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

                                    Form 10-Q


(Mark One)

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

For the quarterly period ended       September 30, 1997

                                       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, 1997 there were 18,106,000 shares of common stock outstanding.


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<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

                                      INDEX
                                                                       Page No.

Part I - FINANCIAL INFORMATION

      Item l.     Financial Statements

                  Condensed Consolidated Balance Sheets -
                    September 30, 1997 and December 31, 1996...........    3

                  Condensed Consolidated Statements of Operations -
                    three and nine months ended September 30, 1997
                    and September 30, 1996.............................    4

                  Condensed Consolidated Statements of Cash Flows -
                    nine months ended September 30, 1997
                    and September 30, 1996.............................    5

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

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



Part II - OTHER INFORMATION

      Item l.     Legal Proceedings....................................   16

      Item 2.     Changes in Securities................................   16

      Item 3.     Defaults Upon Senior Securities......................   16

      Item 4.     Submission of Matters to a Vote
                    of Security Holders................................   16

      Item 5.     Other Information....................................   16

      Item 6.     Exhibits and Reports on Form 8-K.....................   16

Signature..............................................................   17



                                     Page 2

<PAGE>



                         PART I - FINANCIAL INFORMATION

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

                                                                                         September 30          December 31
                                                                                            1997                  1996
CURRENT ASSETS:
<S>                                                                                      <C>                   <C>
  Cash and Cash Equivalents...................................................           $ 94,065,000          $103,587,000
  Short-term Investments......................................................             65,007,000            83,688,000
  Accounts Receivable (Less: Allowance for Doubtful
     Accounts:  1997 - 7,539,000; 1996 - 7,324,000)...........................             34,437,000            31,849,000
  Prepaid Expenses and Other Assets...........................................             37,885,000            33,811,000
     Total Current Assets.....................................................            231,394,000           252,935,000

LAND, BUILDINGS AND EQUIPMENT.................................................            174,447,000           140,130,000
  Less-Accumulated Depreciation...............................................            (48,116,000)          (40,326,000)
     Land, Buildings and Equipment - Net......................................            126,331,000            99,804,000

  LONG-TERM INVESTMENTS.......................................................            198,096,000           160,482,000
  RESTRICTED CASH AND INVESTMENTS.............................................             15,616,000            13,648,000
  REINSURANCE RECOVERABLE (Less Current Portion) ............................              15,770,000            14,721,000
  GOODWILL ...................................................................             43,264,000            44,602,000
  OTHER ASSETS................................................................             48,874,000            43,270,000
TOTAL ASSETS..................................................................           $679,345,000          $629,462,000

CURRENT LIABILITIES:
  Accounts Payable and Other Accrued Liabilities..............................           $ 60,585,000          $ 50,153,000
  Medical Claims Payable......................................................             58,386,000            46,969,000
  Current Portion of Reserves for Losses and
     Loss Adjustment Expense .................................................             63,856,000            52,878,000
  Unearned Premium Revenue....................................................             15,726,000            24,210,000
  Current Portion of Long-term Debt...........................................              4,032,000             2,195,000
     Total Current Liabilities................................................            202,585,000           176,405,000

RESERVES FOR LOSSES AND LOSS ADJUSTMENT
  EXPENSE (Less Current Portion) .............................................            131,667,000           134,898,000
LONG-TERM DEBT (Less Current Portion).........................................             79,539,000            66,189,000
OTHER LIABILITIES.............................................................             13,973,000            17,488,000
TOTAL LIABILITIES.............................................................            427,764,000           394,980,000

STOCKHOLDERS' EQUITY:
  Preferred Stock, $.01 Par Value,
    1,000,000 Shares Authorized;
    None Issued
  Common Stock, $.005 Par Value
    40,000,000 Shares Authorized;
    Shares Issued:  1997 - 18,378,000; 1996 - 17,910,000......................                 92,000                89,000
  Additional Paid-in Capital..................................................            161,904,000           152,035,000
  Treasury Stock: 1997 - 284,500; 1996 - 100,200 Common Shares................             (5,601,000)             (130,000)
  Unrealized Holding Gain on
      Available-for-Sale Securities ..........................................                731,000               487,000
  Retained Earnings...........................................................             94,455,000            82,001,000
TOTAL STOCKHOLDERS' EQUITY....................................................            251,581,000           234,482,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................           $679,345,000          $629,462,000
</TABLE>

            See notes to condensed consolidated financial statements.

