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       September 30, 2000
                               ------------------------

                                       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 October 31, 2000, there were 27,292,000  shares
of common stock outstanding.

                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
                                    FORM 10-Q

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000



                                      INDEX

<TABLE>


<CAPTION>
                                                                       Page No.

Part I - FINANCIAL INFORMATION

      Item l.     Condensed Consolidated Financial Statements

                  Condensed Consolidated Balance Sheets -
<S>                           <C> <C>               <C> <C>                   <C>
                    September 30, 2000 and December 31, 1999................  3

                 Condensed Consolidated Statements of Operations -
               three and nine months ended September 30, 2000 and 1999....    4

                  Condensed Consolidated Statements of Cash Flows -
                    nine months ended September 30, 2000 and 1999.............5

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

      Item 2.     Management's Discussion and Analysis of

                    Financial Condition and Results of Operations.............13

      Item 3.     Quantitative and Qualitative Disclosures

                    about Market Risk.........................................23



Part II - OTHER INFORMATION

      Item l.     Legal Proceedings...........................................24

      Item 2.     Changes in Securities and Use Of Proceeds...................24

      Item 3.     Defaults Upon Senior Securities.............................24

      Item 4.     Submission of Matters to a Vote of Security Holders.........24

      Item 5.     Other Information...........................................24

      Item 6.     Exhibits and Reports on Form 8-K............................24

Signatures....................................................................26
</TABLE>



<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                    UNAUDITED

                             (Amounts in thousands)

<TABLE>

<CAPTION>

                                                                                       September 30          December 31
                                                                                           2000                1999
                                                                                           ----                ----
                                     ASSETS

CURRENT ASSETS:
<S>                                                                                   <C>                   <C>
     Cash and Cash Equivalents..............................................          $      54,747         $     55,936
     Investments............................................................                195,291              218,951
     Accounts Receivable (Less:  Allowance for Doubtful
         Accounts: 2000 - $21,750; 1999 - $15,551)....................................                 35,543               43,036
     Military Accounts Receivable (Less: Allowance for Doubtful
         Accounts: 2000 - $1,109; 1999 - $800)..............................                 97,017               60,340
     Reinsurance Recoverable................................................                 90,910               54,563
     Prepaid Expenses and Other Current Assets..............................                 88,646               91,767
     Assets Held for Sale...................................................                 22,942
                                                                                       ------------
         Total Current Assets...............................................                585,096              524,593

PROPERTY AND EQUIPMENT, NET.................................................                183,899              264,549
LONG-TERM INVESTMENTS.......................................................                 20,175               14,862
RESTRICTED CASH AND INVESTMENTS.............................................                 23,977               21,705
REINSURANCE RECOVERABLE, Net of Current Portion.............................                119,895               82,300
GOODWILL ...................................................................                 15,594              159,514
OTHER ASSETS................................................................                113,942               62,589
                                                                                       ------------        -------------
TOTAL ASSETS................................................................             $1,062,578           $1,130,112
                                                                                         ==========           ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts Payable and Accrued Liabilities..................................             $   99,103           $  102,573
  Medical Claims Payable....................................................                111,106               91,607
  Current Portion of Reserve for Losses and Loss Adjustment Expense ........                139,038               93,768
  Unearned Premium Revenue..................................................                 21,745               45,333
  Military Health Care Payable..............................................                 75,949               50,831
  Payable Under Revolving Credit Facility...................................                185,000
  Premium Deficiency Reserve................................................                 21,094               21,000
  Current Portion of Long-term Debt.........................................                 85,228                4,741
                                                                                      -------------       --------------
       Total Current Liabilities............................................                738,263              409,853

RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSE..............................                196,865              150,626
LONG-TERM DEBT..............................................................                 11,330              258,854
OTHER LIABILITIES ..........................................................                 33,857               32,367
                                                                                      -------------        -------------
TOTAL LIABILITIES...........................................................                980,315              851,700
                                                                                       ------------         ------------

STOCKHOLDERS' EQUITY:
  Preferred Stock, $.01 Par Value, 1,000
       Shares Authorized; None Issued or Outstanding
  Common Stock, $.005 Par Value, 40,000 Shares Authorized;
       Shares Issued:  2000 - 28,815; 1999 - 28,400.........................                    144                  142
  Additional Paid-in Capital................................................                177,495              175,915
  Treasury Stock, 2000 - 1,523; 1999 - 1,523 Common Shares..................                (22,789)             (22,789)
  Accumulated Other Comprehensive Loss:
       Unrealized Holding Loss on Available-for-Sale Investments............                (11,292)             (16,063)
  Accumulated (Deficit) Retained Earnings...................................                (61,295)             141,207
                                                                                      --------------        ------------
       Total Stockholders' Equity...........................................                 82,263              278,412
                                                                                      -------------         ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................             $1,062,578           $1,130,112
                                                                                         ==========           ==========
</TABLE>

      See accompanying notes to condensed consolidated financial statements


<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                    UNAUDITED

                (Amounts in thousands except for per share data)
<TABLE>

<CAPTION>

                                                                         Three Months Ended                Nine Months Ended

                                                                            September 30                      September 30
                                                                            ------------                      ------------
                                                                       2000             1999             2000             1999
                                                                       ----             ----             ----             ----
    OPERATING REVENUES:
<S>                                                                     <C>              <C>               <C>             <C>
      Medical Premiums....................................              $221,669         $202,643          $660,098        $614,603
      Military Contract Revenues..........................               101,259           77,012           238,514         218,193
      Specialty Product Revenues..........................                40,766           24,589            98,880          66,217
      Professional Fees...................................                 8,222           12,743            28,938          40,112
      Investment and Other Revenues.......................                 5,566            5,583            15,282          17,337
                                                                     -----------       ----------         ---------       ---------
        Total ............................................               377,482          322,570         1,041,712         956,462
                                                                       ---------         --------         ---------        --------

    OPERATING EXPENSES:
      Medical Expenses (Note 2) ..........................               191,566          173,787           630,873         539,094
      Military Contract Expenses..........................                99,889           74,139           232,872         210,243
      Specialty Product Expenses..........................                41,671           22,962           115,403          61,833
      General, Administrative and Marketing
        Expenses..........................................                34,327           34,246           103,312         102,789
      Asset Impairment, Restructuring, Reorganization
        and Other Costs (Note 2)..........................                                                  220,440           5,106
                                                                 ---------------  ---------------           -------      ----------
        Total ............................................               367,453          305,134         1,302,900         919,065
                                                                       ---------        ---------         ---------        --------

    OPERATING INCOME (LOSS)...............................                10,029           17,436          (261,188)         37,397

    INTEREST EXPENSE AND OTHER, NET  .....................                (6,091)          (4,169)          (16,828)        (12,344)
                                                                          ------        ---------           -------      ----------

    INCOME (LOSS) BEFORE INCOME TAXES ....................                 3,938           13,267          (278,016)         25,053

    (PROVISION) BENEFIT FOR INCOME TAXES..................                (1,269)          (4,404)           75,524          (8,340)
                                                                          -------        --------            ------       ----------

    NET INCOME (LOSS) ....................................             $   2,669         $  8,863        $ (202,492)       $ 16,713
                                                                       =========         ========        ==========        ========

    NET INCOME (LOSS) PER COMMON SHARE....................             $ .10              $.33              $(7.47)         $.62
                                                                       =====              ====              ======          ====

    NET INCOME (LOSS) PER COMMON SHARE
     ASSUMING DILUTION  ..................................    $ .10     $.33               $(7.47)         $.62
                                                              =====     ====               ======          ====

    WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING        ..................................                27,248           26,856            27,092          26,944
                                                                        ========          =======          ========        ========

    WEIGHTED AVERAGE COMMON SHARES
      OUTSTANDING ASSUMING DILUTION.......................                27,250           26,873            27,092          26,976
                                                                        ========         ========          ========        ========
</TABLE>

      See accompanying notes to condensed consolidated financial statements



<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    UNAUDITED

                             (Amounts in thousands)

<TABLE>

<CAPTION>

                                                                                      Nine Months Ended September 30

                                                                                        2000                 1999
                                                                                        ----                 ----

