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

                                    Form 10-Q


(Mark One)
                                                         X

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

For the quarterly period ended       June 30, 1999

                                                        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  July  30,  1999  there  were  26,786,000  shares  of  common  stock
outstanding.







                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                     FOR THE SIX MONTHS ENDED JUNE 30, 1999

                                      INDEX
<TABLE>

<CAPTION>
                                                                                                           Page No.

Part I - FINANCIAL INFORMATION

      Item l.     Financial Statements

                  Condensed Consolidated Balance Sheets -
<S>                      <C> <C>               <C> <C>                                                           <C>
                    June 30, 1999 and December 31, 1998......................................................    3

                  Condensed Consolidated Statements of Operations -
                    three and six months ended June 30, 1999 and June 30, 1998...............................    4

                  Condensed Consolidated Statements of Cash Flows -
                    six months ended June 30, 1999 and June 30, 1998.........................................    5

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

      Item 2.     Management's Discussion and Analysis of
                    Financial Condition and Results of Operations............................................    9

      Item 3.     Quantitative and Qualitative Disclosures
                    about Market Risk........................................................................   16



Part II - OTHER INFORMATION

      Item l.     Legal Proceedings..........................................................................   17

      Item 2.     Changes in Securities and Use of Proceeds...................................................  17

      Item 3.     Defaults Upon Senior Securities............................................................   17

      Item 4.     Submission of Matters to a Vote of Security Holders........................................   18

      Item 5.     Other Information..........................................................................   18

      Item 6.     Exhibits and Reports on Form 8-K...........................................................   18

Signature .................................................................................................19
</TABLE>



                                                     Page 2


                                               PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>

<CAPTION>
                                                                                           June 30             December 31
                                                                                            1999                  1998
CURRENT ASSETS:
<S>                                                                                  <C>                   <C>
  Cash and Cash Equivalents...................................................       $     29,201,000      $     83,910,000
  Short-term Investments......................................................             78,975,000           110,008,000
  Accounts Receivable (Less: Allowance for Doubtful
     Accounts:  1999 - $7,503,000; 1998 - $10,540,000)........................             46,506,000            44,100,000
  Military Accounts Receivable................................................             53,765,000            69,552,000
  Reinsurance Recoverable.....................................................             39,719,000            32,076,000
  Prepaid Expenses and Other Assets...........................................             59,155,000            54,285,000
     Total Current Assets.....................................................            307,321,000           393,931,000

PROPERTY AND EQUIPMENT, NET...................................................            244,593,000           229,164,000
LONG-TERM INVESTMENTS.........................................................            191,873,000           180,816,000
RESTRICTED CASH AND INVESTMENTS...............................................             16,829,000            17,758,000
REINSURANCE RECOVERABLE (Less Current Portion)................................             50,998,000            34,946,000
GOODWILL .....................................................................            154,932,000           142,471,000
OTHER ASSETS..................................................................             55,022,000            46,034,000
TOTAL ASSETS..................................................................         $1,021,568,000        $1,045,120,000

CURRENT LIABILITIES:
  Accounts Payable and Accrued Liabilities....................................       $     76,610,000     $      69,284,000
  Accrued Payroll and Taxes...................................................             25,970,000            19,942,000
  Medical Claims Payable......................................................             76,209,000            78,022,000
  Current Portion of Reserve for Losses and
     Loss Adjustment Expense .................................................             77,723,000            79,869,000
  Unearned Premium Revenue....................................................             19,930,000            39,968,000
  Military Health Care Payable................................................             46,871,000            53,820,000
  Current Portion of Long-term Debt...........................................              4,126,000             5,263,000
     Total Current Liabilities................................................            327,439,000           346,168,000

RESERVE FOR LOSSES AND LOSS ADJUSTMENT
  EXPENSE (Less Current Portion) .............................................            130,992,000           132,394,000
LONG-TERM DEBT (Less Current Portion).........................................            246,414,000           242,398,000
OTHER LIABILITIES.............................................................             21,442,000            20,446,000
TOTAL LIABILITIES.............................................................            726,287,000           741,406,000

STOCKHOLDERS' EQUITY:
  Preferred Stock, $.01 Par Value,
    1,000,000 Shares Authorized; None Issued
  Common Stock, $.005 Par Value
    60,000,000 Shares Authorized;
    Shares Issued:  1999 - 28,308,000; 1998 - 28,236,000......................                 142,000             141,000
  Additional Paid-in Capital..................................................             174,830,000         173,583,000
  Treasury Stock; 1999 - 1,523,000; 1998 - 966,900............................             (22,789,000)        (14,821,000)
Accumulated Other Comprehensive Income:
     Unrealized Holding Loss on
         Available-for-Sale Securities .......................................             (10,590,000)         (1,027,000)
  Retained Earnings...........................................................             153,688,000         145,838,000
TOTAL STOCKHOLDERS' EQUITY....................................................             295,281,000         303,714,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................          $1,021,568,000      $1,045,120,000
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                                     Page 3




                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>




<CAPTION>
                                                                Three Months Ended                     Six Months Ended
                                                                          June 30                                 June 30
                                                                 1999              1998             1999               1998
OPERATING REVENUES:
<S>                                                                     <C>          <C>          <C>            <C>
  Medical Premiums....................................        $204,649,000    $143,221,000      $411,960,000     $281,039,000
  Military Contract Revenues..........................         71,093,000       41,852,000       141,181,000       60,388,000
  Specialty Product Revenues..........................         20,949,000       40,721,000        41,628,000       76,882,000
  Professional Fees...................................         13,352,000       11,171,000        27,369,000       22,094,000
  Investment and Other Revenues.......................          5,775,000        7,580,000        11,754,000       14,551,000
    Total ............................................        315,818,000      244,545,000       633,892,000      454,954,000

OPERATING EXPENSES:
  Medical Expenses (Note 2)...........................        176,265,000      119,482,000        365,307,000      233,798,000
  Military Contract Expenses..........................         68,460,000       40,038,000       136,104,000        57,019,000
  Specialty Product Expenses..........................         19,475,000       39,518,000        38,871,000        75,759,000
  General, Administrative and Marketing Expenses               34,646,000       26,957,000        68,543,000        52,165,000
  Impairment and Other Costs (Note 2).................                                             5,106,000
    Total ............................................        298,846,000      225,995,000       613,931,000       418,741,000

