<PAGE>

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                      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 June 30, 1999

                                      OR

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

  For the transition period from     to

                        Commission file number: 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
                                                  August 6, 1999
                                                     199,439,465
        Common Stock, par value
            $.001 per Share
--------
*  Includes 8,466,659 shares held in trust to be utilized in employee benefit
   plans.

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<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 for 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
                                                                            ----
<S>                                                                         <C>
PART I--FINANCIAL INFORMATION
Item 1.Financial Statements
   Condensed Consolidated Balance Sheets--June 30, 1999 (Unaudited) and
    December 31, 1998.....................................................    4
   Condensed Consolidated Statements of Operations (Unaudited)--Three
    Months Ended June 30, 1999 and 1998...................................    5
   Condensed Consolidated Statements of Operations (Unaudited)--Six Months
    Ended June 30, 1999 and 1998..........................................    6
   Condensed Consolidated Statements of Cash Flows (Unaudited)--Six Months
    Ended June 30, 1999 and 1998..........................................    7
   Notes to Condensed Consolidated Financial Statements (Unaudited).......    8
Item 2.Management's Discussion and Analysis of Financial Condition and Re-
 sults of Operations......................................................   12
Item 3.Quantitative and Qualitative Disclosures About Market Risk.........   17
PART II--OTHER INFORMATION
Item 1.Legal Proceedings..................................................   19
Item 4.Submission of Matters to a Vote of Security Holders................   19
Item 6.Exhibits and Reports on Form 8-K...................................   19
</TABLE>

                                       3
<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                               MEDPARTNERS, INC.

               CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
                                                       June 30,    December 31,
                                                         1999          1998
                                                      -----------  ------------
                                                           (In Thousands)
<S>                                                   <C>          <C>
                       ASSETS
Current assets:
  Cash and cash equivalents.......................... $     8,639  $    23,100
  Accounts receivable, less allowances for bad debts
   of $11,841 and $11,136............................     189,205      185,719
  Inventories........................................     137,612      171,739
  Prepaid expenses and other current assets..........      11,281       11,513
  Current assets of discontinued operations..........     253,900      793,495
                                                      -----------  -----------
    Total current assets.............................     600,637    1,185,566
  Property and equipment, net........................     108,167      115,835
  Intangible assets, net.............................      23,987       27,463
  Other assets.......................................      80,284       51,272
  Non-current assets of discontinued operations......      93,584      481,970
                                                      -----------  -----------
    Total assets..................................... $   906,659  $ 1,862,106
                                                      ===========  ===========
        LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable................................... $   223,650  $   215,861
  Other accrued expenses and liabilities.............     212,968      297,265
  Income tax payable.................................      10,775        9,480
  Current portion of long-term debt..................      37,016          207
  Current liabilities of discontinued operations.....     322,281      577,642
                                                      -----------  -----------
    Total current liabilities........................     806,690    1,100,455
Long-term debt, net of current portion...............   1,334,887    1,735,096
Other long-term liabilities..........................      31,065       61,954
Long-term liabilities of discontinued operations.....      51,093      108,774
Stockholders' deficit:
  Common stock, $.001 par value; 400,000 shares
   authorized; issued--199,212 in 1999 and 199,032 in
   1998..............................................         199          199
  Additional paid-in capital.........................     952,557      954,420
  Shares held in trust, 8,521 in 1999 and 8,838 in
   1998..............................................    (136,736)    (142,477)
  Accumulated deficit................................  (2,133,096)  (1,956,315)
                                                      -----------  -----------
    Total stockholders' deficit......................  (1,317,076)  (1,144,173)
                                                      -----------  -----------
    Total liabilities and stockholders' deficit...... $   906,659  $ 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
                                                             June 30,
                                                      -----------------------
                                                         1999         1998
                                                      -----------  ----------
                                                      (in Thousands, Except
                                                        Per Share Amounts)
<S>                                                   <C>          <C>
Net revenue.......................................... $   796,207  $  639,457
Operating expenses:
  Cost of revenues...................................     725,086     580,467
  Selling, general and administrative................      22,880      21,767
  Depreciation and amortization......................       5,104       4,683
  Net interest expense...............................      30,502      21,723
  Restructuring charge...............................         --        9,500
                                                      -----------  ----------
Income from continuing operations before income tax-
 es..................................................      12,635       1,317
Income tax expense...................................         940         500
                                                      -----------  ----------
Income from continuing operations....................      11,695         817
Loss from discontinued operations....................    (199,310)    (24,081)
                                                      -----------  ----------
Net loss............................................. $  (187,615) $  (23,264)
                                                      ===========  ==========
Basic earnings per common share:
  Income from continuing operations.................. $      0.06  $     0.01
  Loss from discontinued operations..................       (1.05)      (0.13)
                                                      -----------  ----------
  Net loss........................................... $     (0.99) $    (0.12)
                                                      ===========  ==========
Diluted earnings per common share:
  Income from continuing operations.................. $      0.06  $     0.01
  Loss from discontinued operations..................       (1.02)      (0.13)
                                                      -----------  ----------
  Net loss........................................... $     (0.96) $    (0.12)
                                                      ===========  ==========
Weighted average common shares outstanding...........     190,650     189,245
Dilutive effect of employee stock options............       4,635         367
                                                      -----------  ----------
Weighted average shares outstanding, assuming dilu-
 tion................................................     195,285     189,612
                                                      ===========  ==========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                               MEDPARTNERS, INC.