                                     Page 3

<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                   Three Months Ended                        Nine Months Ended
                                                                       September 30                            September 30
                                                                    1997             1996                1997              1996
OPERATING REVENUES:
<S>                                                             <C>               <C>                 <C>              <C>
  Medical Premiums..........................................    $131,528,000      $ 97,480,000        $379,117,000     $281,516,000
  Specialty Product Revenues................................      37,596,000        34,644,000         109,388,000       98,931,000
  Professional Fees.........................................       8,004,000         7,498,000          23,063,000       22,793,000
  Investment and Other Revenues.............................       6,731,000         6,623,000          19,190,000       20,379,000
    Total ..................................................     183,859,000       146,245,000         530,758,000      423,619,000

OPERATING EXPENSES:
  Medical Expenses..........................................     107,258,000        79,528,000         308,747,000      229,345,000
  Specialty Product Expenses................................      36,361,000        34,025,000         107,360,000       98,208,000
  General, Administrative and Marketing ....................      24,655,000        18,305,000          69,721,000       52,784,000
  Merger, Restructuring and Start-up Expenses ..............      18,350,000         8,250,000          29,350,000        8,250,000
    Total ..................................................     186,624,000       140,108,000         515,178,000      388,587,000

OPERATING (LOSS) INCOME.....................................      (2,765,000)        6,137,000          15,580,000       35,032,000

INTEREST EXPENSE AND OTHER, NET  ...........................        (940,000)         (715,000)         (3,549,000)      (2,356,000)

(LOSS) INCOME BEFORE INCOME TAXES ..........................      (3,705,000)        5,422,000          12,031,000       32,676,000

BENEFIT (PROVISION) FOR INCOME TAXES........................       4,200,000        (1,355,000)            423,000       (8,234,000)

NET INCOME .................................................    $    495,000      $  4,067,000        $ 12,454,000      $24,442,000


EARNINGS PER COMMON SHARE  .................................            $.03              $.23                $.69            $1.38

WEIGHTED AVERAGE
  COMMON SHARES OUTSTANDING.................................      18,076,000        17,775,000          17,965,000       17,703,000
</TABLE>

            See notes to condensed consolidated financial statements.

                                     Page 4

<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

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

                                                                                   For the Nine Months Ended
                                                                                  September 30          September 30
                                                                                      1997                  1996

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                  <C>                   <C>
   Net Income..............................................................          $12,454,000           $24,442,000
   Adjustments to Reconcile Net Income to Net Cash
       Provided by Operating Activities:
          Depreciation and Amortization....................................            9,921,000             7,781,000
          Provision for Doubtful Accounts..................................            3,161,000             2,044,000
   Changes in Assets and Liabilities ......................................            4,753,000           (11,488,000)
       Net Cash Provided by Operating Activities ..........................           30,289,000            22,779,000

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital Expenditures, Net of Equipment Dispositions.....................          (34,102,000)          (11,162,000)
   Changes in Short-term Investments.......................................           18,708,000           (17,024,000)
   Changes in Long-term Investments........................................          (37,292,000)           26,986,000
   Changes in Restricted Cash and Investments..............................           (2,106,000)             (327,000)
       Net Cash Used for Investing Activities..............................          (54,792,000)           (1,527,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from Borrowings................................................           17,000,000             1,000,000
   Payments on Debt and Capital Leases.....................................           (1,812,000)           (8,964,000)
   Exercise of Stock in Connection with Stock Plans........................            8,464,000             3,359,000
   Purchase of Treasury Stock .............................................           (5,471,000)
   Corporate Acquisition ..................................................           (3,200,000)            _________
       Net Cash Provided by (Used for) Financing Activities................           14,981,000            (4,605,000)
NET (DECREASE) INCREASE IN CASH
   AND CASH EQUIVALENTS....................................................           (9,522,000)           16,647,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............................          103,587,000            57,044,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................         $ 94,065,000          $ 73,691,000


                                                                                        For the Nine Months Ended
Supplemental Condensed Consolidated                                                 September 30         September 30
       Statements of Cash Flows Information:                                            1997                 1996
Cash Paid During the Period for Interest
   (Net of Amount Capitalized).............................................           $4,267,000            $5,199,000
Cash Paid During the Period for Income Taxes...............................            7,651,000             6,940,000

Non-cash Investing and Financing Activities:
   Tax Benefits of Stock Issued for Exercise of Options ...................            1,405,000             1,065,000
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                     Page 5

<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     1. The accompanying unaudited financial statements include the consolidated
accounts of Sierra Health Services, Inc. ("Sierra", a holding company,  together
with its subsidiaries,  collectively  referred to herein as the "Company").  All
material  intercompany  balances and transactions  have been  eliminated.  These
statements  have  been  prepared  in  conformity  with  the  generally  accepted
accounting   principles   used  in  preparing  the  Company's   annual   audited
consolidated  financial statements but do not contain all of the information and
disclosures  that  would be  required  in a complete  set of  audited  financial
statements.  They should,  therefore,  be read in conjunction with the Company's
annual audited  consolidated  financial statements and related notes thereto for
the years ended  December 31, 1996 and 1995. 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.         In the  second  quarter  of 1997,  the line of credit  agreement  the
           ("Credit  Agreement"),  among Sierra,  Bank of America National Trust
           and Savings Association as Agent, and other lenders,  was amended and
           increased  to $100.0  million.  In March 1997,  the Company  borrowed
           $17.0 million on its line of credit for general  corporate  purposes.
           Currently the interest  rate is 6.3%.  The amount owed on the line of
           credit is included in  long-term  debt at  September  30,  1997.  The
           remaining line of credit may be used for additional  working capital,
           if necessary.