OPERATING INCOME......................................         16,972,000       18,550,000        19,961,000        36,213,000

INTEREST EXPENSE AND OTHER, NET  .....................         (4,126,000)      (1,619,000)       (8,175,000)       (2,900,000)

INCOME BEFORE INCOME TAXES ...........................          12,846,000      16,931,000        11,786,000        33,313,000

PROVISION FOR INCOME TAXES............................          4,290,000        4,380,000         3,936,000         8,575,000

NET INCOME ...........................................      $   8,556,000     $ 12,551,000     $   7,850,000      $ 24,738,000

NET INCOME PER COMMON SHARE...........................               $.32             $.46              $.29              $.90
NET INCOME PER COMMON SHARE
 ASSUMING DILUTION  .................................                $.32             $.45              $.29              $.89

WEIGHTED AVERAGE COMMON SHARES
 OUTSTANDING        ..................................         26,795,000        27,546,000       26,989,000        27,476,000

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING ASSUMING DILUTION.......................         26,825,000        28,023,000       27,029,000        27,939,000
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                                     Page 4


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>

<CAPTION>
                                                                                          Six Months Ended June 30

                                                                                         1999                 1998

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>           <C>                                             <C>
   Net Income.............................................................           $  7,850,000         $ 24,738,000
   Adjustments to Reconcile Net Income to Net Cash
       Provided by Operating Activities:
          Depreciation and Amortization....................................            13,767,000            8,455,000
          Provision for Doubtful Accounts..................................             2,277,000            3,171,000
   Changes in Assets and Liabilities.......................................           (51,704,000)         (32,536,000)
       Net Cash (Used for) Provided by Operating Activities................           (27,810,000)           3,828,000

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital Expenditures, Net of Equipment Dispositions....................            (26,984,000)         (17,211,000)
   Changes in Short-term Investments......................................              29,387,00           (5,318,000)
   Changes in Long-term Investments.......................................            (23,021,000)         (13,062,000)
   Changes in Restricted Cash and Investments............................                 560,000             (674,000)
   Corporate Disposition, net of cash disposed .........................                                     1,373,000
   Corporate Acquisition.................................................              (3,000,000)          __________
       Net Cash Used for Investing Activities................                         (23,058,000)         (34,892,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from Borrowings..............................................              43,000,000           15,450,000
   Payments on Debt and Capital Leases...................................             (40,121,000)         (12,678,000)
   Purchase of Treasury Stock............................................              (7,968,000)
    Exercise of Stock in Connection with Stock Plans.....................               1,248,000            4,724,000
          Net Cash (Used for) Provided by Financing Activities.............             (3,841,000)          7,496,000

NET DECREASE IN CASH AND CASH EQUIVALENTS................................              (54,709,000)        (23,568,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...........................               83,910,000          96,841,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD...............................              $29,201,000        $ 73,273,000
</TABLE>

<TABLE>


<CAPTION>
                                                                                        Six Months Ended June 30
Supplemental Condensed Consolidated
    Statements of Cash Flows Information:                                               1999                 1998
Cash Paid During the Period for Interest

<S>                                                                                    <C>                <C>
   (Net of Amount Capitalized)..........................................               $8,976,000         $3,316,000
Cash Paid During the Period for Income Taxes............................                3,029,000          8,885,000

Non-cash Investing and Financing Activities:
   Tax Benefits of Stock Issued for Exercise of Options ..................                  -                804,000
   Additions to Capital Leases............................................                  -              3,070,000
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                                     Page 5
                 SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     1.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  the  generally  accepted
accounting   principles   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,  1998 and 1997. 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.Premium Deficiency, Impairment and Other Charges:

                    Medical Expenses:

     Medical  expenses  reported in the first quarter of 1999 included a premium
deficiency charge of $8.1 million related to losses in under performing  markets
primarily in Arizona and rural Nevada.

                    Impairment and Other Charges:

     In March 1999, the Company closed all inpatient operations at Mohave Valley
Hospital,  a 12-bed acute care facility in Bullhead City, Arizona and terminated
approximately  45  employees.  The  Company  recorded  a charge of $4.3  million
related primarily to the write-off of goodwill associated with the Mohave Valley
operations.

     The  Company  also  incurred  $450,000  for certain  legal and  contractual
settlements  and $400,000 to provide for the Company's  portion of the write-off
of start-up costs at the Company's equity investee, TriWest Healthcare Alliance.
In accordance  with Statement of Position 98-5,  TriWest wrote off all remaining
start-up costs in 1999.

     On October 31, 1998, a subsidiary of Sierra  completed the  acquisition  of
certain assets of Kaiser  Foundation  Health Plan of Texas. In conjunction  with
this  acquisition,  the Company  recorded a liability for the estimated  premium
deficiency associated with existing contracts. Based on results through June 30,
1999, the Company has revised the premium deficiency accrual originally recorded
in 1998.  Revised  estimates through October 31, 1999 will be offset against the
goodwill attributable to the purchase. Any revisions after October 31, 1999 will
be recorded directly in the income statement.

                                                     Page 6
                 SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


     4. The  following  table  provides a  reconciliation  of basic and  diluted
earnings per share ("EPS"):
<TABLE>

<CAPTION>
                                                                                           Dilutive
                                                                            Basic        Stock Options       Diluted

     For the Three Months ended June 30, 1999:


<S>                                                                    <C>                       <C>      <C>
       Income from Continuing Operations                               $ 8,556,000               0        $ 8,556,000
       Shares                                                           26,795,000          30,000         26,825,000
       Per Share Amount                                                       $.32                               $.32

     For the Three Months ended June 30, 1998:
       Income from Continuing Operations                               $12,551,000                        $12,551,000
       Shares                                                           27,546,000         477,000         28,023,000
       Per Share Amount                                                       $.46                               $.45

     For the Six Months ended June 30, 1999:
       Income from Continuing Operations                                $7,850,000                         $7,850,000
       Shares                                                           26,989,000           40,000        27,029,000
       Per Share Amount                                                       $.29                               $.29

     For the Six Months ended June 30, 1998:
       Income from Continuing Operations                               $24,738,000                        $24,738,000
       Shares                                                           27,476,000          463,000        27,939,000
       Per Share Amount                                                       $.90                               $.89
</TABLE>

     CII  Financial,   Inc.,  a  wholly-owned  subsidiary  of  the  Company  has
outstanding convertible subordinated debentures (the "Debentures") due September
15,  2001.  Each $1,000 in principal is  convertible  into 25.382  shares of the
Company's common stock at a conversion price of $39.40 per share. The Debentures
were not  included in the  computation  of EPS  because  their  effect  would be
anti-dilutive.

