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

                                    Form 10-Q/A**
(Mark One)

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

For the quarterly period ended       September 30, 2001

                                       OR

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

For the transition period from ____________________ to ___________________

Commission File Number 1-8865

                          **SIERRA HEALTH SERVICES, INC.**
             (Exact name of registrant as specified in its charter)

                  NEVADA                                    88-0200415
       (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                   Identification No.)

               2724 NORTH TENAYA WAY
                   LAS VEGAS, NV                               89128
     (Address of principal executive offices)                (Zip Code)

                                 (702) 242-7000
              (Registrant's telephone number, including area code)

                                       N/A
     (Former name, former address and former fiscal year, if changed since
      last report)

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

         As of November 1, 2001, there were 27,880,000 shares of common
         stock outstanding.

                  **SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

            FORM 10-Q/A FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

                                    INDEX**
                                                                                                           Page No.
                                                                                                           --------

Part I - FINANCIAL INFORMATION

      Item 1.     Financial Statements

                  Condensed Consolidated Balance Sheets -
                    September 30, 2001 and December 31, 2000.................................................    3

                  Condensed Consolidated Statements of Operations -
                    three and nine months ended September 30, 2001 and 2000..................................    4

                  Condensed Consolidated Statements of Cash Flows -
                    nine months ended September 30, 2001 and 2000............................................    5

                  Notes to Condensed Consolidated Financial Statements.......................................    6

      Item 2.     Management's Discussion and Analysis of
                    Financial Condition and Results of Operations............................................   13

      Item 3.     Quantitative and Qualitative Disclosures
                    about Market Risk........................................................................   22

**Part II - OTHER INFORMATION**
      Item 1.     Legal Proceedings..........................................................................   23

      Item 2.     Changes in Securities and Use Of Proceeds..................................................   23

      Item 3.     Defaults Upon Senior Securities............................................................   23

      Item 4.     Submission of Matters to a Vote of Security Holders........................................   23

      Item 5.     Other Information..........................................................................   23

      Item 6.     Exhibits and Reports on Form 8-K...........................................................   23

Signatures...................................................................................................   24

                         **PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share data)

                                     ASSETS
                                                                                        September 30           December 31
                                                                                             2001                 2000
                                                                                             ----                 ----
                                                                                        (Unaudited)**
Current Assets:
     Cash and Cash Equivalents..............................................             $  147,695           $  157,564
     Investments............................................................                214,212              206,935
     Accounts Receivable (Less Allowance for Doubtful
         Accounts: 2001 - $14,603; 2000 - $14,895)..........................                 25,390               26,661
     Military Accounts Receivable (Less Allowance for Doubtful
         Accounts: 2001 - $1,316; 2000 - $1,212)............................                 34,723               71,390
     Current Portion of Deferred Tax Asset..................................                 49,320               46,702
     Current Portion of Reinsurance Recoverable.............................                 88,889               91,477
     Prepaid Expenses and Other Current Assets..............................                 40,280               30,912
     Assets Held for Sale...................................................                                       3,458
     Assets of Discontinued Operations......................................                 42,207               36,192
                                                                                          ---------            ---------
         Total Current Assets...............................................                642,716              671,291

Property And Equipment, Net.................................................                147,042              171,032
Long-Term Investments.......................................................                  9,277               18,093
Restricted Cash And Investments.............................................                 26,122               24,461
Reinsurance Recoverable, Net of Current Portion.............................                171,074              160,227
Deferred Tax Asset, Net of Current Portion..................................                 63,329               68,253
Other Assets................................................................                 56,640               51,743
                                                                                          ---------            ---------
TOTAL ASSETS................................................................             $1,116,200           $1,165,100
                                                                                          =========            =========

                      **LIABILITIES AND STOCKHOLDERS' EQUITY**

Current Liabilities:
  Accounts Payable and Accrued Liabilities..................................             $   77,466           $   92,923
  Medical Claims Payable....................................................                 77,568               74,404
  Current Portion of Reserve for Losses and Loss Adjustment Expense.........                147,351              134,676
  Unearned Premium Revenue..................................................                 51,146               41,499
  Military Health Care Payable..............................................                 85,239               84,859
  Current Portion of Long-term Debt.........................................                  2,754               53,993
  Liabilities of Discontinued Operations....................................                103,586              110,620
                                                                                          ---------            ---------
         Total Current Liabilities..........................................                545,110              592,974

Reserve For Losses And
  Loss Adjustment Expense, Net of Current Portion...........................                263,258              239,878
Long-Term Debt, Net of Current Portion......................................                194,195              224,970
Other Liabilities ..........................................................                 19,348               16,805
                                                                                          ---------            ---------
TOTAL LIABILITIES...........................................................              1,021,911            1,074,627
                                                                                          ---------            ---------

Stockholders' Equity:
  Preferred Stock, $.01 Par Value, 1,000
       Shares Authorized; None Issued or Outstanding
  Common Stock, $.005 Par Value, 60,000
       Shares Authorized; Shares Issued:  2001 - 29,403; 2000 - 28,815......                    147                 144
  Additional Paid-in Capital................................................                179,670              177,493
  Treasury Stock; 2001 and 2000 - 1,523 Common Stock Shares.................                (22,789)             (22,789)
  Accumulated Other Comprehensive Loss......................................                 (2,477)              (5,667)
  Accumulated Deficit.......................................................                (60,262)             (58,708)
                                                                                          ---------            ---------
         Total Stockholders' Equity.........................................                 94,289               90,473
                                                                                          ---------            ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................             $1,116,200           $1,165,100
                                                                                          =========            =========

     See accompanying notes to condensed consolidated financial statements.

**SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

                                                                Three Months Ended                 Nine Months Ended
                                                                   September 30                      September 30
                                                               2001             2000              2001             2000
                                                               ----             ----              ----             ----**Operating Revenues:
....Medical Premiums..................................        $184,402         $160,309          $522,806        $ 478,594
   Military Contract Revenues........................          85,499          101,259           255,497          238,514
   Specialty Product Revenues........................          49,447           40,766           135,774           98,880
   Professional Fees.................................           6,981            7,580            22,056           26,202
   Investment and Other Revenues.....................           4,525            5,386            16,276           16,929
                                                              -------          -------           -------         --------
         Total.......................................         330,854          315,300           952,409          859,119
                                                              -------          -------           -------         --------

Operating Expenses:
   Medical Expenses (Note 2).........................         156,307          138,374           443,595          441,121
   Military Contract Expenses........................          83,561           99,889           250,332          232,872
   Specialty Product Expenses........................          50,144           41,671           139,570          115,403
   General, Administrative and Marketing Expenses....          30,084           25,263            86,701           79,497
   Asset Impairment, Restructuring, Reorganization
        and Other Costs (Note 3).....................                                                              33,836
                                                              -------          -------           -------         --------
         Total ......................................         320,096          305,197           920,198          902,729
                                                              -------          -------           -------         --------

Operating Income (Loss)..............................          10,758           10,103            32,211          (43,610)

Interest Expense and Other, Net  ....................          (3,888)          (4,854)          (14,450)         (13,809)
                                                              -------          -------           -------         --------

Income (Loss) from Continuing Operations Before Taxes           6,870            5,249            17,761          (57,419)

Income Tax (Provision) Benefit.......................          (2,298)          (1,708)           (5,946)          14,803
                                                              -------          -------           --------        --------

Net Income (Loss) from Continuing Operations.........           4,572            3,541            11,815          (42,616)

Loss from Discontinued Operations (Note 4)...........         (12,126)            (872)          (13,369)        (159,876)
                                                              -------          -------           -------         --------

Net (Loss) Income....................................        $ (7,554)        $  2,669          $ (1,554)       $(202,492)
                                                              =======          =======           =======         ========

Earnings per Common Share:
-------------------------
Net Income (Loss) from Continuing Operations.........          $ .16             $ .13             $ .43           $(1.57)
Loss from Discontinued Operations....................           (.43)             (.03)             (.49)           (5.90)
                                                                ----              ----              ----            -----
   Net (Loss) Income.................................          $(.27)            $ .10             $(.06)          $(7.47)
                                                                ====              ====              ====            =====

Earnings per Common Share Assuming Dilution:
-------------------------------------------
Net Income (Loss) from Continuing Operations.........          $ .16             $ .13             $ .42           $(1.57)
Loss from Discontinued Operations....................           (.42)             (.03)             (.47)           (5.90)
                                                                ----              ----              ----            -----
   Net (Loss) Income.................................          $(.26)            $ .10             $(.05)          $(7.47)
                                                                ====              ====              ====            =====

Weighted Average Common Shares Outstanding...........          27,851           27,248            27,619           27,092

Weighted Average Common Shares Outstanding
   Assuming Dilution.................................          29,270           27,250            28,316           27,092

     See accompanying notes to condensed consolidated financial statements.

