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

                                    Form 10-Q


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

For the quarterly period ended       March 31, 1997

                                       OR

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


For the transition period from                             to

Commission File Number 1-8865


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

                                     NEVADA
                         (State or other jurisdiction of
                         incorporation or organization)

                                   88-0200415
                                (I.R.S. Employer
                               Identification No.)

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


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

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

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

 As of April 30, 1997 there were 18,006,000 shares of common stock outstanding.



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<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                                      INDEX

                                                                       Page No.

Part I - FINANCIAL INFORMATION

      Item l.     Financial Statements

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

                  Condensed Consolidated Statements of Operations--
                    Three months ended March 31, 1997, and
                    March 31, 1996.......................................    4

                  Condensed Consolidated Statements of Cash Flows--
                    Three months ended March 31, 1997, and
                    March 31, 1996.......................................    5

                  Notes to Condensed Consolidated Financial Statements...    6

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

      Item 3.     Quantitative and Qualitative Disclosures about
                  Market Risk ...........................................   11


Part II - OTHER INFORMATION

      Item l.     Legal Proceedings......................................   12

      Item 2.     Changes in Securities..................................   12

      Item 3.     Defaults upon Senior Securities........................   12

      Item 4.     Submission of Matters to a Vote of Security Holders....   12

      Item 5.     Other Information......................................   12

      Item 6.     Exhibits and Reports on Form 8-K.......................   13

Signatures...............................................................   14


                                     Page 2


<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                           March 31         December 31
                                                                                            1997               1996
CURRENT ASSETS:
<S>                                                                                     <C>                <C>
   Cash and Cash Equivalents...................................................         $ 87,077,000       $103,587,000
   Short-term Investments......................................................           73,769,000         83,688,000
   Accounts Receivable (Less: Allowance for Doubtful
           Accounts: 1997 - $7,518,000, 1996 - $7,324,000) ....................           29,662,000         31,849,000
   Prepaid Expenses and Other Assets...........................................           53,640,000         33,811,000
           Total Current Assets................................................          244,148,000        252,935,000

PROPERTY AND EQUIPMENT ........................................................          149,189,000        140,130,000
   Less: Accumulated Depreciation..............................................           42,907,000         40,326,000
           Land, Building and Equipment - Net..................................          106,282,000         99,804,000

LONG-TERM INVESTMENTS .........................................................          184,208,000        160,482,000
RESTRICTED CASH AND INVESTMENTS ...............................................           12,783,000         13,648,000
REINSURANCE RECOVERABLE, Net of Current Portion................................           14,705,000         14,721,000
GOODWILL ......................................................................           44,139,000         44,602,000
OTHER ASSETS ..................................................................           39,094,000         43,270,000
TOTAL ASSETS...................................................................         $645,359,000       $629,462,000

CURRENT LIABILITIES:
   Accounts Payable and Other Accrued Liabilities..............................         $ 55,684,000       $ 50,153,000
   Medical Claims Payable......................................................           54,458,000         46,969,000
   Current Portion of Reserve for Losses and
           Loss Adjustment Expense ............................................           52,345,000         52,878,000
   Unearned Premium Revenue....................................................           16,712,000         24,210,000
   Current Portion of Long-term Debt...........................................           19,110,000          2,195,000
           Total Current Liabilities...........................................          198,309,000        176,405,000

RESERVE FOR LOSSES AND LOSS
   ADJUSTMENT EXPENSE (Less Current Portion)  .................................          137,312,000        134,898,000
LONG-TERM DEBT (Less Current Portion)..........................................           65,641,000         66,189,000
OTHER LIABILITIES .............................................................            8,768,000         17,488,000
TOTAL LIABILITIES..............................................................          410,030,000        394,980,000

STOCKHOLDERS' EQUITY:
   Preferred Stock, $.01 Par Value, 1,000,000 Shares
           Authorized, None Issued
   Common Stock, $.005 Par Value, 40,000,000 Shares Authorized;
           Shares Issued: 1997 - 17,966,000; 1996 - 17,910,000;................               89,000             89,000
  Additional Paid-in Capital...................................................          153,151,000        152,035,000
  Treasury Stock, 100,200 Common Shares........................................             (130,000)          (130,000)
  Unrealized Holding (Loss) Gain on Available-for-Sale Securities..............           (1,180,000)           487,000
  Retained Earnings............................................................           83,399,000         82,001,000
        Total Stockholders' Equity.............................................          235,329,000        234,482,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.....................................         $645,359,000       $629,462,000
</TABLE>