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                     <C>                 <C>
   Net (Loss) Income ...........................................................        $(202,492)          $  16,713
   Adjustments to Reconcile Net (Loss) Income to Net Cash
       Used for Operating Activities:
          Provision for Asset Impairment and Other Charges......................          202,951               3,509
          Depreciation and Amortization.........................................           23,588              20,946
          Provision for Doubtful Accounts.......................................            3,032               4,290
   Changes in Assets and Liabilities ...........................................          (57,628)            (88,787)
                                                                                          -------            --------
       Net Cash Used for Operating Activities ..................................          (30,549)            (43,329)
                                                                                          -------            --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital Expenditures, Net of Equipment Dispositions..........................          (13,615)            (41,072)
   Investment Proceeds, Net of Purchases........................................           23,439               8,224
   Corporate Acquisition........................................................                               (3,000)
                                                                                     ------------            ---------
   Net Cash Provided by (Used for) Investing Activities.........................            9,824             (35,848)
                                                                                         --------             --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from Borrowings.....................................................           48,000              79,000
   Payments on Debt and Capital Leases..........................................          (30,036)            (41,250)
   Purchase of Treasury Stock...................................................                               (7,968)
   Exercise of Stock in Connection with Stock Plans.............................            1,572               2,332
                                                                                         --------          ----------
          Net Cash Provided by Financing Activities.............................           19,536              32,114
                                                                                          -------          ----------

NET DECREASE IN CASH AND CASH EQUIVALENTS.......................................           (1,189)            (47,063)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................           55,936              83,910
                                                                                         --------           ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................................        $  54,747            $ 36,847
                                                                                        =========            ========


                                                                                     Nine Months Ended September 30

Supplemental Condensed Consolidated

  Statements of Cash Flows Information:                                                    2000               1999
------------------------------------------------------------------------                   ----               ----
Cash Paid During the Period for Interest

   (Net of Amount Capitalized)..................................................          $19,511             $14,077
Net Cash Received During the Period for Income Tax Refunds......................           10,538               3,029

Non-cash Investing and Financing Activities:
   Note Received for Sale of Investment.........................................            3,700
   Tax Benefits of Stock Issued for Exercise of Options.........................                                    1
</TABLE>

      See accompanying notes to condensed consolidated financial statements


<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 accounting principles generally
accepted in the United  States of America and used in  preparing  the  Company's
annual audited  consolidated  financial statements but do not contain all of the
information and disclosures  that would be required in a complete set of audited
financial statements.  They should,  therefore,  be read in conjunction with the
Company's  annual audited  consolidated  financial  statements and related notes
thereto  for the years  ended  December  31,  1999 and 1998.  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, Adverse Development, Reorganization,  Impairment and
Other Charges: Medical Expenses: Medical expenses reported in the second quarter
of 2000 included $29.5 million of reserve strengthening primarily due to adverse
development  on prior  periods'  medical  claims,  as well as $15.5  million  in
premium deficiency expense related to under-performing markets in the Dallas/Ft.
Worth and Houston areas. The recorded premium  deficiency  reflects  anticipated
cost savings from restructuring and  reorganization  actions discussed below. In
addition,  the Company  recorded  $10.2 million of other  non-recurring  medical
costs primarily relating to the write-down of medical subsidiary assets. Medical
expenses  reported  in the first  quarter of 2000  included  $1 million of prior
period reserve strengthening.

     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.

     Asset Impairment,  Restructuring,  Reorganization and Other Charges:  Asset
     impairment, restructuring, reorganization and other charges recorded in the
     second quarter of 2000 consisted of the following:

<TABLE>

<S>                                                                                  <C>
                    Goodwill Impairment.........................................     $141,506,000
                    Fixed Asset Impairment......................................       48,984,000
                    Restructuring...............................................       10,592,000
                    Premium Deficiency Maintenance Costs........................       10,358,000
                    Other Costs.................................................        6,100,000
                                                                                   --------------
                             Total    ..........................................     $217,540,000
                                                                                     ============
</TABLE>

     Goodwill and Fixed Asset  Impairments:  In  connection  with  restructuring
plans  adopted and announced by the Company in the second  quarter of 2000,  the
Company re-evaluated the recoverability of certain long-lived assets,  primarily
associated with the Texas operations,  in accordance with Statement of Financial
Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of Long-Lived
Assets  and for  Long-Lived  Assets to be  Disposed  Of"  ("SFAS  No.  121") and
Accounting  Principles Board Opinion No. 17, "Intangible  Assets" ("APB No. 17")
and determined that the carrying values of certain goodwill and other long-lived
assets were impaired.

     Based on  financial  projections  for 2000,  the  Company  recorded a $21.0
     million  premium  deficiency at the end of 1999,  relative to the Company's
     Texas operations. In the first quarter of 2000, the


<PAGE>


                 SIERRA HEALTH SERVICES, INC., AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

     Company  engaged a consultant  to help it assess the Texas  operations.  In
     late February, the consultant issued its report and the Company implemented
     strategic action plans to turn around the Texas  operations.  These actions
     included the  replacement  of the Texas senior  management,  a reduction in
     staffing along with a consolidation  of certain services to Las Vegas and a
     revision of product strategy.

     The new management was charged with further assessing the Dallas/Ft.  Worth
     health care delivery system.  In May, the Company decided that the delivery
     system,  which  emphasized  an  affiliated  medical  group  as the  primary
     provider  network,  would be replaced by an expanded  network of contracted
     physician groups and individual practitioners.  In addition, the contracted
     hospital network would be significantly  expanded.  As a result, during the
     second  quarter  of 2000,  the  Company  adopted  and  announced  a further
     restructuring  of  the  Dallas/Ft.  Worth  operations,   which  entailed  a
     significant  reduction of  physicians  and staff and the closing of several
     clinic sites. In addition,  management  decided that the real estate assets
     would be sold.

     Management also adopted a plan in the second quarter of 2000 to discontinue
     medical delivery operations in Mohave County,  Arizona and to sell the real
     estate assets located there, as well as an  underperforming  medical clinic
     in Las Vegas.

     In assessing the asset  impairment of the  long-lived  assets,  the Company
     first  allocated a portion of related  goodwill  to the fixed  assets to be
     disposed  of, in  accordance  with SFAS No. 121. The fixed assets were then
     written  down to  estimated  fair  value  less  costs  to sell,  which  was
     determined  from  independent  evaluations.  The  remainder  of the related
     goodwill was then assessed for recoverability in accordance with APB No. 17
     based on projected discounted cash flows.

     Restructuring:  In the second quarter of 2000,  the Company  adopted a plan
     and  announced   additional   restructuring  of  its  managed  health  care
     operations,   primarily  in  Texas  and  Arizona.   As  a  result  of  this
     restructuring,  the Company  recorded  charges in accordance  with Emerging
     Issues  Task Force  Issue No.  94-3,  "Liability  Recognition  for  Certain
     Employee   Termination  Benefits  and  Other  Costs  to  Exit  an  Activity
     (Including  Certain Costs Incurred in a  Restructuring)"  of  approximately
     $10.6 million.  A re-evaluation  of these costs during the third quarter of
     2000 resulted in no adjustments.  Of the costs  recorded,  $5.9 million was
     for  severance,  $2.9  million  was  related to clinic  closures  and lease
     terminations,  and $1.8 million was for other costs.  The severance  charge
     resulted   from  the   termination   of  315  employees  at  the  Company's
     subsidiaries and affiliated  medical groups. Of these amounts,  the Company
     anticipates  paying $8.7  million  during 2000 and the  remainder  in 2001.
     Through the year to date period ended  September  30,  2000,  approximately
     $7.2 million was paid of which $4.9 million was for severance.

     In the first quarter of 2000, the Company  announced a restructuring of its
     managed health care operations in Texas. As a result of this restructuring,
     the  Company  incurred  approximately  $1.4  million of  severance  pay for
     employees who were terminated, of which approximately $1.3 million was paid
     in the second  quarter of 2000 and the  remainder  in the third  quarter of
     2000. The restructuring  involved changes in senior management at the Texas
     facilities and  centralization of key services to Las Vegas. As compared to
     the quarter ended June 30, 2000,  management  anticipates the restructuring
     and   reorganization   activities   to  result  in  cash  flow  savings  of
     approximately  $2.0 to $3.0  million  per quarter  beginning  in the fourth
     quarter of 2000.

