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, 1999

                                                        OR

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


For the transition period from                        to

Commission File Number 1-8865


                          SIERRA HEALTH SERVICES, INC.
             (Exact name of registrant as specified in its charter)

                                NEVADA              88-0200415
              (State or other jurisdiction of      (I.R.S. Employer
              incorporation or organization)      Identification No.)


                   2724 NORTH TENAYA WAY
                       LAS VEGAS, NV                       89128
         (Address of principal executive offices)        (Zip Code)

                                   (702) 242-7000
              (Registrant's telephone number, including area code)

     N/A (Former name,  former  address and former fiscal year, if changed since
last report)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

     As of  October  29,  1999  there  were  26,876,000  shares of common  stock
outstanding.





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

                                      INDEX
<TABLE>

<CAPTION>
                                                                                                             Page No.

Part I - FINANCIAL INFORMATION



      Item l.     Financial Statements

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

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

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

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

      Item 2.     Management's Discussion and Analysis of
                    Financial Condition and Results of Operations............................................   10

      Item 3.     Quantitative and Qualitative Disclosures
                    about Market Risk........................................................................   17



Part II - OTHER INFORMATION

      Item l.     Legal Proceedings..........................................................................   18

      Item 2.     Changes in Securities......................................................................   18

      Item 3.     Defaults Upon Senior Securities............................................................   18

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

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

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

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



                                                     Page 2

                         PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

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

<CAPTION>
                                                                                        September 30           December 31
                                                                                            1999                  1998
CURRENT ASSETS:
<S>                                                                                  <C>                   <C>
  Cash and Cash Equivalents...................................................       $     36,847,000      $     83,910,000
  Short-term Investments......................................................             74,882,000           110,008,000
  Accounts Receivable (Less: Allowance for Doubtful
     Accounts:  1999 - $12,948,000; 1998 - $10,540,000).......................             42,280,000            44,100,000
  Military Accounts Receivable................................................             74,188,000            69,552,000
  Reinsurance Recoverable.....................................................             46,049,000            32,076,000
  Prepaid Expenses and Other Assets...........................................             58,414,000            54,285,000
     Total Current Assets.....................................................            332,660,000           393,931,000

PROPERTY AND EQUIPMENT, NET...................................................            252,750,000           229,164,000
LONG-TERM INVESTMENTS.........................................................            188,373,000           180,816,000
RESTRICTED CASH AND INVESTMENTS...............................................             18,971,000            17,758,000
REINSURANCE RECOVERABLE (Less Current Portion)................................             57,986,000            34,946,000
GOODWILL .....................................................................            185,785,000           142,471,000
OTHER ASSETS..................................................................             52,026,000            46,034,000
TOTAL ASSETS..................................................................         $1,088,551,000        $1,045,120,000

CURRENT LIABILITIES:
  Accounts Payable and Accrued Liabilities....................................       $     86,169,000     $      69,284,000
  Accrued Payroll and Taxes...................................................             25,875,000            19,942,000
  Medical Claims Payable......................................................             78,942,000            78,022,000
  Current Portion of Reserve for Losses and
     Loss Adjustment Expense .................................................             81,444,000            79,869,000
  Unearned Premium Revenue....................................................             20,043,000            39,968,000
  Military Health Care Payable................................................             56,005,000            53,820,000
  Current Portion of Long-term Debt...........................................              4,690,000             5,263,000
     Total Current Liabilities................................................            353,168,000           346,168,000

RESERVE FOR LOSSES AND LOSS ADJUSTMENT
  EXPENSE (Less Current Portion) .............................................            131,698,000           132,394,000
LONG-TERM DEBT (Less Current Portion).........................................            280,721,000           242,398,000
OTHER LIABILITIES.............................................................             20,907,000            20,446,000
TOTAL LIABILITIES.............................................................            786,494,000           741,406,000

STOCKHOLDERS' EQUITY:
  Preferred Stock, $.01 Par Value,
    1,000,000 Shares Authorized; None Issued
  Common Stock, $.005 Par Value
    60,000,000 Shares Authorized;
    Shares Issued:  1999 - 28,399,000; 1998 - 28,236,000......................                 142,000             141,000
  Additional Paid-in Capital..................................................             175,915,000         173,583,000
  Treasury Stock; 1999 - 1,523,000; 1998 - 967,000............................             (22,789,000)        (14,821,000)
Accumulated Other Comprehensive Income:
     Unrealized Holding Loss on
         Available-for-Sale Securities .......................................             (13,762,000)         (1,027,000)
  Retained Earnings...........................................................             162,551,000         145,838,000
TOTAL STOCKHOLDERS' EQUITY....................................................             302,057,000         303,714,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................          $1,088,551,000      $1,045,120,000
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                                     Page 3
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>


<CAPTION>
                                                                Three Months Ended                    Nine Months Ended
                                                                     September 30                       September 30

                                                                 1999              1998             1999               1998
OPERATING REVENUES:


<S>                                                          <C>              <C>               <C>                <C>
  Medical Premiums....................................       $202,643,000     $145,990,000      $614,603,000       $427,029,000
  Military Contract Revenues..........................         77,012,000       72,418,000       218,193,000        132,806,000
  Specialty Product Revenues..........................         24,589,000       44,016,000        66,217,000        120,898,000
  Professional Fees...................................         12,743,000       10,939,000        40,112,000         33,033,000
  Investment and Other Revenues.......................          5,583,000        7,719,000        17,337,000         22,270,000
    Total ............................................        322,570,000      281,082,000       956,462,000        736,036,000