     5. The following  table presents  comprehensive  income for the three-month
and six-month periods ended June 30, 1999 and 1998:
<TABLE>


<CAPTION>
                                                                 Three Months Ended                 Six Months Ended
                                                                       June 30                           June 30
                                                               1999              1998          1999                    1998

<S>                                         <C>            <C>              <C>               <C>
      NET INCOME: ......................    $8,556,000     $12,551,000      $7,850,000        $24,738,000
       Change in net Unrealized Holding
        Gains (Losses) on Investments,
                    net of income taxes ..  (4,092,000)        708,000      (9,563,000)           191,000


      COMPREHENSIVE INCOME (LOSS) ......... $4,464,000     $13,259,000     ($1,713,000)       $24,929,000
</TABLE>

6.   Segment Reporting

     The  Company  has  three  reportable  segments  based on the  products  and
services offered:  managed care and corporate operations,  workers' compensation
operations and military  health  services  operations.  The managed care 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.   The  workers'  compensation  segment  insures  workers'
compensation  claims risk in return for premium  revenues.  The military  health
services segment  administers a managed care federal contract for the Department
of Defense's TRICARE program in Region 1. This contract is currently  structured
as five one-year option periods.

     Sierra  evaluates each  segment's  performance  based on segment  operating
profit before  interest  expense and income taxes and not including  charges for
premium  deficiencies,  impairment  and  non-recurring  gains  and  losses.  The
accounting  policies  of the  operating  segments  are the  same as those of the
consolidated company.


                                                     Page 7

                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Information concerning the operations of the reportable segments is as follows:
(Amounts in thousands)
<TABLE>

<CAPTION>
                                                          Managed Care            Workers'              Military
                                                         and Corporate            Compensation        Health Services
                                                         Operations              Operations             Operations          Total
Three Months Ended June 30, 1999
<S>                                                       <C>                           <C>                   <C>        <C>
Medical Premiums..........................                $204,649                      0                     0          $204,649
Specialty Product Revenues................                   2,110                $18,839                                  20,949
Professional Fees  .......................                  13,352                                                         13,352
Military Contract Revenues .......................                                                        $71,093          71,093
Investment and Other Revenues....................            1,792                  3,887                      96           5,775
   Total Revenue. ......................                  $221,903                $22,726                 $71,189        $315,818

Segment Operating Profit.........................         $  9,307                $ 4,942                 $ 2,723        $ 16,972
Interest Expense and Other.......................           (3,149)                  (881)                    (96)         (4,126)
Net Income Before Income Taxes...................       $    6,158                $ 4,061                 $ 2,627        $ 12,846

Three Months Ended June 30, 1998
Medical Premiums.................................         $143,221                                                       $143,221
Specialty Product Revenues.......................            3,438                $37,283                                  40,721
Professional Fees  ........................                 11,171                                                         11,171
Military Contract Revenues .......................                                                        $41,852          41,852
Investment and Other Revenues.....................           2,034                  5,538                       8           7,580
   Total Revenue. ................................        $159,864                $42,821                 $41,860        $244,545

Segment Operating Profit..........................       $  10,913                $ 5,814                $  1,823       $  18,550
Interest Expense and Other........................            (414)                (1,063)                   (142)         (1,619)
Net Income Before Income Taxes....................       $  10,499                $ 4,751                $  1,681       $  16,931

Six Months Ended June 30, 1999
Medical Premiums..................................       $ 411,960                                                      $ 411,960
Specialty Product Revenues........................           4,556                $37,072                                  41,628
Professional Fees  .......................                  27,369                                                         27,369
Military Contract Revenues .......................                                                       $141,181         141,181
Investment and Other Revenues.....................           3,499                  8,006                     249          11,754
   Total Revenue. ................................        $447,384                $45,078                $141,430        $633,892

Segment Operating Profit..........................      $   18,001               $ 9,846                  $ 5,320        $ 33,167
Interest Expense and Other........................          (6,183)               (1,809)                   (183)          (8,175)
Premium Deficiency, Impairment and Other Costs....         (13,206)                                                       (13,206)
Net (Loss) Income Before Income Taxes.............      $   (1,388)              $ 8,037                 $ 5,137        $  11,786

Six Months Ended June 30, 1998
Medical Premiums..................................        $281,039                                                       $281,039
Specialty Product Revenues........................           6,397               $70,485                                   76,882
Professional Fees  ...............................          22,094                                                         22,094
Military Contract Revenues .......................                                                       $60,388           60,388
Investment and Other Revenues.....................           4,265                10,274                      12           14,551
   Total Revenue. ................................        $313,795               $80,759                 $60,400         $454,954

Segment Operating Profit..........................        $ 22,951               $ 9,880                 $ 3,382         $ 36,213
Interest Expense and Other........................            (327)               (2,251)                   (322)          (2,900)
Net Income Before Income Taxes....................        $ 22,624               $ 7,629                 $ 3,060         $ 33,313
</TABLE>


     7. Certain amounts in the Condensed  Consolidated  Financial Statements for
the three and six months ended June 30, 1998 have been  reclassified  to conform
with the current year presentation.


                                                     Page 8
                 SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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 the  Company's
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
should be considered in connection with certain cautionary  statements contained
in the Company's  Current Report on Form 8-K dated March 17, 1999,  incorporated
herein 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 the Company's actual results to
differ from those  expressed  in any  projected,  estimated  or  forward-looking
statements relating to the Company.

     Results of Operations,  three months ended June 30, 1999, compared to three
months ended June 30, 1998.

     The Company's total operating  revenues for the three months ended June 30,
1999,  increased  approximately  29.2% to $315.8 million from $244.5 million for
the three  months  ended  June 30,  1998.  The  increase  was  primarily  due to
increases in medical  premium  revenue of $61.4  million and  military  contract
revenue of $29.2 million offset by a decrease in specialty  product  revenues of
$19.8 million.