          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                         Six Months Ended
                                                             June 30,
                                                       ----------------------
                                                          1999        1998
                                                       ----------  ----------
                                                       (in Thousands, Except
                                                        Per Share Amounts)
<S>                                                    <C>         <C>
Net revenue........................................... $1,581,265  $1,259,683
Operating expenses:
  Cost of revenues....................................  1,440,952   1,145,395
  Selling, general and administrative.................     47,653      42,998
  Depreciation and amortization.......................     10,662       9,102
  Net interest expense................................     57,560      41,039
  Restructuring charge................................        --        9,500
                                                       ----------  ----------
Income from continuing operations before income tax-
 es...................................................     24,438      11,649
Income tax expense....................................      1,908       4,426
                                                       ----------  ----------
Income from continuing operations.....................     22,530       7,223
Loss from discontinued operations.....................   (199,310)    (55,567)
                                                       ----------  ----------
Net loss.............................................. $ (176,780) $  (48,344)
                                                       ==========  ==========
Basic earnings per common share:
  Income from continuing operations................... $     0.12  $     0.04
  Loss from discontinued operations...................      (1.05)      (0.29)
                                                       ----------  ----------
  Net loss............................................ $    (0.93) $    (0.25)
                                                       ==========  ==========
Diluted earnings per common share:
  Income from continuing operations................... $     0.12  $     0.04
  Loss from discontinued operations...................      (1.03)      (0.29)
                                                       ----------  ----------
  Net loss............................................ $    (0.91) $    (0.25)
                                                       ==========  ==========
Weighted average common shares outstanding............    190,490     188,928
Dilutive effect of employee stock options.............      3,498         595
                                                       ----------  ----------
Weighted average shares outstanding, assuming dilu-
 tion.................................................    193,988     189,523
                                                       ==========  ==========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>

                               MEDPARTNERS, INC.

          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                               June 30,
                                                          --------------------
                                                            1999       1998
                                                          ---------  ---------
                                                            (in Thousands)
<S>                                                       <C>        <C>
Operating activities:
Net loss................................................. $(176,780) $ (48,344)
Adjustments for non-cash items:
  Non-cash interest expense..............................     2,711      1,834
  Depreciation and amortization..........................    10,662      9,102
  Provision for deferred tax expense.....................       --       1,250
  Restructuring charges..................................       --       9,500
  Loss from discontinued operations......................   199,310     55,567
  Changes in operating assets and liabilities............    12,655      7,382
                                                          ---------  ---------
    Net cash and cash equivalents provided by continuing
     operations..........................................    48,558     36,291
Investing activities:
  Purchase of property and equipment.....................    (6,952)   (19,484)
  Proceeds from sales of property and equipment..........       --       7,245
                                                          ---------  ---------
    Net cash and cash equivalents provided by (used in)
     investing activities................................    (6,952)   (12,239)
Financing activities:
  Capital contributions..................................     1,273      2,832
  Net borrowings (repayments) under credit facility......  (363,199)   212,000
  Repayment of debt......................................      (201)      (200)
  Capitalized loan fees..................................      (269)    (6,100)
  Accounts receivable securitization.....................    14,690        --
                                                          ---------  ---------
    Net cash and cash equivalents provided by (used in)
     financing activities................................  (347,706)   208,532
Cash paid for restructuring expenses.....................    (2,807)    (3,417)
Cash provided by (used in) discontinued operations.......   294,446   (292,804)
                                                          ---------  ---------
Net decrease in cash and cash equivalents................   (14,461)   (63,637)
Cash and cash equivalents at beginning of period.........    23,100    109,098
                                                          ---------  ---------
Cash and cash equivalents at end of period............... $   8,639  $  45,461
                                                          =========  =========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       7
<PAGE>