OPERATING EXPENSES:
  Medical Expenses (Note 2)...........................        173,787,000      122,261,000       539,094,000        356,059,000
  Military Contract Expenses..........................         74,139,000       71,082,000       210,243,000        128,101,000
  Specialty Product Expenses..........................         22,962,000       42,390,000        61,833,000        118,149,000
  General, Administrative and
    Marketing Expenses................................         34,246,000       27,136,000       102,789,000         79,301,000
  Impairment and Other Costs (Note 2).................                                             5,106,000
    Total ............................................        305,134,000      262,869,000       919,065,000        681,610,000

OPERATING INCOME......................................         17,436,000       18,213,000        37,397,000         54,426,000

INTEREST EXPENSE AND OTHER, NET  .....................         (4,169,000)      (1,207,000)      (12,344,000)        (4,107,000)

INCOME BEFORE INCOME TAXES ...........................         13,267,000       17,006,000        25,053,000         50,319,000

PROVISION FOR INCOME TAXES............................         (4,404,000)      (4,422,000)       (8,340,000)       (12,997,000)

NET INCOME ...........................................      $   8,863,000     $ 12,584,000      $ 16,713,000       $ 37,322,000

NET INCOME PER COMMON SHARE...........................               $.33             $.46              $.62              $1.36
NET INCOME PER COMMON SHARE
 ASSUMING DILUTION  ..................................               $.33             $.46              $.62              $1.34

WEIGHTED AVERAGE COMMON SHARES
 OUTSTANDING        ..................................         26,856,000        27,433,000       26,944,000         27,462,000

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING ASSUMING DILUTION.......................         26,873,000        27,633,000       26,976,000         27,836,000
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                                     Page 4


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>

<CAPTION>
                                                                               Nine Months Ended September 30

                                                                                            1999                 1998

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                                     <C>                  <C>
    Net Income                                                                          $ 16,713,000         $ 37,322,000
    Adjustments to Reconcile Net Income to Net Cash
       Provided by Operating Activities:
          Depreciation and Amortization............................                       20,946,000           13,274,000
          Provision for Doubtful Accounts ..................                               4,290,000            4,314,000
    Changes in Assets and Liabilities                                                    (85,278,000)         (11,725,000)
       Net Cash (Used for) Provided by Operating Activities                              (43,329,000)          43,185,000

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital Expenditures, Net of Equipment Dispositions                                  (41,072,000)         (25,597,000)
    Changes in Short-term Investments.                                                    32,680,000          (18,345,000)
    Changes in Long-term Investments.                                                    (22,548,000)         (38,000,000)
    Changes in Restricted Cash and Investments.                                           (1,908,000)          (1,228,000)
    Corporate Acquisition                                                                 (3,000,000)
    Corporate Disposition, net of cash disposed                                                                 1,373,000
       Net Cash Used for Investing Activities.                                           (35,848,000)         (43,835,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from Borrowings.                                                             79,000,000           30,200,000
    Payments on Debt and Capital Leases.                                                 (41,250,000)         (39,357,000)
    Exercise of Stock in Connection with Stock Plans.                                      2,332,000            6,161,000
    Purchase of Treasury Stock.                                                           (7,968,000)          (9,016,000)
        Net Cash Provided by (Used for) Financing Activities.                             32,114,000          (12,012,000)

NET DECREASE IN CASH AND CASH EQUIVALENTS.                                               (47,063,000)         (12,662,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                            83,910,000           96,841,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD.                                             $ 36,847,000         $ 84,179,000
</TABLE>
<TABLE>

<CAPTION>
                                                                                    Nine Months Ended September 30
Supplemental Condensed Consolidated
        Statements of Cash Flows Information:                                               1999                 1998

Cash Paid During the Period for Interest
<S>                                                                                     <C>                    <C>
    (Net of Amount Capitalized).                                                        $14,077,000            $ 7,744,000
Cash Paid During the Period for Income Taxes                                              3,029,000             13,285,000

Non-cash Investing and Financing Activities:
    Tax Benefits of Stock Issued for Exercise of Options .                                    1,000                808,000
    Additions to Capital Leases ....................................                                             3,070,000
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                                     Page 5
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


     1. The accompanying unaudited financial statements include the consolidated
accounts of Sierra Health Services, Inc. ("Sierra", a holding company,  together
with its subsidiaries,  collectively  referred to herein as the "Company").  All
material  intercompany  balances and transactions  have been  eliminated.  These
statements  have  been  prepared  in  conformity  with  the  generally  accepted
accounting   principles   used  in  preparing  the  Company's   annual   audited
consolidated  financial statements but do not contain all of the information and
disclosures  that  would be  required  in a complete  set of  audited  financial
statements.  They should,  therefore,  be read in conjunction with the Company's
annual audited  consolidated  financial statements and related notes thereto for
the years ended  December 31,  1998 and 1997. In the opinion of management,  the
accompanying  unaudited condensed  consolidated financial statements reflect all
adjustments,  consisting only of normal recurring  adjustments,  necessary for a
fair presentation of the financial results for the interim periods presented.

2.  Premium Deficiency, Impairment and Other Charges:

                  Medical Expenses:

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

                  Impairment and Other Charges:

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

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


     On October 31, 1998, a subsidiary of Sierra  completed the  acquisition  of
certain assets of Kaiser  Foundation  Health Plan of Texas. In conjunction  with
this  acquisition,  the Company  recorded a liability for the estimated  premium
deficiency  associated with existing  contracts.  The original liability for the
estimated premium  deficiency was based upon assumptions of membership and other
operating  information,  some of which had yet to be received.  During 1999, the
Company continued to gather such data, including obtaining data from the seller,
and based upon the  receipt and  analysis of this data,  the Company has revised
the initial  estimate of the premium  deficiency  accrual  with a  corresponding
increase in goodwill.