     Of the $61.4  million,  or 42.9%,  increase  in  medical  premium  revenue,
approximately  $40.6 million is attributed  to the  Company's  Dallas/Ft.  Worth
operations  which were  acquired in the fourth  quarter of 1998.  On October 31,
1998,  the  Company  completed  the  acquisition  of  certain  assets  of Kaiser
Foundation  Health Plan of Texas  ("Kaiser-Texas"),  a health plan  operating in
Dallas/Ft.  Worth with  approximately  109,000  members at October 31, 1998, and
Permanente  Medical  Association of Texas  ("Permanente"),  a medical group with
approximately 150 physicians. The remaining increase of $20.8 million, or 14.5%,
is due to additional  premium  revenue at the Company's  other HMO and insurance
subsidiaries.  Excluding the  Dallas/Ft.  Worth  operations,  member months (the
number  of months of each  period  that an  individual  is  enrolled  in a plan)
increased  approximately  6.1%.  Medicare member months  increased  20.2%.  Such
growth in Medicare member months  contributes  significantly  to the increase in
premium  revenues as the Medicare per member  premium rates are over three times
higher than the average commercial premium rate. Excluding the Dallas/Ft.  Worth
operations,   the  Company's  HMO  and  insurance  subsidiaries'  premium  rates
increased  approximately  8%.  The  Company's  HMO  commercial  rates  increased
approximately  4% in Nevada  and  approximately  13% in Texas.  Compared  to the
fourth quarter of 1998,  commercial  rates for the Company's  recently  acquired
Dallas/Ft.  Worth  operations  have  increased  approximately  7%. The Company's
managed indemnity rates increased  approximately 6% and Medicare rates increased
approximately 2%. Over 90% of the Company's Nevada Medicare members are enrolled
in the Health  Care  Financing  Administration's  ("HCFA")  Social HMO  Medicare
program.  HCFA is considering  adjusting the reimbursement factor for the Social
HMO members in the future.  If the  reimbursement  for these  members  decreases
significantly and related benefit changes are not made timely,  there could be a
material adverse effect on the Company's business.

     Military  contract  revenue  increased from $41.9 million to $71.1 million.
The increased  revenue is primarily a result of health care  delivery  under the
Region 1 TRICARE contract that began in June 1998.  Military contract revenue in
the same prior-year period resulted from  implementation of the contract and one
month of  health  care  delivery.  Specialty  product  revenue  decreased  $19.8
million,  or 48.6%,  for the three months  ended June 30, 1999,  compared to the
same prior-year period. Of the decrease,  $18.4 million was due to a decrease in
revenue in the workers' compensation  insurance segment and $1.3 million was due
to a decrease in  administrative  services  revenue.  The  decrease in specialty
product revenues related to the workers'


                                                     Page 9

                                   SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

     Results of Operations,  three months ended June 30, 1999, compared to three
months ended June 30, 1998 (continued).

     compensation  insurance  segment  was  primarily  due to  additional  ceded
reinsurance  premiums  on the low level  reinsurance  agreement  totaling  $13.5
million.  This  agreement  was entered  into in the fourth  quarter of 1998.  In
addition,  ongoing price competition,  especially in California, is contributing
to the reduction in revenue. The decrease in administrative services revenue was
primarily  attributable  to a decrease in membership.  Professional  fee revenue
increased  approximately  $2.2  million  primarily  due  to  the  medical  group
operations  in  Dallas/Ft.   Worth.   Investment  and  other  revenue  decreased
approximately  $1.8 million over the comparable  prior-year period primarily due
to a decrease in invested  balances and a decrease in capital gains  realized on
the sale of investments compared to the prior year quarter.

     Total medical  expenses  increased $56.8 million over the same  three-month
period last year. This increase resulted  primarily from the Company's  recently
acquired Dallas/Ft. Worth operations discussed previously.  Excluding the effect
of the Dallas/Ft. Worth operations, medical expenses increased $20.3 million, or
17.0%, compared to the same prior-year period.  Medical expenses as a percentage
of medical premiums and professional  fees ("Medical Care Ratio") increased from
77.4% to 80.9%,  for the  quarter  ended  June 30,  1999,  compared  to the same
prior-year  period. The increase in the Medical Care Ratio reflects the acquired
Kaiser- Texas  membership  which has a higher medical care ratio,  as well as an
increase in Medicare members as a percentage of fully-insured members and higher
pharmacy costs. The cost of providing medical care to Medicare members generally
requires a greater  percentage  of the  premiums  received.  Included in medical
expenses is the  utilization  of $7.6 million of premium  deficiency  reserve to
offset losses on contracts from the Kaiser-Texas  acquisition.  A portion of the
premium  deficiency  utilized  during the second quarter  related to retroactive
membership  terminations and revised IBNR estimates related to first quarter for
the  Dallas/Ft.  Worth  operations.  Also  included  in  medical  expense is the
utilization  of $2.7  million of  premium  deficiency  reserve to offset  losses
primarily on Medicare risk members in Arizona and rural Nevada.

     Specialty  product expenses  decreased $20.0 million or 50.7% due primarily
to ceded workers'  compensation  losses resulting from the low level reinsurance
agreement.  In  addition,  the  Company  receives a ceding  commission  from the
reinsurer as a partial reimbursement of operating expenses.  Under the low level
reinsurance  agreement,  in the current year period,  ceded  premiums were $13.5
million,  ceded  losses  were $17.2  million  and ceding  commissions  were $3.2
million.  Specialty  product  revenue and expense are  primarily  related to the
workers' compensation insurance business.

     The combined  ratio for the workers'  compensation  insurance  business was
95.3% compared to 99.6% for the comparable  prior-year period. The reduction was
due to a 12.2% decrease in the loss ratio,  which was partially offset by a 7.9%
increase in the expense  ratio.  The reduction in the loss ratio was largely due
to a greater portion of losses being  reinsured under the low level  reinsurance
agreement.  The current  year period had no net  development  on prior  accident
years,  whereas the loss ratio for the prior year period  included net favorable
loss  development on prior accident years totaling $2.6 million.  The prior-year
favorable  loss  development  was largely due to actual paid losses  being below
projected  losses.  The loss and loss  adjustment  expense  ratio  for the three
months ended June 30, 1999,  reflects the  Company's  current  projection of the
ultimate  costs of claims  occurring  in the  current as well as prior  accident
years.  The increase in the expense  ratio was largely due to a reduction in the
net earned premium  denominator  base, which resulted from the increase in ceded
reinsurance premiums.  This change was offset by a decrease in expenses due to a
credit for ceding commissions of $3.2 million.  Workers' compensation claims are
paid over  several  years.  Until  payment  is made,  the  Company  invests  the
premiums, earning a yield on the invested balance.