     See accompanying 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
                                                                                         March 31        March 31
                                                                                         1997              1996

OPERATING REVENUES:
<S>                                                                                  <C>                  <C>
    Medical Premiums......................................................           $122,339,000         $90,605,000
    Specialty Product Revenue.............................................             34,713,000          30,939,000
    Professional Fees.....................................................              7,521,000           7,572,000
    Investment and Other Revenue..........................................              6,005,000           6,896,000
       Total..............................................................            170,578,000         136,012,000

OPERATING EXPENSES:
    Medical Expenses......................................................             99,676,000          73,951,000
    Specialty Product Expenses............................................             34,651,000          30,523,000
    General, Administrative and Marketing Expenses .......................             22,009,000          17,163,000
    Merger and Related Expenses ..........................................             11,000,000
       Total..............................................................            167,336,000         121,637,000

OPERATING INCOME..........................................................              3,242,000          14,375,000

INTEREST EXPENSE AND OTHER, NET...........................................             (1,402,000)           (809,000)

INCOME BEFORE INCOME TAXES ...............................................              1,840,000          13,566,000

PROVISION FOR INCOME TAXES................................................                442,000           3,402,000

NET INCOME    ............................................................           $  1,398,000        $ 10,164,000

EARNINGS PER COMMON SHARE ................................................                   $.08                $.58

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................................             17,849,000          17,627,000
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                     Page 4


<PAGE>



                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES

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

                                                                                          Three Months Ended
                                                                                        March 31          March 31
                                                                                          1997              1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                    <C>                <C>
  Net Income..............................................................             $1,398,000         $10,164,000
  Adjustments to Reconcile Net Income to Net Cash
     Provided by Operating Activities:
        Depreciation and Amortization.....................................              3,263,000           2,468,000
        Provision for Doubtful Accounts...................................                967,000             536,000
  Changes in Assets and Liabilities ......................................                916,000          (7,210,000)
  Net Cash Provided by Operating Activities ..............................              6,544,000           5,958,000

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital Expenditures, Net of Equipment Dispositions.....................             (9,059,000)         (1,914,000)
  Decrease (Increase) in Short-term Securities............................              9,847,000            (622,000)
  (Increase) Decrease in Long-term Securities.............................            (25,243,000)            460,000
  Decrease in Restricted Cash and Securities..............................                753,000             195,000
  Loan to Third Party.....................................................            (16,750,000)
        Net Cash Used for Investing Activities............................            (40,452,000)         (1,881,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from Borrowings ...............................................             17,000,000
  Payments on Debt and Capital Leases.....................................               (648,000)         (1,868,000)
  Exercise of Stock in Connection with Stock Plans........................              1,046,000           1,519,000
     Net Cash Provided by (Used for) Financing Activities.................             17,398,000            (349,000)
NET (DECREASE) INCREASE IN CASH
  AND CASH EQUIVALENTS....................................................            (16,510,000)          3,728,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................            103,587,000          57,044,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................           $ 87,077,000         $60,772,000


                                                                                          Three Months Ended
Supplemental Condensed Consolidated                                                    March 31           March 31
        Statements of Cash Flows Information:                                            1997               1996
Cash paid during the period for Interest
  (net of amount Capitalized).............................................             $2,203,000         $ 2,503,000
Cash paid during the period for Income Taxes..............................              3,520,000             650,000

Non-cash Investing and Financing Activities:
  Tax Benefits of Stock Issued for Exercise of Options ...................                 70,000             377,000
</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").
     All material  intercompany  balances and transactions have been eliminated.
     These  statements  have been  prepared  in  conformity  with the  generally
     accepted  accounting  principles  used in preparing  the  Company's  annual
     audited  consolidated  financial  statements  but do not contain all of the
     information  and  disclosures  that would be required in a complete  set of
     audited  financial  statements.   They  should,   therefore,   be  read  in
     conjunction  with  the  Company's  annual  audited  consolidated  financial
     statements  and related notes thereto for the years ended December 31, 1996
     and 1995. In the opinion of management, all adjustments, consisting only of
     recurring  adjustments  necessary  for a fair  statement  of the results of
     operations for the three-month period ended March 31, 1997, have been made.

2.       In March 1997,  the Company drew $17.0  million on its $50 million line
         of credit for general corporate  purposes at a current interest rate of
         6.075%.  The amount  owed on the line of credit is  included in current
         liabilities at March 31, 1997. The remaining line of credit may be used
         for general  corporate  purposes,  including  acquisitions,  and may be
         available for additional working capital, if necessary.