                                     Page 6
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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

<CAPTION>
                                                                                           Dilutive
                                                                            Basic        Stock Options       Diluted

     For the Three Months ended September 30, 1999:
<S>                                                                   <C>                        <C>     <C>
       Income from Continuing Operations                              $  8,863,000               0       $  8,863,000
       Shares                                                           26,856,000          17,000         26,873,000
       Per Share Amount                                                       $.33                               $.33

     For the Three Months ended September 30, 1998:
       Income from Continuing Operations                               $12,584,000                        $12,584,000
       Shares                                                           27,433,000         200,000         27,633,000
       Per Share Amount                                                       $.46                               $.46

     For the Nine Months ended September 30, 1999:
       Income from Continuing Operations                               $16,713,000                        $16,713,000
       Shares                                                           26,944,000          32,000         26,976,000
       Per Share Amount                                                       $.62                               $.62

     For the Nine Months ended September 30, 1998:
       Income from Continuing Operations                               $37,322,000                       $37,322,000
       Shares                                                           27,462,000         374,000        27,836,000
       Per Share Amount                                                      $1.36                             $1.34
</TABLE>

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


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

<CAPTION>
                                                                 Three Months Ended                 Nine Months Ended
                                                                   September 30                       September 30
                                                               1999              1998          1999                    1998

<S>                                                           <C>            <C>             <C>                <C>
      NET INCOME: ......................                      $8,863,000     $12,584,000     $16,713,000        $37,322,000
       Change in net Unrealized Holding
        Gains (Losses) on Investments,
                    net of income taxes ..                    (3,172,000)        662,000     (12,735,000)           853,000


      COMPREHENSIVE NET INCOME  ...........                   $5,691,000     $13,246,000    $  3,978,000        $38,175,000
</TABLE>


6.   Segment Reporting

     The  Company  has  three  reportable  segments  based on the  products  and
services offered:  managed care and corporate operations,  workers' compensation
operations and military  health  services  operations.  The managed care segment
includes managed health care services  provided through HMOs,  managed indemnity
plans, third- party administrative  services programs for employer-funded health
benefit plans,  multi-specialty  medical groups,  other  ancillary  services and
corporate  operations.   The  workers'  compensation  segment  insures  workers'
compensation  claims risk in return for premium  revenues.  The military  health
services segment  administers a managed care federal contract for the Department
of Defense's TRICARE program in Region 1. This contract is currently  structured
as five one-year option periods.

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


                                                     Page 7
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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

<CAPTION>
                                                          Managed Care            Workers'              Military
                                                         and Corporate            Compensation        Health Services
                                                         Operations              Operations             Operations          Total
Three Months Ended September 30, 1999
<S>                                                        <C>                            <C>                   <C>        <C>
Medical Premiums                                           $202,643                       0                     0          $202,643
Specialty Product Revenues.                                   2,395              $   22,194                                  24,589
Professional Fees  ......................                    12,743                                                          12,743
Military Contract Revenues .......................                                                       $ 77,012            77,012
Investment and Other Revenues.                                1,625                   3,797                   161             5,583
   Total Revenue. .......................                  $219,406              $   25,991              $ 77,173          $322,570

Segment Operating Profit.                                $    9,295 $                 5,102             $   3,039          $ 17,436
Interest Expense and Other                                   (3,105)                   (932)                 (132)           (4,169)
Net Income Before Income Taxes                           $    6,190             $     4,170             $   2,907          $ 13,267

Three Months Ended September 30, 1998
Medical Premiums                                           $145,990                                                        $145,990
Specialty Product Revenues.                                   3,566               $  40,450                                  44,016
Professional Fees  ........................                  10,939                                                          10,939
Military Contract Revenues .......................                                                       $ 72,418            72,418
Investment and Other Revenues.                                2,064                   5,450                   205             7,719
   Total Revenue. ......................                   $162,559               $  45,900              $ 72,623          $281,082

Segment Operating Profit                                  $  10,967              $    5,705             $   1,541         $  18,213
Interest Expense and Other                                     (304)                   (820)                  (83)           (1,207)
Net Income Before Income Taxes.                           $  10,663              $    4,885             $   1,458         $  17,006

Nine Months Ended September 30, 1999
Medical Premiums                                           $614,603                                                        $614,603
Specialty Product Revenues                                    6,951                $ 59,266                                  66,217
Professional Fees  .......................                   40,112                                                          40,112
Military Contract Revenues .......................                                                       $218,193           218,193
Investment and Other Revenues.                                5,006                  11,921                   410            17,337
   Total Revenue. .....................                    $666,672               $  71,187              $218,603          $956,462

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

Nine Months Ended September 30, 1998
Medical Premiums                                           $427,029                                                        $427,029
Specialty Product Revenues.                                   9,963                $110,935                                 120,898
Professional Fees  .......................                   33,033                                                          33,033
Military Contract Revenues .......................                                                       $132,806           132,806
Investment and Other Revenues                                 6,325                  15,728                   217            22,270
   Total Revenue. ......................                   $476,350                $126,663              $133,023          $736,036