                               MEDPARTNERS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Basis of presentation

  The unaudited 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 unaudited
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. Consequently, the Company has recognized a tax rate of
approximately 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 15, 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) increase to $100 million the amount of
accounts receivable permitted to be securitized.

  Effective June 29, 1999, the Company entered into an amendment to its credit
facility to modify the terms of its credit agreement primarily concerning the
Company's settlement with the State of California dated June 16, 1999. The
terms of the credit agreement were modified to among other things (a) permit
the Company to dispose of the property and assets of the Company's California
PPM operations in accordance with the June 16, 1999 settlement; (b) increase
to $150 million the amount of accounts receivable permitted to be securitized;
and (c) modify certain financial covenants for periods ending on or after June
30, 1999.

  The Company entered into amendments to its credit facility dated as of
August 2, 1999 and August 16, 1999, to modify the terms of its credit
agreement concerning among other things (a) the amount of cash and

                                       8
<PAGE>

                               MEDPARTNERS, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)

non-cash charges that are permitted to be excluded from financial results for
covenant purposes and (b) the retention by the Company of certain net cash
proceeds of asset dispositions. Specifically, the Company is now allowed to
exclude up to $233.5 million in cash charges related to the reclassification
of the physician practice management businesses as discontinued operations
versus the previous maximum amount of $220 million. The amendments also allow
the Company to retain up to $50 million and, with the consent of the majority
lenders under the credit facility, up to an additional $43 million of net cash
proceeds from asset dispositions occurring on or after July 1, 1999 (in each
case in addition to $15 million in net cash proceeds previously designated for
the payment of certain promissory notes), for use in its business and
operations in the ordinary course rather than applying those proceeds to the
term loans as previously required. In connection with these amendments the
Company has agreed that upon receipt of requisite consent of its lenders under
the credit facility, it shall pledge all of the capital stock of its
subsidiary, Caremark, Inc., as security for the credit facility, with an equal
and ratable pledge in favor of the holders of the Company's 7 3/8% Senior
Notes due 2006.

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 business, 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 six months ended June 30, 1999 the Company completed various
asset sales of its PPM business. Proceeds from these sales totaled $221.0
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,
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.

  During the fourth quarter of 1998 the Company recorded a $1.1 billion net
loss on the disposal of discontinued operations. This loss 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 second quarter of 1999, the Company recorded
an additional charge for $199.3 million related to the net loss on the
disposal of discontinued operations. This charge is an adjustment to the $1.1
billion dollar net loss on the disposal of discontinued operations recorded in
the fourth quarter of 1998. The adjustment includes an additional $236.6
million for the impairment and write-offs of intangibles and other PPM assets
and a reduction in the estimated costs to exit the PPM operations of
approximately $37.3 million. During the first six months of 1999, the Company
realized a loss of $512.2 million on the sale of PPM assets, incurred costs to
exit the PPM business of $146.7 million and realized a gain on the sale of the
contract services business of $91.1 million, net of taxes of $55.9 million.

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. The Company judicially challenged the authority of both the DOC
and the conservator to take these actions.

                                       9
<PAGE>

                               MEDPARTNERS, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)


  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, among other things: 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 of the a
successor to the originally appointed conservator; and the continuation in a
monitoring role by such successor and the DOC with oversight responsibilities
on the fulfillment of the proposed settlement and transition plan. The
proposed settlement also provided for the Company to provide a letter of
credit in the amount of $25 million as security for its funding obligations.

