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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, 1996.

                                       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 31,1996 there were 17,789,000 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, 1996

                                      INDEX
                                                                       Page No.

Part I - FINANCIAL INFORMATION

      Item l.     Financial Statements

                  Condensed Consolidated Balance Sheets -
                    September 30, 1996 and December 31, 1995..........        3

                  Condensed Consolidated Statements of Operations -
                    three and nine months ended September 30, 1996
                    and September 30, 1995............................        4

                  Condensed Consolidated Statements of Cash Flows -
                    nine months ended September 30, 1996
                    and September 30, 1995............................        5

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

      Item 2.     Management's Discussion and Analysis of
                    Financial Condition and Results of Operations.....        7



Part II - OTHER INFORMATION

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

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

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

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

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

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

Signature.............................................................       15



                                     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
                                                                                   1996                 1995
CURRENT ASSETS:
<S>                                                                              <C>                  <C>
  Cash and Cash Equivalents.........................................             $ 73,691,000         $ 57,044,000
  Short-term Securities.............................................               89,782,000           72,579,000
  Accounts Receivable (Less: Allowance for Doubtful
     Accounts:  1996 - $5,722,000; 1995 - $5,000,000)...............               23,348,000           21,723,000
  Prepaid Expenses and Other Assets.................................               36,077,000           24,071,000
     Total Current Assets...........................................              222,898,000          175,417,000

LAND, BUILDINGS AND EQUIPMENT.......................................              131,767,000          122,725,000
  Less-Accumulated Depreciation.....................................              (37,717,000)         (31,549,000)
     Land, Buildings and Equipment - Net............................               94,050,000           91,176,000

OTHER ASSETS:
  Long-term Securities..............................................              196,810,000          234,698,000
  Restricted Cash and Securities....................................               12,959,000           12,482,000
  Reinsurance Recoverable (Less Current Portion) ...................               17,697,000           24,952,000
  Other.............................................................               35,100,000           36,421,000
     Total Other Assets.............................................              262,566,000          308,553,000
TOTAL ASSETS........................................................             $579,514,000         $575,146,000

CURRENT LIABILITIES:
  Accounts Payable and Other Accrued Liabilities....................             $ 35,953,000         $ 35,750,000
  Medical Claims Payable............................................               34,776,000           37,463,000
  Current Portion of Reserves for Losses and
     Loss Adjustment Expense .......................................               51,942,000           54,679,000
  Unearned Premium Revenue..........................................               13,155,000           22,260,000
  Current Portion of Long-term Debt.................................                2,178,000            7,108,000
     Total Current Liabilities......................................              138,004,000          157,260,000
RESERVES FOR LOSSES AND LOSS ADJUSTMENT
  EXPENSE (Less Current Portion) ...................................              136,672,000          127,639,000
LONG-TERM DEBT (Less Current Portion)...............................               66,612,000           71,257,000
OTHER LIABILITIES...................................................               11,976,000           11,275,000
TOTAL LIABILITIES...................................................              353,264,000          367,431,000
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:  1996 - 17,889,000
      1995 - 17,677,000.............................................                   89,000               88,000
  Additional Paid-in Capital........................................              151,662,000          147,240,000
  Treasury Stock 100,200 Common Shares..............................                 (130,000)            (130,000)
  Unrealized Holding Gain (Loss) on
      Available-for-Sale Securities ................................                 (671,000)           9,659,000
  Retained Earnings.................................................               75,300,000           50,858,000
     Total Stockholders' Equity.....................................              226,250,000          207,715,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..........................             $579,514,000         $575,146,000
</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
                                                                    1996             1995                1996              1995
OPERATING REVENUES:
<S>                                                             <C>               <C>                 <C>              <C>
  Medical Premiums..........................................    $ 97,480,000      $ 80,592,000        $281,516,000     $234,017,000
  Specialty Product Revenue.................................      34,644,000        24,259,000          98,931,000       71,016,000
  Professional Fees.........................................       7,498,000         4,174,000          22,793,000       11,844,000
  Investment and Other Revenue..............................       6,623,000         6,591,000          20,379,000       18,754,000
    Total ..................................................     146,245,000       115,616,000         423,619,000      335,631,000

OPERATING EXPENSES:
  Medical Expenses..........................................      79,528,000        60,073,000         229,345,000      176,563,000
  Specialty Product Expenses................................      34,025,000        24,534,000          98,208,000       71,657,000
  General, Administrative and Other ........................      18,305,000        16,579,000          52,784,000       47,382,000
  Restructuring and Integration Expenses ...................       8,250,000                             8,250,000
    Total ..................................................     140,108,000       101,186,000         388,587,000      295,602,000