                  **SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                   (Unaudited)

                                                                                      Nine Months Ended September 30
                                                                                           2001               2000
                                                                                           ----               ----**
Cash Flows From Operating Activities:
   Net Loss................................................................              $ (1,554)          $(202,492)
   Adjustments to Reconcile Net Loss to Net Cash
       Provided by (Used for) Operating Activities:
          Loss from Discontinued Operations................................                13,369             159,876
          Provision for Asset Impairment and Other Charges.................                                    39,079
          Depreciation and Amortization....................................                18,439              19,373
          Provision for Doubtful Accounts..................................                 1,899               2,014
          Loss on Property and Equipment Dispositions......................                 2,399
   Changes in Assets and Liabilities.......................................                55,452             (67,137)
                                                                                          -------             -------
       Net Cash Provided by (Used for) Operating Activities ...............                90,004             (49,287)
                                                                                          -------             -------

Cash Flows From Investing Activities:
   Capital Expenditures, Net of Dispositions...............................                 7,215             (11,774)
   Changes in Investments..................................................                  (839)             23,435
                                                                                          -------            --------
       Net Cash Provided by Investing Activities...........................                 6,376              11,661
                                                                                          -------            --------

Cash Flows From Financing Activities:
   Proceeds from Borrowings................................................                                    25,000
   Payments on Debt and Capital Leases.....................................               (82,015)             (6,566)
   Issuance of Stock in Connection with Stock Plans........................                 2,180               1,572
                                                                                          -------            --------
       Net Cash (Used for) Provided by Financing Activities................               (79,835)             20,006
                                                                                          -------            --------

Cash (Used for) Provided by Discontinued Operations........................               (26,414)             22,075
                                                                                          -------            --------

Net (Decrease) Increase In Cash and Cash Equivalents.......................                (9,869)              4,455

Cash and Cash Equivalents at Beginning of Period...........................               157,564              53,867
                                                                                          -------            --------

Cash and Cash Equivalents at End Of Period.................................              $147,695           $  58,322
                                                                                          =======            ========

Supplemental Condensed Consolidated Continuing Operations                                **Nine Months Ended September 30**
  Statements of Cash Flows Information:                                                     **2001                2000**
------------------------------------------------------------------------                    **----                ----**
Cash Paid During the Period for Interest
   (Net of Amount Capitalized).............................................               $14,423             $17,529
Net Cash Paid (Received) During the Period for Income Taxes................                   376             (10,538)

Non-cash Investing and Financing Activities:
   Note Received for Sale of Investment....................................                                     3,700
   Debentures exchanged....................................................                19,692

     See accompanying notes to condensed consolidated financial statements.

                  **SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

1.   Principles of Consolidation

     The accompanying  unaudited  financial  statements include the consolidated
     accounts of Sierra Health  Services,  Inc.  ("Sierra",  a holding  company,
     together  with its  subsidiaries,  collectively  referred  to herein as the
     "Company").  All material  intercompany balances and transactions have been
     eliminated.   These  statements  have  been  prepared  in  conformity  with
     accounting  principles  generally  accepted in the United States of America
     and used in preparing the Company's annual audited  consolidated  financial
     statements but do not contain all of the information  and disclosures  that
     would be required in a complete set of audited financial  statements.  They
     should, therefore, be read in conjunction with the Company's annual audited
     consolidated  financial  statements and related notes thereto for the years
     ended  December  31,  2000 and 1999.  In the  opinion  of  management,  the
     accompanying  unaudited condensed consolidated financial statements reflect
     all adjustments, consisting only of normal recurring adjustments, necessary
     for a fair  presentation  of the financial  results for the interim periods
     presented.

2.   Certain Medical Expenses

     Included in reported  medical  expenses for the nine months ended September
     30,  2000,  are  changes in  estimate  charges of $16.5  million of reserve
     strengthening,  primarily  due to  adverse  development  on prior  periods'
     medical  claims.  In addition,  the Company  recorded $9.5 million of other
     non-recurring medical costs primarily relating to the write-down of medical
     subsidiary assets.

3.   Asset Impairment, Restructuring, Reorganization and Other Costs

     The table  below  presents  a summary of asset  impairment,  restructuring,
     reorganization   and  other  cost  activity  for  the  periods   indicated.
     Discontinued Texas healthcare operations are excluded from the table.

**Restructuring
                                                 Asset              and**      (In thousands)                          **Impairment      Reorganization        Other          Total
                                              ----------      --------------        -----          -----**
      Balance, January 1, 2000...........                                         $ 3,449        $  3,449

      Charges recorded...................       $27,553            $1,983           4,300          33,836
      Cash used..........................                          (1,389)           (302)         (1,691)
      Noncash activity...................       (27,553)                           (3,000)        (30,553)
      Changes in estimate................
                                                -------             -----          ------         -------
      Balance, December 31, 2000.........          -                  594           4,447           5,041

      Charges recorded...................
      Cash used..........................                            (347)                           (347)
      Noncash activity...................
      Changes in estimate................
                                                -------             -----          ------           -----
      Balance, September 30, 2001........      $   -               $  247         $ 4,447        $  4,694
                                                =======            ======          ======         =======

     Asset  impairment  charges  recorded in 2000 were  primarily  for  goodwill
     related to discontinued  medical providers and other impaired fixed assets.
     The remaining  other costs of $4.4 million are  primarily  related to legal
     claims.  Management believes that the remaining  reserves,  as of September
     30,  2001,  are  appropriate  and that no revisions  to the  estimates  are
     necessary at this time.

4.   Discontinued Operations

     Statement of Financial  Accounting  Standards No. 144,  "Accounting for the
     Impairment  or  Disposal  of  Long-Lived  Assets"  ("SFAS  144"),  which is
     effective  for fiscal years  beginning  after  December 15, 2001 with early
     adoption  recommended.  The Company has elected to adopt SFAS 144 effective
     January 1, 2001.  During the third quarter of 2001,  the Company  announced
     its plan to exit the Texas  healthcare  market and received formal approval
     from  the  Texas   Department  of  Insurance  to  withdraw  its  healthcare
     operations  in  mid-October.  The Company will cease  providing  healthcare
     services  in Texas on April 17,  2002.  In  accordance  with SFAS 144,  the
     Company's   Texas   healthcare   operations   have  been   reclassified  as
     discontinued operations.

     The  following  are  unaudited  condensed  statements  of operations of the
     discontinued  Texas healthcare  operations:

                                                                **Three Months Ended            Nine Months Ended
                                                                    September 30                   September 30
                                                                2001           2000           2001              2000
                                                                ----           ----            ----             ----**
      Operating Revenues..................................    $ 45,474        $62,182        $137,744        $ 182,593
                                                               -------         ------         -------         --------

      Medical Expenses....................................      49,042         53,192         136,259          189,752
      General, Administrative and Marketing Expenses......       8,184          9,064          22,766           23,815
      Asset Impairment, Restructuring, Reorganization
         And Other Costs..................................       6,550                         (1,250)         186,604
      Interest Expense and Other, Net.....................         (74)         1,237              66            3,019
                                                               -------         ------         -------         --------

      Loss from Discontinued Operations Before Tax........     (18,228)        (1,311)        (20,097)        (220,597)
      Income Tax Benefit..................................       6,102            439           6,728           60,721
                                                               -------         ------         -------         --------

      Net Loss from Discontinued Operations...............    $(12,126)       $  (872)       $(13,369)       $(159,876)
                                                               =======         ======         =======         ========

     All of the discontinued Texas healthcare operations were designated as part
     of the "managed care and corporate operations" reporting segment.

     Included in the Texas healthcare  operations  medical expenses for the nine
     months ended  September 30, 2000 are $14.7  million,  primarily for adverse
     development on prior periods' medical claims,  and $15.5 million in premium
     deficiency  medical  expense  related  to  under-performing  markets in the
     Dallas/Ft.  Worth  and  Houston  areas.  The  recorded  premium  deficiency
     reflected anticipated costs after restructuring and reorganization  actions
     taken in the first six months of 2000.  During the second  quarter of 2001,
     management  revised  their  estimates  of premium  deficiency  reserves and
     reclassified $7.8 million from premium  deficiency  maintenance  reserve to
     premium deficiency medical reserve.  This reclassification was based on the
     latest  available  medical cost trends,  which did not become evident until
     late in the second  quarter of 2001,  and is  reflected  as an  increase in
     medical  expense and a decrease in general,  administrative  and  marketing
     expenses on the condensed  statements of operations of  discontinued  Texas
     healthcare operations.

     Included in the Texas healthcare  operations  general,  administrative  and
     marketing  expenses  for the nine months ended  September  30, 2000 are the
     following:  (a) asset  impairment  charges of $126.4  million for  impaired
     goodwill;  (b) $36.5  million  for  impaired  real  estate and other  fixed
     assets; (c) $10.4 million for premium deficiency maintenance costs; and (d)
     other restructuring, reorganization and other costs of $13.3 million.

     Throughout  2001,  the Company  continued to focus on making the Dallas/Ft.
     Worth operations  profitable.  Significant premium rate increases were made
     on renewing membership and during the third quarter the Company embarked on
     a  recontracting  effort  to  reduce  medical  costs.  It was  during  this
     recontracting  effort that  unsustainable  cost increases were  identified,
     including  the fact  that the  operations'  primary  hospital  contract  if
     renewed,  would be at a  substantially  higher  rate  than  was  previously
     indicated by the hospital.

     Although  considerable  efforts had been made to achieve  profitability  in
     Texas, it was determined that under the current operating environment,  the
     Company would not be able to turn around the operating results and the best
     course of action was to exit the market as soon as possible to limit future
     losses and exposure.  The Company has also received a limited  waiver under
     its revolving  credit  facility  agreement  for all  covenants  affected by
     exiting the Texas healthcare market.

     As part of the Company's  plan to exit Texas,  the Company  recorded  $10.6
     million for premium  deficiency  medical costs,  $1.6 million to write down
     certain  Texas  furniture  and  equipment,  $2.0 million in lease and other
     termination costs, $1.8 million in legal and restitution costs, $500,000 in
     various  other  exit  related  costs and  $570,000  in  premium  deficiency
     maintenance.

     The  table  below  presents  a summary  of  discontinued  Texas  healthcare
     operations' asset impairment, restructuring,  reorganization and other cost
     activity for the periods indicated.