  On May 10, 1999, pending execution of a definitive settlement agreement, 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 was intended to allow the Company to proceed with its transition plan
for the orderly and timely disposition of the existing operation of MPN and
the Company's California PPM-related assets. In particular, the Monitor Order
provided that: MPN property, business, and assets would be returned
immediately to MPN, which would be managed by the Company and operate as a
debtor in possession under the Bankruptcy Code; a special monitor appointed by
the state would provide oversight of MPN and maintain certain operational
controls over MPN pending approval by the Bankruptcy Court of the definitive
settlement agreement; and the Company would 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.

  On June 9, 1999, the Company, the State and the special monitor executed a
definitive settlement agreement. In addition to the matters set forth above,
the parties agreed to include in the settlement agreement certain covenants
establishing the foundation for a chapter 11 plan of reorganization for MPN.
The Company and the State subsequently dismissed the Superior Court litigation
and the United States Bankruptcy Court for the Central District of California
(the "Bankruptcy Court") presiding over MPN's chapter 11 bankruptcy case
appointed the former special monitor as an examiner (the "Examiner") with
limited expanded power upon the request of the official committee of unsecured
creditors appointed in MPN's chapter 11 bankruptcy case. On June 16, 1999, the
Company, the State and the Examiner executed an amended and restated
settlement agreement reflecting these developments (the "Settlement
Agreement").

  At a hearing held on July 19, 1999, the Bankruptcy Court approved the
Settlement Agreement and authorized MPN to enter into and consummate the
transactions contemplated by the Settlement Agreement, with effectiveness and
implementation of the Settlement Agreement to occur according to its terms and
conditions. In addition, as contemplated by and provided for in the Settlement
Agreement, during the course of MPN's chapter 11 case, the Bankruptcy Court
has approved MPN's consent to and/or participation in a series of transactions
implementing the Company's disposition of the operations of MPN. The last such
transaction involving MPN was approved by the Bankruptcy Court at a hearing
held on August 10, 1999. Also as contemplated by the Settlement Agreement, it
is anticipated that MPN will file a plan of reorganization with the Bankruptcy
Court in September, 1999, which plan will set forth the terms and conditions
upon which MPN's remaining assets will be distributed to creditors of MPN
entitled to participate therein.

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

                                      10
<PAGE>

                               MEDPARTNERS, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)

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. The
Company 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

                                      11
<PAGE>

                               MEDPARTNERS, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)

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 was
appealed and was affirmed in part and remanded in part. It is expected that
trials of the remaining individual conspiracy claims will move forward in 1999
or early 2000, 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
Illinois. The plaintiffs maintain that Caremark's home infusion division
implemented a scheme to submit fraudulent claims for payment to the payors
which the payors unwittingly paid. The complaint seeks unspecified damages,
treble damages and attorney's fees and expenses.

  The Company is a defendant in two lawsuits filed in Supreme Court of the
State of New York, City of New York, in late May 1999, claiming that a
"Termination Event" has occurred with respect to the Threshold Appreciation
Price Securities ("TAPS") issued by the Company in September 1997. One of
those actions is brought by certain entities claiming to "own or control" 1.8
million TAPS and the other purports to be brought by a holder of an unknown
number of TAPS as a class action on behalf of a purported class of all holders
of TAPS. The complaints allege that a "Termination Event" has occurred because
of, among other things, the actions taken by the DOC described in Note 5
California PPM Discontinued Operations. The complaints seek an order requiring
the Company immediately to cause to be released to the TAPS holders
approximately $400 million of United States Treasury Notes currently held in
escrow. The escrowed funds otherwise would be released to the Company in
exchange for common stock of the Company at the final settlement date of the
TAPS on August 31, 2000. These cases are in their early stages. No discovery
has yet been conducted.

  In June 1999, various insureds filed a class action complaint against
Caremark Inc., Caremark International Inc. and third party payors in the
United States District Court for the Northern District of Illinois. The action
alleges violations of the Racketeer Influenced Corrupt Organizations Act, the
Illinois Consumer Fraud Act, and the Employee Retirement Income Security Act
as the result of practices developed by Caremark's Home Infusion Division to
submit, and cause others to submit, fraudulent claims for payment to insurers
of health care benefits. The Home Infusion Division was divested in 1995. The
action alleges that the plaintiffs suffered damages stemming from increased
premiums charged by the third party payors, and increased co-payments and
deductibles charged by Caremark. Plaintiffs request unspecified damages,
declaratory relief, attorneys' fees and costs.

