACT/RFP NO. YH04-0001
================================================================================

[AHCCCS LOGO]    ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
                              DIVISION OF BUSINESS AND FINANCE
                                SECTION A. CONTRACT AMENDMENT


1. AMENDMENT       2. CONTRACT      3. EFFECTIVE DATE OF    4. PROGRAM
   NUMBER:            NO.:             AMENDMENT:
     ###              YH04-0001        OCTOBER 1, 2004         DHCM

4.    CONTRACTOR'S NAME AND ADDRESS:

6.    PURPOSE OF AMENDMENT: To amend Sections B, C, D and E and Attachments B,
                            F, H and I.

7.    THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:

            A. CHANGES IN REQUIREMENTS: In accordance with Section E, Paragraph
            30, "Changes", various changes in contract requirements are
            indicated in this contract restatement.

            B. By signing this contract amendment, the Contractor is agreeing to
            the terms of the contract as amended.



NOTE: PLEASE SIGN AND DATE
BOTH AND THEN RETURN ONE TO:              MICHAEL VEIT, MD 5700
                                          AHCCCS CONTRACTS AND PURCHASING
                                          701 E JEFFERSON STREET
                                          PHOENIX AZ 85034

8. EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
CONTRACT NOT HERETOFORE CHANGED AND/OR AMENDED REMAIN UNCHANGED AND IN FULL
EFFECT.

IN WITNESS WHEREOF THE PARTIES HERETO SIGN THEIR NAMES IN AGREEMENT


<TABLE>
<S>                                 <C>
9. SIGNATURE OF AUTHORIZED          10. SIGNATURE OF AHCCCSA CONTRACTING
REPRESENTATIVE:                     OFFICER:

TYPED NAME:                         MICHAEL VEIT

TITLE:                              CONTRACTS & PURCHASING ADMINISTRATOR

DATE:                               DATE:
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
<PAGE>
                                                      CONTRACT/RFP NO. YH04-0001




                                TABLE OF CONTENTS


<TABLE>
<S>                                                                               <C>
SECTION A. CONTRACT AMENDMENT................................................       1

SECTION B: CAPITATION RATES..................................................       6

SECTION C: DEFINITIONS.......................................................       7

SECTION D: PROGRAM REQUIREMENTS..............................................      15

   1.     TERM OF CONTRACT AND OPTION TO RENEW...............................      15
   2.     ELIGIBILITY CATEGORIES.............................................      16
   3.     ENROLLMENT AND DISENROLLMENT.......................................      17
   4.     ANNUAL ENROLLMENT CHOICE...........................................      19
   5.     OPEN ENROLLMENT....................................................      19
   6.     AUTO-ASSIGNMENT ALGORITHM..........................................      20
   7.     AHCCCS MEMBER IDENTIFICATION CARDS.................................      20
   8.     MAINSTREAMING OF AHCCCS MEMBERS....................................      20
   9.     TRANSITION OF MEMBERS..............................................      21
   10.    SCOPE OF SERVICES..................................................      21
   11.    SPECIAL HEALTH CARE NEEDS..........................................      29
   12.    BEHAVIORAL HEALTH SERVICES.........................................      29
   13.    AHCCCS MEDICAL POLICY MANUAL.......................................      31
   14.    MEDICAID SCHOOL BASED CLAIMING (SBC)...............................      31
   15.    PEDIATRIC IMMUNIZATIONS AND THE  VACCINE FOR CHILDREN  PROGRAM.....      32
   16.    STAFF REQUIREMENTS AND SUPPORT SERVICES............................      32
   17.    WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS..................      34
   18.    MEMBER INFORMATION.................................................      34
   19.    SURVEYS............................................................      35
   20.    CULTURAL COMPETENCY................................................      36
   21.    MEDICAL RECORDS....................................................      36
   22.    ADVANCE DIRECTIVES.................................................      36
   23.    QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)..............      37
   24.    PERFORMANCE STANDARDS..............................................      38
   25.    GRIEVANCE SYSTEM...................................................      42
   26.    QUARTERLY GRIEVANCE SYSTEM REPORT..................................      43
   27.    NETWORK DEVELOPMENT................................................      43
   28.    PROVIDER AFFILIATION  TRANSMISSION.................................      45
   29.    NETWORK MANAGEMENT.................................................      45
   30.    PRIMARY CARE PROVIDER  STANDARDS...................................      46
   31.    MATERNITY CARE PROVIDER STANDARDS..................................      47
   32.    REFERRAL PROCEDURES AND STANDARDS..................................      47
   33.    APPOINTMENT STANDARDS..............................................      48
   34.    FEDERALLY QUALIFIED HEALTH  CENTERS (FQHC) and RURAL HEALTH CLINICS      49
   35.    PROVIDER MANUAL....................................................      50
   36.    PROVIDER  REGISTRATION.............................................      51
   37.    SUBCONTRACTS.......................................................      51
   38.    CLAIMS PAYMENT/HEALTH INFORMATION SYSTEM...........................      53
   39.    SPECIALTY CONTRACTS................................................      54
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 2 -
<PAGE>
                                                      CONTRACT/RFP NO. YH04-0001

<TABLE>
<S>                                                                               <C>
   40.    HOSPITAL SUBCONTRACTING AND REIMBURSEMENT..........................      54
   41.    NURSING FACILITY REIMBURSEMENT.....................................      55
   42.    PHYSICIAN INCENTIVES...............................................      56
   43.    MANAGEMENT SERVICES  SUBCONTRACTORS................................      56
   44.    MANAGEMENT SERVICES  SUBCONTRACTOR  AUDITS.........................      56
   45.    MINIMUM CAPITALIZATION  REQUIREMENTS...............................      56
   46.    PERFORMANCE BOND OR BOND SUBSTITUTE................................      57
   47.    AMOUNT OF PERFORMANCE BOND.........................................      58
   48.    ACCUMULATED FUND DEFICIT...........................................      58
   49.    ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS.....................      58
   50.    FINANCIAL VIABILITY STANDARDS / PERFORMANCE GUIDELINES.............      59
   51.    SEPARATE INCORPORATION.............................................      60
   52.    MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP.....................      60
   53.    COMPENSATION.......................................................      60
   54.    PAYMENTS TO CONTRACTORS............................................      62
   55.    CAPITATION ADJUSTMENTS.............................................      62
   56.    INCENTIVES.........................................................      63
   57.    REINSURANCE........................................................      64
   58.    COORDINATION OF BENEFITS / THIRD PARTY LIABILITY...................      67
   59.    COPAYMENTS.........................................................      69
   60.    MEDICARE SERVICES AND COST SHARING.................................      69
   61.    MARKETING..........................................................      69
   62.    CORPORATE COMPLIANCE...............................................      70
   63.    RECORDS RETENTION..................................................      70
   64.    DATA EXCHANGE REQUIREMENTS.........................................      71
   65.    ENCOUNTER DATA REPORTING...........................................      72
   66.    ENROLLMENT AND CAPITATION TRANSACTION UPDATES......................      72
   67.    PERIODIC REPORT REQUIREMENTS.......................................      73
   68.    REQUESTS FOR INFORMATION...........................................      73
   69.    DISSEMINATION OF INFORMATION.......................................      74
   70.    OPERATIONAL AND FINANCIAL READINESS REVIEWS........................      74
   71.    OPERATIONAL AND FINANCIAL REVIEWS..................................      74
   72.    SANCTIONS..........................................................      75
   73.    BUSINESS CONTINUITY AND RECOVERY PLAN..............................      76
   74.    TECHNOLOGICAL ADVANCEMENT..........................................      76
   75.    PENDING LEGISLATIVE / OTHER ISSUES.................................      76
   76.    BALANCED BUDGET ACT OF 1997 (BBA)..................................      77
   77.    HEALTHCARE GROUP OF ARIZONA........................................      77

SECTION E: CONTRACT CLAUSES..................................................      78

   1)     APPLICABLE LAW.....................................................      78
   2)     AUTHORITY..........................................................      78
   3)     ORDER OF PRECEDENCE................................................      78
   4)     CONTRACT INTERPRETATION AND AMENDMENT..............................      78
   5)     SEVERABILITY.......................................................      78
   6)     RELATIONSHIP OF PARTIES............................................      78
   7)     ASSIGNMENT AND DELEGATION..........................................      78
   8)     GENERAL INDEMNIFICATION............................................      78
   9)     INDEMNIFICATION -- PATENT AND COPYRIGHT............................      79
   10)    COMPLIANCE WITH APPLICABLE  LAWS, RULES AND REGULATIONS............      79
   11)    ADVERTISING AND PROMOTION OF CONTRACT..............................      79
   12)    PROPERTY OF THE STATE..............................................      79
   13)    THIRD PARTY ANTITRUST VIOLATIONS...................................      79
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 3 -
<PAGE>
                                                      CONTRACT/RFP NO. YH04-0001

<TABLE>
<S>                                                                               <C>
   14)    RIGHT TO ASSURANCE.................................................      79
   15)    TERMINATION FOR CONFLICT OF INTEREST...............................      79
   16)    GRATUITIES.........................................................      79
   17)    SUSPENSION OR DEBARMENT............................................      80
   18)    TERMINATION FOR CONVENIENCE........................................      80
   19)    TERMINATION FOR DEFAULT............................................      80
   20)    TERMINATION - AVAILABILITY OF FUNDS................................      81
   21)    RIGHT OF OFFSET....................................................      81
   22)    NON-EXCLUSIVE REMEDIES.............................................      81
   23)    NON-DISCRIMINATION.................................................      81
   24)    EFFECTIVE DATE.....................................................      81
   25)    INSURANCE..........................................................      81
   26)    DISPUTES...........................................................      82
   27)    RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS........................      82
   28)    INCORPORATION BY REFERENCE.........................................      82
   29)    COVENANT AGAINST CONTINGENT FEES...................................      82
   30)    CHANGES............................................................      82
   31)    TYPE OF CONTRACT...................................................      82
   32)    AMERICANS WITH DISABILITIES ACT....................................      82
   33)    WARRANTY OF SERVICES...............................................      82
   34)    NO GUARANTEED QUANTITIES...........................................      83
   35)    CONFLICT OF INTEREST...............................................      83
   36)    DISCLOSURE OF CONFIDENTIAL INFORMATION.............................      83
   37)    COOPERATION WITH OTHER CONTRACTORS.................................      83
   38)    ASSIGNMENT OF CONTRACT AND BANKRUPTCY..............................      83
   39)    OWNERSHIP OF INFORMATION AND DATA..................................      83
   40)    AHCCCSA RIGHT TO OPERATE CONTRACTOR................................      84
   41)    AUDITS AND INSPECTIONS.............................................      84
   42)    LOBBYING...........................................................      84
   43)    CHOICE OF FORUM....................................................      84
   44)    DATA CERTIFICATION.................................................      84
   45)    OFF SHORE PERFORMANCE OF WORK PROHIBITED...........................      85

SECTION F: INDEX - PROGRAM REQUIREMENTS AND CONTRACT CLAUSES.................      86

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS.................................      89

   1)     ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES...........      89
   2)     AWARDS OF OTHER SUBCONTRACTS.......................................      89
   3)     CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK AND LABORATORY TESTING.      89
   4)     CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION....................      89
   5)     CLINICAL LABORATORY IMPROVEMENT AMENDMENTS OF 1988.................      89
   6)     COMPLIANCE WITH AHCCCSA RULES RELATING TO AUDIT AND INSPECTION.....      89
   7)     COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS........................      89
   8)     CONFIDENTIALITY REQUIREMENT........................................      90
   9)     CONFLICT IN INTERPRETATION OF PROVISIONS...........................      90
   10)    CONTRACT CLAIMS AND DISPUTES.......................................      90
   11)    ENCOUNTER DATA REQUIREMENT.........................................      90
   12)    EVALUATION OF QUALITY, APPROPRIATENESS,  OR TIMELINESS OF SERVICES.      90
   13)    FRAUD AND ABUSE....................................................      90
   14)    GENERAL INDEMNIFICATION............................................      90
   15)    INSURANCE..........................................................      90
   16)    LIMITATIONS ON BILLING AND COLLECTION PRACTICES....................      90
   17)    MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES....      91
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 4 -
<PAGE>
                                                      CONTRACT/RFP NO. YH04-0001

<TABLE>
<S>                                                                               <C>
   18)    NON-DISCRIMINATION REQUIREMENTS....................................      91
   19)    PRIOR AUTHORIZATION AND UTILIZATION REVIEW.........................      91
   20)    RECORDS RETENTION..................................................      91
   21)    SEVERABILITY.......................................................      91
   22)    SUBJECTION OF SUBCONTRACT..........................................      91
   23)    TERMINATION OF SUBCONTRACT.........................................      91
   24)    VOIDABILITY OF SUBCONTRACT.........................................      92
   25)    WARRANTY OF SERVICES...............................................      92
   26)    OFF SHORE PERFORMANCE OF WORK PROHIBITED...........................      92

ATTACHMENT F: PERIODIC REPORT REQUIREMENTS...................................      93

ATTACHMENT H (1): ENROLLEE GRIEVANCE SYSTEM STANDARDS AND POLICY.............      96

ATTACHMENT H(2)       PROVIDER CLAIM DISPUTE STANDARDS AND POLICY............     101

ATTACHMENT I: ENCOUNTER SUBMISSION REQUIREMENTS..............................     103

ATTACHMENT L: COST SHARING COPAYMENTS........................................     106
</TABLE>



                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 5 -
<PAGE>
CAPITATION RATES                                      CONTRACT/RFP NO. YH04-0001

SECTION B: CAPITATION RATES

The Contractor shall provide services as described in this contract. In
consideration for these services, the Contractor will be paid the attached
Contractor specific rates per member per month for the term October 1, 2004
through September 30, 2005.

SEE ATTACHED.

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 6 -
<PAGE>
DEFINITIONS                                           CONTRACT/RFP NO. YH04-0001


SECTION C: DEFINITIONS


<TABLE>
<S>                     <C>
1931                    Eligible individuals and families under the 1931
                        provision of the Social Security Act, with household
                        income levels at or below 100% of the FPL.

ADHS                    Arizona Department of Health Services, the state agency
                        mandated to serve the public health needs of all Arizona
                        citizens.

ADHS BEHAVIORAL
HEALTH RECIPIENT        A Title XIX or Title XXI acute care member who is
                        eligible for, and is receiving, behavioral health
                        services through ADHS and its subcontractors.

AGENT                   Any person who has been delegated the authority to
                        obligate or act on behalf of another person or entity.

AHCCCS                  Arizona Health Care Cost Containment System, which is
                        composed of the Administration, Contractors, and other
                        arrangements through which health care services are
                        provided to an eligible person, as defined by A.R.S.
                        Section 36-2902, et seq.

AHCCCS BENEFITS         See "COVERED SERVICES".

AHCCCS MEMBER           See "MEMBER".

AHCCCSA                 Arizona Health Care Cost Containment System
                        Administration.

ALTCS                   The Arizona Long Term Care System, a program under
                        AHCCCSA that delivers long term, acute, behavioral
                        health and case management services to members, as
                        authorized by A.R.S. Section 36-2932.

AMBULATORY CARE         Preventive, diagnostic and treatment services provided
                        on an outpatient basis by physicians, nurse
                        practitioners, physician assistants and other health
                        care providers.

AMPM                    AHCCCS Medical Policy Manual.

ANNUAL ENROLLMENT
CHOICE (AEC)            The opportunity, given each member annually, to change
                        to another Contractor in their GSA.

APPEAL RESOLUTION       The written determination by the Contractor concerning
                        an appeal.

ARIZONA ADMINISTRATIVE
CODE (A.A.C.)           State regulations established pursuant to relevant
                        statutes. For purposes of this solicitation, the
                        relevant sections of the AAC are referred to throughout
                        this document as "AHCCCS Rules".

A.R.S.                  Arizona Revised Statutes.

BBA                     The Balanced Budget Act of 1997.

BCCTP                   Breast and Cervical Cancer Treatment Program, a Title
                        XIX eligibility expansion program for women who are not
                        otherwise Title XIX eligible and are diagnosed as
                        needing treatment for breast and/or cervical cancer or
                        lesions.

BIDDER'S LIBRARY        A repository of manuals, statutes, rules and other
                        reference material located at the AHCCCS Central office
                        in Phoenix. A limited, virtual library is located on the
                        AHCCCS website at www.ahcccs.state.az.us.
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 7 -
<PAGE>
DEFINITIONS                                           CONTRACT/RFP NO. YH04-0001


<TABLE>
<S>                     <C>
BOARD CERTIFIED         An individual who has successfully completed all
                        prerequisites of the respective specialty board and
                        successfully passed the required examination for
                        certification.


CAPITATION              Payment to Contractor by AHCCCSA of a fixed monthly
                        payment per person in advance for which the Contractor
                        provides a full range of covered services as authorized
                        under A.R.S. Section 36-2904 and Section 36-2907.

CATEGORICALLY LINKED
TITLE XIX MEMBER        Member eligible for Medicaid under Title XIX of the
                        Social Security Act including those eligible under 1931
                        provisions of the Social Security Act, Sixth Omnibus
                        Budget Reconciliation Act (SOBRA), Supplemental Security
                        Income (SSI), SSI-related groups. To be categorically
                        linked, the member must be aged 65 or over, blind,
                        disabled, a child under age 19, a parent of a dependent
                        child, or pregnant.


CLAIM DISPUTE           A dispute involving a payment of a claim, denial of a
                        claim, imposition of a sanction or reinsurance.


CLEAN CLAIM             A claim that may be processed without obtaining
                        additional information from the provider of service or
                        from a third party; but does not include claims under
                        investigation for fraud or abuse or claims under review
                        for medical necessity.

CMS (FORMERLY HCFA)     Centers for Medicare and Medicaid Services, an
                        organization within the U.S. Department of Health and
                        Human Services, which administers the Medicare and
                        Medicaid programs and the State Children's Health
                        Insurance Program.

COMPETITIVE BID
PROCESS                 A state procurement system used to select Contractors to
                        provide covered services on a geographic basis.

CONTINUING OFFEROR
(INCUMBENT)             An AHCCCS Contractor during CYE 03 that submits a
                        proposal pursuant to this solicitation.

CONTRACT SERVICES       See "COVERED SERVICES".

CONTRACT YEAR (CY)      Corresponds to Federal fiscal year (Oct. 1 through Sept.
                        30). For example, Contract Year 04 is 10/01/03 -
                        9/30/04.

CONTRACTOR              An organization or entity agreeing through a direct
                        contracting relationship with AHCCCSA to provide the
                        goods and services specified by this contract in
                        conformance with the stated contract requirements,
                        AHCCCS statute and rules and Federal law and
                        regulations.

CONVICTED               A judgment of conviction has been entered by a Federal,
                        State or local court, regardless of whether an appeal
                        from that judgment is pending.

COPAYMENT               A monetary amount specified by the Director that the
                        member pays directly to a Contractor or provider at the
                        time covered services are rendered, as defined in
                        R9-22-107.

COVERED SERVICES        Health care services to be delivered by a Contractor
                        which are designated in Section D of this contract,
                        AHCCCS Rules R9-22, Article 2 and R9-31, Article 2 and
                        the AMPM.


CRS                     The Children's Rehabilitative Services administered by
                        ADHS, as defined in R9-22-114.
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 8 -
<PAGE>
DEFINITIONS                                           CONTRACT/RFP NO. YH04-0001


<TABLE>
<S>                     <C>

CRS ELIGIBLE            An individual that has completed the CRS application
                        process, as delineated in the CRS Policy and Procedure
                        Manual, and has met all applicable criteria to be
                        eligible to receive CRS related services.

CRS RECIPIENT           A CRS recipient is a CRS eligible individual that has
                        completed the initial medical visit at an approved CRS
                        Clinic, which allows the individual to participate in
                        the CRS program.

CY                      See "CONTRACT YEAR".

CYE                     Contract Year Ending; same as "CONTRACT YEAR".

DAYS                    Calendar days unless otherwise specified as defined in
                        the text, as defined in R9-22-101.

DIRECTOR                The Director of AHCCCSA.

DISCLOSING ENTITY       An AHCCCS provider or a fiscal agent.

DISENROLLMENT           The discontinuance of a member's ability to receive
                        covered services through a Contractor.

DME                     Durable Medical Equipment, which is an item, or
                        appliance that can withstand repeated use, is designated
                        to serve a medical purpose, and is not generally useful
                        to a person in the absence of a medical condition,
                        illness or injury as defined in R9-22-102.

DUAL ELIGIBLE           A member who is eligible for both Medicare and Medicaid.

ELIGIBILITY
DETERMINATION           A process of determining, through a written application
                        and required documentation, whether an applicant meets
                        the qualifications for Title XIX or Title XXI.

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

EMERGENCY MEDICAL
SERVICE                 Covered inpatient and outpatient services provided after
                        the sudden onset of an emergency medical condition as
                        defined above. These services must be furnished by a
                        qualified provider, and must be necessary to evaluate or
                        stabilize the emergency medical condition.

ENCOUNTER               A record of a health care related service rendered by a
                        provider or providers registered with AHCCCSA to a
                        member who is enrolled with a Contractor on the date of
                        service.

ENROLLEE                A Medicaid recipient who is currently enrolled with a
                        contractor.

ENROLLMENT              The process by which an eligible person becomes a member
                        of a Contractor's health plan.

EPSDT                   Early and Periodic Screening, Diagnosis and Treatment;
                        services for persons under 21 years of age as described
                        in AHCCCS rules R9-22, Article 2.
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 9 -
<PAGE>
DEFINITIONS                                           CONTRACT/RFP NO. YH04-0001


<TABLE>
<S>                     <C>

FAMILY PLANNING
SERVICES EXTENSION
PROGRAM                 A program that provides only family planning services
                        for a maximum of 24 months to SOBRA women whose
                        pregnancy has ended and who are not otherwise eligible
                        for full Title XIX services.

FEDERALLY QUALIFIED
HEALTH CENTER (FQHC)    An entity which meets the requirements and receives a
                        grant and funding pursuant to Section 330 of the Public
                        Health Service Act. An FQHC includes an outpatient
                        health program or facility operated by a tribe or tribal
                        organization under the Indian Self-Determination Act (PL
                        93-638) or an urban Indian organization receiving funds
                        under Title V of the Indian Health Care Improvement Act.

FEE-FOR-SERVICE (FFS)   A method of payment to registered providers on an amount
                        per service basis.

FES                     Federal Emergency Services program covered under
                        R9-22-217, to treat an emergency medical condition for a
                        member who is determined eligible under A.R.S. Section
                        36-2903.03 (D).

FFP                     Federal financial participation (FFP) refers to the
                        contribution that the Federal government makes to the
                        Title XIX and Title XXI program portions of AHCCCS as
                        defined in 42 CFR 400.203.

FISCAL YEAR (FY)        The budget year - Federal Fiscal Year: October 1 through
                        September 30; State fiscal year: July 1 through June 30.

FREEDOM TO WORK
(TICKET TO WORK)        A Federal program that expands Title XIX eligibility to
                        individuals, 16 through 64 years old, who are disabled
                        and whose earned income, after allowable deductions, is
                        at or below 250% of the Federal Poverty Level.

GATEKEEPER              Primary care provider who is primarily responsible for
                        all medical treatment rendered, who makes referrals as
                        necessary, and who coordinates and monitors the member's
                        treatment.

GEOGRAPHIC SERVICE
AREA (GSA)              A specific county or defined grouping of counties
                        designated by AHCCCSA within which a Contractor
                        provides, directly or through subcontract, covered
                        health care to members enrolled with that Contractor.

HEALTHCARE GROUP OF
ARIZONA (HCG)           A prepaid medical coverage plan marketed to small,
                        uninsured businesses and political subdivisions within
                        the state.

HEALTH MAINTENANCE
ORGANIZATION (HMO)      Various forms of plan organization, including staff and
                        group models that meet the HMO licensing requirements of
                        the Federal and/or State government and offer a full
                        array of health care services to members on a capitated
                        basis.

HEALTH PLAN             See "CONTRACTOR".

HIFA                    Health Insurance Flexibility and Accountability Act, a
                        demonstration initiative by CMS, which targets State
                        Children's Health Insurance Program (Title XXI) funding
                        for populations with incomes below 200 percent of the
                        Federal Poverty Level, seeking to maximize private
                        health insurance coverage options.

HIFA PARENTS            Parents of Medicaid and KidsCare eligible children who
                        are eligible for AHCCCS benefits under the HIFA Waiver.
                        All eligible parents must pay a monthly premium based on
                        household income.

IBNR                    Incurred But Not Reported liability for services
                        rendered for which claims have not been received.
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 10 -
<PAGE>
DEFINITIONS                                           CONTRACT/RFP NO. YH04-0001


<TABLE>
<S>                     <C>
IHS                     Indian Health Service authorized as a Federal agency
                        pursuant to 25 U.S.C. 1661.

KIDSCARE                Individuals under the age of 19, eligible under the
                        SCHIP program, in households with income at or below
                        200% FPL. Children, in households with incomes between
                        150% and 200% of the FPL, may participate in the
                        program, but are required to pay a premium amount based
                        on the number of children in the family and the gross
                        family income.

LIEN                    A legal claim, filed with the County Recorder's office
                        in which a member resides and in the county an injury
                        was sustained, for the purpose of ensuring that AHCCCS
                        receives reimbursement for medical services paid. The
                        lien is attached to any settlement the member may
                        receive as a result of an injury.

MANAGED CARE            Systems that integrate the financing and delivery of
                        health care services to covered individuals by means of
                        arrangements with selected providers to furnish
                        comprehensive services to members; establish explicit
                        criteria for the selection of health care providers;
                        have financial incentives for members to use providers
                        and procedures associated with the plan; and have formal
                        programs for quality, utilization management and the
                        coordination of care.

MANAGEMENT SERVICES
SUBCONTRACTOR           A person or organization that agrees to perform any
                        administrative function or service for the Contractor,
                        specifically related to securing or fulfilling the
                        Contractor's obligations to AHCCCSA, under the terms of
                        this contract.

MANAGING EMPLOYEE       A general manager, business manager, administrator,
                        director, or other individual who exercises operational
                        or managerial control over, or who directly or
                        indirectly conducts the day-to-day operation of an
                        institution, organization or agency.

MATERIAL OMISSION       Facts, data or other information excluded from a report,
                        contract, etc., the absence of which could lead to
                        erroneous conclusions following reasonable review of
                        such report, contract, etc.

MEDICAID                A Federal/State program authorized by Title XIX of the
                        Social Security Act, as amended.

MEDICAL EXPENSE
DEDUCTION (MED)         Title XIX Waiver member whose family income is more than
                        100% of the Federal Poverty Level and has family medical
                        expenses that reduce income to or below 40% of the
                        Federal Poverty Level. MED's may have a categorical link
                        to a Title XIX program; however, their income exceeds
                        the limits of the Title XIX program.

MEDICARE                A Federal program authorized by Title XVIII of the
                        Social Security Act, as amended.

MEDICARE HMO            A Health Maintenance Organization or Comprehensive
                        Medical Plan, which provides Medicare services to
                        Medicare beneficiaries pursuant to a Medicare risk
                        contract with CMS under Section 1876 of the Social
                        Security Act.

MEMBER                  An eligible person who is enrolled in the system, as
                        defined in A.R.S. Section 36-2901, A.R.S. Section
                        36-2981 and A.R.S. Section 36-2981.01.

NEW OFFEROR             An organization or entity that submits a proposal in
                        response to this solicitation and which has not been an
                        AHCCCS Contractor during CYE 03.

NON-CONTRACTING
PROVIDER                A person who provides services as prescribed in A.R.S.
                        Section 36-2939 And who does not have a subcontract with
                        an AHCCCS Contractor.

OFFEROR                 An organization or other entity that submits a proposal
                        to the Administration in response to this RFP, as
                        defined in R9-22-106.
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 11 -
<PAGE>
DEFINITIONS                                           CONTRACT/RFP NO. YH04-0001


<TABLE>
<S>                     <C>
PERFORMANCE STANDARDS   A set of standardized indicators designed to assist
                        AHCCCSA in evaluating, comparing and improving the
                        performance of its Contractors. Specific descriptions of
                        health services measurement goals are found in Section
                        D, Paragraph 24, Performance Standards.

PMMIS                   AHCCCSA's Prepaid Medical Management Information System.

POTENTIAL ENROLLEE      A Medicaid eligible recipient who is not enrolled with a
                        contractor.

POST STABILIZATION
SERVICES                Medically necessary services, related to an emergency
                        medical condition, provided after the member's condition
                        is sufficiently stabilized in order to maintain, improve
                        or resolve the member's condition so that the member
                        could alternatively be safely discharged or transferred
                        to another location.

PRIMARY CARE PROVIDER
(PCP)                   An individual who meets the requirements of
                        A.R.S. Section 36-2901, and who is responsible for the
                        management of a member's health care. A PCP may be a
                        physician defined as a person licensed as an allopathic
                        or osteopathic physician according to A.R.S. Title 32,
                        Chapter 13 or Chapter 17 or a practitioner defined as a
                        physician assistant licensed under A.R.S. Title 32,
                        Chapter 25, or a certified nurse practitioner licensed
                        under A.R.S. Title 32, Chapter 15.

PRIOR PERIOD            The period of time, prior to the member's enrollment,
                        during which a member is eligible for covered services.
                        The time frame is from the effective date of eligibility
                        to the day a member is enrolled with a Contractor.

PROVIDER                Any person or entity who contracts with AHCCCSA or a
                        Contractor for the provision of covered services to
                        members according to the provisions A.R.S. Section
                        36-2901 or any subcontractor of a provider delivering
                        services pursuant to A.R.S. Section 36-2901.

QUALIFIED MEDICARE
BENEFICIARY (QMB)       A person, eligible under A.R.S. Section 36-2971(6), who
                        is entitled to Medicare Part A insurance and meets
                        certain income and residency requirements of the
                        Qualified Medicare Beneficiary program. A QMB, who is
                        also eligible for Medicaid, is commonly referred to as a
                        QMB dual eligible.

RATE CODE               Eligibility classification for capitation payment
                        purposes.

REGIONAL BEHAVIORAL
HEALTH AUTHORITY
(RBHA)                  An organization under contract with ADHS, who
                        administers covered behavioral health services in a
                        geographically specific area of the state. Tribal
                        governments, through an agreement with ADHS, may operate
                        a tribal regional behavioral health authority (TRBHA)
                        for the provision of behavioral health services to
                        Native American members living on-reservation.

REINSURANCE             A risk-sharing program provided by AHCCCSA to
                        Contractors for the reimbursement of certain contract
                        service costs incurred for a member beyond a certain
                        monetary threshold.

RELATED PARTY           A party that has, or may have, the ability to control or
                        significantly influence a Contractor, or a party that
                        is, or may be, controlled or significantly influenced by
                        a Contractor. "Related parties" include, but are not
                        limited to, agents, managing employees, persons with an
                        ownership or controlling interest in the disclosing
                        entity, and their immediate families, subcontractors,
                        wholly-owned subsidiaries or suppliers, parent
                        companies, sister companies, holding companies, and
                        other entities controlled or managed by any such
                        entities or persons.

RISK GROUP              Grouping of rate codes that are paid at the same
                        capitation rate.
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 12 -
<PAGE>
DEFINITIONS                                           CONTRACT/RFP NO. YH04-0001


<TABLE>
<S>                     <C>
RFP                     Request For Proposal is a document prepared by AHCCCSA,
                        which describes the services required and instructs
                        prospective offerors about how to prepare a response
                        (proposal), as defined in R9-22-106.

SCHIP                   State Children's Health Insurance Program under Title
                        XXI of the Social Security Act.

SCOPE OF SERVICES       See "COVERED SERVICES".


SES                     State Emergency Services program covered under R9-22-217
                        to treat an emergency medical condition for a qualified
                        alien or non-citizen who is determined eligible under
                        A.R.S. Section 36-2901.06.

SOBRA                   Section 9401 of the Sixth Omnibus Budget and
                        Reconciliation Act, 1986, amended by the Medicare
                        Catastrophic Coverage Act of 1988, U.S.C.
                        1396a(a)(10)(A)(ii)(IX), November 5, 1990.

SPECIAL HEALTH
CARE NEEDS              Members with special health care needs are those members
                        who have serious and chronic physical, developmental or
                        behavioral conditions, and who also require medically
                        necessary health and related services of a type or
                        amount beyond that required by members generally.

STATE                   The State of Arizona.

STATE PLAN              The written agreements between the State and CMS which
                        describe how the AHCCCS program meets CMS requirements
                        for participation in the Medicaid program and the State
                        Children's Health Insurance Program.

SUBCONTRACT             An agreement entered into by the Contractor with a
                        provider of health care services, who agrees to furnish
                        covered services to members or with any other
                        organization or person who agrees to perform any
                        administrative function or service for the Contractor
                        specifically related to fulfilling the Contractor's
                        obligations to AHCCCSA under the terms of this contract,
                        as defined in R9-22-101.

SUBCONTRACTOR           (1) A person, agency or organization with which the
                        Contractor has contracted or delegated some of its
                        management functions or responsibilities to provide
                        covered services to its members; or (2) A person, agency
                        or organization with which a fiscal agent has entered
                        into a contract, agreement, purchase order or lease (or
                        leases of real property) to obtain space, supplies,
                        equipment or services provided under the AHCCCS
                        agreement.

SUPPLEMENTAL SECURITY
INCOME (SSI)            Federal cash assistance program under Title XVI of the
                        Social Security Act.

TEMPORARY ASSISTANCE
TO NEEDY FAMILIES
(TANF)                  A Federal cash assistance program under Title IV of the
                        Social Security Act established by the Personal
                        Responsibility and Work Opportunity Act of 1996. It
                        replaced Aid To Families With Dependent Children (AFDC).

THIRD PARTY             An individual, entity or program that is or may be
                        liable to pay all or part of the medical cost of injury,
                        disease or disability of an AHCCCS applicant or member,
                        as defined in R9-22-1001.

THIRD PARTY LIABILITY   The resources available from a person or entity that is,
                        or may be, by agreement, circumstance or otherwise,
                        liable to pay all or part of the medical expenses
                        incurred by an AHCCCS applicant or member, as defined in
                        R9-22-1001.
</TABLE>

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
                                     - 13 -
<PAGE>
DEFINITIONS                                           CONTRACT/RFP NO. YH04-0001


<TABLE>
<S>                     <C>
TITLE XIX MEMBER        Member eligible for Federally funded Medicaid programs
                        under Title XIX of the Social Security Act including
                        those eligible under 1931 provisions of the Social
                        Security Act, Sixth Omnibus Budget Reconciliation Act
                        (SOBRA), Supplemental Security Income (SSI), SSI-related
                        groups, Title XIX Waiver groups, Medicare Cost Sharing
                        groups, Breast and Cervical Cancer Treatment program and
                        Freedom to Work.


TITLE XIX WAIVER
MEMBER                  All MED (Medical Expense Deduction) members, and adults
                        or childless couples at or below 100% of the Federal
                        Poverty Level who are not categorically linked to
                        another Title XIX program. This would also include Title
                        XIX linked individuals whose income exceeds the limits
                        of the categorical program.


TITLE XXI MEMBER        Member eligible for acute care services under Title XXI
                        of the Social Security Act, referred to in Federal
                        legislation as the "State Children's Health Insurance
                        Program" (SCHIP and HIFA). The Arizona version of SCHIP
                        is referred to as "KidsCare."

TRIBAL FACILITY (638
TRIBAL FACILITY)        A facility that is operated by an Indian tribe and that
                        is authorized to provide services pursuant to Public Law
                        93-638, as amended.

WWHP                    Well Woman Healthcheck Program, administered by the
                        Arizona Department of Health Services and funded by the
                        Centers for Disease Control and Prevention.

YEAR                    See "Contract Year".
</TABLE>

[END OF DEFINITIONS]

                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 14 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



SECTION D: PROGRAM REQUIREMENTS

1.    TERM OF CONTRACT AND OPTION TO RENEW

The initial term of this contract shall be 10/1/03 through 9/30/06, with two
one-year options to renew. All contract renewals shall be through contract
amendment. AHCCCSA shall issue amendments prior to the end date of the contract
when there is an adjustment to capitation rates and/or changes to the scope of
service contained herein. Changes to scope of service include but are not
limited to changes in the enrolled population, changes in covered services,
changes in GSA's

If the Contractor has been awarded a contract in more than one GSA, each such
contract will be considered separately renewable. AHCCCSA may renew the
Contractor's contract in one GSA, but not in another. In addition, if the
Contractor has had significant problems of non-compliance in one GSA, it may
result in the capping of the Contractor's enrollment in all GSAs. Further,
AHCCCSA may require the Contractor to renew all currently awarded GSA's, or may
terminate the contract if the Contractor does not agree to renew all currently
awarded GSA's.

When AHCCCSA issues an amendment to the contract, the provisions of such renewal
will be deemed to have been accepted 60 days after the date of mailing by
AHCCCSA, even if the amendment has not been signed by the Contractor, unless
within that time the Contractor notifies AHCCCSA in writing that it refuses to
sign the renewal amendment. If the Contractor provides such notification,
AHCCCSA will initiate contract termination proceedings.

CONTRACTOR'S NOTICE OF INTENT NOT TO RENEW: If the Contractor chooses not to
renew this contract, the Contractor may be liable for certain costs associated
with the transition of its members to a different health plan. If the Contractor
provides AHCCCSA written notice of its intent not to renew this contract at
least 180 days before its expiration, this liability for transition costs may be
waived by AHCCCSA.

CONTRACT TERMINATION: In the event the contract, or any portion thereof, is
terminated for any reason, or expires, the Contractor shall assist AHCCCSA in
the transition of its members to other contractors, and shall abide by standards
and protocols set forth in Paragraph 9, Transition of Members. In addition,
AHCCCSA reserves the right to extend the term of the contract on a
month-to-month basis to assist in any transition of members. The Contractor
shall make provision for continuing all management and administrative services
until the transition of all members is completed and all other requirements of
this contract are satisfied. The Contractor shall be responsible for providing
all reports set forth in this contract and necessary for the transition process
and shall be responsible for the following:

a.    Notification of subcontractors and members.

b.    Payment of all outstanding obligations for medical care rendered to
      members.

c.    Until AHCCCSA is satisfied that the Contractor has paid all such
      obligations, the Contractor shall provide the following reports to
      AHCCCSA:

            (1)   A monthly claims aging report by provider/creditor including
                  IBNR amounts;

            (2)   A monthly summary of cash disbursements; (3) Copies of all
                  bank statements received by the Contractor.

d.    Such reports shall be due on the fifth day of each succeeding month for
      the prior month.

e.    In the event of termination or suspension of the contract by AHCCCSA, such
      termination or suspension shall not affect the obligation of the
      Contractor to indemnify AHCCCSA for any claim by any third party against
      the State or AHCCCSA arising from the Contractor's performance of this
      contract and for which the Contractor would otherwise be liable under this
      contract.

f.    Any dispute by the Contractor, with respect to termination or suspension
      of this contract by AHCCCSA, shall be exclusively governed by the
      provisions of Section E, Paragraph 26, Disputes.