     General,  administrative and marketing ("G&A") costs increased $7.7 million
or 28.5%  compared to the second  quarter of 1998.  As a percentage of revenues,
G&A costs for the second quarter of 1999 were consistent with


                                                     Page 10
                 SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

     Results of Operations,  three months ended June 30, 1999, compared to three
months ended June 30, 1998 (continued).

     the comparable period in 1998. Of the $7.7 million  increase,  $4.0 million
was due to additional G&A,  including  amortization of goodwill,  related to the
acquired  HMO  business in the  Dallas/Ft.  Worth area,  net of  utilization  of
premium deficiency reserves for maintenance costs of approximately $4.7 million.
The most  significant  items  included in the remaining  portion of the increase
consisted  of  $1.6  million  of  additional  compensation  expense,   resulting
primarily from additional  employees  supporting  expanded  services,  increased
depreciation  expense of $900,000  and  increased  legal  expenses.  The Company
markets its products primarily to employer groups,  labor unions and individuals
enrolled in  Medicare,  through its internal  sales  personnel  and  independent
insurance  brokers.  Such  brokers  receive  commissions  based on the  premiums
received from each group.  The Company's  agreements  with its member groups are
usually  for twelve  months and are subject to annual  renewal.  For the quarter
ended June 30, 1999, the Company's ten largest  commercial  HMO employer  groups
were, in the  aggregate,  responsible  for less than 10% of its total  revenues.
Although  none of such  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 the Company's business. Interest expense and other increased $2.5 million for
the three months ended June 30, 1999, compared to the same prior-year period due
to an increase in debt primarily related to the Kaiser-Texas acquisition as well
as an increase in the Company's cost of borrowing.

     For the  current-year  period,  the  Company  recorded  approximately  $4.3
million of tax expense for an effective tax rate of 33.4%  compared to 25.9% for
the same prior-year period. This significant  increase in the effective tax rate
is the result of the tax loss valuation  allowances  being fully utilized by the
end of 1998.  The  Company's  effective  tax rate is less than the 35% statutory
rate primarily due to tax-preferred investments.

     Results of  Operations,  six months  ended June 30,  1999,  compared to six
months ended June 30, 1998.

     The Company's  total  operating  revenues for the six months ended June 30,
1999,  increased  approximately  39.3% to $633.9 million from $455.0 million for
the six months ended June 30, 1998.  The increase was primarily due to increases
in premium  revenue of $130.9  million and  military  contract  revenue of $80.8
million offset by a decrease in specialty product revenues of $35.3 million.

     Of the  $130.9  million  or 46.6%  increase  in  medical  premium  revenue,
approximately  $83.1 million is attributed  to the  Company's  Dallas/Ft.  Worth
operations  which were  acquired in the fourth  quarter of 1998.  The  remaining
increase of $47.8 million, or 17.0%, is due to additional premium revenue at the
Company's other HMO and insurance subsidiaries.  Excluding the Dallas/Ft.  Worth
operations,  member months increased  approximately 8.1%. Medicare member months
increased 23.0%. Such growth in Medicare member months contributes significantly
to the increase in premium revenues as the Medicare per member premium rates are
over three times higher than the average commercial premium rate.  Excluding the
Dallas/Ft.  Worth  operations,  the Company's  HMO and  insurance  subsidiaries'
premium rates  increased  approximately  8%. The Company's HMO commercial  rates
increased approximately 4% in Nevada and approximately 15% in Texas. Compared to
the fourth  quarter of 1998,  the  commercial  rates for the Company's  recently
acquired  Dallas/Ft.  Worth  operations  have  increased  approximately  7%. The
Company's managed indemnity rates increased  approximately 6% and Medicare rates
increased  approximately  2%. Over 90% of the Company's  Nevada Medicare members
are  enrolled  in the HCFA  Social HMO  Medicare  program.  HCFA is  considering
adjusting the reimbursement  factor for the Social HMO members in the future. If
the reimbursement for these members decreases  significantly and related benefit
changes are not made  timely,  there could be a material  adverse  effect on the
Company's business.

     Military  contract revenue  increased from $60.4 million to $141.2 million.
The  increased  revenue is a result of health care  delivery  under the Region 1
TRICARE contract that began in June 1998. Military

                                                     Page 11
                       SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

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


     Results of  Operations,  six months  ended June 30,  1999,  compared to six
months ended June 30, 1998 (continued).

     contract  revenue  in the same  period  of the  prior  year  resulted  from
implementation of the contract and one month of health care delivery.  Specialty
product revenue decreased $35.3 million, or 45.9%, for the six months ended June
30, 1999,  compared to the same six-month  prior-year  period.  Of the decrease,
$33.4  million  was due to a decrease  in revenue in the  workers'  compensation
insurance  segment  and $1.8  million  was due to a decrease  in  administrative
services  revenue.  The decrease in specialty  product  revenues  related to the
workers'  compensation  insurance  segment was primarily due to additional ceded
reinsurance  premiums  on the low level  reinsurance  agreement  totaling  $27.1
million.  This  agreement  was entered  into in the fourth  quarter of 1998.  In
addition,  ongoing  price  competition  in  California  is  contributing  to the
reduction  in revenue.  The  decrease  in  administrative  services  revenue was
primarily attributable to a decrease in membership.

     Professional fee revenue increased approximately $5.3 million primarily due
to the Company's recently acquired medical group operations in Dallas/Ft. Worth.
Investment  and other  revenue  decreased  approximately  $2.8  million over the
comparable  prior-year  period primarily due to a decrease in invested  balances
and a decrease in capital gains realized on the sale of investments  compared to
the prior-year period.