     Premium Deficiency  Maintenance  Costs: The premium deficiency  maintenance
     costs recorded in the second quarter of 2000 are an estimate of general and
     administrative  costs, in excess of those covered by premiums,  the Company
     will incur to service the Texas contracts.  The amount reflects anticipated
     cost reductions from the restructuring actions noted above. Of this amount,
     the company  expects to utilize  $7.3  million in 2000 and $3.1  million in
     2001.


<PAGE>



     Other Costs:  The  remaining  $6.1 million of costs  recorded in the second
     quarter of 2000 relate  primarily to the write-down of certain  receivables
     as well as an accrual for litigation expense.

     In the first quarter of 2000,  the Company  incurred $1.5 million of costs,
     consisting  primarily of consulting  fees, in conjunction with a review and
     reorganization of its managed care operations in Texas.

     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.

     In the first  quarter of 1999,  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  expensed all remaining  start-up costs in their
     fiscal year beginning April 1, 1999.

3.   During the first quarter of 2000,  the Company sold its interest in TriWest
     Healthcare  Alliance.  The Company received a note for $3.7 million,  which
     approximated the carrying value of this investment. The note is included in
     Other  Current  Receivables  and is  payable  in six  monthly  installments
     beginning at the end of October 2000.

     4. The assets designated as held for sale on the balance sheet at September
30, 2000  consist of real  estate for which the  Company is  actively  seeking a
buyer  and  expects  to sell  within  twelve  months.  All  assets  are owned by
subsidiaries in the managed care and corporate  operations  segment.  See Note 2
for a description of the primary facts and circumstances leading to the decision
to sell this real estate. A related mortgage note in the amount of $34.5 million
is included  in the  current  portion of  long-term  debt on the balance  sheet.
Because these assets have been written down to fair market value,  in accordance
with SFAS No. 121, the Company has ceased  depreciating  them. In addition,  the
Company has  announced  that it is pursuing a sale and  leaseback of certain Las
Vegas  properties  that are included in the property and  equipment  line on the
balance sheet.

     5. As of June 30,  2000,  the Company was not in  compliance  with  certain
financial  covenants  relating  to its  line  of  credit.  The  borrowed  amount
outstanding  on the line of credit as of  September  30, 2000 was $185  million.
Under  the  terms  of its  line of  credit,  noncompliance  with  the  covenants
constitutes  an event  of  default,  which  permits  the  Company's  lenders  to
accelerate repayment of the Company's outstanding  obligations under its line of
credit.  The lenders waived the Company's  compliance with these covenants under
its line of  credit.  The  waiver  was  effective  as of June 30,  2000 and,  as
extended,  expired on October  31,  2000.  The Company was unable to reach terms
with the lenders on the fees and length of a new waiver and received a Notice of
Default on  November  8, 2000 from its  lenders  with  respect to the  Company's
non-compliance  with the  financial  covenants.  The Company is working with its
lenders to amend the line of credit  agreement and expects to have  negotiated a
new  amendment  with revised  covenants  prior to year end. In  accordance  with
Statement  of  Financial  Accounting   Standards  No.  78,   "Classification  of
Obligations  that are Callable by the Creditor",  the Company has classified the
entire outstanding balance under its line of credit as a current liability as of
September 30, 2000.

     The  waivers  included  amendments  (fourth  through  sixth) to the line of
     credit,  which,  among other  things,  required  that the Company grant its
     lenders a security  interest in certain  personal  property of the Company,
     reduced  the  availability  under  the  line of  credit  to  $185  million,
     increased the Company's  borrowing rate by 287.5 basis points with interest
     to be paid monthly and provided for the payment of  additional  fees by the
     Company.  In addition,  the fourth amendment provided for a guaranty of the
     debt by the majority of the Company's wholly-owned subsidiaries, including
     CII Financial, Inc., but excluding
     Sierra  Military Health  Services,  and for the pledge of common stock of a
     majority  of  the  Company's  wholly-owned   subsidiaries,   excluding  CII
     Financial,  Inc., and its subsidiaries.  With the expiration of the waiver
     on October 31, 2000, the
     Company is  continuing  to pay  interest at the default  rate of LIBOR plus
     5.25%.  There  can be no  assurances  that  a new  amendment  with  revised
     covenants will be obtained.

     6. CII Financial, Inc., a wholly-owned subsidiary that the Company acquired
in  1995,  has  $47.0  million  of  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. As of September 30, 2000,  all
$47.0  million of the  Debentures  are  classified as current since they are 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  are  general  unsecured  obligations  of CII  Financial  and are not
guaranteed by the Company.  In August 2000, CII Financial  became a guarantor of
the debt owed under the  Company's  line of credit.  In the event of a demand to
perform on the guaranty,  the Debentures  would be subordinated to the debt owed
under the line of credit.  During the nine months ended  September 30, 2000, CII
Financial purchased $3.5 million of the Debentures on the open market.

     CII  Financial  has  limited  sources  for  its  cash  and  had  to  borrow
     approximately  $365,000  from the  Company to make the  September  15, 2000
     interest payment. Absent any funding from the Company, CII Financial would
     be dependent upon dividends from its
     subsidiary, California Indemnity Insurance Company ("California Indemnity")
     to meet its  debt  payment  obligations.  Currently,  California  Indemnity
     cannot  pay  any  dividends   without  prior  approval  by  the  California
     Department of Insurance as it has no earned surplus and it is unlikely that
     it will have sufficient  earned surplus from which to pay a dividend to CII
     Financial when the Debentures  mature in 2001. It is also unlikely that the
     Company will be in a position to lend any or enough funds to CII  Financial
     to pay the  Debentures  when they mature due to the current  limitations of
     the line of  credit  facility.  Accordingly,  CII  Financial  will not have
     readily  available  funds  to pay the  Debentures  when  they  mature.  CII
     Financial  and the Company are  investigating  strategies  to resolve  this
     issue.  Such strategies  include,  but are not limited to,  refinancing the
     Debentures,  extending the maturity  date,  exchanging the Debentures at a
     discount for cash and/or equity or spinning off the subsidiary.
     There can be no  assurances  that CII Financial or
     the Company can  successfully  implement a strategy  for the  repayment  or
     refinancing of the Debentures.

     7. 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 September 30, 2000:

<S>                                                                 <C>                               <C>
       Income from Continuing Operations                            $    2,669,000                    $     2,669,000
       Shares                                                           27,248,000           2,000         27,250,000
       Per Share Amount                                                 $.10                               $.10

     For the Three Months ended September 30, 1999:

       Income from Continuing Operations                            $    8,863,000                   $     8,863,000
       Shares                                                           26,856,000          17,000        26,873,000
       Per Share Amount                                                 $.33                               $.33

     For the Nine Months ended September 30, 2000:

       Loss from Continuing Operations                               $(202,492,000)                     $(202,492,000)
       Shares                                                           27,092,000                         27,092,000
       Per Share Amount                                                  $(7.47)                            $(7.47)

     For the Nine Months ended September 30, 1999:

       Income from Continuing Operations                            $   16,713,000                    $   16,713,000
       Shares                                                           26,944,000          32,000        26,976,000
       Per Share Amount                                                 $.62                               $.62
</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.

8.   The  following   table  presents   comprehensive   income  (loss)  for  the
     three-month and nine-month periods ended September 30, 2000 and 1999:

<TABLE>

<CAPTION>

                                                                Three Months Ended                   Nine Months Ended
                                                                   September 30                        September 30

                                                              2000              1999               2000            1999
                                                              ----              ----               ----            ----

<S>                                                        <C>               <C>             <C>              <C>
      NET INCOME (LOSS):...............................    $ 2,669,000       $8,863,000      $(202,492,000)   $ 16,713,000
      Change in net Unrealized Holding Gains
        (Losses) on Investments,

                    net of income taxes................        921,000       (3,172,000)         4,771,000     (12,735,000)
                                                            ----------      ------------      ------------     -----------

      COMPREHENSIVE  INCOME (LOSS) ....................     $3,590,000       $5,691,000      $(197,721,000)     $3,978,000
                                                             =========       ==========        ===========       =========
</TABLE>

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

     Sierra  evaluates each  segment's  performance  based on segment  operating
     profit before interest  expense and income taxes and excludes  charges that
     obscure current period  operating  results,  and unusual and  non-recurring
     charges,  such as: prior period  development  in medical and loss reserves,
     premium   deficiencies,   asset   impairment,   restructuring   and   other
     non-recurring  gains and losses.  Other than  excluding  such charges,  the
     accounting  policies of the operating segments are the same as those of the
     consolidated company.


