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                                  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       March 31, 1998

                                                        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 April 30,  1998 there were  18,350,000 shares of common stock outstanding.


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<PAGE>




                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998

                                      INDEX
                                                                       Page No.

Part I - FINANCIAL INFORMATION

      Item l.     Financial Statements


                  Condensed Consolidated Balance Sheets -
                    March 31, 1998 and December 31, 1997.................    3

                  Condensed Consolidated Statements of Operations and
                    Comprehensive Income -  three months ended
                    March 31, 1998 and March 31, 1997....................    4

                  Condensed Consolidated Statements of Cash Flows -
                    three months ended March 31, 1998
                    and March 31, 1997...................................    5

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

      Item 2.     Management's Discussion and Analysis of
                    Financial Condition and Results of Operations........    8

      Item 3.     Quantitative and Qualitative Disclosures
                    about Market Risk....................................   13



Part II - OTHER INFORMATION

      Item l.     Legal Proceedings......................................   14

      Item 2.     Changes in Securities..................................   14

      Item 3.     Defaults Upon Senior Securities........................   14

      Item 4.     Submission of Matters to a Vote of Security Holders....   14

      Item 5.     Other Information......................................   14

      Item 6.     Exhibits and Reports on Form 8-K.......................   14

Signature................................................................   16



                                                     Page 2

<PAGE>



                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                           March 31            December 31
                                                                                            1998                  1997
CURRENT ASSETS:
<S>                                                                                     <C>                   <C>
  Cash and Cash Equivalents...................................................          $  39,438,000         $  96,841,000
  Short-term Investments......................................................            139,668,000           115,498,000
  Accounts Receivable (Less: Allowance for Doubtful
     Accounts:  1998 - $8,982,000; 1997 - $7,916,000).........................             55,623,000            42,041,000
 Prepaid Expenses and Other Assets............................................             47,692,000            46,226,000
     Total Current Assets.....................................................            282,421,000           300,606,000

LAND, BUILDINGS AND EQUIPMENT.................................................            209,809,000           197,917,000
  Less-Accumulated Depreciation...............................................            (52,555,000)          (49,086,000)
     Land, Buildings and Equipment - Net......................................            157,254,000           148,831,000

  LONG-TERM INVESTMENTS.......................................................            183,700,000           155,153,000
  RESTRICTED CASH AND INVESTMENTS.............................................             17,119,000            16,540,000
  REINSURANCE RECOVERABLE (Less Current Portion) .............................             18,781,000            20,245,000
  GOODWILL ...................................................................             42,333,000            42,803,000
  OTHER ASSETS................................................................             39,096,000            39,758,000
TOTAL ASSETS..................................................................           $740,704,000          $723,936,000

CURRENT LIABILITIES:
  Accounts Payable and Other Accrued Liabilities..............................          $  65,190,000         $  58,439,000
  Medical Claims Payable......................................................             55,016,000            55,943,000
  Current Portion of Reserves for Losses and
     Loss Adjustment Expense .................................................             67,767,000            63,358,000
  Unearned Premium Revenue....................................................             18,695,000            29,763,000
  Current Portion of Long-term Debt...........................................              4,191,000             4,726,000
     Total Current Liabilities................................................            210,859,000           212,229,000

RESERVES FOR LOSSES AND LOSS ADJUSTMENT
  EXPENSE (Less Current Portion) .............................................            135,441,000           139,341,000
LONG-TERM DEBT (Less Current Portion).........................................             98,239,000            90,841,000
OTHER LIABILITIES.............................................................             14,550,000            15,843,000
TOTAL LIABILITIES.............................................................            459,089,000           458,254,000

STOCKHOLDERS' EQUITY:
  Preferred Stock, $.01 Par Value,
    1,000,000 Shares Authorized; None Issued
  Common Stock, $.005 Par Value
    40,000,000 Shares Authorized;
    Shares Issued:  1998 - 18,632,000; 1997 - 18,473,000......................                 93,000               92,000
  Additional Paid-in Capital..................................................            168,556,000          164,294,000
  Treasury Stock: 284,500 Common Shares.......................................             (5,601,000)          (5,601,000)
  Unrealized Holding Gain on
      Available-for-Sale Securities ..........................................                138,000              655,000
  Retained Earnings...........................................................            118,429,000          106,242,000
TOTAL STOCKHOLDERS' EQUITY....................................................            281,615,000          265,682,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................           $740,704,000         $723,936,000
</TABLE>
                             See  notes  to  condensed   consolidated  financial
statements.