OPERATING INCOME............................................       6,137,000        14,430,000          35,032,000       40,029,000

OTHER INCOME AND EXPENSE:
  Minority Interests in Subsidiary Loss ....................         615,000           734,000           1,568,000        1,830,000
  Interest Expense and Other, Net  .........................      (1,330,000)       (1,437,000)         (3,924,000)      (4,652,000)
    Total ..................................................        (715,000)         (703,000)         (2,356,000)      (2,822,000)

INCOME  FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES ......................................       5,422,000        13,727,000          32,676,000       37,207,000

PROVISION FOR INCOME TAXES..................................       1,355,000         4,028,000           8,234,000        9,973,000

INCOME FROM CONTINUING OPERATIONS ..........................       4,067,000         9,699,000          24,442,000       27,234,000

NET OPERATING LOSS ON
  DISCONTINUED OPERATIONS ..................................                                                              2,010,000

NET LOSS ON DISPOSAL OF
  DISCONTINUED OPERATIONS ..................................         ________          ________            ________       4,590,000

NET INCOME..................................................    $  4,067,000      $  9,699,000        $ 24,442,000    $  20,634,000

EARNINGS PER SHARE
  Income from Continuing Operations ........................            $.23              $.56               $1.38            $1.57
  Net Operating Loss on Discontinued
     Operations ............................................                                                                    .12
  Net Loss on Disposal of
     Discontinued Operations ...............................                                                                    .26
  Earnings Per Share  ......................................            $.23              $.56               $1.38            $1.19

WEIGHTED AVERAGE
  COMMON SHARES OUTSTANDING.................................      17,775,000        17,470,000          17,703,000       17,384,000
</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
                                                                                    1996                  1995

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                <C>                   <C>
  Net Income...........................................................            $24,442,000           $20,634,000
  Adjustments to Reconcile Net Income to Net Cash
     Provided by Operating Activities:
     Depreciation and Amortization.....................................              7,781,000             6,718,000
     Provision for Doubtful Accounts...................................              2,044,000               585,000
     Effect from Discontinued Operations ..............................                                    2,595,000
  Changes in Assets and Liabilities ...................................            (11,488,000)           (3,783,000)
     Net Cash Provided by Operating Activities ........................             22,779,000            26,749,000

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital Expenditures.................................................            (11,295,000)          (13,335,000)
  Land, Building and Equipment Dispositions, Net.......................                133,000               185,000
  Changes in Short-term Securities.....................................            (17,024,000)           52,506,000
  Changes in Long-term Securities......................................             26,986,000           (42,516,000)
  Changes in Restricted Cash and Securities............................               (327,000)               14,000
  Other ...............................................................                                    2,355,000
     Net Cash Used for Investing Activities............................             (1,527,000)           (  791,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from Long-term Borrowings...................................              1,000,000             1,875,000
  Payments on Debt and Capital Leases..................................             (8,964,000)           (2,758,000)
  Exercise of Stock in Connection with Stock Plans.....................              3,359,000             2,576,000
     Net Cash (Used for) Provided by Financing Activities..............             (4,605,000)            1,693,000
NET INCREASE IN CASH
  AND CASH EQUIVALENTS.................................................             16,647,000            27,651,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.........................             57,044,000            38,045,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................            $73,691,000           $65,696,000


                                                                                      For the Nine Months Ended
Supplemental Condensed Consolidated                                               September 30         September 30
     Statements of Cash Flows Information:                                            1996                 1995
Cash Paid During the Period for Interest
  (Net of Amount Capitalized)..........................................             $5,199,000            $5,836,000
Cash Paid During the Period for Income Taxes...........................              6,940,000             6,907,000

Non-cash Investing and Financing Activities:
  Reductions to Funds Withheld by Ceding
     Insurance Company and Future Policy Benefits......................                692,000               896,000
  Additions to Capital Leases .........................................                                      189,000
  Tax Benefits of Stock Issued for Exercise of Options ................              1,065,000             1,291,000
</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 as  the  "Company.")  The  financial  statements  also  include  the
         operations of HMO Texas L.C.  ("HMO  Texas").  As of September 30, 1996
         the  Company  owned a 50%  interest  in HMO Texas and manages the HMO's
         operations.  HMO Texas has an agreement with a key employee  whereby he
         may be  granted  up to a 5% equity  interest  in HMO  Texas if  certain
         employment  requirements  are fulfilled in the future.  In October 1996
         the  Company  agreed to acquire  full  ownership  of HMO Texas for $5.0
         million. 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   audited
         consolidated financial statements and notes thereto for the years ended
         December  31,  1995  and  1994.  In  the  opinion  of  management,  all
         adjustments,  consisting only of recurring  adjustments necessary for a
         fair  statement  of the  results  of  operations  for  the  three-  and
         nine-month periods ended September 30, 1996, have been made.