Segment Operating Profit                                  $  33,913               $  15,590            $    4,923         $  54,426
Interest Expense and Other                                     (631)                 (3,071)                 (405)           (4,107)
Net Income Before Income Taxes.                           $  33,282               $  12,519            $    4,518         $  50,319

</TABLE>



                                                     Page 8

                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


     7.  In the  second  quarter  of  1999,  the  Company  filed  a  motion  for
preliminary  injunction in Clark County District Court against  Universal Health
Services and the Valley Health System ("Universal").  The Company has reimbursed
Universal for services  provided to health plan members  based on  predetermined
rates  established  through  one  of its  subsidiaries.  However,  Universal  is
disputing  the  validity  of the  contract  and is billing  the  Company and its
members  additional  charges.  The Company is  currently  engaged in  settlement
negotiations  and the outcome of these  negotiations  could result in a material
expense to the  Company;  however,  the range of this  potential  loss cannot be
reasonably  estimated at this time, and has not been accrued as of September 30,
1999.

     8. Certain amounts in the Condensed  Consolidated  Financial Statements and
accompanying  notes for the three and nine months ended  September 30, 1998 have
been reclassified to conform with the current year presentation.

                                                     Page 9
                 SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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


     The following discussion and analysis provides information which management
believes  is relevant  for an  assessment  and  understanding  of the  Company's
consolidated  financial  condition  and results of  operations.  The  discussion
should  be  read  in  conjunction  with  the  Condensed  Consolidated  Financial
Statements and Related Notes thereto. Any forward-looking  information contained
in this Management's  Discussion and Analysis of Financial Condition and Results
of  Operations  and any other  sections  of this  Quarterly  Report on Form 10-Q
should be considered in connection with certain cautionary  statements contained
in the Company's  Current Report on Form 8-K dated March 17, 1999,  incorporated
herein by reference.  Such cautionary  statements are made pursuant to the "safe
harbor" provisions of the Private  Securities  Litigation Reform Act of 1995 and
identify important risk factors that could cause the Company's actual results to
differ from those  expressed  in any  projected,  estimated  or  forward-looking
statements relating to the Company.

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

     The Company's total operating revenues for the three months ended September
30, 1999,  increased  approximately  14.8% to $322.6 million from $281.1 million
for the three months ended September 30, 1998. The increase was primarily due to
increases in medical  premium  revenue of $56.7  million and  military  contract
revenue of $4.6 million  offset by a decrease in specialty  product  revenues of
$19.4 million.

     Of the  $56.7  million  or  38.8%  increase  in  medical  premium  revenue,
approximately  $36.2 million is attributed  to the  Company's  Dallas/Ft.  Worth
operations  which were  acquired in the fourth  quarter of 1998.  On October 31,
1998,  the  Company  completed  the  acquisition  of  certain  assets  of Kaiser
Foundation  Health Plan of Texas  ("Kaiser-Texas"),  a health plan  operating in
Dallas/Ft.  Worth with  approximately  109,000  members at October 31, 1998, and
Permanente  Medical  Association of Texas  ("Permanente"),  a medical group with
approximately 150 physicians.  The remaining  increase of $20.5 million or 14.0%
is due to additional  premium  revenue at the Company's  other HMO and insurance
subsidiaries.  Excluding the  Dallas/Ft.  Worth  operations,  member months (the
number  of months of each  period  that an  individual  is  enrolled  in a plan)
increased approximately 7%. Medicare member months increased 13%. Such growth in
Medicare  member  months  contributes  significantly  to the increase in premium
revenues as the  Medicare per member  premium  rates are over three times higher
than the  average  commercial  premium  rate.  Excluding  the  Dallas/Ft.  Worth
operations,   the  Company's  HMO  and  insurance  subsidiaries'  premium  rates
increased  approximately  6%.  The  Company's  HMO  commercial  rates  increased
approximately  4% in Nevada  and  approximately  15% in Texas.  Compared  to the
fourth quarter of 1998,  commercial  rates for the Company's  recently  acquired
Dallas/Ft.  Worth  operations  have  increased  approximately  7%. The Company's
managed indemnity rates increased  approximately 9% and Medicare rates increased
approximately 2%. Over 90% of the Company's Nevada Medicare members are enrolled
in the Health  Care  Financing  Administration's  ("HCFA")  Social HMO  Medicare
program.  HCFA is considering  adjusting the reimbursement factor for the Social
HMO members in the future.  If the  reimbursement  for these  members  decreases
significantly and related benefit changes are not made timely,  there could be a
material adverse effect on the Company's business.

     Military contract revenue increased from $72.4 million to $77.0 million,  a
6.3% increase.  The revenue is a result of health care delivery under the Region
1 TRICARE contract that began in June 1998. The increased revenue is primarily a
result of an  increase  in  eligible  beneficiaries  and a shift of health  care
services from military treatment  facilities to the Company's physician network.
The  Company has also  recorded  additional  revenue  associated  with  contract
changes  requested  by the  Department  of Defense.  Specialty  product  revenue
decreased  $19.4  million,  or 44.1%,  for the three months ended  September 30,
1999, compared to the same prior year period. Of the decrease, $18.2 million was
due to a decrease in revenue in the workers' compensation  insurance segment and
$1.2  million  was due to a decrease in  administrative  services  revenue.  The
decrease in specialty  product  revenues  related to the  workers'  compensation
insurance segment was primarily due to additional ceded reinsurance  premiums on
the low level reinsurance  agreement totaling $16.1 million.  This agreement was
entered  into  in the  fourth  quarter  of  1998.  In  addition,  ongoing  price
competition,

                                                     Page 10
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

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


     especially in California,  is contributing to the reduction in revenue. The
decrease in  administrative  services  revenue was primarily  attributable  to a
decrease in membership.  Professional fee revenue increased  approximately  $1.8
million  primarily  due to the medical group  operations  in  Dallas/Ft.  Worth.
Investment  and other  revenue  decreased  approximately  $2.1  million over the
comparable  prior year period  primarily due to a decrease in invested  balances
and a decrease in net capital gains realized on the sale of investments compared
to the prior year quarter.

