<PAGE>
 
                       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, 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: 0-27276

                                MEDPARTNERS, INC.
             (Exact Name of Registrant as Specified in its Charter)


      DELAWARE                                          63-1151076
(State or Other Jurisdiction of                      (I.R.S. Employer
Incorporation or Organization)                       Identification No.)

                         3000 GALLERIA TOWER, SUITE 1000
                            BIRMINGHAM, ALABAMA 35244
                    (Address of Principal Executive Offices)

                                  (205)733-8996
              (Registrant's Telephone Number, Including Area Code)

     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 |_|.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

               Class                        Outstanding at May 7, 1999
     -------------------------              --------------------------
     COMMON STOCK, PAR VALUE                        199,267,201*
         $.001 PER SHARE

* Includes 8,732,440 shares held in trust to be utilized in employee benefit
  plans.

                                       1
<PAGE>
 
                           FORWARD LOOKING STATEMENTS

     In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress
encouraged public companies to make "forward-looking statements" by creating a
safe harbor to protect companies from securities law liability in connection
with forward-looking statements. MedPartners, Inc. ("MedPartners" or the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Reform Act and any other similar safe harbor
provisions.

     "Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of MedPartners.
MedPartners undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.

     The "forward-looking statements" contained in this document are made under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations". Moreover, the Company, through its senior management,
may from time to time make "forward-looking statements" about matters described
herein or other matters concerning the Company.

     There are several factors which could adversely affect the Company's
operations and financial results including, but not limited to, the following:

     Risks relating to the Company's divestiture of its discontinued operations;
     risks relating to the implementation of the Company's settlement agreement
     with the State of California; risks relating to the Company's compliance
     with or changes in government regulations, including pharmacy licensing
     requirements and healthcare reform legislation; risks relating to adverse
     resolution of lawsuits pending against the Company and its affiliates;
     risks relating to declining reimbursement levels of products distributed;
     risks relating to identification of growth opportunities; risks relating to
     implementation of the Company's strategic plan; risks relating to
     liabilities in excess of insurance risks; risks relating to the Company's
     liquidity and capital requirements; and risks relating to the Company's
     failure to ensure its information systems are Year 2000 compliant.

                                       2
<PAGE>
 
                                MEDPARTNERS, INC.

                          QUARTERLY REPORT ON FORM 10-Q

                                      INDEX
<TABLE>
<CAPTION>

                                                                                 Page
                                                                                 ----
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

         <S>                                                                      <C>
         Condensed Consolidated Balance Sheets -
         March 31, 1999 (Unaudited) and December 31, 1998.......................   4

         Condensed Consolidated Statements of Operations (Unaudited) -
         Three Months Ended March 31, 1999 and 1998.............................   5

         Condensed Consolidated  Statements of Cash Flows (Unaudited) -
         Three Months Ended March 31, 1999 and 1998.............................   6

         Notes to Condensed Consolidated Financial Statements (Unaudited).......   7

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations....................................  11

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.............  14

PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.......................................  15
</TABLE>

                                       3
<PAGE>
 
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                                MEDPARTNERS, INC.
               CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

<TABLE>
<CAPTION>

                                                                                        MARCH 31        DECEMBER 31,
                                                                                          1999             1998
                                                                                      ------------     ------------
                                                                                             (IN THOUSANDS)
                                     ASSETS
Current assets:
<S>                                                                                       <C>              <C>          
  Cash and cash equivalents.....................................................     $    9,825         $   23,100  
  Accounts receivable, less allowances for bad debts of $12,226 and $11,136             203,651            185,719  
  Inventories...................................................................        147,455            171,739  
  Prepaid expenses and other current assets.....................................         10,907             11,513  
  Current assets of discontinued operations.....................................        395,458            793,495  
                                                                                     ----------         ----------  
         Total current assets...................................................        767,296          1,185,566  
Property and equipment, net.....................................................        113,144            115,835  
Intangible assets, net..........................................................         25,042             27,463  
Other assets....................................................................         53,302             51,272  
Non current assets of discontinued operations...................................        460,056            481,970  
                                                                                     ----------         ----------  
         Total assets...........................................................     $1,418,840         $1,862,106  
                                                                                     ==========         ==========  
                                                                                                                   
                                  LIABILITIES AND STOCKHOLDERS' DEFICIT                                            
                                                                                                                   
Current liabilities:                                                                                               
  Accounts payable..............................................................     $  225,446         $  215,861  
  Other accrued expenses and liabilities........................................        261,713            297,265  
  Income tax payable............................................................         14,118              9,480  
  Current portion of long-term debt.............................................            126                207  
  Current liabilities of discontinued operations................................        411,227            577,642  
                                                                                     ----------         ----------  
         Total current liabilities..............................................        912,630          1,100,455  
                                                                                                                   
Long-term debt, net of current portion..........................................      1,483,463          1,735,096  
Other long-term liabilities.....................................................         63,153             61,954  
Long-term liabilities of discontinued operations................................         92,766            108,774  
                                                                                                                   
Stockholders' deficit:                                                                                             
  Common stock, $.001 par value; 400,000 shares                                                                    
    authorized; issued -- 199,035 in 1999                                                                          
    and 199,032 in 1998.........................................................            199                199  
  Additional paid-in capital....................................................        952,452            954,420  
  Shares held in trust, 8,803 in 1999 and 8,838 in 1998.........................       (140,342)          (142,477) 
  Accumulated deficit...........................................................     (1,945,481)        (1,956,315) 
                                                                                     ----------         ----------  
         Total stockholders' deficit............................................     (1,133,172)        (1,144,173) 
                                                                                     ----------         ----------  
         Total liabilities and stockholders' deficit............................     $1,418,840         $1,862,106  
                                                                                     ==========         ==========  
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                                MEDPARTNERS, INC.