                                                          **Restructuring         Premium
                                             Asset             and            Deficiency**
     (In thousands)                       **Impairment     Reorganization       Maintenance      Other        Total
                                          ----------     --------------       -----------      -----        -----**
     Balance, January 1, 2000........                                          $11,000                   $  11,000

     Charges recorded................     $ 162,937           $11,509           10,358        $1,800       186,604
     Cash used.......................                          (7,754)         (12,080)         (200)      (20,034)
     Noncash activity................      (162,937)                                            (800)     (163,737)
     Changes in estimate.............
                                           --------            ------           ------         -----      --------
     Balance, December 31, 2000......         -                 3,755            9,278           800        13,833

     Charges recorded................         1,600             4,380              570                       6,550
     Cash used.......................                          (2,099)          (1,478)         (800)       (4,377)
     Noncash activity................        (1,600)             (125)                                      (1,725)
     Changes in estimate.............                                           (7,800)                     (7,800)
                                           --------            ------           ------         -----      --------
     Balance, September 30, 2001.....     $   -               $ 5,911          $   570        $  -       $   6,481
                                           ========            ======           ======         =====      ========

     Of the remaining  restructuring and  reorganization  costs of $5.9 million,
     $4.4  million is related to the charges  incurred  in the third  quarter of
     2001 as described  above,  and $1.5  million  remains from the December 31,
     2000  balance and is primarily  related to the cost to provide  malpractice
     insurance  on  our   discontinued   affiliated   medical  group  and  lease
     terminations in Houston. The remaining premium deficiency maintenance costs
     of $570,000 is an estimate of general and  administrative  costs, in excess
     of those  covered by  premiums,  that the  Company  expects to be  incurred
     during the run-out of the Texas healthcare operations.  Management believes
     that the remaining reserves,  as of September 30, 2001, are appropriate and
     that no revisions to the estimates are necessary at this time.

     The following are the unaudited  assets and liabilities of the discontinued
     Texas healthcare operations:

                                                                   **September 30                 December 31**
      (In thousands)                                                   **2001                        2000
                                                                       ----                        ----****ASSETS**
      Cash and Cash Equivalents...............................      $  12,040                   $   3,742
      Accounts Receivable, Net................................          2,866                       6,433
      Other Assets............................................          7,214                       4,534
      Property and Equipment, Net.............................         20,087                      21,483
                                                                     --------                    --------
      TOTAL ASSETS............................................         42,207                       36,192
                                                                     --------                    ---------

      **LIABILITIES**
      Accounts Payable and Other Liabilities..................         15,780                       17,158
      Medical Claims Payable..................................         34,101                       37,892
      Unearned Premium Revenue................................         10,054                        6,874
      Premium Deficiency Reserve..............................          9,788                       14,466
      Mortgage Loan Payable...................................         33,863                       34,230
                                                                     --------                    ---------
      TOTAL LIABILITIES.......................................        103,586                      110,620
                                                                     --------                    ---------

      NET LIABILITIES OF DISCONTINUED OPERATIONS..............      $(61,379)                   $(74,428)
                                                                     ========                    =======

     Property and equipment consists mainly of real estate properties located in
     the  Dallas/Ft.   Worth  metroplex  areas.   Texas  Health  Choice  LLP,  a
     wholly-owned  subsidiary of the Company,  acquired  these  properties  from
     Kaiser Foundation Health Plan of Texas  ("Kaiser-Texas") for $44 million as
     part of the  acquisition of certain assets of Kaiser-Texas in October 1998.
     In June  2000,  as  part of its  restructuring  and  reorganization  of the
     Dallas/Ft.   Worth  healthcare   operations,   the  Company  announced  its
     intentions  to sell these  properties.  The real estate was written down to
     its estimated fair value and the Company took an asset impairment charge of
     $27  million.  The  real  estate  is  encumbered  by  a  mortgage  loan  to
     Kaiser-Texas.  The mortgage  loan  balance at September  30, 2001 was $33.9
     million. See Note 9, Subsequent Events.

5.   Earnings Per Share:

The following table provides a reconciliation  of basic and diluted earnings per
share ("EPS") for continuing operations:

                                                                                           **Dilutive**
     (In thousands, except per share data)                                 **Basic         Stock Options         Diluted
                                                                           -----         -------------         -------****For the Three Months ended September 30, 2001:**
       Income from Continuing Operations                                 $   4,572                          $   4,572
       Shares                                                               27,851           1,419             29,270
       Per Share Amount                                                     $ .16                              $ .16

     **For the Three Months ended September 30, 2000:**
       Income from Continuing Operations                                 $   3,541                          $   3,541
       Shares                                                               27,248               2             27,250
       Per Share Amount                                                     $ .13                              $ .13

     **For the Nine Months ended September 30, 2001:**
       Income from Continuing Operations                                  $ 11,815                           $ 11,815
       Shares                                                               27,619             697             28,316
       Per Share Amount                                                     $ .43                              $ .42

     **For the Nine Months ended September 30, 2000:**
       Loss from Continuing Operations                                    $(42,616)                          $(42,616)
       Shares                                                               27,092                             27,092
       Per Share Amount                                                    $(1.57)                            $(1.57)

Outstanding  stock options were not included in the  computation  of diluted EPS
for the nine months ended  September  30, 2000  because  their effect would have
been antidilutive.

6.   The  following  table  presents   comprehensive   income  for  the  periods
     indicated:

                                                  **Three Months Ended                  Nine Months Ended
                                                                  September 30                        September 30**
               (In thousands)                                 **2001            2000               2001             2000
                                                              ----            ----               ----             ----**
           Net (Loss) Income...........................     $(7,554)         $2,669             $(1,554)       $(202,492)
           Change in Accumulated Other
             Comprehensive Income, Net.................       4,779             921               3,190            4,771
                                                             ------           -----               -----         --------

           Comprehensive (Loss) Income.................     $(2,775)         $3,590              $1,636        $(197,721)
                                                             ======           =====               =====         ========

7.   Segment Reporting

The Company has three  reportable  segments  based on the  products and services
offered:  managed  care  and  corporate  operations,  military  health  services
operations and workers' compensation operations.  The managed care and corporate
segment  includes managed health care services  provided  through HMOs,  managed
indemnity   plans,    third-party    administrative    services   programs   for
employer-funded  health benefit plans,  multi-specialty  medical  groups,  other
ancillary  services and  corporate  operations.  Discontinued  Texas  healthcare
operations are excluded.  The military  health  services  segment  administers a
managed care federal contract for the Department of Defense's TRICARE program in
Region 1. The workers' compensation segment assumes workers' compensation claims
risk in return for premium revenues and third party administrative services.

The Company  evaluates each  segment's  performance  based on segment  operating
profit. The accounting  policies of the operating segments are the same as those
of the consolidated company, except as described in the notes below. Information
concerning reportable segments for continuing operations is as follows:

                                                 **Managed Care          Military            Workers'
                                                 and Corporate      Health Services      Compensation**
     (In thousands)                              **Operations           Operations           Operations          Total
                                              ----------------     ----------------    -----------------**       -----
**Three Months Ended September 30, 2001**
Medical Premiums..........................          $ 184,402                                                $184,402
Military Contract Revenues................                              $  85,499                              85,499
Specialty Product Revenues................              1,908                              $ 47,539            49,447
Professional Fees.........................              6,981                                                   6,981
Investment and Other Revenues.............                296                 659             3,570             4,525
                                                    ---------            --------           -------           -------
   Total Revenue..........................          $ 193,587           $  86,158          $ 51,109          $330,854
                                                     ========            ========           =======           =======

Segment Operating Profit..................          $   6,888           $   2,597          $  1,273          $ 10,758
Interest Expense and Other, Net...........             (3,412)                 31              (507)           (3,888)
                                                     --------            --------           -------           -------
Income Before Income Taxes................          $   3,476           $   2,628          $    766          $  6,870
                                                     ========            ========           =======           =======

**Three Months Ended September 30, 2000**
Medical Premiums..........................          $ 160,309                                                $160,309
Military Contract Revenues................                              $ 101,259                             101,259
Specialty Product Revenues................              2,166                              $ 38,600            40,766
Professional Fees.........................              7,580                                                   7,580
Investment and Other Revenues.............              1,404                 147             3,835             5,386
                                                     --------            --------           -------           -------
   Total Revenue..........................          $ 171,459           $ 101,406          $ 42,435          $315,300
                                                     ========            ========           =======           =======

Segment Operating Profit..................          $   6,256           $   1,518          $  2,329          $ 10,103
Interest Expense and Other, Net...........             (4,074)                (74)             (706)           (4,854)
                                                     --------            --------           -------           -------
Income Before Income Taxes................          $   2,182           $   1,444          $  1,623          $  5,249
                                                     ========            ========           =======           =======

**Nine Months Ended September 30, 2001**
Medical Premiums..........................          $ 522,806                                                $522,806
Military Contract Revenues................                              $ 255,497                             255,497
Specialty Product Revenues................              5,813                              $129,961           135,774
Professional Fees.........................             22,056                                                  22,056
Investment and Other Revenues.............              2,508               1,821            11,947            16,276
                                                     --------            --------           -------           -------
   Total Revenue..........................          $ 553,183           $ 257,318          $141,908          $952,409
                                                     ========            ========           =======           =======

Segment Operating Profit..................          $  20,249           $   6,986          $  4,976          $ 32,211
Interest Expense and Other, Net...........            (13,194)                 14            (1,270)          (14,450)
                                                     --------            --------           -------           -------
Income (Loss) Before Income Taxes.........          $   7,055           $  7,000           $  3,706          $ 17,761
                                                     ========            =======            ======            =======

**Nine Months Ended September 30, 2000**
Medical Premiums..........................          $ 478,594                                                $478,594
Military Contract Revenues................                              $ 238,514                             238,514
Specialty Product Revenues................              6,858                              $ 92,022            98,880
Professional Fees.........................             26,202                                                  26,202
Investment and Other Revenues.............              5,527                 601            10,801            16,929
                                                     --------            --------           -------           -------
   Total Revenue..........................          $ 517,181           $ 239,115          $102,823          $859,119
                                                     ========            ========           =======           =======

Segment Operating Profit (1)..............          $  17,669           $   6,245          $  8,823          $ 32,737
Interest Expense and Other, Net...........            (11,694)               (439)           (1,676)          (13,809)
Changes in Estimate Charges (2)...........            (26,011)                              (16,500)          (42,511)
Asset Impairment, Restructuring,
     Reorganization and Other Costs.......            (30,836)                               (3,000)          (33,836)
                                                     --------            --------           -------           -------
(Loss) Income Before Income Taxes.........          $ (50,872)          $   5,806          $(12,353)         $(57,419)
                                                     ========            ========           =======           =======

(1)  The segment  operating  profit  excludes the effects of changes in estimate
     charges  and  asset  impairment,  restructuring,  reorganization  and other
     costs.
(2)  Represents  changes in estimate charges in the current year for services or
     liabilities  of a prior  year  that  are  reclassified  to  either  Medical
     Expenses or Specialty  Product Expenses for presentation in accordance with
     accounting principles generally accepted in the United States of America.