     Total medical  expenses  increased  $51.5 million over the same three month
period last year. This increase resulted  primarily from the Company's  recently
acquired Dallas/Ft. Worth operations discussed previously.  Excluding the effect
of the Dallas/Ft. Worth operations,  medical expenses increased $18.8 million or
15.4% compared to the same prior year period.  Medical  expenses as a percentage
of medical premiums and professional  fees ("Medical Care Ratio") increased from
77.9% to 80.7% for the quarter  ended  September  30, 1999  compared to the same
prior year period.  The increase in the Medical Care Ratio reflects the acquired
Kaiser-Texas  membership  which has a higher  medical  care  ratio as well as an
increase in Medicare members as a percentage of fully-insured members and higher
pharmacy costs. The cost of providing medical care to Medicare members generally
requires a greater  percentage  of the  premiums  received.  Included in medical
expenses is the  utilization of $13.0 million of premium  deficiency  reserve to
offset losses on contracts from the Kaiser-Texas  acquisition.  Also included in
medical expense is the utilization of $1.4 million of premium deficiency reserve
to offset losses primarily on Medicare risk members in Arizona and rural Nevada.

     Specialty  product expenses  decreased $19.4 million or 45.8% due primarily
to ceded workers'  compensation  losses resulting from the low level reinsurance
agreement.  In  addition,  the  Company  receives a ceding  commission  from the
reinsurer as a partial reimbursement of operating expenses.  Under the low level
reinsurance  agreement,  in the current year period,  ceded  premiums were $16.1
million,  ceded  losses  were $19.2  million  and ceding  commissions  were $3.4
million.  Specialty  product  revenue and expense are  primarily  related to the
workers' compensation insurance business.

     The combined  ratio for the workers'  compensation  insurance  business was
94.5% compared to 99.6% for the comparable prior year period.  The reduction was
due to a 10.6% decrease in the loss ratio,  which was partially offset by a 5.5%
increase in the expense  ratio.  The reduction in the loss ratio was largely due
to a greater portion of losses being  reinsured under the low level  reinsurance
agreement.  The current  year period had no net  development  on prior  accident
years,  whereas the loss ratio for the prior year period  included net favorable
loss  development on prior accident years totaling $2.6 million.  The prior year
favorable  loss  development  was largely due to actual paid losses  being below
projected  losses.  The loss and loss  adjustment  expense  ratio  for the three
months ended September 30, 1999,  reflects the Company's  current  projection of
the ultimate costs of claims  occurring in the current as well as prior accident
years.  The increase in the expense  ratio was largely due to a reduction in the
net earned premium  denominator  base, which resulted from the increase in ceded
reinsurance premiums.  This change was offset by a decrease in expenses due to a
credit for ceding commissions of $3.4 million.  Workers' compensation claims are
paid over  several  years.  Until  payment  is made,  the  Company  invests  the
premiums, earning a yield on the invested balance.

     General,  administrative and marketing ("G&A") costs increased $7.1 million
or 26.2% compared to the third quarter of 1998. As a percentage of revenues, G&A
costs for the third quarter of 1999 increased from 9.7% to 10.6% compared to the
same  period in 1998.  Of the $7.1  million  increase,  $3.5  million was due to
additional G&A, including amortization of goodwill,  related to the acquired HMO
business in the Dallas/Ft.  Worth area, net of utilization of premium deficiency
reserves  for  maintenance  costs  of  approximately  $8.5  million.   The  most
significant items included in the remaining portion of the increase consisted of
$1.8  million of  additional  compensation  expense,  resulting  primarily  from
additional  employees supporting expanded services,  and increased  depreciation
expense of $500,000. The Company markets its products primarily to

                                                     Page 11

                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

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

     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, 1999,  the
Company's ten largest  commercial  HMO employer  groups were, in the  aggregate,
responsible  for less  than 10% of its  total  revenues.  Although  none of such
employer  groups  accounted for more than 2% of total  revenues for that period,
the loss of one or more of the larger  employer  groups  could,  if not replaced
with  similar  membership,  have a  material  adverse  effect  on the  Company's
business. Interest expense and other increased $3.0 million for the three months
ended  September  30,  1999,  compared  to the same prior year  period due to an
increase in debt primarily related to the Kaiser-Texas acquisition as well as an
increase in the Company's cost of borrowing.

     For the current  year  period,  the  Company  recorded  approximately  $4.4
million of tax expense for an effective tax rate of 33.2%  compared to 26.0% for
the same prior year period. This significant  increase in the effective tax rate
is the result of the tax loss valuation  allowances  being fully utilized by the
end of 1998.  The  Company's  effective  tax rate is less than the 35% statutory
rate primarily due to tax preferred investments.

     Results of Operations,  nine months ended  September 30, 1999,  compared to
nine months ended September 30, 1998.

     The Company's total operating  revenues for the nine months ended September
30, 1999,  increased  approximately  29.9% to $956.5 million from $736.0 million
for the nine months ended  September 30, 1998. The increase was primarily due to
increases in premium revenue of $187.6 million and military  contract revenue of
$85.4  million,  offset by a decrease  in  specialty  product  revenues of $54.7
million.