2.       On October 31,  1995,  the  Company  issued  approximately  2.7 million
         shares of its common stock in exchange for all of the outstanding stock
         of CII  Financial,  Inc.  ("CII").  The merger was  accounted  for as a
         pooling of  interests  and,  accordingly,  the  Company's  consolidated
         financial  statements  have been  restated to include the  accounts and
         operations of CII for all periods prior to the merger.

3.       In April,  1996,  Sierra  obtained a $50.0  million  unsecured  line of
         credit from Bank of America National Trust & Savings  Association for a
         term  of five  years  at an  interest  rate  indexed  from  the  London
         InterBank Offering Rate ("LIBOR") plus 32 basis points. Such rate would
         have been 5.905% at  September  30, 1996 if the line of credit had been
         drawn  upon.  The  line of  credit  may be used for  general  corporate
         purposes,  including acquisitions,  and may be available for additional
         working capital, if necessary.

4.       As previously announced on November 4, 1996, the Company has proposed a
         merger  with  Physician   Corporation  of  America  ("PCA")  by merger,
         providing  for the  exchange of .45 share of Sierra's  common stock for
         each share of PCA common stock.

5.       Amounts  in  the  accompanying   Condensed  Consolidated  Statement  of
         Operations  for the three  months and nine months ended  September  30,
         1995  have  been   reclassified   to  conform  with  the  current  year
         presentation.

                                     Page 6

<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 4, 1996. 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.

         On October 31, 1995, the Company acquired CII, a workers'  compensation
insurance  company,  for  approximately  $76.3  million  of  common  stock  in a
transaction  accounted for as a pooling of interests.  The information contained
in this discussion and analysis has been restated to include the results of CII.

Results of Operations,  three months ended September 30, 1996, compared to three
months ended September 30, 1995

         The  Company's  total  operating  revenues  for the three  months ended
September 30, 1996 increased  26.5% to $146.2  million,  from $115.6 million for
the three months ended  September  30, 1995.  The increase was  primarily due to
medical premium revenue increases of $16.9 million, or 21.0%, from the Company's
HMO and  managed  indemnity  insurance  subsidiaries.  Such  additional  premium
revenue resulted  principally from a 19.4% 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  slightly
overall,  primarily  due to a small  increase  in its  capitation  rate  for its
Medicare  members as  established  by the  Health  Care  Finance  Administration
("HCFA").  The Company realized  minimal rate changes for the HMO  subsidiaries'
commercial  groups  and the  managed  indemnity  subsidiary.  Specialty  product
revenue  increased $10.4 million,  or 42.8%, in the three months ended September
30,  1996,  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.  Professional  fee  revenue  increased  by $3.3
million,  or 79.6%,  due primarily to the  acquisition of a medical  facility in
October  1995.   Investment  and  other  revenue  increased  slightly  from  the
comparable period in the prior year.

         Total  medical  expenses  increased  by  $19.5  million  over  the same
three-month  period last year. This 32.4% increase  resulted  primarily from the
consolidated  member  month  growth  discussed  previously  as well as  clinical
expansions and increases associated with professional fee growth. These factors,
as well as an increase  in Medicare  members as a  percentage  of  fully-insured
members,  resulted in an increase in medical expenses as a percentage of medical
premiums and  professional  fees ("Medical Loss Ratio") from 70.9% to 75.8%. The
cost of providing medical care to Medicare members generally  requires a greater
percentage of the premiums  received.  Specialty product expenses increased $9.5
million,  or 38.7%,  primarily  due to the 42.8%  increase in specialty  product
revenue discussed previously. Specialty product revenue and expense is primarily
related to the workers' compensation insurance business.