  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.

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 $1,518.3 million for the six months ended June 30, 1999.

                                      12
<PAGE>

                               MEDPARTNERS, INC.



  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 six months of 1999,
the Company dispensed approximately 5.9 million prescriptions through 3 mail
service pharmacies and processed approximately 19.0 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 June 30, 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
pharmaceutical price increases. 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 June 30, 1999 and 1998, net revenue was $796.2
million and $639.5 million, respectively, representing an increase of $156.7
million (24.5%) from 1998 to 1999, respectively. These increases are primarily
attributable to pharmaceutical price increases, the addition of new customers,
additional services provided to existing customers and the sale of new
products.

  Operating income was $43.1 million for the three months ended June 30, 1999,
up from $32.5 million for the three months ended June 30, 1998, a 32.6%
increase. Margins were 5.4% in 1999 up from 5.1% in 1998. Operating income
increased from growth in net revenue, while operating margins improved due to
expense controls. However, the Company expects that overall margins will
decrease slightly for the full year as the PBM operations continue to increase
as a percentage of the combined business of the Company. (Operating income
represents earnings before interest, restructuring charges and income taxes
and excludes losses from discontinued operations.)

  Net interest expense was $30.5 million and $21.7 million for the three
months ended June 30, 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. Based on the expected
net proceeds from the sale and exit of the discontinued operations no interest
expense has been allocated to these discontinued operations in the three
months ended June 30, 1999.

Results of Operations for the Six Months Ended June 30, 1999 and 1998

  For the six months ended June 30, 1999 and 1998, net revenue was $1,581.3
million and $1,259.7 million, respectively, representing an increase of $321.6
million (25.5%) from 1998 to 1999, respectively. These increases are primarily
attributable to pharmaceutical price increases, the addition of new customers,
additional services provided to existing customers and the sale of new
products.

                                      13
<PAGE>

                               MEDPARTNERS, INC.



  Operating income was $82.0 million for the six months ended June 30, 1999,
up from $62.2 million for the six months ended June 30, 1998, a 31.8%
increase. Margins were 5.2% in 1999 up from 4.9% in 1998 due to expense
controls. Operating income increased primarily from growth in net revenue,
while operating margins remained relatively stable. (Operating income
represents earnings before interest, restructuring charges and income taxes
and excludes losses from discontinued operations.)

  Net interest expense was $57.6 million and $41.0 million for the six months
ended June 30, 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. Based on the expected net
proceeds from the sale and exit of the discontinued operations interest
expense has been allocated to these discontinued operations in the six months
ended June 30, 1999.

Discontinued Operations

  The loss from discontinued operations in the second quarter of 1999 of
$199.3 million is an adjustment to the charge taken during the fourth quarter
of 1998. The adjustment includes an additional $236.6 million for the
impairment and write-offs of intangibles and other PPM assets and a reduction
in the estimated costs to exit the PPM operations of approximately $37.3
million.

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 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 75% 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 80%
complete. The Company's assessment of Y2K issues associated with such
equipment and systems is approximately 80% complete. The Company expects to
complete its assessment of all these areas by

                                      14
<PAGE>

                               MEDPARTNERS, INC.


September, 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 end of 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 $15.4 million has been spent through June 30,
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 $3.2
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 begun to establish a contingency plan for
the failure of such equipment or systems.

  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
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.

                                      15
<PAGE>

                               MEDPARTNERS, INC.



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; implementation of the Company's
settlement agreement with the State of California; adverse resolution of
lawsuits pending against the Company; implementation of the Company's
strategic plan; the Company's liquidity and capital requirements; the
Company's failure to ensure its information systems are Year 2000 compliant
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 six months ended June 30, 1998 and 1999. The cash flow from continuing
operations for the six months ended June 30, 1999 was $48.6 million and net
capital expenditures were $7.0 million. Cash provided by discontinued
operations was $294.4 million for the six months ended June 30, 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 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. an amortizing term loan ($102.4 million outstanding at June 30, 1999);

  ii. a non-amortizing term loan ($102.4 million outstanding at June 30,
      1999); and

  iii. a revolving credit facility in an aggregate principal amount of up to
       $400 million ($297.0 million in outstanding borrowings, $22.0 million
       in letters of credit under the revolving credit facility and $25
       million reserved for a letter of credit with regard to its funding
       obligations under the Settlement Agreement, as defined below,
       resulting in $56.0 million in available borrowing capacity at June 30,
       1999).