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                       THREE MONTHS ENDED
                                                                                            MARCH 31,
                                                                                 ----------------------------- 
                                                                                    1999                 1998
                                                                                 -----------         ----------
                                                                                      (IN THOUSANDS, EXCEPT
                                                                                       PER SHARE AMOUNTS)

<S>                                                                             <C>              <C>         
Net revenue...........................................................          $785,058             $ 620,226  
Operating expenses:                                                                                            
  Cost of revenues....................................................           715,866               564,928  
  Selling, general and administrative.................................            24,773                21,231  
  Depreciation and amortization.......................................             5,558                 4,419  
  Net interest expense................................................            27,058                19,316  
                                                                                --------             ---------  
Income from continuing operations before income taxes.................            11,803                10,332  
Income tax expense....................................................               968                 3,926  
                                                                                --------             ---------  
Income from continuing operations ....................................            10,835                 6,406  
Loss from discontinued operations.....................................                --               (31,486) 
                                                                                --------             ---------  
Net income (loss).....................................................          $ 10,835             $ (25,080) 
                                                                                ========             =========  
Basic earnings per common share:                                                                               
  Income from continuing operations...................................          $   0.06             $    0.03  
  Loss from discontinued operations...................................                --                 (0.17) 
                                                                                --------             ---------  
  Net income (loss)...................................................          $   0.06             $   (0.14) 
                                                                                ========             =========  
Diluted earnings per common share:                                                                             
  Income from continuing operations...................................          $   0.06             $    0.03  
  Loss from discontinued operations...................................               --                  (0.17) 
                                                                                --------             ---------  
  Net income (loss)...................................................          $   0.06             $   (0.14) 
                                                                                ========             =========  
                                                                                                               
Weighted average common shares outstanding............................           190,195               188,610  
Dilutive effect of employee stock options.............................             2,361                   822  
                                                                                --------             ---------  
Weighted average shares outstanding, assuming dilution................           192,556               189,432  
                                                                                ========             =========  
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                                MEDPARTNERS, INC.

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED
                                                                                        MARCH 31,
                                                                                -----------------------
                                                                                     1999         1998
                                                                                -----------   -----------
                                                                                     (IN THOUSANDS)
Operating activities:
<S>                                                                               <C>           <C>       
 Net income (loss)............................................................    $ 10,835       $(25,080)  
 Adjustments for non-cash items:                                                                           
  Non-cash interest expense...................................................       1,489            694     
  Depreciation and amortization...............................................       5,558          4,419   
  Provision for deferred tax expense .........................................          --          1,167   
  Loss from discontinued operations...........................................          --         31,486   
Changes in operating assets and liabilities...................................        (758)         4,358   
                                                                                   -------        -------   
    Net cash and cash equivalents provided by continuing operations...........      17,124         17,044   
Investing activities:                                                                                      
 Purchase of property and equipment...........................................      (3,152)        (2,354)  
 Proceeds from sales of property and equipment................................          --          4,095   
                                                                                   -------        -------   
    Net cash and cash equivalents provided by (used in) investing activities..      (3,152)         1,741   
Financing activities:                                                                                      
  Capital contributions.......................................................         167          2,383   
  Net borrowings (repayments) under credit facility...........................    (251,585)       153,000   
  Repayment of debt...........................................................        (129)          (119)  
                                                                                   -------        -------   
    Net cash and cash equivalents provided by (used in) financing activities..    (251,547)       155,264   
                                                                                                           
Cash paid for restructuring expenses..........................................      (1,677)        (2,125)  
Cash provided by (used in) discontinued operations............................     225,977       (228,241)  
                                                                                   -------        -------   
Net decrease in cash and cash equivalents.....................................     (13,275)       (56,317)  
Cash and cash equivalents at beginning of period..............................      23,100        109,098   
                                                                                    ------        -------   
                                                                                                           
Cash and cash equivalents at end of period....................................    $  9,825       $ 52,781   
                                                                                  ========       ========   
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>
 
                                MEDPARTNERS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                MARCH 31, 1999

NOTE 1.  BASIS OF PRESENTATION

     The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries and have been prepared in accordance
with generally accepted accounting principles for interim financial reporting
and in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements.

     In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring items) necessary for a fair presentation of results for the interim
periods presented. The results of operations for any interim period are not
necessarily indicative of results for the full year. The condensed consolidated
balance sheet of the Company at December 31, 1998 has been derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. These financial statements and footnote
disclosures should be read in conjunction with the December 31, 1998 audited
consolidated financial statements and the notes thereto.

     The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying condensed
consolidated financial statements and notes thereto. Actual results, including
the Company's estimated costs to exit its Physician Practice Management ("PPM")
operations, as discussed in Notes 4 and 5, could differ from those estimates.