     Of the  $187.6  million  or 43.9%  increase  in  medical  premium  revenue,
approximately  $119.3  million is attributed to the Company's  Dallas/Ft.  Worth
operations  which were  acquired in the fourth  quarter of 1998.  The  remaining
increase of $68.3 million or 16.0% is due to additional  premium  revenue at the
Company's other HMO and insurance subsidiaries.  Excluding the Dallas/Ft.  Worth
operations,  member months  increased  approximately  8%. Medicare member months
increased 19%. Such growth in Medicare member months  contributes  significantly
to the increase in premium revenues as the Medicare per member premium rates are
over three times higher than the average commercial premium rate.  Excluding the
Dallas/Ft.  Worth  operations,  the Company's  HMO and  insurance  subsidiaries'
premium rates  increased  approximately  7%. The Company's HMO commercial  rates
increased approximately 4% in Nevada and approximately 15% in Texas. Compared to
the fourth  quarter of 1998,  the  commercial  rates for the Company's  recently
acquired  Dallas/Ft.  Worth  operations  have  increased  approximately  7%. The
Company's managed indemnity rates increased  approximately 4% and Medicare rates
increased  approximately  2%. Over 90% of the Company's  Nevada Medicare members
are  enrolled  in the HCFA  Social HMO  Medicare  program.  HCFA is  considering
adjusting the reimbursement  factor for the Social HMO members in the future. If
the reimbursement for these members decreases  significantly and related benefit
changes are not made  timely,  there could be a material  adverse  effect on the
Company's business.

     Military  contract revenue increased from $132.8 million to $218.2 million.
The  increased  revenue is a result of health care  delivery  under the Region 1
TRICARE contract that began in June 1998.  Military contract revenue in the same
period of the prior year resulted from  implementation  of the contract and four
months of health  care  delivery.  Specialty  product  revenue  decreased  $54.7
million or 45.2% for the nine months ended  September 30, 1999,  compared to the
same nine month prior year period.  Of the decrease,  $51.7 million was due to a
decrease  in revenue in the  workers'  compensation  insurance  segment and $3.0
million was due to


                                                     Page 12
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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


     Results of Operations,  nine months ended  September 30, 1999,  compared to
nine months ended September 30, 1998 (continued).


     a decrease in administrative  services  revenue.  The decrease in specialty
product  revenues  related to the workers  compensation  insurance  segment was
primarily  due  to  additional  ceded  reinsurance  premiums  on the  low  level
reinsurance agreement totaling $43.2 million. This agreement was entered into in
the fourth quarter of 1998. In addition, ongoing price competition especially in
California  is  contributing  to the  reduction  in  revenue.  The  decrease  in
administrative  services  revenue was  primarily  attributable  to a decrease in
membership.

     Professional fee revenue increased approximately $7.1 million primarily due
to the Company's recently acquired medical group operations in Dallas/Ft. Worth.
Investment  and other  revenue  decreased  approximately  $4.9  million over the
comparable  prior year period  primarily due to a decrease in invested  balances
and a decrease in capital gains realized on the sale of investments  compared to
the prior year period.

     Total medical  expenses  increased  $183.0 million over the same nine-month
period last year. This increase resulted  primarily from the Company's  recently
acquired  Dallas/Ft.  Worth  operations  discussed  previously,  as  well as the
premium  deficiency charge of $8.1 million recorded in the first quarter of this
year,  related to under performing markets primarily in Arizona and rural Nevada
(see note 2 to the Condensed Consolidated  Financial Statements).  Excluding the
effect of the Company's  recently acquired  Dallas/Ft.  Worth operations and the
premium  deficiency  charge,  medical expenses  increased $67.7 million or 19.0%
compared to the same prior year period.  The Medical Care Ratio  increased  from
77.4% to 82.3% or 81.1%  excluding the $8.1 million premium  deficiency  charge,
for the nine months ended September 30, 1999, compared to the prior year period.
The  increase in the  Medical  Care Ratio  reflects  the  acquired  Kaiser-Texas
membership  which has a higher  medical care ratio,  and the premium  deficiency
charge  discussed  above,  as well  as an  increase  in  Medicare  members  as a
percentage  of  fully-insured  members and higher  pharmacy  costs.  The cost of
providing  medical  care  to  Medicare  members  generally  requires  a  greater
percentage  of the  premiums  received.  Included  in  medical  expenses  is the
utilization of $25.2 million of premium  deficiency  reserve to offset losses on
contracts from the Kaiser-Texas acquisition. Also included in medical expense is
the utilization of $6.7 million of premium  deficiency  reserve to offset losses
primarily on Medicare risk members in Arizona and rural Nevada.

     Specialty  product expenses  decreased $56.3 million or 47.7% due primarily
to ceded workers'  compensation  losses resulting from the low level reinsurance
agreement.  In  addition,  the  Company  receives a ceding  commission  from the
reinsurer as a partial reimbursement of operating expenses.  Under the low level
reinsurance  agreement,  in the nine month current year period,  ceded  premiums
were $43.2 million,  ceded losses were $51.9 million and ceding commissions were
$9.9 million. Specialty product revenue and expense are primarily related to the
workers' compensation insurance business.