3.         During the first quarter of 1997, the Company recorded $11.0 million,
           $8.4 million after taxes,  for certain  estimated  costs and expenses
           incurred  in  association  with a  merger  agreement  with  Physician
           Corporation  of America  ("PCA"),  such  agreement was  terminated on
           March 18, 1997, as disclosed in the Company's  Annual Report filed on
           Form 10-K for the fiscal year ended December 31, 1996.

     4. During the third quarter of 1997 Sierra Military Health  Services,  Inc.
("SMHS"),  a wholly owned  subsidiary of the Company,  was awarded a contract to
serve  the  Civilian  Health  and  Medical  Program  of the  Uniformed  Services
("CHAMPUS")  eligible  beneficiaries in Region 1. This region includes more than
600,000  CHAMPUS  beneficiaries  in 13  northeastern  states and the District of
Columbia.  The Company is also part of a consortium including 13 other companies
which in April 1997 began providing health care to approximately 700,000 CHAMPUS
eligible beneficiaries in Regions 7 and 8, which includes 17 states. The Company
is  responsible  for  providing  care  under  the  Regions 7 and 8  contract  to
approximately 93,000 individuals in Nevada and Missouri. Development expenses of
$18.4  million,  $10.6 million net of taxes,  were recorded in the third quarter
primarily for expenses  associated with the Company's  proposal to serve CHAMPUS
Region 1. Such expenses had been deferred until award notification.

5.         Effective  July 1,  1997,  the  Company  adopted  a  defined  benefit
           retirement  plan  covering  certain  key  employees.  The  Company is
           funding the benefits  through the purchase of certain life  insurance
           policies.  Benefits are based on, among other things,  the employee's
           average  earnings  over the  five-year  period prior to retirement or
           termination,  and length of service. Benefits attributable to service
           prior  to the  adoption  of the  plan  will  be  amortized  over  the
           estimated remaining service periods for those employees participating
           in the plan.



                                     Page 6

<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


6.         In the  second  quarter of 1997,  the  Company's  Board of  Directors
           authorized a stock repurchase  program of up to one million shares of
           the  Company's  outstanding  stock.  As of September  30,  1997,  the
           Company had repurchased  184,300 shares during 1997 for approximately
           $5.5 million.

7.         During 1997 the Financial  Accounting Standards Board ("FASB") issued
           the following  statements of financial  accounting standards ("FAS"):
           FAS No. 128,  "Earnings  per  Share",  FAS No.  129,  "Disclosure  of
           Information  about  Capital  Structure",   FAS  No.  130,  "Reporting
           Comprehensive Income", and FAS No. 131, "Disclosure About Segments of
           an Enterprise and Related Information".

           FAS No. 128 and FAS No. 129 are  effective  for periods  ending after
           December  15,  1997,  and  establish   standards  for  computing  and
           presenting earnings per share ("EPS"), and for disclosing information
           about  an  entity's  capital  structure,   respectively.   Management
           believes that these  standards will not have a significant  impact on
           its EPS or financial  statement  disclosure.  FAS No. 130 and FAS No.
           131 are effective for periods  beginning after December 15, 1997. FAS
           No. 130 requires  companies to classify items of other  comprehensive
           income by their nature in a financial statement.  Management does not
           believe this statement  will have a material  impact on the Company's
           financial  statements.  FAS No. 131 establishes  additional standards
           for segment disclosures in the financial  statements.  Management has
           not  determined  the  effect  of  this  statement  on  its  financial
           statement disclosure.


                                     Page 7

<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

The following  discussion and analysis  provides  information  which  management
believes  is  relevant  for  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  should be  considered  in  connection  with  certain  cautionary
statements  contained in the Company's  Current  Report on Form 8-K filing dated
March 28,  1997.  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, 1997, compared to three
months ended September 30, 1996.