NOTE 2. INCOME TAXES

     Significant variations exist in the customary relationship between income
tax expense and pretax income because the Company has utilized net operating
loss carryforwards to offset its taxable federal income and certain taxable
state income. The Company has recorded a valuation allowance equal to its net
deferred tax assets. Consequently, the Company has recognized a tax rate of 8%,
its effective state income tax rate.

NOTE 3. CREDIT FACILITY

     The Company entered into an amendment to its credit facility dated as of
April 14, 1999 to modify the terms of its credit agreement concerning the
Company's proposed settlement with the State of California (see Note 5) on April
9, 1999. The terms of the credit facility were modified to among other things
(a) permit the Company to enter into a comprehensive settlement agreement and
transition plan with the State of California and certain health care service
plans; (b) permit the sale or other disposition of all the property and assets
of the Company's California PPM operations, with proceeds remaining in the
California PPM operations to satisfy liabilities and obligations of the
Company's California operations; (c) increase to $215 million (of which $15
million is available solely to pay amounts under certain promissory notes), from
$125 million, the amount of net asset sale proceeds available to the Company for
use in its business and operations in the ordinary course; and (d) modify
certain financial ratios for periods ending on or after March 31, 1999.

NOTE 4. SALES OF DISCONTINUED OPERATIONS

     On January 26, 1999, the Company closed the sale of its government services
operations, one of the two businesses that comprised the Company's contract
services division, to America Service Group, Inc. The Company received
approximately $67 million in cash, less certain working capital adjustments, in
this transaction.

     On March 12, 1999, the Company closed the sale of its hospital services
operations, the other of the two businesses that comprised the Company's
contract services business, to an unaffiliated third-party and the current
management team in a recapitalization transaction. The Company received
approximately $318.9 million in cash, before payment of transaction costs and
other expenses including insurance coverage for certain medical malpractice
liabilities, in this transaction. The Company retained 7.3% of the equity of the
recapitalized company.

     During the three months ended March 31, 1999 the Company completed
various asset sales of its PPM business. Proceeds from these sales totaled $51.4
million. On April 23, 1999, the Company closed the sale of assets of the PPM
business that provides services to the multi-specialty physicians group, 

                                       7
<PAGE>
 
Kelsey-Seybold Medical Group, P.A., to a joint venture. The joint venture
acquired the MedPartners and Kelsey-Seybold management services agreement,
related assets and certain real estate for $150 million, less certain working
capital and other adjustments.
     
    Estimated gains and losses on the transactions noted above were included in
the net loss from the disposal of discontinued operations recorded in the fourth
quarter of 1998. The $1.1 billion net loss on the disposal of discontinued
operations recorded in the fourth quarter of 1998 included approximately $815.4
million for the impairment and write-offs of intangibles and other PPM assets,
estimated costs to exit the PPM operations of approximately $340.9 million
(including $153.9 million to fully reserve the Company's deferred tax assets)
and approximately $90.8 million, net of taxes of $55.6 million, for the
estimated net gain on the sale of the contract services businesses. During the
first quarter of 1999, the Company realized a loss of $67.3 million on the sale
of PPM assets, incurred costs to exist the PPM business of $72.8 million and
realized a gain on the sale of the contract services division of $91.1
million, net of taxes of $55.9 million. Management believes that current
reserves are adequate to cover the remaining costs to exit its PPM operations.

NOTE 5. CALIFORNIA PPM DISCONTINUED OPERATIONS

     The Company's California PPM operations includes MedPartners Provider
Network ("MPN"), a wholly-owned subsidiary of the Company and a healthcare
service plan licensed under the Knox-Keene Health Care Service Plan Act of 1975.
In March 1999, the California Department of Corporations (the "DOC") appointed a
conservator and assumed control of the business operations of MPN. The
conservator, purportedly on behalf of MPN, filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code, placing MPN into bankruptcy.

     On April 9, 1999, the Company and representatives of the State of
California (the "State") reached an agreement in principle to settle the
disputes relating to MPN. The proposed settlement provided for: a transition
plan for the orderly and timely disposition of the existing operations of MPN
and the Company's California PPM-related assets; the continued funding of the
Company's California PPM operations with all of the proceeds from such
disposition; restoration of MPN's assets, operations and management
responsibilities to the Company, which will operate MPN as a debtor in
possession under the Bankruptcy Code, subject to oversight and supervision of
the new court-appointed conservator; and the continuation in a monitoring role
by the new conservator and the DOC with primary oversight responsibilities on
the fulfillment of the proposed settlement and transition plan. The proposed
settlement also provided for a loan of up to $25 million from certain health
care plans to the Company or, as designated by the Company, purchasers of MPN's
and the Company's physician practice assets. The Company is also providing a
letter of credit in the amount of $25 million as security for its funding
obligations.