<PAGE>


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

<CAPTION>

                                                     Managed Care              Military             Workers'
                                                     and Corporate          Health Services        Compensation
                                                      Operations             Operations             Operations             Total

Three Months Ended September 30, 2000

<S>                                                                          <C>                                               <C>
Medical Premiums.............................          $ 221,669                                         0            $ 221,669

Military Contract Revenues...................                                $ 101,259                                  101,259
Specialty Product Revenues...................              2,166                                    $ 38,600             40,766
Professional Fees............................              8,222                                                          8,222
Investment and Other Revenues................              1,584                   147                 3,835              5,566
                                                     -----------            ----------             ---------          ----------
   Total Revenue.............................          $ 233,641             $ 101,406              $ 42,435         $  377,482

Segment Operating Profit.....................        $     6,182           $     1,518             $   2,329          $   10,029
Interest Expense and Other, Net..............             (5,311)                  (74)                 (706)             (6,091)

Net Income Before Income Taxes...............       $        871           $     1,444             $   1,623         $     3,938
                                                     ===========            ==========               =======           =========

Three Months Ended September 30, 1999

Medical Premiums.............................          $ 202,643                                                      $  202,643
Military Contract Revenues...................                               $   77,012                                    77,012
Specialty Product Revenues...................              2,395                                    $ 22,194              24,589
Professional Fees............................             12,743                                                          12,743
Investment and Other Revenues................              1,625                   161                 3,797               5,583
                                                      ----------            ----------              --------        ------------
   Total Revenue.............................          $ 219,406            $   77,173              $ 25,991          $   322,570

Segment Operating Profit.....................        $     9,295            $    3,039              $  5,102          $    17,436

Interest Expense and Other, Net..............             (3,105)                 (132)                 (932)             (4,169)
                                                       ---------           -----------              --------        ------------
Net Income Before Income Taxes...............        $     6,190           $     2,907             $   4,170          $   13,267
                                                      ==========            ==========              ========          ==========

Nine Months Ended September 30, 2000

Medical Premiums.............................        $   660,098                                                       $ 660,098
Military Contract Revenues...................                                $ 238,514                                   238,514
Specialty Product Revenues...................              6,858                                    $ 92,022              98,880
Professional Fees............................             28,938                                                          28,938
Investment and Other Revenues................              3,880                   601                10,801              15,282
                                                     -----------           -----------               -------            --------
   Total Revenue.............................        $   699,774             $ 239,115             $ 102,823          $1,041,712

Segment Operating Profit.....................         $   16,981           $     6,245             $   8,823         $    32,049
Interest Expense and Other, Net..............            (14,713)                 (439)               (1,676)            (16,828)
Impairment, Restructuring, Premium Deficiency
   and Other Charges.........................           (273,737)              _______               (19,500)           (293,237)
                                                       ---------                                     -------            --------
Net (Loss) Income Before Income Taxes........         $ (271,469)           $    5,806              $(12,353)         $ (278,016)
                                                        ========             =========               =======            ========

Nine Months Ended September 30, 1999

Medical Premiums.............................         $  614,603                                                        $614,603
Military Contract Revenues...................                               $  218,193                                   218,193
Specialty Product Revenues...................              6,951                                  $   59,266              66,217
Professional Fees............................             40,112                                                          40,112
Investment and Other Revenues................              5,006                   410                11,921              17,337
                                                        --------           -----------            ----------           ---------
   Total Revenue.............................         $ 666,672             $ 218,603           $    71,187             $ 956,462

Segment Operating Profit.....................         $   27,177            $   8,359           $    15,067         $    50,603
Interest Expense and Other, Net..............             (8,921)                 (682)               (2,741)            (12,344)
Impairment, Restructuring, Premium Deficiency
   and Other Charges.........................            (13,206)                                                        (13,206)
                                                       ---------        --------------        --------------            --------
Net Income Before Income Taxes...............         $    5,050            $    7,677           $    12,326         $    25,053
                                                      ==========            ==========            ==========           =========
</TABLE>

10.   In the second quarter of 1997, the Company's Board of Directors authorized
      a $3.0  million  line of credit  from the Company to the  Company's  Chief
      Executive Officer ("CEO"). In April 2000, the Company's Board of Directors
      authorized a $2.5  million  loan from the Company to the CEO which,  along
      with accrued interest,  is due on June 30, 2002. As of September 30, 2000,
      the  aggregate  principal   outstanding  and  accrued  interest  for  both
      instruments was $5.3 million. All borrowed amounts bear interest at a rate
      equal to the rate at which the Company could have borrowed funds under its
      line of credit facility at the time of the borrowing plus 10 basis points.

     11. In December 1999, the Securities and Exchange  Commission  issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101").  SAB 101  clarifies  existing  accounting  principles  related to revenue
recognition in financial statements.  The Company is required to comply with the
provisions  of SAB 101 by the  fourth  quarter of 2000.  Management  has not yet
completed  an  analysis  of the impact  that SAB 101 will have on the  Company's
current revenue recognition  practices.  In June 1998, the Financial  Accounting
Standards  Board ("FASB")  issued  Statement of Financial  Accounting  Standards
("SFAS")  No.  133,   "Accounting   for  Derivative   Instruments   and  Hedging
Activities."  In June 2000,  the FASB issued SFAS No. 138,  which amends certain
provisions of SFAS 133 to clarify areas causing  difficulties in implementation.
The Company will adopt SFAS 133, as amended by SFAS 138, on January 1, 2001.
SFAS 133, as amended, is not expected to have a material impact on the
Company's consolidated financial position, results of operations or cash flows.

12.   Certain amounts in the Condensed Consolidated Financial Statements for the
      three and nine months ended  September 30, 1999 have been  reclassified to
      conform with the current year presentation.


<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  that  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 15, 2000,  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 September 30, 2000, Compared to Three
Months Ended September 30, 1999.

The Company's total operating  revenues for the three months ended September 30,
2000,  increased  approximately  17.0% to $377.5 million from $322.6 million for
the three  months ended  September  30, 1999.  The change was  primarily  due to
increases in military  revenues of $24.2 million,  medical  premium  revenues of
$19.0  million and  specialty  product  revenues of $16.2  million,  offset by a
decrease in professional fees of $4.5 million.

Total member  months (the number of months of each period that an  individual is
enrolled  in  a  plan)  for  the  HMO  and  insurance   subsidiaries   decreased
approximately  4%.  Commercial and Medicaid HMO member months in total decreased
approximately 4% and managed  indemnity  member months  decreased  approximately
10%. These  decreases were  partially  offset by an increase in Medicare  member
months of approximately 7%. In Nevada, commercial and Medicaid HMO member months
increased  approximately 2% and Medicare member months  increased  approximately
3%. In  Texas,  commercial  member  months  decreased  approximately  8%,  while
Medicare  member months  increased 28% primarily due to growth in the Dallas/Ft.
Worth area. 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.

The Company's HMO and insurance  subsidiaries'  average  premium rate per member
increased  approximately  14% for the three  months  ended  September  30,  2000
compared  to the same  three-month  period in 1999.  The Nevada  commercial  and
Medicaid HMO average premium rate per member increased  approximately 5% and the
Nevada area Medicare HMO average premium rate per member increased approximately
8%. The increase in the Nevada area  Medicare HMO rates is primarily  due to the
Company's exit from the Arizona Medicare program  effective January 1, 2000. The
amount  of  premium  received  from the  Health  Care  Financing  Administration
("HCFA")  per  Medicare  member is higher  in Las  Vegas  than in the  Company's
Arizona  market.  HCFA's  established  rate per member  increased 4% for the Las
Vegas area. Over 97% of the Company's Las Vegas Medicare members are enrolled in
the HCFA Social HMO Medicare  Program  ("Social  HMO").  The  Company's  premium
received  from HCFA is higher  for  Social HMO  members.  HCFA might  adjust 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.  Managed  indemnity  premium  rates  per  member  increased
approximately 18%.