     Total medical  expenses  increased  $131.5  million over the same six-month
period last year. This increase resulted  primarily from the Company's  recently
acquired  Dallas/Ft.  Worth  operations  discussed  previously,  as  well as the
premium  deficiency  charge of $8.1 million related to under performing  markets
primarily in Arizona and rural Nevada (see note 2 to the Condensed  Consolidated
Financial  Statements).  Excluding the effect of the Company's recently acquired
Dallas/Ft.  Worth operations and the premium deficiency charge, medical expenses
increased  $48.9 million or 20.9% compared to the same  prior-year  period.  The
Medical Care Ratio increased from 77.1% to 83.2%,  or 81.3%,  excluding the $8.1
million  premium  deficiency  charge,  for the six months  ended June 30,  1999,
compared to the  prior-year  period.  The  increase  in the  Medical  Care Ratio
reflects the acquired  Kaiser-Texas  membership  which has a higher medical care
ratio, and the premium deficiency charge discussed above, as well as an increase
in  Medicare  members  as a  percentage  of fully-  insured  members  and higher
pharmacy costs. The cost of providing medical care to Medicare members generally
requires a greater  percentage  of the  premiums  received.  Included in medical
expenses is the  utilization of $12.2 million of premium  deficiency  reserve to
offset losses on contracts from the Kaiser-Texas  acquisition.  Also included in
medical expense is the utilization of $5.3 million of premium deficiency reserve
to offset losses primarily on Medicare risk members in Arizona and rural Nevada.

     Specialty  product expenses  decreased $36.9 million or 48.7% due primarily
to ceded workers'  compensation  losses resulting from the low level reinsurance
agreement.  In  addition,  the  Company  receives a ceding  commission  from the
reinsurer as a partial reimbursement of operating expenses.  Under the low level
reinsurance agreement, in the six month current year period, ceded premiums were
$27.1 million,  ceded losses were $32.7 million and ceding commissions were $6.5
million.  Specialty  product  revenue and expense are  primarily  related to the
workers' compensation insurance business.

     The combined  ratio for the workers'  compensation  insurance  business was
95.9% compared to 101.1% for the comparable prior-year period. The reduction was
due to a 12.7% decrease in the loss ratio,  which was partially offset by a 7.5%
increase in the expense  ratio.  The reduction in the loss ratio was largely due
to a greater portion of losses being  reinsured under the low level  reinsurance
agreement.  The current  year period had no net  development  on prior  accident
years,  whereas the loss ratio for the prior year period  included net favorable
loss  development on prior accident years totaling $4.5 million.  The prior-year
favorable  loss  development  was largely due to actual paid losses  being below
projected losses.  The loss and loss adjustment expense ratio for the six months
ended June 30, 1999, reflects the Company's current projection


                                                     Page 12
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

     Results of  Operations,  six months  ended June 30,  1999,  compared to six
months ended June 30, 1998 (continued).

     of the ultimate  costs of claims  occurring in the current as well as prior
accident years. The increase in the expense ratio was largely due to a reduction
in the net earned premium  denominator base, which resulted from the increase in
ceded reinsurance premiums. This change was offset by a decrease in expenses due
to a credit for ceding commissions of $6.5 million. Workers' compensation claims
are paid over several  years.  Until  payment is made,  the Company  invests the
premiums, earning a yield on the invested balance.

     G&A costs increased $16.4 million or 31.4% compared to the first six months
of 1998. As a percentage of revenues, G&A costs for the first six months of 1999
decreased to 10.8% from 11.5% during the  comparable  period in 1998.  Excluding
military  revenues,  G&A as a percentage of revenues was 14.0% for the six-month
period  ended June 30,  1999,  compared to 13.2% for the first six months of the
prior  year.  Of the $16.4  million  increase  in G&A,  $8.6  million was due to
additional G&A, including amortization of goodwill,  related to the acquired HMO
business in the Dallas/Ft.  Worth area, net of utilization of premium deficiency
reserves  for  maintenance  costs  of  approximately  $7.0  million.   The  most
significant items included in the remaining portion of the increase consisted of
$2.5  million of  additional  compensation  expense,  resulting  primarily  from
additional  employees  supporting  expanded  services,   increased  depreciation
expense of $1.6 million and increased  legal  expenses.  The Company markets its
products primarily to employer groups,  labor unions and individuals enrolled in
Medicare,  through  its  internal  sales  personnel  and  independent  insurance
brokers.  Such brokers receive  commissions  based on the premiums received from
each group.  The  Company's  agreements  with its member  groups are usually for
twelve months and are subject to annual  renewal.  For the six months ended June
30, 1999, the Company's ten largest  commercial HMO employer groups were, in the
aggregate, responsible for less than 10% of its total revenues. Although none of
such  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 the
Company's  business.  Interest  expense and other increased $5.3 million for the
six months ended June 30, 1999, compared to the same prior-year period due to an
increase in debt primarily related to the Kaiser-Texas acquisition as well as an
increase in the Company's cost of borrowing.

     For the period,  the Company  recorded  approximately  $3.9  million of tax
expense  for an  effective  tax  rate of  33.4%  compared  to  25.7% in the same
prior-year  period.  This significant  increase in the effective tax rate is the
result of the tax loss valuation  allowances  being fully utilized by the end of
1998.  The  Company's  effective  tax rate is less than the 35%  statutory  rate
primarily due to tax-preferred investments.

Liquidity and Capital Resources

     The Company had negative cash flows from operations of approximately  $27.8
million for the six months ended June 30, 1999,  resulting  primarily from a net
change in assets and  liabilities  of $51.7  million  offset by $13.8 million in
depreciation and  amortization,  $2.3 million in provision for doubtful accounts
and $7.9 million net income. The decrease in cash flow resulting from the change
in assets and liabilities was primarily due to increases in accounts  receivable
and reinsurance recoverable,  as well as decreases in unearned revenue and other
accrued  liabilities.  Such  decreases  in  cash  flow  were  offset  in part by
collection of government  receivables.  During the second  quarter of 1999,  the
Company  received  $46.3  million from the  government  as a result of providing
health  care  services  for a larger than  expected  beneficiary  population  in
TRICARE  Region 1. The increase in  reinsurance  recoverable is primarily due to
the reinsurance  agreement  implemented by the Company's  workers'  compensation
subsidiary  in the fourth  quarter of 1998.  The  decrease in  unearned  revenue
resulted  primarily  from the  early  receipt  of the  subsequent  month's  HCFA
Medicare capitation payments as of December 31, 1998.