     On May 10, 1999, the Company and the State reached an interim agreement
(the "Interim Agreement") to begin implementation of the principal terms of the
proposed settlement. As part of the Interim Agreement, the DOC stayed its prior
orders, and sought and received an order from the Superior Court modifying the 
conservator's role and appointing him as a special monitor for MPN (the "Monitor
Order"). The Monitor Order will allow the Company to proceed with its transition
plan for the orderly and timely disposition of the existing operations of MPN
and the Company's California PPM-related assets. In particular, the Monitor
Order provides that: MPN property, business, and assets will be returned
immediately to MPN, which will be managed by the Company and operate as a debtor
in possession under the Bankruptcy Code; a special monitor appointed by the
state will provide oversight and supervision of MPN and will maintain certain
operational controls over MPN pending approval by the Bankruptcy Court of the
definitive settlement agreement; and the Company will fund, as contemplated in
its transition plan, the working capital requirements of its subsidiaries to
enable the normal continuing operations of the managed physician practices,
including the payment of adjudicated provider claims. The Monitor Order will
expire on May 27, 1999, unless extended by further order of the Los Angeles
Superior Court and subject to earlier termination as provided in the Monitor
Order. The Company anticipates executing a definitve agreement with the State
during May, 1999.
                                       8
<PAGE>
 
NOTE 6. CONTINGENCIES

     The Company is party to certain legal actions arising in the ordinary
course of business. The Company is named as a defendant in various legal actions
arising primarily out of services rendered by physicians and others employed by
its affiliated medical groups, as well as personal injury and employment
disputes. In addition, certain of its affiliated medical groups are named as
defendants in numerous actions alleging medical negligence on the part of their
physicians. In certain of these actions, the Company and/or the medical group's
insurance carrier has either declined to provide coverage or has provided a
defense subject to a reservation of rights. Management does not view any of
these actions as likely to result in an uninsured award that would have a
material adverse effect on the operating results and financial condition of the
Company.

     In June 1995, Caremark Inc. ("Caremark")and Caremark International, Inc.
("CII") agreed to settle an investigation with certain agencies of the United
States government (the "Settlement Agreement"). The Settlement Agreement allows
Caremark and CII to continue participating in Medicare, Medicaid, and other
government healthcare programs. In the Settlement Agreement, Caremark and CII
agreed to continue to maintain certain compliance-related oversight procedures
until June 15, 2000. Should these oversight procedures reveal credible evidence
of legal or regulatory violations, Caremark and CII are required to report such
violations to the OIG and DOJ. Caremark and CII are therefore subject to
increased regulatory scrutiny and, in the event that either Caremark or CII
commits legal or regulatory violations, it may be subject to an increased risk
of sanctions or penalties, including disqualification as a provider of Medicare
or Medicaid services, which would have a material adverse effect on the
operating results and financial condition of the Company.

     In connection with the matters described above relating to the Settlement
Agreement, Caremark and CII are the subject of various non-governmental claims
and may in the future become subject to additional OIG-related claims. Caremark
and CII are the subject of, and may in the future be subjected to, various
private suits and claims being asserted in connection with matters relating to
the OIG settlement by CII's former stockholders, patients who received
healthcare services from Caremark and such patients' insurers. MedPartners
cannot determine at this time what costs or liabilities may be incurred in
connection with future disposition of non-governmental claims or litigation.

     Beginning in September 1994, Caremark was named as a defendant in a series
of lawsuits added to a pending group of actions (including a class action)
brought in 1993 under the antitrust laws by local and chain retail pharmacies
against brand name pharmaceutical manufacturers, wholesalers and prescription
benefit managers other than Caremark. The lawsuits, filed in federal district
courts in at least 38 states (including the United States District Court for the
Northern District of Illinois), allege that at least 24 pharmaceutical
manufacturers provided unlawful price and service discounts to certain favored
buyers and conspired among themselves to deny similar discounts to the
complaining retail pharmacies (approximately 3,900 in number). The complaints
charge that certain defendant prescription benefit managers, including Caremark,
were favored buyers who knowingly induced or received discriminatory prices from
the manufacturers in violation of the Robinson-Patman Act. Each complaint seeks
unspecified treble damages, declaratory and equitable relief and attorney's fees
and expenses.

     All of these actions have been transferred by the Judicial Panel for
Multi-District Litigation to the United States District Court for the Northern
District of Illinois for coordinated pretrial procedures. Caremark was not named
in the class action. In April 1995, the Court entered a stay of pretrial
proceedings as to certain Robinson-Patman Act claims in this litigation,
including the Robinson-Patman Act claims brought against Caremark, pending the
conclusion of a first trial of certain of such claims brought by a limited
number of plaintiffs against five defendants not including Caremark. On July 1,
1996, the district court directed entry of a partial final order in the class
action approving an amended settlement with certain of the pharmaceutical
manufacturers. The amended settlement provides for a cash payment by the
defendants in the class action (which does not include Caremark) of
approximately $351 million to class members in settlement of conspiracy claims
as well as a commitment from the settling manufacturers to abide by certain
injunctive provisions. All class action claims against non-settling
manufacturers as well as all opt out and other claims generally, including all
Robinson-Patman Act claims against Caremark, remain unaffected by this
settlement, although numerous additional settlements have been reached between a
number of parties to the class and individual manufacturers. The class action
conspiracy claims against the remaining defendants were tried in the fall of
1998, and resulted in a judgment by the court at the close of the plaintiffs'
case in favor of the remaining defendants. That judgment is currently being
appealed. It is expected that trials of the remaining individual conspiracy
claims will move forward in 1999, and will precede the trial of any
Robinson-Patman Act claims.

     In March 1998, a consortium of insurance companies and third-party private
payors sued Caremark alleging violations of the Racketeering Influenced and
Corrupt Organizations Act ("RICO"), the Employee Retirement Income Security Act
("ERISA") and claims of state law fraud and unjust enrichment. The case was
filed in the United States District Court for the Northern District of 

                                       9
<PAGE>
 
Illinois. The plaintiffs maintain that Caremark's home infusion division
implemented a scheme from 1985 to April 1995 to submit fraudulent claims for
payment to the payors which the payors unwittingly paid. Caremark's home
infusion division was sold to Coram Healthcare Corp. in April 1995. The
complaint seeks unspecified damages, treble damages and attorney's fees and
expenses.