The Company's total operating  revenues for the three months ended September 30,
1997 increased  approximately  25.8% to $183.9 from $146.2 million for the three
months ended  September  30, 1996.  The  increase was  primarily  due to medical
premium revenue increases of $34.0 million, or 34.9%, from the Company's HMO and
managed  indemnity  insurance  subsidiaries.  Such  additional  premium  revenue
resulted  principally  from a 33.1%  increase  in member  months  (the number of
months of each period that an individual  is enrolled in a plan).  The Company's
HMO and insurance  subsidiaries'  premium  rates  increased  approximately  1.9%
primarily due to an increase in its capitation rate for its Medicare  members as
established by the Health Care Financing  Administration  ("HCFA"). The increase
was due in part to the Company's participation in HCFA's social HMO program. The
Company  realized 1% to 3% rate  increases  for its existing  HMO  subsidiaries'
commercial groups and the managed indemnity subsidiary. However, these increases
were  offset  in part by lower  premium  rates at  MedOne  Health  Plan,  an HMO
acquired on December 31, 1996. Specialty product revenue increased $3.0 million,
or 8.5%,  for the three months  ended  September  30, 1997  compared to the same
three-month  period in the prior year. The increase was due to specialty product
revenue growth in the workers' compensation insurance market of $1.6 million and
an increase in  administrative  services and other of $1.4 million due primarily
to the  acquisition  of Prime  Health,  Inc.  at the end of  1996.  Some of this
increase in administrative  services revenue will be offset in the future by the
loss of a portion of the state of Nevada's self-insured medical business.  Also,
effective  September 30, 1997, the Company terminated its workers'  compensation
administrative services contract within the state of Nevada. The contract served
approximately  200,000  enrollees  and  provided  approximately  $1.3 million of
revenues for the three months ended September 30, 1997. Professional fee revenue
increased  approximately $500,000 primarily due to the acquisition of the assets
and operations of Total Home Care, Inc. ("THC") during the quarter. THC provides
home  infusion,  oxygen and  durable  medical  equipment  services in Nevada and
Arizona.  Investment and other revenue was consistent with the comparable period
in the prior year.

Total medical expenses  increased $27.7 million over the same three-month period
last year. This 34.9% increase resulted  primarily from the consolidated  member
month growth discussed  previously.  Medical expenses as a percentage of medical
premiums and  professional  fees ("Medical Loss Ratio")  increased from 75.8% to
76.9% due primarily to member growth and expansion in areas with higher  medical
expenses, such as northern Nevada and Texas. In addition, MedOne Health Plan has
a higher  Medical Loss Ratio,  which further  contributed to the increase in the
Company's overall Medical Loss Ratio.  Specialty product expenses increased $2.3
million,  or 6.9%,  due  primarily  to the 8.5%  increase in  specialty  product
revenue discussed previously. Specialty product revenue and expense is primarily
related to the workers' compensation insurance business.


                                     Page 8

<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Results of Operations,  three months ended September 30, 1997, compared to three
months ended September 30, 1996 (continued).

The combined ratio for the workers'  compensation  insurance business was 100.9%
compared to 104.4% for the comparable  prior year period.  The reduction was due
to a 1.4 percentage  point decrease in the loss ratio and a 1.5 percentage point
decrease in the expense  ratio.  Incurred  losses for the current  accident year
were  reduced as a result of the  Company's  ability to  overlay  and  implement
managed  care  techniques  to the  workers'  compensation  claims as well as net
favorable  loss  development  on prior  accident  years  totaling  $2.3  million
compared to net favorable  loss  development  of $3.4 million for the comparable
prior year period. There can be no assurance that favorable development,  or the
magnitude  thereof,  will continue in the future. The losses and loss adjustment
expense  ratio for the three  months  ended  September  30,  1997  reflects  the
Company's  current  projection of the ultimate costs of claims  occurring in the
current as well as prior accident years.  Such projections are subject to change
and any change would be reflected in the income statement. Workers' compensation
claims are paid over several years.  Until payment is made, the Company  invests
the monies, earning a yield on the invested balance.

General,  administrative and marketing ("G&A") costs increased $6.4 million,  or
34.7%,  compared to the third quarter of 1996. As a percentage of revenues,  G&A
costs for the third  quarter of 1997  increased  to 13.4% from 12.5%  during the
comparable  period in 1996.  Of the $6.4 million  increase in G&A,  $2.7 million
consisted of increased  compensation expense resulting primarily from additional
employees  supporting  expanded  services and  increased  incentive  amounts for
management.  Broker,  third-party  administration,   and  premium  tax  expenses
increased  approximately $2.4 million due to increased membership.  Amortization
costs  increased  approximately  $400,000.  The remaining G&A increase is due to
additional expenses in several areas including data processing maintenance.  The
Company  markets its  products  primarily to employer  groups,  labor unions and
individuals  enrolled in Medicare,  through its  internal  sales  personnel  and
independent  insurance  brokers.  Such brokers receive  commissions based on the
premiums  received  from each group.  The Company's  agreements  with its member
groups are usually for twelve months and are subject to annual renewal.  For the
quarter ended  September 30, 1997,  the  Company's  ten largest  commercial  HMO
employer  groups were, in the  aggregate,  responsible  for less than 15% of its
total revenues. Although none of such employer groups accounted for more than 3%
of  total  revenues  for  that  period,  the  loss of one or more of the  larger
employer groups could, if not replaced with similar membership,  have a material
adverse effect on the Company's business.