8.   CII Financial Debentures

     CII  Financial,  Inc.  had  approximately  $47.1  million  of  Subordinated
     Debentures   outstanding  that  were  due  on  September  15,  2001.  These
     Subordinated  Debentures  were neither assumed nor guaranteed by Sierra and
     were  subordinated  to Sierra's credit facility debt. In December 2000, CII
     Financial  commenced an offer to exchange the  Subordinated  Debentures for
     cash  and/or new  debentures.  On May 7,  2001,  CII  Financial  closed its
     exchange offer on $42.1 million of its outstanding Subordinated Debentures.
     CII Financial  purchased $27.1 million in principal  amount of Subordinated
     Debentures for $20.0 million in cash and issued $15.0 million in new 9 1/2%
     senior debentures, due September 15, 2004, in exchange for $15.0 million in
     Subordinated Debentures.

     The exchange offer contained concessions by the holders of the Subordinated
     Debentures, including extending the maturity and accepting an interest rate
     that may have been lower than what CII  Financial  could have obtained from
     other lenders. In accordance with accounting  principles generally accepted
     in the United  States of  America,  the  exchange  of the new 9 1/2% senior
     debentures for the  Subordinated  Debentures was treated as a restructuring
     of debt.  Additionally,  the  Subordinated  Debentures  are  considered  to
     represent  one  payable,  even  though  there are many  debenture  holders.
     Although  some  of  the  debenture   holders   exchanged  the  Subordinated
     Debentures for cash,  some exchanged them for new 9 1/2% senior  debentures
     and others a combination  of the two, this does not change the substance of
     the transaction for CII Financial; accordingly, the exchange was considered
     to be a single transaction.

     In the transaction,  total future cash payments (interest and principal) on
     the remaining Subordinated  Debentures and the new 9 1/2% senior debentures
     were less than the balance of the  Subordinated  Debentures  at the time of
     the  exchange   less  the  cash   consideration   given  in  the  exchange.
     Accordingly,  a gain on restructuring was recognized for the difference and
     the carrying amount of the remaining Subordinated Debentures and new 9 1/2%
     senior  debentures  is the total  future cash  payments on the  debentures.
     Costs incurred in connection with the exchange were used to offset the gain
     on  restructuring.  All future cash payments related to the debentures will
     be reductions of the carrying amount of the debentures  therefore no future
     interest  expense will be recognized for the  debentures.  The  transaction
     resulted in a gain of $613,000.

     In September 2001, the California  Department of Insurance gave approval to
     California Indemnity, one of CII Financial's insurance subsidiaries, to pay
     a dividend of $5.0 million to CII Financial. CII Financial used these funds
     to pay the remaining $5.0 million in Subordinated Debentures at maturity.

     The new 9 1/2% senior  debentures pay interest,  which is due semi-annually
     on March 15 and  September 15 of each year,  commencing  on  September  15,
     2001. The new 9 1/2% senior  debentures  rank senior to  outstanding  notes
     payable  from CII  Financial  to Sierra and CII  Financial's  guarantee  of
     Sierra's revolving credit facility. The new 9 1/2% senior debentures may be
     redeemed  by CII  Financial  at any time at  premiums  starting at 110% and
     declining to 100% for  redemptions  after April 1, 2004.  In the event of a
     change in control of CII  Financial,  the  holders of the new 9 1/2% senior
     debentures  may  require  that CII  Financial  repurchase  them at the then
     applicable redemption price, plus accrued and unpaid interest.

9.   Subsequent Events

     A settlement agreement was reached with Kaiser-Texas effective December 31,
     2001 relating to the Sierra  guarantee of the mortgage debt  obligation and
     other issues related to the acquisition of the Kaiser-Texas assets in 1998.
     As part of the settlement, Kaiser-Texas agreed to reduce the principal loan
     balance  by  $8.5  million  and  a  receivable  due  to  the  Company  from
     Kaiser-Texas  of $2.5 million was applied to the  principal  balance of the
     mortgage loan.  Monthly mortgage  payments were also suspended for a twelve
     month period  starting  February 2002 and the loan maturity was extended by
     three years to November 1, 2006. Sierra agreed to unconditionally guarantee
     the mortgage debt obligation as well as dismiss all other issues related to
     the Kaiser-Texas acquisition.

     The settlement included concessions by Kaiser-Texas,  including a reduction
     in  principal  and  an  extension  of  the  maturity.  In  accordance  with
     accounting  principles  generally accepted in the United States of America,
     the agreement  was treated as a  restructuring  of debt.  Total future cash
     payments  (interest and  principal) on the revised  mortgage loan were less
     than  the  principal  balance  of the  mortgage  loan  at the  time  of the
     settlement.  Accordingly,  a gain on  restructuring  was recognized for the
     difference  and the  carrying  amount of the revised  mortgage  loan is the
     total  future  cash  payments  on the  mortgage  loan.  Costs  incurred  in
     connection   with  the   settlement   were  used  to  offset  the  gain  on
     restructuring.  Effective January 1, 2002, all future cash payments related
     to the  mortgage  loan will be  reductions  of the  carrying  amount of the
     mortgage loan; therefore, no future interest expense will be recognized for
     the  mortgage  loan.  The  transaction  resulted in a gain before  taxes of
     $1,220,000 in the fourth quarter of 2001.

10.  Recent Accounting Pronouncements

     In July 2001, the FASB issued Statement of Financial  Accounting  Standards
     No. 142,  "Goodwill and Other  Intangible  Assets"  ("SFAS 142"),  which is
     effective  January 1, 2002.  SFAS 142  requires,  among other  things,  the
     discontinuance  of goodwill  amortization.  In addition,  the pronouncement
     includes provisions for the reclassification of certain existing recognized
     intangibles  as  goodwill,  reassessment  of the useful  lives of  existing
     recognized  intangibles,  reclassification  of certain  intangibles  out of
     previously  reported goodwill and the identification of reporting units for
     purposes of assessing  potential future  impairments of goodwill.  SFAS 142
     also requires the Company to complete a  transitional  goodwill  impairment
     test six  months  from the date of  adoption.  The net  amortized  goodwill
     balance at September 30, 2001 was $15.0  million and goodwill  amortization
     in the nine months  ended  September  30, 2001 was  $606,000 and would have
     been  approximately  the  same  amount  in 2002  under  current  accounting
     standards. The Company is currently considering the other provisions of the
     pronouncement,  but has not yet  determined  the  impact  on its  financial
     position and results of operations.

     In  October  2001,  the  FASB  issued  Statement  of  Financial  Accounting
     Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
     Assets" ("SFAS 144"),  which is effective for fiscal years  beginning after
     December 15, 2001 with early  adoption  recommended.  SFAS No. 144 requires
     that  long-lived  assets  that  are to be  sold  within  one  year  must be
     separately  identified  and carried at the lower of carrying  value or fair
     value less costs to sell. Long-lived assets expected to be held longer than
     one year are subject to depreciation and must be written down to fair value
     upon impairment. Long-lived assets no longer expected to be sold within one
     year, such as foreclosed real estate,  must be written down to the lower of
     current  fair value or fair value at the date of  foreclosure  adjusted  to
     reflect  depreciation  since  acquisition.  As noted  in Note 4 above,  the
     Company elected to adopt SFAS 144 effective January 1, 2001.

11.  Reclassifications

     Certain amounts in the Condensed  Consolidated Financial Statements for the
     three and nine months ended  September 30, 2000 have been  reclassified  to
     conform with the current year presentation.

                  **SIERRA HEALTH SERVICES, INC. AND SUBSIDAIRES

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

The following  discussion and analysis  provides  information  which  management
believes is relevant for an assessment  and  understanding  of our  consolidated
financial condition and results of operations.  The discussion should be read in
conjunction  with the Condensed  Consolidated  Financial  Statements and related
Notes thereto.  Any forward-looking  information  contained in this Management's
Discussion and Analysis of Financial Condition and Results of Operations and any
other sections of this  Quarterly  Report on Form 10-Q/A should be considered in
connection with certain cautionary statements contained in our Current Report on
Form 8-K  filed  March  20,  2001,  which is  incorporated  by  reference.  Such
cautionary  statements are made pursuant to the "safe harbor"  provisions of the
Private  Securities  Litigation  Reform Act of 1995 and identify  important risk
factors  that could  cause our actual  results to differ  materially  from those
expressed in any projected,  estimated or forward-looking statements relating to
us.