<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 September 30, 2000,  Compared to
Three Months Ended September 30, 1999 (continued)


The Texas commercial HMO average premium rate per member increased approximately
28% in the quarter  ended  September  30, 2000  compared to the same  quarter in
1999.  Commercial  rate  increases on renewals were greater than 10% for Dallas.
The Texas  Medicare  average rate  decreased  less than 1%  primarily  due to an
increase in Medicare membership in Dallas and certain counties in Houston, which
has a lower rate than most of the  Company's  Medicare  members in the  Beaumont
area outside of Houston.

As part of the Company's  reorganization,  it will no longer actively market its
HMO  Medicare  product in Texas for the  remainder  of calendar  year 2000.  The
Company will continue to enroll Medicare  eligible  members who proactively seek
coverage in Texas and will continue customer service to its existing  membership
through 2000.  The Company has notified HCFA that  effective  January 1, 2001 it
will cease its Medicare  products in 14 counties in the Houston area, which will
affect approximately 1500 members.

The Company markets its HMO and managed indemnity  insurance  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  September 30, 2000,  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.

Military  contract revenue  increased to $101.3 million from $77.0 million.  The
31% increase is primarily  attributable to accrued bid price adjustment  revenue
which  resulted from a true-up of prior periods'  information  received from the
government and is largely offset by accrued military contract expenses.

Specialty product revenue increased $16.2 million,  or 66%, for the three months
ended  September  30, 2000,  compared to the same prior year  period.  Specialty
product revenues and expenses are primarily related to the workers' compensation
insurance  business.  The increase in specialty  product revenues related to the
workers'  compensation  insurance  segment was primarily due to premium  growth,
which has occurred  since July 1999,  and premium rate  increases for California
policies issued in 2000,  which have averaged over 30% on renewal  policies,  as
well as new business in Nevada and Colorado.  Beginning in July 1999,  the State
of Nevada allowed  private  insurance  companies to offer workers'  compensation
products. In addition,  premiums ceded under the low-level reinsurance agreement
are decreasing as it is in run-off starting July 1, 2000.

Professional fees decreased  approximately  $4.5 million or 35% primarily due to
the sale of the pharmacy  operations in Texas in the fourth  quarter of 1999 and
staffing  reductions  in the  Company's  affiliated  Texas and  Arizona  medical
groups.

Investment  and other  revenues was down slightly by $17,000 over the comparable
prior year period primarily due to a decrease in invested balances. Net realized
losses  included in  investment  and other  revenues  for the three months ended
September 30, 2000 were $105,000  compared to net realized losses of $229,000 in
the comparable prior year period.

Total medical expenses  increased $17.8 million over the same three-month period
last year. Medical expenses as a percentage of medical premiums and professional
fees  ("Medical  Care  Ratio")  increased  by 260 basis  points to 83.3% for the
quarter ended  September  30, 2000  compared to the same prior year period.  The
increase in the Medical Care Ratio is primarily  due to the increase in Medicare
members as a percentage of fully insured members.  The cost of providing medical
care to Medicare members generally requires a greater percentage of the premiums
received.  In  Houston,  hospital  costs were higher due to  increased  hospital
rates.

Included  in medical  expenses  is the  utilization  of $1.6  million of premium
deficiency  reserve to offset  losses on contracts in Texas for the three months
ended  September 30, 2000 compared to a utilization of $13.0 million in the same
prior year period.  Also included in medical expenses for the three months ended
September  30, 1999 is the  utilization  of $1.4  million of premium  deficiency
reserve to offset losses primarily on Medicare risk members in Arizona and rural
Nevada.

Total military contract expenses for the three-month  period ended September 30,
2000  increased  by $25.8  million to $99.9  million  compared to the prior year
period.  The increase was primarily due to the costs associated with the accrued
bid price adjustment revenues.

Specialty product expenses  increased $18.7 million.  The combined ratio for the
workers'  compensation  insurance  business for the three months ended September
30, 2000 was 104.5% compared to 94.5% for the comparable prior year period.  The
increase was due to an increase in the loss and loss adjustment  expense ("LAE")
ratio to 79.2% from 61.0% in 1999, partially offset by a decrease in the expense
ratio  to  23.3%  from  33.5%  in  1999.  The  remaining   variance  is  due  to
policyholders' dividends incurred for participating policies issued in the State
of Nevada. The policyholders' dividend ratio in 2000 was 2.0% while no dividends
were incurred in 1999.

The higher loss and LAE ratio for the three months ended  September  30, 2000 is
due  primarily to the initial  run-off of the low-level  reinsurance  agreement,
which expired on June 30, 2000,  and to  establishing a higher loss ratio on the
current accident year compared to the prior year period.  In accordance with the
terms of the low-level  reinsurance  agreement,  the Company elected to continue
coverage on a run-off  basis for all policies in force on June 30, 2000. On July
1, 2000, the Company entered into a reinsurance  agreement that covers losses on
claims in excess of $250,000 per occurrence  for policies  issued after June 30,
2000. The higher loss ratio for the current accident year was in response to the
significant adverse development experienced by the Company in the second quarter
of 2000 when additional reserves of $19.2 million were recorded. The Company did
not record any prior year loss  development in either the current quarter or the
comparable prior year period.

The reduction in the expense ratio is primarily due to the higher premium volume
earned in 2000 compared to 1999.  For the quarter ended  September 30, 2000, net
premiums  earned were $38.3  million or 75% higher than the $21.9 million in the
comparable prior year quarter.  As a percentage of net earned  premiums,  policy
acquisition costs, which are comprised of commissions,  premium taxes and boards
and  bureaus  expenses,  increased  to 10.8%  from  10.1% in 1999 due to a lower
credit percentage for low-level ceding commissions. Total non-policy acquisition
expenses  were $4.8  million  compared to $5.1 million in 1999, a decrease of 6%
and as a percentage of net earned  premiums were 12.5% compared to 23.4% for the
prior year period.  Gross premiums  earned for the quarter  increased from $38.8
million in 1999 to $57.2 million in 2000, an increase of 47%.

General,  administrative and marketing ("G&A") costs increased slightly to $34.3
million  compared  to the  third  quarter  of  1999.  As a  percentage  of total
revenues,  G&A costs for the third quarter of 2000  decreased to 9.1% from 10.6%
in 1999 due primarily to the higher  revenues in the period.  As a percentage of
medical  premium  revenues,  G&A costs  represent  15.5% and 16.9% for the third
quarter  2000 and 1999,  respectively.  Excluding  the  utilization  of  premium
deficiency reserves of $.4 million in the third quarter of 2000 compared to $8.5
million in the same prior year period,  G&A costs for the third  quarter of 2000
are lower by $8.0  million due to lower  Texas  costs as well as a $1.1  million
decrease in depreciation  and  amortization  expense,  primarily  related to the
write-down of goodwill and other impaired assets in the second quarter of 2000.

Interest  expense and other  increased  $1.9  million for the three months ended
September 30, 2000,  compared to the same prior year period  primarily due to an
increase in debt as well as an increase in the Company's cost of borrowing.

For the current year period,  the Company  recorded  $1.3 million of tax expense
for an  effective  tax rate of 32.3%  compared  to 33.2% for the same prior year
period.  The Company's  effective  tax rate is less than the 35% statutory  rate
primarily due to tax preferred investments.

Results of Operations,  Nine Months Ended  September 30, 2000,  Compared to Nine
Months Ended September 30, 1999.

The Company's total  operating  revenues for the nine months ended September 30,
2000,  increased  approximately 8.9% to $1,041.7 million from $956.5 million for
the nine months ended  September  30, 1999.  The increase was  primarily  due to
increases in medical premium revenues of $45.5 million or 7%, military  revenues
of $20.3 million or 9% and specialty  product  revenues of $32.7 million or 49%,
offset by a decrease in  professional  fees of $11.2 million and  investment and
other revenues of $2.1 million.

Total  member   months  for  the  HMO  and  insurance   subsidiaries   decreased
approximately  3%.  Commercial and Medicaid HMO member months in total decreased
approximately 4% and managed indemnity member months decreased approximately 9%.
These  decreases were partially  offset by an increase in Medicare member months
of  approximately  7%. In Nevada,  commercial  and  Medicaid  HMO member  months
remained relatively constant and Medicare member months increased  approximately
2%. In  Texas,  commercial  member  months  decreased  approximately  8%,  while
Medicare  member months  increased  30%.  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.