                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 15 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



g.    Any funds, advanced to the Contractor for coverage of members for periods
      after the date of termination, shall be returned to AHCCCSA within 30 days
      of termination of the contract.

2.    ELIGIBILITY CATEGORIES

AHCCCS is Arizona's Title XIX Medicaid program operating under an 1115 Waiver
and Title XXI program operating under Title XXI State Plan authority. Arizona
has the authority to require mandatory enrollment in managed care. All members
eligible for AHCCCS benefits, with few exceptions, are enrolled in acute care
health plans and paid for on a capitated basis. AHCCCSA pays for health care
expenses on a fee for service (FFS) basis for Title XIX and Title XXI eligible
members who receive services through the Indian Health Service; for Title XIX
eligible members who are entitled to emergency services under the Federal
Emergency Services (FES) program; for Medicare cost sharing beneficiaries under
QMB programs; and for the State Emergency Services (SES) Program.

The following describes the eligibility groups enrolled in the managed care
program and covered under this contract.

TITLE XIX

      1931 (ALSO REFERRED TO AS TANF): Eligible individuals and families under
      the 1931 provision of the Social Security Act, with household income
      levels at or below 100% of the FPL.

      SSI AND SSI RELATED GROUPS: Eligible individuals receiving Supplemental
      Security Income (SSI) or who are aged, blind or disabled with household
      income levels at or below 100% of the FPL.

      FREEDOM TO WORK (TICKET TO WORK): Eligible individuals under the Title XIX
      expansion program that extends eligibility to individuals, 16 through 64
      years old who meet SSI disability criteria, whose earned income, after
      allowable deduction, is at or below 250% of the FPL and who are not
      eligible for any other Medicaid program. These members must pay a premium
      to AHCCCSA ranging from $10 to $35, depending on income.

      SOBRA: Under the Sixth Omnibus Budget and Reconciliation Act of 1986,
      eligible pregnant women, with household income levels at or below 133% of
      the FPL, and children in families with household incomes ranging from
      below 100% to 133% of the FPL, depending on the age of the child.

      SOBRA FAMILY PLANNING: Family planning extension program that covers the
      costs for family planning services only, for a maximum of 24 months
      following the loss of SOBRA eligibility.

      BREAST AND CERVICAL CANCER TREATMENT PROGRAM (BCCTP): Eligible individuals
      under the Title XIX expansion program for women with income up to 250% of
      the FPL, who are diagnosed with and need treatment for breast and/or
      cervical cancer or cervical lesions and are not eligible for other Title
      XIX programs providing full Title XIX services. Eligible members cannot
      have other creditable health insurance coverage, including Medicare.

TITLE XIX WAIVER GROUP

      NON-MED: Eligible individuals and couples whose income is at or below 100%
      of the FPL, and who are not categorically linked to another Title XIX
      program.

      MED: Eligible individuals and families whose income is above 100% of the
      FPL with medical expenses that reduce income to or below 40% of the FPL.


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 16 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



TITLE XXI

      KIDSCARE: Individuals under the age of 19, whose income does not exceed
      200% FPL. Children, in households with incomes between 150% and 200% of
      the FPL, may participate in the KidsCare program, but are required to pay
      a premium amount to AHCCCSA based on the number of children in the family
      and the gross family income.

      HIFA PARENTS: Non-Title XIX-eligible parents of KidsCare children or
      parents of Title XIX children who are eligible under the HIFA
      demonstration initiative waiver. HIFA parents are required to pay a
      premium to AHCCCSA ranging from $15 to $25 per parent (except Native
      American members). Due to funding considerations, this program has an
      enrollment cap.

3.    ENROLLMENT AND DISENROLLMENT

AHCCCSA has the exclusive authority to enroll and disenroll members. The
Contractor shall not disenroll any member for any reason unless directed to do
so by AHCCCSA. The Contractor may request AHCCCSA to change the member's
enrollment in accordance with the AHCCCS Health Plan Change Policy. The
Contractor may not request disenrollment because of an adverse change in the
member's health status, or because of the member's utilization of medical
services, diminished mental capacity, or uncooperative or disruptive behavior
resulting from his or her special needs. An AHCCCS member may request
disenrollment from the Contractor for cause at any time. Refer those requests
due to situations defined in Section A (1) of the AHCCCS Change of Plan policy
to AHCCCSA to the AHCCCS Verification Unit via mail or at (602) 417-4000 or
(800) 962-6690. For medical continuity requests, the Contractor shall follow the
procedures outlined in the AHCCCS Change of Plan Policy page 5, 2.b., before
notifying the AHCCCSA. AHCCCSA will disenroll the member when the member becomes
ineligible for the AHCCCS program, moves out of the Contractor's service areas,
changes contractors during the member's open enrollment/annual enrollment choice
period, the Contractor does not, because of moral or religious objections, cover
the service the member seeks or when approved for a health plan change through
the AHCCCS Health Plan Change Policy. Eligibility for the various AHCCCS
coverage groups is determined by one of the following agencies:

Social Security Administration (SSA)    SSA determines eligibility for the
                                        Supplemental Security Income (SSI) cash
                                        program. SSI cash recipients are
                                        automatically eligible for AHCCCS
                                        coverage.

Department of Economic Security (DES)   DES determines eligibility for the
                                        families with children under section
                                        1931 of the Social Security Act,
                                        pregnant women and children under SOBRA,
                                        the Adoption Subsidy Program, Title IV-E
                                        foster care children, Young Adult
                                        Transitional Insurance Program, the
                                        Federal Emergency Services program
                                        (FES), HIFA parents of SOBRA eligible
                                        children, the Title XIX Waiver Members,
                                        and the State Emergency Services (SES)
                                        program.

AHCCCSA                                 AHCCCSA determines eligibility for the
                                        SSI/Medical Assistance Only groups,
                                        including the FES program for this
                                        population (aged, disabled, blind), the
                                        Arizona Long-Term Care System (ALTCS),
                                        the Qualified Medicare Beneficiary
                                        program and other Medicare cost sharing
                                        programs, BCCTP, the Freedom to Work
                                        program, the Title XXI KidsCare program,
                                        and HIFA parents of KidsCare children.

AHCCCS acute care members are enrolled with Contractors in accordance with the
rules set forth in R9-22, Article 17, R9-31-306, 307, 309 and 1719.


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 17 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



HEALTH PLAN CHOICE

All AHCCCS members eligible for services covered under this contract have a
choice of available health plans. Information about these health plans will be
given to each applicant during the application process for AHCCCS benefits. If
there is only one health plan available for the applicant's Geographic Service
Area, no choice is offered as long as the health plan offers the member a choice
of PCPs. Members who do not choose prior to AHCCCSA being notified of their
eligibility, are automatically assigned to a health plan based on family
continuity or the auto-assignment algorithm. See Section D, Paragraph 6,
Auto-Assignment Algorithm, for further explanation.

The Contractor will share with AHCCCSA the cost of providing information about
the acute care contractors to potential members and to those eligible for annual
enrollment choice.

Exceptions to the above enrollment policies for Title XIX members include
previously enrolled members who have been disenrolled for less than 90 days.
These members will be automatically enrolled with the same Contractor, if still
available. Members who have less than 30 days of continued eligibility will not
be enrolled with a Contractor, but will be placed on Fee for Service. FES and
SES members are not enrolled with a health plan. Women, who become eligible for
the Family Planning Services Extension Program, will remain assigned to their
current health plan.

The effective date of enrollment for a new Title XIX member with the Contractor
is the day AHCCCSA takes the enrollment action, generally the day prior to the
date the Contractor receives notification from AHCCCSA via the daily roster.
However, the Contractor is responsible for payment of medically necessary
covered services retroactive to the member's beginning date of eligibility.

KidsCare members must select a health plan prior to being determined eligible
and therefore, will not be auto-assigned. If the HIFA parent does not choose,
they will be enrolled with their child's health plan following the enrollment
rules set forth in R9-31-1719. When a member is transferred from Title XIX to
Title XXI and has not made a health plan choice for Title XXI, the member will
remain with their current health plan and a choice notice will be sent to the
member. The member may then change plans no later than 16 days from the date the
choice notice is sent.

The effective date of enrollment for a Title XXI member, including HIFA parents,
will be the first day of the month following notification to the health plan,
with few exceptions.

PRIOR PERIOD COVERAGE: AHCCCS provides prior period coverage for the period of
time, prior to the Title XIX member's enrollment, during which a member is
eligible for covered services. The time frame is from the effective date of
eligibility to the day a member is enrolled with the Contractor. The Contractor
receives notification from the Administration of the member's enrollment. The
Contractor is responsible for payment of all claims for medically necessary
covered services provided to members during prior period coverage. This may
include services provided prior to the contract year (See Section D, Paragraph
53, Compensation, for a description of the Contractor's reimbursement from
AHCCCSA for this eligibility time period.)

NEWBORNS: Newborns, born to AHCCCS eligible mothers enrolled at the time of the
child's birth, will be enrolled with the mother's contractor, when newborn
notification is received by AHCCCSA. The Contractor is responsible for notifying
AHCCCSA of a child's birth to an enrolled member. Capitation for the newborn
will begin on the date notification is received by AHCCCSA (except for cases of
births during prior period coverage). The effective date of AHCCCS eligibility
will be the newborn's date of birth, and the Contractor is responsible for all
covered services to the newborn whether or not AHCCCSA has received notification
of the child's birth. AHCCCSA is currently available to receive notification
calls 24 hours a day, 7 days a week. Eligible mothers of newborns are sent a
letter advising them of their right to choose a different contractor for


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 18 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



their child; the date of the change will be the date of processing the request
from the mother. If the mother does not request a change, the child will remain
with the mother's contractor.

Newborns of FES mothers are auto-assigned to a contractor and mothers of these
newborns are sent a letter advising them of their right to choose a different
contractor for their child. In the event the FES mother chooses a different
contractor, AHCCCS will recoup all capitation paid to the originally assigned
contractor and the baby will be enrolled retroactive to the date of birth in the
second contractor. The second contractor will receive prior period capitation
from the date of birth to the day before assignment and prospective capitation
from the date of assignment forward. The second contractor will be responsible
for all covered services to the newborn from date of birth.

ENROLLMENT GUARANTEES: Upon initial capitated enrollment as a Title XIX-eligible
member, the member is guaranteed a minimum of five full months of continuous
enrollment. Upon initial capitated enrollment as a Title XXI-eligible member,
the member is guaranteed a minimum of 12 full months of continuous enrollment.
Enrollment guarantees do not apply to HIFA parents. The enrollment guarantee is
a one-time benefit. If a member changes from one contractor to another within
the enrollment guarantee period, the remainder of the guarantee period applies
to the new contractor. The enrollment guarantee may not be granted or may be
terminated if the member is incarcerated or, if a minor child is adopted. AHCCCS
Rule R9-22, Article 17 and R9-31, Article 3 describes other reasons for which
the enrollment guarantee may not apply.

NATIVE AMERICANS: Native Americans, on or off-reservation, may choose to receive
services from Indian Health Service (IHS), a PL 93-638 tribal facility or any
available contractor. If a choice is not made within the specified time limit,
Native American Title XIX members living on-reservation will be assigned to IHS.
Native American Title XIX members living off-reservation will be assigned to an
available contractor using AHCCCS' Family Continuity Policy and auto-assignment
algorithm. Native American Title XXI members must make a choice prior to being
determined eligible. Title XXI HIFA parent members' enrollment will follow the
Title XIX enrollment rules. Native Americans may change from IHS to a contractor
or from a contractor to IHS at any time.

GRIEVANCE RIGHTS: Members may submit plan change requests to the Contractor or
the AHCCCS Administration. A denial of any plan change request must include a
description of the member's right to appeal the denial.

4.    ANNUAL ENROLLMENT CHOICE

AHCCCSA conducts an Annual Enrollment Choice (AEC) for members on their annual
anniversary date. AHCCCSA may hold an open enrollment as deemed necessary.
During AEC, members may change contractors subject to the availability of other
contractors within their Geographic Service Area. Members are mailed a printed
enrollment form and other information required by the Balanced Budget Act of
1997 (BBA) 60 days prior to their AEC date and may choose a new contractor by
contacting AHCCCSA to complete the enrollment process. If the member does not
participate in the AEC, no change of contractor will be made (except for
approved changes under the Change of Plan Policy) during the new anniversary
year. This holds true if a contractor's contract is renewed and the member
continues to live in a contractor's service area. The Contractor shall comply
with the AHCCCS, Division of Health Care Management Member Transition for Annual
Enrollment Choice, Open Enrollment and Other Plan Changes Policy and the AMPM.

5.    OPEN ENROLLMENT

In the event that AHCCCSA does not award a CYE '04 contract to an incumbent
contractor, AHCCCSA will hold an open enrollment for those members enrolled with
the exiting contractor. If those members do not elect to choose a contractor,
they will be auto assigned. In addition to open enrollment, AHCCCSA will make
changes to both annual enrollment choice materials and new enrollee materials
prior to October 1, 2003 to


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 19 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



reflect the change in available health plans. The auto assignment algorithm will
be adjusted to exclude auto assignment of new enrollees to exiting
contractors(s). The exact dates for the open enrollment and other changes
described above have not yet been determined, but will be communicated when they
are finalized.

6.    AUTO-ASSIGNMENT ALGORITHM

Members who do not exercise their right to choose and do not have family
continuity, are assigned to a contractor through an auto-assignment algorithm.
The algorithm is a mathematical formula used to distribute members to the
various contractors in a manner that is predictable and consistent with AHCCCSA
goals. The algorithm favors those contractors with lower capitation rates and
higher program scores in the latest contract award. For further details on the
AHCCCS Auto-Assignment Algorithm, refer to Attachment G. AHCCCSA may change the
algorithm at any time during the term of the contract in response to
contractor-specific issues (e.g. imposition of an enrollment cap). The
Contractor should consider this in preparing its response to this RFP.
Capitation rates may be adjusted to reflect changes to a contractor's risk due
to changes in the algorithm.

7.    AHCCCS MEMBER IDENTIFICATION CARDS

Contractors are responsible for paying the costs of producing AHCCCS member
identification cards. The Contractor will receive an invoice the month following
the issue date of the identification card.

8.    MAINSTREAMING OF AHCCCS MEMBERS

To ensure mainstreaming of AHCCCS members, the Contractor shall take affirmative
action so that members are provided covered services without regard to payer
source, race, color, creed, sex, religion, age, national origin (to include
those with limited English proficiency), ancestry, marital status, sexual
preference, genetic information, or physical or mental handicap, except where
medically indicated. Contractors must take into account a member's culture, when
addressing members and their concerns, and must take reasonable steps to
encourage subcontractors to do the same. The Contractor must make interpreters
of any language available free of charge for all members to ensure appropriate
delivery of covered services. The Contractor must provide members with
information instructing them about how to access these services.

Examples of prohibited practices include, but are not limited to, the following,
in accordance with Title VI of the US Civil Rights Act of 1964, 42 USC, Section
2001, Executive Order 13166, and rules and regulation promulgated according to,
or as otherwise provided by law:

a.    Denying or not providing a member any covered service or access to an
      available facility.

b.    Providing to a member any covered service which is different, or is
      provided in a different manner or at a different time from that provided
      to other members, other public or private patients or the public at large,
      except where medically necessary.

c.    Subjecting a member to segregation or separate treatment in any manner
      related to the receipt of any covered service; restricting a member in any
      way in his or her enjoyment of any advantage or privilege enjoyed by
      others receiving any covered service.

d.    The assignment of times or places for the provision of services on the
      basis of the race, color, creed, religion, age, sex, national origin,
      ancestry, marital status, sexual preference, income status, AHCCCS
      membership, or physical or mental handicap of the participants to be
      served.

If the Contractor knowingly executes a subcontract with a provider with the
intent of allowing or permitting the subcontractor to implement barriers to care
(i.e. the terms of the subcontract act to discourage the full utilization of
services by some members), the Contractor will be in default of its contract.


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                                                                       Amendment
                                                                October 22, 2004

                                     - 20 -
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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



If the Contractor identifies a problem involving discrimination by one of its
providers, it shall promptly intervene and implement a corrective action plan.
Failure to take prompt corrective measures may place the Contractor in default
of its contract.

9.    TRANSITION OF MEMBERS

The Contractor shall comply with the AMPM, and the AHCCCS, Division of Health
Care Management Member Transition for Annual Enrollment Choice, Open Enrollment
and Other Plan Changes Policy standards for member transitions between health
plans or GSAs, participation in or discharge from CRS, to or from an ALTCS
Contractor, IHS, a PL 93-638 tribal entity, and upon termination or expiration
of a contract. The Contractor shall develop and implement policies and
procedures, which comply with these policies to address transition of:

a.    Members with significant medical conditions such as a high-risk pregnancy
      or pregnancy within the last 30 days, the need for organ or tissue
      transplantation, chronic illness resulting in hospitalization or nursing
      facility placement, etc.;

b.    Members who are receiving ongoing services such as dialysis, home health,
      chemotherapy and/or radiation therapy or who are hospitalized at the time
      of transition;

c.    Members who have received prior authorization for services such as
      scheduled surgeries, out-of-area specialty services, nursing home
      admission;

d.    Prescriptions, DME and medically necessary transportation ordered for the
      transitioning member by the relinquishing contractor; and

e.    Medical records of the transitioning member (the cost, if any, of
      reproducing and forwarding medical records shall be the responsibility of
      the relinquishing AHCCCS contractor).

When relinquishing members, the Contractor is responsible for timely
notification to the receiving contractor regarding pertinent information related
to any special needs of transitioning members. The Contractor, when receiving a
transitioning member with special needs, is responsible for coordinating care
with the relinquishing contractor in order that services not be interrupted, and
for providing the new member with health plan and service information, emergency
numbers and instructions about how to obtain services.

10.   SCOPE OF SERVICES

The Contractor shall provide covered services to AHCCCS members in accordance
with all applicable Federal, State and local laws, rules, regulations and
policies, including services listed in this document, listed by reference in
attachments, and AHCCCS policies referenced in this document. The services are
described in detail in AHCCCS Rules R9-22, Article 2 and the AHCCCS Medical
Policy Manual (AMPM), all of which are incorporated herein by reference, except
for provisions specific to the Fee-for-Service program, and may be found in the
Bidder's Library. The covered services must be medically necessary and are
briefly described below. Except for behavioral health and children's preventive
dental services, covered services must be provided by, or coordinated with, a
primary care provider. The Contractor shall coordinate the services it provides
to a member with services the member receives from other entities, including
behavioral health services the member receives through an ADHS/RBHA provider.
The Contractor shall ensure that, in the process of coordinating care, each
member's privacy is protected in accordance with the privacy requirements in 45
CFR Parts 160 and 164 Subparts A and E, to the extent that they are applicable.
Services must be rendered by providers that are appropriately licensed or
certified, operating within their scope of practice, and registered as an AHCCCS
provider. The Contractor shall provide the same standard of care for all members
regardless of the member's eligibility category. The Contractor shall ensure
that the services are sufficient in amount, duration, or scope to reasonably be
expected to achieve the purpose for which the services are furnished. The
Contractor shall not arbitrarily deny or reduce the amount, duration, or scope
of a required service solely because of diagnosis, type of illness, or condition
of the member. The Contractor may place


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 21 -
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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



appropriate limits on a service on the basis of criteria such as medical
necessity; or for utilization control, provided the services furnished can
reasonably be expected to achieve their purpose.

Authorization of Services: For the processing of requests for initial and
continuing authorizations of services, the Contractor shall have in place, and
follow, written policies and procedures. The Contractor shall have mechanisms in
place to ensure consistent application of review criteria for authorization
decisions. Any decision to deny a service authorization request or to authorize
a service in an amount, duration, or scope that is less than requested, shall be
made by a health care professional who has appropriate clinical expertise in
treating the member's condition or disease.

Notice of Adverse Action: The Contractor shall notify the requesting provider,
and give the member written notice of any decision by the Contractor to deny a
service authorization request, or to authorize a service in an amount, duration,
or scope that is less than requested. The notice shall meet the requirements of
Sec. 438.404, except for the requirement that the notice to the provider be in
writing.

The Contractor shall ensure that its providers are not restricted or inhibited
in any way from communicating freely with members regarding the members' health
care, medical needs and treatment options, even if needed services are not
covered by the Contractor.

AMBULATORY SURGERY AND ANESTHESIOLOGY: The Contractor shall provide surgical
services for either emergency or scheduled surgeries when provided in an
ambulatory or outpatient setting such as a freestanding surgical center or a
hospital based outpatient surgical setting.

AUDIOLOGY: The Contractor shall provide audiology services to members under the
age of 21 including the identification and evaluation of hearing loss and
rehabilitation of the hearing loss through medical or surgical means (i.e.
hearing aids). Only the identification and evaluation of hearing loss are
covered for members 21 years of age and older unless the hearing loss is due to
an accident or injury-related emergent condition.

BEHAVIORAL HEALTH: The Contractor shall provide behavioral health services as
described in Section D, Paragraph 12, Behavioral Health Services.

CHILDREN'S REHABILITATIVE SERVICES (CRS): The program for children with
CRS-covered conditions is administered by the Arizona Department of Health
Services (ADHS) for children who meet CRS eligibility criteria. The Contractor
shall refer children to the CRS program who are potentially eligible for
services related to CRS covered conditions, as specified in R9-22, Article 2 and
A.R.S. Title 36, Chapter 2, Article 3. Eligibility criteria and the referral
process are described in the CRS Policy and Procedures Manual available in the
Bidder's Library.

The Contractor shall monitor referrals to CRS to ensure covered services are
provided in a timely manner to CRS recipients. Referral to CRS does not relieve
the Contractor of the responsibility for providing medically necessary services
not covered by CRS to CRS recipients. The Contractor is also responsible for
initial care of newborn members, until those members become CRS recipients. The
Contractor must require the member's Primary Care Provider (PCP) to coordinate
their care with the CRS program.

A member with private insurance is not required to utilize CRS. If the member
uses their private insurance network for a CRS covered condition, the Contractor
is responsible for all applicable deductibles and copays.

The Contractor remains ultimately responsible for the provision of all covered
services to its members, including emergency services not related to a CRS
condition and emergency services related to a CRS condition rendered outside of
the CRS network. The Contractor is not responsible for these services in
instances for which the CRS eligible member refuses to receive CRS covered
services through the CRS program. If the Contractor becomes aware that a member
with a CRS covered condition refuses to participate


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 22 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



in the CRS application process, or a recipient refuses to receive services from
the CRS program, the Contractor shall proceed as outlined in R9-22-201 (J).

CHIROPRACTIC SERVICES: The Contractor shall provide chiropractic services to
members under age 21 when prescribed by the member's PCP and approved by the
Contractor in order to ameliorate the member's medical condition. Medicare
approved chiropractic services shall also be covered, subject to limitations
specified in CFR 410.22, for Qualified Medicare Beneficiaries if prescribed by
the member's PCP and approved by the Contractor.

DENTAL: The Contractor shall provide all members under the age of 21 with all
medically necessary dental services including emergency dental services, dental
screening and preventive services in accordance with the AHCCCS periodicity
schedule, as well as therapeutic dental services, dentures, and
pre-transplantation dental services. The Contractor shall monitor compliance
with the EPSDT periodicity schedule for dental screening services. The
Contractor is required to meet specific utilization rates for members as
described in Section D, Paragraph 24, Performance Standards. The Contractor
shall ensure that members are notified when dental screenings are due if the
member has not been scheduled for a visit. If a dental screening is not received
by the member, a second notice must be sent. Members under the age of 21 may
request dental services without referral and may choose a dental provider from
the Contractor's provider network. For members who are 21 years of age and
older, the Contractor shall provide emergency dental care, medically necessary
dentures and dental services for transplantation services as specified in the
AMPM.

DIALYSIS: The Contractor shall provide medically necessary dialysis, supplies,
diagnostic testing and medication for all members when provided by
Medicare-certified hospitals or Medicare-certified end stage renal disease
(ESRD) providers. Services may be provided on an outpatient basis, or on an
inpatient basis if the hospital admission is not solely to provide chronic
dialysis services.

EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT (EPSDT): The Contractor
shall provide comprehensive health care services through primary prevention,
early intervention, diagnosis and medically necessary treatment to correct or
ameliorate defects and physical or mental illness discovered by the screenings
for members under age 21. The Contractor shall ensure that these members receive
required health screenings, including those for developmental/behavioral health,
in compliance with the AHCCCS periodicity schedule. The Contractor shall submit
all EPSDT reports to the AHCCCS Division of Health Care Management, as required
by the AMPM. The Contractor is required to meet specific
participation/utilization rates for members as described in Section D, Paragraph
24, Performance Standards.

The Contractor shall ensure the initiation and coordination of a referral to the
ADHS/RBHA system for members in need of behavior health services. The Contractor
shall follow up with the RBHA to monitor whether members have received these
health services.

EMERGENCY SERVICES: The Contractor shall have and/or provide the following as a
minimum:

a.    Emergency services facilities adequately staffed by qualified medical
       professionals to provide pre-hospital, emergency care on a
       24-hour-a-day, 7-day-a-week basis, for the sudden onset of a medically
       emergent condition.  Emergency medical services are covered without
       prior authorization.  The Contractor is encouraged to contract with
       emergency service facilities for the provision of emergency services.
       The Contractor is also encouraged to contract with or employ the
       services of non-emergency facilities (e.g. urgent care centers) to
       address member non-emergency care issues occurring after regular
       office hours or on weekends.  The Contractor shall be responsible for
       educating members and providers regarding appropriate utilization of
       emergency room services including behavioral health emergencies.  The
       Contractor shall monitor emergency service utilization (by both
       provider and member) and shall have guidelines for implementing
       corrective action for inappropriate utilization;

b.    All medical services necessary to rule out an emergency condition;

c.    Emergency transportation; and


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 23 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



d.    Member access by telephone to a physician, registered nurse, physician
      assistant or nurse practitioner for advice in emergent or urgent
      situations, 24 hours per day, 7 days per week.

Per the Balanced Budget Act of 1997, CFR 438.114, the following conditions apply
with respect to coverage and payment of emergency services:

The Contractor must cover and pay for emergency services regardless of whether
the provider that furnishes the service has a contract with the Contractor.

The Contractor may not deny payment for treatment obtained under either of the
following circumstances:

1.    A member had an emergency medical condition, including cases in which the
      absence of medical attention would not have resulted in the outcomes
      identified in the definition of emergency medical condition CFR 438.114.

2.    A representative of the Contractor (an employee or subcontracting
      provider) instructs the member to seek emergency medical services.

Additionally, the Contractor may not:

1.    Limit what constitutes an emergency medical condition as defined in CFR
      438.114, on the basis of lists of diagnoses or symptoms.

2.    Refuse to cover emergency services based on the failure of the provider,
      hospital, or fiscal agent to notify the Contractor of the member's
      screening and treatment within 10 calendar days of presentation for
      emergency services. This notification stipulation is only related to the
      provision of emergency services.

A member who has an emergency medical condition may not be held liable for
payment of subsequent screening and treatment needed to diagnose the specific
condition or stabilize the patient.

The attending emergency physician, or the provider actually treating the member,
is responsible for determining when the member is sufficiently stabilized for
transfer or discharge, and such determination is binding on the Contractor
responsible for coverage and payment. The Contractor shall comply with BBA
guidelines regarding the coordination of post-stabilization care.

EYE EXAMINATIONS/OPTOMETRY: The Contractor shall provide all medically necessary
emergency eye care, vision examinations, prescriptive lenses, and treatments for
conditions of the eye for all members under the age of 21. For members who are
21 years of age and older, the Contractor shall provide emergency care for eye
conditions which meet the definition of an emergency medical condition. Also
covered for this population is cataract removal, and medically necessary vision
examinations and prescriptive lenses, if required, following cataract removal
and other eye conditions as specified in the AMPM.

FAMILY PLANNING: The Contractor shall provide family planning services in
accordance with the AMPM, for all members who choose to delay or prevent
pregnancy. These include medical, surgical, pharmacological and laboratory
services, as well as contraceptive devices. Information and counseling, which
allow members to make informed decisions regarding family planning methods,
shall also be included. If the Contractor does not provide family planning
services, it must contract for these services through another health care
delivery system, which allows members freedom of choice in selecting a provider.

The Contractor shall provide services to members enrolled in the Family Planning
Services Extension Program, a program that provides family planning services
only, for a maximum of 24 months, to women whose SOBRA eligibility has
terminated. The Contractor is also responsible for notifying AHCCCSA when a
SOBRA woman is sterilized to prevent inappropriate enrollment in the SOBRA
Family Planning Services

                                     - 24 -           CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004
<PAGE>
Extension Program. Notification should be made at the time the newborn is
reported or after the sterilization procedure is completed.

HEALTH RISK ASSESSMENT AND SCREENING: The Contractor shall provide these
services for non-hospitalized members, 21 years of age and older. These services
include, but are not limited to, screening for hypertension, elevated
cholesterol, colon cancer, sexually transmitted diseases, tuberculosis and
HIV/AIDS; nutritional assessment in cases when the member has a chronic
debilitating disease affected by nutritional needs; mammograms and prostate
screenings; physical examinations and diagnostic work-ups; and immunizations.
Required assessment and screening services for members under age 21 are included
in the AHCCCS EPSDT periodicity schedule.

HOME HEALTH: This service shall be provided under the direction of a physician
to prevent hospitalization or institutionalization and may include nursing,
therapies, supplies and home health aide services. It shall be provided on a
part-time or intermittent basis.

HOSPICE: These services are covered for members under 21 years of age who are
certified by a physician as being terminally ill and having six months or less
to live. See the AMPM for details on covered hospice services.

HOSPITAL: Inpatient services include semi-private accommodations for routine
care, intensive and coronary care, surgical care, obstetrics and newborn
nurseries, and behavioral health emergency/crisis services. If the member's
medical condition requires isolation, private inpatient accommodations are
covered. Nursing services, dietary services and ancillary services such as
laboratory, radiology, pharmaceuticals, medical supplies, blood and blood
derivatives, etc. are also covered. Outpatient hospital services include any of
the above, which may be appropriately provided on an outpatient or ambulatory
basis (i.e. laboratory, radiology, therapies, ambulatory surgery, etc.).
Observation services may be provided on an outpatient basis, if determined
reasonable and necessary, when deciding whether the member should be admitted
for inpatient care. Observation services include the use of a bed and periodic
monitoring by hospital nursing staff and/or other staff to evaluate, stabilize
or treat medical conditions of a significant degree of instability and/or
disability.

IMMUNIZATIONS: The Contractor shall provide immunizations for adults (21 years
of age and older) to include diphtheria-tetanus, influenza, pneumococcus,
rubella, measles and hepatitis-B. For all members under the age of 21,
immunization requirements include diphtheria, tetanus, pertussis vaccine (DPT),
inactivated polio vaccine (IPV), measles, mumps, rubella (MMR) vaccine, H.
influenza, type B (HIB) vaccine, hepatitis B (Hep B) vaccine, varicella zoster
virus (VZV) vaccine and pneumococcal conjugate vaccine (PCV). The Contractor is
required to meet specific immunization rates for members under the age of 21,
which are described in Paragraph 24, Performance Standards.

INDIAN HEALTH SERVICE (IHS): AHCCCSA will reimburse claims on a FFS basis for
acute care services that are medically necessary, eligible for 100% Federal
reimbursement, and are provided to Title XIX members enrolled with the
Contractor, in an IHS or a 638 tribal facility. The Contractor is responsible
for reimbursement to IHS or tribal facilities for emergency services provided to
Title XXI Native American members enrolled with the Contractor. The Contractor
may choose to subcontract with an IHS or 638 tribal facility as part of their
provider network for the delivery of covered services, however, the Contractor
will be liable for the cost of the care in the event they choose to do so.

LABORATORY: Laboratory services for diagnostic, screening and monitoring
purposes are covered when provided by a CLIA (Clinical Laboratory Improvement
Act) approved free standing, hospital, clinic, physician office or other health
care facility laboratory.

Upon written request, the Contractor may obtain laboratory test data on members
from a freestanding laboratory or hospital- based laboratory subject to the
requirements specified in A.R.S. Section 36-2903(R) and (S).


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 25 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



The data shall be used exclusively for quality improvement activities and health
care outcome studies required and/or approved by the Administration.

MATERNITY: The Contractor shall provide pre-conception counseling, pregnancy
identification, prenatal care, treatment of pregnancy related conditions, labor
and delivery services, and postpartum care for members. Services may be provided
by physicians, physician assistants, nurse practitioners, or certified nurse
midwives. Members may select or be assigned to a PCP specializing in obstetrics.
All members, anticipated to have a low-risk delivery, may elect to receive labor
and delivery services in their home, if this setting is included in the
allowable settings of the Contractor and the Contractor has providers in its
network that offer home labor and delivery services. All members, anticipated to
have a low-risk prenatal course and delivery, may elect to receive prenatal
care, labor and delivery and postpartum care provided by licensed midwives, if
these providers are in the Contractor's network. All licensed midwife labor and
delivery services must be provided in the member's home, as licensed midwives do
not have admitting privileges in hospitals or AHCCCS registered freestanding
birthing centers. Members receiving maternity services from a licensed midwife
must also be assigned to a PCP for other health care and medical services. The
Contractor shall allow women and their newborns to receive up to 48 hours of
inpatient hospital care after a routine vaginal delivery and up to 96 hours of
inpatient care after a cesarean delivery. The attending health care provider, in
consultation with the mother, may discharge the mother or newborn prior to the
48-hour minimum length of stay. A normal newborn may be granted an extended stay
in the hospital of birth when the mother's continued stay in the hospital is
beyond the 48 or 96 hour stay.

The Contractor shall inform all assigned AHCCCS pregnant women of voluntary
prenatal HIV testing and the availability of medical counseling if the test is
positive. The Contractor shall provide information in the member handbook and
annually in the member newsletter, which encourages pregnant women to be tested
and provides instructions about where testing is available. Semi-annually, the
Contractor shall report to AHCCCS the number of pregnant women who have been
identified as HIV/AIDS positive. This report is due no later than 30 days after
the end of the second and fourth quarters of the contract year.

MEDICAL FOODS: Medical foods are covered within limitations defined in the AMPM
for members diagnosed with a metabolic condition included under the ADHS Newborn
Screening Program and specified in the AMPM. The medical foods, including
metabolic formula and modified low protein foods, must be prescribed or ordered
under the supervision of a physician.

MEDICAL SUPPLIES, DURABLE MEDICAL EQUIPMENT (DME), ORTHOTIC AND PROSTHETIC
DEVICES: These services are covered when prescribed by the member's PCP,
attending physician, practitioner, or by a dentist. Medical equipment may be
rented or purchased only if other sources, which provide the items at no cost,
are not available. The total cost of the rental must not exceed the purchase
price of the item. Reasonable repairs or adjustments of purchased equipment are
covered to make the equipment serviceable and/or when the repair cost is less
than renting or purchasing another unit.

NURSING FACILITY: The Contractor shall provide services in nursing facilities,
including religious non-medical health care institutions, for members who
require short-term convalescent care not to exceed 90 days per contract year. In
lieu of a nursing facility, the member may be placed in an assisted living
facility, an alternative residential setting, or receive home and community
based services (HCBS) as defined in R9-22, Article 2 and R9-28, Article 2 that
meet the provider standards described in R9-28, Article 5, and subject to the
limitations set forth in the AMPM.

Nursing facility services must be provided in a dually-certified
Medicare/Medicaid nursing facility, which includes in the per-diem rate: nursing
services; basic patient care equipment and sickroom supplies; dietary services;
administrative physician visits; non-customized DME; necessary maintenance and
rehabilitation therapies; over-the-counter medications; social, recreational and
spiritual activities; and administrative, operational medical direction
services. See Paragraph 41, Nursing Facility Reimbursement, for further details.


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 26 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



The Contractor shall notify the Assistant Director of the Division of Member
Services, in writing, when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on the status of the ALTCS
application and to prepare for potential fee-for-service coverage, if the stay
goes beyond the 90-day maximum.

NUTRITION: Nutritional assessments may be conducted as a part of the EPSDT
screenings for members under age 21, and to assist members 21 years of age and
older whose health status may improve with nutritional intervention. Assessment
of nutritional status on a periodic basis may be provided as determined
necessary, and as a part of the health risk assessment and screening services
provided by the member's PCP. AHCCCS covers nutritional therapy on an enteral,
parenteral or oral basis, when determined medically necessary to provide either
complete daily dietary requirements or to supplement a member's daily
nutritional and caloric intake and when AHCCCS criteria specified in the AMPM
are met.

PHYSICIAN: The Contractor shall provide physician services to include medical
assessment, treatments and surgical services provided by licensed allopathic or
osteopathic physicians.

PODIATRY: The Contractor shall provide podiatry services to include
bunionectomies, casting for the purpose of constructing or accommodating
orthotics, medically necessary orthopedic shoes that are an integral part of a
brace, and medically necessary routine foot care for patients with a severe
systemic disease which prohibits care by a nonprofessional person.

POST-STABILIZATION CARE SERVICES COVERAGE AND PAYMENT: Pursuant to 42 CFR
438.114, and 42 CFR 422.113(c), the following conditions apply with respect to
coverage and payment of post-stabilization care services:

The Contractor must cover and pay for post-stabilization care services without
authorization, regardless of whether the provider that furnishes the service has
a contract with the Contractor, for the following situations:

      1.    Post-stabilization care services that were pre-approved by the
            Contractor; or,

      2.    Post-stabilization care services were not pre-approved by the
            Contractor because the Contractor did not respond to the treating
            provider's request for pre-approval within one hour after being
            requested to approve such care or could not be contacted for
            pre-approval.