                                                     Page 3

<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>

                                                                                                         Three Months Ended
                                                                                                                  March 31
                                                                                                          1998                 1997

OPERATING REVENUES:
<S>                                                                                                   <C>              <C>
  Medical Premiums..............................................................                      $137,818,000     $122,339,000
  Specialty Product Revenues....................................................                        36,161,000       34,713,000
  Military Contract Revenues....................................................                        18,536,000
  Professional Fees.............................................................                        10,923,000        7,521,000
  Investment and Other Revenues.................................................                         6,971,000        6,005,000
    Total ......................................................................                       210,409,000      170,578,000

OPERATING EXPENSES:
  Medical Expenses..............................................................                       114,316,000       99,676,000
  Specialty Product Expenses....................................................                        36,241,000       34,651,000
  Military Contract Expenses....................................................                        16,981,000
  General, Administrative and Marketing ........................................                        25,208,000       22,009,000
  Merger Related Expenses ......................................................                                         11,000,000
    Total ......................................................................                       192,746,000      167,336,000

OPERATING  INCOME...............................................................                        17,663,000        3,242,000

INTEREST EXPENSE AND OTHER, NET  ...............................................                        (1,281,000)      (1,402,000)

INCOME BEFORE INCOME TAXES .....................................................                        16,382,000        1,840,000

PROVISION FOR INCOME TAXES......................................................                         4,195,000          442,000

NET INCOME .....................................................................                        12,187,000        1,398,000

OTHER COMPREHENSIVE (LOSS), NET OF TAX..........................................                          (517,000)      (1,667,000)

COMPREHENSIVE INCOME (LOSS).....................................................                      $ 11,670,000     $   (269,000)

NET INCOME PER COMMON SHARE  ...................................................                              $.67             $.08
NET INCOME PER COMMON SHARE ASSUMING DILUTION...................................                              $.66             $.08

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING......................................                        18,271,000       17,849,000

WEIGHTED AVERAGE COMMON SHARE OUTSTANDING ASSUMING DILUTION.....................18,570,000 18,055,000
</TABLE>




                             See  notes  to  condensed   consolidated  financial
statements.

                                                     Page 4

<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                       Three Months Ended  March 31

                                                                                         1998                 1997

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                  <C>                  <C>
   Net Income..............................................................          $12,187,000          $  1,398,000
   Adjustments to Reconcile Net Income to Net Cash
       (Used For) Provided by Operating Activities:
          Depreciation and Amortization....................................            4,048,000             3,263,000
          Provision for Doubtful Accounts..................................            1,215,000               967,000
   Changes in Assets and Liabilities ......................................          (20,368,000)              916,000
       Net Cash (Used for) Provided by Operating Activities ...............           (2,918,000)            6,544,000

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital Expenditures, Net of Equipment Dispositions.....................           (9,159,000)           (9,059,000)
   Changes in Short-term Investments.......................................          (24,247,000)            9,847,000
   Changes in Long-term Investments........................................          (29,475,000)          (25,243,000)
   Changes in Restricted Cash and Investments..............................             (567,000)              753,000
   Corporate Disposition, net of cash disposed.............................            1,373,000
   Loan to Third Party.....................................................            _________           (16,750,000)
       Net Cash Used for Investing Activities..............................          (62,075,000)          (40,452,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from Borrowings................................................           15,000,000            17,000,000
   Payments on Debt and Capital Leases.....................................          (11,207,000)             (648,000)
   Exercise of Stock in Connection with Stock Plans........................            3,797,000             1,046,000
          Net Cash Provided by Financing Activities........................            7,590,000            17,398,000