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

4.       During the first  quarter of 1997,  Statement of  Financial  Accounting
         Standards  No.  128  "Earnings  per Share" was  issued.  This  standard
         relates to the computation of earnings per share.  The Company does not
         believe this  pronouncement  will  materially  impact its  consolidated
         financial  statements when it is required to be adopted on December 31,
         1997.

5.       In the  second  quarter  of  1997  the  Company's  Board  of  Directors
         authorized  a stock  repurchase  program  of up to $25  million  of the
         Company's outstanding stock.

6.       Amounts  in  the  accompanying   Condensed  Consolidated  Statement  of
         Operations  for the  three  months  ended  March  31,  1996  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 28,  1997.  Such  cautionary  statements  are made  pursuant  to the "safe
harbor" provisions of the Private  Securities  Litigation Reform Act of 1995 and
identify important risk factors that could cause the Company's actual results to
differ from those  expressed  in any  projected,  estimated  or  forward-looking
statements relating to the Company.

Results of  Operations,  three months  ended March 31,  1997,  compared to three
months ended March 31, 1996

The Company's total operating revenues for the three months ended March 31, 1997
increased  25.4% to $170.6  million,  from $136.0  million for the three  months
ended March 31, 1996. The increase was primarily due to medical  premium revenue
increases of $31.7  million,  or 35.0%,  from the Company's  health  maintenance
organization  ("HMO")  and  managed  indemnity  insurance   subsidiaries.   Such
additional premium revenue resulted  principally from a 32.1% increase in member
months (the number of months of each period that an  individual is enrolled in a
plan).  The Company's HMO and insurance  subsidiaries'  premium rates  increased
approximately  3%,  primarily due to an increase in its capitation  rate for its
Medicare  members as  established  by the  Health  Care  Finance  Administration
("HCFA"). The increase was due in part to the Company's  participation in HCFA's
social  HMO  program.  The  Company  realized  1% to 3% rate  increases  for its
existing  HMO   subsidiaries'   commercial  groups  and  the  managed  indemnity
subsidiary. However, these increases were offset in part by lower rates realized
by a  newly-acquired  HMO,  MedOne  Health Plan,  acquired on December 31, 1996.
Specialty product revenue increased $3.8 million,  or 12.2%, in the three months
ended March 31, 1997, compared to the same three-month period in the prior year.
The  increase  was due to  specialty  product  revenue  growth  in the  workers'
compensation insurance market.  Professional fee revenue decreased slightly from
the comparable period in the prior year.  Investment and other revenue decreased
$0.9 million, or 12.9%, primarily due to certain capital gains in the comparable
period in the prior year.

Total  medical  expenses  increased by $25.7  million over the same  three-month
period last year. This 34.8% increase  resulted  primarily from the consolidated
member month growth  discussed  previously.  Medical expenses as a percentage of
medical  premiums and  professional  fees ("Medical Loss Ratio")  increased from
75.3% to 76.8% due primarily to member growth and expansion in areas with higher
medical  expenses,   such  as  northern  Nevada  and  Texas.  In  addition,  the
newly-acquired HMO has a higher Medical Loss Ratio which further  contributed to
the  increase in the overall  Medical  Loss Ratio.  Specialty  product  expenses
increased  $4.1  million,  or  13.5%,  primarily  due to the 12.2%  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
104.5% compared to 104.6% for the same period in the prior year. The decrease in
the combined ratio is due primarily to a 2.8% decrease in the operating  expense
ratio partially offset by a net 2.7% increase in the loss ratio. The

                                     Page 7


<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

incurred  losses for the current  accident  year were reduced as a result of the
Company's  ability to overlay  and  implement  managed  care  techniques  to the
workers' compensation claims as well as favorable loss development in California
totaling $1.8 million compared to favorable loss development of $4.0 million for
the comparable prior year period. The loss and loss adjustment expense ratio for
the three months ended March 31, 1997 reflects the Company's current  projection
of the  ultimate  costs of  claims  occurring  in the  current  as well as prior
accident years.  Workers' compensation claims are paid over several years. Until
payment is made, the Company invests the monies, earning a yield on the invested
balance.