**RESULTS OF OPERATIONS,  THREE MONTHS ENDED SEPTEMBER 30, 2001, COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 2000.*****Medical  Premiums***  increased  $24.1  million or 15.0%.  The  increase in premium
revenue  reflects a 15.4%  increase in  commercial  member months (the number of
months  of each  year  that an  individual  is  enrolled  in a plan) and an 9.3%
increase  in  Medicare  member  months.  The growth in  Medicare  member  months
contributes  significantly  to increases in premium revenues as the Medicare per
member  premium  rates are over three times  higher than the average  commercial
premium rate.  The average  commercial  rate increases in 2001 on renewed groups
are  approximately  8% in Las  Vegas.  Our  managed  indemnity  rates  increased
approximately 11.2% and Medicare rates increased  approximately 3.7%, of which a
portion is  attributable  to  additional  member  benefits.  Over 97% of our Las
Vegas,  Nevada  Medicare  beneficiaries  are enrolled in the Social HMO Medicare
program.

We market our HMO and managed indemnity insurance products primarily to employer
groups, labor unions and individuals enrolled in Medicare,  through our internal
sales  personnel  and  independent   insurance  brokers.   Our  brokers  receive
commissions  based on the premiums received from each group. Our agreements with
our  member  groups are  usually  for  twelve  months and are  subject to annual
renewal.  For the quarter ended  September 30, 2001, our ten largest  commercial
HMO employer groups were, in the aggregate, responsible for less than 10% of our
total revenues.  Although none of the employer groups accounted for more than 2%
of  total  revenues  for  that  period,  the  loss of one or more of the  larger
employer groups could, if not replaced with similar membership,  have a material
adverse effect on our business.

***Military  Contract  Revenues***  decreased $15.8 million or 15.6%.  The decrease in
revenue in 2001 is the result of accrued  bid price  adjustment  revenue  during
2000 which resulted from a true-up of prior periods'  information  received from
the government and was largely offset by accrued military contract expenses. The
accrued bid price adjustment  revenue from 2000 was partially offset by additive
change  order work during  2001.  Change  orders  recently  implemented  in 2001
include a prescription drug program for beneficiaries over age 65 and the waiver
of co-payments  for active duty family  members.  Military  contract  revenue is
recorded  based on the  contract  price as agreed to by the federal  government,
adjusted for certain  provisions  based on actual  experience.  In addition,  we
record revenue based on estimates of the earned  portion of any contract  change
orders not originally specified in the contract.

***Specialty Product Revenues*** increased $8.7 million or 21.3%. Revenue increased in
the workers' compensation insurance segment by $9.0 million, which was offset by
a slight decrease in administrative services revenue of $.3 million.

**SIERRA HEALTH SERVICES, INC. AND SUBSIDAIRES
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATION, Continued**
Workers'  compensation  net earned premiums are the end result of direct written
premiums,  plus  the  change  in  unearned  premiums,  less  premiums  ceded  to
reinsurers.  Direct written  premiums  decreased by 15.9% due primarily to a 31%
decrease in premium  production  that was partially  offset by a 27% increase in
composite premium rates. Ceded reinsurance  premiums decreased by 94% due to the
expiration  of our low level  reinsurance  agreement  on June 30, 2000 and a new
reinsurance agreement with lower ceded premiums.

Premiums in force are an indicator of future  written  premium  trends.  Inforce
premiums are the total  estimated  annual premiums of all policies in force at a
point in time.  Total inforce premiums have decreased by 12.7% to $165.6 million
compared  to last  year.  This has  resulted  in a  decrease  in direct  written
premiums,  especially in California, which we believe is due largely to business
lost as a result of premium rate  increases we have been  attempting to receive.
The number of inforce  policies at September  30, 2001 has also dropped by 25.2%
from the same period last year.

As  compared to the low level  reinsurance  agreement  that  expired on June 30,
2000,  the new  reinsurance  agreements  result in  higher  net  earned  premium
revenues, as we retain more of the premium dollars, but also lead to our keeping
more of the incurred losses.  This resulted in a higher loss and loss adjustment
expense,  or LAE,  ratio as the percentage  increase in the additional  incurred
losses was  greater  than the  percentage  increase in the  additional  premiums
retained.  The effect on the  balance  sheet of the new  reinsurance  agreements
compared to the low level agreements will eventually result in a lower amount of
reinsurance recoverables,  and due to the length of time that it typically takes
to fully pay a claim,  we should see an increase in future  operating  cash flow
and amounts available to be invested.

***Professional  Fees*** decreased $.6 million or 7.9% due primarily to the closing of
our  affiliated  medical  group in Arizona  during  2000 and  decreased  fee for
service revenue in Las Vegas.

***Investment  and Other  Revenues***  decreased  $861,000 or 16.0% due primarily to a
decrease in the average  investment  yield  offset by an increase in the average
invested balance during the period.

***Medical  Expenses***  increased  $17.9  million or 13.0%.  The  Medical  Care Ratio
(medical  expenses as a percentage of medical  premiums and  professional  fees)
decreased  from  82.4%  to  81.7%.  The  decrease  in the  ratio is due to price
increases in excess of cost increases  offset by an increase in Medicare members
as a percentage of fully insured members.  The cost of providing medical care to
Medicare  members  generally  requires  a  greater  percentage  of the  premiums
received.

***Military  Contract  Expenses***  decreased $16.3 million or 16.3%.  The decrease is
consistent with the decrease in revenues discussed previously. Military Contract
Expenses consist primarily of health care delivery  expenses and  administrative
service expenses and represent the costs to provide managed health care services
to eligible  beneficiaries in accordance with Sierra's TRICARE  contract.  Under
the contract,  Sierra Military Health Services,  Inc., or SMHS,  provides health
care  services to  approximately  643,300  dependents  of active  duty  military
personnel and military retirees and their dependents under the age of 65 through
subcontractor  partnerships  and  individual  providers.  Health  care costs are
recorded in the period when  services  are  provided to eligible  beneficiaries,
including  estimates  for  provider  costs,  which  have been  incurred  but not
reported to us. Also,  included in military contract expenses are costs incurred
to perform  specific  administrative  services,  such as health care appointment
scheduling, enrollment, network management and health care advice line services,
and other administrative functions of the military health care subsidiary. These
administrative  services  are  performed  for active duty  personnel  and family
members as well as retired military families.

***Specialty Product Expenses***  increased $8.5 million or 20.3%.  Expenses increased
in  the   workers'   compensation   insurance   segment  by  $9.6   million  and
administrative services expense decreased by $1.1 million.

The  increase  in  the  workers'  compensation  insurance  segment  expenses  is
primarily due to the following:

     o    Approximately  $7.0  million in  additional  loss and loss  adjustment
          expenses,  or LAE,  related  primarily  to the  increase in net earned
          premiums in 2001 compared to 2000.
     o    We  recorded a lower loss and LAE ratio in the third  quarter  for the
          2001 accident year, which resulted in a decrease of approximately $1.2
          million.  The  reduction  in the loss  ratio was due to the  composite
          premium rate increases obtained on new and renewal business.
     o    In the third  quarter of 2001, we recorded $1.5 million of net adverse
          loss  development  for prior  accident  years,  primarily for accident
          years 1996 to 1998,  compared to net positive  development of $500,000
          recorded in the third quarter of 2000,  primarily  for accident  years
          1997  and  1998.  The net  adverse  development  recorded  in 2001 was
          largely attributable to higher costs per claim, or claim severity,  in
          California.  Higher claim  severity  has had a negative  impact on the
          entire California workers' compensation industry.
     o    A net increase in underwriting expenses,  policyholders' dividends and
          other  operating  expenses of $1.8  million  related  primarily to the
          increase in net earned premiums.

The net adverse loss  development  on prior  accident years included those years
that were  covered by our low level  reinsurance  agreement.  This results in an
increase in the reinsurance recoverable balance which is then reduced by amounts
collectable  from  reinsurers.  Net  reinsurance  recoverable  decreased by $2.0
million in the third quarter of 2001 and increased by $14.7 million in the third
quarter of 2000.

Under our low level reinsurance agreement,  we reinsure 30% of the first $10,000
of each  claim,  75% of the next  $40,000  and 100% of the  next  $450,000.  The
maximum  net loss  retained  on any one claim  ceded  under  this  agreement  is
$17,000.  This  agreement  covered  all  policies  in force at July 1,  1998 and
continued  until June 30, 2000, when we executed an option to extend coverage to
all policies in force as of June 30, 2000.  For policies  effective from July 1,
2000,  we  obtained  excess of loss  reinsurance  for 100% of the  losses  above
$250,000 and less than $500,000. This agreement terminated on June 30, 2001 on a
cut-off basis. We already had an existing excess of loss  reinsurance  agreement
that covered 100% of the losses above $500,000. The latter reinsurance agreement
is a fixed rate  multi-year  contract  that will expire  December 31, 2002.  The
termination of the low level  agreement will result in our keeping more retained
losses and LAE.  However,  our  California  premium rates have been  increasing,
which we believe will largely  mitigate the loss of this  favorable  reinsurance
protection.  The premium rate increases on policies renewed in California during
the third quarter of 2001 were approximately 33%.

The combined  ratio is a measurement of  underwriting  profit or loss and is the
sum of the loss and LAE ratio,  underwriting  expense  ratio and  policyholders'
dividend  ratio. A combined  ratio of less than 100%  indicates an  underwriting
profit.  Our combined ratio was 105.5% compared to 104.4% for 2000. The increase
was primarily due to prior year adverse  development  recorded  during the third
quarter of 2001.