NET DECREASE IN CASH AND CASH EQUIVALENTS..................................          (57,403,000)          (16,510,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............................           96,841,000           103,587,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................          $39,438,000          $ 87,077,000


                                                                                       Three Months Ended March 31

Supplemental Condensed Consolidated
    Statements of Cash Flows Information:                                               1998                 1997
Cash Paid During the Period for Interest
   (Net of Amount Capitalized).............................................           $2,292,000            $2,203,000
Cash Paid During the Period for Income Taxes...............................            1,532,000             3,520,000

Non-cash Investing and Financing Activities:
   Tax Benefits of Stock Issued for Exercise of Options ...................              466,000                70,000
   Additions to Capital Leases.............................................            3,070,000
</TABLE>

                      See accompanying notes to condensed consolidated financial
statements.

                                                     Page 5

<PAGE>



                  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, 1997 and 1996. 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.         On May 5, 1998, the Company  announced a  three-for-two  stock split.
           Subject  to  certain   statutory  and  regulatory   approvals,   each
           stockholder  of  record  of the  Company  owning  one share of common
           stock,  par value of $.005, as of the close of business on the record
           date of May 18,  1998  will be  entitled  to an  additional  one-half
           share.  In lieu of any  fractional  share  resulting  from the  stock
           split, a stockholder will receive a cash payment based on the closing
           price of the Company's common stock on the record date. The par value
           will remain  $.005.  Common stock and earnings per share amounts have
           not been retroactively adjusted to account for the split.

3. 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 March 31, 1998:
<S>                                                               <C>                                <C>
             Income from Continuing Operations                    $12,187,000                        $12,187,000
             Shares                                                18,271,000          299,000        18,570,000
             Per Share Amount                                            $.67                               $.66

           For the Three Months ended March 31, 1997:
             Income from Continuing Operations                    $ 1,398,000                        $ 1,398,000
             Shares                                                17,849,000          206,000        18,055,000
             Per Share Amount                                            $.08                               $.08
</TABLE>

           CII Financial,  Inc., a wholly-owned subsidiary of the Company issued
           convertible  subordinated debentures (the "Debentures") due September
           15, 2001. Each $1,000 in principal is convertible  into 16.921 shares
           of the  Company's  common stock at a conversion  price of $59.097 per
           share without  giving effect to the split.  The  Debentures  were not
           included in the  computation  of EPS because  their  effect  would be
           anti-dilutive.

  4.       Statement  of  Financial  Accounting  Standard  No.  130,  "Reporting
           Comprehensive  Income" ("FAS 130") is effective for periods beginning
           after  December 15, 1997 and requires  companies to classify items of
           other comprehensive  income by their nature in a financial statement.
           The Company has implemented FAS 130 and reported other  comprehensive
           income in the Condensed  Consolidated  Statements  of Operations  and
           Comprehensive   Income.   Other  comprehensive  income  is  comprised
           entirely of unrealized holding gains and losses on available for-sale
           investments,  net of taxes,  arising during the period,  adjusted for
           gains and losses included in net income.


                                                     Page 6

<PAGE>



           During  1997  the  Financial   Accounting   Standards   Board  issued
           "Disclosures about Segments of an Enterprise and Related Information"
           ("FAS 131").  FAS 131 is effective for fiscal years  beginning  after
           December  31, 1997;  however,  the  statement  need not be applied to
           interim  statements  in the  initial  year  of  application.  FAS 131
           establishes  additional  standards  for  segment  disclosures  in the
           financial  statements.  Management  has not  determined the effect of
           this  statement on its  financial  statement  disclosure.  During the
           first quarter of 1998,  Statement of Financial  Accounting  Standards
           No. 132 "Employers Disclosure about Pensions and Other Postretirement
           Benefits"  ("FAS 132") was issued.  FAS 132 is  effective  for fiscal
           years  beginning after December 15, 1997. The Company has implemented
           FAS 132.