     The combined  ratio for the workers'  compensation  insurance  business was
95.4% compared to 100.5% for the comparable prior year period. The reduction was
due to an 11.9% decrease in the loss ratio, which was partially offset by a 6.8%
increase in the expense  ratio.  The reduction in the loss ratio was largely due
to a greater portion of losses being  reinsured under the low level  reinsurance
agreement.  The current  year period had no net  development  on prior  accident
years, whereas the loss ratio for the prior year period included net


                                                     Page 13
                  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, 1999,  compared to
nine months ended September 30, 1998 (continued).

     favorable  loss  development on prior accident years totaling $7.2 million.
The prior year favorable loss  development was largely due to actual paid losses
being below projected losses. The loss and loss adjustment expense ratio for the
nine months ended September 30, 1999,  reflects the Company's current projection
of the  ultimate  costs of  claims  occurring  in the  current  as well as prior
accident years. The increase in the expense ratio was largely due to a reduction
in the net earned premium  denominator base, which resulted from the increase in
ceded reinsurance premiums. This change was offset by a decrease in expenses due
to a credit for ceding commissions of $9.9 million. Workers' compensation claims
are paid over several  years.  Until  payment is made,  the Company  invests the
premiums, earning a yield on the invested balance.

     G&A costs  increased  $23.5  million  or 29.6%  compared  to the first nine
months of 1998. As a percentage of revenues, G&A costs for the first nine months
of 1999 decreased  slightly to 10.7% from 10.8% during the comparable  period in
1998. Of the $23.5 million  increase in G&A, $12.0 million was due to additional
G&A, including amortization of goodwill, related to the acquired HMO business in
the Dallas/Ft. Worth area, net of utilization of premium deficiency reserves for
maintenance  costs of approximately  $15.5 million.  The most significant  items
included in the remaining  portion of the increase  consisted of $4.3 million of
additional  compensation expense,  resulting primarily from additional employees
supporting expanded services, increased depreciation expense of $2.1 million and
increased legal expenses. The Company markets its products primarily to employer
groups, labor unions and individuals enrolled in Medicare,  through its internal
sales  personnel  and  independent   insurance  brokers.  Such  brokers  receive
commissions  based on the  premiums  received  from each  group.  The  Company's
agreements  with its member groups are usually for twelve months and are subject
to annual  renewal.  For the nine months ended September 30, 1999, the Company's
ten largest  commercial HMO employer groups were, in the aggregate,  responsible
for less than 10% of its total  revenues.  Although none of such employer groups
accounted for more than 2% of total revenues for that period, the loss of one or
more  of the  larger  employer  groups  could,  if  not  replaced  with  similar
membership,  have a material adverse effect on the Company's business.  Interest
expense and other increased $8.2 million for the nine months ended September 30,
1999,  compared  to the  same  prior  year  period  due to an  increase  in debt
primarily related to the Kaiser-Texas  acquisition as well as an increase in the
Company's cost of borrowing.

     For the period,  the Company  recorded  approximately  $8.3  million of tax
expense for an effective  tax rate of 33.3%  compared to 25.8% in the same prior
year period.  This significant  increase in the effective tax rate is the result
of the tax loss  valuation  allowances  being fully utilized by the end of 1998.
The Company's  effective tax rate is less than the 35% statutory  rate primarily
due to tax-preferred investments.

Liquidity and Capital Resources

     The Company had negative cash flows from operations of approximately  $43.3
million for the nine months ended September 30, 1999, resulting primarily from a
net change in assets and liabilities of $85.3 million offset by $20.9 million in
depreciation and  amortization,  $4.3 million in provision for doubtful accounts
and $16.7 million of net income.  The decrease in cash flow  resulting  from the
change in assets and  liabilities  was primarily due to increases in reinsurance
recoverable of $37.0 million,  as well as decreases in unearned revenue of $19.9
million and the  utilization  of premium  deficiency  reserves.  The increase in
reinsurance   recoverable  is  primarily  due  to  the   reinsurance   agreement
implemented  by the  Company's  workers'  compensation  subsidiary in the fourth
quarter of 1998 with an effective date of July 1, 1998. The decrease in unearned
revenue resulted primarily from the early receipt of the subsequent month's HCFA
Medicare capitation payments as of December 31, 1998.

     The $3.7 million used for investing and financing activities since December
31, 1998 included $8.0 million used for the purchase of treasury stock and $41.1
million in net capital  expenditures  including costs  associated with continued
implementation of three new computer systems, as well as furniture, equipment

                                                     Page 14
                  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).

     and other  capital  needs to support  the  Company's  growth.  In the first
quarter of 1999 an additional $3.0 million was paid to Kaiser  Foundation Health
Plan  of  Texas,   in  accordance   with  the  purchase   agreement  as  certain
accreditation goals were met by the health plan. The purchase price may increase
up to an additional $27 million over three years if certain goals are met by the
health plan.  The Company had net  borrowings of $41.0 million under the line of
credit which was offset by $3.3  million  used for the  reduction of other debt.
The remaining  $20.0 million  available under the line of credit may be used for
additional  working capital,  if necessary.  Offsetting the above cash outflows,
was an $8.2  million  net change in  investments  and $2.3  million  received in
connection with the sale of stock through the Company's stock plans.

     The Company accrued additional revenues due from the government in the form
of a bid price adjustment ("BPA").  The BPA is a result of providing health care
services for a larger than expected beneficiary  population in TRICARE Region 1.
During the second quarter of 1999,  the Company  received $46.3 million from the
government as a partial settlement of its BPA. In addition, the Company received
approximately  $8.6  million  in  early  November  and  expects  to  receive  an
additional $4.2 million in December.