     There can be no assurance that the lawsuits will not have a disruptive
effect upon the operations of the business, that the defense of the lawsuits
will not consume the time and attention of senior management of MedPartners and
its subsidiaries, or that the resolution of the lawsuits will not have a
material adverse effect on the operating results and financial condition of the
Company. The Company intends to vigorously defend each of these lawsuits. The
Company believes that these lawsuits will not have a material adverse effect on
the operating results and financial condition of the Company.

                                       10
<PAGE>
 
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
        Of Operations

General

     MedPartners operates one of the largest independent prescription benefit
management ("PBM") companies in the United States, with net revenue of
approximately $785 million for the three months ended March 31, 1999.

     The Company manages PBM programs for clients throughout the United States,
including corporations, insurance companies, unions, government employee groups
and managed care organizations. During the first three months of 1999 the
Company dispensed approximately 2.9 million prescriptions through 3 mail service
pharmacies and processed approximately 9.7 million prescriptions through a
network of more than 50,000 retail and other pharmacies.

     The Company's therapeutic pharmaceutical services ("CT" services) are
designed to meet the healthcare needs of individuals with certain chronic
diseases or conditions. These services include the design, development and
management of comprehensive programs comprising drug therapy, physician support
and patient education. The Company currently provides therapies and services for
individuals with such conditions as hemophilia, growth disorders, immune
deficiencies, cystic fibrosis, multiple sclerosis and infants with respiratory
difficulties.

Results of Operations for the Three Months Ended March 31, 1999 and 1998

     The Company's revenues continue to exhibit sustained growth. This growth is
entirely internal and has not been supplemented by acquisitions. Key factors
contributing to this growth include high customer retention, additional service
provided to existing customers, new customer contracts and drug cost inflation.
The preponderance of the Company's revenue is earned on a fee-for-service basis
through contracts covering one to three-year periods. Revenues for selected
types of services are earned based on a percentage of savings achieved or on a
per-enrollee or per-member basis; however, these revenues are not material to
total revenues.

     For the three months ended March 31, 1999 and 1998, net revenue was $785.1
million and $620.2 million, representing an increase of $164.9 million (26.6%)
from 1998 to 1999 respectively. These increases are primarily attributable to
the addition of new customers, additional services provided to existing
customers, pharmaceutical price increases, and the sale of new products.

     Operating income was $38.9 million for the three months ended March 31,
1999, up from $29.6 million for the three months ended March 31, 1998, a 31.4%
increase. Margins were 5.0% in 1999, up from to 4.8% in 1998. Operating income
increase from growth in net revenue, while operating margins remained stable.
(Operating income represents earnings before interest and income taxes and
excludes losses from discontinued operations.)

     Net interest expense was $27.1 million and $19.3 million for the three
months ended March 31, 1999 and 1998, respectively. The period over period
increase in interest expense primarily resulted from increased debt levels.
During the last three quarters of 1998, the Company experienced increases in
debt levels which were a result of substantial uses of cash in the Company's
discontinued operations for acquisitions, capital expenditures and working
capital requirements. The Company's significant debt levels in 1998 and prior
years were primarily generated from its PPM Operations. Interest expense has
been allocated to these discontinued operations based on the expected net
proceeds from the sale and exit of the discontinued operations.


Other Matters

     Year 2000 Compliance. The year 2000 ("Y2K") presents a problem for computer
software and hardware that were not designed to handle dates beyond the year
1999. The Y2K Problem is pervasive and complex because virtually every computer
operation will be affected in some way by the rollover of the last two digits of
the year to "00". As a consequence, any such software and hardware will need to
be modified some time prior to December 31, 1999 in order to remain functional.
Computer systems and hardware that do not properly handle this rollover could
generate erroneous data or fail to function.

     The Company has initiated a company-wide program to address to the Y2K
Problem with respect to the information systems (software and hardware) and
equipment and systems utilized in the Company's operations. The program
includes: (1) an inventory of the information systems, hardware, and equipment
(the "Systems, Hardware and Equipment") utilized in operations; (2) an
assessment of the Y2K issues associated with the Systems, Hardware and
Equipment; (3) the remediation of such Systems, Hardware and Equipment to
achieve Y2K readiness ("Y2K Readiness" or "Y2K Ready"); (4) the testing of such
Systems, Hardware and Equipment

                                       11
<PAGE>
 
to confirm Y2K Readiness; and (5) the development of contingency plans to
address Y2K and the principal risks facing the Company in its efforts to achieve
Y2K Readiness. The Company's Y2K program also includes its "Trading Partners
Initiative," which is designed to provide the Company with insights into the Y2K
Readiness of certain of the Company's customers, suppliers and vendors. In
addition, the Company has sent letters to certain manufacturers of the hardware
and equipment utilized in operations requesting that such manufacturers address
the Y2K Readiness of such hardware and equipment.