  Quarterly principal payments on the term loan described in (i) above are
scheduled to begin in November 1999. Accordingly, the Company has classified
the portion of this debt due within the next twelve months as short-term.

  The Company's credit facility as amended permits up to $150 million in
accounts receivable securitization. The Company has securitized certain of its
accounts receivable pursuant to an accounts receivable securitization facility
with The Chase Manhattan Bank as funding agent. As of June 30, 1999, the
Company has securitized approximately $90 million in accounts receivable.

  The Company entered into an amendment to its Credit Facility dated as of
April 15, 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

                                      16
<PAGE>

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.

  Effective June 29, 1999, the Company entered into an amendment to its credit
facility to modify the terms of its credit agreement primarily concerning the
Company's settlement with the State of California dated June 16, 1999. The
terms of the credit agreement were modified to among other things (a) permit
the Company to dispose of the property and assets of the Company's California
PPM operations in accordance with the June 16, 1999 settlement; (b) increase
to $150 million the amount of accounts receivable permitted to be securitized;
and (c) modify certain financial covenants for periods ending on or after June
30, 1999.

  The Company entered into amendments to its credit facility dated as of
August 2, 1999 and August 16, 1999, to modify the terms of its credit
agreement concerning among other things (a) the amount of cash and non-cash
charges that are permitted to be excluded from financial results for covenant
purposes and (b) the retention by the Company of certain net cash proceeds of
asset dispositions. Specifically, the Company is now allowed to exclude up to
$233.5 million in cash charges related to the reclassification of the
physician practice management businesses as discontinued operations versus the
previous maximum amount of $220 million. The amendments also allow the Company
to retain up to $50 million and, with the consent of the majority lenders
under the credit facility, up to an additional $43 million of net cash
proceeds from asset dispositions occurring on or after July 1, 1999 (in each
case in addition to $15 million in net cash proceeds previously designated for
the payment of certain promissory notes), for use in its business and
operations in the ordinary course rather than applying those proceeds to the
term loans as previously required. In connection with these amendments the
Company has agreed that upon receipt of requisite consent of its lenders under
the credit facility, it shall pledge all of the capital stock of its
subsidiary, Caremark, Inc., as security for the credit facility, with an equal
and ratable pledge in favor of the holders of the Company's 7 3/8% Senior
Notes due 2006.

  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, as amended, and cash flow from continuing
operations will be sufficient to fund its 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. In such event, the Company would seek to enhance its
liquidity position through further modifications to its amended credit
agreement, incurrence of additional indebtedness and/or the sale of securities
of the Company. Although the Company currently believes that one or more of
such alternatives would be available to enhance liquidity, each such
alternative is dependent upon future events, conditions and other matters
outside the control of management of the Company.

  On April 9, 1999, the Company and representatives of the State of California
(the "State") have 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
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

                                      17
<PAGE>

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 current and
current and long-term debt is subject to change as a result of movements in
market rates and prices. As of June 30, 1999, the Company had $466 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. The Company had $37
million in current debt subject to variable interest rates. A hypothetical
increase in interest rates of 1% would result in potential reductions in
future pre-tax earnings of approximately $5.0 million per year. The impact of
such a change on the carrying value of the current and long-term debt would
not be significant. These amounts are determined based on the impact of the
hypothetical interest rates on the Company's current and 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.

                                      18
<PAGE>

Part II. Other Information

Item 1. Legal Proceedings

  The Company is a defendant in two lawsuits filed in Supreme Court of the
State of New York, City of New York, in late May 1999, claiming that a
"Termination Event" has occurred with respect to the Threshold Appreciation
Price Securities ("TAPS") issued by the Company in September 1997. One of
those actions is brought by certain entities claiming to "own or control" 1.8
million TAPS and the other purports to be brought by a holder of an unknown
number of TAPS as a class action on behalf of a purported class of all holders
of TAPS. The complaints allege that a "Termination Event" has occurred because
of, among other things, the actions taken by the DOC described in Note 5
California PPM Discontinued Operations. The complaints seek an order requiring
the Company immediately to cause to be released to the TAPS holders
approximately $400 million of United States Treasury Notes currently held in
escrow. The escrowed funds otherwise would be released to the Company in
exchange for common stock of the Company at the final settlement date of the
TAPS on August 31, 2000. These cases are in their early stages. No discovery
has yet been conducted.