5.         Certain amounts in the Condensed  Consolidated  Financial  Statements
           for the three months ended March 31, 1997 have been  reclassified  to
           conform with the current year presentation.



                                                     Page 7

<PAGE>



                  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 19, 1998  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 March 31,  1998,  compared to three
months ended March 31, 1997.

The Company's total operating revenues for the three months ended March 31, 1998
increased approximately 23.3% to $210.4 from $170.6 million for the three months
ended March 31,  1997.  The  increase  was  primarily  due to military  contract
revenue of $18.5  million and an increase in premium  revenue of $15.5  million.
During the fourth quarter of 1997 Sierra Military Health Services, Inc. ("SMHS")
began the  implementation  phase of its TRICARE contract.  The military contract
revenue is a result of the continued  implementation  of that contract.  Medical
premium  revenue  from  the  Company's  HMO  and  managed  indemnity   insurance
subsidiaries  increased  $15.5 million,  or 12.7%.  Of such  additional  premium
revenue 7.5% of the increase resulted  principally from additional member months
(the number of months of each period that an  individual is enrolled in a plan).
The  Company's  HMO  and  insurance   subsidiaries'   premium  rates   increased
approximately  5.2% primarily due to rate increases of 3% to 4% for its existing
HMO subsidiaries'  commercial groups and an average rate increase  exceeding 10%
for managed  indemnity  commercial  groups.  The Company also  realized a slight
increase  in its  capitation  rate  established  by the  Health  Care  Financing
Administration  ("HCFA").  Specialty product revenue increased $1.4 million,  or
4.2%, for the three months ended March 31, 1998 compared to the same three-month
period in the prior year. The increase was due to revenue growth in the workers'
compensation  insurance  market  offset in part by a decrease in  administrative
services  revenue  of $1.4  million  due  primarily  to the  termination  of the
Company's workers' compensation  administrative services contract with the State
of  Nevada.  Professional  fee  revenue  increased  approximately  $3.4  million
primarily due to the  acquisition  of the  operations of two medical  clinics in
southern  Nevada.  In  addition   approximately  $900,000  of  the  increase  in
professional fees is due to the operations of Total Home Care, Inc. ("THC"). THC
was acquired in the third quarter of 1997 and provides home infusion, oxygen and
durable medical equipment services in Nevada and Arizona. The Company sold THC's
Arizona  operations in the first quarter of 1998.  Investment  and other revenue
increased  approximately  $1.0 million over the  comparable  period in the prior
year  primarily  due to an  increase  in invested  balances  and  capital  gains
realized on the sale of investments.


Total medical expenses  increased $14.6 million over the same three-month period
last year. This 14.7% increase resulted  primarily from the consolidated  member
month  growth as well as the  acquisitions  discussed  previously.  The costs to
operate THC and the  medical  clinics are  included in medical  expenses.  These
factors,  as  well  as an  increase  in  Medicare  members  as a  percentage  of
fully-insured  members,  resulted  in  an  increase  in  medical  expenses  as a
percentage of medical premiums and professional fees ("Medical Loss Ratio") from
76.8% to 76.9%. The cost of providing medical care to Medicare members generally
requires  a greater  percentage  of the  premiums  received.  Specialty  product
expenses increased $1.6 million,  or 4.6%, due primarily to the 4.2% increase in
specialty  product revenue discussed  previously.  Specialty product revenue and
expense is primarily related to the workers' compensation insurance business.

                                                     Page 8

<PAGE>


                  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 March 31,  1998,  compared to three
months ended March 31, 1997 (continued).