     In terms of the status of the Company's Y2K program, including systems
related to discontinued operations, management believes that the Company's
inventory of information systems is approximately 99% complete, that its
assessment of Y2K issues associated with such information systems is
approximately 95% complete and that its remediation efforts with respect to such
information systems is approximately 60% complete. With respect to the status of
the Company's Y2K efforts with respect to equipment and systems that include
embedded logic or software which presents Y2K issues, management believes that
the inventory of such equipment and systems is approximately 60% complete. The
Company's assessment of Y2K issues associated with such equipment and systems is
approximately 40% complete. The Company expects to complete its assessment of
all these areas by June 1999. The Company expects to commence testing efforts
with respect to the Systems, Hardware and Equipment following the completion of
the inventory and assessment stages of its Y2K program. The Company has not, to
date, received substantial responses to its requests of customers, suppliers and
vendors with respect to their Y2K Readiness. As a result, management is
currently unable to form an opinion as to the present level of risk associated
with the state of Y2K Readiness of the Company's customers, vendors and
suppliers, other than a belief that the Y2K issues generally associated with the
healthcare industry are very significant and complex and include issues
associated with the delivery of healthcare services and products as well as the
billing and collection of amounts due for such services and products.

     According to a recent report (the "Report") by the Senate Special
Subcommittee on the Year 2000 Technology Problem, the healthcare industry lags
behind other industries in Y2K preparedness. While, according to the Report, the
pharmaceutical segment appears to be better Y2K prepared than other segments of
the healthcare industry, the progress of health claim billing systems of third
party payors is progressing slowly.

     Management of the Company believes that the Company's Y2K program will be
substantially completed by the third quarter of 1999. The Company estimates that
the total cost of the Y2K program, including $13.3 million in costs associated
with discontinued operations, will be approximately $19.4 million, of which
approximately $15 million has been spent through March 31, 1999. Of such
aggregate Y2K expenditures made to date, management currently estimates that
approximately $12.2 million consisted of capital expenditures for new or
replacement systems, hardware and equipment and approximately $2.8 million
consisted of expenses of the Y2K program. The source of the funding utilized to
make such historical expenditures has been borrowings under the Company's credit
facility and cash flow from operations. Management of the Company believes that
a significant amount of the funds spent to date and budgeted in the future for
achieving Y2K Readiness would otherwise have been spent and budgeted in
connection with the Company's ongoing information technology consolidation
efforts to reduce the number of information systems and hardware platforms
utilized in its operations and acquired through the Company's various
acquisition transactions over the years.

     The Company believes that the most reasonably likely worse case scenario
with respect to Y2K issues is the possibility that equipment and systems that
include embedded logic or software will fail to be Y2K Ready and that such
failure will cause such equipment to fail to operate or operate improperly. The
failure of such equipment may expose individual patients to potential injury and
may expose the Company to claims and liabilities. At this time the Company
cannot estimate the likelihood or magnitude of any such equipment or systems
failures. The Company has not established a contingency plan for the failure of
such equipment or systems but plans to establish such a plan during 1999 in
conjunction with the implementation of the Y2K program.

     The Y2K problems experienced by the Company's vendors, suppliers and
distribution network could result in the Company experiencing difficulty in
obtaining and distributing prescription drugs or pharmaceutical therapies,
thereby disrupting the Company's PBM business as historically conducted. Y2K
problems experienced by HMOs, other third party payors and the government
agencies which administer Medicare, Medicaid and other government sponsored
healthcare programs, may result in delays in payments to the Company for
services or in erroneous payments for such services which could adversely affect
the Company's results of operations and liquidity.

     The foregoing discussion involves the estimates and judgments of the senior
management of the Company. There can be no assurances that the Company will be
Y2K Ready or that the Company will not incur liability or suffer a material
adverse effect as a result of the Company's failure to be Y2K Ready. In
addition, there can be no assurances that the estimated expenses to make the

                                       12
<PAGE>
 
Company Y2K Ready will not be materially higher than estimated or that the
Company will not incur additional expenses associated with its efforts to get
Y2K Ready or its failure to do so.

Factors That May Affect Future Results

     The future operating results and financial condition of the Company are
dependent on the Company's ability to market its services profitably,
successfully increase market share and manage expense growth relative to revenue
growth. The future operating results and financial condition of the Company may
be affected by a number of additional factors, including: the Company's
divestiture strategy; competition for expansion opportunities; efforts to
control healthcare costs; exposure to professional liability; and pharmacy
licensing, healthcare reform and government regulation. Changes in one or more
of these factors could have a material adverse effect on the future operating
results and financial condition of the Company.

     There are various legal matters which, if materially adversely determined,
could have a material adverse effect on the Company's operating results and
financial condition. See Item 3 of the Company's Annual Report filed on Form
10-K for the fiscal year ended December 31, 1998.

Liquidity and Capital Resources

     The Company experienced positive cash flow from continuing operations for
the three months ended March 31, 1999 and 1998. The cash flow from continuing
operations for the three months ended March 31, 1999 was $17.1 million and net
capital expenditures were $3.2 million. Cash provided by discontinued operations
was $226.0 million for the three months ended March 31, 1999. The primary source
of funds provided by discontinued operations related to the sale of the
Company's Contract Services division and various PPM asset sales (see Note 4 of
the accompanying unaudited Condensed Consolidated Financial Statements of the
Company).