General,  administrative and marketing ("G&A") costs increased $4.8 million,  or
28.2%,  compared to the first  quarter of 1996.  As a percentage of revenues G&A
costs for the first  quarter  of 1997  increased  slightly  to 12.9%  from 12.6%
during the comparable  period in 1996. Of the $4.8 million increase in G&A, $1.5
million consisted of increased  compensation  expense  resulting  primarily from
additional   employees   supporting  expanded  services.   Broker,   third-party
administration and premium tax expenses increased approximately $2.5 million due
to increased membership.  The Company markets its products primarily to employer
groups, labor unions and individuals enrolled in Medicare,  through its internal
sales  personnel  and  independent   insurance  brokers.  Such  brokers  receive
commissions  based on the  premiums  received  from each  group.  The  Company's
agreements  with its member groups are usually for twelve months and are subject
to annual  renewal.  For the  quarter  ended March 31,  1997 the  Company's  ten
largest  commercial HMO employer groups were, in the aggregate,  responsible for
less than 15% of its  total  revenues.  Although  none of such  employer  groups
accounted for more than 3% of total revenues for that period, the loss of one or
more  of the  larger  employer  groups  could,  if  not  replaced  with  similar
membership, have a material adverse effect on the Company's business.

In the first quarter of 1997, the Company recorded  estimated  expenses of $11.0
million,  $8.4 million after tax, for  merger-related  costs. On March 18, 1997,
the Company  announced  it had  terminated  its merger  agreement  with PCA. The
original  agreement  had been entered into in November  1996. On March 18, 1997,
prior to termination of the merger  agreement,  PCA filed a lawsuit  against the
Company in the United States District Court for the Southern District of Florida
(the "District Court"), seeking, among other things, specific performance of the
merger  agreement and monetary  damages.  Although the Company  believes the PCA
lawsuit is without merit, there can be no assurance as to the outcome of the PCA
lawsuit.  The  Company  has  filed a motion  in the  District  Court  seeking  a
dismissal  of the PCA lawsuit.  The Company has also  initiated a lawsuit in the
Court of  Chancery of the State of Delaware  seeking a  declaratory  judgment as
well as other remedies.  The Company  intends to vigorously  pursue all remedies
available  to it;  however,  there can be no  assurance  that the  Company  will
prevail in such  litigation  or that PCA will have  sufficient  funds to pay any
damages that the Company may be awarded.

Excluding the effect of the merger-related costs, operating income for the three
months ended March 31, 1997 decreased  $400,000,  or 4.0%, from the three months
ended March 31, 1996.  The decrease was due in part to almost  $500,000 in gains
realized on the sale of certain  investments during the first quarter of 1996 as
well as the $400,000 benefit recorded in 1996 for minority interests. During the
4th quarter of 1996 the Company purchased the remaining  interests of HMO Texas,
L.C.  Net income  decreased by $8.8  million,  primarily  due to  merger-related
expenses  offset by a $3.0 million  decrease in the  provision for income taxes.
The decrease in the  effective  tax rate from 25.1% to 24.0%  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)

Liquidity and Capital Resources

The Company's cash flow from operating  activities during the three months ended
March 31,  1997  resulted  from $1.4  million of net income and $3.3  million in
depreciation and amortization as well as a $1.9 million net change in assets and
liabilities,  excluding  cash and cash  equivalents.  The increase in cash which
resulted from the change in operating  assets and  liabilities was primarily due
to  increases  in medical  claims  payable and  accrued  and other  liabilities,
partially offset by a decrease in unearned  premium revenue,  and an increase in
other current assets.

The $23.1 million used for investing and financing activities since December 31,
1996 primarily consisted of $9.1 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 as well as a $14.6  million net  increase in  investments.  Additionally,
$600,000  used for the  reduction  of debt was  offset  in part by $1.0  million
received in connection  with the purchase of stock  through the Company's  stock
plans.  On January 10, 1997, the Company and PCA entered into a credit and share
pledge  agreement  (the "PCA Loan")  pursuant to which the Company made a demand
loan to PCA in the amount of $16.8 million with an 8.25% fixed rate of interest.
There can be no  assurance  that PCA will have  sufficient  funds to pay the PCA
Credit Facility and the PCA Loan in full.

Sierra  has a $50.0  million  unsecured  line of  credit  from  Bank of  America
National Trust & Savings  Association  ("B of A") for a term of five years at an
interest rate indexed to the London  InterBank  Offering Rate  ("LIBOR") plus 32
basis points. Such rate was 6.075% at March 31, 1997. In March 1997, the Company
drew $17.0  million on the line of credit for general  corporate  purposes.  The
remaining line of credit may be used for general corporate  purposes,  including
acquisitions, and may be available for additional working capital, if necessary.
The Company is currently negotiating with B of A to expand its line of credit to
$100 million.