The Company's HMO and insurance  subsidiaries'  average  premium rate per member
increased  approximately  11% for the  nine  months  ended  September  30,  2000
compared  to the same  period in the  prior  year.  The  Nevada  commercial  and
Medicaid HMO average premium rate per member increased  approximately 4% and the
Nevada area Medicare HMO average rate per member increased approximately 9%. The
increase in the Nevada area Medicare HMO rates is primarily due to the Company's
exit from the Arizona Medicare program  effective January 1, 2000. The amount of
premium  received  from HCFA per Medicare  member is higher in Las Vegas than in
the Company's  Arizona market.  HCFA's  established rate per member increased 4%
for the Las Vegas area. Over 97% of the Company's Las Vegas Medicare members are
enrolled in the HCFA Social HMO. The  Company's  premium  received  from HCFA is
higher for Social HMO members.  HCFA might adjust 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.  Managed indemnity
premium rates per member increased approximately 12%.


<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, Nine Months Ended September 30, 2000, Compared to Nine
Months Ended September 30, 1999 (continued)



The Texas commercial HMO average premium rate per member increased approximately
15% in the nine months ended  September  30, 2000 compared to the same period in
the prior year.  Commercial rate increases on renewals were greater than 10% for
Dallas. The Texas Medicare average rate decreased approximately 2% primarily due
to an increase in Medicare membership in Dallas and certain counties in Houston,
which has a lower  rate  than  most of the  Company's  Medicare  members  in the
Beaumont area outside of Houston.

As part of the Company's  reorganization,  it will no longer actively market its
HMO  Medicare  product in Texas for the  remainder  of calendar  year 2000.  The
Company will continue to enroll Medicare  eligible  members who proactively seek
coverage in Texas and will continue customer service to its existing  membership
through 2000. The Company has notified HCFA, that effective  January 1, 2001, it
will cease its Medicare  products in 14 counties in the Houston area, which will
affect approximately 1,500 members.

The Company markets its HMO and managed indemnity  insurance  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 nine months ended September 30, 2000, 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.

Military  contract  revenues  increased to $238.5 million from $218.2 million or
9%. The increase in revenue is primarily  attributable to additional accrued bid
price  adjustment  revenues  related to a true-up of prior periods'  information
received from the  government in the third  quarter 2000.  Partially  offsetting
this was a decrease recorded in the first quarter for a reduction in the at-risk
health care population of  beneficiaries  as additional  beneficiaries  enrolled
with  military  treatment  facility  primary care  managers.  The Company is not
at-risk for those TRICARE  eligibles  and receives less revenue  related to them
from the government.

Specialty product revenues increased $32.7 million or 49% to $98.9 million,  for
the nine  months  ended  September  30,  2000,  compared  to the same prior year
period.  Specialty  product  revenues and expenses are primarily  related to the
workers'  compensation  insurance  business.  The increase in specialty  product
revenues related to the workers'  compensation  insurance  segment was primarily
due to premium  growth,  which has  occurred  since July 1999 and  premium  rate
increases for California  policies issued in 2000,  which have averaged over 30%
on renewal policies,  as well as new business in Nevada and Colorado.  Beginning
in July 1999, the State of Nevada allowed private  insurance  companies to offer
workers' compensation products. In addition,  premiums ceded under the low-level
reinsurance agreement are decreasing as it is in run-off starting July 1, 2000.

Professional fees were $29 million for the nine months ended September 30, 2000,
a decrease of $11.2 million or 28% compared to the prior year period.
The  reduction  is due to the sale of the  pharmacy  operations  in Texas in the
fourth  quarter of 1999,  the closure of inpatient  operations  at Mohave Valley
Hospital  in the  first  quarter  of 1999  and the  staffing  reductions  at the
Company's affiliated medical groups in Texas and Arizona.

Investment and other revenues  decreased $2.1 million over the comparable  prior
year period  primarily  due to a decrease in  invested  balances.  Approximately
$739,000 of the  difference  was due to net realized  losses  recognized  in the
current  year of  $892,000  compared to net  realized  losses of $153,000 in the
prior year period.

Total medical  expenses  increased $91.8 million to $630.9 million over the same
nine-month  period last year.  Included in medical  expenses for the nine months
ended September 30, 2000, are $30.5 million for reserve strengthening, primarily
for adverse development related to prior periods' medical claims,  $15.5 million
of additional premium deficiency for Texas operations and $10.2 million of other
non-recurring  medical costs,  the majority of which were recorded in the second
quarter.  Included in medical  expenses for the nine months ended  September 30,
1999 is $8.1 million of premium  deficiency expense for Arizona and rural Nevada
counties,  which was  recorded  in the first  quarter.  Excluding  these  items,
medical  expenses  increased  $43.6  million or 8%, and the  Medical  Care Ratio
increased  from 81.1% to 83.4% for the nine  months  ended  September  30,  2000
compared to the same prior year  period.  The increase in the Medical Care Ratio
is primarily  due to the increase in Medicare  members as a percentage  of fully
insured  members.  The  cost  of  providing  medical  care to  Medicare  members
generally requires a greater  percentage of the premiums received.  In addition,
hospital  costs in southern  Nevada were higher  primarily due to an increase in
bed days and in Houston,  hospital  costs were higher due to  increased  cost of
care.

Included in medical  expenses  is the  utilization  of $16.4  million of premium
deficiency  reserve to offset  losses on  contracts in Texas for the nine months
ended  September 30, 2000 compared to a utilization of $25.2 million in the same
prior year period.  Also included in medical  expenses for the nine months ended
September  30, 1999 is the  utilization  of $6.7  million of premium  deficiency
reserve to offset losses primarily on Medicare risk members in Arizona and rural
Nevada.

Total military contract expenses increased  approximately $22.6 million, or 11%.
The increase is consistent with the increase in revenues discussed previously.

Specialty  product  expenses  increased $53.6 million or 87% over the same prior
year period. The combined ratio for the workers' compensation insurance business
for the nine months ended  September  30, 2000 was 121.0%  compared to 95.4% for
the  comparable  prior year  period.  The increase was due to an increase in the
loss and LAE ratio to 92.4% from 59.8% in 1999,  partially  offset by a decrease
in the expense ratio to 26.8% from 35.6% in 1999. The remaining  variance is due
to policyholders'  dividends  incurred for participating  policies issued in the
state of Nevada.  The  policyholders'  dividend ratio in 2000 was 1.8%, while no
dividends were incurred in 1999.

The  higher  loss and LAE  ratio  for 2000 is due to $20.7  million  in  adverse
development  related to accident years 1999 and prior.  In the first nine months
of 1999, no prior accident year  development  was incurred.  Estimated  ultimate
losses  and  LAE  incurred  in  accident  years  1996  to  1998  have  developed
significantly  in response to the  continuation  of  increasing  claim  severity
patterns  on  the  Company's   California   book  of  business.   Many  workers'
compensation  insurance  carriers in California  are  experiencing  higher claim
severity.  For  claims  occurring  on and after July 1, 1998,  the  Company  has
reinsured a percentage of the higher claim  severity to its reinsurer  under the
Company's low-level reinsurance  agreement.  The low-level reinsurance agreement
expired on June 30, 2000; however, the Company opted to continue ceding premiums
and losses under the  agreement on a run-off  basis for all policies in force on
June 30, 2000. On July 1, 2000, the Company entered into a reinsurance agreement
that covers  losses on claims in excess of $250,000  for  policies  issued after
June 30, 2000.

The reduction in the expense ratio is due to the higher premium volume earned in
2000  compared to 1999.  For the nine  months  ended  September  30,  2000,  net
premiums  earned were $91.0 million or 56% higher than the comparable  period in
1999. As a percentage of net premiums earned,  policy  acquisition  costs, which
are  comprised of  commissions,  premium  taxes and boards and bureaus  expense,
decreased  to 9.5%  from  9.9% in  1999,  and  non-policy  acquisition  expenses
decreased to 17.3% from 25.7% in 1999.  Total  non-policy  acquisition  expenses
were $15.7  million  compared to $15.0 million in 1999, an increase of 5%. Gross
premiums earned for 2000 increased from $103.7 million in 1999 to $150.2 million
in 2000, an increase of 45%.