                                                     Page 13
                                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES





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

Liquidity and Capital Resources (continued).

     The  $26.9  million  used for  investing  and  financing  activities  since
December 31, 1998 included $8.0 million used for the purchase of treasury  stock
and $27.0 million in net capital  expenditures  including costs  associated with
continued  implementation of three new computer  systems,  as well as furniture,
equipment and other capital needs to support the Company's  growth. In the first
quarter of 1999 an additional $3.0 million was paid to Kaiser  Foundation Health
Plan  of  Texas,   in  accordance   with  the  purchase   agreement  as  certain
accreditation goals were met by the health plan. The purchase price may increase
up to an additional $27 million over three years if certain goals are met by the
health plan.  The Company had net  borrowings  of $5.0 million under the line of
credit which was offset by $2.1  million  used for the  reduction of other debt.
The remaining  $56.0 million  available under the line of credit may be used for
additional  working capital,  if necessary.  Offsetting the above cash outflows,
was a $6.9  million  net change in  investments  and $1.2  million  received  in
connection with the sale of stock through the Company's stock plans.

     The  Company  has a 1999  capital  budget  of  approximately  $60  million,
primarily for computer hardware and software,  furniture and equipment and other
requirements  due to the  Company's  computer  system  conversion  and projected
growth and  expansion.  The Company's  liquidity  needs over the next six months
will  primarily  be for the  capital  items noted  above,  the  Company's  stock
repurchase  program,  debt service and  expansion of the  Company's  operations,
including  potential  acquisitions.  The Company  believes that existing working
capital,  operating cash flow and, if necessary,  mortgage financing,  equipment
leasing,  and amounts  available under its credit facility will be sufficient to
fund  its  capital  expenditures  and debt  service.  Additionally,  subject  to
unanticipated cash requirements,  the Company believes that its existing working
capital  and  operating  cash flow and, if  necessary,  its access to new credit
facilities, will enable it to meet its liquidity needs on a longer term basis.

     The  holding  company  may  receive  dividends  from its HMO and  insurance
subsidiaries  which  generally  must be  approved  by  certain  state  insurance
departments.  The Company's 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 $16.8 million as of June
30, 1999.  The HMO and insurance  subsidiaries  must also meet  requirements  to
maintain minimum  stockholder's  equity, on a statutory basis, ranging from $1.5
million to $5.2 million.  Additionally,  in  conjunction  with the  Kaiser-Texas
acquisition,  Texas Health Choice, L.C. ("TXHC") entered into a letter agreement
with the Texas  Department  of  Insurance  whereby TXHC agreed to maintain a net
worth of $20.0 million.  Of the cash and cash equivalents held at June 30, 1999,
$27.7 million is designated  for use only by the  regulated  subsidiaries.  Such
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 and by dividends.
Remaining  amounts are available on an unrestricted  basis.  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.

     CII Financial,  Inc., a California workers'  compensation  company that the
Company  acquired  in  1995,  has  convertible   subordinated   debentures  (the
"Debentures") due September 15, 2001 and bearing interest at 7 1/2% which is due
semi-annually  on  March  15 and  September 15.  Each  $1,000  in  principal  is
convertible  into 25.382  shares of the  Company's  common stock at a conversion
price of $39.40 per share. The Debentures are general  unsecured  obligations of
CII and are not guaranteed by Sierra. During the six months ended June 30, 1999,
the Company purchased $55,000 of the Debentures on the open market.


                                                     Page 14
                                   SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES



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

Year 2000

     The Year 2000 issue exists because many computer  systems and  applications
currently  use  two-digit  date fields to designate a year.  As the century date
change occurs,  date-sensitive  systems will recognize the year 2000 as 1900, or
not at all.  This  inability to  recognize  or properly  treat the Year 2000 may
cause  systems  to  process  critical  financial  and  operational   information
incorrectly.

     The Company has completed  replacement  of its mission  critical  financial
systems and is in the process of  replacing  its  mission  critical  operational
computer systems.  The Company has completed  validation of its non- information
system  technology  for Year 2000  compliance.  The Year 2000  project  has five
phases: (1) inventorying Year 2000 items; (2) assessing the Year 2000 items that
are  determined  to be material to the  Company;  (3)  renovating  or  replacing
material items that are determined  not to be Year 2000  compliant;  (4) testing
and validating  material  items;  and (5)  implementing  renovated and validated
systems.

     At June 30, 1999,  the inventory and  assessment  phases are  substantially
complete as it relates to all  material  computer  systems  and  non-information
system technology. The Company estimates that the replacement/renovation  phases
and the testing/validation  phases will be 95% complete by October 31, 1999. The
Company  estimates that it is approximately  85% complete with the total project
as of July 31, 1999.

     Contingency  planning  for the mission  critical  business  operations  was
completed  in July 1999.  These  plans focus on  business  operations  involving
information systems and non-information systems technologies.

     The Company has initiated formal communications with entities with which it
does business to assess their Year 2000 issues. Evaluations of the most critical
third  parties  have been  initiated,  and  follow-up  reviews will be conducted
through 1999.  Contingency  plans are being developed based on these evaluations
and are  expected  to be  completed  by the  middle  of  1999.  There  can be no
assurances that the systems of other companies or governmental agencies, such as
HCFA and the Department of Defense ("DOD"),  on which the Company relies will be
timely  modified for Year 2000, or that the failure to modify by another company
would not have a material adverse effect on the Company. Based upon two separate
reports  issued by the United States  General  Accounting  Office it is doubtful
that the  computer  systems  at both  HCFA and the DOD will be fully  Year  2000
compliant by the end of 1999. The Company does not currently have available data
to predict the impact of such non-compliance on its business operations.  Should
there be any material delays caused by Year 2000 issues, the Company anticipates
that the governmental entities will make estimated payments.