***General,  Administrative and Marketing Expenses,***  or G&A increased $4.8 million
or 19.1%.  As a percentage of revenues,  G&A expenses were 9.1% in 2001 compared
to 8.0% for 2000. The 2000 G&A expenses,  as a percentage of revenue, were lower
due in part to the true-up of military contract revenues in the third quarter of
2000,  as previously  discussed,  and to increases in  depreciation  expense and
advertising and other related costs. As a percentage of medical premium revenue,
G&A  expenses  were 16.3%  compared to 15.8% in 2000.  The  increase  was due to
higher  staffing  costs and other  related  expenses  to  service  the growth in
membership.

***Interest Expense and Other, Net*** decreased  $966,000 or 19.9%, due primarily to a
decrease in the average balance of outstanding  debt during the period which was
offset by an increase in the  weighted  average cost of  borrowing.  Our average
revolving  credit  facility  balance  was $43  million in 2001  compared to $185
million in 2000.  Our average  interest rate on the revolving  credit  facility,
including the amortization of deferred financing fees and our interest rate swap
agreement,  was 11.7% in 2001  compared to 10.5% in 2000.  Our average  interest
rate on the revolving  credit  facility,  excluding the amortization of deferred
financing  fees and our interest rate swap  agreement was 7.59% in 2001 compared
to 10.29% in 2000. The decrease was offset by an increase in interest expense of
$2.3  million  related  to the net  financing  obligations  associated  with the
sale-leaseback transaction that was completed in December 2000.

***Provision  for Income  Taxes*** was $2.3  million  compared to $1.7 million in 2000
with an  effective  tax rate of 33.5%  compared  to 32.5% for 2000.  Our ongoing
effective  tax  rate  is less  than  the  statutory  rate  due to tax  preferred
investments offset by state income taxes.

***Discontinued Operations*** consist entirely of our Texas healthcare operations. See
Note 4 of the Notes to Condensed Consolidated  Financial Statements.  We elected
to implement Statement of Financial  Accounting  Standards No. 144,  "Accounting
for the  Impairment  or Disposal of Long-Lived  Assets," or SFAS 144,  effective
January 1,  2001.  In the third  quarter  of 2001,  we decided to exit the Texas
healthcare  market and received  approval from the Texas Department of Insurance
in  mid-October  2001. We will stop providing  healthcare  services on April 17,
2002.  In  accordance  with SFAS 144, our Texas  healthcare  operations  are now
reclassified  as a  discontinued  operation.  The  net  loss  from  discontinued
operations was $12.1 million compared to $872,000 in 2000. Included in 2001 loss
are estimated costs to exit the Texas market of  approximately  $17.1 million or
$11.4 million net of tax. Prior premium  deficiency  reserves utilized were $7.1
million in 2001 and $2.0 million in 2000.

**RESULTS OF OPERATIONS,  NINE MONTHS ENDED  SEPTEMBER 30, 2001,  COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 2000.*****Medical  Premiums***  increased  $44.2  million or 9.2%.  The  increase  in premium
revenue reflects a 7.6% increase in Medicare member months (the number of months
of each year that an  individual  is enrolled in a plan) and a 5.1%  increase in
commercial  member  months.  The growth in Medicare  member  months  contributes
significantly  to  increases  in premium  revenues  as the  Medicare  per member
premium  rates are over three times higher than the average  commercial  premium
rate.  The  average  commercial  rate  increases  in 2001 on renewed  groups are
approximately   8%  in  Las  Vegas.   Our  managed   indemnity  rates  increased
approximately 11.3% and Medicare rates increased  approximately 3.9%, of which a
portion is attributable to additional member benefits.

We market our HMO and managed indemnity insurance products primarily to employer
groups, labor unions and individuals enrolled in Medicare,  through our internal
sales  personnel  and  independent   insurance  brokers.   Our  brokers  receive
commissions  based on the premiums received from each group. Our agreements with
our  member  groups are  usually  for  twelve  months and are  subject to annual
renewal. For the period ended September 30, 2001, our ten largest commercial HMO
employer  groups were, in the  aggregate,  responsible  for less than 10% of our
total revenues.  Although none of the employer groups accounted for more than 2%
of  total  revenues  for  that  period,  the  loss of one or more of the  larger
employer groups could, if not replaced with similar membership,  have a material
adverse effect on our business.

***Military  Contract  Revenues***  increased  $17.0 million or 7.1%.  The increase in
revenue  is  primarily  the  result  of  additive   change  order  work  and  is
significantly offset by increased military contract expenses.  The change orders
recently  implemented include a prescription drug program for beneficiaries over
age 65 and the waiver of co-payments  for active duty family  members.  Military
contract  revenue is recorded  based on the  contract  price as agreed to by the
federal government,  adjusted for certain provisions based on actual experience.
In addition,  we record  revenue based on estimates of the earned portion of any
contract change orders not originally specified in the contract.

***Specialty Product Revenues***  increased $36.9 million or 37.3%.  Revenue increased
in the  workers'  compensation  insurance  segment by $37.9  million,  which was
offset by a slight decrease in administrative services revenue of $1.0 million.

Workers'  compensation  net earned premiums are the end result of direct written
premiums,  plus  the  change  in  unearned  premiums,  less  premiums  ceded  to
reinsurers.  Direct  written  premiums  decreased by 6.5% due primarily to a 29%
decrease in premium  production  that was partially  offset by a 32% increase in
composite premium rates.  Ceded reinsurance  premiums  decreased by 79.4% due to
the expiration of our low level reinsurance agreement on June 30, 2000 and a new
reinsurance agreement with lower ceded premiums.

As  compared to the low level  reinsurance  agreement  that  expired on June 30,
2000,  the new  reinsurance  agreements  result in  higher  net  earned  premium
revenues, as we retain more of the premium dollars, but also lead to our keeping
more of the incurred losses.  This resulted in a higher loss and loss adjustment
expense,  or LAE,  ratio as the percentage  increase in the additional  incurred
losses was  greater  than the  percentage  increase in the  additional  premiums
retained.  The effect on the  balance  sheet of the new  reinsurance  agreements
compared to the low level agreements will eventually result in a lower amount of
reinsurance recoverables,  and due to the length of time that it typically takes
to fully pay a claim,  we should see an increase in future  operating  cash flow
and amounts available to be invested.

***Professional  Fees***  decreased $4.1 million or 15.8% due primarily to the closing
of our affiliated medical groups in Arizona during 2000.

***Investment  and Other  Revenues***  decreased  $653,000 or 3.9%, due primarily to a
decrease in the average investment yield during the period offset by an increase
in the  average  invested  balance and net gains on sale of  investments  of $.2
million in 2001 versus net losses on the sale of  investments  of $.9 million in
2000.

***Medical Expenses***  increased $2.5 million or .6%. The Medical Care Ratio (medical
expenses as a percentage of medical  premiums and  professional  fees) decreased
from 87.4% to 81.4%.  Included in medical expenses for 2000 are charges of $16.5
million for reserve strengthening,  primarily for adverse development related to
prior periods' medical claims, and $9.5 million of other  non-recurring  medical
costs.  Excluding these items for 2000, medical expenses increased $28.5 million
or 6.5%  and  the  Medical  Care  Ratio  decreased  from  82.2%  to  81.4%.  The
improvement  is primarily due to the closing and sale of operations  with higher
medical care ratios in rural Nevada and Arizona and price increases in excess of
cost increases. Offsetting some of the improvement in the ratios was an increase
in  Medicare  members as a  percentage  of fully  insured  members.  The cost of
providing  medical  care  to  Medicare  members  generally  requires  a  greater
percentage of the premiums received.

***Military  Contract  Expenses***  increased  $17.5 million or 7.5%.  The increase is
consistent  with the  increase in  revenues  discussed  previously.  Health care
delivery  expense  consists  primarily of costs to provide  managed  health care
services to eligible beneficiaries in accordance with Sierra's TRICARE contract.
Under the contract,  SMHS provides health care services to approximately 643,300
dependents  of active duty military  personnel  and military  retirees and their
dependents under the age of 65 through subcontractor partnerships and individual
providers.  Health  care costs are  recorded  in the period  when  services  are
provided to eligible  beneficiaries,  including  estimates  for provider  costs,
which have been  incurred  but not  reported to us.  Also,  included in military
contract  expenses  are  costs  incurred  to  perform  specific   administrative
services,  such as  health  care  appointment  scheduling,  enrollment,  network
management  and health  care  advice  line  services,  and other  administrative
functions of the military health care subsidiary.  These administrative services
are  performed for active duty  personnel and family  members as well as retired
military families.

***Specialty Product Expenses*** increased $24.2 million or 20.9%.  Expenses increased
in  the  workers'   compensation   insurance   segment  by  $26.4   million  and
administrative services expense decreased by $2.2 million.

The  increase  in  the  workers'  compensation  insurance  segment  expenses  is
primarily due to the following:

     o    Approximately  $26.2 million in additional loss and LAE related to the
          increase in net earned premiums in 2001 compared to 2000.
     o    In 2001, we recorded $7.3 million of net adverse loss  development for
          prior accident years,  primarily 1996 to 1998, compared to net adverse
          loss  development  of $20.2  million  recorded in 2000,  primarily for
          accident years 1996 to 1999. The net adverse development  recorded was
          largely attributable to higher costs per claim, or claim severity,  in
          California.  Higher claim  severity  has had a negative  impact on the
          entire California workers' compensation industry.
     o    We established a higher loss and LAE ratio for the 2001 accident year,
          which has resulted in an increase of approximately  $7.0 million.  The
          majority of the  increase is due to the  termination  of the low level
          reinsurance agreement on June 30, 2000, which results in a higher risk
          exposure on policies  effective after that date and a higher amount of
          net incurred loss and LAE.
     o    A net increase in underwriting expenses,  policyholders' dividends and
          other  operating  expenses of $6.1  million  related  primarily to the
          increase in net earned premiums.