The combined ratio for the workers'  compensation  insurance business was 102.6%
compared to 104.5% for the comparable  prior year period.  The reduction was due
to a 105 basis point  decrease in the loss ratio and an 84 basis point  decrease
in the expense ratio. Incurred losses for the current accident year were reduced
as a result of the  Company's  ability to overlay  and  implement  managed  care
techniques to the workers'  compensation  claims as well as net  favorable  loss
development  on prior  accident  years  totaling $ 1.9  million  compared to net
favorable loss development of $1.8 million for the comparable prior year period.
There can be no assurance that favorable development,  or the magnitude thereof,
will continue in the future.  The losses and loss  adjustment  expense ratio for
the three months ended March 31, 1998 reflects the Company's current  projection
of the  ultimate  costs of  claims  occurring  in the  current  as well as prior
accident years.  Such  projections are subject to change and any change would be
reflected in the income statement.  Workers'  compensation  claims are paid over
several years. Until payment is made, the Company invests the monies,  earning a
yield on the invested balance.

General,  administrative and marketing ("G&A") costs increased $3.2 million,  or
14.5%,  compared to the first quarter of 1997. As a percentage of revenues,  G&A
costs for the first  quarter of 1998  decreased  to 12.0% from 12.9%  during the
comparable  period in 1997.  Of the $3.2 million  increase in G&A,  $1.3 million
consisted of increased  compensation expense resulting primarily from additional
employees  supporting expanded services and new benefit programs for management.
Expenses  associated  with  owning  and  maintaining  facilities  and  non  data
processing  equipment  increased  approximately  $400,000.  Broker,  third-party
administration and premium tax expenses increased  approximately $300,000 due to
increased  membership.  The remaining G&A increase is due to additional expenses
in several  areas  including  increases  in  depreciation  of $200,000  and data
processing  maintenance of $300,000.  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  March 31,  1998,  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 was consistent with the same period in the
prior year.

In the first quarter of 1997, the Company recorded  estimated  expenses of $11.0
million,  $8.4 million after tax, for  merger-related  costs. On March 18, 1997,
the Company  announced it had  terminated  its merger  agreement  with Physician
Corporation of America. The original agreement had been entered into in November
1996.



                                                     Page 9

<PAGE>


                  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 March 31,  1998,  compared to three
months ended March 31, 1997 (continued).

For the period,  the Company recorded  approximately $4.2 million of tax expense
for an effective tax rate of 25.6%  compared to 24.0% in 1997. The Company's low
operating  tax rate is a result of the  Company's  investment  in  tax-preferred
investments and the change in the deferred tax valuation allowance, which is due
primarily to the ability to use a portion of net operating loss carryovers.

Net income for the three months ended March 31, 1998  increased  $10.8  million,
compared to the three months ended March 31, 1997.  Excluding  the effect of the
merger related expenses, net income increased $2.4 million, or 24.9% compared to
the same  quarter  of the prior  year.  The  increase  in  operating  income was
primarily  due to  increased  operating  revenues  including  military  contract
revenues  and  decreased  G&A expense as a  percentage  of revenues  offset by a
higher Medical Loss Ratio and an increased effective tax rate.

Liquidity and Capital Resources

The Company's cash flow from operating  activities during the three months ended
March 31, 1998 resulted primarily from $12.2 million of net income, $4.0 million
in  depreciation  and  amortization  and $1.2 million in provision  for doubtful
accounts  offset by a $20.4  million net change in assets and  liabilities.  The
decrease in cash flow  resulting from the change in assets and  liabilities  was
primarily due to an increase in accounts  receivable  and a decrease in unearned
premium  revenue.  The  increase  in  accounts  receivable  resulted  from  work
performed  in  conjunction  with the  implementation  of the  Region  1  TRICARE
contract  for which the Company  has not yet been  reimbursed.  The  decrease in
unearned  revenue  resulted  primarily  from the early receipt of the subsequent
month's HCFA Medicare capitation payment as of December 31, 1997.

The $54.5 million used for investing and financing activities since December 31,
1997  primarily  consisted of a $54.3 million net increase in  investments,  and
$9.2 million in net capital expenditures including construction costs associated
with  office  facilities,  furniture  and  equipment  for the newly  constructed
six-story  headquarters  building,  computer  and medical  equipment,  and other
capital  needs to support  the  Company's  growth.  The Company  received  $15.0
million  related to financing for the newly  constructed  headquarters  building
offset in part by $11.2  million used for the  reduction  of debt,  including an
$8.0  million  payment on the  Company's  line of credit.  The  remaining  $83.0
million of the line of credit may be used for  additional  working  capital,  if
necessary.  In addition the Company received $3.8 million in connection with the
sale of stock through the  Company's  stock plans and $1.4 million in connection
with sale of THC's Arizona operations as discussed previously.