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

     The  holding  company  may  receive  dividends  from its HMO and  insurance
subsidiaries  which  generally  must be  approved  by  certain  state  insurance
departments.  The Company's HMO and insurance subsidiaries are required by state
regulatory  agencies to maintain certain deposits and must also meet certain net
worth  and  reserve  requirements.   The  HMO  and  insurance  subsidiaries  had
restricted  assets on deposit in various  states  totaling  $19.0  million as of
September  30,  1999.  The  HMO  and  insurance   subsidiaries  must  also  meet
requirements to maintain  minimum  stockholder's  equity,  on a statutory basis,
ranging from $1.5 million to $5.2 million. Additionally, in conjunction with the
Kaiser-Texas  acquisition,  Texas Health Choice,  L.C.  ("TXHC")  entered into a
letter agreement with the Texas  Department of Insurance  whereby TXHC agreed to
maintain a net worth of $20.0 million.  Of the cash and cash equivalents held at
September 30, 1999,  $35.3  million is designated  for use only by the regulated
subsidiaries.  Such amounts are  available  for transfer to the holding  company
from the HMO and  insurance  subsidiaries  only to the  extent  that they can be
remitted in accordance with the terms of existing  management  agreements and by
dividends. Remaining amounts are available on an unrestricted basis. The holding
company  will not receive  dividends  from its  regulated  subsidiaries  if such
dividend  payment  would  cause  violation  of  statutory  net worth and reserve
requirements.

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


                                                     Page 15
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Year 2000

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

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

     At September 30, 1999, the inventory and assessment phases are complete and
the  renovation/replacement  and validation phases are substantially complete as
it  relates  to all  material  computer  systems  and  non-  information  system
technology.  The Company  estimates that it was  approximately 95% complete with
the total project as of September 30, 1999.

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

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

     The Company is in the process of implementing  three major computer systems
at an  estimated  cost  of  $41  million  to $43  million,  which  includes  the
implementation   costs  related  to  the  recently  acquired  Dallas/Ft.   Worth
operations. Due to a dispute with the software vendor for the new system related
to its workers' compensation  business,  the company implemented its backup plan
to remediate the existing system.  The Year 2000 remediation has been completed.
To date the Company has spent  approximately  $40.7  million on the new computer
systems and other Year 2000 items.  The Company is  expensing  the costs to make
modifications  to  existing   computer   systems  and  non-computer   equipment.
Management currently estimates the remaining new computer system costs and other
Year 2000 costs to be $4.0 million to $6.0 million.  While this is a substantial
effort,   it  will  give  the  Company  the  benefits  of  new   technology  and
functionality  for many of its financial and  operational  computer  systems and
applications.

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

                                                     Page 16
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Year 2000 (continued).

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

     Should utility  service be disrupted by forces that are outside the control
of the company, contingency plans have been established which include the use of
gasoline-powered  generators to preserve mission critical business systems until
such time as  utilities  are  restored.  Contingency  plans  were built upon the
assumption  that  continued  operations  are subject to  established  safety and
environmental regulations.

     Additionally,  the  Company  has  developed "Day One"  plans  that will be
initiated  January  1,  2000.  These  plans  mandate  that  staff  from  various
departments  perform tests on all material computer systems and non- information
systems to validate that the Company's Year 2000 renovation/replacement  efforts
were   effective.   Issues   discovered   as  a  result  of  the  Day  One  plan
implementations will be resolved as soon as possible.

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

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

Membership

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

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

HMO
<S>                                                                         <C>                      <C>
  Commercial..................................................              269,100                  162,600
  Medicare....................................................               50,400                   40,800
Managed Indemnity.............................................               37,300                   45,600
Medicare Supplement...........................................               27,800                   25,500
Administrative Services.......................................              290,300                  316,000
TRICARE Eligibles.............................................              610,000                  606,400
Total Members.................................................            1,284,900                1,196,900
</TABLE>

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     As of September 30, 1999,  unrealized  holding losses on available for sale
investments  have  increased  by  $12.7  million  since  the  year end due to an
increase in interest  rates,  and thus,  a decline in the market value of bonds.
The Company  believes  that this  increase in interest  rates  should not have a
material  impact on future  earnings  or cash flows as it is  unlikely  that the
Company  would  need  or  choose  to  substantially   liquidate  its  investment
portfolio.

                                                     Page 17
                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

     In the second quarter of 1999,  the Company filed a motion for  preliminary
injunction in Clark County District Court against  Universal Health Services and
the Valley Health System ("Universal"). The Company has reimbursed Universal for
services   provided  to  health  plan  members  based  on  predetermined   rates
established through one of its subsidiaries. However, Universal is disputing the
validity of the contract  and is billing the Company and its members  additional
charges.  The Company is currently  engaged in settlement  negotiations  and the
outcome of these negotiations could result in a material expense to the Company;
however, the range of this potential loss cannot be reasonably estimated at this
time, and has not been accrued as of September 30, 1999.

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


ITEM 2.        CHANGES IN SECURITIES AND USE OF PROCEEDS

               None

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

               None

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

               None

ITEM 5.        OTHER INFORMATION

               None

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

               (a)      Exhibits

                        (27)   Financial Data Schedule

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

               (b)      Reports on Form 8-K

                        None

                                                     Page 18
                                                   SIGNATURES

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



                                      SIERRA HEALTH SERVICES, INC.
                                              (Registrant)



Date November 15, 1999              /S/ PAUL H. PALMER
                                    Paul H. Palmer
                                    Vice President of Finance,
                                    Chief Financial Officer and Treasurer
                                    (Principal Financial and Accounting Officer)




                                     Page 19