      3.    The Contractor representative and the treating physician cannot
            reach agreement concerning the member's care and a contractor
            physician is not available for consultation. In this situation, the
            Contractor must give the treating physician the opportunity to
            consult with a contractor physician and the treating physician may
            continue with care of the patient until a contractor physician is
            reached or one of the criteria in CFR 422.113(c)(3) is met.

Pursuant to CFR 422.113(c)(3), the Contractor's financial responsibility for
post-stabilization care services that have not been pre-approved ends when:

      1.    A contractor physician with privileges at the treating hospital
            assumes responsibility for the member's care;

      2.    A contractor physician assumes responsibility for the member's care
            through transfer;

      3.    A contractor representative and the treating physician reach an
            agreement concerning the member's care; or

      4.    The member is discharged.

PREGNANCY TERMINATIONS: AHCCCS covers pregnancy termination if the pregnant
member suffers from a physical disorder, physical injury, or physical illness,
including a life endangering physical condition caused by, or arising from, the
pregnancy itself, that would, as certified by a physician, place the member in
danger of death unless the pregnancy is terminated; the pregnancy is a result of
rape or incest.


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 27 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



The attending physician must acknowledge that a pregnancy termination has been
determined medically necessary by submitting the Certificate of Necessity for
Pregnancy Termination. This certificate must be submitted to the appropriate
assigned Contractor Medical Director. The Certificate must certify that, in the
physician's professional judgment, one or more of the previously mentioned
criteria have been met.

PRESCRIPTION DRUGS: Medications ordered by a PCP, attending physician or dentist
and dispensed under the direction of a licensed pharmacist are covered subject
to limitations related to prescription supply amounts, contractor formularies
and prior authorization requirements. Contractors may include over-the-counter
medications in their formulary. An appropriate over-the-counter medication may
be prescribed, when it is determined to be a lower-cost alternative to
prescription drugs. See Paragraph 75, Pending Legislative/Other Issues for more
information regarding the potential carve out of prescription drug benefits from
capitation.

PRIMARY CARE PROVIDER (PCP): PCP services are covered when provided by a
physician, physician assistant or nurse practitioner selected by, or assigned
to, the member. The PCP provides primary health care and serves as a gatekeeper
and coordinator in referring the member for specialty medical services. The PCP
is responsible for maintaining the member's primary medical record, which
contains documentation of all health risk assessments and health care services
of which they are aware whether or not they were provided by the PCP.

RADIOLOGY AND MEDICAL IMAGING: These services are covered when ordered by the
member's PCP, attending physician or dentist and are provided for diagnosis,
prevention, treatment or assessment of a medical condition. Services are
generally provided in hospitals, clinics, physician offices and other health
care facilities.

REHABILITATION THERAPY: The Contractor shall provide occupational, physical and
speech therapies. Therapies must be prescribed by the member's PCP or attending
physician for an acute condition and the member must have the potential for
improvement due to the rehabilitation. Physical therapy for all members, and
occupational and speech therapies for members under the age of 21, are covered
in both inpatient and outpatient settings. For those members who are 21 and
over, occupational and speech therapies are covered in inpatient settings only.

RESPIRATORY THERAPY: This therapy is covered in inpatient and outpatient
settings when prescribed by the member's PCP or attending physician, and is
necessary to restore, maintain or improve respiratory functioning.

TRANSPLANTATION OF ORGANS AND TISSUE, AND RELATED IMMUNOSUPPRESSANT DRUGS: These
services are covered within limitations defined in the AMPM for members
diagnosed with specified medical conditions. Such limitations include: whether
the stage of the disease is such that the transplant can affect the outcome; the
member has no other conditions that substantially reduce the potential for
successful transplantation; and whether the member will be able to comply with
necessary and required regimens of treatment. Bone grafts are also covered under
this service. Services include pre-transplant inpatient or outpatient
evaluation; donor search; organ/tissue harvesting or procurement; preparation
and transplantation services; and convalescent care. In addition, if a member
receives, or has received, a transplant covered by a source other than AHCCCS,
medically necessary non-experimental services are provided, within limitations,
after the discharge from the acute care hospitalization for the transplantation.
AHCCCS has contracted with transplantation providers for the Contractor's use or
the Contractor may select its own transplantation provider.

TRANSPORTATION: These services include emergency and non-emergency medically
necessary transportation. Emergency transportation, including transportation
initiated by an emergency response system such as 911, may be provided by
ground, air or water ambulance to manage an AHCCCS member's emergency medical
condition at an emergency scene and transport the member to the nearest
appropriate medical facility. Non-emergency transportation shall be provided for
members who are unable to provide their own transportation for medically
necessary services.


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 28 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



TRIAGE/SCREENING AND EVALUATION: These are covered services when provided by
acute care hospitals, IHS facilities and urgent care centers to determine
whether or not an emergency exists, assess the severity of the member's medical
condition and determine what services are necessary to alleviate or stabilize
the emergent condition. Triage/screening services must be reasonable, cost
effective and meet the criteria for severity of illness and intensity of
service.

11.   SPECIAL HEALTH CARE NEEDS

The Contractor shall have in place a mechanism to identify and stratify all
members with special health care needs. The Contractor shall implement
mechanisms to assess each member identified as having special health care needs,
in order to identify any ongoing special conditions of the member which require
a course of treatment or regular care monitoring. The assessment mechanisms
shall use appropriate health care professionals. The Contractor shall share with
other entities providing services to that member the results of its
identification and assessment of that member's needs.

For members with special health care needs determined to need a specialized
course of treatment or regular care monitoring, the Contractor must have
procedures in place to allow members to directly access a specialist (for
example through a standing referral or an approved number of visits) as
appropriate for the member's condition and identified needs.

The Contractor shall have a methodology to identify providers willing to provide
medical home services and make reasonable efforts to offer access to these
providers.

The American Academy of Pediatrics (AAP) describes care from a medical home as:

      -     Accessible

      -     Continuous

      -     Coordinated

      -     Family-centered

      -     Comprehensive

      -     Compassionate

      -     Culturally effective

12.   BEHAVIORAL HEALTH SERVICES

AHCCCS members, except for SOBRA Family Planning members, are eligible for
comprehensive behavioral health services. With the exception of the Contractor's
providers' medical management of certain behavioral health conditions as
described under "medication Management Services" below, the behavioral health
benefit for these members is provided through the ADHS - Regional Behavioral
Health Authority (RBHA) system. The Contractor shall be responsible for member
education regarding these benefits; provision of limited emergency inpatient
services; and screening and referral to the RBHA system of members identified as
requiring behavioral health services.

MEMBER EDUCATION: The Contractor shall be responsible for educating members in
the member handbook and other printed documents about covered behavioral health
services and where and how to access services. Covered services include:

a.    Behavior Management (behavioral health personal assistance, family
      support, peer support)

b.    Case Management Services

c.    Emergency/Crisis Behavioral Health Services

d.    Emergency Transportation

e.    Evaluation and Screening


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 29 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



f.    Group Therapy and Counseling

g.    Individual Therapy and Counseling

h.    Family Therapy and Counseling

i.    Inpatient Hospital

j.    Inpatient Psychiatric Facilities (residential treatment centers and
      sub-acute facilities)

k.    Institutions for Mental Diseases (with limitations)

l.    Laboratory and Radiology Services for Psychotropic Medication Regulation
      and Diagnosis

m.    Non-Emergency Transportation

n.    Partial Care (Supervised day program, therapeutic day program, and medical
      day program)

o.    Psychosocial Rehabilitation (living skills training; health promotion;
      pre-job training, education and development; job coaching and employment
      support)

p.    Psychotropic Medication

q.    Psychotropic Medication Adjustment and Monitoring

r.    Respite Care (with limitations)

s.    Therapeutic foster care services

REFERRALS: As specified in Section D, Paragraph 10, Scope of Services, EPSDT,
the Contractor must provide developmental/behavioral health screenings for
members up to 21 years of age in compliance with the AHCCCS periodicity
schedule. The Contractor shall ensure the initiation and coordination of
behavioral health referrals of these members to the RBHA when determined
necessary through the screening process. The Contractor is responsible for RBHA
referral and follow-up collaboration, as necessary, for other members identified
as needing behavioral health evaluation and treatment. Members may also access
the RBHA system for evaluation by self-referral or be referred by schools, State
agencies or other service providers. The Contractor is responsible for providing
transportation to a member's first RBHA evaluation appointment if a member is
unable to provide his/her own transportation.

EMERGENCY SERVICES: For those members who are not ADHS behavioral health
recipients, the Contractor is responsible for up to three days of inpatient
behavioral health services per emergency episode, not to exceed 12 days per
contract year. A referral to the RBHA for evaluation and identification as an
ADHS behavioral health recipient should be initiated as soon as possible after
admission.

When members present in an emergency room setting, the Contractor is responsible
for all emergency medical services including triage, physician assessment and
diagnostic tests. For members who are not ADHS behavioral health recipients, the
Contractor is responsible to provide medically necessary psychiatric
consultations or psychological consultations in emergency room settings to help
stabilize the member or determine the need for inpatient behavioral health
services. ADHS is responsible for medically necessary psychiatric consultations
provided to ADHS behavioral health recipients in emergency room settings.

COORDINATION OF CARE: The Contractor is responsible for ensuring that a medical
record is established by the PCP when behavioral health information is received
from the RBHA or provider about an assigned member even if the PCP has not yet
seen the assigned member. In lieu of actually establishing a medical record,
such information may be kept in an appropriately labeled file but must be
associated with the member's medical record as soon as one is established. The
Contractor shall require the PCP to respond to RBHA/provider information
requests pertaining to ADHS behavioral health recipient members within 10
business days of receiving the request. The response should include all
pertinent information, including, but not limited to, current diagnoses,
medications, laboratory results, last PCP visit, and recent hospitalizations.
The Contractor shall require the PCP to document or initial signifying review of
member behavioral health information received from a RBHA behavioral health
provider who is also treating the member. All affected subcontracts shall
include this provision by July 1, 2005. For prior period coverage, the
Contractor is responsible for payment of all claims for medically necessary
covered behavioral health services to members who are not ADHS behavioral health
recipients.

MEDICATION MANAGEMENT SERVICES: The Contractor shall allow PCPs to provide
medication management services (prescriptions, medication monitoring visits,
laboratory and other diagnostic tests necessary for


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 30 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



diagnosis and treatment of behavioral disorders) to members with diagnoses of
depression, anxiety and attention deficit hyperactivity disorder. The Contractor
shall make available, on the Contractor's formulary, medications for the
treatment of these disorders.

The Contractor shall ensure that training and education are available to PCPs
regarding behavioral health referral and consultation procedures. The Contractor
shall establish policies and procedures for referral and consultation and shall
describe them in its provider manual. Policies for referral must include, at a
minimum, criteria, processes, responsible parties and minimum requirements no
less stringent than those specified in this contract for the forwarding of
member medical information.

TRANSFER OF CARE: When a PCP has initiated medication management services for a
member to treat a behavioral health disorder, and it is subsequently determined
by the PCP or contractor that the member should be transferred to a RBHA
prescriber for evaluation and/or continued medication management services, the
Contractor will require and ensure that the PCP or contractor coordinates the
transfer of care. All affected subcontracts shall include this provision by July
1, 2005. The Contractor shall establish policies and procedures for the
transition of members who are referred to the RBHA for ongoing treatment. The
contractor shall ensure that PCPs maintain continuity of care for these members.
The policies and procedures must address, at a minimum, the following:

      1.    Guidelines for when a transition of the member to the RBHA for
            ongoing treatment is indicated.

      2.    Protocols for notifying the RBHA of the member's transfer, including
            reason for transfer, diagnostic information, and medication history.

      3.    Protocols and guidelines for the transfer of medical records,
            including but not limited to which parts of the medical record are
            to be copied, timeline for making the medical record available to
            the RBHA, observance of confidentiality of the member's medical
            record, and protocols for responding to RBHA requests for additional
            medical record information.

      4.    Protocols for transition of prescription services, including but not
            limited to notification to the RBHA of the member's current
            medications and timeframes for dispensing and refilling medications
            during the transition period. This coordination must ensure at a
            minimum, that the member does not run out of prescribed medications
            prior to the first appointment with a RBHA prescriber and that all
            relevant member pertinent medical information as outlined above and,
            including the reason for transfer is forwarded to the receiving RBHA
            prescriber prior to the member's first scheduled appointment with
            the RBHA prescriber

      5.    Contractor activities to monitor to ensure that members are
            appropriately transitioned to the RBHA for care.

The Contractor shall ensure that its quality management program incorporates
monitoring of the PCP's management of behavioral health disorders and referral
to, coordination of care with and transfer of care to RBHA providers as required
under this contract.

13.   AHCCCS MEDICAL POLICY MANUAL

The AHCCCS Medical Policy Manual (AMPM) is hereby incorporated by reference into
this contract. The Contractor is responsible for complying with the requirements
set forth within. The AMPM, with search capability and linkages to AHCCCS rules,
statutes and other resources, is available to all interested parties through the
AHCCCS Home Page on the Internet (www.ahcccs.state.az.us). Upon adoption by
AHCCCSA, AMPM updates will be available through the Internet at the beginning of
each month. The Contractor shall be responsible for maintaining a copy current
with these updates.

14.   MEDICAID SCHOOL BASED CLAIMING (SBC)

Pursuant to an Intergovernmental Agreement with the Department of Education, and
a contract with a Third Party Administrator, AHCCCSA reimburses participating
school districts for specifically identified Medicaid services when provided to
Medicaid eligible children who are included under the Individuals with
Disabilities


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 31 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



Education Act (IDEA). The Medicaid services must be identified in the member's
Individual Education Plan (IEP) as medically necessary for the child to obtain a
public school education.

SBC services are provided in a school setting or other approved setting
specifically to allow children to receive a public school education. They do not
replace medically necessary services provided outside the school setting or
other SBC approved alternative setting. Currently, services include therapies
(OT, PT and speech/language); behavioral health evaluation and counseling;
nursing and attendant care; and specialized transportation. The Contractor's
evaluations and determinations, about whether services are medically necessary,
should be made independent of the fact that the child is receiving SBC services.

Contractors and their providers must coordinate with schools and school
districts that provide SBC services to the Contractor's enrolled members.
Services should not be duplicative. Contractor case managers, working with
special needs children, should coordinate with school or school district case
managers/special education teachers, working with these members. Transfer of
member medical information and progress toward treatment goals between the
Contractor and the member's school or school district is required and should be
used to enhance the services provided to members.

15.   PEDIATRIC IMMUNIZATIONS AND THE  VACCINE FOR CHILDREN  PROGRAM

Through the Vaccine for Children Program, the Federal and State governments
purchase, and make available to providers free of charge, vaccines for AHCCCS
children under age 19. The Contractor shall not utilize AHCCCS funding to
purchase vaccines for members under the age of 19. If vaccines are not available
through the VFC Program, the Contractor shall contact the AHCCCSA Division of
Health Care Management, Clinical Quality Management Unit. Any provider, licensed
by the State to administer immunizations, may register with ADHS as a "VFC
provider" and receive free vaccines. The Contractor shall not reimburse
providers for the administration of the vaccines in excess of the maximum
allowable as set by CMS. The Contractor shall comply with all VFC requirements
and monitor its providers to ensure that, if providing immunizations to AHCCCS
members under the age of 19, the providers are registered with ADHS/VFC.

Arizona State law requires the reporting of all immunizations given to children
under the age of 19. Immunizations must be reported at least monthly to the
ADHS. Reported immunizations are held in a central database known as ASIIS
(Arizona State Immunization Information System), which can be accessed by
providers to obtain complete, accurate immunization records. Software is
available from ADHS to assist providers in meeting this reporting requirement.
Contractors are encouraged to educate their provider network about these
reporting requirements and the use of this resource.

16.   STAFF REQUIREMENTS AND SUPPORT SERVICES

The Contractor shall have in place the organization, management and
administrative systems capable of fulfilling all contract requirements.  For
the purposes of this contract, the Contractor shall not employ or contract
with any individual that has been debarred, suspended or otherwise lawfully
prohibited from participating in any public procurement activity or from
participating in non-procurement activities under regulations issued under
Executive Order No. 12549 or under guidelines implementing Executive Order
12549.  The Contractor is responsible for maintaining a significant local
(within the State of Arizona) presence.  This presence would include staff as
described in a., b., d., e., f., h., j., m., n., o., and p. below.  The
Contractor must obtain approval from AHCCCS prior to moving functions outside
the State of Arizona.  Such a request for approval must include a description
of the processes in place that assure rapid responsiveness to effect changes
for contract compliance.

The Contractor shall be responsible for any additional costs associated with
on-site audits or other oversight activities which result from required system
located outside of the State of Arizona.


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 32 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



At a minimum, the following staff is required:

a.    A full-time ADMINISTRATOR/CEO/COO who is available at all times to fulfill
      the responsibilities of the position and to oversee the entire operation
      of the health plan. The Administrator shall devote sufficient time to the
      Contractor's operations to ensure adherence to program requirements and
      timely responses to AHCCCS Administration.

b.    A MEDICAL DIRECTOR who shall be an Arizona-licensed physician. The Medical
      Director shall be actively involved in all-major clinical programs and
      QM/UM components of the Contractor. The Medical Director shall devote
      sufficient time to the Contractor to ensure timely medical decisions,
      including after-hours consultation as needed.

c.    A CHIEF FINANCIAL OFFICER/CFO who is available at all times to fulfill the
      responsibilities of the position and to oversee the budget and accounting
      systems implemented by the Contractor.

d.    A QUALITY MANAGEMENT/UTILIZATION MANAGEMENT COORDINATOR who is an
      Arizona-licensed registered nurse, physician or physician's assistant.

e.    A MATERNAL HEALTH/EPSDT COORDINATOR who shall be an Arizona-licensed
      registered nurse, physician or physician's assistant; or have a Master's
      degree in health services, public health or health care administration or
      other related field.

f.    A BEHAVIORAL HEALTH COORDINATOR who shall be a behavioral health
      professional as described in Health Services Rule R9-20. The Behavioral
      Health Coordinator shall devote sufficient time to ensure that the
      Contractor's behavioral health referral and coordination activities are
      implemented per AHCCCSA requirements.

g.    PRIOR AUTHORIZATION STAFF to authorize health care 24 hours per day, 7
      days per week. This staff shall include an Arizona-licensed registered
      nurse, physician or physician's assistant.

h.    CONCURRENT REVIEW STAFF to conduct inpatient concurrent review. This staff
      shall consist of an Arizona-licensed registered nurse, physician,
      physician's assistant or an Arizona-licensed practical nurse experienced
      in concurrent review and under the direct supervision of a registered
      nurse, physician or physician's assistant.

i.    MEMBER SERVICES MANAGER AND STAFF to coordinate communications with
      members and act as member advocates. There shall be sufficient Member
      Service staff to enable members to receive prompt resolution to their
      inquiries/problems, and to meet the Contractor's standards for resolution,
      telephone abandonment rates and telephone hold times.

j.    PROVIDER SERVICES MANAGER AND STAFF to coordinate communications between
      the Contractor and its subcontractors. There shall be sufficient Provider
      Services staff to enable providers to receive prompt resolution to their
      problems or inquiries and appropriate education about participation in the
      AHCCCS program.

k.    A CLAIMS ADMINISTRATOR AND CLAIMS PROCESSORS to ensure the timely and
      accurate processing of original claims, resubmissions and overall
      adjudication of claims.

l.    ENCOUNTER PROCESSORS to ensure the timely and accurate processing and
      submission to AHCCCSA of encounter data and reports.

m.    A GRIEVANCE MANAGER who is responsible for oversight of the Contractor's
      grievance system for members and providers.

n.    A COMPLIANCE OFFICER who will implement and oversee the Contractor's
      compliance program. The compliance officer shall be an on-site management
      official, available to all employees, with designated and recognized
      authority to access records and make independent referrals to the AHCCCSA,
      Office of Program Integrity. See Paragraph 62, Corporate Compliance, for
      more information.

o.    HEALTH PLAN STAFF sufficient to implement and oversee compliance with both
      the Contractor's Cultural Competency Plan and the AHCCCS Cultural
      Competency Policy, and to oversee compliance with all AHCCCS requirements
      pertaining to limited English proficiency (LEP).

p.    CLERICAL AND SUPPORT STAFF to ensure appropriate functioning of the
      Contractor's operation.

q.    BUSINESS CONTINUITY PLANNING COORDINATOR as noted in the DHCM Business
      Continuity and Recovery Policy.


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 33 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



The Contractor shall inform AHCCCS, Division of Health Care Management, in
writing within seven days, when an employee leaves one of the key positions
listed below. The name of the interim contact person should be included with the
notification. The name and resume of the permanent employee should be submitted
as soon as the new hire has taken place.

   Administrator                       Member Services Manager
   Medical Director                    Provider Services Manager
   Chief Financial Officer             Claims Administrator
   Maternal Health/ EPSDT Coordinator  Quality Management/Utilization Management
   Grievance Manager                   Coordinator
   Compliance Officer                  Behavioral Health Coordinator


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

17.   WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS

The Contractor shall develop and maintain written policies, procedures and job
descriptions for each functional area of its health plan, consistent in format
and style. The Contractor shall maintain written guidelines for developing,
reviewing and approving all policies, procedures and job descriptions. All
policies and procedures shall be reviewed at least annually to ensure that the
Contractor's written policies reflect current practices. Reviewed policies shall
be dated and signed by the Contractor's appropriate manager, coordinator,
director or administrator. All medical and quality management policies must be
approved and signed by the Contractor's Medical Director. Job descriptions shall
be reviewed at least annually to ensure that current duties performed by the
employee reflect written requirements.

18.   MEMBER INFORMATION

The Contractor shall be accessible by phone for general member information
during normal business hours. All enrolled members will have access to a toll
free phone number. All informational materials, prepared by the Contractor,
shall be approved by AHCCCSA prior to distribution to members. The reading level
and name of the evaluation methodology used should be included.

All materials shall be translated when the Contractor is aware that a language
is spoken by 3,000 or 10%, whichever is less, of the Contractor's members, who
also have limited English proficiency (LEP).

All vital materials shall be translated when the Contractor is aware that a
language is spoken by 1,000 or 5%, whichever is less, of the Contractor's
members, who also have LEP. Vital materials must include, at a minimum, notices
for denials, reductions, suspensions or terminations of services, vital
information from the member handbooks and consent forms.

All written notices informing members of their right to interpretation and
translation services in a language shall be translated when the Contractor is
aware that 1,000 or 5% (whichever is less) of the Contractor's members speak
that language and have LEP.

Oral interpretation services must be available and free of charge to all members
regardless of the prevalence of the language. The Contractor must notify all
member of their right to access oral interpretation services and how to access
them. Refer to the AHCCCS, Division of Health Care Management Member Information
Policy.

The Contractor shall make every effort to ensure that all information prepared
for distribution to members is written at a 4th grade level. Regardless of the
format chosen by the Contractor, the member information must be printed in a
type, style and size, which can easily be read by members with varying degrees
of visual


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 34 -
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001



impairment. The Contractor must notify its members that alternative formats are
available and how to access them.

When there are program changes, notification shall be provided to the affected
members at least 30 days before implementation.

The Contractor shall produce and provide the following printed information to
each member or family within 10 days of receipt of notification of the
enrollment date:

I.    A member handbook which, at a minimum, shall include the items listed in
      the AHCCCS, Division of Health Care Management Member Information Policy.

      The Contractor shall review and update the Member Handbook at least once a
      year. The handbook must be submitted to AHCCCS, Division of Health Care
      Management for approval by September 1st of each contract year, or within
      four weeks of receiving the annual renewal amendment, whichever is later.

II.   A description of the Contractor's provider network, which at a minimum,
      includes those items listed in the AHCCCS, Division of Health Care
      Management Member Information Policy.

The Contractor must give written notice about termination of a contracted
provider, within 15 days after receipt or issuance of the termination notice, to
each member who received their primary care from, or is seen on a regular basis
by, the terminated provider. Affected members must be informed of any other
changes in the network 30 days prior to the implementation date of the change.
The Contractor shall have information available for potential enrollees as
described in the AHCCCS, Division of Health Care Management Member Information
Policy.

The Contractor will, on an annual basis, inform all members of their right to
request the following information:

a.    An updated member handbook

b.    The network description as described in the AHCCCS Division of Health Care
      Management Member Information Policy

This information may be sent in a separate written communication or included
with other written information such as in a member newsletter.

19.   SURVEYS

The Contractor shall perform its own annual general or focused member survey.
All such contractor surveys, along with a timeline for the project, shall be
approved in advance by AHCCCS DHCM. The results and the analysis of the results
shall be submitted to the Health Plan Operations Unit within 45 days of the
completion of the project. AHCCCSA may require inclusion of certain questions.
The Contractor will not be required to conduct its own member survey during CYE
'05.

AHCCCSA will conduct surveys of a representative sample of the Contractor's
membership and providers. AHCCCSA will consider suggestions from the Contractor
for questions to be included in each survey. The results of these surveys,
conducted by AHCCCSA, will become public information and available to all
interested parties upon request. The draft reports from the surveys will be
shared with the Contractor prior to finalization. The Contractor will be
responsible for the cost of these surveys based on its share of AHCCCS
enrollment. The Contractor will not be required to conduct a member survey
during CYE '05.


                                                    - CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 35 -
<PAGE>

PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001

20. CULTURAL COMPETENCY

The Contractor shall have a Cultural Competency Plan that meets the requirements
of the AHCCCS Cultural Competency Policy. An annual assessment of the
effectiveness of the plan, along with any modifications to the plan, must be
submitted to the Division of Health Care Management, no later than 45 days after
the start of each contract year. This plan should address all services and
settings.

21. MEDICAL RECORDS

The member's medical record is the property of the provider who generates the
record. Each member is entitled to one copy of his or her medical record free of
charge. The Contractor shall have written policies and procedures to maintain
the confidentiality of all medical records.

The Contractor is responsible for ensuring that a medical record is established
when information is received about a member. If the PCP has not yet seen the
member, such information may be kept temporarily in an appropriately labeled
file, in lieu of establishing a medical record, but must be associated with the
member's medical record as soon as one is established.

The Contractor shall have written policies and procedures for the maintenance of
medical records so that those records are documented accurately and in a timely
manner, are readily accessible, and permit prompt and systematic retrieval of
information.

The Contractor shall have written standards for documentation on the medical
record for legibility, accuracy and plan of care, which comply with the AMPM.

The Contractor shall have written plans for providing training and evaluating
providers' compliance with the Contractor's medical records standards. Medical
records shall be maintained in a detailed and comprehensive manner, which
conforms to good professional medical practice, permits effective professional
medical review and medical audit processes, and which facilitates an adequate
system for follow-up treatment. Medical records must be legible, signed and
dated.

When a member changes PCPs, his or her medical records or copies of medical
records must be forwarded to the new PCP within 10 business days from receipt of
the request for transfer of the medical records.

AHCCCSA is not required to obtain written approval from a member, before
requesting the member's medical record from the PCP or any other agency. The
Contractor may obtain a copy of a member's medical records without written
approval of the member, if the reason for such request is directly related to
the administration of the AHCCCS program. AHCCCSA shall be afforded access to
all members' medical records whether electronic or paper within 20 business days
of receipt of request.

Information related to fraud and abuse may be released so long as protected
HIV-related information is not disclosed (A.R.S.Section36-664(I)).

22. ADVANCE DIRECTIVES

The Contractor shall maintain policies and procedures addressing advanced
directives for adult members that specify:

a.       Each contract or agreement with a hospital, nursing facility, home
         health agency, hospice or organization responsible for providing
         personal care, must comply with Federal and State law regarding advance
         directives for adult members. Requirements include:

                                                      CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                      -36-
<PAGE>
PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001

         (1)      Maintaining written policies that address the rights of adult
                  members to make decisions about medical care, including the
                  right to accept or refuse medical care, and the right to
                  execute an advance directive. If the agency/organization has a
                  conscientious objection to carrying out an advance directive,
                  it must be explained in policies. (A health care provider is
                  not prohibited from making such objection when made pursuant
                  to A.R.S. Section 36-3205.C.1.)

         (2)      Provide written information to adult members regarding each
                  individual's rights under State law to make decisions
                  regarding medical care, and the health care provider's written
                  policies concerning advance directives (including any
                  conscientious objections).

         (3)      Documenting in the member's medical record whether or not the
                  adult member has been provided the information and whether an
                  advance directive has been executed.

         (4)      Not discriminating against a member because of his or her
                  decision to execute or not execute an advance directive, and
                  not making it a condition for the provision of care.

         (5)      Providing education to staff on issues concerning advance
                  directives including notification of direct care providers of
                  services, such as home health care and personal care, of any
                  advanced directives executed by members to whom they are
                  assigned to provide services.

b.       Contractors shall require subcontracted PCPs, which have agreements
         with the entities described in paragraph a. above, to comply with the
         requirements of subparagraphs a. (2) through (5) above. Contractors
         shall also encourage health care providers specified in subparagraph a.
         to provide a copy of the member's executed advanced directive, or
         documentation of refusal, to the member's PCP for inclusion in the
         member's medical record.

c.       The Contractor shall provide written information to adult members that
         describe the following:

         (1)      A member's rights under State law, including a description of
                  the applicable State law

         (2)      The organization's policies respecting the implementation of
                  those rights, including a statement of any limitation
                  regarding the implementation of advance directives as a matter
                  of conscience.

         (3)      The member's right to file complaints directly with AHCCCSA.

         (4)      Changes to State law as soon as possible, but no later than 90
                  days after the effective date of the change

23. QUALITY MANAGEMENT AND UTILIZATION MANAGEMENT (QM/UM)

QUALITY MANAGEMENT (QM): The Contractor shall provide quality medical care to
members, regardless of payer source or eligibility category. The Contractor
shall use and disclose medical records and any other health and enrollment
information that identifies a particular member in accordance with Federal and
State privacy requirements. The Contractor shall execute processes to assess,
plan, implement and evaluate quality management and performance improvement
activities, as specified in the AMPM, that include at least the following:

1.       Conducting Performance Improvement Projects (PIPs);

2.       QM monitoring and evaluation activities;

3.       Investigation, analysis, tracking and trending of quality of care
         issues, abuse and/or complaints;

4.       AHCCCS mandated performance measures; and

5.       Credentialing, recredentialing and provisional credentialing processes
         for provider and organizations.

AHCCCS has established a uniform credentialing, recredentialing and provisional
credentialing policy. The Contractor shall demonstrate that its providers are
credentialed and:

         a.       Shall follow a documented process for credentialing and
                  recredentialing of providers who have signed contracts or
                  participation agreements with the Contractor;

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b. Shall not discriminate against particular providers that serve high-risk
populations or specialize in conditions that require costly treatment; and

c. Shall not employ or contract with providers excluded from participation in
Federal health care programs.

The Contractor shall submit, within timelines specified in Attachment F, a
written QM plan that addresses its strategies for performance improvement and
conducting the quality management activities described in this section. The
Contractor shall conduct performance improvement projects as required by the
AMPM.

The Contractor may combine its quality management plan with the plan that
addresses utilization management as described below.

The Contractor shall execute a process to assess, plan, implement and evaluate
quality management activities, as specified in the AMPM, that include the
Quarterly Quality Management Report.

UTILIZATION MANAGEMENT (UM): The Contractor shall execute processes to assess,
plan, implement and evaluate utilization management activities, as specified in
the AMPM, that include at least the following:

1.       Pharmacy Management;

2.       Prior authorization;

         a.       For the processing of requests for initial and continuing
                  authorizations of services the Contractor shall:

                  1)       Have in effect mechanisms to ensure consistent
                           application of review criteria for authorization
                           decisions; and

                  2)       Consult with the requesting provider when appropriate

         b.       Adoption of Practice Guidelines, that

                  1)       Are based on valid and reliable clinical evidence or
                           a consensus of health care professionals in the
                           particular field;

                  2)       Consider the needs of the Contractor's members;

                  3)       Are adopted in consultation with contracting health
                           care professionals;

                  4)       Are disseminated by Contractors to all affected
                           providers and, upon request, to enrollees and
                           potential enrollees; and

                  5)       Provide a basis for consistent decisions for
                           utilization management, member education, coverage of
                           services, and other areas to which the guidelines
                           apply

3.       Concurrent review;

4.       Continuity and coordination of care;

5.       Monitoring and evaluation of over and/or under utilization of services;

6.       Evaluation of new medical technologies, and new uses of existing
         technologies;

7.       Development and/or adoption of practice guidelines;

8.       Consistent application of review criteria;

9.       Disease Management Program results; and

10.      Quarterly Utilization Management Report (details in the AMPM)

The Contractor shall maintain a written UM plan that addresses its plan for
monitoring UM activities described in this section. The plan must be submitted
for review by AHCCCS Division of Health Care Management (DHCM) within timelines
specified in Attachment F.

24. PERFORMANCE STANDARDS

ADMINISTRATIVE MEASURES:

The maximum allowable speed of answer (SOA) is 45 seconds. The SOA is defined as
the on line wait time in seconds that the member/provider waits from the moment
the call is connected in the Contractor's phone

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001

switch until the call is picked up by a contractor representative or Interactive
Voice Recognition System (IVR). Callers must be given the choice of completing
their call by IVR or by contractor representative.

The Contractor shall meet the following standards for its Member Services
telephone statistics. All calls to the line shall be included in the measure.

         a.       The Monthly Average Abandonment Rate shall be 5% or less;

         b.       First Contact Call Resolution shall be 70% or better; and

         c.       The Monthly Average Service Level shall be 75% or better.

The Contractor shall set standards for the above measures for all centralized
provider lines, including but not limited to those used for Prior Authorization
and Claims Inquiry/Research. These standards shall be submitted to AHCCCS for
approval within 10 days of the beginning of this contract and prior to
implementation of revisions to the approved standards.

The Monthly Average Abandonment Rate (AR) is:

                    Number of calls abandoned in a 24-hour period
                    ---------------------------------------------
                   Total number of calls made in a 24-hour period

The ARs are then summed and divided by the number of days in the reporting
period.

First Contact Call Resolution Rate (FCCR) is:

             Number of calls received in 24-hour period for which no follow up
             communication or internal phone transfer is needed, divided by
             Total number of calls received in 24-hour period

The daily FCCRs are then summed and divided by the number of days in the
reporting period.

The Monthly Average Service Level (MASL) is:

             Calls answered within 45 seconds for the month reported
             -------------------------------------------------------
         Total of month's answered calls + month's abandoned calls + (if
         available) month's calls receiving a busy signal

Note: Do NOT use average daily service levels divided by the days in the
reporting period.

On a monthly basis the measures are to be reported for both the Member Services
and Provider telephone lines. For each of the Administrative Measures a. through
c., the Contractor shall also report the number of days in the reporting period
that the standard was not met. The Contractor shall include in the report the
instances of down time for the centralized telephone lines, the dates of
occurrence and the length of time they were out of service. The reports should
be sent to the Contractor's assigned Operations and Compliance Officer in the
Health Plan Operations Unit of the Division of Health Care Management. The
deadline for submission of the reports is the 15th day of the month following
the reporting period (or the first business day following the 15th). Back up
documentation for the report, to the level of measured segments in the 24-hour
period, shall be retained for a rolling 12-month period. AHCCCSA will review the
performance measure calculation procedures and source data for this report.

PERFORMANCE MEASURES:

All Performance Standards described below apply to all member populations.

Contractors must meet AHCCCS stated Minimum Performance Standards. However, it
is equally important that Contractors continually improve their performance
indicator outcomes from year to year. Contractors shall strive to meet the
ultimate standard, or benchmark, established by AHCCCS.

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Any statistically significant drop in the Contractor's performance level for any
indicator must be explained by the Contractor in its annual quality management
program evaluation. If a Contractor has a significant drop in any indicator
without a justifiable explanation, it will be required to submit a corrective
action plan and may be subject to sanctions.

AHCCCS has established three levels of performance:

         MINIMUM PERFORMANCE STANDARD - A Minimum Performance Standard is the
         minimal expected level of performance by the Contractor. If a
         Contractor does not achieve this standard, or any indicator declines to
         a level below the AHCCCS Minimum Performance Standard, the Contractor
         will be required to submit a corrective action plan and may be subject
         to sanctions.

         GOAL - A Goal is a reachable standard for a given performance indicator
         for the Contract Year. If the Contractor has already met or exceeded
         the AHCCCS Minimum Performance Standard for any indicator, the
         Contractor must strive to meet the established Goal for the
         indicator(s).

         BENCHMARK - A Benchmark is the ultimate standard to be achieved.
         Contractors that have already achieved or exceeded the Goal for any
         performance indicator must strive to meet the Benchmark for the
         indicator(s). Contractors that have achieved the Benchmark are expected
         to maintain this level of performance for future years.

A Contractor must show demonstrable and sustained improvement toward meeting
AHCCCS Performance Standards. In addition to corrective action plans, AHCCCS may
impose sanctions on Contractors that do not meet the Minimum Performance
Standard and do not show statistically significant improvement in an indicator
rate and/or require those Contractors to demonstrate that they are allocating
increased administrative resources to improving rates for a particular indicator
or service area. AHCCCS also may require a corrective action plan of any
Contractor that shows a statistically significant decrease in its rate, even if
it meets or exceeds the Minimum Performance Standard.

The corrective action plan must be received by AHCCCS, within 30 days of receipt
of notification from AHCCCS. This plan must be approved by AHCCCS prior to
implementation. AHCCCS may conduct one or more follow-up on-site reviews to
verify compliance with a corrective action plan.

PERFORMANCE INDICATORS: The Contractor shall comply with AHCCCS quality
management requirements to improve performance for all AHCCCS established
performance indicators. Complete descriptions of these indicators can be found
in the most recently published Results and Analysis of Acute-care Performance
Measures. The indicators for postpartum visits and low birth weight deliveries
have been eliminated as contractual performance standards. The Contractor shall
continue to monitor rates for postpartum visits and low birth weight deliveries
and implement interventions as necessary to improve or sustain these rates.
These activities will be monitored by AHCCCSA during the Operational and
Financial Review.

CMS has been working in partnership with states in developing core performance
measures for Medicaid and SCHIP programs. The current AHCCCS established
performance indicators may be subject to change when these core measures are
finalized and implemented.