The net adverse loss  development  on prior  accident years included those years
that were  covered by our low level  reinsurance  agreement.  This results in an
increase in the reinsurance recoverable balance which is then reduced by amounts
collectable  from  reinsurers.  Net  reinsurance  recoverable  increased by $8.6
million in 2001 and $73.7 million in 2000.

Under our low level reinsurance agreement,  we reinsure 30% of the first $10,000
of each  claim,  75% of the next  $40,000  and 100% of the  next  $450,000.  The
maximum  net loss  retained  on any one claim  ceded  under  this  agreement  is
$17,000.  This  agreement  covered  all  policies  in force at July 1,  1998 and
continued  until June 30, 2000, when we executed an option to extend coverage to
all policies in force as of June 30, 2000.  For policies  effective from July 1,
2000,  we  obtained  excess of loss  reinsurance  for 100% of the  losses  above
$250,000 and less than $500,000. This agreement terminated on June 30, 2001 on a
cut-off basis. We already had an existing excess of loss  reinsurance  agreement
that covered 100% of the losses above $500,000. The latter reinsurance agreement
is a fixed rate  multi-year  contract  that will expire  December 31, 2002.  The
termination of the low level  agreement will result in our keeping more retained
losses and LAE.  However,  our  California  premium rates have been  increasing,
which we believe will largely  mitigate the loss of this  favorable  reinsurance
protection.  The premium rate increases on policies renewed in California during
the first nine months of 2001 were approximately 40%.

The combined  ratio is a measurement of  underwriting  profit or loss and is the
sum of the loss and LAE ratio,  underwriting  expense  ratio and  policyholders'
dividend  ratio. A combined  ratio of less than 100%  indicates an  underwriting
profit.  Our combined ratio was 106.0% compared to 120.9% for 2000. The decrease
was primarily due to  significantly  higher prior year adverse loss  development
recorded during 2000.  Excluding  adverse loss  development,  the combined ratio
would have been  100.3% for 2001 and 102.1% for 2000.  The  increase in the loss
and LAE ratio  was  primarily  due to the run off of the low  level  reinsurance
which  is  resulting  in  our  retaining  more  of  the  incurred  losses.   The
underwriting expense ratio decreased primarily due to higher retained net earned
premiums.

***General,  Administrative and Marketing Expenses,***  or G & A, increased $7.2 million
or 9.1%. As a percentage  of revenues,  G&A expenses for 2001 were 9.1% compared
to 9.3% for 2000. As a percentage of medical premium revenue,  G&A expenses were
16.6% for both periods.

***Asset Impairment, Restructuring, Reorganization and Other Costs*** were recorded in
2000 as described in Note 3 to the Condensed Consolidated Financial Statements.

***Interest  Expense and Other,  Net*** increased  $641,000 or 4.6%.  Interest expense
related  to the  revolving  credit  facility  decreased  $8.0  million  due to a
decrease in the average balance of outstanding  debt during the period offset by
an increase in the weighted  average cost of  borrowing.  Our average  revolving
credit  facility  balance  was $67 million in 2001  compared to $183  million in
2000. Our average interest rate on the revolving credit facility,  including the
amortization  of deferred  financing fees and our interest rate swap  agreement,
was 10.6% in 2001  compared to 9.7% in 2000.  Our average  interest  rate on the
revolving credit facility, excluding the amortization of deferred financing fees
and our  interest  rate swap  agreement  was 8.53% in 2001  compared to 9.49% in
2000. CII debenture interest  decreased by $1.5 million in 2001,  primarily as a
result of the  restructuring of the debentures.  The decreases were offset by an
increase  in  interest  expense of $7.2  million  related  to the net  financing
obligations associated with the sale-leaseback transaction that was completed in
December 2000 and a loss of $2.4 million on the sale of our Arizona properties.

***Provision for Income Taxes*** was $5.9 million  compared to a $14.8 million benefit
in 2000.  The  effective  tax rate was 33.5%  compared  to 25.8%  for 2000.  The
effective tax rate for 2000 reflects the  non-deductibility  of certain portions
of goodwill impairment expense recorded during the period.  Excluding the effect
of the goodwill impairment expense,  the effective tax rate for both periods was
approximately  33.5%. Our ongoing  effective tax rate is less than the statutory
rate due to tax preferred investments offset by state income taxes.

***Discontinued Operations*** consist entirely of our Texas healthcare operations. See
Note 4 of the Notes to Condensed Consolidated  Financial Statements.  We elected
to implement Statement of Financial  Accounting  Standards No. 144,  "Accounting
for the Impairment or Disposal of Long-Lived  Assets," or "SFAS 144",  effective
January 1,  2001.  In the third  quarter  of 2001,  we decided to exit the Texas
healthcare  market and received  approval from the Texas Department of Insurance
in  mid-October  2001. We will stop providing  healthcare  services on April 17,
2002.  In  accordance  with SFAS 144, our Texas  healthcare  operations  are now
reclassified  as a  discontinued  operation.  The  net  loss  from  discontinued
operations  was  $13.4  million  in 2001  compared  to $159.9  million  in 2000.
Included in the 2001 loss are estimated  costs to exit the Texas market of $17.1
million.  Included  in the 2000 loss were the  following:  (a) asset  impairment
charges of $126.4 million for impaired goodwill;  (b) $36.5 million for impaired
real  estate and other fixed  assets;  (c)  medical  expenses of $14.7  million,
primarily for adverse  development on prior periods'  medical claims;  (d) $15.5
million for premium  deficiency  medical  costs;  (e) $10.4  million for premium
deficiency  maintenance costs; and (f) other  restructuring,  reorganization and
other  costs of $13.3  million.  The  utilization  of prior  premium  deficiency
reserves were $15.6 million in 2001 and $25.8 million in 2000.

**LIQUIDITY AND CAPITAL RESOURCES**

For continuing  operations,  we had cash in-flows from  operating  activities of
$90.0 million  during 2001 compared to cash  out-flows of $49.3 million in 2000.
The  improvement  over  2000  is  primarily  attributable  to  collections  from
outstanding military accounts receivable, timing of Medicare capitation payments
from the Centers for Medicare and Medicaid Services, and reinsurance recoveries.

SMHS receives  monthly cash payments  equivalent  to  one-twelfth  of its annual
contractual  price with the  Department of Defense,  or DoD. SMHS accrues health
care  revenue on a monthly  basis for any monies  owed  above its  monthly  cash
receipts based on the number of at-risk eligible  beneficiaries and the level of
military direct care system  utilization.  The contractual bid price adjustment,
or BPA, process serves to adjust the DoD's monthly payments to SMHS, because the
payments are based in part on  prospective  data  estimates for the  beneficiary
population and beneficiary  population baseline health care cost,  inflation and
military direct care system utilization. As actual information becomes available
for the above items, quarterly adjustments are made to SMHS' monthly health care
payment in addition to lump sum adjustments for past months.  In addition,  SMHS
accrues change order revenue for DoD directed contract changes. Our business and
cash flows  could be  adversely  affected if the timing or amount of the BPA and
change order reimbursements vary significantly from our expectations. SMHS is in
the process of finalizing a financing  arrangement  on a portion of its accounts
receivable  balance  in order to improve  the  availability  of cash.  The total
military accounts receivable balance was $34.7 million as of September 30, 2001.

For continuing operations, cash provided by investing activities during 2001 was
$6.4 million  compared to $11.7 million in 2000.  The 2001 amount  included $4.4
million in capital expenditures offset by proceeds of $11.7 million for property
and  equipment   dispositions,   including  a  portion  of  the   sale-leaseback
properties.  The net change in  investments  for the period was an  increase  of
$839,000 as investments were purchased with cash from operations.

For continuing  operations,  cash used for financing  activities during 2001 was
$79.8 million  compared to $20.0 million in 2000.  The 2001 amount  included net
payments of $41.0 million on the revolving  credit  facility,  $27.3 million for
reductions of debentures,  $9.9 million  decrease in net financing  obligations,
and an additional $3.8 million in payments on other outstanding debt and capital
leases.

Discontinued Texas healthcare  operations used cash of $26.4 million during 2001
compared to providing  cash of $22.1 million in 2000.  The cash used in 2001 was
primarily due to higher  payments for medical and  operating  expenses and lower
premium revenues.  The cash provided in 2000 was primarily due to higher premium
revenues and comparable lower medical and operating expense payments.

**Revolving Credit Facility**
Our revolving credit facility balance decreased from $135 million to $94 million
during the nine month period.  The balance is reflected as long-term  debt since
no portion of the  outstanding  balance is due in the next  twelve  months.  The
revolving credit facility commitment was $121.1 million as of September 30, 2001
and will  decrease by $3.0 million on December 31, 2001 and an  additional  $6.0
million on June 30,  2002.  Interest  under the  revolving  credit  facility  is
variable and is based on Bank of America's "prime rate" plus a margin.  The rate
was 7.125% at September 30, 2001,  which is a  combination  of the prime rate of
6.00% plus a margin of 1.125%.  The margin can  fluctuate in the future based on
our completing  certain  transactions and meeting certain  financial  ratios. To
mitigate the risk of interest rate fluctuation on the revolving credit facility,
of the  outstanding  balance,  $25 million is covered by an  interest-rate  swap
agreement.  The impact of the swap  agreement  is not expected to be material to
our results of  operations.  The average  cost of  borrowing  on this  revolving
credit facility for 2001,  including the impact of the  amortization of deferred
financing fees and the interest-rate swap agreement, was 10.6%.