The Company has a 1998 capital budget of approximately $50.0 million,  primarily
for computer  hardware  and  software,  furniture  and  equipment  for the newly
constructed 180,000 square foot, six-story corporate  headquarters building, and
other  requirements  due to the Company's  projected  growth and expansion.  The
Company's  liquidity  needs over the next 12 months  will  primarily  be for the
capital items noted above to support growing  membership,  implementation of the
Region 1 TRICARE contract,  the Company's stock repurchase  program,  as well as
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 and equipment  leasing,  and amounts
available  under its credit  facility  will be  sufficient  to fund its  capital
expenditures,  debt  service  and any  expansion  activities  during the next 12
months.  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.

                                                     Page 10

<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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


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  $17.1  million as of
March 31, 1998. The HMO and insurance  subsidiaries  must also meet requirements
to maintain minimum  stockholder's  equity,  on a statutory basis,  ranging from
$500,000 to $5.2  million.  Of the cash and cash  equivalents  held at March 31,
1998,  $32.8 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.

The National  Association of Insurance  Commissioners (the "NAIC") has an effort
underway  that would impose new minimum  capitalization  requirements  for HMOs,
health care insurance  entities and other risk bearing health care entities.  If
the   capitalization   requirements   are  enacted   certain  of  the  Company's
subsidiaries  may have  increased  capital  requirements.  The Company  does not
believe  that the amount of funds that may be  contributed  to the  subsidiaries
will be material.

On  September  30, 1997,  the Company was awarded a TRICARE  contract to provide
managed health care coverage to eligible  beneficiaries in Region 1. This region
includes  more  than  600,000  individuals  in  Connecticut,   Delaware,  Maine,
Maryland,  Massachusetts,  New Hampshire,  New Jersey,  New York,  Pennsylvania,
Rhode Island, Vermont, Virginia, West Virginia and Washington, D.C. In 1998, the
award  will  result in a total of  approximately  $150.0 to  $200.0  million  of
revenue for the five-month  implementation phase and seven months of health care
delivery.  SMHS was notified on February 13, 1998 that the United States General
Accounting Office ("GAO") sustained a competitor's protest of the contract award
for TRICARE Managed Care Support Region 1 and  recommended  that the contract be
re-bid.  The TRICARE  Management  Activity  ("TMA") along with the Company,  has
filed a motion requesting the GAO reconsider its recommendation. If the GAO does
not change its recommendation and the TMA follows the recommendation,  there are
several  possible  outcomes,   including   litigation.   The  Company  currently
anticipates providing health care delivery for one year of the contract should a
re-bid occur. The Company will fund  approximately  $30.0 million to SMHS during
the seven month phase-in  period of the TRICARE Region 1 contract.  These monies
will  be  reimbursed  by the  Department  of  Defense  in  accordance  with  the
provisions of the contract.

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 16.921
shares of the Company's  common stock at a conversion price of $59.097 per share
without  giving  effect to the  split.  The  Debentures  are  general  unsecured
obligations of CII and are not guaranteed by Sierra.


The Company is in the process of modifying or replacing its computer systems and
applications to accommodate the "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 currently expects to complete
all  material   replacements  or  modifications  of  its  computer  systems  and
applications  sufficiently  in  advance  of the Year 2000 to allow for  adequate
testing  so as not to have any  material  negative  impact its  operations.  The
Company is in the process of implementing two major systems

                                                     Page 11

<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

at an estimated  cost of $20.0 million to $25.0  million.  These systems will be
Year 2000 compliant. The Company is expensing the costs to make modifications as
incurred.  Management currently estimates the remaining modification costs to be
approximately $3.0 million to $5.0 million over the next 12 to 18 months.  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 inability of the Company to timely  complete its
Year 2000  modifications  and  replacements,  or the inability of companies with
which  the  Company   does   business  to  timely   complete   their  Year  2000
modifications,  could have a material effect on the Company's operations. During
the first quarter of 1998, the Company spent  approximately $4.0 million on both
system implementations and Year 2000 items.