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  $12.8 million,  as of
March 31, 1997. 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 March 31,
1997,  $69.1 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 has  submitted a proposal as the prime  contractor  to the Office of
the Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS") to
provide managed health care coverage to CHAMPUS eligible beneficiaries in Region
1. This  region  includes  approximately  665,000  individuals  in  Connecticut,
Delaware, Maine, Maryland,  Massachusetts,  New Hampshire, New Jersey, New York,
Pennsylvania,  Rhode Island, Vermont, northern Virginia and Washington, D.C. The
Company expects to

                                     Page 9


<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

incur  expenses  of  approximately  $8.0 to $10.0  million  during  the Region 1
contract proposal  process.  The Company submitted its final bid on February 14,
1997 and anticipates  learning of the result of its bid in the second quarter of
1997. The contract, if awarded to the Company, will result in approximately $1.8
billion in estimated  revenues  over the  five-year  term of the  contract.  The
expenses  incurred in connection  with the contract have been  capitalized,  and
will be amortized  over the term of the contract.  If the Company is not awarded
the  contract,  the costs will be expensed in the period  that  notification  is
received.

CII Financial, Inc., a California workers' compensation company that the Company
acquired  in  1995,  has  convertible   subordinated   debentures  (the
"Debentures") due September 15, 2001 and bearing interest at 7 1/2% which is due
semi-annually  on March  15 and  September  15.  Each  $1,000  in  principal  is
convertible  into 16.921  shares of the  Company's  common stock at a conversion
price of $59.097 per share. The Debentures are general unsecured  obligations of
CII and are not  guaranteed  by Sierra.  During the three months ended March 31,
1997 Sierra purchased $30,000 of the Debentures on the open market.

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

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



                                     Page 10


<PAGE>


                  SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES


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

Membership

The Company's membership at March 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>

                                                                          Number of Members at Period Ended
                                                                           March 31                March 31
                                                                             1997                    1996
HMO
<S>                                                                         <C>                      <C>
  Commercial..................................................              156,000                  119,000
  Medicare....................................................               31,000                   27,000
Managed Indemnity.............................................               48,000                   32,000
Medicare Supplement...........................................               24,000                   17,000
Administrative Services.......................................              505,000                  303,000
Total Members.................................................              764,000                  498,000
</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.


ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


                                     Page 11


<PAGE>



                            PART II OTHER INFORMATION


Item 1.        Legal Proceedings

               On March 18, 1997,  the Company  announced it had  terminated its
               merger  agreement  with  PCA.  The  original  agreement  had been
               entered  into in  November  1996.  On March  18,  1997,  prior to
               termination of the merger agreement,  PCA filed a lawsuit against
               the Company in the District Court,  seeking,  among other things,
               specific   performance  of  the  merger  agreement  and  monetary
               damages. Although the Company believes the PCA lawsuit is without
               merit,  there can be no  assurance  as to the  outcome of the PCA
               lawsuit.  The  Company has filed a motion in the  District  Court
               seeking a  dismissal  of the PCA  lawsuit.  The  Company has also
               initiated  a  lawsuit  in the Court of  Chancery  of the State of
               Delaware  seeking  a  declaratory   judgment  as  well  as  other
               remedies.  The Company intends to vigorously  pursue all remedies
               available  to it;  however,  there can be no  assurance  that the
               Company  will  prevail in such  litigation  or that PCA will have
               sufficient  funds  to pay any  damages  that the  Company  may be
               awarded.

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

Item 2.        Changes in Securities

               None

Item 3.        Defaults Upon Senior Securities

               None

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

               None

Item 5.        Other Information

               None



                                     Page 12


<PAGE>



Item 6.        Exhibits and Reports on Form 8-K

               (a) Exhibits

                   (11)      Computation of earnings per share

                   (27)      Financial Data Schedule

               (b) Reports on Form 8-K

                   The Company filed a Current  Report on Form 8-K,  dated March
                   28, 1997,  with the  Securities  and Exchange  Commission  in
                   connection with certain  cautionary  statements made pursuant
                   to the "safe  harbor"  provisions  of the Private  Securities
                   Litigation Reform Act of 1995.

                                     Page 13


<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    May 14, 1997                      /S/ JAMES L. STARR
                                          James L. Starr
                                          Vice President
                                         Chief Financial Officer and Treasurer
                                          (Chief Accounting Officer)


                                     Page 14


<PAGE>