**Debentures**
CII Financial,  Inc. had approximately $47.1 million of Subordinated  Debentures
outstanding that were due on September 15, 2001. These  Subordinated  Debentures
were neither assumed nor guaranteed by Sierra and were  subordinated to Sierra's
credit  facility  debt. In December  2000,  CII Financial  commenced an offer to
exchange the Subordinated  Debentures for cash and/or new debentures.  On May 7,
2001,  CII  Financial  closed  its  exchange  offer  on  $42.1  million  of  its
outstanding  Subordinated  Debentures.  CII Financial purchased $27.1 million in
principal amount of Subordinated Debentures for $20.0 million in cash and issued
$15.0  million in new 9 1/2% senior  debentures,  due  September  15,  2004,  in
exchange for $15.0 million in Subordinated Debentures.

In September  2001,  the  California  Department  of Insurance  gave approval to
California Indemnity,  one of CII Financial's insurance  subsidiaries,  to pay a
dividend of $5.0 million to CII Financial. CII Financial used these funds to pay
the remaining $5.0 million in Subordinated Debentures at maturity.

The new 9 1/2% senior  debentures pay interest,  which is due  semi-annually  on
March 15 and September 15 of each year,  commencing  on September 15, 2001.  The
new 9 1/2% senior  debentures rank senior to outstanding  notes payable from CII
Financial to Sierra and CII Financial's  guarantee of Sierra's  revolving credit
facility.  The new 9 1/2% senior  debentures may be redeemed by CII Financial at
any time at premiums  starting  at 110% and  declining  to 100% for  redemptions
after April 1, 2004. In the event of a change in control of CII  Financial,  the
holders of the new 9 1/2%  senior  debentures  may  require  that CII  Financial
repurchase them at the then applicable redemption price, plus accrued and unpaid
interest.

CII Financial  expects to service the new 9 1/2% senior  debentures  from future
cash  flows,  primarily  from  dividends  that  will be paid by their  insurance
subsidiaries from their future earnings.

**Statutory Capital and Deposit Requirements**
Our HMO and insurance  subsidiaries are required by state regulatory agencies to
maintain  certain  deposits  and must also meet  certain  net worth and  reserve
requirements.  The HMO and  insurance  subsidiaries  had  restricted  assets  on
deposit in various states  totaling $25.4 million at September 30, 2001. The HMO
and  insurance  subsidiaries  must also meet  requirements  to maintain  minimum
stockholders'  equity,  on a  statutory  basis,  as well as  minimum  risk-based
capital   requirements,   which  are  determined  annually.   Additionally,   in
conjunction with the  Kaiser-Texas  acquisition,  Texas Health Choice,  L.C., or
TXHC,  entered into a letter  agreement  with the Texas  Department of Insurance
whereby  TXHC  agreed to maintain a net worth of $20.0  million,  on a statutory
basis,  until certain income levels were achieved.  In conjunction with the exit
from the Texas healthcare  market,  the Texas Department of Insurance approved a
plan of withdrawal  and TXHC is now required to maintain  deposits and net worth
of  $3.5  million.   We  believe  we  are  in  compliance  with  our  regulatory
requirements in all material respects.

Of the $147.7  million in cash and cash  equivalents  held at September 30, 2001
for  continuing  operations,  $113.9  million was designated for use only by the
regulated  subsidiaries.  Amounts  are  available  for  transfer  to the holding
company from the HMO and insurance subsidiaries only to the extent that they can
be remitted in accordance with the terms of existing management agreements or by
dividends.  The holding  company will not receive  dividends  from its regulated
subsidiaries  if such dividend  payment  would cause  violation of statutory net
worth and reserve requirements.

**September 11 Events**
We are not aware of any direct  losses that may have occurred as a result of the
events of  September  11,  2001 or the  subsequent  anthrax  incidents.  We have
reviewed the financial  strength ratings of our primary  reinsurers with certain
rating  agencies  subsequent  to the events of September  11,  2001.  The rating
agencies  have  either  affirmed  or left the  ratings  unchanged  on all of our
primary  reinsurers.  As a result,  we do not  expect to incur any losses on our
reinsurance contracts as a result of the events of September 11, 2001.

The events of  September  11, 2001  impacted the United  States  economy and has
impacted the amount of visitors traveling by air into Las Vegas.  Certain of the
gaming properties that operate in Las Vegas have announced work force reductions
as a result of reduced  visitors.  Only 13%,  or  approximately  22,000,  of our
Nevada HMO membership  come from gaming  accounts and between  September 1, 2001
and  November  1, 2001,  we have only  experienced  reductions  of less than 100
members  from our  gaming  accounts.  While the Las  Vegas  visitor  volume  has
increased  significantly since the events of September 11, 2001, there can be no
assurance  that it will return to its  historical  levels prior to the events of
September  11,  2001  nor  that we will  not be  impacted  by  further  economic
deterioration.  We believe that in a slowing  economy,  where  medical costs are
rising,  our healthcare  products that help manage costs and coordinate care may
become more attractive as companies strive to manage their benefit costs.

**Other**
We have a 2001 capital budget of $18 million as limited by our revolving  credit
facility.  The planned  expenditures  are primarily for the expansion of clinics
and other leased  facilities,  the purchase of computer  hardware and  software,
furniture  and equipment and other normal  capital  requirements.  Our liquidity
needs over the next 12 months will primarily be for capital items,  expansion of
our  operations,  debt  service and  funding of the run-out of the  discontinued
Texas  healthcare  operations.  We believe  that our existing  working  capital,
operating  cash flow and,  if  necessary,  cash  flow  from  equipment  leasing,
divestitures  of  certain  non-core  assets  and  amounts  available  under  our
revolving credit facility should be sufficient to fund our capital  expenditures
and debt service.  Additionally,  subject to unanticipated cash requirements, we
believe that our existing  working capital and operating cash flow should enable
us to meet our liquidity needs on a long-term basis.

**Membership
----------**
     Our membership at September 30, 2001 and 2000 was as follows:

                                                                          **Number of Members at September 30
                                                                             2001                    2000
                                                                             ----                    ----**Continuing Operations:
---------------------
HMO
  Commercial..................................................              168,200                  143,000
  Medicare....................................................               45,300                   41,200
  Medicaid....................................................               23,500                   13,300
Managed Indemnity.............................................               29,300                   31,100
Medicare Supplement...........................................               25,000                   28,300
Administrative Services.......................................              299,100                  282,900
TRICARE Eligibles.............................................              643,300                  617,700
                                                                          ---------                ---------
Total Members, Continuing Operations..........................            1,233,700                1,157,500
                                                                          =========                =========

Discontinued Texas Operations:
-----------------------------
HMO
  Commercial..................................................               50,900                  101,900
  Medicare (1) ...............................................               14,100                   11,800
                                                                             ------                 --------
Total Members, Discontinued Operations........................               65,000                  113,700
                                                                             ======                  =======

(1)  The 2001 Medicare  membership  does not include 5,400 Houston  members that
     the Company ceded to AmCare Health Plans of Texas, Inc. under a reinsurance
     agreement on December 1, 2000.

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
As of  September  30, 2001,  unrealized  holding  losses on  available  for sale
investments  have  decreased  by $3.2  million  since 2000 due  primarily  to an
increase  in the  market  value of bonds.  We  believe  that  changes  in market
interest rates, resulting in unrealized holding gains or losses, should not have
a material  impact on future  earnings or cash flows as it is  unlikely  that we
would need or choose to substantially liquidate our investment portfolio.

                  **SIERRA HEALTH SERVICES, INC. AND SUBSIDAIRES

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS**
We are subject to various claims and other  litigation in the ordinary course of
business.  Such litigation includes, for example, claims of medical malpractice,
claims for coverage or payment for medical services  rendered to HMO members and
claims by providers for payment for medical  services  rendered to HMO and other
members.  Also included in such litigation are claims for workers'  compensation
and claims by  providers  for payment for medical  services  rendered to injured
workers. In the opinion of management,  the ultimate resolution of these pending
legal  proceedings  should not have a material  adverse  effect on our financial
condition.

**ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS**
        None

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**        None

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
        None

**ITEM 5. OTHER INFORMATION**
        None

**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**
        (a)         Exhibits

           (99)     Registrant's current report on Form 8-K dated
                    March 20, 2001, incorporated herein by reference.

        (b)         Reports on Form 8-K

                    Current  Report on Form 8-K, dated  September 7, 2001,  with
                    the  Securities and Exchange  Commission in connection  with
                    the announcement of the Company's  participation in a health
                    care conference on September 13, 2001.

                    Current Report on Form 8-K, dated October 3, 2001,  with the
                    Securities  and Exchange  Commission in connection  with the
                    announcement  of the  Company's  plans  to  exit  the  Texas
                    healthcare market.

                    Current Report on Form 8-K, dated October 26, 2001, with the
                    Securities  and Exchange  Commission in connection  with the
                    announcement of the Company's participation in a health care
                    conference on October 30, 2001.

                                   **SIGNATURES**

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

                                   SIERRA HEALTH SERVICES, INC.
                                   ----------------------------
                                          (Registrant)

Date:  February 28, 2002             /S/ PAUL H. PALMER
                                   -----------------------------------
                                   Paul H. Palmer
                                   Vice President of Finance,
                                   Chief Financial Officer and Treasurer
                                   (Principal Financial and Accounting Officer)
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