     The Company has entered into a credit facility with NationsBank, N.A. as
administrative agent. The credit facility is unsecured, but is guaranteed by the
Company's material subsidiaries. The credit facility consists of the following:

     i.   a one-year non-amortizing term loan (the Company has an option to
          extend the term loan an additional two years as an amortizing term
          loan) ($147.4 million outstanding at March 31, 1999);

     ii.  a three-year non-amortizing term loan ($147.4 million outstanding at
          March 31, 1999); and

     iii. a three-year revolving credit facility in an aggregate principal
          amount of up to $400 million ($318.5 million in outstanding borrowings
          and $20.2 million in letters of credit under the revolving credit
          facility, resulting in $61.3 million in available borrowing capacity
          at March 31, 1999).

     On May 6, 1999, the Company notified the administrative agent of the
Company's election to exercise its option to extend the term loan in item i
above an additional two years. Quarterly principal payments on this term loan
are scheduled to begin in November 1999. The funds to re-pay the amortizing
portion of this debt are expected to come primarily from non-current assets of
discontinued operations. Accordingly, the Company has continued to classify the
portion of this debt due within the next twelve months as long-term.

     The Company's credit facility as amended permits up to $100 million in
accounts receivable securitization. The Company has securitized certain of its
accounts receivables with The Chase Manhattan Bank as funding agent. As of March
31, 1999, the Company had securitized approximately $75 million in accounts 
receivable.

                                       13
<PAGE>
 
     The Company entered into an amendment to its Credit Facility dated as of
April 14, 1999, to modify the terms of its credit agreement concerning the
Company's proposed settlement with the State of California on April 9, 1999. The
terms of the agreement were modified to among other things (a) permit the
Company to enter into a comprehensive settlement agreement and transition plan
with the State of California (the "Settlement Agreement"); (b) permit the sale
or other disposition of all of the property and assets of the Company's
California PPM operations, with proceeds remaining in the California PPM
operations to satisfy liabilities and obligations of the Company's California
PPM operations, including MPN's liabilities and obligations; (c) to increase to
$215 million (of which $15 million is available solely to pay amounts under
certain promissory notes), from $125 million, the amount of net asset sale
proceeds available to the Company for use in its business and operations in the
ordinary course; (d) modify certain financial ratios for periods ending on or
after March 31, 1999 and (e)to increase to $100 million the amount of accounts
receivable permitted to be securitized.

     The Company's discontinued operations will continue to use significant
amounts of cash until the Company divests such operations. Proceeds from the
sales of these operations will be used to reduce the term loans and the revolver
to the extent required under the amended credit agreement. Cash used to fund
exit costs, which are classified in current liabilities as other accrued
expenses and liabilities, will be funded by the revolving credit facility and
cash flow from continuing operations. The Company believes that amounts
available from the sales of discontinued operations, amounts available under its
revolving credit facility and cash flow from continuing operations will be
sufficient to fund the cash requirements. However, if the cash generated from
such sources is insufficient to fund discontinued operations until they are
divested, or if the Company is unable to successfully implement its divestiture
strategy, including the Settlement Agreement, in a timely manner, the Company's
liquidity position could be adversely affected.

     On April 9, 1999, the Company and representatives of the State of
California (the "State") signed a letter of intent to settle the disputes
relating to MPN. The proposed settlement provides for a loan of up to $25
million from certain health care services plans to the Company or, as designated
by the Company, purchasers of MPN's and the Company's California PPM operations.
The Company also will be providing a letter of credit in the amount of $25
million in respect of its funding obligations with respect to the proposed
settlement. For a detailed discussion, see Note 5 of the accompanying unaudited
Condensed Consolidated Financial Statements of the Company.

     In September 1997, the Company issued 21.7 million 6.50% Threshold
Appreciation Price Securities ("TAPS") with a stated amount of $22.1875 per
security. Each TAPS consists of (i) a stock purchase contract which obligates
the holder to purchase common stock from the Company on the final settlement
date (August 31, 2000) and (ii) 6.25% U.S. Treasury Notes due August 31, 2000.
Under each stock purchase contract the Company is obligated to sell, and the
TAPS holder is obligated to purchase on August 31, 2000, between 0.8197 of a
share and one share of the Company's Common Stock. The exact number of common
shares to be sold is dependent on the market value of the Company's Common Stock
in August 2000. The number of shares issued by the Company in conjunction with
this security will not be more than approximately 21.7 million or less than
approximately 17.8 million (subject to certain anti-dilution adjustments). The
Treasury Notes forming a part of the TAPS have been pledged to secure the
obligations of the TAPS holders under the purchase contracts. Pursuant to the
TAPS, TAPS holders receive payments equal to 6.50% of the stated amount per
annum consisting of interest on the Treasury Notes at the rate of 6.25% per
annum and yield enhancement payments payable semi-annually by the Company at the
rate of 0.25% of the stated amount per annum. Additional paid-in capital has
been reduced by $20.4 million for issuance costs and the present value of the
annual 0.25% yield enhancement payments payable to the holders of the TAPS.
These securities are not included on the Company's balance sheet; an increase in
stockholders' equity would be reflected upon receipt by the Company of cash
proceeds of $481.4 million on August 31, 2000 from the issuance of the Company's
common stock pursuant to the TAPS.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company is exposed to market risk from changes in interest rates
related to its long-term debt. The impact on earnings and value of its long-term
debt is subject to change as a result of movements in market rates and prices.
As of March 31, 1999, the Company had $613 million in long-term debt subject to
variable interest rates. The remaining $870 million in long-term debt is subject
to fixed rates of interest. A hypothetical increase in interest rates of 1%
would result in potential reductions in future pre-tax earnings of approximately
$6.1 million per year. The impact of such a change on the carrying value of the
long-term debt would not be significant. These amounts are determined based on
the impact of the hypothetical interest rates on the Company's long-term debt
balances and do not consider the effects, if any, of the potential changes in
the overall level of economic activity that could exist in such an environment.