The  Company's  liquidity  needs over the next 12 months will  primarily  be for
implementation of the Region 1 TRICARE contract,  Year 2000 costs, capital items
to support growing  membership,  the Company's stock repurchase program, as well
as debt service and expansion of the Company's  operations,  including potential
acquisitions.


                                                     Page 12

<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Membership

  The Company's membership at March 31, 1998  and 1997 was as follows:
<TABLE>
<CAPTION>

                                                                            Number of Members at Period Ended
                                                                            March 31                 March 31
                                                                              1998                     1997

HMO
<S>                                                                           <C>                     <C>
  Commercial...................................................               158,800                 155,600
  Medicare.....................................................                37,200                  31,200
Managed Indemnity..............................................                52,800                  48,100
Medicare Supplement............................................                24,700                  24,000
Administrative Services  (1)...................................               347,700                 328,700
Total Members..................................................               621,200                 587,600
</TABLE>

(1)      For comparability purposes, enrollment information has been restated to
         reflect the September 30, 1997  termination  of the company's  worker's
         compensation administrative services contract with the State of Nevada.
         Enrollment in the terminated plan was approximately  175,000 members at
         March 31, 1997.


ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant  to the  General  Instructions  to  Rule  305 of  Regulation  S-K,  the
quantitative and qualitative  disclosures  called for by this Item 3 and by Rule
305 of Regulation S-K are inapplicable to the Company at this time.

                                                     Page 13

<PAGE>



                                              PART II - OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS


On March 18, 1997, the Company  announced it had terminated its merger agreement
with Physician  Corporation of America ("PCA").  The original agreement had been
entered into in November  1996. On March 18, 1997,  prior to  termination of the
merger  agreement,  PCA filed a lawsuit against the Company in the United States
District  Court for the  Southern  District of Florida (the  "District  Court"),
seeking,  among other things,  specific  performance of the merger agreement and
monetary  damages  in excess of $20  million.  The  lawsuit  has been  dismissed
(without prejudice to PCA's claims) for failure to join an indispensable  party.
On March 27, 1997, the Company  commenced a lawsuit  against PCA in the Court of
Chancery of the State of Delaware.  On March 27, 1998, the Company filed a First
Amendment Complaint alleging, among other things, breach of the merger agreement
and  equitable  fraud,  and seeking  monetary  damages and other  remedies.  The
Company  intends to  vigorously  pursue all remedies  available to it,  however,
there can be no assurance that the Company will prevail in such litigation.

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,
claims by providers  for payment for medical  services  rendered to HMO members.
Also included in such  litigation are claims for dividends and claims denials in
the  workers'  compensation  division  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 should not have
a material adverse effect on the Company's financial condition.

ITEM 2.        CHANGES IN SECURITIES

               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

     (10) Sierra Health Services,  Inc.  Supplemental  Executive Retirement Plan
effective as of March 1, 1998.

                        (27)            Financial Data Schedule

     (99)  Registrant's  current  report  on Form  8-K  dated  March  19,  1998,
incorporated herein by reference.



                                                     Page 14

<PAGE>



(b)            Reports on Form 8-K

                        The Company  filed a Current  Report on Form 8-K,  dated
                        March  19,  1998,   with  the  Securities  and  Exchange
                        Commission   in  connection   with  certain   cautionary
                        statements made pursuant to the "safe harbor" provisions
                        of the Private Securities Litigation Reform Act of 1995.

                                                     Page 15

<PAGE>


                                                    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  May 15, 1998                                  /S/ PAUL H. PALMER
                                                 Paul H. Palmer
                                                 Acting Chief Financial Officer
                                                 (Principal Financial and
                                                 Accounting Officer)

                                                     Page 16

<PAGE>