  In June 1999, various insureds filed a class action complaint against
Caremark Inc., Caremark International Inc. and third party payors in the
United States District Court for the Northern District of Illinois. The action
alleges violations of the Racketeer Influenced Corrupt Organizations Act, the
Illinois Consumer Fraud Act, and the Employee Retirement Income Security Act
as a result of practices developed by Caremark's Home Infusion Division to
submit, and cause others to submit, fraudulent claims for payment to insurers
of health care benefits. The Home Infusion Division was divested in 1995. The
action alleges that the plaintiffs suffered damages stemming from increased
premiums charged by the third party payors, and increased co-payments and
deductibles charged by Caremark. Plaintiffs request unspecified damages,
declaratory relief, attorneys' fees and costs.

  There can be no assurance that these lawsuits will not have a disruptive
effect upon the operations of the business, that the defense of these lawsuits
will not consume the time and attention of senior management of MedPartners
and its subsidiaries, or that the resolution of these 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 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.

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

   (a)The Company's Annual Meeting of Stockholders was held on June 10,
      1999.

   (b)Not applicable.

   (c)The following proposals were adopted by the stockholders of the
      Company;

           (i)The election of three Directors.

The vote on the above was:

<TABLE>
<CAPTION>
                                  For          Abstain
                            --------------- --------------
   <S>                      <C>             <C>
   Edwin M. Crawford        161,976,135.190 17,136,920.200
   James H. Dickerson, Jr.  161,996,157.500 17,116,897.890
   Kristen E. Gibney        162,640,757.800 16,472,297.590
</TABLE>

   (d)Not applicable.

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 Amended and Restated Operations and Settlement Agreement, dated as
         of June 16, 1999, among the Commissioner of the Department of
         Corporations of the State of California acting for himself and for
         the Department of Corporations of the State of California, J. Mark
         Abernathy as Special Monitor, the Company and its successors and
         assigns, and MedPartners Provider Network, Inc., a California
         corporation.

                                      19
<PAGE>

   (2)-2 Amendment No. 1 to the Amended and Restated Operations and
         Settlement Agreement, dated as of July 31, 1999, among the
         Commissioner of the Department of Corporations of the State of
         California acting for himself and for the Department of
         Corporations of the State of California, J. Mark Abernathy as
         Special Monitor, the Company and its successors and assigns, and
         MedPartners Provider Network, Inc., a California corporation.

   (10)-1 Amendment and Waiver No. 7, dated as of June 29, 1999 to the
          Amended and Restated Credit Agreement dated as of June 9, 1998
          among the Company, the Lenders party thereto, NationsBank, N.A.,
          as the Initial Issuing Bank and the Swing Line Bank thereunder,
          Credit Lyonnais New York Branch, The First National Bank of
          Chicago and Morgan Guaranty Trust Company of New York, as the
          Syndication Agents therefor, Banc of America Securities LLC
          (formerly NationsBanc Montgomery Securities LLC), as the Arranger
          therefor, and NationsBank, N.A., as the Administrative Agent for
          the Lender Parties thereunder.

   (10)-2 Amendment and Waiver No. 8, dated as of August 2, 1999 to the
          Amended and Restated Credit Agreement dated as of June 9, 1998
          among the Company, the Lenders party thereto, Bank of America,
          N.A. (f/k/a NationsBank, N.A.), as the Initial Issuing Bank and
          the Swing Line Bank thereunder, Credit Lyonnais New York Branch,
          The First National Bank of Chicago and Morgan Guaranty Trust
          Company of New York, as the Syndication Agents therefor, Banc of
          America Securities LLC (formerly NationsBanc Montgomery Securities
          LLC), as the Arranger therefor, and Bank of America, N.A. (f/k/a
          NationsBank, N.A.), as the Administrative Agent for the Lender
          Parties thereunder.

   (27)  Financial Data Schedule

  (b) Reports on Form 8-K

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

  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.

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

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

Date: August 16, 1999

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