General,  administrative  and marketing ("G&A") costs increased $523,000 or less
than 1% compared to the same period in 1999. As a percentage of total  revenues,
G&A costs for the first nine months of 2000 decreased to 9.9% from 10.7% in 1999
due primarily to the higher  revenues in the period.  As a percentage of medical
premium  revenues,  G&A costs  represent 15.7% for the 2000 period and 16.7% for
the 1999 period.  Excluding the utilization of premium  deficiency  reserves for
maintenance  costs of $9.4 million for the nine months ended  September 30, 2000
and $15.5  million for the same prior year period,  G&A costs  decreased by $6.3
million or 5.3%.  A $1.9  million  increase  in  depreciation  and  amortization
expense,  primarily related to the  implementation of new computer systems,  was
offset  by  decreases  in  other  G&A  expenses,   primarily  related  to  Texas
operations.

In the first nine months of 2000 and 1999,  the Company  incurred  certain asset
impairment,  restructuring  and  other  costs.  See  Note  2  to  the  condensed
consolidated financial statements for a discussion of these charges.

Interest  expense and other  increased  $4.5  million or 36% for the nine months
ended September 30, 2000,  compared to the same prior year period  primarily due
to an  increase  in  debt  as  well  as an  increase  in the  Company's  cost of
borrowing.

For the current year period,  the Company  recorded $75.5 million of tax benefit
for an  effective  tax rate of 27.2%  compared  to 33.3% for the same prior year
period.  The Company's  effective  tax rate is less than the 35% statutory  rate
primarily  due  to  the   non-deductibility  of  certain  portions  of  goodwill
impairment  expense in the second  quarter of 2000.  Excluding the effect of the
expenses  discussed  in Notes 2 and 8 to the  Condensed  Consolidated  Financial
Statements,  the effective tax rate for the nine months ended September 30, 2000
was  33.2%.  The  Company's  ongoing  effective  tax  rate is less  than the 35%
statutory rate primarily due to tax preferred investments.


<PAGE>


                 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

The Company had negative  cash flows from  operations  of $30.5  million for the
nine months ended September 30, 2000,  resulting primarily from a loss of $202.5
million and a net change in assets and liabilities of $57.6 million,  which were
offset by a non-cash  impairment  provision of $203.0 million,  $23.6 million in
depreciation  and  amortization  and $3.0  million  in  provision  for  doubtful
accounts.  The  decrease in cash flow  resulting  from the changes in assets and
liabilities  was  primarily  due to  increases  in deferred  tax assets of $59.2
million  primarily  related to the charges  discussed in Note 2 to the Condensed
Consolidated  Financial  Statements.  Other  significant  changes  in assets and
liabilities  cash outflows were:  increase in  reinsurance  recoverable of $73.9
million,  primarily due to increased  business as well as  development  on prior
years' loss estimates;  increase in gross military accounts receivables of $37.0
million; and a reduction in unearned premiums of $23.6 million due to the late
Medicare payment from HCFA for October of approximately  $29.1 million.  These
cash outflows were partially offset by an increase in losses and LAE reserves
of $91.5 million, due to increased workers' compensation  business, and an
increase in military health care payable of $25.1 million.

Sierra Military Health Services,  Inc., ("SMHS")  receives monthly cash payments
equivalent to one-twelfth of its annual contractual price with the Department of
Defense  ("DoD").  SMHS  also  accrues  revenue  on  a  monthly  basis  for  the
contractually  specified Bid Price  Adjustment  ("BPA") process and for contract
change orders.

The BPA process serves to adjust the DoD's monthly payments to SMHS because such
payments  are  based  in  part  on DoD  estimates  for  beneficiary  population,
beneficiary  population baseline health care cost, inflation and military direct
care system  utilization.  As actual information has been made available for the
above items, quarterly adjustments are made to SMHS' monthly health care payment
in addition to lump sum  adjustments  for past months.  During  April 2000,  the
Company  completed BPA's 2 and 3 with the DoD resulting in a cash payment to the
Company of $13.0 million during the second  quarter.  On November 3, 2000,  SMHS
received a subsequent  payment of  approximately  $17 million  associated with a
partial settlement with the DoD on BPA's 4 through 7.

As SMHS implements  DoD-directed contract change orders, revenue is accrued on a
percentage  of completion  basis until price  negotiations  are settled.  In the
second  quarter,  the Company  received  payments  from the DoD of $6.0  million
related to three  specific  change orders and an additional  $4.0 million in the
third quarter.

At June 30,  2000,  the Company was not in  compliance  with  certain  financial
covenants relating to its line of credit. The borrowed amount outstanding on the
line of credit as of September 30, 2000 was $185 million. Under the terms of its
line of  credit,  noncompliance  with  the  covenants  constitutes  an  event of
default,  which  permits the Company's  lenders to  accelerate  repayment of the
Company's  outstanding  obligations under its line of credit. The lenders waived
the Company's  compliance  with these  covenants  under its line of credit.  The
waiver was  effective as of June 30, 2000 and, as  extended,  expired on October
31, 2000. The Company was unable to reach terms with the lenders on the fees and
length of a new waiver and received a Notice of Default on November 8, 2000 from
its  lenders  with  respect  to the  Company's  compliance  with  the  financial
covenants. The waivers included amendments (fourth through sixth) to the line of
credit, which, among other things, required that the Company grant its lenders a
security  interest  in certain  personal  property of the  Company,  reduced the
availability  under the line of credit to $185 million,  increased the Company's
borrowing  rate by 287.5  basis  points  with  interest  to be paid  monthly and
provided for the payment of  additional  fees by the Company.  In addition,  the
fourth  amendment  provided  for a guaranty  of the debt by the  majority of the
Company's  wholly-owned  non-regulated  subsidiaries, including CII Financial,
Inc., but  excluding Sierra Military
Health  Services,  and for the  pledge  of  common  stock of a  majority  of the
Company's  wholly-owned  subsidiaries,  excluding  CII  Financial, Inc.,  and
its subsidiaries.


<PAGE>


                 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)

With the expiration of the waiver on October 31, 2000, the Company is continuing
to pay  interest  at the  default  rate of LIBOR  plus  5.25%.  There  can be no
assurances that a new amendment with revised covenants will be obtained.

Notwithstanding the expiration of the waiver, the Company is currently
negotiating a further  amendment to its line of credit
with its lenders, to minimize the potential for future covenant defaults.
While the Company believes that its best interests, and those of its
lenders,  would be served through an amendment to the line of credit,  there can
be no assurance that such an amendment will ultimately be  consummated,  or that
in the event the Company  does obtain such an  amendment  to its line of credit,
the  Company  will be able to maintain  compliance  with its  covenants.  In the
meantime, the Company has been aggressively exploring various strategic options,
and has been taking steps to conserve and manage its cash flow;  however,  there
is no assurance that these actions will be successful.

In  accordance  with  Statement  of  Financial   Accounting  Standards  No.  78,
"Classification  of Obligations that are Callable by the Creditor",  the Company
has  classified  the entire  outstanding  balance  under its line of credit as a
current liability as of September 30, 2000.

During the nine months ended  September 30, 2000, the Company had net borrowings
of $25.0 million under its line of credit, which was offset by $7.0 million used
for the reduction of other debt. In addition to the borrowings,  cash inflows in
the nine months ended  September 30, 2000 included a $23.4 million net change in
investments  and $1.6  million  received  in  connection  with the sale of stock
through the Company's  stock plans.  Offsetting the above cash inflows was $13.6
million  in  net  capital  expenditures  including  costs  associated  with  the
Company's  technology  initiatives  to  improve  new  systems  and to  establish
web-based applications.  In March 2000, the Company sold its interest in TriWest
Healthcare  Alliance in  exchange  for a note  receivable  in the amount of $3.7
million. This note is payable in six monthly installments starting at the end of
October 2000.

The Company has a revised 2000 capital budget of under $20.0 million,  primarily
for  computer   hardware  and  software,   furniture  and  equipment  and  other
requirements  due primarily to the Company's  computer system  initiatives.  The
Company's  liquidity  needs over the next six months will  primarily  be to fund
anticipated  temporary  negative  cash  flow at SMHS,  restructuring  and  other
related  run-off  costs  in  Texas  (see  Note  2  to  the  Company's  Condensed
Consolidated Financial  Statements),  and for the debt service and capital items
noted above.