                                     Page 7

<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, 1996, compared to three
months ended September 30, 1995 (continued)

         The combined ratio for the workers' compensation insurance business was
104.4% compared to 108.1% for the same period in the prior year. The decrease in
the combined ratio is due primarily to a 14.7% decrease in the operating expense
ratio partially  offset by an 11.0% increase in the loss ratio.  The higher loss
ratio was  impacted by the effects of the  reduction  in premium  rates from the
competitive open rating  environment in California.  The incurred losses for the
current accident year were partially offset by the Company's  ability to overlay
and implement  managed care  techniques to the workers'  compensation  claims as
well as  favorable  loss  development  in  California  on prior  accident  years
totaling $3.4 million compared to favorable loss development of $4.8 million for
the comparable prior year period. The loss and loss adjustment expense ratio for
the three  months  ended  September  30, 1996  reflects  the  Company's  current
projection of the ultimate  costs of claims  occurring in the current as well as
prior  accident  years and is within the range of  reserves  recommended  by the
Company's independent consulting actuary.  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 other ("G&A") costs increased $1.7 million,
or 10.4%,  compared to the third  quarter of 1995.  As a percentage of revenues,
however,  G&A costs for the third quarter of 1996  decreased to 12.5% from 14.3%
during the  comparable  period in 1995.  Of the $1.7  million  increase  in G&A,
$400,000 consisted of increased  compensation  expense resulting  primarily from
additional   employees   supporting  expanded  services.   Broker,   third-party
administration and premium tax expenses increased approximately $1.0 million due
to increased membership.  Additional increases in other G&A costs were offset by
savings in  advertising,  promotion,  and public  relations  costs.  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, 1996 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.

         In the third  quarter of 1996,  the Company  recorded  expenses of $8.3
million for the restructuring and integration of certain insurance operations in
California,  Arizona,  and  Colorado.  Consolidation  of these  operations  will
improve  operating  efficiencies and allow the Company to focus more on its core
operating markets.

         Excluding  the  effect  of  the  restructure  and  integration   costs,
operating  income  for the  three  months  ended  September  30,  1996  remained
consistent  with the  three  months  ended  September  30,  1995.  Increases  in
operating revenues were offset by corresponding increases in operating expenses.
Net income  decreased by $5.6 million,  primarily due to the  restructuring  and
integration  expenses  offset by a $2.7 million  decrease in the  provision  for
income  taxes.  The  decrease  in the  effective  tax rate  from  29.3% to 25.0%
resulted from 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.

                                     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,  nine months ended  September 30, 1996,  compared to nine
months ended September 30, 1995

         The  Company's  total  operating  revenues  for the nine  months  ended
September 30, 1996 increased  26.2% to $423.6  million,  from $335.6 million for
the nine months ended  September  30, 1995.  The increase was  primarily  due to
medical premium revenue increases of $47.5 million, or 20.3%, from the Company's
HMO and  managed  indemnity  insurance  subsidiaries.  Such  additional  premium
revenue  resulted  principally  from a 19.1%  increase in member  months for the
period. The Company's HMO and managed indemnity insurance  subsidiaries' premium
rates  increased  slightly,  primarily due to a small increase in its capitation
rate for its Medicare members  established by HCFA. The Company realized minimal
rate  changes  for the  HMO  subsidiaries'  commercial  groups  and the  managed
indemnity  subsidiary.  Specialty  product revenue  increased $27.9 million,  or
39.3%,  in the  nine  months  ended  September  30,  1996  compared  to the same
nine-month period in the prior year. The increase was primarily due to specialty
product  revenue  growth in the  workers'  compensation  insurance  market and a
$500,000  increase in  specialty  product  revenue  relating  to  administrative
services for the nine months  ended  September  30,  1996,  compared to the same
nine-month  period in the  prior  year.  Professional  fees  increased  by $10.9
million,  or 92.4%,  primarily due to the  acquisition of a medical  facility in
October 1995.  Investment and other revenue increased $1.6 million, or 8.7%, due
to certain  investment gains recognized in the first six months of 1996, as well
as an overall increase in the balance of invested funds.