In addition, AHCCCS has established standards for the following indicators:

EPSDT PARTICIPATION: The Contractor shall take affirmative steps to increase
member participation in the EPSDT program. The participation rate is the number
of children younger than 21 years receiving at least one medical screen during
the contract year, compared to the number of children expected to receive at
least one medical screen. The number of children expected to receive at least
one medical screen is based on the AHCCCS EPSDT periodicity schedule and the
average period of eligibility.

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001

PEDIATRIC IMMUNIZATIONS: The Contractor shall ensure members under age 21
receive age-appropriate immunizations as specified in the AMPM.

The Contractor shall participate in immunization audits, at intervals specified
by AHCCCSA, based on random sampling to assess and verify the immunization
status of two-year-old members. AHCCCS will provide the Contractor the selected
sample, specifications for conducting the audit, the AHCCCSA reporting
requirements, and technical assistance. The Contractor shall identify each
child's PCP, conduct the assessment, and report to AHCCCSA, in the required
format, all immunization data for the two-year-old children sampled. If medical
records are missing for more than 5 percent of the sample group, the Contractor
is subject to sanctions by AHCCCSA. An External Quality Review Organization
(EQRO) may conduct a study to validate the Contractor's reported rates.

The following table identifies the Minimum Performance Standards, Goals and
Benchmarks for each indicator:

                   ACUTE-CARE CONTRACTOR PERFORMANCE STANDARDS

<TABLE>
<CAPTION>
                                           CYE 05
                Performance               Minimum           CYE 05          Benchmark
                 Indicator          Performance Standard     Goal     (Healthy People Goals)
                 ---------          --------------------     ----     ----------------------
<S>                                 <C>                     <C>       <C>
Immunization of Two-year-olds
    4:3:1 Series                               80%            83%               90%
    4:3:1:3:3 Series (1)                       70%            75%               90%
    DTaP - 4 doses                             83%            86%               90%
    Polio - 3 doses                            89%            90%               90%
    MMR - 1 dose                               90%            90%               90%
    Hib - 3 doses (1)                          76%            77%               90%
    HBV - 3 doses                              82%            88%               90%
    Varicella - 1 dose                         77%            81%               90%
Adolescent Immunizations(2)                    60%            63%               90%
Dental Visits                                  49%            56%               56%
Well-child Visits 15 Months                    70%            72%               90%
Well-child Visits 3 - 6 Years                  55%            67%               80%
Adolescent Well-care Visits (3)                32%            34%               50%
EPSDT Participation (4)                        58%            80%               80%
Children's Access to PCPs                      79%            82%               97%
Cervical Cancer Screening                      61%            63%               90%
Breast Cancer Screening                        57%            61%               70%
Adult Preventive/Ambulatory Care               80%            82%               96%
Timeliness of Prenatal Care (5)                62%            68%               90%
</TABLE>

(1) New standards are based on 3 doses of Hib; MPS for Hib vaccination is based
on NCQA 2002 Medicaid average of 74%.

(2) New standard measures whether members had a second dose of MMR by their 13th
birthdays; MPS is based on NCQA 2002 Medicaid average of 57%.

(3) Current rate and new standards are based on at least one visit in a one-year
period (currently measured but not reported).

(4) MPS and Goal were left at CYE 2004 levels as these standards have not been
reported by Contractor in the last two years.

(5) Current rate derived from combined prenatal indicators (care in the first
trimester and initiation of care) for CYE 2002; this rate was measured but not
reported.

Contractors shall implement an ongoing quality assessment and performance
improvement programs for the services it furnishes to members. Basic elements of
the Contractor quality assessment and performance improvement programs, at a
minimum, shall comply with the following requirements:


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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001

QUALITY ASSESSMENT PROGRAM

The Contractor shall have an ongoing quality assessment program for the services
it furnishes to members that includes the following:

1.       The program shall be designed to achieve, through ongoing measurements
         and intervention, significant improvement, sustained over time, in
         clinical care and non-clinical care areas that are expected to have a
         favorable effect on health outcomes and member satisfaction.

2.       Annually, the Contractor shall:

                           a.       If required, measure and report to the State
                                    its performance, using standard measures
                                    required by the State, or

                           b.       Submit to the State, data specified by the
                                    State, that enables the State to measure the
                                    Contractor's performance; or

                           c.       Perform a combination of the activities.

3.       The Contractor shall have in effect mechanisms to detect both
         underutilization and overutilization of services.

4.       The Contractor shall have in effect mechanisms to assess the quality
         and appropriateness of care furnished to members with special health
         care needs.

PERFORMANCE IMPROVEMENT PROGRAM

The Contractor shall have an ongoing program of performance improvement projects
that focus on clinical and non-clinical areas, and that involve the following:

                  1.       Measurement of performance using objective quality
                           indicators.

                  2.       Implementation of system interventions to achieve
                           improvement in quality

                  3.       Evaluation of the effectiveness of the interventions.

                  4.       Planning and initiation of activities for increasing
                           or sustaining improvement.

The Contractor shall report the status and results of each project to the
AHCCCSA as requested. Each performance improvement project must be completed in
a reasonable time period so as to generally allow information on the success of
performance improvement projects in the aggregate to produce new information on
quality of care every year.

25. GRIEVANCE SYSTEM

The Contractor shall have in place a written grievance system for
subcontractors, enrollees and providers, which defines their rights regarding
disputed matters with the Contractor. The Contractor's grievance system for
members includes a grievance process (the procedures for addressing member
grievances), an appeals process and access to the state's fair hearing process.
The Contractor shall provide the appropriate personnel to establish, implement
and maintain the necessary functions related to the grievance systems process.
Refer to Attachments H(1) and H(2) for Enrollee Grievance System and Provider
Grievance System Standards and Policy, respectively.

The Contractor may delegate the grievance system to subcontractors, however, the
Contractor must ensure that standards which are delegated comply with applicable
Federal and State laws, regulations and policies, including, but not limited to
42 CFR Part 438 Subpart F. The Contractor shall remain responsible for
compliance with all requirements. The Contractor shall also ensure that it
timely provides written information to both enrollees and providers, which
clearly explains the grievance system requirements. This information must
include a description of: the right to a state fair hearing, a method for
obtaining a state fair hearing, the rules that govern representation at the
hearing, the right to file grievance and appeals, the requirements and
timeframes for filing grievance and appeals, the availability of assistance in
the filing process, the toll-free numbers that the enrollee can use to file a
grievance or appeal by phone, that benefits will continue when requested by the
enrollee in an appeal or state fair hearing request which is timely filed, that
the enrollee may

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PROGRAM REQUIREMENTS                                CONTRACT/REP NO. YH04-0001


be required to pay the cost of services furnished while the appeal is pending if
the final decision is adverse to the enrollee, and that a provider may file an
appeal on behalf of an enrollee with the enrollee's written consent. Information
to enrollees must meet cultural competency and limited English proficiency
requirements as specified in Section D, Paragraph 18, Member Information, and
Paragraph 20, Cultural Competency.

The Contractor shall be responsible to provide the necessary professional,
paraprofessional and clerical services for the representation of the Contractor
in all issues relating to the grievance system and any other matters arising
under this contract which rise to the level of administrative hearing or a
judicial proceeding. Unless there is an agreement with the State in advance, the
Contractor shall be responsible for all attorney fees and costs awarded to the
claimant in a judicial proceeding.

26. QUARTERLY GRIEVANCE SYSTEM REPORT

The Contractor shall submit a Quarterly Grievance System Report to AHCCCSA,
Office of Legal Assistance, using the Quarterly Grievance System Report Format.
The Quarterly Grievance System Report must be received by the AHCCCSA, Office of
Legal Assistance, no later than 45 days from the end of the quarter.

ENROLLEE GRIEVANCE REPORT: The Contractor shall accept, resolve and track
enrollee grievances as required in the AHCCCS Enrollee Grievance Policy. The
Contractor shall submit an Enrollee Grievances report quarterly. The deadline
for submission of this report is 45 days following the end of the quarter. The
report shall include the following:

         A.       Number of grievances received in the reporting period

                           i.       Total

                           ii.      By the categories used in the Contractor's
                                    executive summary reports

         B.       Number of days to resolution

                           i.       Number resolved within 10 days

                           ii.      Number resolved in 11 or more days, but less
                                    than 29 days

                           iii.     Number resolved in 30 or more days, but less
                                    than 59 days

                           iv.      Number resolved in 60 to 90 days

                           v.       Average days to resolution

Report A. and B. above by the current quarter, prior quarter and current quarter
for the previous year.

The Contractor shall trend and analyze grievance, appeals and claim disputes at
least quarterly; any identified trends and corrective action plans should be
reported to AHCCCSA, Division of Health Care Management.

27. NETWORK DEVELOPMENT

The Contractor shall develop and maintain a provider network that is designed to
support a medical home for members and sufficient to provide all covered
services to AHCCCS members. It shall ensure covered services are provided
promptly and are reasonably accessible in terms of location and hours of
operation. There shall be sufficient personnel for the provision of covered
services, including emergency medical care on a 24-hour-a-day, 7-days-a-week
basis. The proposed network shall be sufficient to provide covered services
within designated time and distance limits. For Maricopa and Pima Counties only,
this includes a network such that 95% of its members residing within the
boundary area of metropolitan Phoenix and Tucson do not have to travel more than
5 miles to see a PCP, dentist or pharmacy. PCPs and specialists who provide
inpatient services to the Contractor's members shall have admitting and
treatment privileges in a minimum of one general acute care hospital within the
Contractor's service area. Hospitalists may satisfy this requirement.
Contractors in Maricopa and/or Pima counties must have at least one hospital
contract in each of the service districts specified in Attachment B.

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Contractors must provide a comprehensive provider network that ensures its
membership has access at least equal to, or better than, community norms.
Services shall be as accessible to AHCCCS members in terms of timeliness,
amount, duration and scope as those services are to non-AHCCCS persons within
the same service area. The Contractor is expected to consider the full spectrum
of care when developing its network. The Contractor must also consider
communities whose residents typically receive care in neighboring states. If the
Contractor is unable to provide those services locally, it must so demonstrate
to AHCCCSA and shall provide reasonable alternatives for members to access care.
These alternatives must be approved by AHCCCSA. If the Contractor's network is
unable to provide medically necessary services required under contract, the
Contractor must adequately and timely cover these services through an out of
network provider until a network provider is contracted. The Contractor and out
of network provider must coordinate with respect to authorization and payment
issues in these circumstances.

The Contractor is also encouraged to develop non-financial incentive programs to
increase participation in its provider network.

AHCCCS is committed to supporting the residency programs in the state of
Arizona. Working proactively with the residency programs is beneficial to
protect their viability, and also provides an excellent opportunity for the
health plans to educate future physicians on the principles of managed care. In
addition, AHCCCS believes that the residency programs can influence the provider
capacity issues in Arizona. In the future, AHCCCS would like to provide
incentives to those programs that are working to retain physicians in Arizona
after completion of the program.

AHCCCS is currently working on a Memorandum of Understanding that will represent
our collaborative agreement to accomplish goals that are in the best interest of
the residency programs, the AHCCCS program and the state of Arizona. In CYE '05,
AHCCCS will be amending the contract further to reward plans, through
reimbursement and/or additional auto-assignment, for incorporating residency
programs into their provider networks. AHCCCS encourages plans to work with the
many residency programs currently operating in the state and to investigate
opportunities for resident participation in health plan medical management and
committee activities.

The Contractor shall not discriminate with respect to participation in the
AHCCCS program, reimbursement or indemnification against any provider based
solely on the provider's type of licensure or certification. In addition, the
Contractor must not discriminate against particular providers that service
high-risk populations or specialize in conditions that require costly treatment.
This provision, however, does not prohibit the Contractor from limiting provider
participation to the extent necessary to meet the needs of the Contractor's
members. This provision also does not interfere with measures established by the
Contractor to control costs consistent with its responsibilities under this
contract. If a Contractor declines to include individual or groups of providers
in its network, it must give the affected providers written notice of the reason
for its decision. The Contractor may not include providers excluded from
participation in Federal health care programs, under either section 1128 or
section 1128A of the Social Security Act.

See Attachment B, Minimum Network Requirements, for details on network
requirements by Geographic Service Area.

PROVIDER NETWORK DEVELOPMENT AND MANAGEMENT PLAN: The Contractor shall develop
and maintain a provider network development and management plan, which ensures
that the provision of covered services will occur as stated above. This plan
shall be updated annually and submitted to AHCCCSA, Division of Health Care
Management, 45 days from the start of each contract year. The plan shall
identify the current status of the Contractor's network, and project future
needs based upon, at a minimum, membership growth; the number and types (in
terms of training, experience and specialization) of providers that exist in the
Contractor's service area, as well as the number of physicians who have
privileges with and practice in hospitals; the expected utilization of services,
given the characteristics of its population and its health care needs; the
numbers of providers not accepting new Medicaid patients; and access of its
membership to specialty services as compared to the general population of the
community. The plan, at a minimum, shall also include the following:

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         a.       current network gaps;

         b.       immediate short-term interventions when a gap occurs,
                  including expedited or temporary credentialing;

         c.       interventions to fill network gaps and barriers to those
                  interventions;

         d.       outcome measures/evaluation of interventions;

         e.       ongoing activities for network development;

         f.       coordination between internal departments;

         g.       coordination with outside organizations;

         h.       a description of network design by GSA for the general
                  population, including details regarding special populations,
                  including, but not limited to, the developmentally delayed
                  (Arizona Early Intervention Program (AzEIP), the homeless and
                  those in border communities.

                  The description should cover:

                           i.       how members access the system

                           ii.      relationships between various levels of the
                                    system

                           iii.     the plan for incorporating the medical home
                                    for members and the progress in its
                                    implementation

         i.       a description of the adequacy of the geographic access to
                  tertiary hospital services for the Contractor's membership.

28. PROVIDER AFFILIATION TRANSMISSION

The Contractor shall submit information quarterly regarding its provider
network. This information shall be submitted in the format described in the
Provider Affiliation Transmission User Manual on October 15, January 15, April
15, and July 15 of each contract year. The manual may be found in the Bidder's
Library. If the provider affiliation transmission is not timely, accurate and
complete, the Contractor may be required to submit a corrective action plan and
may be subject to sanction.

29. NETWORK MANAGEMENT

The Contractor shall have policies and procedures in place that pertain to all
service specifications described in the AMPM. In addition, the Contractor shall
have policies on how the Contractor will:

a.       Communicate with the network regarding contractual and/or program
         changes and requirements;

b.       Monitor network compliance with policies and rules of AHCCCSA and the
         Contractor, including compliance with all policies and procedures
         related to the grievance process and ensuring the member's care is not
         compromised during the grievance process;

c.       Evaluate the quality of services delivered by the network;

d.       Provide or arrange for medically necessary covered services should the
         network become temporarily insufficient within the contracted service
         area;

e.       Monitor the adequacy, accessibility and availability of its provider
         network to meet the needs of its members, including the provision of
         care to members with limited proficiency in English;

f.       Process expedited and temporary credentials;

g.       Recruit, select, credential, re-credential and contract with providers
         in a manner that incorporate quality management, utilization, office
         audits and provider profiling; and

h.       Provide training for its providers and maintain records of such
         training.

Contractor policies shall be subject to approval by AHCCCSA, Division of Health
Care Management, and shall be monitored through operational audits.

Contractors shall give hospitals and physician groups 90 days notice prior to a
contract termination without cause. All affected subcontracts shall include this
provision by July 1, 2005. Contracts between the Contractor and single
practitioners are exempt from this requirement.


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                                      -45-
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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001

All material changes in the Contractor's provider network must be approved in
advance by AHCCCSA, Division of Health Care Management. A material change is
defined as one which affects, or can reasonably be foreseen to affect, the
Contractor's ability to meet the performance and network standards as described
in this contract. AHCCCSA will assess proposed changes in the Contractor's
provider network for potential impact on members' health care and provide a
written response to the Contractor. For emergency situations, AHCCCSA will
expedite the approval process.

The Contractor shall notify AHCCCSA, Division of Health Care Management, within
one business day of any unexpected changes that would impair its provider
network. This notification shall include (1) information about how the change
will affect the delivery of covered services, and (2) the Contractor's plans for
maintaining the quality of member care, if the provider network change is likely
to affect the delivery of covered services.

30. PRIMARY CARE PROVIDER STANDARDS

The Contractor shall include in its provider network a sufficient number of PCPs
to meet the requirements of this contract. Health care providers designated by
the Contractor as PCPs shall be licensed in Arizona as allopathic or osteopathic
physicians who generally specialize in family practice, internal medicine,
obstetrics, gynecology, or pediatrics; certified nurse practitioners or
certified nurse midwifes; or physician's assistants.

The Contractor shall assess the PCP's ability to meet AHCCCS appointment
availability and other standards when determining the appropriate number of its
members to be assigned to a PCP. The Contractor should also consider the PCP's
total panel size (i.e. AHCCCS and non-AHCCCS patients) when making this
determination. AHCCCS members shall not comprise the majority of a PCP's panel
of patients. AHCCCSA shall inform the Contractor when a PCP has a panel of more
than 1,800 AHCCCS members (assigned by a single Contractor or multiple
Contractors), to assist in the assessment of the size of their panel. This
information will be provided on a quarterly basis. The Contractor will adjust
the size of a PCP's panel, as needed, for the PCP to meet AHCCCS standards.

The Contractor shall have a system in place to monitor and ensure that each
member is assigned to an individual PCP and that the Contractor's data regarding
PCP assignments is current. The Contractor is encouraged to assign members with
complex medical conditions, who are age 12 and younger, to board certified
pediatricians. PCP's, with assigned members diagnosed with AIDS or as HIV
positive, shall meet criteria and standards set forth in the AMPM.

To the extent required by this contract, the Contractor shall offer members
freedom of choice within its network in selecting a PCP. The Contractor may
restrict this choice when a member has shown an inability to form a relationship
with a PCP, as evidenced by frequent changes, or when there is a medically
necessary reason. When a new member has been assigned to the Contractor, the
Contractor shall inform the member in writing of his enrollment and of his PCP
assignment within 10 days of the Contractor's receipt of notification of
assignment by AHCCCSA. The Contractor shall include with the enrollment
notification a list of all the Contractor's available PCPs, the process for
changing the PCP assignment, should the member desire to do so, as well as the
information required in the AHCCCS Division of Health Care Management Member
Information Policy. The Contractor shall confirm any PCP change in writing to
the member. Members may make both their initial PCP selection and any subsequent
PCP changes either verbally or in writing.

At a minimum, the Contractor shall hold the PCP responsible for the following
gatekeeping activities:

a.       Supervision, coordination and provision of care to each assigned
         member;

b.       Initiation of referrals for medically necessary specialty care;

c.       Maintaining continuity of care for each assigned member; and

d.       Maintaining the member's medical record, including documentation of all
         services provided to the member by the PCP, as well as any specialty or
         referral services.

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Beginning in CYE '05, Contractors will work with AHCCCSA to develop a
methodology to reimburse clinics for the homeless and school based clinics.
AHCCCSA and Contractors will identify coordination of care processes and
reimbursement mechanisms to be implemented by March 1, 2005. The Contractor will
be responsible for payment of these services directly to the clinics.

The Contractor shall establish and implement policies and procedures to monitor
PCP gatekeeping activities and to ensure that PCPs are adequately notified of,
and receive documentation regarding, specialty and referral services provided to
assigned members by specialty physicians, and other health care professionals.
Contractor policies and procedures shall be subject to approval by AHCCCSA,
Division of Health Care Management, and shall be monitored through operational
audits.

31. MATERNITY CARE PROVIDER STANDARDS

The Contractor shall ensure that a maternity care provider is designated for
each pregnant member for the duration of her pregnancy and postpartum care and
that maternity services are provided in accordance with the AMPM. The Contractor
may include in its provider network the following maternity care providers:

a.       Arizona licensed allopathic and/or osteopathic physicians who are
         general practitioners or specialize in family practice or obstetrics

b.       Physician Assistants

c.       Nurse Practitioners

d.       Certified Nurse Midwives

Pregnant members may choose, or be assigned, a PCP who provides obstetrical
care. Such assignment shall be consistent with the freedom of choice
requirements for selecting health care professionals while ensuring that the
continuity of care is not compromised. Members who choose to receive maternity
services from a licensed midwife shall also be assigned to a PCP for medical
care, as primary care is not within the scope of practice for licensed midwives.

All physicians and certified nurse midwives who perform deliveries shall have OB
hospital privileges or a documented hospital coverage agreement for those
practitioners performing deliveries in alternate settings. Licensed midwives
perform deliveries only in the member's home. Labor and delivery services may
also be provided in the member's home by physicians, certified nurse
practitioners and certified nurse midwives who include such services within
their practice.

32. REFERRAL PROCEDURES AND STANDARDS

The Contractor shall have adequate written procedures regarding referrals to
specialists, to include, at a minimum, the following:

a.       Use of referral forms clearly identifying the Contractor

b.       A system for resolving disputes regarding the referrals

c.       PCP referral shall be required for specialty physician services, except
         that women shall have direct access to in-network GYN providers,
         including physicians, physician assistants and nurse practitioners
         within the scope of their practice, without a referral for preventive
         and routine services. In addition, for members with special health care
         needs determined to need a specialized course of treatment or regular
         care monitoring, the Contractor must have a mechanism in place to allow
         such members to directly access a specialist (for example through a
         standing referral or an approved number of visits) as appropriate for
         the member's condition and identified needs. Any waiver of this
         requirement by the Contractor must be approved in advance by AHCCCSA.

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d.       Specialty physicians shall not begin a course of treatment for a
         medical condition other than that for which the member was referred,
         unless approved by the member's PCP.

e.       A process in place that ensures the member's PCP receives all
         specialist and consulting reports and a process to ensure PCP follow-up
         of all referrals including EPSDT referrals for behavioral health
         services

f.       A referral plan for any member who is about to lose eligibility and who
         requests information on low-cost or no-cost health care services

g.       Referral to Medicare HMO including payment of copayments

h.       Allow for a second opinion from a qualified health care professional
         within the network, or if one is not available in network, arrange for
         the member to obtain one outside the network, at no cost to the member.

The Contractor shall comply with all applicable physician referral requirements
and conditions defined in Sections 1903(s) and 1877 of the Social Security Act.
Upon finalization of the regulations, the Contractor shall comply with all
applicable physician referral requirements and conditions defined in 42 CFR Part
411, Part 424, Part 435 and Part 455. Sections 1903(s) and 1877 of the Act
prohibits physicians from making referrals for designated health services to
health care entities with which the physician or a member of the physician's
family has a financial relationship. Designated health services include:

         a.       Clinical laboratory services

         b.       Physical therapy services

         c.       Occupational therapy services

         d.       Radiology services

         e.       Radiation therapy services and supplies

         f.       Durable medical equipment and supplies

         g.       Parenteral and enteral nutrients, equipment and supplies

         h.       Prosthetics, orthotics and prosthetic devices and supplies

         i.       Home health services

         j.       Outpatient prescription drugs

         k.       Inpatient and outpatient hospital services

33. APPOINTMENT STANDARDS

For purposes of this section, "urgent" is defined as an acute, but not
necessarily life-threatening disorder, which, if not attended to, could endanger
the patient's health. The Contractor shall have procedures in place that ensure
the following standards are met:

a.       Emergency PCP appointments - same day of request

b.       Urgent care PCP appointments - within 2 days of request

c.       Routine care PCP appointments - within 21 days of request

For SPECIALTY REFERRALS, the Contractor shall be able to provide:

a.       Emergency appointments - within 24 hours of referral

b.       Urgent care appointments - within 3 days of referral

c.       Routine care appointments - within 45 days of referral

For DENTAL APPOINTMENTS, the Contractor shall be able to provide:

a.       Emergency appointments - within 24 hours of request

b.       Urgent care appointments -  within 3 days of request

c.       Routine care appointments - within 45 days of request

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For MATERNITY CARE, the Contractor shall be able to provide initial prenatal
care appointments for enrolled pregnant members as follows:

a.       First trimester - within 14 days of request

b.       Second trimester - within 7 days of request

c.       Third trimester - within 3 days of request

d.       High risk pregnancies - within 3 days of identification of high risk by
         the Contractor or maternity care provider, or immediately if an
         emergency exists

If a member needs non-emergent medically necessary transportation, the
Contractor shall require its transportation provider to schedule the
transportation so that the member arrives on time for the appointment, but no
sooner than one hour before the appointment; does not have to wait more than one
hour after making the call to be picked up; nor have to wait for more than one
hour after conclusion of the appointment for transportation home.

The Contractor shall actively monitor the adequacy of its appointment processes
and reduce the unnecessary use of alternative methods such as emergency room
visits. The Contractor shall actively monitor and ensure that a member's waiting
time for a scheduled appointment at the PCP's or specialist's office is no more
than 45 minutes, except when the provider is unavailable due to an emergency.

The Contractor shall have written policies and procedures about educating its
provider network regarding appointment time requirements. The Contractor must
assign a specific staff member or unit within its organization to monitor
compliance with appointment standards. The Contractor must develop a corrective
action plan when appointment standards are not met; if appropriate, the
corrective action plan should be developed in conjunction with the provider.
Appointment standards shall be included in the Provider Manual. The Contractor
is encouraged to include the standards in the provider subcontract.

34. FEDERALLY QUALIFIED HEALTH CENTERS (FQHC) AND RURAL HEALTH CLINICS (RHC)

The Contractor is encouraged to use FQHCs/RHCs in Arizona to provide covered
services and must comply with the Federal mandates. Section 4712(b)(2) of the
Balanced Budget Act requires that "rates of payment between FQHCs/RHCs and MCOs
shall not be less than the amount of payment for a similar set of services with
a non-FQHC/RHC." The intention of this provision is to ensure that contractors
negotiate rates of payment with FQHCs/RHCs that are comparable to the rates paid
to providers that provide similar services.

Contractors are required to submit member information for Title XIX members for
each FQHC/RHC on a quarterly basis to the AHCCCSA Division of Health Care
Management. AHCCCSA will perform periodic audits of the member information
submitted. Contractors should refer to the AHCCCS Division of Health Care
Management's policy on FQHC/RHC reimbursement for further guidance. The
following FQHCs RHCs are currently recognized by CMS:

                  Canyonlands Community Health Care
                  Chiricahua Community Health Centers, Inc.
                  Clinica Adelante, Inc.
                  Community Health Center of West Yavapai
                  Copper Queen Medical Associates - Bisbee RHC
                  Copper Queen Medical Associates - Douglas RHC Desert Senita
                  Community Health Center
                  El Rio Health Center
                  Inter-Tribal Health Care Center
                  Marana Health Center Mariposa Community
                  Health Center, Inc.
                  Morenci Health Care Center

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                  Mountain Park Health Center
                  Native American Community Health Center, Inc.
                  Native Americans for Community Action Family Health Center
                  North Country Community Health Center
                  Sun Life Family Health Center
                  Sunset Community Health Center (formerly Valley Health
                  Center, Inc.)
                  United Community Health Center, Inc.

35. PROVIDER MANUAL

The Contractor shall develop, distribute and maintain a provider manual. The
Contractor shall ensure that each contracted provider is issued a copy of the
provider manual and is encouraged to distribute a provider manual to any
individual or group that submits claim and encounter data. The Contractor
remains liable for ensuring that all providers, whether contracted or not, meet
the applicable AHCCCS requirements such as covered services, billing, etc. At a
minimum, the Contractor's provider manual must contain information on the
following:

a.       Introduction to the Contractor which explains the Contractor's
         organization and administrative structure

b.       Provider responsibility and the Contractor's expectation of the
         provider

c.       Overview of the Contractor's Provider Service department and function

d.       Listing and description of covered and non-covered services,
         requirements and limitations including behavioral health services

e.       Emergency room utilization (appropriate and non-appropriate use of the
         emergency room)

f.       EPSDT Services - screenings include a comprehensive history,
         developmental/behavioral health screening, comprehensive unclothed
         physical examination, appropriate vision testing, hearing testing,
         laboratory tests, dental screenings and immunizations

g.       Dental services

h.       Maternity/Family Planning services

i.       The Contractor's policy regarding PCP assignments

j.       Referrals to specialists and other providers, including access to
         behavioral health services provided by the ADHS/RBHA system

k.       Grievance system process and procedures for providers and enrollees

l.       Billing and encounter submission information

m.       Information about policies and procedures relevant to the providers
         including, but not limited to, utilization management and claims
         submission

n.       Reimbursement, including reimbursement for dual eligibles (i.e.
         Medicare and Medicaid) or members with other insurance

o.       Cost sharing responsibility

p.       Explanation of remittance advice

q.       Prior authorization and notification requirements

r.       Claims medical review

s.       Concurrent review

t.       Fraud and Abuse

u.       Formularies (with updates and changes provided in advance to providers,
         including pharmacies)

v.       AHCCCS appointment standards

w.       Americans with Disabilities Act (ADA) requirements and Title VI, as
         applicable

x.       Eligibility verification

y.       Cultural competency information, including notification about Title VI
         of the Civil Rights Act of 1964. Providers should also be informed of
         how to access interpretation services to assist members who speak a
         language other the English or who use sign language.

z.       Peer review and appeal process.

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36. PROVIDER REGISTRATION

The Contractor shall ensure that all of its subcontractors register with AHCCCSA
as an approved service provider and receive an AHCCCS Provider ID Number. A
Provider Participation Agreement must be signed by each provider who does not
already have a current AHCCCS ID number. The original shall be forwarded to
AHCCCSA. This provider registration process must be completed in order for the
Contractor to report services a subcontractor renders to enrolled members and
for the Contractor to be paid reinsurance.

37. SUBCONTRACTS

The Contractor shall be legally responsible for contract performance whether or
not subcontracts are used. No subcontract shall operate to terminate the legal
responsibility of the Contractor to assure that all activities carried out by
the subcontractor conform to the provisions of this contract. Subject to such
conditions, any function required to be provided by the Contractor pursuant to
this contract may be subcontracted to a qualified person or organization. All
such subcontracts must be in writing. See the AHCCCS Claims Processing by
Subcontracted Providers Policy in the Bidder's Library.

All subcontracts entered into by the Contractor are subject to prior review and
written approval by AHCCCS, Division of Health Care Management Administration,
and shall incorporate by reference the terms and conditions of this contract.
The following subcontracts, unless otherwise specified, shall be submitted to
AHCCCS, Division of Health Care Management for prior approval at least 30 days
prior to the beginning date of the subcontract:

a.       Automated data processing

b.       Third-party administrators

c.       Management Services  (See also Section D, Paragraphs 43 & 44)

d.       Capitated or other risk subcontracts requiring claims processing by the
         subcontractor

e.       Requests for Proposal issued by the Contractor for the procurement of
         medical services

The Contractor shall maintain a fully executed original of all subcontracts,
which shall be accessible to AHCCCSA within two business days of request by
AHCCCSA. All subcontracts shall comply with the applicable provisions of Federal
and State laws, regulations and policies.

The Contractor shall not include covenant-not-to-compete requirements in its
provider agreements. Specifically, the Contractor shall not contract with a
provider and require that the provider not provide services for any other AHCCCS
Contractor. In addition, except for cost sharing requirements, the Contractor
shall not enter into subcontracts that contain compensation terms that differ
depending upon a member's eligibility category.

Before entering into a subcontract which delegates Contractor duties or
responsibilities to a subcontractor, the Contractor must evaluate the
prospective subcontractor's ability to perform the activities to be delegated.
If the Contractor delegates duties or responsibilities such as utilization
management or claims processing to a subcontractor, then the Contractor shall
establish a written agreement that specifies the activities and reporting
responsibilities delegated to the subcontractor. The written agreement shall
also provide for revoking delegation or imposing other sanctions if the
subcontractor's performance is inadequate. In order to determine adequate
performance, the Contractor shall monitor the subcontractor's performance on an
ongoing basis and subject it to formal review according to a periodic schedule.
The schedule for review shall be submitted to AHCCCSA, Division of Health Care
Management for prior approval. As a result of the performance review, any
deficiencies must be communicated to the subcontractor in order to establish a
corrective action plan. The results of the performance review and the correction
plan shall be communicated to AHCCCS upon completion.

The Contractor must submit annually (within 90 days from the start of the
contract year) a statement whether any Contractor duties or responsibilities
have been delegated to subcontractors. If duties or responsibilities have been

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delegated to a subcontractor, the Contractor must submit annually (within 90
days from the start of the contract year) a report listing the following:

         -        Subcontractor's name

         -        Delegated duties and responsibilities

         -        Most recent review date of the duties and responsibilities of
                  the subcontractor

         -        Next scheduled review date

         -        Identified areas of deficiency

         -        Contractor's corrective action plan

The Contractor shall promptly inform AHCCCS, Division of Health Care Management,
in writing if a subcontractor is in significant non-compliance that would affect
their abilities to perform the duties and responsibilities of the subcontract.

The Contractor must enter into a written agreement with any provider (including
out-of-state providers) the Contractor reasonably anticipates will be providing
services on its behalf more than 25 times during the contract year. Exceptions
to this requirement include the following:

a.       If a provider who provides services more than 25 times during the
         contract year refuses to enter into a written agreement with the
         Contractor, the Contractor shall submit documentation of such refusal
         to AHCCCS, Division of Health Care Management within seven days of its
         final attempt to gain such agreement.

b.       If a provider performs emergency services such as an emergency room
         physician or an ambulance company, a written agreement is not required.

c.       Individual providers as detailed in the AMPM.

d.       Hospitals, as discussed in Section D, Paragraph 40, Hospital
         Subcontracting and Reimbursement.

These and any other exceptions to this requirement must be approved by AHCCCS,
Division of Health Care Management.

Each subcontract must contain verbatim all the provisions of Attachment A,
Minimum Subcontract Provisions. In addition, each subcontract must contain the
following:

a.       Full disclosure of the method and amount of compensation or other
         consideration to be received by the subcontractor.

b.       Identification of the name and address of the subcontractor.

c.       Identification of the population, to include patient capacity, to be
         covered by the subcontractor.

d.       The amount, duration and scope of medical services to be provided, and
         for which compensation will be paid.

e.       The term of the subcontract including beginning and ending dates,
         methods of extension, termination and re-negotiation.

f.       The specific duties of the subcontractor relating to coordination of
         benefits and determination of third-party liability.

g.       A provision that the subcontractor agrees to identify Medicare and
         other third-party liability coverage and to seek such Medicare or third
         party liability payment before submitting claims to the Contractor.

h.       A description of the subcontractor's patient, medical and cost record
         keeping system.

i.       Specification that the subcontractor shall cooperate with quality
         management/quality improvement programs, and comply with the
         utilization management and review procedures specified in the AMPM.

j.       A provision stating that a merger, reorganization or change in
         ownership of a subcontractor that is related to or affiliated with the
         Contractor shall require a contract amendment and prior approval of
         AHCCCSA.

k.       Procedures for enrollment or re-enrollment of the covered population
         (may also refer to the Provider Manual).

l.       A provision that the subcontractor shall be fully responsible for all
         tax obligations, Worker's Compensation Insurance, and all other
         applicable insurance coverage obligations which arise under this
         subcontract, for

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         itself and its employees, and that AHCCCSA shall have no responsibility
         or liability for any such taxes or insurance coverage.

m.       A provision that the subcontractor must obtain any necessary
         authorization from the Contractor or AHCCCSA for services provided to
         eligible and/or enrolled members.

n.       A provision that the subcontractor must comply with encounter reporting
         and claims submission requirements as described in the subcontract.

o.       Provision(s) that allow the Contractor to suspend, deny, refuse to
         renew or terminate any subcontractor in accordance with the terms of
         this contract and applicable law and regulation.

p.       A provision that the subcontractor may provide the member with factual
         information, but is prohibited from recommending or steering a member
         in the member's selection of a Contractor.

38. CLAIMS PAYMENT/HEALTH INFORMATION SYSTEM

The Contractor shall develop and maintain a claims payment system capable of
processing, cost avoiding and paying claims in accordance with A.R.S. Section
36-2904(H)and (J), AHCCCS Rules R9-22-705, and R9-22-709, a copy of which may be
found in the Bidder's Library.

The Contractor's claims payment system, as well as its prior authorization and
concurrent review process, must minimize the likelihood of having to recoup
already-paid claims. Any recoupment in excess of $50,000 per provider within a
contract year must be approved in advance by AHCCCSA, Division of Health Care
Management. A Contractor shall not recoup monies from a provider later than 12
months after the date of original payment on a clean claim, without prior
approval from AHCCCSA, unless the recoupment is a result of fraud, reinsurance
audit findings, data validation or audits conducted by the AHCCCSA Office of
Program Integrity.

The Contractor is required to reimburse providers for previously recouped monies
if the provider was subsequently denied payment by the primary insurer based on
timely filing limits or lack of prior authorization and the member failed to
disclose additional insurance coverage other than AHCCCS.

Unless a subcontract specifies otherwise, Contractors with 50,000 or more
members shall ensure that 95% of all clean claims are paid within 30 days of
receipt of the clean claim and 99% are paid within 60 days of receipt of the
clean claim. Unless a subcontract specified otherwise, Contractors with fewer
than 50,000 members shall ensure that 90% of all clean claims are paid within 30
days of receipt of the clean claim and 99% are paid within 60 days of receipt of
the clean claim. Additionally, unless a subcontract specifies otherwise, the
Contractor shall not require providers to initially submit claims earlier than 6
months after date of service or to submit clean claims earlier than 12 months
after date of service for which payment is claimed. The receipt date of the
claim is the date stamp on the claim. The paid date of the claim is the date on
the check or other form of payment. Claims submission deadlines shall be
calculated from the date of service or the effective date of eligibility
posting, whichever is later. Remittance advices accompanying the Contractor's
payments to providers must contain, at a minimum, adequate descriptions of all
denials and adjustments, the reasons for such denials and adjustments, the
amount billed, the amount paid, and provider rights for claim dispute.

Effective for all clean claims with dates of service October 1, 2004 and
thereafter, in the absence of a contract specifying other late payment terms,
Contractors are required to pay interest on late payments. Late claims payments
are those that are paid after 45 days of receipt of the clean claim (as defined
in this contract). In grievance situations, interest shall be paid back to the
date interest would have started to accrue beyond the applicable 45 day
requirement. Interest shall be at the rate of ten per cent per annum, unless a
different rate is stated in a written contract.