Interest expense and other increased approximately $200,000 over the same period
in the prior year primarily due to the $600,000  benefit for minority  interests
recorded in 1996, offset in part by an increase in capitalized  interest related
to various construction projects in 1997. In November 1996, the Company acquired
complete  ownership  of a  Texas  HMO  in  which  it had  previously  held a 50%
interest.  That HMO began business in March 1995 and experienced  losses in both
three-month  periods.  In the prior period,  these losses  resulted in a benefit
from minority interests.

During the third quarter of 1997 SMHS, a wholly owned subsidiary of the Company,
was awarded a contract to serve CHAMPUS eligible beneficiaries in Region 1. This
region  includes  more than 600,000  CHAMPUS  beneficiaries  in 13  northeastern
states and the  District of  Columbia.  Development  expenses of $18.4  million,
$10.6 million net of taxes,  were  recorded in the third  quarter  primarily for
expenses  associated with the Company's proposal to serve CHAMPUS Region 1. Such
expenses had been deferred until award  notification.  The Company  believes the
CHAMPUS contract will add approximately  $270 to $300 million of annual revenues
beginning in the second or third quarter of 1998.



                                     Page 9

<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Results of Operations,  three months ended September 30, 1997, compared to three
months ended September 30, 1996 (continued).

For the period,  the Company recorded  approximately $3.6 million of tax expense
associated with recurring operations for an effective tax rate of 24.0% compared
to  25.0% in 1996.  The  Company's  low  operating  tax rate is a result  of the
Company's investment in tax-preferred investments and the change in the deferred
tax valuation allowance,  which is due primarily to the ability to use a portion
of net operating loss  carryovers.  The operating tax expense for the period was
offset by approximately  $7.8 million in federal and state tax benefit resulting
from the write off of the CHAMPUS  start-up costs of $18.4 million.  Such offset
resulted in an overall net tax benefit of $4.2 million.

Excluding the effect of the merger, restructuring and CHAMPUS start-up expenses,
net income for the three months ended September 30, 1997 increased $900,000,  or
8.6%,  from the three months ended September 30, 1996. The increase in operating
income was  primarily  due to increased  operating  revenues  offset by a higher
Medical Loss Ratio and increased G&A expenses as a percentage of revenues.


Results of Operations,  nine months ended  September 30, 1997,  compared to nine
months ended September 30, 1996.

The Company's total  operating  revenues for the nine months ended September 30,
1997 increased 25.3% to $530.8 million,  from $423.6 million for the nine months
ended  September 30, 1996.  The increase was  primarily  due to medical  premium
revenue increases of approximately  $97.6 million,  or 34.7%, from the Company's
HMO and  managed  indemnity  insurance  subsidiaries.  Such  additional  premium
revenue  resulted  principally  from a 31.9%  increase  in  member  months.  The
Company's HMO and insurance  subsidiaries' premium rates increased approximately
2.8%  overall,  primarily  due to an  increase  in its  capitation  rate for its
Medicare  members as  established  by HCFA.  The increase was due in part to the
Company's participation in HCFA's social HMO program. The Company realized 1% to
3% rate increases for its existing HMO  subsidiaries'  commercial groups and the
managed indemnity  subsidiary.  However,  these increases were offset in part by
lower premium rates at MedOne Health Plan, an HMO acquired on December 31, 1996.
Specialty product revenue increased $10.5 million,  or 10.6%, in the nine months
ended  September  30, 1997 compared to the same  nine-month  period in the prior
year. The increase was due to specialty  product  revenue growth of $5.9 million
in the workers' compensation  insurance market and an increase in administrative
services and other of $4.6 million due  primarily  to the  acquisition  of Prime
Health,  Inc.  at the  end of  1996.  Some of this  increase  in  administrative
services  revenue  will be offset in the  future by the loss of a portion of the
state of Nevada's  self-insured medical business.  Also, effective September 30,
1997, the Company terminated its workers' compensation  administrative  services
contract within the state of Nevada. The contract served  approximately  200,000
enrollees  and  provided  approximately  $3.1  million of revenues  for the nine
months ended September 30, 1997.  Professional  fee revenue  increased  slightly
from the comparable period in the prior year primarily due to the acquisition of
the assets and  operations of THC  discussed  previously.  Investment  and other
revenue  decreased  $1.2  million,  or 5.8%,  due to  certain  investment  gains
recognized in the first nine months of 1996.



                                     Page 10

<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, 1997,  compared to nine
months ended September 30, 1996 (continued).