         Total  medical  expenses  increased  by  $52.8  million  over  the same
nine-month  period last year.  This 29.9% increase  resulted  primarily from the
consolidated  member  month  growth  discussed  previously  as well as  clinical
expansions and increases associated with professional fee growth. These factors,
as well as an increase  in Medicare  members as a  percentage  of  fully-insured
members,  resulted in an increase in the Medical Loss Ratio from 71.8% to 75.4%.
The cost of providing  medical  care to Medicare  members  generally  requires a
greater percentage of the premium received. Specialty product expenses increased
$26.6  million,  or 37.1%,  due  primarily  to the 39.3%  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
104.7% for the first nine months of 1996  compared to 107.2% for the same period
in the prior year.  The  decrease in the  combined  ratio is due  primarily to a
15.6%  decrease  in the  operating  expense  ratio  partially  offset by a 13.2%
increase in the loss ratio. The increase in the loss and loss adjustment expense
ratio is primarily  attributable to a higher loss ratio for the current accident
year.  The higher loss ratio was  impacted by the  effects of the  reduction  in
premium rates from the competitive  open rating  environment in California.  The
incurred  losses for the  current  accident  year were  partially  offset by the
Company's  ability to overlay  and  implement  managed  care  techniques  to the
workers'  compensation  claims,  as well as favorable loss  development on prior
accident years totaling $10.5 million  compared to favorable loss development of
$15.6 million for the comparable prior year period. The loss and loss adjustment
expense  ratio  for the nine  months  ended  September  30,  1996  reflects  the
Company's  current  projection of the ultimate costs of claims  occurring in the
current  as well as prior  accident  years and is within  the range of  reserves
recommended  by  the  Company's   independent   consulting   actuary.   Workers'
compensation  claims are paid over several  years.  Until  payment is made,  the
Company invests the monies, earning a yield on the invested balance.


                                     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,  nine months ended  September 30, 1996,  compared to nine
months ended September 30, 1995 (continued)

         G&A costs increased $5.4 million, or 11.4%,  compared to the first nine
months of 1995.  As a percentage of revenues,  however,  G&A costs for the first
nine months of 1996 decreased to 12.5% from 14.1% during the  comparable  period
in 1995.  Of the  $5.4  million  increase  in G&A,  $2.4  million  consisted  of
compensation  expense resulting primarily from additional  employees  supporting
expanded services. Broker, third-party administration,  and premium tax expenses
increased  approximately  $2.4 million due to increased  membership.  Additional
increases  in other G&A costs were  partially  offset by savings in  advertising
expense. The Company markets its products primarily to employer groups and labor
unions 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, 1996
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  and other  expense  decreased  approximately  $700,000  due
primarily to the reduction of debt.

         In the third  quarter of 1996,  the Company  recorded  expenses of $8.3
million for the restructuring and integration of certain insurance operations in
California,  Arizona,  and  Colorado.  Consolidation  of these  operations  will
improve  operating  efficiencies and allow the Company to focus more on its core
operating markets.

         The Company's  effective  tax rate for the nine months ended  September
30, 1996 was approximately  25.2% compared to 26.8% for the same period in 1995.
Such tax  rates are the  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.

         Excluding  the  effect  of  the  restructure  and  integration   costs,
operating income increased  approximately $3.3 million for the nine months ended
September 30, 1996  compared to the same period of the prior year.  The increase
was due primarily to increased operating revenues, and decreased G&A expenses as
a percentage  of revenues,  partially  offset by an increase in the medical loss
ratio. Net income for the nine-month period increased $3.8 million primarily due
to the reasons  discussed above,  offset by $8.3 million of expenses relating to
integration  and  restructuring  of  the  insurance  operations  in  California,
Arizona,  and Colorado.  In addition,  CII sold its interest in an  unprofitable
subsidiary during 1995 resulting in a net loss on the operations and disposal of
the subsidiary of approximately  $6.6 million in the nine months ended September
30, 1995.




                                     Page 10

<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

         During 1996, the Company's  working capital  increased $66.7 million to
$84.9  million.  The primary  source of cash during this  nine-month  period was
operations.

         The  Company's  cash flow from  operating  activities  during  the nine
months ended  September  30, 1996 resulted  primarily  from $24.4 million of net
income and $7.8 million in depreciation  and  amortization.  This source of cash
was offset by a $9.4  million  net change in assets and  liabilities,  excluding
cash and cash  equivalents.  The decrease in cash which resulted from the change
in operating  assets and liabilities was primarily due to the change in unearned
revenue and other  current  assets,  as well as net accounts  receivable.  These
decreases in cash were  partially  offset by increases in the reserve for losses
and loss adjustment expense and a decrease in the reinsurance recoverable.

         The $6.1 million used for  investing  and  financing  activities  since
December  31,  1995  primarily   consisted  of  $11.3  million  in  net  capital
expenditures  including  construction costs associated with medical  facilities,
office facilities,  computer and medical  equipment,  and other capital needs to
support  the  Company's  growth  offset  by  a  $9.6  million  net  decrease  in
investments.  Additionally,  $9.0  million  used for the  reduction  of debt was
offset in part by $3.4 million received in connection with the purchase of stock
through the Company's stock plans, as well as $1.0 million from borrowings.