Contractors are required to accept HIPAA compliant electronic claims
transactions from any provider interested and capable of electronic submission.
In addition, Contractors shall implement and meet the following

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milestones in order to make claims processing and payment more efficient and
timely:

         -        Contractors must be able to make claims payments via
                  electronic funds transfer by March 1, 2005.

         -        Contractors are required to receive and pay 30% of all claims
                  (based on volume of actual claims excluding claims processed
                  by Pharmacy Benefit Managers (PBMs)) electronically by July 1,
                  2005

The AHCCCS goal is to have all Contractors receive and pay 50% of all claims
(based on volume of actual claims, excluding claims processed by PBMs)
electronically by October 1, 2005, 60% by January 1, 2006 and 75% by July 1,
2006.

The Contractor shall submit a monthly Claims Processing Metrics Report to AHCCCS
using the report format specified and defined by AHCCCS. The Monthly report must
be received by the AHCCCSA, Division of Healthcare Management, no later than 15
days from the end of each month.

The Contractor shall develop and maintain a health information system that
collects, analyzes, integrates, and reports data. The system shall provide
information on areas including, but not limited to, service utilization, claim
disputes and appeals.

The Contractor will ensure that changing information systems effecting claims
processing, or any other major business component, will be accompanied by a plan
which includes a timeline, milestones, and adequate testing before
implementation. At least six months before the anticipated implementation date,
the contractor shall provide the system change plan to AHCCCSA for review and
comment.

39. SPECIALTY CONTRACTS

AHCCCSA may at any time negotiate or contract on behalf of the Contractor and
AHCCCSA for specialized hospital and medical services. AHCCCSA will consider
existing Contractor resources in the development and execution of specialty
contracts. AHCCCSA may require the Contractor to modify its delivery network to
accommodate the provisions of specialty contracts. Specialty contracts shall
take precedence over, and supersede, existing and future subcontracts for
services that are subject to specialty contracts. AHCCCSA may consider waiving
this requirement in particular situations if such action is determined to be in
the best interest of the State; however, in no case shall reimbursement exceed
that payable under the relevant AHCCCSA specialty contract.

During the term of specialty contracts, AHCCCSA may act as an intermediary
between the Contractor and specialty contractors to enhance the cost
effectiveness of service delivery. Adjudication of claims related to such
payments provided under specialty contracts shall remain the responsibility of
the Contractor. AHCCCSA may provide technical assistance prior to the
implementation of any specialty contracts.

Currently, AHCCCSA only has specialty contracts for transplant services. AHCCCSA
shall provide at least 60 days advance written notice to the Contractor prior to
the implementation of any specialty contract.

40. HOSPITAL SUBCONTRACTING AND REIMBURSEMENT

MARICOPA AND PIMA COUNTIES ONLY: Effective October 1, 2003, legislation
authorizes the Inpatient Hospital Reimbursement Program (Program). The Program
is defined in the Arizona Revised Statutes (A.R.S.) 36-2905.01, and requires
hospital subcontracts to be negotiated between health plans and hospitals in
Maricopa and Pima counties to establish reimbursement levels, terms and
conditions. Subcontracts shall be negotiated by the Contractor and hospitals to
cover operational concerns, such as timeliness of claims submission and payment,
payment of discounts or penalties and legal resolution which may, as an option,
include establishing arbitration procedures. These negotiated subcontracts shall
remain under close scrutiny by AHCCCSA to ensure availability of quality
services within specific service districts, equity of related party interests
and reasonableness of rates.

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The general provisions of this program encompass acute care hospital services
and outpatient hospital services that result in an admission. The Contractor
shall submit all hospital subcontracts and any amendments to AHCCCSA, Division
of Health Care Management. For non-emergency patient-days, the Contractor shall
ensure that at least 65% of its members use contracted hospitals. AHCCCSA
reserves the right to subsequently adjust the 65% standard. Further, if in
AHCCCSA's judgment the number of emergency days at a particular non-contracted
hospital becomes significant, AHCCCSA may require a subcontract at that
hospital. In accordance with R9-22-718, unless otherwise negotiated by both
parties, the reimbursement for inpatient services provided at a non-contracted
hospital shall be based on the rates as defined in A.R.S. Section 36-2903.01,
multiplied by 95%.

ALL COUNTIES EXCEPT MARICOPA AND PIMA: The Contractor shall reimburse hospitals
for member care in accordance with AHCCCS Rule R9-22-705. The Contractor is
encouraged to obtain subcontracts with hospitals in all GSA's and must submit
copies of these subcontracts, including amendments, to AHCCCSA, Division of
Health Care Management, at least seven days prior to the effective dates
thereof.

OUT-OF-STATE HOSPITALS: The Contractor shall reimburse out-of-state hospitals in
accordance with AHCCCS Rule R9-22-705. Contractors serving border communities
(excluding Mexico) are strongly encouraged to establish contractual agreements
with those out-of-state hospitals that are identified by GSA in Attachment B.

OUTPATIENT HOSPITAL SERVICES: With passage of SB 1410 (Laws of 2004, Chapter
279), effective for dates of service on and after July 1, 2005, in absence of a
contract, the default payment rate for outpatient hospital services billed on a
UB-92 will be based on the AHCCCS outpatient hospital fee schedule, rather than
a hospital-specific cost-to-charge ratio (pursuant to ARS 36-2904).

HOSPITAL RECOUPMENTS: The Contractor may conduct prepayment and post-payment
medical reviews of all hospital claims including outlier claims. Erroneously
paid claims are subject to recoupment. If the Contractor fails to identify lack
of medical necessity through concurrent review and/or prepayment medical review,
lack of medical necessity identified during post-payment medical review shall
not constitute a basis for recoupment by the Contractor. This prohibition does
not apply to recoupments that are a result of an AHCCCS reinsurance audit. See
also Section D, Paragraph 38, Claims Payment System. For a more complete
description of the guidelines for hospital reimbursement, please consult the
Bidder's Library for applicable statutes and rules.

41. NURSING FACILITY REIMBURSEMENT

The Contractor shall not deny nursing facility services if the nursing facility
is unable to obtain prior authorization in situations where acute care
eligibility and ALTCS eligibility overlap and the member is enrolled with an
AHCCCS acute care contractor. In such situations, the Contractor shall impose
reasonable authorization requirements. The Contractor's payment responsibility,
described above, applies only in situations where the nursing facility has not
been notified in advance of the member's enrollment with an AHCCCS acute care
contractor. When ALTCS eligibility overlaps AHCCCS acute care enrollment, the
acute care enrollment takes precedence. Although the member could be ALTCS
eligible for this time period, there is no ALTCS enrollment that occurs on the
same days as AHCCCS acute enrollment.

The Contractor shall provide medically necessary nursing facility services for
any member who has a pending ALTCS application, who is currently residing in a
nursing facility and is eligible for services provided under this contract. If
the member becomes ALTCS eligible and is enrolled with an ALTCS Contractor
before the end of the maximum 90 days per contract year of nursing facility
coverage, the Contractor is only responsible for nursing facility coverage
during the time the member is enrolled with the Contractor. Nursing facility
services, covered by a third party insurer (including Medicare) while the member
is enrolled with the Contractor, shall be applied to the 90 day per contract
year limitation.

The Contractor shall notify the Assistant Director of the Division of Member
Services in writing, when a member has been residing in a nursing facility for
75 days. This will allow AHCCCSA time to follow-up on

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the status of the ALTCS application process and to prepare for potential
fee-for-service coverage if the stay goes beyond the 90-day per contract year
maximum.

42. PHYSICIAN INCENTIVES

The Contractor must comply with all applicable physician incentive requirements
and conditions defined in 42 CFR 417.479. These regulations prohibit physician
incentive plans that directly or indirectly make payments to a doctor or a group
as an inducement to limit or refuse medically necessary services to a member.
The Contractor is required to disclose all physician incentive agreements to
AHCCCSA and to AHCCCS members who request them.

The Contractor shall not enter into contractual arrangements that place
providers at significant financial risk as defined in CFR 417.479 unless
specifically approved in advance by the AHCCCSA Division of Health Care
Management. In order to obtain approval, the following must be submitted to the
AHCCCSA Division of Health Care Management 45 days prior to the implementation
of the contract:

1.       A complete copy of the contract

2.       A plan for the member satisfaction survey

3.       Details of the stop-loss protection provided

4.       A summary of the compensation arrangement that meets the substantial
         financial risk definition.

The Contractor shall disclose to AHCCCSA the information on physician incentive
plans listed in 42 CFR 417.479(h)(1) through 417.479(I) upon contract renewal,
prior to initiation of a new contract, or upon request from AHCCCSA or CMS.
Please refer to the Physician Incentive Plan Disclosure by Contractors Policy in
the Bidder's Library for details on providing required disclosures.

The Contractor shall also provide for compliance with physician incentive plan
requirements as set forth in 42 CFR 422. These regulations apply to contract
arrangements with subcontracted entities that provide utilization management
services.

43. MANAGEMENT SERVICES SUBCONTRACTORS

All proposed management services subcontracts and/or corporate cost allocation
plans must be approved in advance by AHCCCSA, Division of Health Care
Management, as described in Section D, Paragraph 37, Subcontracts. Cost
allocation plans must be submitted with the proposed management fee agreement.
AHCCCSA reserves the right to perform a thorough review of actual management
fees charged and/or corporate allocations made. If the fees or allocations
actually paid out are determined to be unjustified or excessive, amounts may be
subject to repayment to the Contractor. In addition, sanctions may be imposed.

44. MANAGEMENT SERVICES SUBCONTRACTOR AUDITS

All management services subcontractors that have oversight responsibilities for
the Contractor's program operations (such as third-party administrators) are
required to have an annual financial audit. A copy of this audit shall be
submitted to AHCCCSA, Division of Health Care Management, within 120 days of the
subcontractor's fiscal year end. If services billed by a consultant or actuary
are less than $50,000 annually, AHCCCSA will waive the requirement for an audit
of that consultant or actuary.

45. MINIMUM CAPITALIZATION REQUIREMENTS

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In order to be considered for a contract award, the Offeror must meet a minimum
capitalization requirement for each GSA bid. The capitalization requirement for
both new and continuing offerors must be met within 30 days after contract
award.

Minimum capitalization requirements by GSA are as follows:

<TABLE>
<CAPTION>

                                    CAPITALIZATION         CAPITALIZATION
       GEOGRAPHIC SERVICE AREA      REQUIREMENT --         REQUIREMENT --
                (GSA)              NEW CONTRACTORS      EXISTING CONTRACTORS

<S>                                <C>                  <C>
  Mohave/Coconino/Apache/Navajo    $4,400,000             $3,000,000
  La Paz/Yuma                      $3,000,000             $2,000,000
  Maricopa                         $5,000,000             $4,000,000
  Pima/Santa Cruz                  $4,500,000             $3,000,000
  Cochise/Graham/Greenlee         $2,150,000             $2,000,000
  Pinal/Gila                       $2,400,000             $2,000,000
  Yavapai*                         $1,600,000             $1,600,000
</TABLE>

  *Yavapai's minimum capitalization requirement for both new and existing
  offerors is limited to $150 times the estimated number of members.

NEW OFFERORS: To be considered for a contract award in a given GSA or group of
GSA's, a new offeror must meet the minimum capitalization requirements listed
above. The capitalization requirement is subject to a $10,000,000 ceiling
regardless of the number of GSA's awarded. This requirement is in addition to
the Performance Bond requirements defined in Paragraphs 46 and 47 below and must
be met with cash with no encumbrances, such as a loan subject to repayment. The
capitalization requirement may be applied toward meeting the equity per member
requirement (see Section D, Paragraph 50, Financial Viability
Standards/Performance Guidelines) and is intended for use in operations of the
Contractor.

CONTINUING OFFERORS: Continuing offerors that are bidding a county or GSA in
which they currently have a contract must meet the equity per member standard
(see Section D, Paragraph 50, Financial Viability Standards/Performance
Guidelines) for their current membership. Continuing offerors that do not meet
the equity standard must fund, through capital contribution, the necessary
amount to meet the minimum capitalization requirement. Continuing offerors that
are bidding a new GSA must provide the additional capitalization for the new GSA
they are bidding. The amount of the required capitalization for continuing
offers may differ from that for new offerors due to size of the existing
offerors current enrollment. (See the table of requirements by GSA above).

Continuing offerors will not be required to provide additional capitalization if
they currently meet the equity per member standard with their existing
membership and their excess equity is sufficient to cover the proposed
additional members, or they have at least $10,000,000 in equity.

46. PERFORMANCE BOND OR BOND SUBSTITUTE

The Contractor shall be required to provide a performance bond of standard
commercial scope issued by a surety company doing business in this State, an
irrevocable letter of credit, or a cash deposit ("Performance Bond") to AHCCCSA
for as long as the Contractor has AHCCCS-related liabilities of $50,000 or more
outstanding, or 15 months following the effective date of this contract,
whichever is later, to guarantee: (1) payment of the Contractor's obligations to
providers, non-contracting providers, and non-providers; and (2) performance by
the Contractor of its obligations under this contract. The Performance Bond
shall be in a form acceptable to AHCCCSA as described in the AHCCCS Performance
Bond Policy available in the Bidder's Library.

In the event of a default by the Contractor, AHCCCSA shall, in addition to any
other remedies it may have under this contract, obtain payment under the
Performance Bond or substitute security for the purposes of the following:

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


a.    Paying any damages sustained by providers, non-contracting providers and
      non-providers by reason of a breach of the Contractor's obligations under
      this contract,

b.    Reimbursing AHCCCSA for any payments made by AHCCCSA on behalf of the
      Contractor, and

c.    Reimbursing AHCCCSA for any extraordinary administrative expenses incurred
      by reason of a breach of the Contractor's obligations under this contract,
      including, but not limited to, expenses incurred after termination of this
      contract for reasons other than the convenience of the State by AHCCCSA.

In the event AHCCCSA agrees to accept substitute security in lieu of the
Performance Bond, irrevocable letter of credit or cash deposit, the Contractor
agrees to execute any and all documents and perform any and all acts necessary
to secure and enforce AHCCCSA's security interest in such substitute security
including, but not limited to, security agreements and necessary UCC filings
pursuant to the Arizona Uniform Commercial Code. In the event such substitute
security is agreed to and accepted by AHCCCSA, the Contractor acknowledges that
it has granted AHCCCSA a security interest in such substitute security to secure
performance of its obligations under this contract. The Contractor is solely
responsible for establishing the credit-worthiness of all forms of substitute
security. AHCCCSA may, after written notice to the Contractor, withdraw its
permission for substitute security, in which case the Contractor shall provide
AHCCCSA with a form of security described above. The Contractor may not change
the amount, duration or scope of the performance bond without prior written
approval from AHCCCSA, Division of Health Care Management.

The Contractor shall not leverage the bond for another loan or create other
creditors using the bond as security.

47. AMOUNT OF PERFORMANCE BOND

The initial amount of the Performance Bond shall be equal to 80% of the total
capitation payment expected to be paid to the Contractor in the month of October
2003, or as determined by AHCCCSA. The total capitation amount shall include
delivery and hospital supplemental payments. This requirement must be satisfied
by the Contractor no later than 30 days after notification by AHCCCSA of the
amount required. Thereafter, AHCCCSA shall evaluate the enrollment statistics of
the Contractor on a monthly basis to determine if the Performance Bond must be
increased. The Contractor shall have 30 days following notification by AHCCCSA
to increase the amount of the Performance Bond. The Performance Bond amount that
must be maintained after the contract term shall be sufficient to cover all
outstanding liabilities and will be determined by AHCCCSA. The Contractor may
not change the amount of the performance bond without prior written approval
from AHCCCS, Division of Health Care Management. Refer to the Performance
Bond/Equity Per Member Policy for more details.

48. ACCUMULATED FUND DEFICIT

The Contractor and its owners shall fund any accumulated fund deficit through
capital contributions in a form acceptable to AHCCCSA within 30 days after
receipt by AHCCCSA of the final audited financial statements, or as otherwise
requested by AHCCCSA. AHCCCSA may, at its option, impose enrollment caps in any
or all GSA's as a result of an accumulated deficit, even if unaudited.

49. ADVANCES, DISTRIBUTIONS, LOANS AND INVESTMENTS

The Contractor shall not, without the prior approval of AHCCCSA, make any
advances to a related party or subcontractor. The Contractor shall not, without
similar prior approval, make any distribution, loan or loan guarantee to any
entity, including another fund or line of business within its organization. All
investments, other than investments in U.S. Government securities or
Certificates of Deposit, also require AHCCCSA prior approval. (See the Reporting
Guide for Acute Care Contractors for alternatives to the prior approval of

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


individual investments.) All requests for prior approval are to be submitted to
the AHCCCSA Division of Health Care Management.

50. FINANCIAL VIABILITY STANDARDS / PERFORMANCE GUIDELINES

AHCCCSA has established financial viability standards/performance guidelines. On
a quarterly basis, AHCCCSA will review the following ratios with the purpose of
monitoring the financial health of the Contractor. The two financial viability
standards, the Current Ratio and Equity per Member, are the standards that best
represent the financial solvency of the Contractor. Therefore, the Contractor
must comply with these two financial viability standards.

AHCCCSA will also monitor the Medical Expense Ratio, the Administrative Cost
Percentage, and the RBUC's Days Outstanding. These guidelines are analyzed as
part of AHCCCSA's due diligence in financial statement monitoring. Sanctions may
not be imposed if the Contractor does not meet these performance guidelines.
AHCCCSA takes into account Contractors' unique programs for managing care and
improving the heath status of members when analyzing medical expense and
administrative ratio results. However, if a critical combination of the
Financial Viability Standards and Performance Guidelines are not met, or if a
Contractor's experience differs significantly from other Contractors',
additional monitoring, such as monthly reporting, may be required.

FINANCIAL VIABILITY STANDARDS

<TABLE>
<S>                         <C>
CURRENT                     RATIO Current assets divided by current liabilities.
                            "Current assets" includes any long-term investments
                            that can be converted to cash within 24 hours
                            without significant penalty (i.e., greater than
                            20%).


                            Standard: At least 1.00

                            If current assets include a receivable from a parent
                            company, the parent company must have liquid assets
                            that support the amount of the inter-company loan.

EQUITY  PER MEMBER          Equity, less on-balance sheet performance bond,
                            divided by the number of non-SOBRA Family Planning
                            Extension Services members enrolled at the end of
                            the period.

                            Standard: At least $150 for Contractors with
                                      enrollment < 100,000
                                      $100 for Contractors with enrollment of
                                      100,000+

                            For purposes of this measurement, the equity to be
                            measured must be supported by unencumbered current
                            assets.

                            (Failure to meet this standard may result in an
                            enrollment cap being imposed in any or all
                            contracted GSAs.)
</TABLE>

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


<TABLE>
<S>                         <C>
PERFORMANCE GUIDELINES

MEDICAL EXPENSE RATIO       Total medical expenses divided by total capitation +
                            Delivery Supplement + Hospital Supplemental Payment
                            +TPL+ Reinsurance + HIV/AIDS Supplement

                            Standard: At least 80%

ADMINISTRATIVE COST
PERCENTAGE                  Total administrative expenses (excluding income
                            taxes), divided by total capitation + Delivery
                            Supplement + Hospital Supplemental Payment + TPL +
                            Reinsurance + HIV/AIDS Supplement.

                            Standard: No more than 10%

RECEIVED BUT UNPAID CLAIMS  Received but unpaid claims divided by the average
     (DAYS OUTSTANDING)     daily medical expenses for the period, net of
                            sub-capitation expense.
                            Standard:  No more than 30 days
</TABLE>

51. SEPARATE INCORPORATION

Within 60 days of contract award, a non-governmental contractor shall have
established a separate corporation for the purposes of this contract, whose sole
activity is the performance of contract function with AHCCCS.

52. MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP

A proposed merger, reorganization or change in ownership of the Contractor shall
require prior approval of AHCCCSA and a subsequent contract amendment. The
Contractor must submit a detailed merger, reorganization and/or transition plan
to AHCCCSA, Division of Health Care Management, for review. The purpose of the
plan review is to ensure uninterrupted services to members, evaluate the new
entity's ability to support the provider network, ensure that services to
members are not diminished and that major components of the organization and
AHCCCS programs are not adversely affected by such merger, reorganization or
change in ownership.

53. COMPENSATION

The method of compensation under this contract will be Prior Period Coverage
(PPC) capitation, prospective capitation, delivery supplement, hospitalized
supplement for Medical Expense Deduction (MED) members, HIV-AIDS supplement,
reinsurance and third party liability, as described and defined within this
contract and appropriate laws, regulations or policies.

Actuaries establish the capitation rates using practices established by the
Actuarial Standards Board. AHCCCS provides the following data to its actuaries
to establish rates for the purposes of rebasing the capitation rates.

   a. Utilization and unit cost data derived from reported encounters
   b. Both Audited and unaudited financial statements reported by Contractors
   c. Local market basket inflation trends
   d. AHCCCS fee for service schedule pricing adjustments
   e. Programmatic changes that affect reimbursement
   f. Additional administrative requirements for Contractors
   g. Other changes to medical practices that affect reimbursement

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


AHCCCS adjusts its rates to best match payment to risk. This further ensures the
actuarial basis for the capitation rates. The following risk factors will be
included:

   a. Reinsurance (as described in Paragraph 57)
   b. HIV/AIDS supplemental payment
   c. Age/Gender for the 1931(b), SOBRA, KidsCare and BCCTP eligibility groups
   d. Medicare enrollment for SSI members
   e. Delivery supplemental payment
   f. Hospitalized supplemental payments for MED members
   g. Geographic Service Area adjustments
   h. Risk sharing for Title XIX Waiver Group reimbursement
   i. Risk sharing for PPC reimbursement
   j. Member choice statistic for Title XIX Waiver Group
   k. Member share of cost amounts

The above information is reviewed by AHCCCS' actuaries in renewal years to
determine if adjustments are necessary to maintain actuarially sound rates. A
Contractor may cover services for members that are not covered under the State
Plan; however those services are not included in the data provided to actuaries
for setting capitation rates. In addition to the above data used to review the
appropriateness of capitation rates, during renewal years, AHCCCS may look at
other factors that potentially impact appropriate reimbursement including the
medical cost experience of members who exercise their right to choose a health
plan upon initial enrollment versus those who are auto assigned to a health
plan.

PROSPECTIVE CAPITATION: The Contractor will be paid capitation for all
prospective member months, including partial member months. This capitation
includes the cost of providing medically necessary covered services to members
during the prospective period coverage.

PRIOR PERIOD COVERAGE (PPC) CAPITATION: Except for KidsCare members and HIFA
Parents, the Contractor will be paid capitation for all PPC member months,
including partial member months. This capitation includes the cost of providing
medically necessary covered services to members during prior period coverage.
The PPC capitation rates will be set by AHCCCSA and will be paid to the
Contractor along with the prospective capitation described below. Contractors
will not receive PPC capitation for newborns of members who were enrolled at the
time of delivery.

RECONCILIATION OF PPC COSTS TO REIMBURSEMENT: AHCCCSA will reconcile the
Contractor's PPC medical cost expenses to PPC capitation paid to the Contractor
during the year. This reconciliation will limit the Contractor's profits and
losses to 2%. Any losses in excess of 2% will be reimbursed to the Contractor,
and likewise, profits in excess of 2% will be recouped. Encounter data will be
used to determine medical expenses. Refer to the AHCCCS Division of Health Care
Management's PPC Reconciliation Policy for further details.

RISK SHARING FOR TITLE XIX WAIVER MEMBERS: AHCCCSA will reconcile the
Contractor's PPC and prospective medical cost expenses to PPC capitation,
prospective capitation, hospitalized supplemental payments, delivery
supplemental payments and HIV/AIDS supplemental payments paid to the Contractor
during the year. This reconciliation will limit the Contractor's profits and
losses to 2%. Any losses in excess of 2% will be reimbursed to the Contractor,
and likewise, profits in excess of 2% will be recouped. Encounter data will be
used to determine medical expenses. Refer to the AHCCCS Division of Health Care
Management's Title XIX Waiver Reconciliation Policy for further details.

DELIVERY SUPPLEMENT: When the Contractor has an enrolled woman who delivers
during a prospective enrollment period, the Contractor will be entitled to a
supplemental payment. Supplemental payments will not apply to women who deliver
in a prior period coverage time period. AHCCCSA reserves the right at any time
during the term of this contract to adjust the amount of this payment for women
who deliver at home. The delivery supplemental payment is not made if the
hospitalized supplemental payment has already been paid.

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


HOSPITALIZED SUPPLEMENTAL PAYMENT: If an MED member is an inpatient on the date
of application for AHCCCS eligibility, and the date of application falls within
the member's eligibility period, the Contractor is entitled to a supplemental
payment to help defray costs related to the inpatient stay. The payment is a
one-time supplement that is paid when the member is enrolled with the Contractor
and is subject to review during the term of the contract.

HIV-AIDS SUPPLEMENT: On a quarterly basis, the Contractor shall submit to
AHCCCSA, Division of Health Care Management, an unduplicated monthly count of
members, by rate code, who are using approved HIV/AIDS drugs along with the
supporting pharmacy log. The report shall be submitted, along with the quarterly
financial reporting package, within 60 days after the end of each quarter.
AHCCCSA reserves the right to recoup any amounts paid for ineligible members as
well as an associated penalty for incorrect encounter reporting.

Refer to the AHCCCS, Division of Health Care Management HIV/AIDS Supplemental
Payment and Review Policy for further details and requirements.

54. PAYMENTS TO CONTRACTORS

Subject to the availability of funds, AHCCCSA shall make payments to the
Contractor in accordance with the terms of this contract provided that the
Contractor's performance is in compliance with the terms and conditions of this
contract. Payment must comply with requirements of A.R.S. Title 36. AHCCCSA
reserves the option to make payments to the Contractor by wire or National
Automated Clearing House Association (NACHA) transfer and will provide the
Contractor at least 30 days notice prior to the effective date of any such
change.

Where payments are made by electronic funds transfer, AHCCCSA shall not be
liable for any error or delay in transfer or indirect or consequential damages
arising from the use of the electronic funds transfer process. Any charges or
expenses imposed by the bank for transfers or related actions shall be borne by
the Contractor. Except for adjustments made to correct errors in payment, and as
otherwise specified in this section, any savings remaining to the Contractor as
a result of favorable claims experience and efficiencies in service delivery at
the end of the contract term may be kept by the Contractor.

All funds received by the Contractor pursuant to this contract shall be
separately accounted for in accordance with generally accepted accounting
principles.

Except for funds received from the collection of permitted copayments and
third-party liabilities, the only source of payment to the Contractor for the
services provided hereunder is the Arizona Health Care Cost Containment System
Fund. An error discovered by the State, with or without an audit, in the amount
of fees paid to the Contractor will be subject to adjustment or repayment by
AHCCCSA making a corresponding decrease in a current Contractor's payment or by
making an additional payment to the Contractor.

No payment due the Contractor by AHCCCSA may be assigned or pledged by the
Contractor. This section shall not prohibit AHCCCSA at its sole option from
making payment to a fiscal agent hired by Contractor.

55. CAPITATION ADJUSTMENTS

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


Except for changes made specifically in accordance with this contract, the rates
set forth in Section B shall not be subject to re-negotiation or modification
during the contract period. AHCCCSA may, at its option, review the effect of a
program change and determine if a capitation adjustment is needed. In these
instances the adjustment will be prospective with assumptions discussed with the
Contractor prior to modifying capitation rates. The Contractor may request a
review of a program change if it believes the program change was not equitable;
AHCCCSA will not unreasonably withhold such a review.

If the Contractor is in any manner in default in the performance of any
obligation under this contract, AHCCCSA may, at its option and in addition to
other available remedies, adjust the amount of payment until there is
satisfactory resolution of the default. The Contractor shall reimburse AHCCCSA
and/or AHCCCSA may deduct from future monthly capitation for any portion of a
month during which the Contractor was not at risk due to, for example:

a. death of a member
b. member's incarceration (not eligible for AHCCCS benefits from the date of
   incarceration)
c. duplicate capitation to the same Contractor
d. adjustment based on change in member's contract type
e. voluntary withdrawal

If a member is enrolled twice with the same Contractor, recoupment will be made
as soon as the double capitation is identified. AHCCCSA reserves the right to
modify its policy on capitation recoupments at any time during the term of this
contract.

56. INCENTIVES

AHCCCSA will be implementing an incentive program that utilizes financial and/or
non-financial incentives to promote program quality. AHCCCSA will use contractor
clinical performance indicators in the development of an incentive program.
Examples of incentive programs are listed below.

AUTO ASSIGNMENT ALGORITHM: Effective CYE '06, AHCCCSA will adjust the auto
assignment algorithm methodology to incorporate contractor's clinical
performance indicator results in the calculation of target percentages. AHCCCSA
will use the following performance indicators:

      Prenatal Care in the First Trimester
      Well-Child Visits 3-6 Years

ADMINISTRATIVE REQUIREMENTS: Effective CYE '06, AHCCCSA may elect to reduce
Operational Financial Review (OFR) requirements for high performing contractors.

USE OF WEBSITE: Contractors will be required to post their clinical performance
indicators compared to AHCCCS standard and statewide averages on their website.
In addition, AHCCCSA will post contractor performance indicators on its website.

INCENTIVE FUND: Beginning in CYE '05, AHCCCS will create a $1.5 million dollar
pool to be distributed by September 2005. This financial incentive funding will
be paid out as a reward for good performance and to reimburse for additional
costs incurred to achieve a higher level of performance and/or better care for
members. AHCCCS will distribute this pool of funds to Contractors based on the
following criteria and performance measures:

   1. Reaching the CYE '05 goal for EPSDT Well-child Visits (based on CYE '04
      data)
   2. Consistently meeting administrative measure standards as defined in
      Section D, Paragraph 24, Performance Standards
   3. Achievement and/or continuation of disease management activities
   4. Participation with residency programs

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


AHCCCSA will share the methodology for allocation and distribution of the fund
with Contractors prior to finalization.

57. REINSURANCE

Reinsurance is a stop-loss program provided by AHCCCSA to the Contractor for the
partial reimbursement of covered services, as described below, for a member with
an acute medical condition beyond an annual deductible level. AHCCCSA
"self-insures" the reinsurance program through a deduction to capitation rates
that is intended to be budget neutral. Refer to the AHCCCSA Reinsurance Claims
Processing Manual for further details on the Reinsurance Program.

INPATIENT REINSURANCE

Inpatient reinsurance covers partial reimbursement of covered inpatient facility
medical services. See the table below for applicable deductible levels and
coinsurance percentages. The coinsurance percent is the rate at which AHCCCSA
will reimburse the Contractor for covered inpatient services incurred above the
deductible. The deductible is the responsibility of the Contractor. Per diem
rates paid for nursing facility services provided within 30 days of an acute
hospital stay, including room and board, provided in lieu of hospitalization for
up to 90 days in any contract year shall be eligible for reinsurance coverage.

The following table represents deductible and coinsurance levels:
<TABLE>
<CAPTION>


                                                  Title XIX Waiver Group
                     Annual Deductible*           Annual Deductible

    Statewide Plan                              Combined
      Enrollment        Prospective        PPC and Prospective      Coinsurance
                        Reinsurance        Reinsurance
<S>                  <C>                   <C>                      <C>
  0-34,999                $20,000                $15,000                75%
  35,000-49,999           $35,000                $15,000                75%
  50,000 and over         $50,000                $15,000                75%
</TABLE>


  *applies to all members except for Title XIX Waiver Group members

A) PROSPECTIVE REINSURANCE: This coverage applies to prospective enrollment
periods. The deductible level is based on the Contractor's statewide AHCCCS
acute care enrollment (not including SOBRA Family Planning Extension services)
as of October 1st each contract year for all rate codes and counties, as shown
in the table above. AHCCCSA will adjust the Contractor's deductible level at the
beginning of a contract year if the Contractor's enrollment changes to the next
enrollment level. A Contractor at the $35,000 or $50,000 deductible level may
elect a lower deductible prior to the beginning of a new contract year. These
deductible levels are subject to change by AHCCCSA during the term of this
contract. Any change will have a corresponding impact on capitation rates.

B) PRIOR PERIOD COVERAGE REINSURANCE: Effective October 1, 2003, AHCCCSA will no
longer cover PPC inpatient expenses under the reinsurance program for any
members except Title XIX Waiver Group members. See section c) below for
additional information.

C) TITLE XIX WAIVER MEMBERS: A separate reinsurance deductible for the Title XIX
Waiver Group applies for both the prospective and prior period coverage time
periods. There can only be one reinsurance case for prior period and prospective
enrollment.

CATASTROPHIC REINSURANCE

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


The reinsurance program includes a special Catastrophic Reinsurance program.
This program encompasses members diagnosed with hemophilia, von Willebrand's
Disease, and Gaucher's Disease. For additional detail and restrictions refer to
the AHCCCS Reinsurance Claims Processing Manual and the AMPM. There are no
deductibles for catastrophic reinsurance cases. All medically necessary covered
services provided during the contract year shall be eligible for reimbursement
at 85% of the Contractor's paid amount. All catastrophic claims are subject to
medical review by AHCCCSA.

The Contractor shall notify AHCCCSA, Division of Health Care Management,
Reinsurance Unit, of cases identified for catastrophic reinsurance coverage
within 30 days of (a) initial diagnosis, (b) enrollment with the Contractor, and
(c) the beginning of each contract year. Catastrophic reinsurance will be paid
for a maximum 30-day retroactive period from the date of notification to
AHCCCSA. The determination of whether a case or type of case is catastrophic
shall be made by the Director or designee based on the following criteria; 1)
severity of medical condition, including prognosis; and 2) the average cost or
average length of hospitalization and medical care, or both, in Arizona, for the
type of case under consideration.

HEMOPHILIA: Catastrophic reinsurance coverage is available for all members
diagnosed with Hemophilia (ICD9 codes 286.0, 286.1, 286.2).

VON WILLEBRAND'S DISEASE: Catastrophic reinsurance coverage is available for all
members diagnosed with von Willebrand's Disease who are non-DDAVP responders and
dependent on Plasma Factor VIII.

GAUCHER'S DISEASE: Catastrophic reinsurance is available for members diagnosed
with Gaucher's Disease classified as Type I and are dependent on enzyme
replacement therapy.

TRANSPLANTS

This program covers members who are eligible to receive covered major organ and
tissue transplantation including bone marrow, heart, heart/lung, lung, liver,
kidney, and other organ transplantation. Bone grafts and cornea transplantation
services are not eligible for transplant reinsurance coverage but are eligible
under the regular inpatient reinsurance program. Refer to the AMPM for covered
services for organ and tissue transplants. Reinsurance coverage for transplants
is limited to 85% of the AHCCCS contract amount for the transplantation services
rendered, or 85% of the Contractor's paid amount, whichever is lower. The AHCCCS
contracted transplantation rates may be found in the Bidder's Library. When a
member is referred to a transplant facility for an AHCCCS-covered organ
transplant, the Contractor shall notify AHCCCSA, Division of Health Care
Management.

OTHER

For all reinsurance case types other than transplants, Contractors will be
reimbursed 100% for all medically necessary covered expenses provided in a
contract year, after the reinsurance case reaches $650,000. Transplant case
types have another risk limitation methodology described in the AHCCCSA
Reinsurance Claims Processing Manual.

ENCOUNTER SUBMISSION AND PAYMENTS FOR REINSURANCE

a) ENCOUNTER SUBMISSION: A Contractor shall prepare, review, verify, certify,
and submit, encounters for consideration to AHCCCSA. Upon submission, the
Contractor certifies that the services listed were actually rendered. The
encounters must be submitted in the format prescribed by AHCCCSA. The Contractor
must initiate and evaluate an encounter for probable 1st and 3rd party liability
before submitting the encounter for reinsurance consideration, unless the
encounter involves underinsured or uninsured motorist liability insurance, 1st
and 3rd party liability insurance or a tort feasor.

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


The Contractor must maintain evidence that costs incurred have been paid by the
Contractor before submitting reinsurance encounters. This information is subject
to AHCCCSA review. Collections from 1st and 3rd parties should be reflected by
the Contractor as reductions in the encounters submitted on a dollar-for-dollar
basis. For purposes of AHCCCSA reinsurance, payments made by
Contractor-purchased reinsurance are not considered 1st and 3rd party
collections.

All reinsurance claims must reach a clean claim status within fifteen months
from the end date of service, or date of eligibility posting, whichever is
later.

b) ENCOUNTER PROCESSING: AHCCCSA will accept for processing only those
encounters that are submitted directly by an AHCCCS Contractor and that comply
with the AHCCCSA Encounter Reporting User Manual.

c) PAYMENT OF INPATIENT AND CATASTROPHIC REINSURANCE CASES: AHCCCSA will
reimburse a Contractor for costs incurred in excess of the applicable deductible
level, subject to coinsurance percentages. Amounts in excess of the deductible
level shall be paid based upon costs paid by the Contractor, minus the
coinsurance unless the costs are paid under a subcapitated arrangement. In
subcapitated arrangements, the Administration shall base reimbursement of
reinsurance encounters on the lower of the AHCCCS allowed amount or the reported
health plan paid amount, minus the coinsurance and Medicare/TPL payment and
applicable quick pay discounts.

Reimbursement for these reinsurance benefits will be made to the Contractor each
month. AHCCCSA will also provide a reconciliation of reinsurance payments in the
case where encounters used in the calculation of reinsurance benefits are
subsequently adjusted or voided.

When a member with an annual enrollment choice changes Contractors within a
contract year, for reinsurance purposes, all eligible inpatient costs, nursing
facility costs and inpatient psychiatric costs incurred for that member will
follow the member to the receiving health plan. Therefore, all submitted
encounters from the health plan the member is leaving (for dates of service
within the current contract year) will be applied toward, but not exceed, the
receiving health plan's deductible level. For further details regarding this
policy and other reinsurance policies refer to the AHCCCS Reinsurance Claims
Processing Manual.

d) PAYMENT OF TRANSPLANT REINSURANCE CASES: Reinsurance benefits are based upon
the lower of the AHCCCS contract amount or the Contractor's paid amount, subject
to coinsurance percentages. Effective for dates of service on or after October
1, 2004, Contractors are required to submit all supporting service encounters
for transplant services. Reinsurance payments will be linked to transplant
encounter submissions. Please refer to the AHCCCS Reinsurance Claims Processing
Manual for the appropriate billing of transplant services. Reimbursement for
these reinsurance benefits will be made to the Contractor each month.