Total  medical  expenses  increased by $79.4  million  over the same  nine-month
period last year. This 34.6% increase  resulted  primarily from the consolidated
member month growth discussed previously.  The Medical Loss Ratio increased from
75.4% to 76.8% due primarily to member growth and expansion in areas with higher
medical expenses, such as northern Nevada and Texas. In addition,  MedOne Health
Plan has a higher Medical Loss Ratio, which further  contributed to the increase
in  the  Company's  overall  Medical  Loss  Ratio.  Specialty  product  expenses
increased  $9.2  million,  or 9.3%,  due  primarily  to the  10.6%  increase  in
specialty  product revenue discussed  previously.  Specialty product revenue and
expense is primarily related to the workers' compensation insurance business.

The combined ratio for the workers'  compensation  insurance business was 102.3%
compared to 104.7% for the comparable  prior year period.  The reduction was due
to a 1.2 percentage point decrease in the loss ratio along with a 1.0 percentage
point decrease in the expense ratio. Compared to the prior year period, incurred
losses for the current  accident  year were reduced as a result of the Company's
ability to  overlay  and  implement  managed  care  techniques  to the  workers'
compensation claims. In addition, the Company had net favorable loss development
totaling  $6.7  million  compared to net  favorable  loss  development  of $10.5
million for the comparable  prior year period.  There can be no assurances  that
favorable  development,  or the magnitude thereof,  will continue in the future.
The losses and loss adjustment expense ratio for the nine months ended September
30, 1997 reflects the  Company's  current  projection  of the ultimate  costs of
claims  occurring  in  the  current  as  well  as  prior  accident  years.  Such
projections  are  subject  to change and any change  would be  reflected  in the
income  statement.  Workers'  compensation  claims are paid over several  years.
Until payment is made,  the Company  invests the monies,  earning a yield on the
invested balance.

G&A costs increased $16.9 million,  or 32.1%,  compared to the first nine months
of 1996.  As a percentage  of  revenues,  G&A costs for the first nine months of
1997 increased to 13.1% from 12.5% during the comparable  period in 1996. Of the
$16.9 million  increase in G&A, $6.1 million  consisted of compensation  expense
resulting primarily from additional  employees  supporting expanded services and
increased incentive amounts for management.  Broker, third-party administration,
and premium tax expenses  increased  approximately $6.9 million due to increased
membership.  Amortization  costs  increased  $1.1  million.  The  remaining  G&A
increase  is  due  to  additional  expenses  in  several  areas  including  data
processing  maintenance.  The Company markets its products primarily to employer
groups,  labor unions, and individuals enrolled in Medicare through its internal
sales  personnel  and  independent   insurance  brokers.  Such  brokers  receive
commissions  based on the  premiums  received  from each  group.  The  Company's
agreements  with its member groups are usually for twelve months and are subject
to annual  renewal.  For the nine months ended September 30, 1997, the Company's
ten largest  commercial HMO employer groups were, in the aggregate,  responsible
for less than 15% of its total  revenues.  Although none of such employer groups
accounted for more than 3% 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.


                                     Page 11

<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, 1997,  compared to nine
months ended September 30, 1996 (continued).

In the first quarter of 1997, the Company recorded  estimated  expenses of $11.0
million,  $8.4 million after tax, for  merger-related  costs. On March 18, 1997,
the Company  announced  it had  terminated  its merger  agreement  with PCA. The
original  agreement  had been entered into in November  1996. On March 18, 1997,
prior to termination of the merger  agreement,  PCA filed a lawsuit  against the
Company in the United States District Court for the Southern District of Florida
(the "District Court"), seeking, among other things, specific performance of the
merger  agreement  and  monetary  damages.  The lawsuit has been  dismissed  for
failure to join a necessary  party.  The  Company  has also  initiated a lawsuit
against  PCA in the  Court of  Chancery  of the  State  of  Delaware  seeking  a
declaratory  judgment  as  well  as  other  remedies.  The  Company  intends  to
vigorously  pursue  all  remedies  available  to it;  however,  there  can be no
assurance that the Company will prevail in such litigation.

During the third quarter of 1997 SMHS, a wholly owned subsidiary of the Company,
was awarded a contract to serve CHAMPUS eligible beneficiaries in Region 1. This
region  includes  more than 600,000  CHAMPUS  beneficiaries  in 13  northeastern
states and the  District of  Columbia.  Development  expenses of $18.4  million,
$10.6 million net of taxes,  were  recorded in the third  quarter  primarily for
expenses  associated with the Company's proposal to serve CHAMPUS Region 1. Such
expenses had been deferred until award  notification.  The Company  believes the
CHAMPUS contract will add approximately  $270 to $300 million of annual revenues
beginning in the second or third quarter of 1998.

Interest  expense  and  other  increased  approximately  $1.2  million  from the
comparable  prior year period  primarily due to the almost $1.6 million  benefit
for  minority  interests  recorded  in 1996  offset  in part by an  increase  in
capitalized  interest  related  to various  construction  projects  in 1997.  In
November 1996, the Company acquired  complete  ownership of a Texas HMO in which
it had previously held a 50% interest. That HMO began business in March 1995 and
experienced losses in both nine-month periods. In the prior period, these losses
resulted in a benefit from minority interests.