                                       14
<PAGE>
 
Item II Other Information
 
Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

     The exhibits required in Regulation S-K are set forth in the following
     list.

          (2)-1  Stock Purchase Agreement, dated as of December 18, 1998, by and
                 between InPhyNet Administrative Services, Inc. and America
                 Service Group, Inc., filed as Exhibit (2)-1 to the Company's
                 Annal Report on Form 10-K for the fiscal year ended December
                 31, 1998, is hereby incorporated herein by reference. The
                 Exhibits and Disclosure Letter that are referenced in the table
                 of contents and elsewhere in the Stock Purchase Agreement are
                 hereby incorporated by reference. Such Exhibits and Disclosure
                 Letter have been omitted for purposes of this filing, but will
                 be furnished supplementally to the commission upon request.

          (2)-2  First Amendment to Stock Purchase Agreement, dated as of
                 January 26, 1999, by and between InPhyNet Administrative
                 Services, Inc. and America Service Group, Inc., filed as
                 Exhibit (2)-2 to the Company's Annual Report on Form 10-K for
                 the fiscal year ended December 31, 1998, is hereby incorporated
                 herein by reference.

          (2)-3  Recapitalization Agreement, dated as of January 25, 1999, by
                 and between Team Health, Inc., MedPartners, Inc., Pacific
                 Physician Services, Inc. and Team Health Holdings, L.L.C.,
                 filed as Exhibit (10-1) to the Company's Current Report on Form
                 8-K filed on January 27, 1999, is hereby incorporated herein by
                 reference. The Exhibits and Disclosure Letter that are
                 referenced in the table of contents and elsewhere in the
                 Recapitalization Agreement are hereby incorporated herein by
                 reference. Such Exhibits and Disclosure Letter have been
                 omitted for purposes of this filing, but will be furnished
                 supplementally to the commission upon request.

          (2)-4  Purchase Agreement, dated as of March 11, 1999, by and between
                 St. Luke's Episcopal Health System, Methodist Health Care
                 System, MedPartners, Inc., Caremark, Inc., KS-PSI of Texas,
                 L.P., Caremark Resources Corporation, MedPartners Physician
                 Services, Inc., Caremark Physician Services of Texas, Inc. and
                 MedTex, L.P., filed as Exhibit (2)-4 to the Company's Annual
                 Report on Form 10-K for the fiscal year ended December 31,
                 1998, is hereby incorporated herein by reference. The Schedules
                 that are referenced in the table of contents and elsewhere in
                 the Purchase Agreement are hereby incorporated by reference.
                 Such Schedules have been omitted for purposes of this filing,
                 but will be furnished supplementally to the commission upon
                 request.

          (2)-5  Letter Agreement by and between Team Health, Inc., MedPartners,
                 Inc., Pacific Physician Services, Inc., and Team Health
                 Holdings, L.L.C., dated March 11, 1999, filed as Exhibit (2)-2
                 to the Company's Current Report on Form 8-K filed on March 26,
                 1999 is hereby incorporated herein by reference.

          (10)-1 Amendment and Waiver No. 6 to the Third Amended and Restated
                 Credit Agreement, dated April 14, 1999, by and between
                 MedPartners, Inc., NationsBank, N.A., Credit Lyonnais New York
                 Branch, The First National Bank of Chicago, Morgan Guaranty
                 Trust Company of New York, NationsBanc Montgomery Securities 
                 LLC, and NationsBank, N.A., filed as Exhibit (10)-1 to the
                 Company's Current Report on Form 8-K filed on April 22, 1999,
                 is hereby incorporated herein by reference.

          (10)-2 Amendment No. 2 to Employment Agreement, effective December 1,
                 1998, by and between MedPartners, Inc. and E. Mac Crawford.

          (10)-3 Nonqualified Stock Option Agreement, dated January 27, 1999, by
                 and between MedPartners, Inc. and E. Mac Crawford.

          (27)   Financial Data Schedule

(b)  Reports on Form 8-K

     The Company's Current Report on Form 8-K filed January 15, 1999 (reporting
     the second amendment to the Company's Amended and Restated Credit Agreement
     dated as of June 9, 1998).

     The Company's Current Report on Form 8-K filed January 29, 1999 (reporting
     that the Company had entered into a definitive agreement to sell its Team
     Health business in a recapitalization transaction; reporting that the
     Company completed the sale of its Government Services operations).

                                       15
<PAGE>
 
     The Company's Current Report on Form 8-K filed March 26, 1999 (reporting
     the completion of the sale of the Company's Team Health business).

No other Items of Part II are applicable to the Company for the period covered
by this Quarterly Report on Form 10-Q.

  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.

MedPartners, Inc.


By:     /s/ James H. Dickerson, Jr.
        ---------------------------------------------------------------------
        James H. Dickerson, Jr., Executive Vice President and Chief Financial
        Officer
        


By:     /s/ Howard A. McLure
        ---------------------------------------------------------------------
        Howard A. McLure, Senior Vice President and Chief Accounting Officer
       



Date:   May 17, 1999

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