REINSURANCE AUDITS

PRE-AUDIT: Medical audits on prospective and prior period coverage reinsurance
cases will be determined based on statistically valid retrospective random
sampling. For closed contracts, a 100% audit will be conducted. AHCCCSA,
Division of Health Care Management, Reinsurance Unit, will generate the sampling
and will notify the Contractor of documentation needed for the retrospective
medical audit process to occur at the Contractor's offices.

ON-SITE AUDIT: AHCCCSA will give the Contractor at least 45 days advance notice
of any on-site audit. The Contractor shall have all requested medical records
and financial documentation on-site and available to the nurse auditors. Any
documents not requested in advance by AHCCCSA shall be made available upon
request of the Audit Team during the course of the audit. The Contractor
representative shall be available to the Audit Team at all times during AHCCCSA
on-site audit activities. While on-site, the Contractor shall provide the Audit
Team with workspace, access to a telephone, electrical outlets and privacy for
conferences.

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


AUDIT CONSIDERATIONS: Reinsurance consideration will be given to inpatient
facility contracts and hearing decisions rendered by the Office of Legal
Assistance. Pre-hearing and/or hearing penalties discoverable during the review
process will not be reimbursed under reinsurance.

Per diem rates may be paid for nursing facility and rehabilitation services
provided the services are rendered within 30 days of an acute hospital stay,
including room and board, provided in lieu of hospitalization for up to 90 days
in any contract year. The services rendered in these sub-acute settings must be
of an acute nature and, in the case of rehabilitative or restorative services,
steady progress must be documented in the medical record.

AUDIT DETERMINATIONS: The Contractor will be furnished a copy of the Reinsurance
Post-Audit Results letter approximately 60 days after the onsite audit and given
an opportunity to comment and provide additional medical or financial
documentation on any audit findings. AHCCCSA may limit reinsurance reimbursement
to a lower or alternative level of care if the Director or designee determines
that the less costly alternative could and should have been used by the
Contractor. A recoupment of reinsurance reimbursements made to the Contractor
may occur based on the results of the medical audit sampling. The results of the
medical audit sampling may be separately extrapolated to the entire prospective
and prior period coverage reinsurance reimbursement populations in the audit
timeframe for the Contractor.

A Contractor whose reinsurance case is reduced or denied shall be notified in
writing by AHCCCSA and will be informed of rationale for reduction or denial
determination and the applicable grievance and appeal process available.

58. COORDINATION OF BENEFITS / THIRD PARTY LIABILITY

By law, AHCCCSA is the payer of last resort. This means AHCCCSA shall be used as
a source of payment for covered services only after all other sources of payment
have been exhausted. The two methods used in the coordination of benefits are
cost avoidance and post payment recovery. The Contractor shall use these methods
as described in A.A.C. R9-22-1003, A.A.C. R9-22-1005, A.A.C. R9-22-1009. (See
also Section D, Paragraph 60, Medicare Services and Cost Sharing).

The Contractor shall notify AHCCCSA's authorized representative within 10
business days of the identification of a third-party liability case with
reinsurance or fee-for-service payments made by AHCCCS. Failure to report these
cases may result in one of the remedies specified in Section D, Paragraph 72,
Sanctions. The Contractor shall communicate any known change in health insurance
information, including Medicare, to AHCCCS Administration, Division of Member
Services, not later than 10 days from the date of discovery using the approved
AHCCCS Third-Party Coverage Form.

COST AVOIDANCE: The Contractor shall cost-avoid all claims or services that are
subject to third-party payment and may deny a service to a member if it knows
that a third party (i.e. other insurer) will provide the service. However, if a
third-party insurer (other than Medicare) requires the member to pay any
copayment, coinsurance or deductible, the Contractor is responsible for making
these payments, even if the services are provided outside of the Contractor's
network. The Contractor's liability for copayments, coinsurance and deductibles
is limited to what the Contractor would have paid for the entire service
pursuant to a written contract with the provider or the AHCCCS fee-for-service
rate, less any amount paid by the third party. (The Contractor must decide
whether it is more cost-effective to provide the service within its network or
pay coinsurance and deductibles for a service outside its network. For
continuity of care, the Contractor may also choose to provide the service within
its network.) If the Contractor refers the member for services to a third-party
insurer (other than Medicare), and the insurer requires payment in advance of
all copayments, coinsurance and deductibles, the Contractor must make such
payments in advance.

If the Contractor knows that the third party insurer will not pay as the result
of either exceeding timely filing limits, or as the result of the underlying
insurance coverage, and the service is medically necessary, the

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


Contractor shall not deny the service nor require a written denial letter. If
the Contractor does not know whether a particular service is covered by the
third party, and the service is medically necessary, the Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so.

The requirement to cost-avoid applies to all AHCCCS covered services. For
prenatal care and preventive pediatric services, AHCCCS may require the
Contractor to provide such service and then coordinate payment with the
potentially liable third party ("pay and chase"). In emergencies, the Contractor
shall provide the necessary services and then coordinate payment with the
third-party payer. The Contractor shall also provide medically necessary
transportation so the member can receive third-party benefits. Further, if a
service is medically necessary, the Contractor shall ensure that its cost
avoidance efforts do not prevent a member from receiving such service and that
the member shall not be required to pay any coinsurance or deductibles for use
of the other insurer's providers.

POSTPAYMENT RECOVERIES: Postpayment recovery is necessary in cases where the
Contractor was not aware of third-party coverage at the time services were
rendered or paid for, or was unable to cost-avoid. The Contractor shall
identify, through the use of trauma code edits, utilizing diagnostic codes 799.9
and 800 to 999.9 (excluding code 994.6), and other procedures, all potentially
liable third parties and pursue reimbursement from them except in the
circumstances below. The Contractor shall not pursue reimbursement in the
following circumstances, unless the case has been referred to the Contractor by
AHCCCSA or AHCCCSA's authorized representative:

<TABLE>
<S>                                               <C>
Uninsured/underinsured motorist insurance         Restitution Recovery
First-and third-party liability insurance         Worker's Compensation
Tortfeasors, including casualty                   Estate recovery
Special Treatment Trusts recovery
</TABLE>

The Contractor shall report any cases involving the above circumstances to
AHCCCSA's authorized representative should the Contractor identify such a
situation. See AHCCCS Rule R9-22-1005 and R9-31-1005. The Contractor shall
cooperate with AHCCCSA's authorized representative in all collection efforts. In
joint cases involving both AHCCCS fee-for-service or reinsurance and the
Contractor, AHCCCSA's authorized representative is responsible for performing
all research, investigation and payment of lien-related costs, subsequent to the
referral of any and all relevant case information to AHCCCSA's authorized
representative by the Contractor. AHCCCSA's authorized representative is also
responsible for negotiating and acting in the best interest of all parties to
obtain a reasonable settlement in joint cases and may compromise a settlement in
order to maximize overall reimbursement, net of legal and other costs. The
Contractor will be responsible for their prorated share of the contingency fee.
The Contractor's share of the contingency fee will be deducted from the
settlement proceeds prior to AHCCCSA remitting the settlement to the Contractor.
For total plan cases involving only payments from the Contractor, the Contractor
is responsible for performing all research, investigation, the mandatory filing
of initial liens on cases that exceed $250, lien amendments, lien releases, and
payment of other related costs in accordance with A.R.S. 36-2915 and A.R.S.
36-2916. The Contractor shall use the AHCCCS approved casualty recovery
correspondence when filing liens and when corresponding to others in regard to
casualty recovery.

The Contractor may retain up to 100% of its third-party collections if all of
the following conditions exist:

      a.    Total collections received do not exceed the total amount of the
            Contractor's financial liability for the member

      b.    There are no payments made by AHCCCS related to fee-for-service,
            reinsurance or administrative costs (i.e. lien filing and
            contingency fees, etc.)

      c.    Such recovery is not prohibited by State or Federal law

REPORTING: The Contractor may be required to report case level detail of
third-party collections and cost avoidance, including number of referrals on
total plan cases. In addition, upon AHCCCSA's request, the

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


Contractor shall provide an electronic extract of the Casualty cases, including
open and closed cases. Data elements include, but are not limited to: the
member's first and last name; AHCCCS ID; date of incident; claimed amount;
paid/recovered amount; and case status. The AHCCCSA TPL Section shall provide
the format and reporting schedule for this information to the Contractor Prior
to negotiating a settlement on a total plan case, the Contractor shall notify
AHCCCS to ensure that there is no reinsurance or fee for service payments that
have been made by AHCCCS.

AHCCCSA will provide the Contractor, on an agreed upon schedule, with a complete
file of all third-party coverage information (other than Medicare) for the
purpose of updating the Contractor's files. The Contractor shall notify AHCCCSA
of any known changes in coverage within deadlines and in a format prescribed by
AHCCCSA.

TITLE XXI (KIDSCARE), HIFA PARENTS AND BCCTP: Eligibility for KidsCare, HIFA
Parents and BCCTP benefits require that the applicant/member not be enrolled
with any other creditable health insurance plan. If the Contractor becomes aware
of any such coverage, the Contractor shall notify AHCCCSA immediately. AHCCCSA
will determine if the other insurance meets the creditable definition in A.R.S.
36-2982(G).

CONTRACT TERMINATION: Upon termination of this contract, the Contractor will
complete the existing third party liability cases or make any necessary
arrangements to transfer the cases to AHCCCSA's authorized TPL representative.

59. COPAYMENTS

At the direction of the Arizona Legislature, AHCCCS modified the existing
structure of copayments payable by AHCCCS members. Effective October 1, 2003,
certain populations will have mandatory copayments, and Contractors will be
allowed to deny services for the inability to pay the copayment. Other
populations remain exempt from copayments while others are subject to an
optional copayment. Those populations exempt or subject to optional copayments
may not be denied services for the inability to pay the copayment.

Any required copayments collected shall belong to the Contractor or its
subcontractors.

Attachment L provides detail of the populations and their related copayment
structure.

60. MEDICARE SERVICES AND COST SHARING

AHCCCS has members enrolled who are eligible for both Medicaid and Medicare.
These members are referred to as "dual eligibles". Generally, Contractors are
responsible for payment of Medicare coinsurance and/or deductibles for covered
services provided to dual eligible members. However, there are different cost
sharing responsibilities that apply to dual eligible members based on a variety
of factors. Unless prior approval is obtained from AHCCCSA, the Contractor must
limit their cost sharing responsibility according to the AHCCCS Medicare Cost
Sharing Policy. The Contractor shall have no cost sharing obligation if the
Medicare payment exceeds what the Contractor would have paid for the same
service of a non-Medicare member.

61. MARKETING

The Contractor shall submit all proposed marketing and outreach materials and
events that will involve the general public to the AHCCCS Marketing Committee
for prior approval in accordance with the AHCCCS Health Plan Marketing Policy.
The Contractor must have signed contracts with PCPs, specialists, dentists, and
pharmacies in order for them to be included in marketing materials.

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


62. CORPORATE COMPLIANCE

In accordance with A.R.S. Section 36-2918.01, all contractors are required to
notify the AHCCCS, Office of Program Integrity (OPI) immediately of all
suspected fraud or abuse. The Contractor agrees to promptly (within ten business
days of discovery) inform OPI in writing of instances of suspected fraud or
abuse. This shall include acts of suspected fraud or abuse that were resolved
internally but involved AHCCCS funds, contractors or sub-contractors.

As stated in A.R.S. Section 13-2310, incorporated herein by reference, any
person who knowingly obtains any benefit by means of false or fraudulent
pretenses, representations, promises, or material omissions is guilty of a Class
2 felony.

The Contractor agrees to permit and cooperate with any onsite review. A review
by AHCCCS, OPI may be conducted without notice and for the purpose of ensuring
program compliance. The Contractor also agrees to respond to electronic,
telephonic or written requests for information within the timeframe specified by
AHCCCSA.

The Contractor shall be in compliance with 42 CFR 438.608. The Contractor must
have a mandatory compliance program, supported by other administrative
procedures, that is designed to guard against fraud and abuse. The Contractor
shall have written criteria for selecting a Compliance Officer and a job
description that clearly outlines the responsibilities and the authority of the
position. The Compliance Officer shall have the authority to access records and
independently refer suspected member fraud, provider fraud and member abuse
cases to AHCCCS, OPI or other duly authorized enforcement agencies.

The compliance program, which shall both prevent and detect suspected fraud or
abuse, must include:

      1.    Written policies, procedures, and standards of conduct that
            articulate the organization's commitment to and processes for
            complying with all applicable federal and state standards.

      2.    The written designation of a compliance committee who are
            accountable to the Contractor's top management.

      3.    The Compliance Officer must be an onsite management official who
            reports directly to the Contractor's top management. Any exceptions
            must be approved by AHCCCSA.

      4.    Effective training and education.

      5.    Effective lines of communication between the compliance officer and
            the organization's employees.

      6.    Enforcement of standards through well-publicized disciplinary
            guidelines.

      7.    Provision for internal monitoring and auditing.

      8.    Provision for prompt response to problems detected.

      9.    A Compliance Committee which will be made up of, at a minimum, the
            Compliance Officer, a budgetary official and other executive
            officials with the authority to commit resources. The Compliance
            Committee will assist the Compliance Officer with monitoring,
            reviewing and assessing the effectiveness of the compliance program
            and timeliness of compliance reporting.

The Contractor is required to research potential overpayments identified by
AHCCCS, OPI. After conducting a cost benefit analysis to determine if such
action is warranted, the Contractor should attempt to recover any overpayments
identified. The AHCCCS OPI shall be advised of the final disposition of the
research and advised of actions, if any, taken by the Contractor.

63. RECORDS RETENTION

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


The Contractor shall maintain books and records relating to covered services and
expenditures including reports to AHCCCSA and working papers used in the
preparation of reports to AHCCCSA. The Contractor shall comply with all
specifications for record keeping established by AHCCCSA. All books and records
shall be maintained to the extent and in such detail as required by AHCCCS Rules
and policies. Records shall include but not be limited to financial statements,
records relating to the quality of care, medical records, prescription files and
other records specified by AHCCCSA.

The Contractor agrees to make available, at all reasonable times during the term
of this contract, any of its records for inspection, audit or reproduction by
any authorized representative of AHCCCSA, State or Federal government. The
Contractor shall be responsible for any costs associated with the reproduction
of requested information.

The Contractor shall preserve and make available all records for a period of
five years from the date of final payment under this contract.

If this contract is completely or partially terminated, the records relating to
the work terminated shall be preserved and made available for a period of five
years from the date of any such termination. Records which relate to grievances,
disputes, litigation or the settlement of claims arising out of the performance
of this contract, or costs and expenses of this contract to which exception has
been taken by AHCCCSA, shall be retained by the Contractor for a period of five
years after the date of final disposition or resolution thereof.

64. DATA EXCHANGE REQUIREMENTS

The Contractor is authorized to exchange data with AHCCCSA relating to the
information requirements of this contract and as required to support the data
elements to be provided AHCCCSA in the formats prescribed by AHCCCSA and in
formats prescribed by the Health Insurance Portability and Accountability Act
(HIPAA). Details for the formats may be found in the draft HIPAA Transaction
Companion Documents & Trading Partner Agreements, and in the AHCCCS Technical
Interface Guidelines, available in the Bidder's Library.

The information so recorded and submitted to AHCCCSA shall be in accordance with
all procedures, policies, rules, or statutes in effect during the term of this
contract. If any of these procedures, policies, rules, regulations or statutes
are hereinafter changed both parties agree to conform to these changes following
appropriate notification to both parties by AHCCCSA.

The Contractor is responsible for any incorrect data, delayed submission or
payment (to the Contractor or its subcontractors), and/or penalty applied due to
any error, omission, deletion, or erroneous insert caused by
Contractor-submitted data. Any data that does not meet the standards required by
AHCCCSA shall not be accepted by AHCCCSA.

The Contractor is responsible for identifying any inconsistencies immediately
upon receipt of data from AHCCCSA. If any unreported inconsistencies are
subsequently discovered, the Contractor shall be responsible for the necessary
adjustments to correct its records at its own expense.

The Contractor shall accept from AHCCCSA original evidence of eligibility and
enrollment in a form appropriate for electronic data exchange. Upon request by
AHCCCSA, the Contractor shall provide to AHCCCSA updated date-sensitive PCP
assignments in a form appropriate for electronic data exchange.

The Contractor shall be provided with a Contractor-specific security code for
use in all data transmissions made in accordance with contract requirements.
Each data transmission by the Contractor shall include the Contractor's security
code. The Contractor agrees that by use of its security code, it certifies that
any data transmitted is accurate and truthful, to the best of the Contractor's
Chief Executive Officer, Chief Financial Officer or designee's knowledge. The
Contractor further agrees to indemnify and hold harmless the State of Arizona
and

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PROGRAM REQUIREMENTS                                  CONTRACT/RFP NO. YH04-0001


AHCCCSA from any and all claims or liabilities, including but not limited to
consequential damages, reimbursements or erroneous billings and reimbursements
of attorney fees incurred as a consequence of any error, omission, deletion or
erroneous insert caused by the Contractor in the submitted input data. Neither
the State of Arizona nor AHCCCSA shall be responsible for any incorrect or
delayed payment to the Contractor's AHCCCS services providers (subcontractors)
resulting from such error, omission, deletion, or erroneous input data caused by
the Contractor in the submission of AHCCCS claims.

The costs of software changes are included in administrative costs paid to the
Contractor. There is no separate payment for software changes. A PMMIS systems
contact will be assigned after contract award. AHCCCSA will work with the health
plans as they evaluate Electronic Data Interchange options.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA): The Contractor
shall comply with the Administrative Simplification requirements of Subpart F of
the HIPAA of 1996 (Public Law 107-191, 110 Statutes 1936) and all Federal
regulations implementing that Subpart that are applicable to the operations of
the Contractor by the dates required by the implementing Federal regulations.

65. ENCOUNTER DATA REPORTING

The accurate and timely reporting of encounter data is crucial to the success of
the AHCCCS program. AHCCCSA uses encounter data to pay reinsurance benefits, set
fee-for-service and capitation rates, determine disproportionate share payments
to hospitals, and to determine compliance with performance standards. The
Contractor shall submit encounter data to AHCCCSA for all services for which the
Contractor incurred a financial liability and claims for services eligible for
processing by the Contractor where no financial liability was incurred,
including services provided during prior period coverage. This requirement is a
condition of the CMS grant award.

A Contractor shall prepare, review, verify, certify, and submit, encounters for
consideration to AHCCCSA. Upon submission, the Contractor certifies that the
services listed were actually rendered. The encounters must be submitted in the
format prescribed by AHCCCSA.

Encounter data must be provided to AHCCCSA by electronic media and must be
submitted in the PMMIS AHCCCSA supplied formats. Specific requirements for
encounter data are described in the AHCCCSA Encounter Reporting User Manual, a
copy of which may be found in the Bidder's Library. The Encounter Submission
Requirements are included herein as Attachment I. Refer to Paragraph 64, Data
Exchange Requirements, for further information.

An Encounter Submission Tracking Report must be maintained and made available to
AHCCCSA upon request. The Tracking Report's purpose is to link each claim to an
adjudicated or pended encounter returned to the Contractor. Further information
regarding the Encounter Submission Tracking Report may be found in The AHCCCSA
Encounter Reporting User's Manual.

Each month AHCCCSA provides the Contractor with full replacement files
containing provider and medical procedure coding information. These files should
be used to assist the Contractor in accurate Encounter Reporting. Refer to
Paragraph 64, Data Exchange Requirements, for further information.

66. ENROLLMENT AND CAPITATION TRANSACTION UPDATES

AHCCCSA produces daily enrollment transaction updates identifying new members
and changes to members' demographic, eligibility and enrollment data, which the
Contractor shall use to update its member records. The daily enrollment
transaction update, which is run prior to the monthly enrollment and capitation
transaction update, is referred to as the "last daily" and will contain all rate
code changes made for the prospective month, as well as any new enrollments and
disenrollments.

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AHCCCSA also produces a daily Manual Payment Transaction, which identifies
enrollment or disenrollment activity that was not included on the daily
enrollment transaction update due to internal edits. The Contractor shall use
the Manual Payment Transaction in addition to the daily enrollment transaction
update to update its member records.

A weekly capitation transaction will be produced to provide contractors with
member-level capitation payment information. This file will show changes to the
prospective capitation payments, as sent in the monthly file, resulting from
enrollment changes that occur after the monthly file is produced. This file will
also identify mass adjustments to and/or manual capitation payments that
occurred at AHCCCS after the monthly file is produced.

The monthly enrollment and monthly capitation transaction updates are generally
produced two days before the end of every month. The update will identify the
total active population for the Contractor as of the first day of the next
month. These updates contain the information used by AHCCCSA to produce the
monthly capitation payment for the next month. The Contractor will reconcile
their member files with the AHCCCS monthly update. After reconciling the monthly
update information, the Contractor resumes posting daily updates beginning with
the last two days of the month. The last two daily updates are different from
the regular daily updates in that they pay and/or recoup capitation into the
next month. If the Contractor detects an error through the monthly update
process, the Contractor shall notify AHCCCSA, Division of Health Care
Management.

Refer to Paragraph 64, Data Exchange Requirements, for further information.

67. PERIODIC REPORT REQUIREMENTS

AHCCCSA, under the terms and conditions of its CMS grant award, requires
periodic reports, encounter data, and other information from the Contractor. The
submission of late, inaccurate, or otherwise incomplete reports shall constitute
failure to report subject to the penalty provisions described in this contract.

Standards applied for determining adequacy of required reports are as follows:

      a.    Timeliness: Reports or other required data shall be received on or
            before scheduled due dates.

      b.    Accuracy: Reports or other required data shall be prepared in strict
            conformity with appropriate authoritative sources and/or AHCCCS
            defined standards.

      c.    Completeness: All required information shall be fully disclosed in a
            manner that is both responsive and pertinent to report intent with
            no material omissions.

AHCCCS requirements regarding reports, report content and frequency of
submission of reports are subject to change at any time during the term of the
contract. The Contractor shall comply with all changes specified by AHCCCSA.

The Contractor shall be responsible for continued reporting beyond the term of
the contract. For example, processing claims and reporting encounter data will
likely continue beyond the term of the contract because of lag time in filing
source documents by subcontractors.

The Contractor shall comply with all financial reporting requirements contained
in the Reporting Guide for Acute Health Care Contractors with the Arizona Health
Care Cost Containment System, a copy of which may be found in the Bidder's
Library. The required reports, which are subject to change during the contract
term, are summarized in Attachment F, Periodic Report Requirements.

68. REQUESTS FOR INFORMATION

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AHCCCSA may, at any time during the term of this contract, request financial or
other information from the Contractor. Upon receipt of such requests for
information, the Contractor shall provide complete information as requested no
later than 30 days after the receipt of the request unless otherwise specified
in the request itself.

69. DISSEMINATION OF INFORMATION

Upon request, the Contractor shall assist AHCCCSA in the dissemination of
information prepared by AHCCCSA or the Federal government to its members. The
cost of such dissemination shall be borne by the Contractor. All advertisements,
publications and printed materials that are produced by the Contractor and refer
to covered services shall state that such services are funded under contract
with AHCCCSA.

70. OPERATIONAL AND FINANCIAL READINESS REVIEWS

AHCCCSA may conduct Operational and Financial Readiness Reviews on all
contractors and will, subject to the availability of resources, provide
technical assistance as appropriate. The Readiness Reviews will be conducted
prior to the start of business. The purpose of Readiness Reviews is to assess
new Contractors' readiness and ability to provide covered services to members at
the start of the contract year and current Contractors' readiness to expand to
new geographic service areas. A new Contractor will be permitted to commence
operations only if the Readiness Review factors are met to AHCCCSA's
satisfaction.

71. OPERATIONAL AND FINANCIAL REVIEWS

In accordance with CMS requirements, AHCCCSA, or an independent external agent,
will conduct annual Operational and Financial Reviews for the purpose of (but
not limited to) ensuring operational and financial program compliance. The
reviews will identify areas where improvements can be made and make
recommendations accordingly, monitor the Contractor's progress towards
implementing mandated programs and provide the Contractor with technical
assistance if necessary. The Contractor shall comply with all other medical
audit provisions as required by AHCCCS Rule R9-22-521 and R9-31-521.

The type and duration of the Operational and Financial Review will be solely at
the discretion of AHCCCSA. Except in cases where advance notice is not possible
or advance notice may render the review less useful, AHCCCSA will give the
Contractor at least three weeks advance notice of the date of the on-site
review. In preparation for the on-site Operational and Financial Reviews, the
Contractor shall cooperate fully with AHCCCSA and the AHCCCSA Review Team by
forwarding in advance such policies, procedures, job descriptions, contracts,
logs and other information that AHCCCSA may request. The Contractor shall have
all requested medical records on-site. Any documents, not requested in advance
by AHCCCSA, shall be made available upon request of the Review Team during the
course of the review. The Contractor personnel, as identified in advance, shall
be available to the Review Team at all times during AHCCCSA on-site review
activities. While on-site, the Contractor shall provide the Review Team with
workspace, access to a telephone, electrical outlets and privacy for
conferences. Certain documentation submission requirements may be waived at the
discretion of AHCCCSA, if the Contractor has obtained accreditation from NCQA,
JCAHO or any other nationally recognized accrediting body. The Contractor must
submit the entire accreditation report to AHCCCSA for such waiver consideration.

The Contractor will be furnished a draft copy of the Operational and Financial
Review Report and given an opportunity to comment on any review findings prior
to AHCCCSA publishing the final report. Operational and Financial Review
findings may be used in the scoring of subsequent bid proposals by that
Contractor. Recommendations, made by the Review Team to bring the Contractor
into compliance with Federal, State, AHCCCS, and/or contract requirements, must
be implemented by the Contractor. AHCCCSA may conduct a follow-up Operational
and Financial Review to determine the Contractor's progress in implementing

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recommendations and achieving program compliance. Follow-up reviews may be
conducted at any time after the initial Operational and Financial Review.

AHCCCSA may conduct an Operational and Financial Review in the event the
Contractor undergoes a merger, reorganization, change in ownership or makes
changes in three or more key staff positions within a 12-month period.

72. SANCTIONS

AHCCCSA may impose monetary sanctions, suspend, deny, refuse to renew, or
terminate this contract or any related subcontracts in accordance with AHCCCS
Rules R9-22-606 and the terms of this contract and applicable Federal or State
law and regulations. Written notice will be provided to the Contractor
specifying the sanction to be imposed, the grounds for such sanction and either
the length of suspension or the amount of capitation prepayment to be withheld.
The Contractor may dispute the decision to impose a sanction in accordance with
A.A.C. 9-34-401 et seq. Intermediate sanctions may be imposed, but are not
limited to the following actions:

a.    Substantial failure to provide medically necessary services that the
      Contractor is required to provide under the terms of this contract to its
      enrolled members.
b.    Imposition of premiums or charges in excess of the amount allowed under
      the AHCCCS 1115 Waiver.
c.    Discrimination among members on the basis of their health status of need
      for health care services.
d.    Misrepresentation or falsification of information furnished to CMS or
      AHCCCSA.
e.    Misrepresentation or falsification of information furnished to an
      enrollee, potential enrollee, or provider.
f.    Failure to comply with the requirement for physician incentive plan as
      delineated in Paragraph 42.
g.    Distribution directly, or indirectly through any agent or independent
      contractor, of marketing materials that have not been approved by AHCCCSA
      or that contain false or materially misleading information.
h.    Failure to meet AHCCCS Financial Viability Standards.
i.    Material deficiencies in the Contractor's provider network.
j.    Failure to meet quality of care and quality management requirements.
k.    Failure to meet AHCCCS encounter standards.
l.    Violation of other applicable State or Federal laws or regulations.
m.    Failure to fund accumulated deficit in a timely manner.
n.    Failure to increase the Performance Bond in a timely manner.
o.    Failure to comply with any provisions contained in this contract.
p.    Failure to report third party liability cases as described in Paragraph
      58.

AHCCCSA may impose the following types of intermediate sanctions:

a.    Civil monetary penalties
b.    Appointment of temporary management for a Contractor as provided in 42 CFR
      438.706 and A.R.S. Section 36-2903(M).
c.    Granting members the right to terminate enrollment without cause and
      notifying the affected members of their right to disenroll.
d.    Suspension of all new enrollment, including auto assignments after the
      effective date of the sanction.
e.    Suspension of payment for recipients enrolled after the effective date of
      the sanction until CMS or AHCCCSA is satisfied that the reason for
      imposition of the sanction no longer exists and is not likely to recur.
f.    Additional sanctions allowed under statue or regulation that address areas
      of noncompliance.

Cure Notice Process: Prior to the imposition of a sanction for non-compliance,
AHCCCSA may provide a written cure notice to the Contractor regarding the
details of the non-compliance. The cure notice will specify the period of time
during which the Contractor must bring its performance back into compliance with
contract requirements. If, at the end of the specified time period, the
Contractor has complied with

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the cure notice requirements, AHCCCSA will take no further action. If, however,
the Contractor has not complied with the cure notice requirements, AHCCCSA may
proceed with the imposition of sanctions. Refer to the DHCM Sanctions Policy for
details.

73. BUSINESS CONTINUITY AND RECOVERY PLAN

The Contractor shall adhere to all elements of the AHCCCS, Division of Health
Care Management Business Continuity and Recovery Plan Policy. The Contractor
shall develop a Business Continuity Plan to deal with unexpected events that may
affect its ability to adequately serve members. This plan shall, at a minimum,
include planning and training for:

      -     Electronic/telephonic failure at the Contractor's main place of
            business
      -     Complete loss of use of the main site
      -     Loss of primary computer system/records
      -     Communication between the Contractor and AHCCCSA in the event of a
            business disruption
      -     Periodic Testing

The Business Continuity Plan shall be updated annually. All key staff shall be
trained and familiar with the Plan.

74. TECHNOLOGICAL ADVANCEMENT

The Contractor shall implement the following technological measures according to
the applicable time frame:

April 1, 2004:

      -     Contractors must have a website with links to the following
            information:

            1.    Formulary listing

            2.    Provider manual

            3.    Member handbook

            4.    Provider


      -     Contractors must have enrollment verification via website fully
            operational

      -     Contractors must have claims inquiry via website fully operational

75. PENDING LEGISLATIVE / OTHER ISSUES

The following constitute pending items that may be resolved after the issuance
of this contract. Any program changes due to the resolution of the issues will
be reflected in future amendments to the contract. Capitation rates may also be
adjusted to reflect the financial impact of program changes.

ARIZONA EARLY INTERVENTION PROGRAM: The Arizona Early Intervention (AzEIP)
Program is implemented through the coordinated activities of the Arizona
Department of Economic Security (DES), the Arizona Department of Health Services
(ADHS), Arizona State Schools for the Deaf and Blind (ASDB), the Arizona Health
Care Cost Containment System (AHCCCS), and the Arizona Department of Education
(ADE). The AzEIP Program is governed by the Individuals with Disabilities Act
(IDEA), Part C (P.L.105-17). AzEIP, through Federal regulation, is stipulated as
the payor of last resort to Medicaid, and is prohibited from supplanting another
entitlement programs, including Medicaid.

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AHCCCS is currently working with the Department of Economic Security to provide
increased Medicaid funding to this program. This may result in additional
coordination with the AzEIP program for the Contractors. Any changes will be
communicated to the Contractors and may result in a future contract amendment.

TRANSPORTATION: AHCCCSA is evaluating its methodology, under capitation, for
providing transportation services to its members. Options may include
contracting with a centralized transportation broker to provide services to all
AHCCCS members.

MEDICARE MODERNIZATION ACT: As the Medicare Modernization act is fully
implemented, there may be required changes to business practices of AHCCCS and
contractors or the contract. AHCCCS will identify potential impacts and work
with contractors to implement necessary program changes. Additionally, AHCCCS is
pursuing a Medicare waiver that would allow AHCCCS contractors to become
Medicare contractors. Contractors will be kept informed of AHCCCS progress on
the waiver.

HEMOPHILIA REQUEST FOR PROPOSAL: The AHCCCS Office of Pharmacy Program
Administrator plans to issue a Request for Proposal (RFP) during contract year
'05 for a singe-source contract for anti-hemolytic blood factors and case
management for the treatment of all AHCCCS members with hemophilia or other
bleeding disorders. Implementation of the single-source contract is expected to
provide cost savings for the blood factor and may also provide savings through
improved case management and prophylactic therapy. Capitation rates may be
adjusted to reflect any cost savings resulting from this RFP.

76. BALANCED BUDGET ACT OF 1997 (BBA)

In August 2002, CMS issued final regulations for the implementation of the BBA.
AHCCCS continues to review all areas of the regulations to ensure full
compliance with the BBA; however, there are some issues that may require further
clarification from CMS. Any program changes due to the resolution of the issues
will be reflected in amendments to the contract. Capitation rates may also be
adjusted to reflect the financial impact of the program changes.

77. HEALTHCARE GROUP OF ARIZONA

AHCCCSA encourages all Contractors to participate in the Healthcare Group (HCG)
program. Legislation was passed in 2002 that shifted administrative
responsibilities from HCG contractors to AHCCCSA. Additionally, effective
February 1, 2003, HCG's service package and premium structure has been
redesigned to better reflect the small group product in the Arizona marketplace.
HCG has created a niche market, as insurance companies are moving away from the
Health Maintenance Organization market. HCG hopes to expand its enrollment
significantly during the next two years, which will result in a solid membership
base to spread risk, thereby increasing the attractiveness of the HCG product.
For additional information, contact AHCCCSA, Office of the Director.

[END OF SECTION D]

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SECTION E: CONTRACT CLAUSES

1) APPLICABLE LAW

ARIZONA LAW - The law of Arizona applies to this contract including, where
applicable, the Uniform Commercial Code, as adopted in the State of Arizona.

IMPLIED CONTRACT TERMS - Each provision of law and any terms required by law to
be in this contract are a part of this contract as if fully stated in it.

2) AUTHORITY

This contract is issued under the authority of the Contracting Officer who
signed this contract. Changes to the contract, including the addition of work or
materials, the revision of payment terms, or the substitution of work or
materials, directed by an unauthorized state employee or made unilaterally by
the Contractor are violations of the contract and of applicable law. Such
changes, including unauthorized written contract amendments, shall be void and
without effect, and the Contractor shall not be entitled to any claim under this
contract based on those changes.

3) ORDER OF PRECEDENCE

The parties to this contract shall be bound by all terms and conditions
contained herein. For interpreting such terms and conditions the following
sources shall have precedence in descending order: The Constitution and laws of
the United States and applicable Federal regulations; the terms of the CMS 1115
waiver for the State of Arizona; the Constitution and laws of Arizona, and
applicable State rules; the terms of this contract, including all attachments
and executed amendments and modifications; AHCCCSA policies and procedures.

4) CONTRACT INTERPRETATION AND AMENDMENT

NO PAROL EVIDENCE - This contract is intended by the parties as a final and
complete expression of their agreement. No course of prior dealings between the
parties and no usage of the trade shall supplement or explain any term used in
this contract.

NO WAIVER - Either party's failure to insist on strict performance of any term
or condition of the contract shall not be deemed a waiver of that term or
condition even if the party accepting or acquiescing in the non-conforming
performance knows of the nature of the performance and fails to object to it.

WRITTEN CONTRACT AMENDMENTS - The contract shall be modified only through a
written contract amendment within the scope of the contract signed by the
procurement officer on behalf of the State.

5) SEVERABILITY

The provisions of this contract are severable to the extent that any provision
or application held to be invalid shall not affect any other provision or
application of the contract, which may remain in effect without the invalid
provision, or application.

6) RELATIONSHIP OF PARTIES

The Contractor under this contract is an independent contractor. Neither party
to this contract shall be deemed to be the employee or agent of the other party
to the contract.

7) ASSIGNMENT AND DELEGATION

The Contractor shall not assign any right nor delegate any duty under this
contract without prior written approval of the Contracting Officer, who will not
unreasonably withhold such approval.

8) GENERAL INDEMNIFICATION

The Contractor shall defend, indemnify and hold harmless the State from any
claim, demand, suit, liability, judgment and expense (including attorney's fees
and other costs of litigation) arising out of or relating to injury, disease, or
death of persons or damage to or loss of property resulting from or in
connection with the negligent performance of this contract by the Contractor,
its agents, employees, and subcontractors or anyone

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for whom the Contractor may be responsible. The obligations, indemnities and
liabilities assumed by the Contractor under this paragraph shall not extend to
any liability caused by the negligence of the State or its employees. The
Contractor's liability shall not be limited by any provisions or limits of
insurance set forth in this contract. The State shall reasonably notify the
Contractor of any claim for which it may be liable under this paragraph. The
Administration shall bear no liability for subcontracts that a Contractor
executes with other parties for the provision of administrative or management
services, medical services or covered health care services, or for any other
purposes.

9) INDEMNIFICATION -- PATENT AND COPYRIGHT

The Contractor shall defend, indemnify and hold harmless the State against any
liability including costs and expenses for infringement of any patent, trademark
or copyright arising out of contract performance or use by the State of
materials furnished or work performed under this contract. The State shall
reasonably notify the Contractor of any claim for which it may be liable under
this paragraph.

10) COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS

The Contractor shall comply with all applicable Federal and State laws and
regulations including Title VI of the Civil Rights Act of 1964; Executive Order
13166; Title IX of the Education Amendments of 1972 (regarding education
programs and activities); the Age Discrimination Act of 1975; the Rehabilitation
Act of 1973 (regarding education programs and activities), and the Americans
with Disabilities Act; EEO provisions; Copeland Anti-Kickback Act; Davis-Bacon
Act; Contract Work Hours and Safety Standards; Rights to Inventions Made Under a
Contract or Agreement; Clean Air Act and Federal Water Pollution Control Act;
Byrd Anti-Lobbying Amendment. The Contractor shall maintain all applicable
licenses and permits.

11) ADVERTISING AND PROMOTION OF CONTRACT

The Contractor shall not advertise or publish information for commercial benefit
concerning this contract without the prior written approval of the Contracting
Officer.

12) PROPERTY OF THE STATE

Any materials, including reports, computer programs and other deliverables,
created under this contract are the sole property of AHCCCSA. The Contractor is
not entitled to a patent or copyright on those materials and may not transfer
the patent or copyright to anyone else. The Contractor shall not use or release
these materials without the prior written consent of AHCCCSA.