For the period,  the Company  recorded  $9.9 million of tax expense on recurring
operations  for an effective  tax rate of 24.0%  compared to 25.2% in 1996.  The
Company's low tax rate is a result of the Company's  investment in tax-preferred
investments and the change in the deferred tax valuation allowance, which is due
primarily to the ability to use a portion of net operating loss carryovers.  Tax
expense for the period was offset by  approximately  $7.8 million in federal and
state tax benefit  resulting from the write off of the CHAMPUS start-up costs of
$18.4  million and $2.6 federal tax benefit  resulting  from the  merger-related
expenses.

Excluding the effect of merger, restructuring and CHAMPUS start-up expenses, net
income increased  approximately  $800,000 from the comparable prior year period.
The increase  was due  primarily to  increased  operating  revenues  offset by a
higher  Medical Loss Ratio,  increased G&A expenses as a percentage of revenues,
as well as the effect of the prior period benefit related to minority interests.



                                     Page 12

<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's cash flow from operating  activities  during the nine months ended
September 30, 1997  resulted  primarily  from $12.5 million of net income,  $9.9
million in  depreciation  and  amortization  and $3.2 million in  provision  for
doubtful  accounts  as  well  as  a  $4.8  million  net  change  in  assets  and
liabilities,  excluding  cash and cash  equivalents.  The increase in cash which
resulted  from the  change  in  assets  and  liabilities  was  primarily  due to
increases in medical claims payable,  the reserve for losses and loss adjustment
expenses  and  accrued  and other  liabilities,  offset in part by a decrease in
unearned premium revenue resulting from early receipt of the subsequent  month's
HCFA Medicare  capitation  payment as of December 31, 1996, as well as increases
in other assets.

The $39.8 million used for investing and financing activities since December 31,
1996  primarily  consisted of a $20.7 million net increase in  investments,  and
$34.1  million  in  net  capital  expenditures   including   construction  costs
associated with office and medical  facilities,  computer and medical equipment,
and other  capital  needs to support the  Company's  growth.  Additionally,  the
Company used $5.5 million to purchase treasury stock on the open market and $1.8
million for the reduction of debt. The Company also used $3.2 million to acquire
the  operations  and assets of THC as discussed  previously.  These uses of cash
were  offset in part by $8.5  million  received in  connection  with the sale of
stock through the Company's  stock plans.  On January 10, 1997,  the Company and
PCA entered into a credit and share pledge  agreement (the "PCA Loan")  pursuant
to which the Company  made a demand  loan to PCA in the amount of $16.8  million
with an 8.25% fixed rate of interest.
The loan and accrued interest was repaid in the third quarter.

In the second quarter of 1997 the Credit  Agreement was amended and increased to
$100.0 million. In March 1997, the Company borrowed $17.0 million on its line of
credit for general corporate purposes.  The remaining line of credit may be used
for  additional  working  capital,  if necessary.  Also 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").  The CEO
borrowed  $200,000 on August 8, 1997 and $500,000 on August 7 and  September 22,
1997 at an interest  rate equal to the London  InterBank  Offering  Rate plus 53
basis points.  The line of credit is  collateralized  by certain  amounts of the
CEO's Sierra  stock options and is due and payable no later than June 30, 1998.

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  $15.6  million as of
September  30,  1997.  The  HMO  and  insurance   subsidiaries  must  also  meet
requirements to maintain  minimum  stockholder's  equity,  on a statutory basis,
ranging from $200,000 to $5.2 million.  Of the cash and cash equivalents held at
September 30, 1997,  $78.4  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. Remaining amounts are available on an unrestricted basis. The holding
company  will not receive  dividends  from its  regulated  subsidiaries  if such
dividend  payment  would  cause  violation  of  statutory  net worth and reserve
requirements.



                                     Page 13

<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)

On September 30, 1997, the Company was awarded a contract with the Office of the
Civilian Health and Medical Program of the Uniformed Services to provide managed
health care coverage to CHAMPUS eligible  beneficiaries in Region 1. This region
includes  more  than  600,000  individuals  in  Connecticut,   Delaware,  Maine,
Maryland,  Massachusetts,  New Hampshire,  New Jersey,  New York,  Pennsylvania,
Rhode Island, Vermont, Virginia, West Virginia and Washington, D.C. The contract
will  result in  approximately  $1.5  billion  in  estimated  revenues  over the
five-year  term of the  contract.  The  expenses  incurred  in  connection  with
obtaining  this  contract  were  expensed  in the third  quarter  as  previously
discussed.  The Company will fund approximately $30.0 million to SMHS during the
seven month phase-in period of the CHAMPUS Region 1 contract.  These monies will
be reimbursed by the Department of Defense in accordance  with the provisions of
the contract.