         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  $13.0 million,  as of
September  30,  1996.  The  HMO  and  insurance   subsidiaries  must  also  meet
requirements  to maintain  minimum  capital  and  surplus on a statutory  basis,
ranging from $200,000 to $5.2 million.  Of the cash and cash equivalents held at
September 30, 1996,  $59.9  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 terms of  existing  management  agreements  and by
dividends. Remaining amounts are available on an unrestricted basis. The holding
company  will not receive  dividends  from its  regulated  subsidiaries  if such
dividend  payment  would  cause  violation  of  statutory  net worth and reserve
requirements.

         The Company is part of a  consortium  of managed  care  companies  that
submitted  a bid to CHAMPUS for  Regions 7 and 8. In June 1996,  the  consortium
received notification that it had been awarded the contract.

         The  Company has  submitted  an initial  response  to the  government's
request for proposal for providing  managed  health care services to the 665,000
CHAMPUS eligibles living in 12 northeastern states plus the District of Columbia
that  comprise  Region 1. The  Company  expects  final  notification  of its bid
results  in the first  quarter  of 1997.  The  Company  expects  to incur  total
expenses  of  approximately  $7 million  during  the  proposal  process  for the
contract.



                                     Page 11

<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)

         In April,  1996,  Sierra  obtained a $50.0  million  unsecured  line of
credit from Bank of America  National Trust & Savings  Association for a term of
five years at an  interest  rate equal to the LIBOR plus 32 basis  points.  Such
rate would have been 5.905% at September 30, 1996 if the line of credit had been
drawn  upon.  The line of credit  may be used for  general  corporate  purposes,
including acquisitions,  and may be available for additional working capital, if
necessary.

         In September 1991, CII issued convertible  subordinated debentures (the
"Debentures")  due September 15, 2001.  The  Debentures  bear 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 only and were not  guaranteed  by  Sierra.  During  the nine
months ended September 30, 1996 Sierra purchased $2,303,000 of the Debentures on
the open market.

         The Company has a 1996 capital budget of  approximately  $25.0 million,
primarily for the  construction of a new 59,000  square-foot  medical  facility,
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 first half of 1997 at an estimated  cost of
$7.3 million. In addition, in the third quarter of 1996 the Company broke ground
on a six-story  office  building  and a  five-story  parking  structure  on land
contiguous to the existing  administrative  headquarters and other Company-owned
buildings in northwest Las Vegas.  Construction  is scheduled for  completion in
late 1997 at an  estimated  cost of $29  million,  exclusive  of the cost of the
land.  The land was purchased for  approximately  $2.0 million in December 1995.
The Company anticipates financing the building through a leasing arrangement.

         The Company's liquidity needs over the next 12 months will primarily be
for capital  items to support  growing  membership,  as well as debt service and
expansion of the Company's operations, including acquisition and integration.

         Subject to significant  unanticipated  cash  requirements,  the Company
believes  that its  existing  working  capital and  operating  cash flow and, if
necessary,  its  access to new  credit  facilities,  will  enable it to meet its
liquidity needs on a longer term basis.




                                     Page 12

<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Membership

         The Company's membership at September 30, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>

                                                                          Number of Members at Period Ended
                                                                         September 30            September 30
                                                                             1996                    1995


HMO
<S>                                                                         <C>                      <C>
  Commercial..................................................              127,329                  111,783
  Medicare....................................................               28,539                   23,931
Managed Indemnity.............................................               34,940                   29,245
Medicare Supplement...........................................               20,937                   13,367
Administrative Services.......................................              291,754                  183,036
Total Members.................................................              503,499                  361,362
</TABLE>


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.

                                     Page 13

<PAGE>



                            PART II OTHER INFORMATION


Item 1.        Legal Proceedings

               None

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

                   (11)      Computation of earnings per share

                   (27)      Financial Data Schedule

                   (99)      Press Release announcing the merger of 
                             Sierra Health Services, Inc. with
                             Physician Corporation of America

               (b) Reports on Form 8-K

                   None

                                     Page 14

<PAGE>


                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, 1996                    /S/ JAMES L. STARR
                                             James L. Starr
                                             Vice President
                                             Chief Financial Officer
                                               and Treasurer
                                             (Chief Accounting Officer)


                                     Page 15

<PAGE>