13) THIRD PARTY ANTITRUST VIOLATIONS

The Contractor assigns to the State any claim for overcharges resulting from
antitrust violations to the extent that those violations concern materials or
services supplied by third parties to the Contractor toward fulfillment of this
contract.

14) RIGHT TO ASSURANCE

If AHCCCSA, in good faith, has reason to believe that the Contractor does not
intend to perform or continue performing this contract, the procurement officer
may demand in writing that the Contractor give a written assurance of intent to
perform. The demand shall be sent to the Contractor by certified mail, return
receipt required. Failure by the Contractor to provide written assurance within
the number of days specified in the demand may, at the State's option, be the
basis for terminating the contract.

15) TERMINATION FOR CONFLICT OF INTEREST

AHCCCSA may cancel this contract without penalty or further obligation if any
person significantly involved in initiating, negotiating, securing, drafting or
creating the contract on behalf of AHCCCSA is, or becomes at any time while the
contract or any extension of the contract is in effect, an employee of, or a
consultant to, any other party to this contract with respect to the subject
matter of the contract. The cancellation shall be effective when the Contractor
receives written notice of the cancellation unless the notice specifies a later
time.

16) GRATUITIES

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that employment or a gratuity was offered or made by
the Contractor or a representative of the Contractor to any

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officer or employee of the State for the purpose of influencing the outcome of
the procurement or securing the contract, an amendment to the contract, or
favorable treatment concerning the contract, including the making of any
determination or decision about contract performance. AHCCCSA, in addition to
any other rights or remedies, shall be entitled to recover exemplary damages in
the amount of three times the value of the gratuity offered by the Contractor.

17) SUSPENSION OR DEBARMENT

The Contractor shall not employ, consult, subcontract or enter into any
agreement for Title XIX services with any person or entity who is debarred,
suspended or otherwise excluded from Federal procurement activity or from
participating in non-procurement activities under regulations issued under
Executive Order No. 12549 or under guidelines implementing Executive Order
12549. This prohibition extends to any entity which employs, consults,
subcontracts with or otherwise reimburses for services any person substantially
involved in the management of another entity which is debarred, suspended or
otherwise excluded from Federal procurement activity.

The Contractor shall not retain as a director, officer, partner or owner of 5%
or more of the Contractor entity, any person, or affiliate of such a person, who
is debarred, suspended or otherwise excluded from Federal procurement activity.

AHCCCSA may, by written notice to the Contractor, immediately terminate this
contract if it determines that the Contractor has been debarred, suspended or
otherwise lawfully prohibited from participating in any public procurement
activity.

18) TERMINATION FOR CONVENIENCE

AHCCCSA reserves the right to terminate the contract in whole or in part at any
time for the convenience of the State without penalty or recourse. The
Contracting Officer shall give written notice by certified mail, return receipt
requested, to the Contractor of the termination at least 90 days before the
effective date of the termination. In the event of termination under this
paragraph, all documents, data and reports prepared by the Contractor under the
contract shall become the property of and be delivered to AHCCCSA. The
Contractor shall be entitled to receive just and equitable compensation for work
in progress, work completed and materials accepted before the effective date of
the termination.

19) TERMINATION FOR DEFAULT

AHCCCSA reserves the right to terminate this contract in whole or in part due to
the failure of the Contractor to comply with any term or condition of the
contract or failure to take corrective action as required by AHCCCSA to comply
with the terms of the contract. If the Contractor is providing services under
more than one contract with AHCCCSA, AHCCCSA may deem unsatisfactory performance
under one contract to be cause to require the Contractor to provide assurance of
performance under any and all other contracts. In such situations, AHCCCSA
reserves the right to seek remedies under both actual and anticipatory breaches
of contract if adequate assurance of performance is not received. The
Contracting Officer shall mail written notice of the termination and the
reason(s) for it to the Contractor by certified mail, return receipt requested.

In the event the Contractor requests a hearing prior to termination, AHCCCSA is
required by the Balanced Budget Act of 1997 to oversee the operation of the
Contractor entity through appointment of temporary management prior to the
hearing.

Upon termination under this paragraph, all documents, data, and reports prepared
by the Contractor under the contract shall become the property of and be
delivered to AHCCCSA on demand.

AHCCCSA may, upon termination of this contract, procure, on terms and in the
manner that it deems appropriate, materials or services to replace those under
this contract. The Contractor shall be liable for any excess costs incurred by
AHCCCSA in re-procuring the materials or services.

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20) TERMINATION - AVAILABILITY OF FUNDS

Funds are not presently available for performance under this contract beyond the
current fiscal year. No legal liability on the part of AHCCCSA for any payment
may arise under this contract until funds are made available for performance of
this contract.

21) RIGHT OF OFFSET

AHCCCSA shall be entitled to offset against any amounts due the Contractor any
expenses or costs incurred by AHCCCSA concerning the Contractor's non-conforming
performance or failure to perform the contract.

22) NON-EXCLUSIVE REMEDIES

The rights and the remedies of AHCCCSA under this contract are not exclusive.

23) NON-DISCRIMINATION

The Contractor shall comply with State Executive Order No. 99-4, which mandates
that all persons, regardless of race, color, religion, sex, national origin or
political affiliation, shall have equal access to employment opportunities, and
all other applicable Federal and state laws, rules and regulations, including
the Americans with Disabilities Act and Title VI. The Contractor shall take
positive action to ensure that applicants for employment, employees, and persons
to whom it provides service are not discriminated against due to race, creed,
color, religion, sex, national origin or disability.

24) EFFECTIVE DATE

The effective date of this contract shall be the date referenced on page 1 of
this contract.

25) INSURANCE

A certificate of insurance naming the State of Arizona and AHCCCSA as the
"additional insured" must be submitted to AHCCCSA within 10 days of notification
of contract award and prior to commencement of any services under this contract.
This insurance shall be provided by carriers rated as "A+" or higher by the A.M.
Best Rating Service. The following types and levels of insurance coverage are
required for this contract:

a. Commercial General Liability: Provides coverage of at least $1,000,000 for
   each occurrence for bodily injury and property damage to others as a result
   of accidents on the premises of or as the result of operations of the
   Contractor.

b. Commercial Automobile Liability: Provides coverage of at least $1,000,000 for
   each occurrence for bodily injury and property damage to others resulting
   from accidents caused by vehicles operated by the Contractor.

c. Workers Compensation: Provides coverage to employees of the Contractor for
   injuries sustained in the course of their employment. Coverage must meet the
   obligations imposed by Federal and State statutes and must also include
   Employer's Liability minimum coverage of $100,000. Evidence of qualified
   self-insured status will also be considered.

d. Professional Liability (if applicable): Provides coverage for alleged
   professional misconduct or lack of ordinary skills in the performance of a
   professional act of service.

The above coverages may be evidenced by either one of the following:

a. The State of Arizona Certificate of Insurance: This is a form with the
   special conditions required by the contract already pre-printed on the form.
   The Contractor's agent or broker must fill in the pertinent policy
   information and ensure the required special conditions are included in the
   Contractor's policy.

b. The Accord form: This standard insurance industry certificate of insurance
   does not contain the pre-printed special conditions required by this
   contract. These conditions must be entered on the certificate by the agent or
   broker and read as follows:

   The State of Arizona and Arizona Health Care Cost Containment System are
   hereby added as additional insureds. Coverage afforded under this Certificate
   shall be primary and any insurance carried by the State or any of its
   agencies, boards, departments or commissions shall be in excess of

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CONTRACT CLAUSES                                      CONTRACT/RFP NO. YH04-0001


   that provided by the insured Contractor. No policy shall expire, be canceled
   or materially changed without 30 days written notice to the State. This
   Certificate is not valid unless countersigned by an authorized representative
   of the insurance company.

26) DISPUTES

The exclusive manner for the Contractor to assert any claim, grievance, dispute
or demand against AHCCCSA shall be in accordance with A.A.C. 22, Article 8.
Pending the final resolution of any disputes involving this contract, the
Contractor shall proceed with performance of this contract in accordance with
AHCCCSA's instructions, unless AHCCCSA specifically, in writing, requests
termination or a temporary suspension of performance.

27) RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS

AHCCCSA may, at reasonable times, inspect the part of the plant or place of
business of the Contractor or subcontractor that is related to the performance
of this contract, in accordance with A.R.S. Section 41-2547.

28) INCORPORATION BY REFERENCE

This solicitation and all attachments and amendments, the Contractor's proposal,
best and final offer accepted by AHCCCSA, and any approved subcontracts are
hereby incorporated by reference into the contract.

29) COVENANT AGAINST CONTINGENT FEES

The Contractor warrants that no person or agency has been employed or retained
to solicit or secure this contract upon an agreement or understanding for a
commission, percentage, brokerage or contingent fee. For violation of this
warranty, AHCCCSA shall have the right to annul this contract without liability.

30) CHANGES

AHCCCSA may at any time, by written notice to the Contractor, make changes
within the general scope of this contract. If any such change causes an increase
or decrease in the cost of, or the time required for, performance of any part of
the work under this contract, the Contractor may assert its right to an
adjustment in compensation paid under this contract. The Contractor must assert
its right to such adjustment within 30 days from the date of receipt of the
change notice. Any dispute or disagreement caused by such notice shall
constitute a dispute within the meaning of Section E, Paragraph 26, Disputes,
and be administered accordingly.

When AHCCCSA issues an amendment to modify the contract, the provisions of such
amendment will be deemed to have been accepted 60 days after the date of mailing
by AHCCCSA, even if the amendment has not been signed by the Contractor, unless
within that time the Contractor notifies AHCCCSA in writing that it refuses to
sign the amendment. If the Contractor provides such notification, AHCCCSA will
initiate termination proceedings.

31) TYPE OF CONTRACT

Firm Fixed-Price

32) AMERICANS WITH DISABILITIES ACT

People with disabilities may request special accommodations such as
interpreters, alternative formats or assistance with physical accessibility.
Requests for special accommodations must be made with at least three days prior
notice by calling Michael Veit at (602) 417-4762.

33) WARRANTY OF SERVICES

The Contractor warrants that all services provided under this contract will
conform to the requirements stated herein. AHCCCSA's acceptance of services
provided by the Contractor shall not relieve the Contractor from its obligations
under this warranty. In addition to its other remedies, AHCCCSA may, at the
Contractor's expense, require prompt correction of any services failing to meet
the Contractor's warranty herein. Services corrected by the Contractor shall be
subject to all of the provisions of this contract in the manner and to the same
extent as the services originally furnished.

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -82-
<PAGE>
CONTRACT CLAUSES                                      CONTRACT/RFP NO. YH04-0001


34) NO GUARANTEED QUANTITIES

AHCCCSA does not guarantee the Contractor any minimum or maximum quantity of
services or goods to be provided under this contract.

35) CONFLICT OF INTEREST

The Contractor shall not undertake any work that represents a potential conflict
of interest, or which is not in the best interest of AHCCCSA or the State
without prior written approval by AHCCCSA. The Contractor shall fully and
completely disclose any situation that may present a conflict of interest. If
the Contractor is now performing or elects to perform during the term of this
contract any services for any AHCCCS health plan, provider or Contractor or an
entity owning or controlling same, the Contractor shall disclose this
relationship prior to accepting any assignment involving such party.

36) DISCLOSURE OF CONFIDENTIAL INFORMATION

The Contractor shall not, without prior written approval from AHCCCSA, either
during or after the performance of the services required by this contract, use,
other than for such performance, or disclose to any person other than AHCCCSA
personnel with a need to know, any information, data, material, or exhibits
created, developed, produced, or otherwise obtained during the course of the
work required by this contract. This nondisclosure requirement shall also
pertain to any information contained in reports, documents, or other records
furnished to the Contractor by AHCCCSA.

37) COOPERATION WITH OTHER CONTRACTORS

AHCCCSA may award other contracts for additional work related to this contract
and Contractor shall fully cooperate with such other contractors and AHCCCSA
employees or designated agents, and carefully fit its own work to such other
contractors' work. The Contractor shall not commit or permit any act which will
interfere with the performance of work by any other contractor or by AHCCCSA
employees.

38) ASSIGNMENT OF CONTRACT AND BANKRUPTCY

This contract is voidable and subject to immediate cancellation by AHCCCSA upon
the Contractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or assigning rights or obligations
under this contract without the prior written consent of AHCCCSA.

39) OWNERSHIP OF INFORMATION AND DATA

Any data or information system, including all software, documentation and
manuals, developed by the Contractor pursuant to this contract, shall be deemed
to be owned by AHCCCSA. The Federal government reserves a royalty-free,
nonexclusive, and irrevocable license to reproduce, publish, or otherwise use
and to authorize others to use for Federal government purposes, such data or
information system, software, documentation and manuals. Proprietary software
which is provided at established catalog or market prices and sold or leased to
the general public shall not be subject to the ownership or licensing provisions
of this section.

Data, information and reports collected or prepared by the Contractor in the
course of performing its duties and obligations under this contract shall be
deemed to be owned by AHCCCSA. The ownership provision is in consideration of
the Contractor's use of public funds in collecting or preparing such data,
information and reports. These items shall not be used by the Contractor for any
independent project of the Contractor or publicized by the Contractor without
the prior written permission of AHCCCSA. Subject to applicable state and Federal
laws and regulations, AHCCCSA shall have full and complete rights to reproduce,
duplicate, disclose and otherwise use all such information. At the termination
of the contract, the Contractor shall make available all such data to AHCCCSA
within 30 days following termination of the contract or such longer period as
approved by AHCCCSA, Office of the Director. For purposes of this subsection,
the term "data" shall not include member medical records.

Except as otherwise provided in this section, if any copyrightable or patentable
material is developed by the Contractor in the course of performance of this
contract, the Federal government, AHCCCSA and the State of Arizona shall have a
royalty-free, nonexclusive, and irrevocable right to reproduce, publish, or
otherwise use,

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -83-
<PAGE>
CONTRACT CLAUSES                                      CONTRACT/RFP NO. YH04-0001


and to authorize others to use, the work for state or Federal government
purposes. The Contractor shall additionally be subject to the applicable
provisions of 45 CFR Part 74 and 45 CFR Parts 6 and 8.

40) AHCCCSA RIGHT TO OPERATE CONTRACTOR

If, in the judgment of AHCCCSA, the Contractor's performance is in material
breach of the contract or the Contractor is insolvent, AHCCCSA may directly
operate the Contractor to assure delivery of care to members enrolled with the
Contractor until cure by the Contractor of its breach, by demonstrated financial
solvency or until the successful transition of those members to other
contractors.

If AHCCCS undertakes direct operation of the Contractor, AHCCCS, through
designees appointed by the Director, shall be vested with full and exclusive
power of management and control of the Contractor as necessary to ensure the
uninterrupted care to persons and accomplish the orderly transition of persons
to a new or existing Contractor, or until the Contractor corrects the Contract
Performance failure to the satisfaction of AHCCCS. AHCCCS shall have the power
to employ any necessary assistants, to execute any instrument in the name of the
Contractor, to commence, defend and conduct in its name any action or proceeding
in which the Contractor may be a party.

All reasonable expenses of AHCCCS related to the direct operation of the
Contractor, including attorney fees, cost of preliminary or other audits of the
Contractor and expenses related to the management of any office or other assets
of the Contractor, shall be paid by the Contractor or withheld from payment due
from AHCCCS to the Contractor.

41) AUDITS AND INSPECTIONS

The Contractor shall comply with all provisions specified in applicable AHCCCS
Rule R9-22-519, -520 and -521 and AHCCCS policies and procedures relating to the
audit of the Contractor's records and the inspection of the Contractor's
facilities. The Contractor shall fully cooperate with AHCCCSA staff and allow
them reasonable access to the Contractor's staff, subcontractors, members, and
records.

At any time during the term of this contract, the Contractor's or any
subcontractor's books and records shall be subject to audit by AHCCCSA and,
where applicable, the Federal government, to the extent that the books and
records relate to the performance of the contract or subcontracts.

AHCCCSA, or its duly authorized agents, and the Federal government may evaluate
through on-site inspection or other means, the quality, appropriateness and
timeliness of services performed under this contract.

42) LOBBYING

No funds paid to the Contractor by AHCCCSA, or interest earned thereon, shall be
used for the purpose of influencing or attempting to influence an officer or
employee of any Federal or State agency, a member of the United States Congress
or State Legislature, an officer or employee of a member of the United States
Congress or State Legislature in connection with awarding of any Federal or
State contract, the making of any Federal or State grant, the making of any
Federal or State loan, the entering into of any cooperative agreement, and the
extension, continuation, renewal, amendment or modification of any Federal or
State contract, grant, loan, or cooperative agreement. The Contractor shall
disclose if any funds, other than those paid to the Contractor by AHCCCSA, have
been used or will be used to influence the persons and entities indicated above
and will assist AHCCCSA in making such disclosures to CMS.

43) CHOICE OF FORUM

The parties agree that jurisdiction over any action arising out of or relating
to this contract shall be brought or filed in a court of competent jurisdiction
located in the State of Arizona.

44) DATA CERTIFICATION

The Contractor shall certify that financial and encounter data submitted to
AHCCCS is complete, accurate and truthful. Certification of financial data must
be submitted concurrent with the data. Encounter data must be

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -84-
<PAGE>
CONTRACT CLAUSES                                      CONTRACT/RFP NO. YH04-0001


certified at least once per contract year. Certification may be provided by the
Contractor CEO, CFO or an individual who is delegated authority to sign for, and
who report directly to the CEO or CFO. 42 CFR 438.604.606.

45) OFF SHORE PERFORMANCE OF WORK PROHIBITED

Due to security and identity protection concerns, all services under this
contract shall be performed within the borders of the United States. All storage
and processing of information shall be performed within the borders of the
United States. This provision applies to work performed by subcontractors at all
tiers.

[END OF SECTION E]

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -85-
<PAGE>



INDEX - PROGRAM REQUIREMENTS
 AND CONTRACT CLAUSES                                  CONTRACT/RFP NO. YH8-0001

SECTION F: INDEX - PROGRAM REQUIREMENTS AND CONTRACT CLAUSES

--------------------------------------------------------------------------------
A

Accumulated Fund Deficit, 58
Advance Directives, 36
Advances, 58
Ambulatory, 22, 25
Annual Enrollment, 19
Appointment Standards, 48
Auto-Assignment, 18, 19, 20
Auto-Assignment Algorithm, 18, 19, 20

--------------------------------------------------------------------------------
B

BBA, 19, 24, 49, 77, 80
Behavioral Health, 21, 22, 23, 25, 29, 30, 31, 32, 33, 34, 48, 50
Breast and Cervical Cancer, 16, 17, 61, 69
Business Continuity Plan, 76

--------------------------------------------------------------------------------
C

Capitalization, 56
Capitation, 18, 19, 20, 58, 60, 61, 62, 63, 72, 73, 75
Chiropractic, 23
Claims
   Clean, 53, 66
   Payment, 53, 55
Compensation, 60
Contraceptive, 24
Convalescent Care, 26, 28
Coordination of Benefits, 67
Coordination of Care, 30
Copayment, 48, 62, 67
Copayments, 69
Cost Avoidance, 67
Cost Sharing, 16, 17, 50, 67, 69
Covered Services, 21, 30
Credentialing, 37, 45
CRS, 21, 22
Cultural Competency, 36
Cure Notice, 75

--------------------------------------------------------------------------------
D

Data Exchange, 71
Denials, 34, 53, 67, 68
Dental, 21, 23, 48, 50
Dialysis, 21, 23
Disenrollment, 73
Distributions, 58
DME, 21, 26
Dual Eligibles, 50, 69

--------------------------------------------------------------------------------
E

Eligibility
   CRS, 22
Emergency, 16, 23, 24, 25, 29, 48, 49, 52
Encounter, 33, 50, 53, 61, 62, 65, 66, 72, 73, 75
Enrollment, 17, 19, 72
   Annual, 17, 19, 21, 66
   Guarantees, 19
   Open, 17, 19
EPSDT, 23, 25, 27, 30, 33, 34, 40, 48, 50

--------------------------------------------------------------------------------
F

Family Planning, 16, 18, 24, 50, 59
Fee-for-Service, 21, 27, 56, 67, 68, 72
Financial Viability Standards, 59
Formulary, 28, 31, 76
FQHC, 49
Fraud and Abuse, 36, 50, 70
Freedom to Work, 16, 17

--------------------------------------------------------------------------------
G

Geographic Service Area, 15, 18, 19, 44, 55, 57, 58, 61, 74
Grievance, 42, 43

--------------------------------------------------------------------------------
H

HIFA, 17, 18, 19, 61, 69
HIFA Parents, 17, 18, 19, 61, 69
HIFA PARENTS, 17, 19, 69
HIPAA, 71, 72
HIV/AIDS, 25, 26, 36, 46, 60, 61, 62
Home Health, 21, 25, 36, 37, 48
Hospice, 25, 36
Hospital Subcontracting, 54

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -86-
<PAGE>
INDEX - PROGRAM REQUIREMENTS
 AND CONTRACT CLAUSES                                  CONTRACT/RFP NO. YH8-0001

--------------------------------------------------------------------------------
I

IBNR, 15
Identification Cards, 20
Immunizations, 25, 32, 41, 50
Indian Health Service, 16, 17, 19, 21, 25, 29
Inpatient, 23, 25, 26, 28, 29, 30, 33, 43, 48, 62, 64, 65, 66, 67
Investments, 58

--------------------------------------------------------------------------------
K

KidsCare, 17, 18, 61, 69

--------------------------------------------------------------------------------
L

Laboratory, 24, 25, 30, 48, 50
Limited English Proficiency (LEP), 33, 34
Loans, 58

--------------------------------------------------------------------------------
M

Management Services, 29, 30, 51, 56, 79
Maternity, 26, 47, 49, 50
Medicaid in the Public Schools (MIPS), 31, 32
Medical Expense Deduction, 60
Medical Foods, 26
Member
   Education, 29
   Handbook, 35
   Information, 34, 35, 46
   Mainstreaming, 20
   Surveys, 35
   Transition, 21
Midwives, 26, 47

--------------------------------------------------------------------------------
N

Network Management, 45
Non-Contracting Provider, 57, 58
Nurse Practitioners, 26, 46, 47
Nursing Facility, 21, 26, 27, 36, 55, 64, 66, 67
Nutrition, 27

--------------------------------------------------------------------------------
O

Observation, 25
Omission, 71, 72
Optometry, 24
Outpatient, 22, 23, 25, 28, 48, 55

--------------------------------------------------------------------------------
P

Performance Bond, 57, 58
Performance Standards, 23, 25, 38, 39, 41, 72
Periodicity Schedule, 23, 25, 30, 40
Pharmacy, 38, 43, 62
Physician Assistants, 26, 47
Physician Incentives, 56
Podiatry, 27
Postpartum Care, 26, 40, 47
Post-stabilization, 24, 27
Pregnancy, 21, 24, 26, 27, 47
   TERMINATIONS, 27
Prenatal Care, 26, 49, 63, 68
Prescription Drugs, 28, 48, 71
Prescription Medication, 23, 28, 30, 48, 71
Primary Care Physician, 22, 23, 26, 27, 28, 30, 31, 36, 37, 41, 43, 46, 47, 48,
   49, 50, 71
Prior Authorization, 21, 23, 28, 38, 50, 53, 55
Prior Period Coverage, 18, 19, 30, 60, 61, 64, 66, 67, 72
Provider, 45, 46, 47, 50, 51
Provider Manual, 49, 50, 52
Provider Registration, 51

--------------------------------------------------------------------------------
Q

QMB, 17
Quality Management, 32, 33, 34, 37

--------------------------------------------------------------------------------
R

Radiology, 25, 28, 30, 48
Rate Code, 62, 64, 72
RBHA, 29, 30, 50
Referral, 22, 23, 29, 30, 31, 33, 46, 47, 48, 50, 68
Rehabilitation, 22, 26, 28, 30, 67
Reinsurance, 51, 55, 60, 61, 64, 65, 66, 67, 68, 72
Related Party, 54, 58
Reporting Requirements, 72, 73
Respiratory, 28
Reviews, 74
RFP, 20, 74, 75, 77
Risk Sharing, 25, 61

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -87-
<PAGE>
INDEX - PROGRAM REQUIREMENTS
 AND CONTRACT CLAUSES                                  CONTRACT/RFP NO. YH8-0001

Roster, 18, 72

--------------------------------------------------------------------------------
S

Sanctions, 40, 41, 56, 59, 67, 75, 76
SOBRA, 16, 17, 24, 58, 59, 61, 64
SOBRA Family Planning, 16, 24, 59, 64
SSI, 16, 17, 61
Staff Requirements, 32
Sterilization, 24
Subcontract, 20, 25, 49, 51, 52, 53, 55, 80
Subcontractor, 20, 51, 52, 53, 56, 58, 82, 84
Supplies, 23, 25, 26, 48

--------------------------------------------------------------------------------
T

TANF, 16
Technological Advancement, 76
Third Party, 15, 31, 52, 55, 60, 67, 68, 69, 79
Third Party Liability, 67
Ticket to Work, 16, 17
Title XIX, 16, 17, 18, 19, 25, 30, 49, 60, 61, 64, 80
Title XIX Waiver, 16, 17, 60, 61, 64
Title XXI, 16, 17, 18, 19, 25, 30, 69
Transplants, 21, 23, 28, 65
Transportation, 21, 23, 28, 29, 30, 32, 49, 68, 77
Triage, 29, 30

--------------------------------------------------------------------------------
U

Utilization Management, 33, 34, 38

--------------------------------------------------------------------------------
V

Vaccine for Children, 32
Vision, 24, 50



[END OF SECTION F]

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -88-
<PAGE>
ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS          CONTRACT/RFP NO. YH04-0001

ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS


[The following provisions must be included verbatim in every subcontract.]

1) ASSIGNMENT AND DELEGATION OF RIGHTS AND RESPONSIBILITIES

No payment due the Subcontractor under this subcontract may be assigned without
the prior approval of the Contractor. No assignment or delegation of the duties
of this subcontract shall be valid unless prior written approval is received
from the Contractor. (AAC R2-7-305)

2) AWARDS OF OTHER SUBCONTRACTS

AHCCCSA and/or the Contractor may undertake or award other contracts for
additional or related work to the work performed by the Subcontractor and the
Subcontractor shall fully cooperate with such other Contractors, subcontractors
or state employees. The Subcontractor shall not commit or permit any act which
will interfere with the performance of work by any other contractor,
subcontractor or state employee. (AAC R2-7-308)

3) CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK AND LABORATORY TESTING

By signing this subcontract, the Subcontractor certifies that it has not engaged
in any violation of the Medicare Anti-Kickback statute (42 USC
Sections 1320a-7b) or the "Stark I" and "Stark II" laws governing
related-entity referrals (PL 101-239 and PL 101-432) and compensation there
from. If the Subcontractor provides laboratory testing, it certifies that it has
complied with 42 CFR Section 411.361 and has sent to AHCCCSA simultaneous copies
of the information required by that rule to be sent to the Centers for Medicare
and Medicaid Services. (42 USC Section 1320a-7b; PL 101-239 and PL
101-432; 42 CFR Section 411.361)

4) CERTIFICATION OF TRUTHFULNESS OF REPRESENTATION

By signing this subcontract, the Subcontractor certifies that all
representations set forth herein are true to the best of its knowledge.

5) CLINICAL LABORATORY IMPROVEMENT AMENDMENTS OF 1988

The Clinical Laboratory Improvement Amendment (CLIA) of 1988 requires
laboratories and other facilities that test human specimens to obtain either a
CLIA Waiver or CLIA Certificate in order to obtain reimbursement from the
Medicare and Medicaid (AHCCCS) programs. In addition, they must meet all the
requirements of 42 CFR 493, Subpart A.

To comply with these requirements, AHCCCSA requires all clinical laboratories to
provide verification of CLIA Licensure or Certificate of Waiver during the
provider registration process. Failure to do so shall result in either a
termination of an active provider ID number or denial of initial registration.
These requirements apply to all clinical laboratories.

Pass-through billing or other similar activities with the intent of avoiding the
above requirements are prohibited. The Contractor may not reimburse providers
who do not comply with the above requirements. (CLIA of 1988; 42 CFR 493,
Subpart A)

6) COMPLIANCE WITH AHCCCSA RULES RELATING TO AUDIT AND INSPECTION

The Subcontractor shall comply with all applicable AHCCCS Rules and Audit Guide
relating to the audit of the Subcontractor's records and the inspection of the
Subcontractor's facilities. If the Subcontractor is an inpatient facility, the
Subcontractor shall file uniform reports and Title XVIII and Title XIX cost
reports with AHCCCSA. (ARS 41-2548; 45 CFR 74.48 (d))

7) COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS

The Subcontractor shall comply with all federal, State and local laws, rules,
regulations, standards and executive orders governing performance of duties
under this subcontract, without limitation to those designated within this
subcontract. (Requirement for FFP, 42 CFR 434.70)

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -89-
<PAGE>
ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS          CONTRACT/RFP NO. YH04-0001


8) CONFIDENTIALITY REQUIREMENT

Confidential information shall be safeguarded pursuant to 42 CFR Part 431,
Subpart F, ARS Section 36-107, 36-2903, 41-1959 and 46-135, AHCCCS Rules and
Health Insurance Portability and Accountability Act (Public Law 107-191, 110
Statutes 1936).

9) CONFLICT IN INTERPRETATION OF PROVISIONS

In the event of any conflict in interpretation between provisions of this
subcontract and the AHCCCS Minimum Subcontract Provisions, the latter shall take
precedence.

10) CONTRACT CLAIMS AND DISPUTES

Contract claims and disputes arising under A.R.S. Section Title 36, Chapter 29
shall be adjudicated in accordance with AHCCCS Rules. (A.R.S. Section Title 36,
Chapter 29; AAC R2-7-916; AAC R9-22-802)

11) ENCOUNTER DATA REQUIREMENT

If the Subcontractor does not bill the Contractor (e.g., Subcontractor is
capitated), the Subcontractor shall submit encounter data to the Contractor in a
form acceptable to AHCCCSA.

12) EVALUATION OF QUALITY, APPROPRIATENESS, OR TIMELINESS OF SERVICES

The Arizona Health Care Cost Containment System Administration (AHCCCSA) or the
U.S. Department of Health and Human Services may evaluate, through inspection or
other means, the quality, appropriateness or timeliness of services performed
under this subcontract. (ARS 36-2903. C., (8.); ARS 36-2903.02; AAC 9-22-522)

13) FRAUD AND ABUSE

If the Subcontractor discovers, or is made aware, that an incident of potential
fraud or abuse has occurred, the Subcontractor shall report the incident to the
prime Contractor as well as to AHCCCSA, Office of Program Integrity. All
incidents of potential fraud should be reported to AHCCCSA, Office of the
Director, Office of Program Integrity. (ARS 36-2918.01; AAC R9-22-511.)

14) GENERAL INDEMNIFICATION

The parties to this contract agree that AHCCCS shall be indemnified and held
harmless by the Contractor and Subcontractor for the vicarious liability of
AHCCCS as a result of entering into this contract. However, the parties further
agree that AHCCCS shall be responsible for its own negligence. Each party to
this contract is responsible for its own negligence.

15) INSURANCE

[This provision applies only if the Subcontractor provides services directly to
AHCCCS members]

The Subcontractor shall maintain for the duration of this subcontract a policy
or policies of professional liability insurance, comprehensive general liability
insurance and automobile liability insurance in amounts that meet AHCCCS
requirements. The Subcontractor agrees that any insurance protection required by
this subcontract, or otherwise obtained by the Subcontractor, shall not limit
the responsibility of Subcontractor to indemnify, keep and save harmless and
defend the State and AHCCCSA, their agents, officers and employees as provided
herein. Furthermore, the Subcontractor shall be fully responsible for all tax
obligations, Worker's Compensation Insurance, and all other applicable insurance
coverage, for itself and its employees, and AHCCCSA shall have no responsibility
or liability for any such taxes or insurance coverage. (45 CFR Part 74)

16) LIMITATIONS ON BILLING AND COLLECTION PRACTICES

The Subcontractor shall not bill, nor attempt to collect payment directly or
through a collection agency from a person claiming to be AHCCCS eligible without
first receiving verification from AHCCCSA that the person was ineligible for
AHCCCS on the date of service, or that services provided were not AHCCCS covered
services. (AAC R9-22-702 and R9-22-201(J))

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -90-
<PAGE>
ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS          CONTRACT/RFP NO. YH04-0001


17) MAINTENANCE OF REQUIREMENTS TO DO BUSINESS AND PROVIDE SERVICES

The Subcontractor shall be registered with AHCCCSA and shall obtain and maintain
all licenses, permits and authority necessary to do business and render service
under this subcontract and, where applicable, shall comply with all laws
regarding safety, unemployment insurance, disability insurance and worker's
compensation.

18) NON-DISCRIMINATION REQUIREMENTS

The Subcontractor shall comply with State Executive Order No. 99-4, which
mandates that all persons, regardless of race, color, religion, sex, national
origin or political affiliation, shall have equal access to employment
opportunities, and all other applicable Federal and state laws, rules and
regulations, including the Americans with Disabilities Act and Title VI. The
Subcontractor shall take positive action to ensure that applicants for
employment, employees, and persons to whom it provides service are not
discriminated against due to race, creed, color, religion, sex, national origin
or disability. (Federal regulations, State Executive order # 99-4 & AAC
R9-22-513)

19) PRIOR AUTHORIZATION AND UTILIZATION REVIEW

The Contractor and Subcontractor shall develop, maintain and use a system for
Prior Authorization and Utilization Review that is consistent with AHCCCS Rules
and the Contractor's policies. (AAC R9-22-522)

20) RECORDS RETENTION

      a. The Subcontractor shall maintain books and records relating to covered
         services and expenditures including reports to AHCCCSA and working
         papers used in the preparation of reports to AHCCCSA. The Subcontractor
         shall comply with all specifications for record keeping established by
         AHCCCSA. All books and records shall be maintained to the extent and in
         such detail as required by AHCCCS Rules and policies. Records shall
         include but not be limited to financial statements, records relating to
         the quality of care, medical records, prescription files and other
         records specified by AHCCCSA.

      b. The Subcontractor agrees to make available at its office at all
         reasonable times during the term of this contract and the period set
         forth in the following paragraphs, any of its records for inspection,
         audit or reproduction by any authorized representative of AHCCCSA,
         State or Federal government.

      c. The Subcontractor shall preserve and make available all records for a
         period of five years from the date of final payment under this
         contract.

      d. If this contract is completely or partially terminated, the records
         relating to the work terminated shall be preserved and made available
         for a period of five years from the date of any such termination.
         Records which relate to grievances, disputes, litigation or the
         settlement of claims arising out of the performance of this contract,
         or costs and expenses of this contract to which exception has been
         taken by AHCCCSA, shall be retained by the Subcontractor for a period
         of five years after the date of final disposition or resolution
         thereof. (45 CFR 74.53; ARS 41-2548)

21) SEVERABILITY

If any provision of these standard subcontract terms and conditions is held
invalid or unenforceable, the remaining provisions shall continue valid and
enforceable to the full extent permitted by law.

22) SUBJECTION OF SUBCONTRACT

The terms of this subcontract shall be subject to the applicable material terms
and conditions of the contract existing between the Contractor and AHCCCSA for
the provision of covered services.

23) TERMINATION OF SUBCONTRACT

AHCCCSA may, by written notice to the Subcontractor, terminate this subcontract
if it is found, after notice and hearing by the State, that gratuities in the
form of entertainment, gifts, or otherwise were offered or given by the

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -91-
<PAGE>
ATTACHMENT A: MINIMUM SUBCONTRACT PROVISIONS          CONTRACT/RFP NO. YH04-0001


Subcontractor, or any agent or representative of the Subcontractor, to any
officer or employee of the State with a view towards securing a contract or
securing favorable treatment with respect to the awarding, amending or the
making of any determinations with respect to the performance of the
Subcontractor; provided, that the existence of the facts upon which the state
makes such findings shall be in issue and may be reviewed in any competent
court. If the subcontract is terminated under this section, unless the
Contractor is a governmental agency, instrumentality or subdivision thereof,
AHCCCSA shall be entitled to a penalty, in addition to any other damages to
which it may be entitled by law, and to exemplary damages in the amount of three
times the cost incurred by the Subcontractor in providing any such gratuities to
any such officer or employee. (AAC R2-5-501; ARS 41-2616 C.; 42 CFR 434.6, a.
(6))

24) VOIDABILITY OF SUBCONTRACT

This subcontract is voidable and subject to immediate termination by AHCCCSA
upon the Subcontractor becoming insolvent or filing proceedings in bankruptcy or
reorganization under the United States Code, or upon assignment or delegation of
the subcontract without AHCCCSA's prior written approval.

25) WARRANTY OF SERVICES

The Subcontractor, by execution of this subcontract, warrants that it has the
ability, authority, skill, expertise and capacity to perform the services
specified in this contract.

26) OFF SHORE PERFORMANCE OF WORK PROHIBITED

Due to security and identity protection concerns, all services under this
contract shall be performed within the borders of the United States. All storage
and processing of information shall be performed within the borders of the
United States. This provision applies to work performed by subcontractors at all
tiers.

                                                      CYE `05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004


                                      -92-
<PAGE>
ATTACHMENT F: PERIODIC REPORT REQUIREMENTS            CONTRACT/RFP NO. YH04-0001



ATTACHMENT F: PERIODIC REPORT REQUIREMENTS

The following table is a summary of the periodic reporting requirements for
AHCCCS acute care contractors and is subject to change at any time during the
term of the contract. The table is presented for convenience only and should not
be construed to limit the Contractor's responsibilities in any manner.
"Reporting Guide" refers to the Reporting Guide for Acute Health Care
Contractors with the Arizona Health Care Cost Containment System.