As part of its initiative to reduce the Texas funding  requirements,  in October
2000,  the Company  entered  into an  agreement  to sell  certain  assets of its
Houston  operations.  The  transaction is anticipated to close prior to the year
end and will  reduce  on-going  cash flow losses of  approximately  $1.0 to $1.5
million per month. However,  run-off costs for healthcare claims and other costs
are  anticipated  to be  approximately  $7 million  which would be paid over the
following nine to twelve months.  In addition,  the Company  completed the asset
sale of its  affiliated  Texas  medical  group in October  2000.  Run-off  costs
associated with this sale are expected to exceed $5 million with most costs paid
in the following nine to twelve months.

To  facilitate  a reduction  of the  balance on its line of credit,  if an
amendment to its line of credit is successfully negotiated, the Company
anticipates or has accomplished the following actions:

o Sale and/or lease of the Company's Texas and Arizona real estate
o Asset  securitization  or  financing of military  receivables,  expected to be
  completed within 90 days
o Completed the sale of the Company's airplane for $9.5
  million in early  November 2000
o  Sale-leaseback of substantially all of the Company's Nevada real estate,
   expected to be completed no later than the first quarter of 2001

Furthermore,  the Company has initiated a plan through which an annual  overhead
reduction  of over $7.0 million is  expected.  The Company  believes the actions
delineated  above along with  operating  cash flow should  enable it to fund its
debt service and capital expenditures, as well as meet its liquidity needs.

In the second  quarter of 1997,  the Company's  Board of Directors  authorized a
$3.0 million line of credit from the Company to the  Company's  Chief  Executive
Officer  ("CEO").  In April 2000, the Company's Board of Directors  authorized a
$2.5  million  loan  from the  Company  to the CEO  which,  along  with  accrued
interest,  is due on June 30, 2002.  As of September  30,  2000,  the  aggregate
principal  outstanding  and  accrued  interest  for  both  instruments  was $5.3
million. All borrowed amounts bear interest at a rate equal to the rate at which
the Company could have borrowed  funds under its line of credit  facility at the
time of the borrowing plus 10 basis points.

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  $24.0  million as of
September  30,  2000.  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, as well as minimum risk-based capital
requirements,  which are determined annually.  Additionally, in conjunction with
the Kaiser-Texas acquisition, Texas Health Choice, L.C., ("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
September 30, 2000,  $41.4  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.
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.  As of  September  30, 2000 and for the  remainder of the
year, the payment of any dividends by the HMO and insurance  subsidiaries  would
require prior approval by the applicable insurance regulators. Remaining amounts
are available on an unrestricted basis.

CII Financial,  Inc., a  wholly-owned  subsidiary  that the Company  acquired in
1995,   has  $47.0  million  of   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 Financial and are not  guaranteed by Sierra.  In August 2000,  CII Financial
became a guarantor of the debt owed under the Company's  line of credit.  In the
event  of a  demand  to  perform  on  the  guaranty,  the  Debentures  would  be
subordinated  to the debt owed under the line of credit.  During the nine months
ended September 30, 2000, CII Financial purchased $3.5 million of the Debentures
on the open market.

CII Financial has limited  sources for its cash and had to borrow  approximately
$365,000 from the Company to make the September 15, 2000 interest  payment.
Absent any funding from the Company, CII
Financial  would be dependent  upon dividends  from its  subsidiary,  California
Indemnity  Insurance Company  ("California  Indemnity") to meet its debt payment
obligations.  Currently,  California  Indemnity cannot pay any dividends without
prior  approval by the  California  Department  of Insurance as it has no earned
surplus and it is unlikely  that it will have  sufficient  earned  surplus  from
which to pay a dividend to CII Financial when the Debentures  mature in 2001. It
is also  unlikely  that the Company  will be in a position to lend any or enough
funds to CII Financial to pay the Debentures when they mature due to the current
limitations of the line of credit facility.  Accordingly, CII Financial will not
have readily available funds to pay the Debentures when they mature.

CII  Financial  and the Company are  investigating  strategies  to resolve  this
issue.  Such  strategies  include,  but  are not  limited  to,  refinancing  the
Debentures,  extending the maturity  date, exchanging the Debentures at a
discount for cash and/or equity or spinning off the subsidiary.
There can be no assurances that CII Financial or the Company can
successfully  implement  a strategy  for the  repayment  or  refinancing  of the
Debentures.

Membership

     The Company's membership at September 30, 2000 and 1999 was as follows:

<TABLE>

<CAPTION>

                                                                          Number of Members at September 30

                                                                             2000                    1999
                                                                             ----                    ----
HMO

<S>                                                                         <C>                      <C>
  Commercial..................................................              244,900                  257,100
  Medicare....................................................               53,000                   50,400
  Medicaid (1)................................................               13,300                   12,000
Managed Indemnity.............................................               31,100                   37,300
Medicare Supplement...........................................               28,300                   27,800
Administrative Services.......................................              282,900                  290,300
TRICARE Eligibles.............................................              617,700                  610,000
                                                                         ----------               ----------
Total Members.................................................            1,271,200                1,284,110
                                                                          =========                =========
</TABLE>

(1)      In prior years, Medicaid was included in commercial membership.


ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's  available for sale investments are substantially owned by the HMO
and insurance subsidiaries.  As of September 30, 2000, unrealized holding losses
on available for sale  investments have decreased by $4.8 million since the 1999
year end primarily due to a decrease in interest rates, and thus, an increase in
the market value of bonds.  The Company believes that changes in market interest
rates,  resulting  in  unrealized  holding  gains or  losses,  should not have a
material  impact on future  earnings  or cash flows as it is  unlikely  that the
Company  would  need  or  choose  to  substantially   liquidate  its  investment
portfolio.


<PAGE>



                  SIERRA HEALTH SERVICES, INC., AND SUBSIDIARIES

                           PART II - OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

The Company is subject to various  claims and other  litigation  in the ordinary
course of business.  Such  litigation  includes  claims of medical  malpractice,
coverage related claims 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
these pending legal proceedings 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

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

                      (10.1)        Security Agreement dated as of
                                    August 23, 2000 among Sierra Health
                                    Services, Inc., Banks party to
                                    the Credit Agreement  and Bank of
                                    America, N.A., as Administrative Agent

                      (10.2)        Guaranty dated as of August 23, 2000 among
                                    Sierra Health Services, Inc., Banks party
                                    to the Credit Agreement and Bank of
                                    America, N.A., as Administrative Agent

                      (10.3)        Waiver and Fourth Amendment to Credit
                                    Agreement  dated as of August 14, 2000
                                    among Sierra Health Services, Inc., Banks
                                    party to the Credit Agreement  and Bank of
                                    America, N.A., as Administrative Agent

                      (10.4)        Waiver and Fifth Amendment to Credit
                                    Agreement dated as of September 15, 2000
                                    among Sierra Health Services, Inc., Banks
                                    party to the Credit Agreement and Bank of
                                    America, N.A., as Administrative Agent

     (10.5)  Waiver and Sixth  Amendment to Credit  Agreement  dated October 11,
2000 among Sierra Health Services, Inc., Banks party to the Credit Agreement and
Bank of America, N.A., as Administrative Agent





<PAGE>


                  SIERRA HEALTH SERVICES, INC., AND SUBSIDIARIES

                           PART II - OTHER INFORMATION

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K (continued)

     (10.6)  Sierra Health  Services,  Inc., 1995  Long-Term  Incentive
Plan, As Amended and Restated as of May 12, 1998;  As amended
December 9, 1999,  May 18, 2000, and June 13, 2000

     (10.7) Sierra Health Services, Inc., 1995 Non-Employee Directors'
Stock Plan As Amended and Restated through August 10, 2000

     (27) Financial Data Schedule

     (99)  Registrant's  current  report  on Form  8-K  dated  March  15,  2000,
incorporated herein by reference

              (b)     Reports on Form 8-K

                      The  Company  has not filed any Reports on Form 8-K during
this reporting period.


<PAGE>


                  SIERRA HEALTH SERVICES, INC., AND SUBSIDIARIES

                                   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 duly
authorized undersigned.

                                   SIERRA HEALTH SERVICES, INC.
                                         (Registrant)

Date:  November 14, 2000           /S/ PAUL H. PALMER

                                   Paul H. Palmer

                                   Vice President of Finance,
                                   Chief Financial Officer and Treasurer
                                   (Principal Financial and Accounting Officer)