CII Financial, Inc., a California workers' compensation company that the Company
acquired in 1995, has convertible subordinated debentures (the "Debentures") due
September 15, 2001 and bearing interest at 7 1/2% which is due  semi-annually on
March 15 and September 15. Each $1,000 in principal is  convertible  into 16.921
shares of the Company's common stock at a conversion price of $59.097 per share.
The Debentures are general  unsecured  obligations of CII and are not guaranteed
by Sierra.  During the nine months  ended  September  30, 1997 Sierra  purchased
$30,000 of the Debentures on the open market.

The Company has a 1997 capital budget of approximately $45.0 million,  primarily
for the construction of a new 59,000 square-foot  medical facility,  a six-story
180,000 square foot corporate  headquarters  building and  accompanying  parking
structure,  computer hardware and software,  furniture and equipment,  and other
requirements needed for the Company's projected growth and expansion. Completion
of the  medical  facility  is  expected  in the  fourth  quarter  of  1997 at an
estimated total cost of $7.3 million.  Completion of the additional  building at
the corporate  headquarters complex is expected in the fourth quarter of 1997 at
a total cost of $35.0  million.  The  Company  believes  that  existing  working
capital, operating cash flow and, if necessary, mortgage financing and equipment
leasing,  and additional  amounts  available  under its credit  facility will be
sufficient  to fund its capital  expenditures,  debt  service and any  expansion
activities  during the next 12 months.  Additionally,  subject to  unanticipated
cash  requirements,  the Company  believes that its existing working capital and
operating  cash flow and, if  necessary,  its access to new and existing  credit
facilities, will enable it to meet its liquidity needs on a longer term basis.

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


                                     Page 14

<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Membership

  The Company's membership at September 30, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>

                                                                            Number of Members at Period Ended
                                                                          September 30             September 30
                                                                              1997                     1996

HMO
<S>                                                                           <C>                     <C>
  Commercial...................................................               151,500                 127,300
  Medicare.....................................................                34,400                  28,500
Managed Indemnity..............................................                68,400                  35,000
Medicare Supplement............................................                25,200                  20,900
Administrative Services........................................               506,900                 291,800
Total Members..................................................               786,400                 503,500
</TABLE>

Effective  September 30, 1997, the Company terminated its workers'  compensation
administrative services contract within the state of Nevada. The contract served
approximately 200,000 enrollees.


Health Care Reform

Numerous  proposals  relating to health care and insurance  reform have been and
may  continue  to be  introduced  in the  United  States  Congress  and in state
legislatures.  At this time, the Company cannot determine which legislation,  if
any, will be enacted or what effect such legislation may have on the Company.


Inflation

Health care costs generally  continue to rise at a rate faster than the Consumer
Price  Index.  The Company  has been able to somewhat  lessen the impact of such
inflation by managing medical costs. There can be no assurance, however, that in
the future the Company's  ability to manage medical costs will not be negatively
impacted  by items  such as  technological  advances,  utilization  changes  and
catastrophic  items,  which could,  in turn,  result in medical  cost  increases
continuing to equal or exceed premium increases.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                     Page 15

<PAGE>



                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          On March 18, 1997, the Company  announced it had terminated its merger
          agreement  with PCA. The original  agreement  had been entered into in
          November  1996. On March 18, 1997,  prior to termination of the merger
          agreement,  PCA filed a lawsuit  against the  Company in the  District
          Court, seeking, among other things, specific performance of the merger
          agreement  and monetary  damages.  The lawsuit has been  dismissed for
          failure to join a necessary  party.  The Company has also  initiated a
          lawsuit  against PCA in the Court of Chancery of the State of Delaware
          seeking a declaratory judgment as well as other remedies.  The Company
          intends to vigorously  pursue all remedies  available to it;  however,
          there  can be no  assurance  that the  Company  will  prevail  in such
          litigation.

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

ITEM 2.   CHANGES IN SECURITIES

               None

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

               None

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

               None

ITEM 5.   OTHER INFORMATION

               None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)      Exhibits

          (10)     Loan Agreement  dated August 11, 1997 between the Company and
                   Anthony M.  Marlon for a  revolving  credit  facility  in the
                   maximum aggregate amount of $3,000,000.

          (11)     Computation of earnings per share.

          (27)     Financial Data Schedule

          (b)      Reports on Form 8-K

                        None

                                     Page 16

<PAGE>


                                   SIGNATURES

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



                                        SIERRA HEALTH SERVICES, INC.
                                        (Registrant)



Date  November 14, 1997                    /S/ JAMES L. STARR
                                        James L. Starr
                                        Senior Vice President,
                                        Chief Financial Officer, and Treasurer
                                        (Principal Financial and
                                        Accounting Officer)

                                     Page 17

<PAGE>