     The Company is in the process of implementing  three major computer systems
at an  estimated  cost  of  $40  million  to $42  million,  which  includes  the
implementation   costs  related  to  the  recently  acquired  Dallas/Ft.   Worth
operations. To date the Company has spent approximately $33.6 million on the new
computer  systems and other Year 2000 items.  The Company is expensing the costs
to make  modifications to existing computer systems and non-computer  equipment.
Management currently estimates the remaining new computer system costs and other
Year 2000 costs to be $9.0 million to $11.0 million. While this is a substantial
effort,   it  will  give  the  Company  the  benefits  of  new   technology  and
functionality  for many of its financial and  operational  computer  systems and
applications.

     The  failure to correct a material  Year 2000  problem  could  result in an
interruption  of, or a failure of,  certain  business  activities or operations.
Such  failures  could  materially  adversely  affect the  Company's  operations,
liquidity and financial  condition.  Due to the general uncertainty  inherent in
the Year  2000  problem,  resulting  in part from  uncertainty  of the Year 2000
readiness of third parties with which the Company does business,  the Company is
unable to determine at this time whether the consequences of potential Year 2000
failures  will have a  material  adverse  impact  on the  Company's  results  of
operations,  liquidity or financial  condition.  The Company believes that, with
the implementation of the new computer systems and completion of the

                                                     Page 15
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Year 2000 (continued).

     entire project as scheduled,  the possibility of significant  interruptions
of operations should be reduced.

     Should utility  service be disrupted by forces that are outside the control
of the Company, contingency plans have been established which include the use of
gasoline-powered  generators to maintain mission critical  business  operations.
Management  believes the Company could carry on basic functions for five days in
this scenario,  with its various  facilities  maintaining  operations for one to
five days.  Contingency plans were built upon the assumption that such continued
operations are subject to established safety and environmental regulations.

     The above discussion contains forward-looking statements including, without
limitation, statements relating to the Company's plans, strategies,  objectives,
expectations,  intentions, and adequate resources, that are made pursuant to the
"safe harbor"  provisions  of the Private  Securities  Litigation  Reform Act of
1995.  Readers are cautioned that  forward-looking  statements  contained in the
Year 2000 disclosure should be read in conjunction with the following disclosure
of the Company:

     The  costs of the  project  and the  dates on which  the  Company  plans to
complete the necessary Year 2000  modifications  are based on management's  best
estimates,  which were derived utilizing  numerous  assumptions of future events
including the continued  availability  of certain  resources and other  factors.
However,  there can be no guarantee  that these  estimates  will be achieved and
actual results could differ  materially from those plans.  Specific factors that
might  cause such  material  differences  include,  but are not  limited to, the
availability,  retention and cost of personnel trained in this area, the ability
to locate and correct all relevant  computer codes, the ability of the Company's
significant  suppliers,  customers  and others with which it conducts  business,
including federal and state governmental agencies, to identify and resolve their
own Year 2000 issues and similar uncertainties.

Membership

         The Company's membership at June 30, 1999  and 1998 was as follows:
<TABLE>

<CAPTION>
                                                                          Number of Members at Period Ended
                                                                            June 30                 June 30
                                                                             1999                    1998

HMO
<S>                                                                         <C>                      <C>
  Commercial..................................................              272,500                  161,000
  Medicare....................................................               48,900                   38,600
Managed Indemnity.............................................               42,800                   50,400
Medicare Supplement...........................................               27,400                   25,100
Administrative Services.......................................              301,500                  312,600
TRICARE Eligibles.............................................              599,000                  606,400
Total Members.................................................            1,292,100                1,194,100
</TABLE>

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     As of June 30,  1999,  unrealized  holding  losses  on  available  for sale
investments  have increased by $9.6 million since year-end due to an increase in
interest  rates,  and thus, a decline in the market value of bonds.  The Company
believes that this increase in interest rates should not have a material  impact
on future  earnings or cash flows as it is unlikely  that the Company would need
or choose to substantially liquidate its investment portfolio.

                                                     Page 16
                                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

     In the second quarter of 1999,  the Company filed a motion for  preliminary
injunction in Clark County District Court against  Universal Health Services and
the Valley Health System ("Universal"). The Company has reimbursed Universal for
services   provided  to  health  plan  members  based  on  predetermined   rates
established through one of its subsidiaries. However, Universal is disputing the
validity of the contract  and is billing the Company and its members  additional
charges.  The Company currently  believes that it is adequately accrued for this
case and intends to pursue all available remedies.

     The  Company  is subject to  various  claims  and other  litigation  in the
ordinary  course  of  business.  Such  litigation  includes  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
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 the Company's management,  the ultimate resolution of
pending  legal  proceedings,  including the  Universal  case,  should not have a
material adverse effect on the Company's financial condition.

ITEM 2.        CHANGES IN SECURITIES AND USE OF PROCEEDS

               None

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

               None


                                                     Page 17
                 SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES



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

     Sierra held its annual meeting of stockholders on May 6, 1999 in Las Vegas,
Nevada.

     The following  persons were elected directors for a two-year term ending in
2001 based on the voting results below:
<TABLE>

                                                                                                      Broker
<CAPTION>
             Name                                          For            Withheld        Abstain    Non-votes

<S>                                                      <C>               <C>               <C>           <C>
               Anthony M. Marlon, M.D.                   24,152,941        682,681           0             0
               Thomas Y. Hartley                         24,193,871        641,751           0             0
</TABLE>


     The following  persons' terms as directors  continued after the meeting and
end in 2000.

               Erin MacDonald
               William J. Raggio
               Charles L. Ruthe

     The stockholders  also ratified the appointment of Deloitte & Touche LLP as
the Company's  independent auditors for the year ending 1999. The voting results
were as follows:
<TABLE>

                                                                                          Broker
<CAPTION>
                                 For                Against           Abstain             Non-votes

<S>                             <C>                 <C>                <C>                  <C>
                                24,415,424          408,092            12,106               0
</TABLE>

ITEM 5.        OTHER INFORMATION

               None

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

               (a)      Exhibits

                        (27)            Financial Data Schedule

                        (99)            Registrant's current report on Form 8-K
                                        dated March 17, 1999,
                                        incorporated herein by reference.

               (b)      Reports on Form 8-K

                        None

                                                     Page 18
                                                    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  August 16, 1999              /S/ PAUL H. PALMER
                                   Paul H. Palmer
                                   Vice President of Finance,
                                   Chief Financial Officer and Treasurer
                                   (Principal Financial and Accounting Officer)

                                                     Page 19