<TABLE>
<CAPTION>
  REPORT                           WHEN DUE                     SOURCE/REFERENCE                   AHCCCS CONTACT:
  ------                           --------                     ----------------                   ---------------
<S>                                <C>                          <C>                                <C>
  Monthly Financial Reporting      30 days after the end of     Reporting Guide                    Financial Manager
  Package                          the month, as applicable

  Quarterly Financial Reporting    60 days after the end of     Reporting Guide                    Financial Manager
  Package                          each quarter

  Draft Annual Financial           90 days after the end of     Reporting Guide                    Financial Manager
  Reporting Package                each fiscal year

  Final Annual Financial           120 days after the end of    Reporting Guide                    Financial Manager
  Reporting Package                each fiscal year

  Management Services              120 days after the end of    Reporting Guide                    Financial Manager
  Subcontractor Audit Report (if   the subcontractor's fiscal
  services > $50,000)              year

  Report of all subcontracts       90 days after the            RFP Section D, Paragraph 37        DHCM, Health Plan
  which delegate Contractor        beginning of the contract                                       Operations,
  duties and responsibilities      year                                                            Operations and
                                                                                                   Compliance Officer

  Physician Incentive Plan (PIP)   To be determined             RFP Section D, Paragraph 42        Financial Manager
  reporting

  Provider Affiliation             15 days after the end of     Provider Affiliation               DHCM, Health Plan
  Transmission                     each quarter                 Transmission Manual, submitted     Operations,
                                                                to PMMIS Provider-to-Health Plan   Operations and
                                                                FTP                                Compliance Officer

  Claims Reporting                 15th day of each month       RFP Section D, Paragraph 38        DHCM, Health Plan
                                   following the reporting                                         Operations,
                                   period                                                          Operations and
                                                                                                   Compliance Officer

  Administrative Measures          15th day of each month       RFP Section D, Paragraph 24        DHCM, Health Plan
                                   following the reporting                                         Operations,
                                   period                                                          Operations and
                                                                                                   Compliance Officer

  Corrected Pended Encounter Data  Monthly, according to        Encounter Manual                   Encounter
                                   established schedule                                            Administrator

  New Day Encounter                Monthly, according to        Encounter Manual                   Encounter
                                   established schedule                                            Administrator

  Medical Records for Data         90 days after the request    RFP Attachment I, Encounter        Encounter
  Validation                       received from AHCCCSA        Submission Requirements            Administrator

  Quarterly Grievance and          45 days after the end of     RFP Section D, Paragraph 26        Office of Legal
  Appeals Report                   each quarter                                                    Assistance
</TABLE>


                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 93 -
<PAGE>
ATTACHMENT F: PERIODIC REPORT REQUIREMENTS            CONTRACT/RFP NO. YH04-0001



<TABLE>
<CAPTION>
  REPORT                           WHEN DUE                     SOURCE/REFERENCE                   AHCCCS CONTACT:
  ------                           --------                     ----------------                   ---------------
<S>                                <C>                          <C>                                <C>
  Comprehensive EPSDT Plan         Annually on December 15th    RFP Section D, Paragraph 24        DHCM/CQM
  including Dental

  EPSDT Progress Report            15 days after the end of     AMPM, Chapter 400                  DHCM/CQM
  including Dental - Quarterly     each quarter
  Update

  Quarterly Inpatient Hospital     15 days after the end of     State Medicaid Manual and the       DHCM CQM
  Showing                          each quarter                 AMPM, Chapter 1000

  Quality Management Utilization   Annually on December 15th    AMPM, Chapter 900                  DHCM/CQM
  Management Plan and Evaluation

  Monthly Pregnancy Termination    End of the month following   AMPM, Chapter 400                  DHCM/CQM
  Report                           the pregnancy termination

  Maternity Care Plan              Annually on December 15th    AMPM, Chapter 400                  DHCM/CQM

  Semi-annual report of number     30 days after the end of     AMPM, Chapter 400                  DHCM/CQM
  of pregnant women who are        the 2nd and 4th quarter of
  HIV/AIDS positive                each contract year

  Provider Network Development     45 days after the first      RFP Section D, Paragraph 27        DHCM, Health Plan
  and Management Plan              day of a new contract year                                      Operations, Operation
                                                                                                   Compliance Officer

  Cultural Competency Plan         45 days after the first      AHCCCS Cultural Competency Policy  DHCM, Health Plan
                                   day of a new contract year                                      Operations,
                                                                                                   Operations and
                                                                                                   Compliance Officer

  Performance Improvement          Annually on December 15th    AMPM, Chapter 900                  DHCM/CQM
  Project Proposal
  (initial/baseline year of the
  project)

  Performance Improvement          Annually on December 15th    AMPM, Chapter 900                  DHCM/CQM
  Project Re-measurement Report

  Performance Improvement          Within 180 days of the end   AMPM Chapter 900                   DHCM/CQM
  Project Final Report             of the project, as defined
                                   in the project proposal
                                   approved by AHCCCS DHCM

  QM Quarterly Report              45 Days after the end of     RFP Section D, Paragraph 23        DHCM/CQM
                                   each quarter

  UM Quarterly Report              45 Days after the end of     RFP Section D, Paragraph 23        DHCM/CQM
                                   each quarter

  HIV Specialty Provider List      Annually, on December 15th   AMPM, Chapter 300                  DHCM/CQM

  Provider Fraud/Abuse Report      Immediately following        RFP Section D, Paragraph 62        Office of Program
                                   discovery                                                       Integrity Manager
</TABLE>


                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 94 -
<PAGE>
ATTACHMENT F: PERIODIC REPORT REQUIREMENTS            CONTRACT/RFP NO. YH04-0001



<TABLE>
<CAPTION>
  REPORT                           WHEN DUE                     SOURCE/REFERENCE                   AHCCCS CONTACT:
  ------                           --------                     ----------------                   ---------------
<S>                                <C>                          <C>                                <C>
  Eligible Person Fraud/Abuse      Immediately following        RFP Section D, Paragraph 62        Office of Program
  Report                           discovery                                                       Integrity Manager

  Non-Transplant Catastrophic      Annually, within 30 days     RFP Section D, Paragraph 57        DHCM
  Reinsurance covered Diseases     of the beginning of the                                         Reinsurance Manager
                                   contract year, enrollment
                                   to the plan, and when
                                   newly diagnosed.

  Prescription Drug Utilization    Quarterly, within 45 days    AMPM                               Pharmacy Program
  Report*                          of quarter end                                                  Administrator

  Business Continuity and          15 days after the            Business Continuity and Recovery   DHCM, Health Plan
  Recovery Plan                    beginning of each contract   Plan Policy                        Operations, Operation
                                   year                                                            and Compliance Officer
</TABLE>

*Applicable in the event that the prescription drug benefit remains the
responsibility of the Contractor - see Paragraph 75, Pending Legislation / Other
Issues, for more information.




                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 95 -
<PAGE>
ATTACHMENT H:                                         CONTRACT/RFP NO. YH04-0001
GRIEVANCE SYSTEM AND STANDARDS



ATTACHMENT H (1): ENROLLEE GRIEVANCE SYSTEM STANDARDS AND POLICY

The Contractor shall have a written policy delineating its Grievance System
which shall be in accordance with applicable Federal and State laws, regulations
and policies, including, but not limited to 42 CFR Part 438 Subpart F. The
Contractor shall provide the Enrollee Grievance System Policy to all providers
and subcontractors at the time of contract. The Contractor shall also furnish
this information to enrollees within a reasonable time after the Contractor
receives notice of the enrollment. Additionally, the Contractor shall provide
written notification of any significant change in this policy at least 30 days
before the intended effective date of the change.

The written information provided to enrollees describing the Grievance System
including the grievance process, enrollee rights, grievance system requirements
and timeframes, shall be in each prevalent non-English language occurring within
the subcontractor's service area and in an easily understood language and
format. The Contractor shall inform enrollees that oral interpretation services
are available in any language, that additional information is available in
prevalent non-English languages upon request and how enrollees may obtain this
information.

Written documents, including but not limited to the Notice of Action, the Notice
of Appeal Resolution, Notice of Extension for Resolution, and Notice of
Extension of Notice of Action shall be translated in the enrollee's language if
information is received by the Contractor, orally or in writing, indicating that
the enrollee has a limited English proficiency. Otherwise, these documents shall
be translated in the prevalent non-English language(s) or shall contain
information in the prevalent non-English language(s) advising the enrollee that
the information is available in the prevalent non-English language(s) and in
alternative formats along with an explanation of how enrollees may obtain this
information. This information must be in large, bold print appearing in a
prominent location on the first page of the document.

At a minimum, the Contractor's Grievance System Standards and Policy shall
specify:

1.    That the Contractor shall maintain records of all grievances and appeals.

2.    Information explaining the grievance, appeal, and fair hearing procedures
      and timeframes describing the right to hearing, the method for obtaining a
      hearing, the rules which govern representation at the hearing, the right
      to file grievances and appeals and the requirements and timeframes for
      filing a grievance or appeal.

3.    The availability of assistance in the filing process and the Contractor's
      toll-free numbers that an enrollee can use to file a grievance or appeal
      by phone if requested by the enrollee.

4.    That the Contractor shall acknowledge receipt of each grievance and
      appeal. For Appeals, the Contractor shall acknowledge receipt of standard
      appeals in writing within five business days of receipt and within one
      business day of receipt of expedited appeals.

5.    That the Contractor shall permit both oral and written appeals and
      grievances and that oral inquiries appealing an action are treated as
      appeals.

6.    That the Contractor shall ensure that individuals who make decisions
      regarding grievances and appeals are individuals not involved in any
      previous level of review or decision making and that individuals who make
      decisions regarding: 1) appeals of denials based on lack of medical
      necessity, 2) a grievance regarding denial of expedited resolution of an
      appeal or 3) grievances or appeals involving clinical issues are health
      care professionals as defined in 42 CFR 438.2 with the appropriate
      clinical expertise in treating the enrollee's condition or disease.


                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 96 -
<PAGE>
ATTACHMENT H:                                         CONTRACT/RFP NO. YH04-0001
GRIEVANCE SYSTEM AND STANDARDS



7.    The resolution timeframes for grievances, standard appeals and expedited
      appeals may be extended up to 14 days if the enrollee requests the
      extension or if the Contractor establishes a need for additional
      information and that the delay is in the enrollee's interest.

8.    That if the Contractor extends the timeframe for resolution of a grievance
      or appeal when not requested by the enrollee, the Contractor shall provide
      the enrollee with written notice of the reason for the delay.

9.    The definition of grievance as a member's expression of dissatisfaction
      with any aspect of their care, other than the appeal of actions.

10.   That an enrollee must file a grievance with the Contractor and that the
      enrollee is not permitted to file a grievance directly with the State.

11.   That the Contractor must dispose of each grievance in accordance with the
      Division of Health Care Management Enrollee Grievance System Policy, but
      in no case shall the timeframe exceed 90 days unless an extension is in
      effect.

12.   The definition of action as the:

            a.    Denial or limited authorization of a requested service,
                  including the type or level of service;

            b.    Reduction, suspension, or termination of a previously
                  authorized service;

            c.    Denial, in whole or in part, of payment for a service;

            d.    Failure to provide services in a timely manner;

            e.    Failure to act within the timeframes required for standard and
                  expedited resolution of appeals and standard disposition of
                  grievances; or

            f.    Denial of a rural enrollee's request to obtain services
                  outside the Contractor's network under 42 CFR
                  438.52(b)(2)(ii), when the contractor is the only Contractor
                  in the rural area.

13.   The definition of a service authorization request as an enrollee's request
      for the provision of a service.

14.   The definition of appeal as the request for review of an action, as
      defined above.

15.   Information explaining that a provider acting on behalf of an enrollee and
      with the enrollee's written consent, may file an appeal.

16.   That an enrollee may file an appeal of: 1) the denial or limited
      authorization of a requested service including the type or level of
      service, 2) the reduction, suspension or termination of a previously
      authorized service, 3) the denial in whole or in part of payment for
      service, 4) the failure to provide services in a timely manner, 5) the
      failure of the Contractor to comply with the timeframes for dispositions
      of grievances and appeals and 6) the denial of a rural enrollee's request
      to obtain services outside the Contractor's network under 42 CFR
      438.52(b)(2)(ii) when the Contractor is the only Contractor in the rural
      area.

17.   The definition of a standard authorization request and that for standard
      authorization decisions, the Contractor must provide a Notice of Action to
      the enrollee as expeditiously as the enrollee's health condition requires,
      but not later than 14 days following the receipt of the authorization with
      a possible extension of up to 14 days if the enrollee or provider requests
      an extension or if the Contractor establishes a need for additional
      information and delay is in the enrollee's best interest.

18.   The definition of an expedited authorization request and that for
      expedited authorization decisions, the Contractor must provide a Notice of
      Action to the enrollee as expeditiously as the enrollee's health condition
      requires, but not later than 3 business days following the receipt of the
      authorization with a possible extension of up to 14 days if the enrollee
      or provider requests an extension or if the Contractor establishes a need
      for additional information and delay is in the enrollee's interest.

                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 97 -
<PAGE>
ATTACHMENT H:                                         CONTRACT/RFP NO. YH04-0001
GRIEVANCE SYSTEM AND STANDARDS



19.   That the Notice of Action for a service authorization decision not made
      within the standard or expedited timeframes, whichever is applicable, will
      be made on the date that the timeframes expire. If the Contractor extends
      the timeframe to make a standard or expedited authorization decision, the
      contractor must give the enrollee written notice of the reason to extend
      the timeframe and inform the enrollee of the right to file a grievance if
      the enrollee disagrees with the decision. The Contractor must issue and
      carry out its decision as expeditiously as the enrollee's health condition
      requires and no later than the date the extension expires.

20.   That the Contractor shall notify the requesting provider of the decision
      to deny or reduce a service authorization request. The notice to the
      provider need not be written.

21.   The definition of a standard appeal and that the Contractor shall resolve
      standard appeals no later than 30 days from the date of receipt of the
      appeal unless an extension is in effect.

22.   The definition of an expedited appeal and that the Contractor shall
      resolve all expedited appeals not later than three business days from the
      date the Contractor receives the appeal (unless an extension is in effect)
      where the Contractor determines (for a request from the enrollee), or the
      provider (in making the request on the enrollee's behalf indicates) that
      the standard resolution timeframe could seriously jeopardize the
      enrollee's life or health or ability to attain, maintain or regain maximum
      function. The Contractor shall make reasonable efforts to provide oral
      notice to an enrollee regarding an expedited resolution appeal.

23.   That if the Contractor denies a request for expedited resolution, it must
      transfer the appeal to the 30-day timeframe for a standard appeal. The
      Contractor must make reasonable efforts to give the enrollee prompt oral
      notice and follow-up within two days with a written notice of the denial
      of expedited resolution.

24.   That an enrollee shall be given 60 days from the date of the Contractor's
      Notice of Action to file an appeal.

25.   That the Contractor shall mail a Notice of Action: 1) at least 10 days
      before the date of a termination, suspension or reduction of previously
      authorized AHCCCS services, except as provided in (a)-(f) below; 2) at
      least 5 days before the date of action in the case of suspected fraud; 3)
      at the time of any action affecting the claim when there has been a denial
      of payment for a service, in whole or in part; 4) within 14 days from
      receipt of a request for a standard service authorization which has been
      denied or reduced unless an extension is in effect; 5) within three
      business days from receipt of an expedited service authorization request
      unless an extension is in effect. As described below, the Contractor may
      elect to mail the Notice of Action no later than the date of action when:

            a.    The Contractor receives notification of the death of an
                  enrollee;

            b.    The enrollee signs a written statement requesting service
                  termination or gives information requiring termination or
                  reduction of services (which indicates understanding that the
                  termination or reduction will be the result of supplying that
                  information);

            c.    The enrollee is admitted to an institution where he is
                  ineligible for further services;

            d.    The enrollee's address is unknown and mail directed to the
                  enrollee has no forwarding address;

            e.    The enrollee has been accepted for Medicaid in another local
                  jurisdiction;

26.   That the Contractor include, as parties to the appeal, the enrollee, the
      enrollee's legal representative, or the legal representative of a deceased
      enrollee's estate.

27.   That the Notice of Action must explain: 1) the action the Contractor has
      taken or intends to take, 2) the reasons for the action, 3) the enrollee's
      right to file an appeal with the Contractor, 4) the procedures for
      exercising these rights, 5) circumstances when expedited resolution is
      available and how to request it and 6) the enrollee's right to request
      continued benefits pending resolution of the appeal, how to request


                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 98 -
<PAGE>
ATTACHMENT H:                                         CONTRACT/RFP NO. YH04-0001
GRIEVANCE SYSTEM AND STANDARDS



      continued benefits and the circumstances under which the enrollee may be
      required to pay for the cost of these services.

28.   That benefits shall continue until a hearing decision is rendered if: 1)
      the enrollee files an appeal before the later of a) 10 days from the
      mailing of the Notice of Action or b) the intended date of the
      Contractor's action, 2) a) the appeal involves the termination,
      suspension, or reduction of a previously authorized course of treatment or
      b) the appeal involves a denial and the physician asserts that the
      requested service/treatment is a necessary continuation of a previously
      authorized service, 3) the services were ordered by an authorized provider
      and 4) the enrollee requests a continuation of benefits.

      For purposes of this paragraph, benefits shall be continued based on the
      authorization which was in place prior to the denial, termination,
      reduction, or suspension which has been appealed.

29.   That for appeals, the Contractor provides the enrollee a reasonable
      opportunity to present evidence and allegations of fact or law in person
      and in writing and that the Contractor informs the enrollee of the limited
      time available in cases involving expedited resolution.

30.   That for appeals, the Contractor provides the enrollee and his
      representative the opportunity before and during the appeals process to
      examine the enrollee's case file including medical records and other
      documents considered during the appeals process.

31.   That the Contractor must ensure that punitive action is not taken against
      a provider who either requests an expedited resolution or supports an
      enrollee's appeal.

32.   That the Contractor shall provide written Notice of Appeal Resolution to
      the enrollee and the enrollee's representative or the representative of
      the deceased enrollee's estate which must contain: 1) the results of the
      resolution process, including the legal citations or authorities
      supporting the determination, and the date it was completed, and 2) for
      appeals not resolved wholly in favor of enrollees: a) the enrollee's right
      to request a State fair hearing (including the requirement that the
      enrollee must file the request for a hearing in writing) no later than 30
      days after the date the enrollee receives the Contractor's notice of
      appeal resolution and how to do so, b) the right to receive benefits
      pending the hearing and how to request continuation of benefits and c)
      information explaining that the enrollee may be held liable for the cost
      of benefits if the hearing decision upholds the Contractor.

33.   That the Contractor continues extended benefits originally provided to the
      enrollee until any of the following occurs: 1) the enrollee withdraws
      appeal, 2) the enrollee has not specifically requested continued benefits
      pending a hearing decision within 10 days of the Contractor mailing of the
      appeal resolution notice, or 3) the AHCCCS Administration issues a state
      fair hearing decision adverse to the enrollee.

34.   That if the enrollee files a request for hearing the Contractor must
      ensure that the case file and all supporting documentation is received by
      the AHCCCSA, Office of Legal Assistance (OLA) as specified by OLA. The
      file provided by the Contractor must contain a cover letter that includes:

            a.    Enrollee's name

            b.    Enrollee's AHCCCS I.D. number

            c.    Enrollee's address

            d.    Enrollee's phone number (if applicable)

            e.    date of receipt of the appeal

            f.    summary of the Contractor's actions undertaken to resolve the
                  appeal and summary of the appeal resolution

35.   The following material shall be included in the file sent by the
      Contractor:


                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 99 -
<PAGE>
ATTACHMENT H:                                         CONTRACT/RFP NO. YH04-0001
GRIEVANCE SYSTEM AND STANDARDS



            a.    the Enrollee's written request for hearing

            b.    copies of the entire appeal file which includes all supporting
                  documentation including pertinent findings and medical
                  records;

            c.    the Contractor's Notice of Appeal Resolution

            d.    other information relevant to the resolution of the appeal

36.   That if the Contractor or the State fair hearing decision reverses a
      decision to deny, limit or delay services not furnished while the appeal
      was pending, the Contractor shall authorize or provide the services
      promptly and as expeditiously as the enrollee's health condition requires.

37.   That if the Contractor or State fair hearing decision reverses a decision
      to deny authorization of services and the disputed services were received
      pending appeal, the Contractor shall pay for those services, as specified
      in policy and/or regulation.

38.   That if the Contractor or State fair hearing decision upholds a decision
      to deny authorization of services and the disputed services were received
      pending appeal, the Contractor may recover the cost of those services from
      the enrollee.




                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 100 -
<PAGE>
ATTACHMENT H:                                         CONTRACT/RFP NO. YH04-0001
GRIEVANCE SYSTEM AND STANDARDS



ATTACHMENT H(2)   PROVIDER CLAIM DISPUTE STANDARDS AND POLICY

The Contractor shall have in place a written claim dispute policy for providers
regarding adverse actions taken by the Contractor. The policy shall be in
accordance with applicable Federal and State laws, regulations and policies. The
claim dispute policy shall include the following provisions:

      1.    The Provider Claim Dispute Policy shall be provided to all
            subcontractors at the time of contract. For providers without a
            contract, the claim dispute policy may be mailed with a remittance
            advice, provided the remittance is sent within 45 days of receipt of
            a claim.

      2.    The Provider Claim Dispute Policy must specify that all claim
            disputes, with the exception of those challenging claim denials,
            must be filed with the Contractor no later than 60 days from the
            date of the adverse action. Claim disputes challenging claim denials
            must be filed in writing with the Contractor no later that 12 months
            from the date of service, 12 months after the date of eligibility
            posting or within 60 days after the date of a timely claim
            submission, whichever is later.

      3.    Specific individuals are appointed with authority to require
            corrective action and with requisite experience to administer the
            claim dispute process.

      4.    A log is maintained for all claim disputes containing sufficient
            information to identify the Complainant, date of receipt, nature of
            the claim dispute and the date the claim dispute is resolved.
            Separate logs must be maintained for provider and behavioral health
            recipient claim disputes

      5.    Within five business days of receipt, the Complainant is informed by
            letter that the claim dispute has been received.

      6.    Each claim dispute is thoroughly investigated using the applicable
            statutory, regulatory, contractual and policy provisions, ensuring
            that facts are obtained from all parties.

      7.    All documentation received by the Contractor during the claim
            dispute process is dated upon receipt.

      8.    All claim disputes are filed in a secure designated area and are
            retained for five years following the Contractor's decision, the
            Administration's decision, judicial appeal or close of the claim
            dispute, whichever is later.

      9.    A copy of the Contractor's Notice of Decision (hereafter referred to
            as Decision) will be communicated in writing to all parties. The
            Decision must include and describe in detail, the following:

                  a.    the nature of the claim dispute

                  b.    the issues involved

                  c.    the reasons supporting the Contractor's Decision,
                        including references to applicable statute, rule,
                        applicable contractual provisions, policy and procedure

                  d.    the Provider's right to request a hearing by filing the
                        request for hearing to the Contractor no later than 30
                        days after the date the Provider receives the
                        Contractor's decision.

                  e.    If the claim dispute is upheld, the requirement that the
                        Contractor shall reprocess and pay the claim(s) in a
                        manner consistent with the decision within 15 business
                        days of the date of the Decision.

      10.   If the Provider files a request for hearing, the Contractor must
            ensure that all supporting documentation is received by the AHCCCSA,
            Office of Legal Assistance, no later than five business days from
            the date the Contractor receives the verbal or written request from
            AHCCCSA, Office of Legal Assistance. The file sent by the Contractor
            must contain a cover letter that includes:


                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 101 -
<PAGE>
ATTACHMENT H:                                         CONTRACT/RFP NO. YH04-0001
GRIEVANCE SYSTEM AND STANDARDS



                  a.    Provider's name

                  b.    Provider's AHCCCS ID number

                  c.    Provider's address

                  d.    Provider's phone number (if applicable)

                  e.    the date of receipt of claim dispute

                  f.    a summary of the Contractor's actions undertaken to
                        resolve the claim dispute and basis of the determination

      11.   The following material shall be included in the file sent by the
            Contractor:

                  a.    written request for hearing filed by the Provider

                  b.    copies of the entire file which includes pertinent
                        records; and the Contractor's Decision

                  c.    other information relevant to the Notice of Decision of
                        the claim dispute

      12.   If the Contractor's Decision regarding a claim dispute is reversed
            through the appeal process, the Contractor shall reprocess and pay
            the claim (s) in a manner consistent with the decision within 15
            business days of the date of the Decision.




                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 102 -
<PAGE>
ATTACHMENT I: ENCOUNTER SUBMISSION
REQUIREMENTS                                          CONTRACT/RFP NO. YH04-0001



ATTACHMENT I: ENCOUNTER SUBMISSION REQUIREMENTS

The Contractor will be assessed sanctions for noncompliance with encounter
submission requirements. AHCCCSA may also perform special reviews of encounter
data, such as comparing encounter reports to the Contractor's claims files. Any
findings of incomplete or inaccurate encounter data may result in the imposition
of sanctions or requirement of a corrective action plan.

PENDED ENCOUNTER CORRECTIONS

The Contractor must resolve all pended encounters within 120 days of the
original processing date. Sanctions will be imposed according to the following
schedule for each encounter pended for more than 120 days unless the pend is due
to AHCCCSA error:

<TABLE>
<S>            <C>              <C>              <C>              <C>
0 - 120 days   121 - 180 days   181 - 240 days   241 - 360 days   361 + days
No sanction    $ 5 per month    $ 10 per month   $ 15 per month   $ 20 per month
</TABLE>

"AHCCCSA error" is defined as a pended encounter, which (1) AHCCCSA acknowledges
to be the result of its own error, and (2) requires a change to the system
programming, an update to the database reference table, or further research by
AHCCCSA. AHCCCSA reserves the right to adjust the sanction amount if
circumstances warrant.

When the Contractor notifies AHCCCSA, in writing, that the resolution of a
pended encounter depends on AHCCCSA rather than the Contractor, AHCCCSA will
respond in writing within 30 days of receipt of such notification. The AHCCCSA
response will report the status of each pending encounter problem or issue in
question.

Pended encounters will not qualify as AHCCCSA errors if AHCCCSA reviews the
Contractor's notification and asks the Contractor to research the issue and
provide additional substantiating documentation, or if AHCCCSA disagrees with
the Contractor's claim of AHCCCSA error. If a pended encounter being researched
by AHCCCSA is later determined not to be caused by AHCCCSA error, the Contractor
may be sanctioned retroactively.

Before imposing sanctions, AHCCCSA will notify the Contractor, in writing, of
the total number of sanctionable encounters pended more than 120 days. Pended
encounters shall not be deleted by the Contractor as a means of avoiding
sanctions for failure to correct encounters within 120 days. The Contractor
shall document deleted encounters and shall maintain a record of the deleted
CRNs with appropriate reasons indicated. The Contractor shall, upon request,
make this documentation available to AHCCCSA for review.

ENCOUNTER VALIDATION STUDIES

Per CMS requirement, AHCCCSA will conduct encounter validation studies of the
Contractor's encounter submissions, and sanction the Contractor for
noncompliance with encounter submission requirements. The purpose of encounter
validation studies is to compare recorded utilization information from a medical
record or other source with the Contractor's submitted encounter data. Any and
all covered services may be validated as part of these studies. Encounter
validation studies will be conducted at least yearly.

AHCCCSA may revise study methodology, timelines, and sanction amounts based on
agency review or as a result of consultations with CMS. The Contractor will be
notified in writing of any significant change in study methodology.

AHCCCSA will conduct two encounter validation studies. Study "A" examines
non-institutional services (form HCFA 1500 encounters), and Study "B" examines
institutional services (form UB-92 encounters).

                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 103 -
<PAGE>
ATTACHMENT I: ENCOUNTER SUBMISSION
REQUIREMENTS                                          CONTRACT/RFP NO. YH04-0001




AHCCCSA will notify the Contractor in writing of the sanction amounts and of the
selected data needed for encounter validation studies. The Contractor will have
90 days to submit the requested data to AHCCCSA. In the case of medical records
requests, the Contractor's failure to provide AHCCCSA with the records requested
within 90 days may result in a sanction of $1,000 per missing medical record. If
AHCCCSA does not receive a sufficient number of medical records from the
Contractor to select a statistically valid sample for a study, the Contractor
may be sanctioned up to 5% of its annual capitation payment.

The criteria used in encounter validation studies may include timeliness,
correctness, and omission of encounters. These criteria are defined as follows:

Timeliness: The time elapsed between the date of service and the date that the
encounter is received at AHCCCS. Ninety-five percent (95%) of all encounters
must be received by AHCCCSA no later than 240 days after the end of the month in
which the service was rendered, or the effective date of enrollment with the
Contractor, whichever is later. For all encounters for which timeliness is
evaluated, a sanction per encounter error extrapolated to the population of
encounters may be assessed if the encounter record is received by AHCCCSA more
than 240 days after the date determined above. It is anticipated that the
sanction amount will be $1.00 per error extrapolated to the population of
encounters; however, sanction amounts may be adjusted if AHCCCSA determines that
encounter quality has changed, or if CMS changes sanction requirements. The
Contractor will be notified of the sanction amount in effect for the studies at
the time the studies begin.

Correctness: A correct encounter contains a complete and accurate description of
AHCCCS covered services provided to a member. A sanction per encounter error
extrapolated to the population of encounters may be assessed if the encounter is
incomplete or incorrectly coded. It is anticipated that the sanction amount will
be $1.00 per error extrapolated to the population of encounters; however,
sanction amounts may be adjusted if AHCCCSA determines that encounter quality
has changed, or if CMS changes sanction requirements. The Contractor will be
notified of the sanction amount in effect for the studies at the time the
studies begin.

Omission of data: An encounter not submitted to AHCCCSA or an encounter
inappropriately deleted from AHCCCSA's pending encounter file or historical
files in lieu of correction of such record. For Study "A" and for Study "B", a
sanction per encounter error extrapolated to the population of encounters may be
assessed for an omission. It is anticipated that the sanction amount will be
$5.00 per error extrapolated to the population of encounters for Study "A" and
$10.00 per error extrapolated to the population of encounters for Study "B";
however, sanction amounts may be adjusted if AHCCCSA determines that encounter
quality has changed, or if CMS changes sanction requirements. The Contractor
will be notified of the sanction amount in effect for the studies at the time
the studies begin.

For encounter validation studies, AHCCCSA will select all approved and pended
encounters to be studied no earlier than 240 days after the end of the month in
which the service was rendered. Once AHCCCSA has selected the Contractor's
encounters for encounter validation studies, subsequent encounter submissions
for the period being studied will not be considered.

AHCCCSA may review all of the Contractor's submitted encounters, or may select a
sample. The sample size, or number of encounters to be reviewed, will be
determined using statistical methods in order to accurately estimate the
Contractor's error rates. Error rates will be calculated by dividing the number
of errors found by the number of encounters reviewed. A 95% confidence interval
will be used to account for limitations caused by sampling. The confidence
interval shows the range within which the true error rate is estimated to be. If
error rates are based on a sample, the error rate used for sanction purposes
will be the lower limit of the confidence interval.

Encounter validation methodology and statistical formulas are provided in the
AHCCCS Encounter Data Validation Technical Document, which is available in the
Bidders Library. This document also provides examples, which illustrate how
AHCCCSA determines study sample sizes, error rates, confidence intervals, and
sanction amounts.


                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 104 -
<PAGE>
ATTACHMENT I: ENCOUNTER SUBMISSION
REQUIREMENTS                                          CONTRACT/RFP NO. YH04-0001



Written preliminary results of all encounter validation studies will be sent to
the Contractor for review and comment. The Contractor will have a maximum of 30
days to review results and provide AHCCCSA with additional documentation that
would affect the final calculation of error rates and sanctions. AHCCCSA will
examine the Contractor's documentation and may revise study results if
warranted. Written final results of the study will then be sent to the
Contractor and communicated to CMS, and any sanctions will be assessed.

The Contractor may file a written challenge to sanctions assessed by AHCCCSA not
more than 35 days after the Contractor receives final study results from
AHCCCSA. Challenges will be reviewed by AHCCCSA and a written decision will be
rendered no later than 60 days from the date of receipt of a timely challenge.
Sanctions shall not apply to encounter errors successfully challenged. A
challenge must be filed on a timely basis and a decision must be rendered by
AHCCCSA prior to filing a claim dispute and request for hearing pursuant to
A.A.C. 9-34-401 et seq. Sanction amounts will be deducted from the Contractor's
capitation payment.

ENCOUNTER CORRECTIONS

Contractors are required to submit replacement or voided encounters in the event
that claims are subsequently corrected following the initial encounter
submission. This includes corrections as a result of inaccuracies identified by
fraud and abuse audits or investigations conducted by AHCCCSA or the Contractor.
Contractors shall refer to the Encounter Reporting User Manual for instructions
regarding submission of corrected encounters.




                                                          '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 105 -
<PAGE>
ATTACHMENT L: COST SHARING COPAYMENTS                 CONTRACT/RFP NO. YH04-0001



ATTACHMENT L: COST SHARING COPAYMENTS

I.    EXEMPT POPULATIONS (REGARDLESS OF RATE CODE)

      The following populations are EXEMPT FROM COPAYMENTS FOR ALL SERVICES ($0
      COPAY):

      -     All recipients under the age of 19, including all KidsCare members

      -     All Pregnant Women

      -     All ALTCS enrolled members

      -     All persons with Serious Mental Illness receiving RBHA services

      -     All members who are receiving CRS services

      -     SOBRA Family Planning Services Only members

      Additionally, NO RECIPIENT may be asked to make a copayment for family
      planning services or supplies.

II.   STANDARD COPAYMENTS APPLY TO THE TITLE XIX WAIVER GROUP

      SERVICES TO THIS POPULATION MAY NOT BE DENIED FOR FAILURE TO PAY
      COPAYMENT.

      The standard copayments apply to the Title XIX Waiver Group, including
      RBHA General Mental Health and Substance Abuse service recipients. The
      standard copayments are as follows:

<TABLE>
<CAPTION>
      SERVICE                                                          COPAYMENT
      -------                                                          ---------
<S>                                                                   <C>
      Generic Prescriptions or Brand Name if generic not available    $ 0 per Rx
      Brand Name Prescriptions when generic is available                 $ 0
      Non Emergency Use of ER                                            $ 1
      Physician Office Visits                                            $ 1
</TABLE>


III.  STANDARD COPAYMENTS APPLY TO THE FOLLOWING POPULATIONS

      SERVICES TO THIS POPULATION MAY NOT BE DENIED FOR FAILURE TO PAY
      COPAYMENT.

      -     AHCCCS for Families with Children

      -     Supplemental Security Income with and without Medicare

<TABLE>
<CAPTION>
      SERVICE                                                          COPAYMENT
      -------                                                          ---------
<S>                                                                   <C>
      Generic Prescriptions or Brand Name if generic not available       $ 0
      Brand Name Prescriptions when generic is available                 $ 0
      Non Emergency Use of ER                                            $ 1
      Physician Office Visits                                            $ 1
</TABLE>

IV.   OTHER CO-PAYS

      HIFA Parents (Parents of KidsCare and SOBRA Children)

      -     Copayment is not mandatory

      -     EXCEPTION: NATIVE AMERICAN HEALTH PLAN ENROLLED PARENTS ARE EXEMPT
            FROM ANY COPAYMENT

<TABLE>
<CAPTION>
      SERVICE                                                          COPAYMENT
      -------                                                          ---------
<S>                                                                   <C>
      Generic Prescriptions or Brand Name if generic not available       $ 0
      Brand Name Prescriptions when generic is available                 $ 0
      Non Emergency Use of ER                                            $ 1
      Physician Office Visits                                            $ 0
</TABLE>



                                                      CYE '05 Acute Care Renewal
                                                                       Amendment
                                                                October 22, 2004

                                     - 106 -



<PAGE>
                   ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM
                      CAPITATION RATE SUMMARY - ACUTE RATES
                    PHOENIX HEALTH PLAN/COMMUNITY CONNECTION
                           CYE '05 (EFFECTIVE 10/1/04)


<TABLE>
<CAPTION>

                          TANF            TANF         TANF          TANF        TANF         SSI        SSI
TITLE XIX RATES:         <1, M/F       1-13, M/F     14-44, F      14-44, M    45+, M/F     W/ MED     W/O MED       SFP
----------------         -------       ---------     --------      --------    --------     ------     -------       ---
<S>                      <C>           <C>           <C>           <C>         <C>          <C>        <C>           <C>
   8     Gila/Pinal         $406.52         $99.62       $173.38      $121.35     $341.04     $259.60    $538.58      $15.87
   12    Maricopa           $396.55         $95.89       $169.00      $117.49     $352.99     $253.32    $529.36      $17.05
</TABLE>

<TABLE>
<CAPTION>
                          TANF            TANF         TANF          TANF        TANF         SSI        SSI
PPC RATES:               <1, M/F       1-13, M/F     14-44, F      14-44, M    45+, M/F     W/ MED     W/O MED
----------               -------       ---------     --------      --------    --------     ------     -------
<S>                      <C>           <C>           <C>           <C>         <C>          <C>        <C>
   8     Gila/Pinal         $737.97         $39.66       $151.00      $122.40     $281.97      $38.50     $86.12
   12    Maricopa         $1,196.40         $39.66       $157.05      $127.30     $293.24      $30.21     $81.25
</TABLE>

<TABLE>
<CAPTION>
                           HIFA          HIFA          HIFA         HIV/AIDS
TITLE XIX RATES:         14-44, F      14-44, M      45+, M/F      SUPPLEMENT
----------------         --------      --------      --------      ----------
<S>                      <C>           <C>           <C>           <C>
   8     Gila/Pinal          $190.48      $133.33       $374.84       $755.46
   12    Maricopa            $185.67      $129.09       $387.98       $755.46
</TABLE>


<TABLE>
<CAPTION>
                         MATERNITY
                          DELIVERY                                         MED HOSPITAL
TITLE XIX RATES:         SUPPLEMENT       NON-MED              MED          SUPPLEMENT
----------------         ----------       -------              ---          ----------
<S>                      <C>              <C>                  <C>         <C>
   8     Gila/Pinal        $5,876.14            $416.66           $797.26      $9,682.46
   12    Maricopa          $5,847.80            $418.85           $801.82      $9,567.72
</TABLE>


<TABLE>
<CAPTION>
PPC RATES:                                NON-MED              MED
----------                                -------              ---
<S>                                       <C>                  <C>
   8     Gila/Pinal                             $554.83         $1,584.83
   12    Maricopa                               $538.76         $1,572.86
</TABLE>


* Rates have been adjusted for $50,000 Reinsurance Deductible